The Central Bank of Bangladesh feels that new destinations are needed to make the country’s garment sector sustainable. In the regularly published ‘Marginal Review of Readymade Garments Report’ by the External Economics Branch of Bangladesh Bank’s research department the Central Bank emphasized on the issue of new export destinations. The July-September 2022-23 edition of the report was released recently.
According to the Central Bank, Bangladesh exported goods worth more than 50 billion dollars in the global market in the last financial year of which about 82 percent were RMG. Again, 64.61 percent of the exported products went to the US and EU countries. While exports to non-traditional destination was 35.39%. Thus, the Central Bank is recommending that over dependence on a single product and two destinations has now put the country’s exporters in a major quandary.
It is said in the report that the garment industry, one of the mainstays of the country’s economy, is now experiencing a slowdown. In the first quarter (July-September) of the current fiscal year 2022-23, the exports decreased by 8.14 percent compared to the April-June quarter of the fiscal year 2021-22. As the worldwide cost of living increasing due to high inflation – populations in major export destinations are forced to cut down on spending on clothing.
The Bangladesh Bank believes that Russia’s aggression in Ukraine will lead to a global gas crisis, higher inflation, tightening of financial regulations and further appreciation of the global dollar. This may slow down the pace of the garment sector. Major garment export destination countries are currently experiencing economic turmoil.
In this regard, promising Asian economies like Japan, India, China, South Korea and the Middle East should be the new target for determining the destination of Bangladesh. As Bangladesh apparel makers are doing well in these markets.
Those related to the garment sector of the country say that the speed of export to new destinations is already good. Especially in the current bad times India’s export situation is good and growing. Recently, Commerce Minister Tipu Munshi also expressed optimism that exports to India crossed US$1 billion in the last financial year and expected to reach US$4 billion in the next three years.
Japan is the third largest apparel importer, despite the island nation’s relatively small population compared to other key world markets. Moreover, Japan is also the third largest economy after the United States and China. Given the high per capita expenditure and cost of clothing, Japan has positioned itself as a huge apparel market for apparel. In 2021, Japan imported apparel worth $23.804 billion and Bangladesh’s share was only 5.44 percent and the value of supplies was US$1.30 billion.
According to the EPB export data for July-September 2022-23, Bangladesh export US$ 612.66mn in India, US$ 395.43mn in Japan, US$ 150.43mn in China, US$ 161.23mn in South Korea and US$ 312.65mn in Middle East countries. Among the Middle East countries, Bangladesh exported US$ 196.43mn in United Arab Emirates. There are huge opportunities which are untapped.
Recently, several programs have been implemented to increase exports in South Korea. Besides, initiatives are being taken to increase the export of clothes in the Middle East. Recently, about 100 buyer representatives from the Middle East visited Bangladesh. They are also interested in increasing the import of garments from Bangladesh. Efforts are ongoing to expand the export market through the embassies of different countries in Bangladesh.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) president Faruque Hassan said, we are focusing on new countries. Because we understand ourselves that due to recession and inflation in Europe, exports will slow down in the coming days. A slowdown is also likely in the United States, although the export growth continues so far. However, due to the energy crisis, oil prices and supply, there will be a slowdown in Europe. We are working on new markets to address the overall situation.
He urged government support in this regard, “There is a 4 percent incentive to increase exports to new markets, increasing it by 1 percent to 5 percent would boost exporters’ incentives. Again we have asked for incentives in non-cotton products. No result yet. If this is the case, it will be easier to capture new markets besides expanding existing markets.”
Bangladesh Bank said in its quarterly report that the government and the central bank have taken several measures to facilitate the production and export of ready-made garments, including pre-shipment credit facilities. Bangladesh Bank has set up a refinancing fund of Tk 50 billion to continue operations of the export-oriented garment industry amid the Corona pandemic. Entrepreneurs can take loans from this fund through banks at 6 percent interest.
Recently, to improve economic growth in the export sector, the Central Bank has reduced the interest rate on the refinancing fund from 6 to 5 percent at the beneficiary level and from 3 to 2 percent at the bank level. Under this refinancing scheme, the term of loan facility for entrepreneurs has been increased from one year to three years. Entrepreneurs can get loans multiple times within the stipulated period.
The Central Bank also suggested prioritizing the diversification of global markets for man-made fibers and technical textiles. According to the organization, there is more opportunity to profit from the export of synthetic fiber garments than cotton garments.
Policymakers also say that not having enough products in Bangladesh’s export sector is a problem. The main export product is clothing. Inability to produce at competitive prices in terms of product variety is also one of the reasons for the crisis.
Faruque Hassan said about the challenge in diversifying the market, we are trying to diversify in the market as well as in the manufactured garments. The market for man-made fiber products is huge. We are continuing the activities to capture this market. But there are various complications with customs authorities regarding such products. If these complications are resolved, it will be easy to ensure diversification from both product and market sides.
Garment exporters say tapping into new markets also has a number of advantages, such as seasonal advantages. Winter clothes have to be exported before the start of winter season in USA-Canada. Summer clothes should be sent four to six months in advance. It has to be in the off season. But other destinations, like India don’t have to ship much earlier. There is no off season. Due to this, it is possible to exploit seasonal benefits throughout the year in India.