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Bangladesh’s export-oriented apparel sector has been struggling since pandemic, particularly global apparel trade started to face slow down since mid-2022 as they key destinations are facing economic headwinds and high inflation. The sector witnessed year-on-year slowdown in export earnings during the July-January period of FY24.
In an interview conducted by The Business Post’s Arifur Rahaman Tuhin, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan, however, said better days are coming for the RMG sector as its major markets’ economies are turning around.
He added that ongoing facilities available to exporters should continue till LDC graduation to further strengthen the sector.
After a consecutive three-month negative performance, Bangladesh’s RMG sector managed to secure earnings growth in January this year. What is behind the achievement?
Faruque Hassan: Yes. Last one and half years were tougher for us, and we posted a year-on-year negative export earnings for a significant amount of single months.
However, after a depressive October-December quarter in 2023, we secured a mentionable year-on-year growth in January and the export earnings are up by 12.45 per cent to $4.97 billion.
This is good news for us, as well as Bangladesh, as the country is facing severe forex reserve shortages, and we implemented a new wage structure in December last year.
Our export is highly dependent on the western markets [holding Bangladesh’s 80 per cent export share] and when the Russia-Ukraine war began, our export orders declined from those markets.
However, when we [the incumbent BGMEA board] took charge in around three years ago, we focused heavily on non-traditional markets. And thanks to those good initiatives, export earnings in these markets are increasing day by day, which is a key reason behind growth retention in January.
[In H1 FY24, RMG export earnings jumped by 12.28 per cent to $4.54 billion in the markets, according to the Export Promotion Bureau]
Exports to the EU and US markets slipped drastically. What about the current situation there?
Faruque Hassan: Although the ongoing global economic crisis struck almost all countries, western nations are the key sufferers. Their inflation rate had risen to double digits, and the EU’s largest economy, Germany, also Bangladesh’s second largest export destination, fell into a mild recession.
To tackle this crisis, their authorities increased interest rates. As a result, consumers' purchasing power declined, and brands retained a huge stockpile of products in their warehouses.
We were not the only ones performing negatively in these countries, our competitors are also in a bad position as the US and EU’s sourcing has declined. We are comparatively in a better position than others in terms of growth.
Recently, these countries’ inflation is coming down to a tolerable level and brands secured big sales in the recent festivals. The pressure of excessive inventory at buyers end has eased off. The buyers are now knocking at our doors, and already, the order trend is on the rise.
I believe that good days are close at hand, and most probably, we will witness a good growth than the last quarter of this FY. We now need an uninterrupted gas and electricity supply, as well as policy stability, to cash in on this opportunity, and the government should ensure these.
You already said the RMG sector implemented a new wage structure in December last year, which increased manufacturing costs. Previously, brands and buyers had assured that they will increase product cost to help implement new wages. Is there any development?
Faruque Hassan: Despite an unstable export earnings growth, we implemented a new wage structure. It was challenging to us, but we did it. Although most of the buyers assured us of making adjustments to accommodate the wage hike, many of them are yet to keep their commitment.
I wrote to all brands, buyers, as well as development partners and other stakeholders, to increase product prices. I am optimistic that they will consider this urge of the industry to ensure a decent living of the workers. I am hopeful on this issue.
Bangladesh is under pressure from western communities due to political issues. Besides, the US president, Bangladesh’s single-largest export destination, adopted a new labour policy, which may be used politically. Besides, the ILO, EU and USA have expressed concerns about Bangladesh’s labour rights and law. Will these issues impact the apparel sector?
Faruque Hassan: At first I want to say that I strongly believe that political issues will not impact the RMG sector. Yes, Biden’s labour policy might be imposed, but it is not against any particular sector, it may be on individuals.
When I took over as the BGMEA President, I adopted an Apparel Diplomacy policy. As per the policy, we, the BGMEA, meet with stakeholders such as ambassadors, brands’ authorities, policy makers, and try to convince them that our politics and business are separate.
I believe that the Apparel Diplomacy policy will help us to avoid the RMG sector’s crisis.
Second, the government has already taken initiatives to amend the labour act, and so far I know, a draft has already been finalised. Now it will be sent to parliament. In the draft, we took their concerns under consideration, and are hoping that they would accept the upcoming amendment.
Bangladesh will graduate from the LDC in 2026, and after that the RMG sector will lose many government facilities, especially the cash incentive and EDF. The government has already reduced the cash incentive rate and EDF size. What is your observation on the issue?
Faruque Hassan: We will graduate from LDC, which will be a milestone for Bangladesh. And to tackle any post-LDC crisis, we should create a competitive export sector. That is why the government should maintain ongoing support to the export sector till that moment.
But we saw that the authorities are reducing the cash incentive and EDF. I believe this will reduce our market strength, and Bangladesh will suffer as most of the exporters, including those in the RMG sector, are already in a vulnerable situation.
I do not know why the Bangladesh Bank is implementing such moves, at a time when we need more support to boost our strength. Except RMG, almost all other sectors are recording negative export growths for a long time.
Thanks to honorable prime minister for her kind intervention into this matter. The decision on incentives has been revised. But the impact is there.
What do you recommend to the authorities?
Faruque Hassan: I urge keeping all existing support to exporters till Bangladesh’s LDC graduation, and adoption of alternative facilities after this period.
Besides, the government should sign FTAs and PTAs with key export destinations to maintain duty-free market access after 2029, and the procedure should start from this time. We are highly dependent on the RMG sector, but non-RMG sectors should grow up as well.
I repeat, power and energy are key factors for Bangladesh, and the government should ensure a steady supply. Bureaucratic red tape and harassment are key barriers for doing business in Bangladesh, and the government should focus on these areas.
Thank you for your valuable time
Faruque Hassan: Thanks to you and The Business Post.
