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Just when the country’s export-oriented readymade garment (RMG) industry was recovering from the effects of Covid-19 pandemic lockdowns, the Russia-Ukraine war plunged the industry deeper into multiple crises.
According to industry insiders, the war managed to shift market trends, as Russia is one of the main energy exporters in the world.
As a direct consequence, inflation has become a key concern all across Europe for the consumers as it has reached a painful high of 10.7% in October.
Moreover, rising energy prices are eroding the purchasing power of the European consumers who are now spending more on daily necessities as opposed to fast fashion.
Gloomy Christmas ahead
According to various projections, European shoppers are likely to reduce their Christmas purchases by up to 22% which will disallow the top brands, importers of Bangladesh apparel products, to clear their whole stock.
Talking to Dhaka Tribune, Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said that some buyers have been holding orders for the last 2-3 months.
“Our major challenge is not knowing exactly how much European buyers will spend this Christmas on apparel products,” he added.
Now they have to look at many policies of buyer countries as the exports will depend on how much subsidy a country is giving on energy as Europe is going through an energy crisis.
Mohiuddin Rubel, director of the BGMEA, said that due to the recession in the US, Canada, and Europe, customers there are unable to buy like before, as their purchasing power has decreased because of inflation, energy crisis and also a possible food crisis.
Shovon Islam, managing director of Sparrow Group, said that they have already shipped Christmas goods, and now spring and summer sales depended on it.
“If the Christmas sale can’t reach its target, brands won’t be able to order the product for the next season which will again have a negative impact,” he added.
Energy crisis in Europe
European countries may face further catastrophes as Russia reduces gas supply and leaks surface on two Nord Stream pipelines in the Baltic Sea, which may impact the inflation rate further in Germany and Baltic States this winter.
According to the European Commission (EC) data, Russia supplies 40% of the EU’s natural gas and 27% of its imported oil.
Nord Stream 1, an underwater pipeline which runs from Russia to Europe, has been supplying EU states with 35% of all the gas they import from Russia.
The region uses the majority of the gas for heating in winter, especially during November-February.
Gas prices in the EU went up as supply declined following Russia’s invasion of Ukraine.
Europe and the UK are the prime destinations of the apparel items of Bangladesh, where the country exported more than 60% of its apparel items in the last fiscal year.
According to the various data, UK clothing purchase capacity may plummet as consumers will feel the pinch of record high inflation.
Fazlee Shameem Ehsan, managing director of Fatullah Apparels Ltd, told Dhaka Tribune that the European buyers are actually spending more on food and fuel now and this downward trend in RMG imports may continue for the next few months.
Domestic energy crisis
Due to the acute energy and power deficit, the export-oriented industries and manufacturing units are facing a tough time ahead.
As there is no electricity for an average of four to five hours daily in the industrial units, the production in these plants is severely disrupted and depending on the size of the factory, an additional cost of Tk3-Tk4 crore is being incurred per month.
Moreover, production optimization also declined.
They also said that the sector needs a few more months, at least till March of 2023, to recover from the losses.
“Due to the power crisis, the manufacturing cost increased by at least 5% and it may also disrupt the lead time,” said Mohiuddin Rubel.
Moreover, when the gas shortage began in March earlier this year, textile mills were operating at only 30%-40% of their total production capacity and at least 60% factories out of 1,700 member factories of the BTMA were in a vulnerable position because of the severe gas crisis.
Apparel export saw narrow growth in October
The apparel sector of the country experienced a narrow growth of 3.27% in October to $3.67 billion from $3.56 billion in October of last fiscal year, said EPB data.
However, the earnings went down by 7.52% to $3.12 billion in September.
The sector experienced a decline in orders of 25%-30% due to inflation in the destinations, overstock and global economic turbulence.
Fazlul Haque, managing director of Plummy Fashion Ltd, said that the market is actually going down.
“This situation will affect our industry in the next few months. Nothing can be said before March 2023,” he added.
Mohiuddin Rubel said that orders are slow and which may further put a negative impact on the exports.
“If 20%-30% of orders are not there, naturally there will be an impact on the sector,” he added.
Regarding the energy crisis, he said that now is the time to focus on energy.
“Instead of being dependent, we must gradually increase our own renewable energy production to run our operations,” he added.
Meanwhile, the sector earned $42.6 billion in FY22, marking a growth of 35.47%.
Dollar crises in banks bar importers opening LCs
The high price and dollar crisis have put pressure on medium and small businesses including the apparel sector.
Moreover, apparel manufacturers and exporters are asking for flexibility when clearing raw material import payments from the Bangladesh Bank.
US’s near-sourcing; new pressure?
Honduras is strengthening its position as a near-sourcing partner for the US apparel industry by generating the second highest receipts from sales of textiles and finished garments under free trade agreements with the US.
During the first eight months of 2022, Honduras exported $2.23 billion in finished textiles and apparel to the US, of which $1.57 billion worth was sold under special access provided by the CAFTA-DR (Central America-Dominican Republic Free Trade Agreement).
It may also be a threat to the Asian exporters to the US.
When will the situation improve?
Faruque Hassan said that the situation will not change this year.
If the brands can clear most of their stocks during Christmas, only then they will place more work orders.
“It may take the sector wait until March next year,” he added.
Shams Mahmud, managing director of Shasha Denims Ltd, said that the situation may improve somewhat from December.
“But if proper energy and power supply were available in our country, then we had a chance to gain in the long run,” he also said, adding that competitive countries like Vietnam, Pakistan were also facing decline in orders.
But another concern is the national election next year. If there is political unrest, the order may be shifted to other countries.
“What we need most now are peaceful rallies by political parties, not to mention uninterrupted energy supply,” he added.
Fazlee Shameem Ehsan said that there are ups and downs in business.
“After any major crisis there comes an opportunity to bounce back. We have to be patient for that opportunity,” he mentioned, adding that they need adequate support from the government in this regard.
(DT)
