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Exports to Russia likely to turn around soon

Arifur Rahaman Tuhin
27 May 2023 00:00:00 | Update: 27 May 2023 00:01:19
Exports to Russia likely to turn around soon

Bangladesh’s exporters have again started considering Russia as the potential market despite the ongoing Russia-Ukraine war and steep decline of export earnings in the first 10 months of the current fiscal year thanks to the resolution of the crisis over inter-banking transactions.

Exporters, especially ready-made garment (RMG) manufacturers, have got a good number of work orders from Russia in recent times. They expect large-scale orders will come at the end of this fiscal year while many exporters already booked their factories from Russian buyers for next four to five months.

The development occurred because the Bangladesh Bank has allowed foreign trade in Yuan. The Russian authority has also allowed Yuan for their international trade. Besides, Chinese and other Russian allies’ shipping lines are carrying goods to Russia which also helped Bangladesh ship clothes directly to that country.

Industry insiders said that if new problems do not arise, export earnings from Russia will jump soon. They, however, said to avert any new crisis, exporters should be highly aware of buyers’ financial strength, transparency and case study before receiving Russian orders.

The crises

Bangladesh has direct inter-banking channel with Russia, but it has received export payment through the banks of third-party countries. That is why export earnings from the country wasn’t large scale.

But since 2019, exporters, especially apparel makers, have been focusing on the market and considering it as the highly potential market. They have also planned to organise several road shows in Russia to attract buyers and brands. Russian buyers are showing interest to increase RMG imports from Bangladesh due to low-cost products.

Both the countries started negotiations to set up direct inter-banking channel. In the meantime, Russian buyers opened Letters of Credit through third-party countries, especially Poland, the United Arab Emirates (UAE) and Singapore.

However, when Russia invaded Ukraine on February 24 last year, the US and its alliance imposed sanctions against Russia, and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) cut Russia from their facilities. Besides, most of the shipping lines stopped carrying goods to and from Russia, and Black Sea became risky for raiding vessels due to the war.

Due to the payment gateway and shipping line crisis, there were stocks of clothes worth hundreds of millions in the factories’ warehouses apart from delay in payments. That’s why manufacturers started to follow go-slow policy to receive orders from Russian buyers.

The move severely impacted the Bangladesh’s exports to Russia. Although the country’s export to Russia through Poland was little bit good, it also declined in the third quarter.

According to Export Promotion Bureau (EPB), Bangladesh earned $389 million from the Russian market in the first 10 months of this fiscal year, which was $590 million in the same period of FY22. During this period of FY23, apparel sector’s earnings dropped to $361 million from $539 million year-on-year.

Besides, another major potential sector, home textile, earned $4 million in the first 10 months, which was $10.61 million in the same period of last fiscal year.

It should be mentioned that key export items from Bangladesh to Russia are readymade garment, home textiles and jute and jute goods.

The EPB data showed that Bangladesh earned $1.458 billion from Poland in the first 10 months of FY23 while it was $1.763 billion in the same period of FY22.

Besides, due to the war, Polish brand LPP was bound to close nearly 700 stores in Russia, which also impacted export earnings from Russia.

Commenting on the issue, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Vice President Shahidullah Azim told The Business Post, “Our export to the Russian market slipped due to the Russia-Ukraine war. But currently, the situation is improving. Exporters are now doing business with Russia in alternative way.”

“Russia is still showing interest to increase business with us and we held a meeting with the Russian ambassador to Bangladesh on the issue. However, we could not make massive efforts to boost the business due to the war, and probably it would not possible until the war comes to an end.”

What is the current situation?

As Bangladesh is doing business with Russia through third-party countries’ banking channel, the central bank and other authorities concerned, also business apex bodies started to find out ways to resolve the crisis and boost exports to Russia.

The Russian authority also started using the Cross-Border Interbank Payment System (CIPS) as an alternative of SWIFT, and also allowing Chinese currency Yuan, the Bangladesh Bank allowed foreign trade in Yuan by issuing a circular on September 16, 2022.

The move helped restore confidence among the exporters and Russian buyers.

Nipa Group Managing Director Md Khosru Chowdhury said, “I never worked with Russian buyers, but I received apparel orders worth nearly $25 million. The Russian buyers are highly interested to increase business with Bangladesh due to competitive prices.”

AKM Azimul Hai, Managing Director of Jovian Sweater, said that his company also started to work with Russia and currently he has nearly $2 million worth of apparel orders.

“As Bangladesh Bank allowed transaction in Yuan, we feel secure to do business with Russia. Since this January, we are receiving queries from Russian buyers. As I know, most of the old and new manufacturers are now receiving a good number of orders from Russia.”

Towel Tex Managing Director M Shahadat Hossain Sohel said, “Due to the war, we (Bangladesh) are deprived of billions of export earnings from the Russian market. But good news is that most of the buyers, including some new ones, are coming to Bangladesh again.”

“I believe that export to the Russian market will turn around.”

 

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