RMG exports taking a hit from global crisis

The ongoing global economic crisis – which triggered high inflation and reduced consumer purchase capacity – is taking a heavy toll on Bangladesh’s readymade garment (RMG) industry, evident by the overall decline in export orders this year.

Data from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) show that local exporters received 163,636 Utilisation Declaration (UD) approvals in the first eight months of 2022, compared to 148,251 posted in the same period last year.

Though this indicates a 10.38 per cent year-on-year growth in Bangladesh’s RMG export orders between January and August, industry insiders say buyers have been reducing and deferring orders since the last two months.

This sector has been witnessing a steady growth in exports since August last year, but the lucky streak may be coming to an end as the country’s top earner registered negative growth in the first 18 days of this September.

National Board of Revenue (NBR) data – compiled by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) – show that the sector’s earnings dipped 12.36 per cent to $1.72 billion in this 18-day period, which was $1.97 billion compared year-on-year.

Speaking to The Business Post, BGMEA President Faruque Hassan said, “The crisis worldwide has severely impacted the sale of clothing brands, and this is why they still have a large volume of apparel items in stock.

“Buyers have been reducing their orders due to their large stock and a decline in consumer demand.”

What’s the UD situation?

Utilisation Declarations (UD) are mandatory to import raw materials, export goods, and avail GSP, cash incentives, and other benefits. Exporters are granted UDs by their respective trade associations.

Exporters usually make UDs around three months before exporting their goods, which means the goods – for which most of the UDs were made in August – will be shipped in November. UDs are the most reliable measure to forecast order situations in the apparel sector.

BGMEA data show that its members received 22,218 UDs in January, 19,625 in February, 21,465 in March and 21,684 in April. Exporters said the volume was excellent compared to their expectations.

But since May, the number of UDs began to fluctuate. Exporters received 17,001 UDs in May, 23,095 in June, 17,005 in July and 21,543 in August. Many exporters also claimed that the buyers are reducing their order volume even after the issuance of UD.

BGMEA President Faruque Hassan said, “Many buyers are deferring shipment schedules and putting orders on hold. These are the key factors contributing to the RMG industry’s possible negative growth in September.

“Buyers have asked us to slow down production since the last two months, and many orders have been put on hold due to the global economic crisis.”

Bangladesh Apparel Exchange Managing Director Mohiuddin Rubel said, “We had excellent orders in the early part of this year, but orders have dropped due to the shock of the ongoing war.

“The negative export growth in Russia and Chinese markets is also contributing to the crisis. However, orders coming from the newer markets are quite good.”

Western market dependency key issue

Industry insiders point out that Bangladesh’s apparel exports are almost entirely dependent on the United States, United Kingdom, and European Union markets. These nations occupy around 85 per cent of Bangladesh’s export basket.

The country’s apparel exports suffer greatly whenever these countries face difficulties.

When western countries faced the Covid-19 crisis, brands’ sales were down and this is why buyers postponed or hold around worth $3 billion of orders. Bangladesh’s export earnings significantly declined during that time.

Just when Bangladesh’s apparel sector was recovering from the pandemic’s impacts, Russia invaded Ukraine. Western, especially European countries’ economies have been under great stress since this war began.

The European Union (EU) posted 9.1 per cent inflation in August, while the US posted 8.3 per cent, shows data from the respective countries’ governments.

Savartex Group Managing Director Faisal Samad said, “We are always giving priority to the western market in our marketing policy. When they are facing a crisis, our export sector is heavily affected by it.

“We need to improve our marketing strategy to avoid escalation of the crisis.”

Orders could go up after Nov

Apparel exporters say though western buyers still have a large volume of apparel items in stock, the Christmas sale – which will start after the middle of October – would help clear the inventory backlog.

During this time, buyers will try to clear their stocks and place new orders.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem said, “Buyers are facing a confidence and liquidity crisis due to their unsold products.

“Buyers will place more orders with us as soon as they manage to clear at least half of their current stock.”

He added, “According to our projection, we would get a good number of orders after November. The government should ensure uninterrupted power and energy supply to help us make shipments on time.”

Non-traditional markets an alternative

Bangladesh’s apparel exporters are eyeing non-traditional markets such as India, Japan, South Korea, Australia, Middle-East and Latin America to tackle the ongoing crisis, and reduce their dependency on the western market.

BGMEA and BKMEA also plan to hold a series of roadshows across those countries and regions in order to gain more market share. Besides, exporters are individually approaching these countries to get more orders during the crisis, industry insiders say.

As a result, many factories already have a good number of orders amid the crisis.

Nipa Group Managing Director Md Khosru Chowdhury said, “I received quite a good number of export orders from non-traditional markets amid the crisis. I am also looking for more new buyers from these markets.”

Savartex Group Managing Director Faisal Samad said, “I am already eyeing new markets. Although the effort will not bring results immediately, it will help us tackle further crises.”