The apparel industry is the lifeline of Bangladesh’s economy. It accounts for about 11 per cent of the country’s GDP. Around 4 million workers are employed in the sector, of whom 65 per cent are women.
In the 2021-22 fiscal year, Bangladesh exported ready-made garments (RMG) worth $42.6 billion, posting a 35.47 per cent year-on-year growth. After the Covid disruption, the fiscal year 2021-22 looked like a dream year for the apparel manufacturers of Bangladesh. All the apparel factories were crammed full of orders in the year. Many entrepreneurs also invested to expand the capacity of their apparel factories.
Since the middle of the last year, the apparel sector has been facing an order shortage. There has been negative export growth three times in the ten months of the fiscal year 2022-23. In the last September, this March and April the apparel sector earnings dropped by 7.52 per cent, 1.04 per cent and 15.48 per cent year-on-year respectively.
Although in May the exports witnessed an unusual 28.33 per cent positive growth; currently, most of the apparel factories are continuing production with low orders than their capacity.
Why is the situation?
Experts are blaming the ongoing Russia-Ukraine war as the reason for this dwindling apparel exports. They are saying that due to the war, the supply chain has been disrupted, which created record-high inflation across the world. As a result, consumers' purchase power has declined. I also agree with this opinion of the experts. But I think there is another key reason that we are missing.
During the pandemic, governments across Europe and the US government restricted people’s movement. They provided several incentives to their citizens. Besides, employers continue their offices through a hybrid method. So, the citizens did not come out from home regularly.
As a result, the sales of brands dropped steeply. But when their governments withdrew the restriction, people came out from home. During this time, they had huge hand cash which they actually saved during the pandemic period. It’s common knowledge that when people have cash, they spend them at restaurants and shopping malls.
The same happened here. A couple of months back I went to Europe and the USA for business purposes. During my visit, many sellers informed me that their sales were almost double in the middle of 2021, and most of the showrooms released their stocks within three to four months at that time.
Amid the situation, buyers placed more and more orders to meet the customers' demand without any projection. We, the manufacturers, also thought that the trend would sustain for a long time. We expanded our business without any assessment.
The trend was continuing till the middle of last year when the savings of people was finished. So, when Russia invaded Ukraine in February 2022, the war caused huge inflation on the one hand, on the other hand people had huge clothes in their wardrobes in the meantime.
As a result, consumers reduced unnecessary purchases, and even regular buying also dropped. This resulted in huge stocks at the warehouse of brands. Now it's reflected in their orders and eventually in our export earnings.
When will the crisis be over?
It is almost difficult to predict when the situation will be eased. There is a little bit of chance that the situation may be improved in July- August.
This year in Europe winter has prolonged, which enabled the brands to sell more products than that of the period in the previous year; that also helped them to manage more liquidity to place orders. So, I think in the last quarter of this year, the sector will receive a good amount of orders.
However, we need to decrease our over-dependency on European and US markets in the long run. The more we could export apparel to non-traditional markets, the safer we could swim in such troubled water. For that, the government and the trade bodies need to organise more and more single-country fairs in non-traditional markets.
The manufacturers should also participate in the major apparel and textile fairs across Asia, the Middle East and Latin America. It’s high time we made strategic plans to diversify our export destinations.
Ashikur Rahman Tuhin is the managing director of TAD Group and a former director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).