Fuel price hike a fresh blow to export competitiveness

Exporters fear they will lose competitiveness in the global market as the government has increased diesel prices by 42.5 per cent, which will increase production costs significantly.

The fuel price hikes came at a time when manufacturers are already in trouble due to power rationing that started on July 19.

Bangladesh Knitwear Manufacturers and Exporters Association Executive President Mohammad Hatem told The Business Post, “I can just say this – small misfortunes are distressing, huge ones are petrifying.”

Insiders said production costs would rise by 10-15 per cent due to the ongoing load-shedding and the latest fuel price hikes, which would put them in hot water. Many factories are likely to face closure or their owners will become defaulters.

They are worried that the government may increase electricity prices further citing the fuel price hikes. In that case, they will not be in serious trouble.

Snowtex Managing Director SM Khaled told The Business Post he had spent over Tk 6 crore on diesel to run generators in his factory last year.

This might reach at least Tk 8.5 crore because of the latest fuel price hikes, he said.

“This will have a domino effect. For example, transportation costs will increase. My factory provides lunch for all workers, and this cost will rise as well,” said the businessman.

“Besides, workers’ living costs will go up. That is why they are likely to demand higher wages.”

Nipa Group Managing Director Md Khosru Chowdhury said the ongoing power rationing and the latest fuel price hikes would increase his per day operating costs by more than Tk 70,000.

Besides, per peace cloth production costs would go up by Tk 7, he said.

Abdul Quader Khan, former president of the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association, told The Business Post the latest fuel price hikes would put apparel accessories manufacturers out of business.

Bangladesh Jute Goods Exporters Association Director Esrat Jahan Chowdhury told The Business Post raw jute production and transport costs would go up due to the fuel price hikes.

“Transportation costs may increase by at least 30 per cent and overall production costs by over 10 per cent despite poor jute export earnings since last year. We do not know how we will survive,” she added.

Tajin Leather Corporation Managing Director Ashikur Rahman said he has to run generators in his factory for at least 6 hours a day due to the ongoing load-shedding.

“I need around 480 litres of diesel every day for this. Due to the fuel price hikes, I will have to spend around Tk 16,320 more per day.”

He paid Tk 28,000 in truck rent on Saturday, up from Tk 20,000 on Thursday (August 4).

“We have to spend a huge amount on transportation because rawhide mostly comes from outside Dhaka. We then have to send it to ports for exports. We think the fuel price hikes will increase our production costs by around 20 per cent.”

Why are exporters worried?

The Covid-19 pandemic hit Bangladesh’s export sector hard as export orders involving around $3 billion were cancelled and postponed. But when the sector was recovering, the Russia-Ukraine war came as a fresh blow.

The war put the global economy in a tough spot, and most of Bangladesh’s export destinations, including the US and the European Union, are facing high inflation. For this reason, buyers are reducing work orders and also forcing exporters to cut prices.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) data shows apparel work orders dropped by 12.17 per cent between March and June this year compared to 2021 due to the war.

Businesses said the government had been unable to supply enough gas for a long time, forcing backward linkage factories to use diesel generators for around half the workday, which had already increased production costs.

Amid the situation, the government has been rationing electricity since July 19 to reduce fuel and gas consumption due to their high prices in the global market and to halt the forex reserve decline.

“The government has almost doubled diesel prices at a time when most of the factories have received work orders till next February-March,” Sparrow Group of Industries Managing Director Shovon Islam told The Business Post.

“Our production costs will rise by around 15 per cent due to the fuel price hikes. We do not know how we will adjust it.”

What exporters demand

Kutubuddin Ahmed, former BGMEA president and Sheltech Group chairman, said the fuel price hikes would severely impact all export and domestic businesses though the government probably had no options but to make that move.

Apparel, textile, washing, dyeing, ceramic, steel, and other manufacturing industries would now face a very difficult situation, he said.

Exporters Association of Bangladesh President Abdus Salam Murshedy said the government must supply uninterrupted power and energy to protect export-oriented industries and jobs.

“Otherwise, exports may drop, which will impact our forex reserves,” he added.

Earlier in November last year, the government increased fuel prices to Tk 80 per litre from Tk 65.

BGMEA Vice-President Shahidullah Azim said stakeholders of all sectors would hold a meeting with the Ministry of Power, Energy and Mineral Resources on Sunday (today) and urge it to ensure uninterrupted power and energy supply to industries.