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More bad days ahead for RMG exporters

Arifur Rahaman Tuhin
22 Oct 2022 00:00:00 | Update: 22 Oct 2022 00:11:57
More bad days ahead for RMG exporters

Bangladesh’s apparel exporters are afraid of facing another fall in work orders for the next season as rising fuel prices and inflation have cut the consumers’ purchasing power in European countries and decreased the demand for clothing products.

The inflation rate in the European Union (EU) reached 9.9 per cent in September this year. Before 2021, the EU’s highest inflation rate was 4.4 per cent in July 2008 and the lowest was 0.5 per cent in January 2015.

Amid this crisis, the European countries will face further energy crises with Russia reducing gas supply and leaks surfacing on two Nord Stream pipelines in the Baltic Sea. This will push the inflation rate in the EU further in the upcoming winter and consumers will be forced to cut their shopping expenses during Christmas, said the industry people.

Various projections showed that European shoppers are likely to reduce their Christmas purchases by up to 22 per cent, and this will not allow the buyers of Bangladeshi apparel products to clear their whole stock.

Industry insiders said the situation will not change this year. If the brands can clear most of their stocks during Christmas, only then they will place more work orders. But it will take the sector until March next year at least to recover from the losses.

The sector’s earnings have already declined. The earnings went down by 7.52 per cent to $3.12 billion in September, compared to year-on-year after 13 months of tremendous growth. Existing work orders of the exporters have also gone down by 10 per cent on average.

The EU is the source of 50 per cent of the country’s total apparel export earnings, and including the UK, the share goes up to around 61 per cent.

Amid the situation, exporters have urged the government to adjust fuel prices and ensure uninterrupted power and energy supply so that they can meet the demands of clients on time and beat the competitors.

The energy problem

Bangladesh Garment Manufacturers and Exporters Association President Faruque Hassan told The Business Post, “Buyers have been reducing their orders due to their large stock and the decline in consumer demand.

“Amidst this, we are facing gas and electricity crises at home, which forced us to use diesel-fired generators. It has increased our production costs and that also affected work orders.”

Acceding to Export Promotion Bureau (EPB) data, 83 per cent of Bangladesh’s export earnings come from the readymade garment sector and around 85 per cent of that earnings came from western countries.

The country earned $42.61 billion through apparel export in FY2021-22, marking a 35.47 per cent growth, while $19.4 billion came from woven items and $23.21 from knitwear.

The European Commission (EC) data shows that Russia supplies 40 per cent of the EU’s natural gas and 27 per cent of its imported oil. Nord Stream 1, an underwater pipeline which runs from Russia to Europe, had been supplying EU states with 35 per cent of all the gas they import from Russia. The region’s people use the majority of the gas to generate heat and keep their homes warm during winter, especially in November-February.

Gas prices in the EU went up as supply declined following Russia’s invasion of Ukraine. The recent Nord Stream leaks have also put another dent in the chance to ensure an uninterrupted gas supply.

Because of this, industry people said, the sale during Christmas is likely to witness a massive fall in the EU and other destinations of Bangladeshi apparel products.

Shadow over Christmas target

“The global crisis has severely impacted the sale of international clothing brands. We expected the sales to rise in Christmas but that is unlikely to happen,” Fatullah Apparels Chief Executive Officer Fazlee Shamim Ehsan told The Business Post.

Industry insiders also said that as buyers are postponing work orders and deferring shipment, apparel export is likely to continue the declining trend till December, or even till the end of FY22, if the Russia-Ukraine war lingers.

Snowtex Group Managing Director SM Khaled said their existing purchase orders are at least 7-8 per cent lower than last year. “This situation may persist till February next year.”

He said, “Generally, western people buy a good number of clothes during Christmas and our buyers are waiting for the moment. The Western brands will return to business in the second week of January after the Christmas and New Year holidays.

“Afterwards, they will calculate their sales and stocks, and then decide on placing new orders. But the problem is that China will also enjoy the Chinese New Year around that time and almost everything will be closed for the festival.”

“Since we are highly dependent on China for sourcing the raw materials, we will have to wait the whole of January. Once everything opens, I think export earnings may bounce back after May,” Khaled said.

Knitwear manufacturers, however, said since they are getting most of their raw materials from domestic sources, they will able to receive work orders from early January and earnings will likely go up from March.

Bangladesh Knitwear Manufacturers and Exporters Association Executive President Mohammad Hatem said, “Buyers will place more orders as soon as they manage to sell at least half of their current stock.”

He also said that the government needs to ensure uninterrupted power and energy supply to help them make shipments on time.