Power crisis impacts Backward Linkage industry and forces to import

Backward linkage production has been severely impacted by the power crisis, thus export-oriented garment manufacturers are focusing on importing fabrics and yarn to fulfill current work orders, which may cause problems for local textile millers.

While the continuous energy and power issues have prompted ready-to-wear manufacturers to import more yarn and fabrics, they have been focusing on imports of yarn and textiles since the middle of 2021 when textile millers started to raise yarn prices in response to rising cotton prices.

As a result, the RMG sector’s value addition decreased by 4.75 percentage points, further straining the foreign reserve. The nation will be able to save about $2 billion in the FY22 if the exporters can meet their demand for raw materials as of the FY21.

But since July, the cost of yarn has gradually decreased from $5.2 to $4.3 per pound. Many exporters of ready-to-wear clothing are currently sourcing yarn and textiles from India and other nations.

Data from the central bank show that Bangladesh’s clothing value addition was 59.14 percent in FY21 but just 54.39 percent in FY20. In contrast to $42.61 billion in exports, clothes makers spent $19.44 billion on backward linkage items, yarns, textiles, chemicals, and accessories in the most recent fiscal year. On the other hand, according to data from the Bangladesh Bank, the industry bought $12.86 billion worth of raw materials in FY21 while exporting $31.46 billion worth of goods.

Bangladesh relies on imported woven fabrics, yet it has around 90% of the capacity needed to supply the yarn and materials needed for the knitwear industry. The government offers a 5% financial incentive on the sales of clothing items made from locally spun yarn, which also helps to support 433 yarn mills around the nation. This is done to encourage the usage of local yarn. If the RMG producers used local yarn, they might save about 30% in foreign currency, 10% on local fabric purchases, and 15% on local dying costs.