Home ›› 30 Apr 2023 ›› Front
Momtex Expo, one of the largest home textile exporters in Bangladesh, witnessed tremendous export growth, earning $96 million last year despite the acute power and gas crisis, but it is now facing severe order shortages.
Due to the domestic gas price hike by up to 179 per cent and the ongoing foreign currency shortages, the company’s production cost increased a lot. On the other hand, due to the ongoing Russia-Ukraine war, most of Momtex’s export destinations are facing high inflation.
That is why brands are placing fewer orders to Bangladesh’s home textile makers like Momtex. They are looking to Pakistan as an alternative sourcing hub due to lower costs.
Momtex Head of Business Shahjada Rubel told The Business Post brands are shifting to Bangladesh from China due to low costs but average manufacturing costs here have risen by 15 per cent.
“Why would they order from us when they are getting competitive prices in Pakistan? Order forecasts show our earnings will likely go down to $60 million this year,” he said.
He also said the big challenge for the company is to arrange Tk 10 crore every month to pay workers’ wages and that is why they are continuing operations despite huge losses.
Noman Group, one of the largest home textile exporters, said their orders dropped by 25 per cent recently and that is why they are unable to continue daily operations for 24 hours.
Its Management Coordinator Mosleah Uddin Babu told The Business Post, “Our production costs rose at a time when consumers in our export destinations have reduced home textile purchases due to high inflation.
“Brands have huge unsold goods in stocks while we failed to produce home textile at cheap prices. That is why buyers have reduced orders. As a result, our export earnings sharply fell. Almost all factories are facing the same crisis.”
Although Bangladesh has enjoyed tremendous export earnings from the home textile sector, it has been drastically falling since October last year. Besides, exporters are facing severe order shortages like Momtex and Noman Group.
According to the Export Promotion Bureau (EPB), earnings from the home textile sector slipped by 25.73 per cent to $860 million in the first three quarters of FY23, which was 40.4 per cent lower than the target. The commerce ministry set the target at $1.44 billion for the period.
In the first three quarters of the last fiscal year, the sector earned $1.16 billion.
Industry insiders said they were already in trouble due to the ongoing global economic headwinds while the recent back-to-back gas and electricity price hikes as well as the foreign currency shortages have caused the crisis to linger.
They said they do not know when the situation will improve. But they expect that there will be some improvements after September.
Besides, they warned that if the government hikes gas and electricity prices again, the crisis will prolong and most factory owners will not survive.
Bangladesh Terry Towel and Linen Manufacturers and Exporters Association Chairman M Shahadat Hossain told The Business Post most home textile exporters are in a vulnerable situation due to low export earnings, adding he does not know how they will survive.
“We expected orders will pick up when brands will sell their stocks, but the situation has not improved as the war has prolonged. There is no chance that exports will grow before the last quarter of 2023.”
Exports fall in almost all markets
Industry insiders said during the Covid-19 pandemic, China and Vietnam imposed strict lockdowns to prevent infections. But at that time, Bangladesh allowed to keep export-oriented factories open. Thanks to that, many new brands came to Bangladesh.
Besides, due to the ongoing China-US trade war, Western brands started shifting from China and considered Bangladesh an alternative sourcing hub due to its well-established capacity and low costs.
That is why Bangladesh received huge home textile export orders between the second quarter of 2021 and mid-2022. Home textile became the second largest export earnings sector.
Exporters expected they would be able to earn $2 billion from the sector in FY23, which was $1.62 billion in FY22 and $1.13 billion in FY21.
But the volatility of the global economy caused by the Russia-Ukraine war dashed their hopes. The war also affected Bangladesh’s economy, and the government stopped liquefied natural gas (LNG) imports from the spot market due to the forex crisis. As a result, industries faced huge gas shortages.
This caused the production capacity of most factories to go down by up to 40 per cent, and they were forced to accept fewer orders. But when the government started to increase gas supply, it also raised prices, which became another setback for manufacturers.
The EPB data shows three major markets – the US, the UAE, and India – dominate Bangladesh’s home textile exports. But in the current fiscal year, export earnings from the markets, especially the UAE and the US, sharply fell.
In the first nine months of this fiscal year, the sector earned $107.5 million from the UAE market, which was $235.45 million in the same period of FY22. During this period, exports to the US and India dropped from $234.61 million to $133.6 million and from $101.13 million to $92.35 million respectively.
Besides, export earnings from all other major markets, except Germany, Italy, South Korea, and Sudan, were also down.
The EPB data shows during the first nine months of FY23, earnings fell from $52.33 million to $43 million in the Australian market, from $68.28 million to $58.36 million in Canada, from $24.86 million to $23.79 million in Spain, from $66.22 million to $58.11 million in Great Britain, from $35 million to $32.82 million in Japan, from $46.68 million to $32 million in the Netherlands, from $30.67 million to $25.54 million in Poland.
Industry insiders said one of the key reasons behind the decline in earnings in the European Union (EU) and the US markets is high inflation, which changed consumers’ purchasing behaviour. Also, due to the high inflation, consumers are focusing on essential commodities.
Momtex’s Rubel said the government took initiatives to increase gas supply, which was a good move, but they also hiked gas prices a lot.
“How will we manufacture goods at competitive prices when almost all factories are using captive power? The price of the gas used to produce captive power went up by 88 per cent – from Tk 16 to Tk 30 per cubic metre,” he said.
He further said, “We depend on imports for raw materials and failed to open letters of credit (LCs) on time due to foreign currency shortages. On the other hand, Pakistani and Indian manufacturers collected raw materials from domestic sources.”
“As a result, we could not compete in the global market while Pakistan and India firmly established their footholds. I do not know how long we will be able to survive in this situation. The government should address this problem to continue earning foreign currency and save thousands of jobs.”
