RMG exports witness negative growth in Q1BGMEA seeks slew of measures to remain competitive

FT ONLINE

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has sought at least an additional Tk 2.0 on top of the market-based exchange rate per US dollar.

It also demanded several other measures to help the country's largest export earning sector overcome the internal and external challenges and remain competitive in the global market.

The trade body urged the authorities concerned to provide loan rescheduling facilities with a provision for 2.0 percent down payment and doubling the tenure for the factories that are not 'habitual defaulter'.

It further sought additional cash incentives to encourage both local and foreign investment in manmade fibre manufacturing to reduce large dependency on cotton-based items, diversify products with highly demanded value-added items and modernize factories.

Sources said the BGMEA has already placed a good number of demands to the central bank in a recent meeting with Bangladesh Bank governor Fazle Kabir while it is going to submit the demands to the government.

Explaining the current situation, BGMEA president Dr. Rubana Huq in a letter to the central bank said: "Though our export growth in the last fiscal year ended with 11.49 percent, the first quarter of the current fiscal year posted 1.64 percent negative growth."

In fact, the export growth has been slowing down since October 2018 while negative growth of 11.46 percent and 4.70 percent were recorded respectively in August and September 2019, she added.

RMG exports in terms of volume is increasing higher than the value growth, she said, explaining that the unit value of local garment items has dropped by 1.61 percent in the last four fiscal years.

Some 59 garment factories were closed from January to September period, resulting in the unemployment of about 29,700 workers, she said.

Citing US official data, Ms. Huq said that the unit price of garment exported from Bangladesh to the US and EU decreased by 7.04 percent and 3.64 percent respectively in the last five years.

On the other hand, the export of Bangladesh's main competitors Vietnam, Cambodia and Pakistan grew by on an average of 10.54 percent, 2.25 percent and 4.74 percent respectively in July and August of the current fiscal year, she added.

Explaining the challenges in the letter to the central bank, she said the exchange rate of the local currency against the US dollar has maintained a stronger level over the past few years whereas the currencies of competitor countries have been devalued significantly.

Vietnam, India, Pakistan and China devalued their respective currencies by 10.99 percent, 35.03 percent, 66.40 percent and 12.63 percent respectively from 2012 to 2018, she said, adding: "This is significantly eroding our competitiveness as we are competing in the same global market."

The BGMEA president urged the central bank to provide at least an additional Tk 2.0 as an exchange rate per US dollar on the value that the sector retains out of RMG exports.

It is assumed that the value retention is about 25 per cent of FoB (freight on board). The RMG sector's value retention is about US$ 9.21 billion out of its total exports of $ 34.13 billion in the last fiscal year.

An amount of Tk 1.84 billion would be required to meet the RMG sector leaders' demand of additional exchange rate of TK 2 per dollar, the letter reads.

Besides, the sector is overwhelmingly concentrated on few items namely shirt, t-shirt, trouser, jacket and sweater that accounted for 73 percent of the total RMG export, it said, adding that 74 percent of the RMG items are of cotton-based which was 68.7 percent 10 years back.

Regarding the global challenges, the BGMEA chief said Bangladesh's graduation from a least developed country, EU-Vietnam FTA (free trade agreement) and Brexit are some of the immediate concerns for them.

"The LDC graduation would lead to a situation where double transformation rules of origin under EU GSP will come into effect after 2027 which will give a blow to our export to EU if we fail to develop the capacity of our backward linkage industry," she noted.

Citing the ongoing trade tension between USA and China, she said that out of the top 30 items exported by China and Bangladesh to USA, Bangladesh competes on 16 items. Vietnam is taking more advantage of the situation than Bangladesh.

Taking all the situation into consideration, the BGMEA leader sought additional cash incentive for encouraging product diversification, technology upgradation and investment in manmade yarn and fabric manufacturing.

It recommended defining the good and bad borrowers and establishing a quantifiable definition to protect the business of operational factories.

The BGMEA's other demands to the central bank included single digit bank interest rate, reduction of the interest rate on EDF (export development fund), extend the tenure of export processing realisation under deferred LC (letter of credit) from 120 days to 180 days.