The picture of Bangladeshi exports looks gloomy

Jan 25, 2012 12:00 AM

by Syed Tashfin Chowdhury

Growth in Bangladeshi exports has slumped to near zero, with orders drying up as the key markets of the United States and Europe are caught up in their own economic crises.
The EU is the largest export destination for Bangladeshi products, and the US accounts for one-third of the South Asian country's total exports.

Total exports were little changed last month from a year earlier, with the year-on-year growth rate falling to 2.4 % compared with a 29.76 % annual growth rate in November 2010.
In the first five months of the fiscal year, which started in July, export growth declined to 17.3 % (for total exports of $ 9.71 bn) from a 35.8 % rate of increase in the same period last year (and a five-month total of $ 8.27 bn). Exports declined 18 % to $ 1.59 bn last month from $ 1.95 bn in October, according to the Export Promotion Bureau (EPB).

Bangladesh needs to ensure export growth to limit the gap its trade gap. The gap between export earnings and import spendings surged during the first four months of this fiscal year (from July till October), to $ 3.10 bn from $ 1.83 bn during the same period last year.
"The eurozone crisis has definitely hit us," leading industrialist Md Shafiul Islam Mohiuddin, president of the Bangladesh Garment Manufacturers and Exporters Association, told on December 13. "We are trying to seek more orders at competitive prices." Shafiul is managing director of Onus group, which has 12 factories and a workforce of 6,000 in Bangladesh.

So far, the outlook is not improving, judging by orders received at the recently concluded three-day annual textile exposition in Dhaka, BATEXPO 2011, which reportedly attracted 175 foreign buyers and 3,015 representatives from various export destinations and new markets. Orders to local apparel manufacturers increased a mere 2.1 % from last year's exposition, to $ 66.35 mm from $ 65 mm in 2010.
"The number of buyers was higher this year," Shafiul said. "But the quantity of orders was not as expected." Onus group last year exported around $ 38 mm worth of goods to the US, EU and other countries for brands such as Target, Walmart, Carrefour, Aramark and Sears.

Bangladesh, which depends on garments, textiles and knitwear for about 70 % of its exports, will now find it hard to achieve its full fiscal year export target of $ 26.5 bn and 15 % growth. The goals were set after a 41 % export growth, and export earnings of $ 22.9 bn, in the fiscal year to June 2011.
Adding to concerns, the knitwear and woven garments industries may be hit hard if the European Union goes ahead with a tariff cut for manufacturers in Pakistan as part of flood-relief efforts. The cut is strongly opposed by Indonesia and Bangladesh.

Further ahead, Islamabad is also trying to secure from the European Union by 2014 the status of "Generalized System of Preferences Plus" (GSP-Plus), which would further help its exports but is also being opposed by several textiles-exporting countries. GSP-Plus status is held by 49 countries including Bangladesh.
"India had objected to this, but now it has withdrawn the objection. Recently, Brazil, Argentina and Indonesia have objected to the EU giving away this qualification to Pakistan," Shafiul said.

If Pakistan receives these provisions, Bangladesh's woven and knitwear exports to EU will be hit as "Pakistan has a strong textile base", he said.
"They can offer woven and knitwear items at a cheaper price than us," says Shafiul. Growth in exports from the woven garments sector declined to 23.6 % at $ 3.57 bn during five months through November from 40.2 % expansion during the same period a year earlier. Knitwear did even worse, growing exports only about 13 % to $ 3.99 bn, down from above 46 % growth in the first five months in the previous fiscal year.

Manufacturers expected more orders this year as production costs are rising in China. However, these "orders are going to Latin American countries, as they can deliver the products within a short time" even when prices there are more than offered by Bangladesh, he said.
"We are trying to diversify and seek out non-traditional markets like Japan, countries in Latin America," said Shafiul, when asked how exporters are trying to battle the crises.

Still, a recent report by McKinsey and Co sees Bangladesh becoming "the next China".
The report, "Bangladesh's ready-made garments Landscape: The Challenges of growth", forecasts that its ready-made garments export earnings will increase threefold to between $ 36 bn and $ 42 bn by 2020, as European and US buyers enter the country and more destinations are being sought by new players.

The US-based management consulting firm based its findings on interviews of chief purchasing officers with EU and US buyers, who account for 66 % of all apparel exports from Bangladesh, and on phone surveys of more than 100 local garment suppliers.
"Depending on how well the most severe issues can be managed, the market will realistically develop at an annual rate of 7-9 % within the next 10 years," the report's authors wrote.

With China beginning to "lose attractiveness", due to rising costs, sourcing destinations are moving to the next "hot spot", in this case Bangladesh. The report says 54 % of CPOs surveyed believe that reducing their activities in China by up to 10 % will be favourable for business; 23 % CPOs want to cut their sourcing from China by more than 10 % within five years.
These CPOs argue that Bangladesh's prices will continue to be competitive in comparison.

The already high capacity in Bangladesh was also an attractive feature -- 50 % of the CPOs surveyed mentioned capacity is the second-biggest advantage for Bangladesh, which has around 5,000 ready-made garments factories, with 3.6 mm workers. Indonesia has around 2,450 factories, Vietnam 2,000, and Cambodia 260.
While India and Pakistan have potential to be "high-volume supply markets... high risk or structural workforce factors prevent utilization of their capacity".

On the downside, the McKinsey study points to challenges in infrastructure, compliance, human resource skills, supplier performance and workforce supply as well as political stability, which must be tackled by efforts from the three main stakeholders -- government, suppliers and buyers.

Syed Tashfin Chowdhury is the Editor of Xtra, the weekend magazine of New Age, in Bangladesh.

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