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Unpredictable policy leading spinning sector to destruction

The govt. has hiked the price of gas for all sectors including industry to reduce the subsidy of imported LNG. This decision will bear down heavily in the spinning sector. As the cost will increase from 8 to 15 cents depending on the product type. Already, the spinners are operating business with 15 to 20 cents loss over input cost. Meaning this additional 15 cents loss will add on top of that and pave the way for the closure of 20 to 30% spinning mills.

Unpredictable policy for BD spinning

The most worrying reality for the investors is, when the government frequently changes its policy in the key sector like energy – which is the mother of all other industrial growth – it generates a negative appetite for investors, and scare them away from further future investment. As the investors always worry for a sudden increase in cost due to a government decision.

So, all the stakeholders are asking for minimum 5 years unchanged policy support as investors can get confidence to invest more. This situation can only be eased if the government takes a long term plan in the energy sector.

When a country lacks in ease of doing business due to frequent changing of government decisions, it will have an extremely negative impact on the GDP growth and slows down the GDP growth for sure.

The government and other relevant bodies/organizations must provide all possible facilities to the investors. Especially for the primary textile sector. Providing all types of facilities for investors is essential for the economic development of a country. Keeping in mind, the more comfortable an investor feels, the more risk he will take. Ensuring more development and rapid growth of GDP.

The government must fix a long term policy for the energy sector to resolve this scenario and bring back investors’ confidence and saving the primary textile sector of Bangladesh.

We must understand that unlike other industries of Bangladesh, who are manufacturing for local markets and protected by bond and other facilities, the primary textile sector is competing against global players. Otherwise, we will lose the price edge with other yarn and fabric producing countries.

scenario for the BD spinning sector

When the locally produced yarn and fabric price increases than it will remain unsold and overburden our millers who are already operating in loss with a bank loan. On top of that, they will be losing the local and international market leaving no room for the spinning manufacturers to stay afloat.

This will give a huge blow to the backward linkage industry. The forward industry can import fabric and yarn from abroad with the bonded facility as they are not bound to use the locally produced yarn and fabric. If this situation continues, in the future, we might see this business moving out of the country.

Spinners have complex realities, some are running mills with heavy loans, and some have light debt. On the other hand, those who have full cash – closing factories for a couple of months for them is not a problem – but the majority of the spinners will be in a crippling situation when they shut their factories. As they are operating with loose and piling up bank loans, ultimately bank will force the manufacturer to close down its factory.

In last FY, the textile and RMG sector alone exported US$34.133 bn. But is it the overall picture of the sector? A recent report by a prominent news media (Daily Jugantor) showed, every year the Export Promotion Bureau (EPB) do not subtract the cost of raw materials import and back-to-back LC from the export amount. Which is a staggering 80% (around US$27 Bn) of the total export earnings. Meaning the export amount shows a partial figure.

More worryingly, when the forward sector will start using imported yarn and fabric etc., the situation will be much worse as a lump sum will require for the imported yarn and fabric. It will Shrink our already thinning hard-earned valuable foreign currency.

According to the quarterly review of Bangladesh Bank, the gross value addition from the readymade garment sector stood 63.23% in the first half of the current financial year 2018-19. The value addition in FY 18 was 60.94%.

gross value addition from BD RMG

Bangladesh Bank calculated the value addition considering the import price of raw materials including cotton, synthetic/viscose fiber, synthetic/mixed yarn, cotton yarn, and textile fabrics and accessories.

A Bangladesh Bank report showed that import price of raw materials in the July-December period of FY 19 stood at $6.28 billion which is 36.77% of total export earnings from RMG sector of $17.08 billion in the period. Thus, raw materials prices shared 36.77% of the total value of RMG export, it means local value addition is estimated at 63.23%.

On the other hand, in recent years foreign investment in various sectors has increased a lot. Bangladesh received $3.61 billion FDI (Foreign direct investment) last year, according to a World Investment Report 2019 by United Nations Conference on Trade and Development (UNCTAD). But we have to put these investments under scrutiny, as foreign investors are many times stronger than the local investors and sometimes they invest for short term with a big amount and sell products below the benchmark price. Causing destruction for the local sectors and afterward leave the country.

In conclusion, the government should take long term policy for the primary textile sector and bring foreign investments under scrutiny.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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