Exporters worry as orders fall and costs shoot up

Alps Apparels started production in Mirpur 30 years ago and the factory later relocated to Jirabo in Ashulia. Alps basically manufactures garments for European buyers. The factory has purchase orders to manufacture knit garments for only one and a half months after July. After that it has no orders enough to run the factory.

Managing director of Alps Apparels, Khan Monirul Alam, confirmed the matter to Prothom Alo, saying, "We have not received any new orders in the last 20 to 25 days. That means we have no orders for the time being till mid-September." However, he said, he has orders up till January in his other readymade garment factory, Fashion.com. The factory manufactures shirts of synthetic fabric for a buyer company in the US.

Like Alps Apparels, many export-oriented readymade garment factories are seeing a drop in purchase orders. The power and gas crisis is making matters worse. Load-shedding of electricity is pushing up production costs. And production at many textile industries is being slashed by 50 per cent due to the gas crisis. Garment sector industrialists are anxious over delays in the supply of yarn and fabric.

Readymade garments make up around 82 per cent of the country's export products. The next four top export sectors are home textiles, leather and leather products, agro processed foods, and jute and jute products. In the immediate past financial year 2021-22, earnings from these four sectors totalled USD 5.15 billion (USD 515 crore). That means that exports in every sector exceeded a billion dollars. Now of these five sectors, even the readymade garment, jute and leather sector exporters are anxious because their work orders are falling. There has been no negative impact on the textile and agro processed food sectors, though production costs have gone up in all sectors due to the gas and power crisis.

A number of exporters have said inflation has increased alarmingly in the US and Europe due to the Russia-Ukraine war. As a result, people there have cut down spending in general, other than on essentials. They have cut down on buying clothes, leather and leather goods, jute goods and other products from Bangladesh. On one side purchase orders have fallen and on the other, production costs have increased due to the gas and power crisis. This has plunged the exporters into a quandary.

The two main sectors in the country to earn foreign exchange are exports and overseas remittance. In the last financial year, expatriate Bangladeshis remitted USD 21.03 billion (USD 2103 crore). And exports earnings were USD 52.08 billion (USD 5208 crore). However, expenditure on imports were USD 87.87 billion (USD 8787 crore). This record amount of imports has created a dollar crisis. In order to bring the situation under control, the government has taken several measures to lessen expenditure including on imports.

Leather and leather goods are the third top exports of the country. In 2017, due to environmental pollution, the tanneries were relocated from Hazaribagh in the capital city to Hemayetpur, Savar. As the pollution continued unabated there, the European Union and US brands have stopped buying leather from Bangladesh. In the past financial year, leather and leather goods worth USD 1.25 billion (USD 1225 crore) were exported. The growth was 32 per cent. Purchase orders in the sector are decreasing due to the global situation.

Chairman of Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association (BFLLGFEA), Mohiduddin Ahmed said that due to high inflation, buyers in the EU and the US have cut down on purchasing other than food and fuel. That is why buyers have also cut down on the purchase of leather goods.

In the meantime, jute and jute goods worth USD 1.12 billion (USD 112 crore) were exported in the immediate past financial year. Exports had fallen compared to the previous year. The main market for Bangladesh's jute and jute products at present is EU, Turkey and China. Like the garment and leather sectors, purchase orders in this sector have seen a slump too.

Managing director of the jute goods export company, Creation Pvt Ltd, Rashedul Karim, said, the larger companies in Europe are facing bigger trouble and so have cut down on their purchase orders. Even some existing work orders have been suspended.

While exports have fallen in three sectors, the agro processed food exporters do not face this problem. Purchase orders are normal in the sector. Their production costs have gone up due to the increase in shipping fare and the gas and power crisis. In the last financial year, exports of agro processed foods totalled USD 1.16 billion (USD 116 crore). Other than to the EU and the US, Bangladesh exports agro processed food products to the Middle East too.

Chairman of Pran-RFL Group, Ahsan Khan Chowdhury, told Prothom Alo, "As it is an essential product, there hasn't been any negative impact on the export of agro processed food so far. But everyone is suffering due to the gas and power crisis. This crisis has increased our production costs too. We are trying to increase production in order to curtail losses."

Like the agro food production sector, the home textiles sector is also faring well. Purchasing orders in the sector, in fact, are increasing. Pakistan is Bangladesh's main competitor in home textile exports, but due to the country's political unrest and its gas and power crisis, a large volume of its purchase orders are being rechanneled to Bangladesh. In the last fiscal, home textiles worth USD 1.62 billion (USD 162 crore) were exported from Bangladesh.

