The apparel manufacturers and exporters are facing various crises at the national and international levels, which has put their recovery from the effects of the pandemic in jeopardy.
According to industry insiders, the Russia-Ukraine war, global inflation, the mounting production and transportation costs, impractical proposals to increase gas and electricity prices within the country and many more have put business owners in a troubling situation.
Inflation in EU: Causing worry for the exporters
According to Eurostat, the statistical office of the European Union, the rate of inflation in the Eurozone was 7.4% in April 2022, while it was 8.1% in the EU countries, hitting a new high as growth slows amid the Ukraine war.
The EU is the prime destination of the apparel items of Bangladesh, where the country exported more than 60% of its apparel items in the last fiscal year.
The manufacturers fear that the purchase orders from the EU countries may reduce by 10%-15% as the buyers are moving forward cautiously in placing orders due to the war which is taking a toll on the entire European continent’s economy.
Talking to Dhaka Tribune, Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said that the European buyers are now on a go-slow policy and many buyers have asked to defer the orders because they have reported that their sales are declining due to inflation.
“At the same time of the last month, we exported apparel items worth $2.4 billion to the European market, and goods worth $1.7 billion as of May 22 (Sunday), meaning our exports have decreased by $700 million in just one month,” he added.
He also said that the apparel sector earned $3.98 billion last month, and $2.5 billion till the 22nd of the current month of May. Meaning that the inflation in the global market is increasing and impacting our country's apparel export.
Recently, BGMEA President Faruque Hassan said in a press conference that they are feeling the pressure of inflation as in such a situation people will spend mainly on food, and buy clothes a little less.
He also said that the Russia-Ukraine war has led to a price hike for food and fuel, as well as the fears of a recession in some parts of the world, including Europe could affect the demand for clothes as people's purchasing power decreases.
Increased production cost gobbles up profit
According to the manufacturers, they are struggling to survive in the face of rising production costs, challenges in the supply chain, the crisis of raw materials, a hike in prices of fuel, gas, and electricity, and a sharp rise in shipping costs.
Cotton, the main raw material for the apparel sector, experienced a decade-record hike to $1.41 per pound and $3.05 per kg.
As the prices of raw materials and shipping costs have shot up sharply, the cost of apparel production in Bangladesh has gone up too.
However, recently the price of clothes has increased a little, but the exporters are still struggling to get a fair price for their products, said the manufacturers.
“Production costs increased by 35% to 40% in the last five years where the freight costs, shipping charges and transportation costs increased by 350%-450% since the pandemic,” Mohiuddin Rubel, director of the BGMEA told Dhaka Tribune.
Hike in price of gas and electricity: Suicidal decision?
Last week, Bangladesh Energy Regulatory Commission (BERC) recommended increasing the bulk price of electricity by nearly 58%.
Moreover, a recommendation has been made to increase the price of gas used in captive power by 132%, said the manufacturers.
Businesses strongly advised against increasing the prices of electricity and gas calling it a “suicidal decision” for business if the proposals are accepted.
Jashim Uddin, president of the FBCCI said that the hike in the price of power and energy would create multidimensional inflation which would have a negative impact on the ongoing flow of development.
Shahidullah Azim told Dhaka Tribune that it would not be wise for the authorities to rush to a decision regarding the price hike, they have to take time and discuss it with related parties.
“Moreover, exports will decline if the proposals are accepted and the pressure on the foreign exchange reserve will increase,” he added.
Mohd Khorshed Alam, chairman of a standing committee of the Bangladesh Textile Mills Association (BTMA) told Dhaka Tribune that gas and electricity distributors are service companies.
“However, they have been making extraordinary profits for the last few years and are still chasing for the money to make more profit which will put a negative impact on the industries of the country,” he added.
Taka Depreciation
The manufacturers also said that the imports are being affected due to the depreciation of money in the kerb market.
Last week, one had to spend Tk87.5 to buy each dollar in the interbank money market which was Tk102 in the kerb market.
However, exporters said that they have to pay Tk96-Tk97 in the interbank market.
As imports are now higher than exports, exporters are not getting many advantages due to currency depreciation.
The rate of a certain currency cannot be different in the bank and the kerb and they will discuss the matters with the governor of the central bank soon.
However, they also said although they have some advantages in export, the differences in the interbank market makes the bank more profitable, not them.
Manufacturers want policy supports
To tackle all these crises, manufacturers demand policy support as these crises eat up the profit of the manufacturers.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said that the decision to raise gas and electricity prices is suicidal at a time when the economy is regaining momentum.
Moreover, prices of these are much lower in rival countries such as Vietnam, China and Cambodia.
“So, to keep afloat our competitiveness, the government should not increase the price of gas and electricity,” he added.
Mohiuddin Rubel said that regarding the scenario, they need policy stability and the policies including the fiscal need to be aligned with the development progress and priorities.
“We also need to simplify the ease of doing business in our country and to facilitate the industry’s transformation towards sustainability,” he added.
He also said that the sector needs to encourage investment in the area of product and market diversification, innovation and automation.
“Moreover, we need to keep the price of power and energy at a tolerable level,” he added.