Bangladesh's apparel exporters are facing problem due to a gradual fall in work orders, especially from two major export destinations--the European Union (EU) and the US.
The recent mild recession in Germany, the largest economy in the EU, has also made their business tougher as the European country is the second-largest export destination for Bangladesh.
Due to a shortage of orders, most exporters are exporting goods below the production cost to survive this crisis and continue operations with fewer orders than their capacity.
They are, however, receiving a good number of orders from non-traditional markets such as Japan, India, Australia, South Korea, and Brazil which helps them reduce losses to some extent.
Utilisation Declaration (UD) permission, which indicates the export order trend, is on the steep decline for local apparel exporters evident by the fact that the first half of 2023 witnessed 1.56 per cent year-on-year negative, according to Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
The UD data showed that BGMEA approved 13,846 UDs during the January-June period of this year which was 14,066 in the first half of 2022.
The apex body of the apparel sector approved 2,706 UDs in January while 2,112 in February, 2,459 in March, 2,200 in April, 2,340 in May and 2,029 in June this year.
The figures were 3,010, 2,280, 2,228, 2,548, 1,831 and 2,169 in January, February, March, April, May and June, 2022 respectively.
Industry insiders are blaming the situation on Russia-Ukraine war which caused a global supply chain disruption and fuelled inflation, leaving the economies in tatters.
However, they are optimistic that the situation is likely to improve within next three/four months as the US inflation rate is on the falling trend and response from non-traditional markets is positive.
Considering the ongoing situation, apparel exporters are demanding uninterrupted supply of gas and electricity at affordable prices to cash in on the opportunity.
BGMEA Vice-President Shahidullah Azim told The Business Post, “Not only the number of UDs has declined in the last six months year-on-year, but also the volume of orders per UD has dropped.”
“We posted above 10 per cent growth in the last fiscal year because we received a good number of orders until the first half of FY23. Besides, we are now manufacturing a significant volume of high-value apparels and buyers have also adjusted to raw material price hikes.”
He said buyers are paying less at manufacturing level and most of the factories are operating at a loss. Nevertheless, they have failed to receive enough orders, he added.
Mohammadi Group Managing Director Navidul Huq said that in the first six months of this year, they continued production by 30 per cent less order than capacity. But recently they have got enough orders though price is much tight.
“We are exporting products to the EU market. In recent times, buyers are placing a good number of orders to our factory. The situation is still unstable as Germany falls into mild recession. We have to wait for at least three more months to get clear idea of the market situation,” said Navidul, also director of BGMEA.
Factories in dire financial straits
According to the Export Promotion Bureau (EPB) data, earnings from the apparel sector increased 1.92 per cent to $23.31 billion during the January-June period of this year. It was $22.87 billion in the same period of last year.
However, earnings grew by 10.27 per cent to $47 billion year-on-year in the last fiscal year.
Snowtex Group Managing Director SM Khaled said that they have already 10 per cent lower orders than capacity.
“We increased the capacity last year and expected a 30 per cent jump in orders. Due to the global economic crisis, we are running our factory with lesser orders. Buyers raised the unit price up to 5 per cent to adjust increased raw material price hike, but they also reducing the manufacturing cost (CM).
“We are exporting products to nearly 50 countries, including the US, UK, Germany, Canada, Japan, Australia, Poland and France, and most of our buyers are yet to give any good prediction. They also get confused over what will happen in future. Now we are going through tough time even more than the Covid-19 pandemic,” Khaled explained.
Team Group Managing Director Abdullah Hil Rakib said that they have nearly 8 per cent less orders than the capacity despite own buying house. “The price is also tight.”
“In last FY, we exported clothes worth nearly $550 million, though it was 10 per cent lower than the previous FY. In fact, we are now in dire straits.”
The BGMEA director further said that his factories have orders till September-October.
“As I know that most of the factory owners are in trouble as our major export destinations- EU and the US- are facing severe economic crisis. We are getting nearly 30 per cent less orders from the EU market and above 20 per cent from the US. Good response from non-traditional markets is helping us cover the big gab.”
“Factory owners failed to repay loan installments due to the huge loss. We urge the central bank to not to declare NPL if the term loan payment delay for three-four month.”
Fatullah Apparels Chief Executive Officer (CEO) Fazlee Shamim Ehsan said, “I ever received any orders bellow production costs, but recently I am forced to ask my management to do this.”
“Usually I am manufacturing goods for the EU buyers. Due to their ongoing economic crisis and high inflation, the buyers reduced orders and offering low price. Previously I ignored low price orders, but now I forced to receive some orders with low price to survive,” said Ehsan, also Vice-President of BKMEA.
