Currency devaluation, grey market acting as deterrent to local industries
The prices of yarn fell drastically in the local market due to multiple reasons, including currency devaluation and a buoyant grey market, leaving yarn manufacturers in a dire situation.
As a consequence, unsold yarn worth around Tk1,500 crore is piling up at warehouses, industry sources said.
According to Bangladesh Textile Mills Association (BTMA), it costs $3.25 on average to produce a kilogramme of yarn, which is now being sold at $2.80 to $2.90.
Talking to the Dhaka Tribune, yarn manufactures blamed the devaluation of Taka against the US dollar, misuse of bonded warehouse facility, smuggled yarn, and cheap Indian yarn that is often imported through trade misinvoicing, as the main reasons for the present situation.
“Cotton prices in the international markets were high three to four months ago. The prices of yarn suddenly fell as India is offering lower prices due to devaluation of the Rupee against USD,” BTMA President Mohammad-Ali-Khokon told the Dhaka Tribune.
Besides, huge amounts of yarn are being imported illegally from India through land ports, which are increasing supply at lower prices as taxes are not paid, the BTMA chief said.
As a result, local manufacturers are suffering and struggling to survive. If the present situation persists, spinners will be left in dire situation and will become bank defaulters, he added.
Meanwhile, illegal import of Indian and Pakistani clothing products and misuse of bonded warehouse trade facility are causing serious problems, industry people said.
“For the lower prices and sluggish demand, the prime reason is misuse of bonded warehouse trade facility. Huge amounts of fabrics imported under duty-free trade facilities to produce goods for export are being sold in the local market at lower prices,” Shahid Alam, a director of BTMA, told the Dhaka Tribune.
“In the last few days, customs authorities seized fabrics worth crores, which were imported under bonded warehouse facility,” he said.
As the local market is flooded with illegally imported clothing items, the demands for local yarn is sluggish, added Shahid, who is also vice chairman of Jalal Ahmed Spinning Mills Ltd.
On top of that, some dishonest importers import 80-count yarn falsely declaring it as 30-count yarn to evade import duties and distort the market, he claimed.
It is high time to take measures as there is a huge scope for new investment in the woven sector, which can meet only 40% of local demands, opined sector people.
If the government fails to ensure better environment and stop illegal imports, the country will not be able to achieve targeted development and will be deprived of new investments, they added.
According to BTMA, from 2014 to 2018, local entrepreneurs invested an average of Tk1,380 crore per year in the primary textile sector. During this period, 44 new textile mills also became members of the association.
How to get rid of predicaments
Since the main problem is misuse of duty-free trade facilities and illegal imports, mill owners want strong monitoring to stop misuse of the bonded warehouse facility. They urged the government to ban yarn import through land ports.
“There is a huge local clothing market, with 17 crore consumers. And to attain double digit growth, we have to meet the local demands,” said Mohammad Ali Khokon.
“I strongly call for introducing a separate exchange rate for the export-oriented sector, as we are losing competitiveness to our competitors,” he said.
According to Bangladesh Bank data, in 2017, Bangladesh’s textile and apparel sector received foreign investment worth $421.68 million, which was 15.70% higher than $364.44 million in 2016.
As per BTMA, there are 430 yarn manufacturing mills, 802 textile mills, and 244 dyeing-printing finishing mills in Bangladesh, along with 32 denim fabric manufacturing mills and 22 home textile manufacturing mills.
Currently, the country can meet around 40% demand of woven fabrics, and 80% to 85% for knit fabrics.