Bangladesh’s readymade garment (RMG) net exports increased significantly in the April-June quarter, contributing positively to the country’s trade balance, according to Bangladesh Bank data.
Net exports – total exports minus raw material imports – surged to an all-time high of 71.5%, reaching $8.4 billion in that quarter, meaning that apparel makers added more local value to their export products. As a result, the country’s trade deficit narrowed by 48% in FY23 compared to a year ago.
Syed Nazrul Islam, first vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard that due to the increasing dollar stress, garment exporters are now opening letters of credit (LCs) in the taka and collecting some raw materials from the local market.
“For instance, we buy denim fabrics locally. The sellers may import yarn or dyeing chemicals from outside the country to make these fabrics. They added significant value. Due to this, our raw material import costs decreased slightly,” he added.
According to central bank data, the total export in the RMG sector in the final quarter of FY23 was $11.74 billion. Out of this amount, $3.35 billion was spent on the import of raw materials for these products, accounting for 28.5% of total earnings. That is, net exports or domestic garments added a value of $8.4 billion. This is about 39% higher than the same quarter of the previous fiscal year.
Ahsan H Mansur, executive director at the Policy Research Institute, told TBS, “Raw material import costs might have declined due to a drop in their international market prices. However, many RMG exporters bought raw materials at high prices and maintained their stock. In such cases, their value addition might be lower.”
“If the central bank data is accurate, the increasing value addition ratio is a good sign for our economy,” he added.
The expenditure on raw material imports during the April-June quarter was at its lowest in the past two and a half years. Imports were lower by $2.85 billion in the October-December quarter of FY21.
A leader of the exporters’ organisation told TBS that there is a link between raw material import and export.
“If the export increases, a country like us must increase the import of raw materials. However, even though the import has decreased continuously for the last one and a half years, the export has not decreased in that way. As a result, net export or value addition increased in the same trend,” he added.
“The net export ratio shown in the last quarter is the highest ever. Besides, the percentage of value addition seen in the last three quarters has never been so high before,” said the businessman, expressing his reservations about export growth reported by various government agencies while apparel exporters are facing declines in orders.
MA Rahim Feroz, director of BGMEA and managing director of Dulal Brothers Ltd, said, “I think the information given by the central bank about raw material imports needs to be looked into more.”
Mentioning that export orders in knitwear garments were very low in the last two to three months, he said export orders in woven garments have come in quite well in the last few months.
“We expect the orders to start increasing again from next September through October. Accordingly, exports will perform very well in the January-March quarter of next year,” he added.
According to the central bank report, in FY23, the RMG sector made a significant contribution of 10.35% to the country’s GDP. The sector has shown signs of recovery after the pandemic. However, challenges like the ongoing Russian-Ukraine war and its resultant impact on supply chain disruptions, the global inflation hike, and monetary policy tightening by the Fed may badly impact the progress of this sector.
To overcome these challenges and boost export earnings growth, the focus should be given on inter-apparel diversification, increasing productivity and efficiency, product innovation, exploring new global markets, and the skill development of RMG workers, it added.
