Bangladesh has been failing to grab billions of US dollars in readymade garment orders since the last fiscal year due to the long-lasting gas supply shortage and electricity crisis.
In the last two years, most of the industries have not been getting enough gas supply with the required pressure and the situation worsened in May this year as the pressure in pipeline in many areas has gone down to almost zero.
Moreover, the country has been facing up to eight hours of daily load-shedding in many places, forcing the factories’ production capacity down.
Garment factory owners have claimed that their production capacity has gone down by up to 40 per cent. Factories are resorting to diesel-fired or LPG-based generators to fill the gap but this move is shooting up their production costs.
Due to the production drop, RMG exporters are now in hot waters as they are failing to manage workers' salaries and repay loan instalments on time. Many have already reduced business sizes while many are planning to do the same.
A Europe-based buying house’s country manager, seeking anonymity, told The Business Post, “We shifted work orders worth over $50 million to Sri Lanka and India in FY2023-24 as Bangladesh’s exporters have been failing to deliver goods on time.”
The energy crisis has had a significant negative impact on RMG and the country’s overall export growth.
According to Bangladesh Bank’s (BB) Balance of Payment data, earnings from merchandise export drooped by 6.8 per cent year-on-year to $33.68 billion in the July-April period of FY24.
During this period, the apparel sector, which makes up the lion’s share of Bangladesh’s export sector, posted $29.68 billion in earnings — which is 6.7 per cent lower year-on-year.
Exporters said that exports in May and June of FY24 were poor as well and the data for these two months, when published, will likely show that the growth has dropped more.
Amid this situation, the central bank has reduced the cash incentive for local export-oriented textile mills from 3 per cent to 1.5 per cent, following a previous reduction of 4 per cent. The actual incentive rate now stands at 1.2 per cent, calculated at 80 per cent of the Free on Board (FoB) price.
No solution soon?
RMG sector insiders say they do not see any hope in the coming days and have predicted that the country will fall into further financial headwinds and unemployment, at a time when the foreign exchange reserves are already in a worrying position and industries lost have more than 1,00,000 workers.
Bangladesh Knitwear Manufacturers and Exporters Association Executive President Mohammad Hatem said, “Due to the gas shortage, we are meeting our yarn demands through import.”
According to BB data, the apparel industry imported yarn worth $2.64 billion in the July-April period of FY24, which is about 13 per cent higher year-on-year.
Most of the yarn came from neighbouring country India, according to industry insiders.
Hatem said, “The data indicates that Bangladesh is losing foreign currency by importing yarn. On the other hand, we are losing orders. But if we import LNG, we can save more foreign currency and orders will increase as well.”
Maksons Group Managing Director Mohammad Ali Khokon said, “If the government supplies gas worth $1 to us, we can earn $40 through export.
“Bangladesh now needs foreign currency and only RMG makers and expatriates are key earners. So, the government should ensure gas to us as much as possible.”
Crisis worsened since May
According to the Rupantarita Prakritik Gas Company Limited (RPGCL), one of the two Floating Storage and Regasification Units (FSRU) of Summit LNG Terminal in Cox's Bazar’s Maheshkhali was extensively damaged when cyclone Remal hit the coast of Bangladesh in May.
Since then, LNG supply from the terminal has been halted. Efforts to repair the FSRU locally failed and it was sent to a dockyard in Singapore for repairs in mid-June.
RPGCL reports that before Summit’s FSRU was damaged, the country was supplied with 3,100 million cubic feet per day (mmcfd) of gas. Currently, the supply has decreased to 2,600 mmcfd.
According to Petrobangla, the total demand for gas in the country is around 4,000 mmcfd.
Talking to The Business Post recently, RPGCL Managing Director Engineer Md Rafiqul Islam said that Summit’s FSRU is expected to return to the country by mid-July. Until then, there is no possibility of the gas crisis abating.
Shifting orders
In FY2022-23, Nipa Group exported over $110 million clothes. But in FY24, it has dropped down to below $90 million.
The company’s Managing Director Khosru Chowdhury told The Business Post, “I lost at least $30 million in business in the last fiscal year. Now I am planning to reduce my business.”
He explained, “Buyers are offering low prices due to the ongoing global economic crisis but our production costs have gone up due to the energy shortage, wages hike and inflation. All of which led us to fail to meet the shipment deadline.”
Many RMG makers have said that due to the gas and energy shortage, most of the factories failed to receive enough orders even though buyers were interested in placing them here.
In the last six months, Bangladesh has lost around $5-7 billion in RMG export orders only because of the ongoing energy crisis.
Sparrow Group Managing Director Shovon Islam said, “Most of the orders have gone to India, Sri Lanka and Vietnam.
“Sri Lanka is ready to receive orders as much as possible. Their government is offering special incentives to the exporters to promote exports. They are ensuring energy support as well.”
He continued, “India is also ready to boost their RMG industry and their government is also providing incentives, uninterrupted power and energy supply. They have almost all raw materials.”
“Our energy supply shortage has created this opportunity for our competitor nations,” Shovon, also a director of BGMEA, lamented.
