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Proposed gas price hike to hit apparel sector hard

Fear gripped the country’s $30 billion apparel exporters as the gas distribution companies have proposed to hike prices of gas for the industry, which will increase the production cost of the sector.

BD Proposed gas price hike
Figure 1: Bangladesh’s textile and apparel industry will sink if the newly proposed gas price hike comes into effect. Courtesy: Energy & Power

In addition, the primary textile sector, the backward linkage industry of the readymade garment sector, also to bear brunt of gas price hike as the sector is dependent on captive power.

The apparel sector is already in the trouble as production cost went up due to the implementation of new wage structure and for investments in safety standards improvement.

Talking to Textile Today, sector people said the new proposal of hiking the gas prices would be another jerk for the sector as the production cost will go further up.

A further hike in gas price will be disastrous for the apparel industry as well as textile sector and the owners will be forced to shut factories due to the burden of production costs.

Mohammad Hatem, MD, MB Knit Fashion

In a recent move, gas distribution companies have proposed Bangladesh Energy Regulatory Commission (BERC) to increase prices of gas includes industries, power, fertilizer, households and other customers for a gas price hike of up to 60%.

In the proposals, the distributors of gas have proposed to increase prices of gas from Tk7.76 per cubic feet to Tk15.70 per cubic feet or 93% for the industry, while it proposed to rise by 63% to Tk15.70 per cubic feet from Tk9.62 per cubic feet.

Meanwhile, the authority also proposed to increase prices of gas by 17% to Tk20 per cubic feet from Tk17.04 per cubic feet.

The government wants to hike prices of gas to reduce the burden of subsidies as it has to buy per cubic meter of LNG at Tk32 and selling it at Tk7.17.

In setting the new prices of the gas, the regulator is going to hold a hearing on the price hike on March 11, 12, 13 and 15, 2019.

Bangladesh to lose a competitive edge in the global market

“In recent years, production cost in the apparel sector has gone up by manifold caused by the safety improvement expenses. While the new wage implementation expedited the rise of production cost,” Mohammad Hatem Managing Director of MB Knit Fashion told the Textile Today.

Figure 2: Four million workforce in the textile and apparel industry will be in uncertainty if the proposed 93% price hike implemented.
Figure 2: Four million workforce in the textile and apparel industry will be in uncertainty if the proposed 93% price hike implemented.

“On the other hand, global buyers and retaliates are not increasing prices of goods rather they cut it.”

In the given situation, a further hike in gas price will be disastrous for the apparel industry as well as textile sector and the owners will be forced to shut factories due to the burden of production costs,” said Hatem also a leader of Exporters Association of Bangladesh (EAB).

I think the government should first consult with the industry people and consider the capacity of the textile and apparel industry. Based on the bilateral talks outcome, the government should set the prices, so that it cannot hurt the industry, said Hatem.

If the prices of gas go up once again, it will eat up Bangladesh’s competitiveness in the global market due to rise in production cost and the competitors will take the opportunity in grabbing export market share, he further said.

Frequent changes in policy is a barrier to invest, while it hinders the stability on investments both from home and abroad.

Abdus Salam Murshedy, MD, Envoy Textile

“Textile sector is highly dependent on captive power and the distributors proposed a whopping 63% increase. If the government increased the prices of gas based on the demands, the sector will fall into deep crisis,” Bangladesh Textile Mills Association President Mohammad Ali Khokon told the Textile Today.

The sector employs over 3 million people and invested about $7 billion, so considering the investment and impact on the society government should not increase the price of gas, said Mohammad.

The policy should be long term

On top of that sector, people urged the government to set long-term energy policy for the export-oriented manufacturing industry.

“In attracting investments from home and abroad, the policy should be predictable so that an investor can take decisions in making new investors,” Abdus Salam Murshedy former president of Bangladesh Garment Manufacturers and Exporters Association BGMEA) told the Textile Today.

Frequent changes in policy is a barrier to invest, while it hinders the stability on investments both from home and abroad, said Salam, also Managing Director of Envoy Textile.

Regarding the policy on gas price, economists also echoed the private sector voice and support the demands of long-term policy and keeping the price within limits to help grow the investment.

“Government needs to increase revenues in reducing the subsidies and to increase income to meet the development costs. But it should not be hurting the industrialization,” former caretaker government advisor AB Mirza Azizul Islam told the Textile Today.

Prices should be reasonable and the policy must be stable. Otherwise, it will have a lasting impact on investment and manufacturing industry hindering employment, life support for reducing unemployment, said the economist.

Why textile apparel sector needs attention

RMG sector, the $30 billion industry with 4.4 million workers mostly women, contributes over 83% to the national exports.

So, trouble in the sector will hurt the export earnings as well as the economy since the Bangladesh economy is driven by export.

In the first eight months of the current fiscal year, the RMG sector has contributed $23.12 billion to the national exports of $27.56 billion posting a 14.17% rise. In the same period last year, the apparel sector earned $20.25 billion.

Of the total, knitwear products earned $11.49 billion posting a 13.50% growth, while woven products contributed $11.63 billion, a rise of 14.840%. In the previous year, the earnings were $10.12 billion and $10.13 billion respectively.

However, In the July-February period of the current fiscal year, Bangladesh earned $27.56 billion, up by 12.98%, comparing $24.39 billion in the same period a year ago.

Also Read: Textile and apparel industry to lose competitiveness in global market if gas price rises

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