Absence of new investment, downtrend in private credit growth cited as reasons
Bangladesh’s garment and textile machinery imports registered an 11.04% fall to $1.43 billion in the last fiscal year for lack of new investment in the primary textile and clothing industry.
However, the overall imports of capital machinery in FY19 fell by 9.43% to $4.67 billion, which was $5.16 billion in the previous fiscal.
According to Bangladesh Bank (BB) data, in the fiscal year 2018-19, Bangladesh imported textile and garment machinery worth $1.42 billion, down by 11.04%, which was $1.60 billion in the previous year.
Imports of textile machinery saw an 18.40% decline to $663 million, while garment machinery imports plunged by 3.52% to $767.15 million.
Why this slowdown
Industry people and the economists think that absence of new investment and downtrend in private credit growth caused by crisis in the banking sector dragged down the imports of capital machinery.
On top of that, the national election at the end of 2018 was another reason for the down trend in imports as investors turned cautious at that time.
“The apparel industry has been at a matured stage for quite a few years and we should not expect the growth in capacity expansion like in a rising industry, unless a significant change takes place in innovation,” BGMEA President Rubana Huq told Dhaka Tribune.
"In addition, production cost has gone up significantly, especially after the increase in minimum wages in 2018. A reconsolidation of the industry can be noticed as SMEs are winding up while bigger factories are expanding," said Rubana.
According to BGMEA, the number of new factories registered with BGMEA in FY2017-18 was 82 which came down to 60 in 2018-19 fiscal.
On the other hand, economists mention the crisis in banking sector as another reason, which has created cash crunch hindering new investments.
“Individual credit flow, which means new investment or expansion of existing business has decreased. Moreover, problems in the country’s financial sector have deepened, which hindered private investment for new projects or expansion,” former World Bank Bangladesh lead economist Zahid Hussain told Dhaka Tribune.
As a result, capital machinery for the apparel and textile industry saw a downtrend in the last fiscal year, said the economist.
According to Bangladesh Bank (BB) data, private sector credit growth hit a six-year low to 11.29% in the last fiscal year.
Meanwhile, uneven competition by the illegal import of Indian and Pakistan products and rise in production cost discouraged new investment in the primary textile industry.
“A huge amount of fabrics and yarn has remained piled up at warehouses in the country's primary textile sector. But the manufacturers cannot sell them as illegal imports have taken lead over the local industry,” Khorshed Alam, a former director of Bangladesh Textile Mills Association, told Dhaka Tribune.
It became very difficult to compete with the Indian and Pakistani fashion goods, while for rise in production cost apparel makers were preferring to import yearn and fabrics, Alam observed.
As a result, he said, new investment in the sector were nor seen in the recent year, while existing businesses were wary about expanding business as they already had unused capacity and illegal imports were taking toll on the local industry.
Uncertainty over national election held in December last is also considered to be another reason for the slower private investment.
“Ahead of election there was uncertainty over the transition of power, which made the investors cautious about opening new letter of credit to import machinery for new investment as it may delay the implementation of project,” Ahsan H Mansur, executive director of Policy Research Institute and chairperson of Brac Bank, told Dhaka Tribune .
As a result, the import of capital machinery for apparel and textile industry witnessed a decline, said Mansur.
How to boost investments
“The government has set a target to earn $50 billion from the clothing sector, and such a downtrend in imports of machinery, caused by slower investment, is a great concern for attaining the target,” Envoy Textile Managing Director Abdus Salam Murshedy said.
On the other hand, in reaching the 8.2% GDP growth, Bangladesh needed to increase private investment, said Salam.
So, in the present context, the government should focus on increasing the cash flow to private sector and remove trade barriers, Salam suggested.
Private investment to GDP has been hovering between 22% and 23.4% for the last one decade.