Fear grips apparel exporters with the downtrend in export earnings in two consecutive months of FY23 and slower export orders for the next seasons, both caused by the ongoing global economic crisis and soaring inflation in Europe and the US.
Since early FY23, almost all major sectors in Bangladesh saw negative export performance, except apparel as well as leather and leather goods. But even apparel could not retain its strength and is facing a slowdown.
According to the Export Promotion Bureau (EPB), three months of this fiscal year saw drops in the apparel sector earnings. This happened for the first time after the Covid-19 pandemic.
Earnings from the sector declined by 7.52 per cent year-on-year to $3.16 billion in September last year, 1.04 per cent to $3.89 billion in March this year, and 15.48 per cent to $3.33 billion the next month.
However, the sector was able to retain earnings growth in the first 10 months of the 2022-23 fiscal year, posting a 9.09 per cent year-on-year growth.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan told The Business Post the apparel sector is passing a difficult time and more challenges are coming.
He said the sector is likely to see negative growth in the next two months and he does not know what will happen thereafter.
“The whole world is facing an economic crisis, which has cut apparel sales. That is why brands have huge unsold stocks in their warehouses.
“Amid this, the recent gas and fuel price hikes in Bangladesh increased our production costs, which also impacted the flow of orders,” explained the apparel leader.
“In terms of values, the apparel sector is still able to retain export growth in FY23. But in terms of volume, we are already in a negative position. We, however, are in a better position compared to China, Vietnam, and Cambodia,” he added.
The slump came at a time when Bangladesh is facing a severe foreign reserve shortage, which started at the end of 2021. The situation is worsening day by day.
Due to the crisis, banks failed to arrange USD to clear letters of credit (LCs) while opening new LCs has also become tougher.
As a result, the country is facing high inflation as the government keeps devaluing taka against the American currency. The government is now borrowing foreign currency from international lenders to tackle the crisis.
Bangladesh has three major sources to earn foreign currency – exports, remittances, and foreign-funded projects. The export-oriented readymade garment (RMG) sector holds the second position in terms of foreign currency earnings considering value addition.
To discuss ways to handle the current situation, the BGMEA will hold a press conference at its Dhaka office today.
What industry insiders say
The Business Post talked to several export-oriented apparel manufacturers, who said woven and sweater makers are in a slightly better position but knitwear exporters are facing a severe order crisis.
They said the knitwear sector is highly dependent on gas supply and most of the dyeing and spinning factories – the backward linkage elements – are run by captive power plants.
But the government failed to ensure adequate gas supply, and that is why the factories are forced to use diesel-based generators, they said.
Besides, due to the severe load-shedding and low gas pressure, RMG factories are also using diesel-based generators. For these reasons, production costs for all factories have increased by up to 15 per cent, they added.
Sparrow Group Managing Director Shovon Islam said although most non-cotton apparel exporters are still receiving enough orders, cotton cloth manufacturers are struggling.
The situation is worse for small and large factories, he said. “We asked buyers for more orders, but they are also in trouble due to low sales.”
“Diversified product manufacturers are in a somewhat better position, but it is not enough to sustain because most of our factories are cotton-based and they manufacture normal items. I think the first quarter of FY24 will be very difficult for us,” he said.
Snowtex Group Managing Director SM Khaled told The Business Post brands are passing a critical time due to the ongoing global economic crisis and that is why they want products at cheap rates.
“But how will we produce goods at low rates when our production costs have risen due to the gas and fuel price hikes and severe load-shedding?”
“We were able to produce goods at low costs, but the manufacturing costs of some products have become higher than our competitors at present. This is the result of the fuel and gas price hikes, load-shedding, and high inflation,” he said.
The government should address these problems, he added.
He further said, “As I know, sales are satisfactory only in the UK, and we will be able to receive a good number of orders within two to three months from there. But the situation in the rest of the Western countries is still disappointing.”
Md Ashikur Rahman Tuhin, managing director of TAD Group, told The Business Post those manufacturing winter items are in a good position because winter prolonged for at least four weeks this year.
“The delay in the change of seasons impacted summer sales. However, many brands were able to empty their stocks and have enough liquidity now.”
BGMEA chief Faruque said, “Our largest market, the US, reduced cloth imports by nearly 20 per cent in the first quarter of this year due to interest rate hikes, which negatively impacted our export earnings.
“The brands there said the US authorities are likely to reduce interest rates. If that happens, orders will rebound. Nevertheless, our overall exports to the US will be negative this fiscal year.”
BGMEA, brand meeting
Amid the order shortages, the BGMEA held a meeting with brands’ representatives on Wednesday at its office. Almost all reputed brands that are sourcing clothes from Bangladesh were present.
During the meeting, the BGMEA president sought brands’ support to tackle the crisis. Brands, however, said they are also in trouble due to low sales, adding they are highly interested in buying more from Bangladesh.
Commenting on the matter, Faruque said, “We need more orders and brands’ representatives can play a vital role to this end. We also asked them not to defer shipments or LC payments.”
Worker unrest likely
The apparel sector employs nearly 40 lakh people, which is the highest among all formal sectors in Bangladesh. Due to the low export orders, many factories failed to pay wages on time, and that is why there were some small incidents of labour unrest in the recent past.
Besides, workers held demonstrations demanding wage hikes, citing high inflation. They demanded a minimum wage of Tk 24,000 per month, which is now Tk 8,000 for entry-level workers.
The government recently formed a new wage board, which will announce a new wage structure at the end of this year.
It is true that the current minimum wage is not enough for workers to survive and wages will increase significantly when the new structure will be set, the BGMEA president said.
“But how many factories will be able to afford the new wage structure, given they are already finding it difficult to pay wages according to the current scale?”
Sparrow Group’s Shovon said, “With regard to implementing the new wage structure, buyers have to play a strong role by increasing product prices. Otherwise, many factories will face closure.”
TAD’s Tuhin said brands did not increase product prices even by a single cent after the two previous wage hikes.
“Some of them even reduced prices further. But the current situation is different. If they do not increase prices this time, many workers will face unemployment, which is likely to turn into worker unrest.”