Chairman of Bangladesh Terry Towel and Linen Manufacturers and Exporters Association, Shahadat Hossain, said that government organisations of countries in North America buy home textiles including terry towels from Bangladesh. And with the improvement in the corona situation, hotels and restaurants have opened up around the world. Overall, good work orders are coming in.

Winter garments are being manufactured in the factories at present. This is also the time when the spring and summer orders come in. With an improvement in the corona situation, last year large amounts of orders came in from the EU and the US. But this time the situation is different. Orders from the EU and the US have lessened. The negative impact of this will be visible in September and October, entrepreneurs of the sector say.

Speaking to Prothom Alo, AK Azad, managing director of one of the biggest readymade garment export companies in the country Ha-Meem Group, said, "We mostly make garments for US buyer companies. Since last month, orders from the US have lessened. Prices have fallen too by 8 to 10 per cent."

BGMEA provides the utilisation declaration (UD) certificate to the owners of readymade garment industries to import raw material to manufacture readymade garments for the export market and BKMEA provides this certificate to the knitwear industry owners. The number of UD certificates indicates whether garment orders are going up or down. BGMEA leaders say that the number of UD certificate taken in May-June this year is 18 per cent less than in in the corresponding period of 2021. And the number of UD taken in the knitwear sector dropped by 10 per cent.

Managing director of Sparrow Group of Industries, Shovon Islam, told Prothom Alo that the work order situation for garments was not good. There may be a 30 per cent fall in spring and summer orders from Europe and the US. He said that alongside expensive garments, Sparrow also manufactures some inexpensive garments too. Inexpensive garment work orders have fallen by 15 to 20 per cent.

In the immediate past financial year, Bangladesh exported readymade garments of USD 42.61 billion (USD 4261 crore). Of this, 50 per cent was exported to European countries, 21 per cent to the US and 10 per cent to the UK. Due to the Ukraine-Russia war, inflation in the US and the UK stood at 9.1 per cent and 9.4 per cent respectively, which is the highest in 40 years. Meanwhile, the average inflation rate in EU countries is 8.6 per cent.

In a report of the US media channel CNBC last week, it was said that the price of apparel had gone up by 5.2 per cent due to inflation. Sales have fallen. As a result, the stock in the retail and brand outlets has increased. Last month the world renowned brand Target took drastic action by cancelling its work orders in order to reduce it stock. The big garment buyers Walmart and Gap are going down the same path.

Exporters are saying that work orders were pouring in during the first half of last year as the corona situation had improved. With the price of raw materials going up, export prices went up by 10 per cent. There was an overall 35 per cent growth last fiscal. Presently the price of raw material, yarn in particular, has fallen. Purchase orders have fallen too. It is not likely that garment export will see an increase this fiscal, it is apprehended.

Not all factories have seen a fall in purchase orders. The work orders in the smaller factories have not seen much of a change. NR Creation in Savar is one such factory. They directly export garments to seven brands in Spain, Italy, France and the Czech Republic. The factory has enough orders to work to full capacity till January next year. Proprietor of NR Creation, Alkas Miah, said, "Every month we export garments of USD 400,000 to 450,000. We have no worries about work orders."

Meanwhile, the export-oriented textile mills have been suffering from before Eid-ul Azha due to the gas crisis. Due to the gas crisis, the textile factories in Narsingdi, Araihazar in Narayanganj and Gazipur saw a 20 to 60 per cent fall in production. President of BTMA Mohammed Ali said, "Not all factories have gone into full production after Eid. The actual situation will be clear next week. We request the government to attach priority in supplying gas to the industries, otherwise exports will be hampered."

Even two years ago, woven garments were exported more than knitwear. In the last financial year, knitwear exports exceeded that of woven by USD 3.82 billion (USD 382 billion). A large portion of the fabric used for woven garments has to be imported. And 95 per cent of the fabric for knitwear is manufactured in the country. Gas is required at the various stages in the manufacture of this fabric.

During the daytime, the gas pressure at the knitwear factories in Narayanganj rise about 2 to 3 PSI. This has cut fabric dying by 50 per cent. This is creating a problem in supply, claimed BKMEA executive president Mohammed Hatem, saying, "Alongside a fall in purchase orders, the gas and electricity crisis is a new worry."

Research director of the Centre for Policy Dialogue (CPD), Khandakar Golam Moazzem, speaking to Prothom Alo, said that the times at present are different from normal. Due to inflation, consumer demand is naturally falling in the countries that import garments from Bangladesh. Under the circumstances, the buyer companies must not see any signs of uncertainty from Bangladesh. For that, it is necessary to ensure gas and electricity supply to the factories and also adequate provision of dollars for the import of raw material.

*This report appeared in the print and online editions of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir