Two leaders in the garment industry told Reuters on Wednesday that growth in Bangladesh’s garment exports could drop to approximately 15% this year after an exceptionally strong expansion of more than 30% in 2021. This is because customers in the United States and Europe are struggling with cost of living pressures.
The garment sector is responsible for more than 80 percent of Bangladesh’s overall exports. It serves clients such as Walmart, Gap Inc., H&M, VF Corp., Zara, and American Eagle Outfitters, some of whom have already reported disappointing sales as their consumers emphasise fundamentals.
This decline follows a boom in sales in 2021, which occurred when Covid-19 lockdowns were removed and government stimulus measures left customers with discretionary cash. As a result, consumers engaged in “revenge buying,” according to the terminology used by certain industry analysts. According to Miran Ali, vice president of the Bangladesh Garment Manufacturers and Exporters Association, “We should be at approximately 15% growth for the calendar year – this is going to be an average year” (BGMEA). The previous year had an exceptionally impressive increase.
Bangladesh, the world’s second-biggest garment exporter after China, saw exports climb 30.4% to $35.8 billion last year, the highest year-on-year growth in around 25 years. China is the world’s largest garment exporter. According to statistics collected by the BGMEA since 1994, a year with a significant increase in exports is often followed by one with slower growth. Fazlul Hoque, managing director of Plummy Fashions and a former president of the Bangladesh Knitwear Manufacturers & Exporters Association, said that he, too, expected that exports will increase by around 15% this year. Hoque said that his clients were postponing their purchases by about one month and reducing the quantity of their shipments. At first, a significant customer in the United States, whose identity he chose not to disclose, requested that a modest cargo that was scheduled to depart this month be postponed until December.
After being informed by Plummy about the fines and other expenses that would be incurred for keeping the stock for a longer period of time, the customer ultimately requested just a one month delay. “If they want to postpone such tiny orders for a few months, it suggests the situation is not really good,” Hoque added. “If they want to delay such minor orders for a few months, that means they want to.” “Even the relatively low volume is too much for them to handle.”
The second concern is growing input costs, which are on the rise as a result of Bangladesh raising gasoline prices on Saturday by almost 50 percent in response to high international prices. According to Hoque, fuel accounts for around 10% of the overall expenditures incurred by garment firms. He also said that the use of diesel generators had increased owing to the prolonged power outages. According to Shahidullah Azim, who is serving as the interim president of the BGMEA, “After the extraordinary oil price spike, production expenses would go up dramatically.” “We’ll have to take the financial hit for the order that was already made.” He predicted that this year’s exports might reach between $38 and $40 billion, which is equivalent to a growth rate of between 6% and 12%, but that next year “could be much worse if the world economy dips into recession.”
Due to a decrease in its foreign currency reserves and an increase in its trade deficit, Bangladesh applied for a loan from the International Monetary Fund (IMF) only one month ago, following in the footsteps of Pakistan and Sri Lanka who had done so before.
Reference:
Reuters. “RMG Export Growth Slowing to ‘normal’ 15% This Year.” Dhaka Tribune, 10 Aug. 2022, https://www.dhakatribune.com/business/2022/08/10/rmg-export-growth-slowing-to-normal-15-this-year.
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