13 days ago

Declining apparel exports - any way out?

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The decline in garment export to the largest markets USA and the EU is persisting since the second half of the current fiscal. Reasons broadly attributed to the situation include inflationary pressure, increased production costs, lead time, and energy crisis. Lead time has always been a factor to cause delay in shipments-an inherent drawback that places competitors like Vietnam and Cambodia in an advantageous position over Bangladesh. However, in the past this inadequacy was partly made up by cheap labour and large-scale production of low-end apparel products. The situation now seems to be increasingly difficult as inflationary pressure coupled with energy crisis has made garment export more challenging than in the past.       

According to the US Department of Commerce's Office of Textiles and Apparel data released last week, Bangladesh's apparel export to the USA in the first four months of 2024 declined by 14.44 per cent to $2.31 billion compared with that of $2.70 billion in the same period of 2023. During the same period, exports from Vietnam grew by 0.31 per cent, while those from China declined by 4.42 per cent. The data showed that Vietnam overtook China to become the largest RMG exporter to the US in the January-April period of 2024. The US apparel imports from Cambodia in January-April of 2024 also increased by 7.92 per cent to $1.03 billion compared with those of $951.93 million in the same period of 2023. In the same period, the combined export of textile and garment from Bangladesh to the USA declined by 14.15 per cent year-on-year to $2.38 billion, according to data from the Office of Textiles and Apparel (OTEXA), a body under the US Department of Commerce.

The situation in respect of the EU is no better, if not worse. Bangladesh's RMG exports to the European Union in January-April, 2024 fell by 9.85 per cent to 6.01 billion euros compared with those of 6.67 billion euros in the same period of 2023, according to data released by Eurostat. Bangladesh managed to reduce its negative apparel export growth in the EU slightly but still performed worse compared with competitor countries in the reporting period. Exporters say, like the United States, Bangladesh lagged behind its competitors in the EU market due to severe energy crisis, high cost of utilities, increased cost of production, long lead times and cumbersome customs procedures. The EU data showed that Bangladesh's knitwear exports to the EU in January-April of 2024 dropped to 3.38 billion euros from 3.88 billion euros in the same period of 2023. Similarly, the country's woven garment exports to the EU during the period declined to 2.64 billion euros from 2.79 billion euros in the same period of 2023.

Exporters observe that despite a recent growth in US demand for apparel, and the EU too increasing its imports, Bangladesh failed to capture a larger market share due to factors such as longer shipment times and higher production costs. They say buyers are placing more orders with Vietnam and China recently, due primarily to shorter delivery times. According to the exporters, lead time for importing and processing for export has become longer-to 70-80 days from 50-55 days in the recent past.

It is pretty well known that China in the past years has been gradually moving away from exporting low-end apparel products in preference for up-end, value added varieties. This shift did offer a prospect for countries like Bangladesh, Vietnam and Cambodia to compete for a fair share of those products in global market. There was also a prediction that many Chinese apparel exporting firms would opt for relocation of their production units to these countries because of the escalating cost of labour and other vital inputs in China. There were speculations among the business community and trade experts that relocation of Chinese factories and shifting of a sizable share of Chinese apparel exports would benefit Bangladesh. It is now clear that Bangladesh could not benefit from either of the two opportunities. The opposite, however, has happened in case of Vietnam-in grabbing shifting export orders and relocation of production units.

Lead time is indeed one factor to dissuade importers to place work orders, but equally important issues that according to exporters are responsible to deter importers, especially US importers, are logistics and infrastructure-related limitations, and instable energy supply.

One sure way to cut lead time is raising local supply of raw materials and accessories. During the past two decades, substantial investment took place in the country's textile sector for meeting demands of woven and knit fabrics for export manufacturing. It is claimed that currently local textile and spinning mills have a capacity of meeting around 75-80 per cent of export requirements. But the instable energy security has led most mills to operate far below capacity.

Gas and power scarcity that seemed to take its toll on industrial production since a year ago has by now become potentially threatening to almost the entire range of industrial productivity. Notable among the sectors badly hurt include textiles, RMG, light engineering, fertiliser, cement etc. As reports have it, country's textile mills are the worst victims of gas and power shortage for several months. Production in the export-oriented textile mills has drastically fallen due to the ongoing gas supply shortage. A representative of the textile mills association has reported that local factories are operating at 60-70 per cent capacity due to energy shortages, prompting buyers to redirect orders to China and Vietnam for quicker deliveries. Some 300 textile mills located at Gazipur, Savar, Ashulia, Shreepur, Dhaka, Narayanganj, Narsingdi and Bhaluka are finding it extremely difficult to remain operational in this situation.

In order for things to improve, the most crucial requirement is ensuring adequate gas and power supply. While other areas affecting  exports cannot be expected to be healed quickly, energy should be the key focus of the government.  

wasiahmed,[email protected]

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