RMG export from Bangladesh registered the lowest growth in the concluding fiscal year 2016-17. The export figure from RMG rose to 28.14 billion USD from 28.09 billion USD of last year with a meagre 0.20% growth; least in last one and half decade. As the official target was 30.38 billion dollar, the exports fell short by 7.34%. RMG, being the lifeline of the country’s economy has been leading the export basket for years. Due to low growth of RMG export the total exports from the country also suffered and missed the target by over 2 billion dollars at 34.83 billion dollars. 80.79% of the total export came from RMG.
It can be seen from the chart that the export growth dropped to 0.20% from last year’s 10.21%. The second least growth also was registered in the year before in 2014-15 which was 4.08%. It is an obvious matter of concern that the growth is becoming close to negative. The RMG export experienced on average 16% growth from FY 2002-03 to 2010-11. But the growth dropped to only 7% in the period onwards. If things are going unchanged, it might be the first time in the history of Bangladesh that the RMG exports will register a negative growth. Knitwear products earned $13.76 billion, which is 3% higher than the $13.35 billion in the same period a year ago. Woven products earned $14.39 billion, down by 2.35%, compared to $14.73 billion a year ago.
The reasons behind this situation are many. Some of them have prevailing for a while now and some of them are short term. One of the reason behind may be the overall consumption of RMG in the world has declined by 5.0% in the current fiscal year and the main buyers were importing less amount due to unstable economic conditions. Another reason is the currency devaluation. The Bangladesh currency against US dollar remains unchanged while currencies in competitor countries were devaluated. As a result exports from Bangladesh though increased in volume, the value has not increased in parallel. Brexit also has a negative impact of RMG exports to the EU countries. Moreover, due to the ongoing safety intervention carried out by the Western retailers’ platforms – Accord and Alliance – many factories were shut down while a good number of units are in the process of relocation. Gas crisis and other infrastructure problems are also affecting the exports indirectly as expansion has become very difficult.
Vietnam and Cambodia meanwhile are the only two countries to register a double digit growth in the US and EU markets while China and India also registered negative growth. Continuous policy support from Vietnam government and multi-lateral trade benefits are constantly helping Vietnam to grab the US market. On the other hand in Bangladesh with the prevailing problems production cost is increasing significantly due to improvement in the compliance issues and technology investment. Accord and Alliance has already shut down 1250 factories and put pressure on the other factories to improve their working conditions and safety measures. As a result the operation cost of the factories are increasing significantly. Moreover, due to economic instability in the western market demand for clothing is in the lower side and buyers are pushing the manufacturers for cheaper prices. All this effects together has put the RMG sector in a cross-road which seems very difficult to overcome.However, experts are considering this critical period as a transition and hoping the situation will improve as compliance issues are resolved and manufacturers gain back the confidence of the buyers. Better factory compliance across the garment sector can boost the country’s readymade garment (RMG) export by around 10 per cent while return on investment made in ensuring such compliance can be 14 times higher, according to experts of CPD. At the same time, establishment of a special zone for readymade garments like ‘RMG Palli’ can raise exports by around 4 billion dollars while generating eight times higher return on investment. But to tackle this interim period of investment, the industry needs direct support from the government so that the manufacturers can survive.
Single digit interest loans from banks and reduction of tax at source has been a demand for long from the garments manufacturer’s association. A sr. vice president of BGMEA also suggested 5% cash incentive on FOB export price so that the industries can endure the situation.
Meanwhile the government has restored the tax at source for RMG at 0.70% which was increased to 1%. The industry owners were continuously pursuing the government for reduction of tax at source; as a result the government has declared a reduction in the current budget.
Exports to US also declined by 6.30 percent compared to last year whereas the biggest competitor in the US market Vietnam did registered a positive growth of 8.16%.
Of 27 EU countries, knitwear exports to 10 including Denmark, Ireland, the Netherlands and Sweden witnessed a negative growth. Growth in exports to four other countries – Belgium, France, Germany and Romania – was slow, less than 4.0 per cent, during the first 11 months of the current fiscal year, according to official data. Export earnings from knitwear during July-May period of Fiscal Year (FY) 2015-16 registered a 3.60 per cent growth with earnings of $2.35 billion in Germany, the single largest market for knitwear, data revealed. In FY 2013-14 and FY 2014-15, earnings from knitwear grew by 17.38 per cent and 1.90 per cent respectively.
Export earnings from non-traditional markets also faced setback as knitted items recorded negative growth by 38.79 per cent in Brazil, 4.98 per cent in China and 8.85 per cent in Turkey during the first 11 months of the current fiscal. During the period, 5.92 per cent and 3.91 per cent slow growth persisted in Russia and South Africa respectively, according to data. The country fetched $1.90 billion from knitwear exports from non-traditional markets including Australia, Brazil, Chile, China, India and Japan during the July-May period.
All this statistics reveals the need for the RMG industry to transform itself towards sustainability as soon as possible, otherwise our market share would start declining in the global market. Price of products are not raising if not reduced by the buyers. Cost of doing business is rising due compliance interventions from the buyer’s side. Again imposition of 15% VAT on all products and services in this budget will increase pressure on business. Gas and electricity price has also increased formidably of late. All these issues with the sluggish growth of world market are hitting considerably and the results are on the card. Product and market diversification, innovation and technological development, strategic policy and business plan are essential now for survival.