Negative RMG triggers further fall in export earnings

FT ONLINE

Export earnings have declined in November for four consecutive months due to negative growth in the readymade garment sector, mounting pressure on the country's current account balance.

During the month, the country earned $3 billion in exports, down by 10.70 percent from the same period last year.

Such a continuous fall for four months in a row last happened during the March-June period in the fiscal year 2011-12.

In the first five months (July-November) of the current fiscal year, exports fell by 7.59 percent to $15.77 billion, according to the Export Promotion Bureau (EPB).

The earnings of five months were $12.59 billion short of the government target of $18 billion.

The apparel sector, which accounts for 84 percent of export earnings, saw a 7.74 percent fall during the period. 

A fall in demand amid the global economic slowdown and the slow devaluation of taka compared to currencies of other competitive countries are blamed for the declining export in Bangladesh.

Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "We are not aligned at all with the global competitive scenario. Particularly, the exchange rate movement of taka against the competitor currencies remains inconsistent."

"The shutting down of factories over the recent months [especially after the minimum wage hike in December last year] is taking its toll on our exports and industry," she added.

The export has been growing at a faster rate in Vietnam, Cambodia and Pakistan compared to that of Bangladesh in recent times, she said.  

"Therefore, it is high time Bangladesh took a few quick steps to bring back growth momentum. A few recommendations on the quick fixes are the exchange rate premium on the local retention of the RMG export and untangling the complexities in cash incentive."

"While Bangladesh has made such a huge stride in safety and sustainability of the industry, and we are making outstanding steps in green industrialization, such a shift in the sourcing pattern of global brands is leaving a question to our sustainability initiatives," the BGMEA president added.

However, since Bangladesh is operating mostly in the lower tier of the retail market segment, it is time for the industry to rethink the business model towards diversification from basic to mid-high price segment, and the diversification from cotton to non-cotton items, especially for items for women, said Rubana.

Mohammad Hatem, the first vice-president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, "The negative growth will continue till December as we were not able to receive a significant number of orders."

"Buyers are shifting to our competitor countries as they can offer lower prices than us; that is why we are losing," he added.     

Centre for Policy Dialogue's (CPD) Executive Director Professor Mustafizur Rahman said the declining export must be putting pressure on the country's trade account and current account balance. However, remittance earnings are much better currently.

The negative growth for four months is a matter of worry, considering the last few years' export growth, he added. 

Competitor countries are doing better than Bangladesh as they have a competitive edge during the slow growth of global trade and economy, said the CPD executive director.

The government has already devalued currency slightly but they should depreciate taka to make the apparel industry more competitive. They should also consider the inflationary effect, he added.

He also mentioned that the currency devaluation is better than providing cash incentives against remittance earnings.

The government should focus on improving the country's position in ease of doing business, said Dr. Mustafizur.

Entrepreneurs should reduce production costs and explore regional markets as new destinations for their products, he added.

In October, the Bangladesh Bank devalued taka against the US dollar due to growing pressure on the current account balance with exports being stretched thin.

The central bank devalued taka by 20 basis points in two phases, raising the interbank exchange rate to Tk84.70 from Tk84.50.

In March this year, taka saw a slight devaluation by 10 basis points.

The central bank's intervention kept the interbank exchange rate stable at Tk84.50 for the last five months, after the rate had shot up to Tk87 in the informal market.

Moreover, Bangladesh Bank's own calculation shows that the nominal exchange rate – which represents the current value of one currency against another – is above Tk90.

The fall in export is putting pressure on the current account balance which stood at negative $678 million in July-September, according to Bangladesh Bank data.

However, the dollar market remained stable thanks to a good inflow of remittance backed by the 2 percent cash incentive.

Major sectors witness negative growth 

Agricultural products earned $446.32 million in the first five months of the current fiscal year, down by 2.69 percent; it was $458.64 million in the same period the previous year.

Earnings from frozen and live fish exports saw a fall of 7.62 percent to $235.11 million, which was $254.51 million in the last fiscal year.

Leather and leather products earned $391.09 million, down by 10 percent from $434.7 million in the previous fiscal year.

Earnings from manufactured commodities exports fell by 7.73 percent to $15,095 million, which was $16,360 million during the same period of the last fiscal year.

Engineering products earning fell by 1.8 percent to $142.37 million; it was $144.98 million during the same period in the previous year.

Jute sees positive growth

Earnings from jute and jute goods and non-leather footwear saw positive growth.

Once famous as the country's largest export earning sector, jute and jute goods registered a 15 percent rise in earnings to $405 million in the first five months of the current fiscal year, which was $352 million in the same time of the last fiscal year.

Earnings from non-leather footwear export rose by 27 percent to $132 million from $103.68 million over the same period in the last fiscal year.

Shakhawat Ullah, general secretary of Bangladesh Tanners' Association, said, "Our earnings from leather and leather goods are not increasing as we are still lagging behind in environmental compliance at our tanneries." 

The ongoing global economic recession has also affected the sector, he added.

Shakhawat hoped the sector will bounce back by February next year as they are receiving some big orders.