Bangladesh:Exports face strains in financial crisis

Prices are slipping toward the bottom. Orders are being cancelled. Payments and shipments are deferred or on hold. All point to the gloom thickening on the horizon.

Economists warn that a deepening and prolonged recession will take a toll on the local economy as foreign purchase orders of major products such as garments, vegetables, agro-products, IT and software, pharmaceuticals, frozen food, jute and jute goods have all witnessed a freefall.

Data from the United States International Trade Commission (USITC) indicates that Bangladesh’s major export destinations have been badly hurt.

The USITC data said retail sales of the US clothing stores have dropped 2.92 percent in July-November 2008, compared to the same period of 2007.

The US import of knitwear and woven garments from Bangladesh were more than $558 million and $1.21 billion, respectively in July-December of fiscal 2008-09, the USITC data said.

Statistics also show the total import of knitwear in the US depressed by 1.56 percent, and woven items by 3.72 percent, in June to December 2008.

Pointing to slowing GDP growth, economist Mustafizur Rahman said the government would face hurdles in managing macroeconomic issues, following the downward trends in exports and remittance. Exports take up 15 percent of GDP.

Rahman, also the executive director of private think-tank Centre for Policy Dialogue (CPD), said the manufacturing sector of the country has been affected by the recession as many export orders have declined, or their payments and shipments deferred, or even worse, cancelled.

Rahman said the government must zero in on an immediate release of financial packages for the export-based sectors, as a further delay may have a catastrophic impact.

Rahman also suggested the government enhance credit support to yarn manufacturers and local agro-processors.

“The introduction of rationing by the government for garment workers is a good initiative at this time.”

“Economic forecasts of our major export destinations like the EU and US, at least for 2009, are grim as they have faced significant impacts of the recession,” Rahman said.

MA Taslim, chief executive officer of Bangladesh Foreign Trade Institute, echoed Rahman and said Bangladesh would feel the pinch of the recession when export orders would decline starting March and go beyond 2009.

Advocating marginal financial packages (subsidies) in favour of the export sectors, Taslim, also a trade analyst, said higher productivity for local and international markets may prove to be an effective tool to tackle the recession.

“But we should also reform the local market by developing infrastructure and workforce and management skills,” Taslim said.

Countries that have been most open to trade, especially East Asia’s tigers, have witnessed the sharpest downturn, according to The Economist, an international weekly publication.

Singapore’s exports are 186 percent of GDP; its economy shrank at an annualised rate of 17 percent in the last three months of 2008. Taiwan’s exports are over 60 percent of GDP; and its economy may fall as much as 11 percent this year.

On average, says the International Monetary Fund, rich countries will contract 2 percent this year.

In EU, an organisation of 27 nations, the import of woven garments from Bangladesh during July-October 2008 decreased by 2.23 percent, compared to the same period of the previous year, according to the EUROSTAT data.

According to EUROSTAT, knitwear imports by the EU from Bangladesh during July-October 2008 increased by 6.95 percent, compared to the year-earlier period.

The UK, one of the largest importers from Bangladesh, shows a 2.72 percent decline in knitwear import over the July-October period and a 1.02 percent drop in sweater import from Bangladesh.

The Export Promotion Bureau (EPB) data said Bangladesh exported RMG products worth $6.05 billion during the first half of the current FY2008-09.

Abedin Group of Industries Managing Director Monir Ahmed said both prices and purchase orders of garment items have plunged in the global recession.

“We have to run our factories at a loss and become owners of sick industries if the situation does not pick up soon,” he said.

He said factories having strong backward linkages are the only ones exporting at a margin, while small and media are operating in a tight squeeze.

But there is light at the end of the tunnel as some orders are shifting to Bangladesh from major competitors. Chinese manufacturers are moving away from making basic garment products.

Nazrul Islam Swapan, managing director of Nassa Group, an industrial conglomerate with 33 production units and crossing 40,000 workers, said his factory is barely running, and profits are now a thing of the past.

“I hope for the best as the situation around the world gradually improves and the impacts of the financial packages sink in,” Swapan said.

There is no respite from the recession either for the innovative software sector. Ali Ishtiaq, managing director of Pyxisnet, a local software exporting company, cast slowed software export growth records from his company this year, in response to low foreign orders.

“Business in the software importing countries such as Denmark, UK and other European countries is poor. As a result, our exports are also declining this year,” said Ishtiaq.

The company, according to Ishtiaq, exported software worth $5 million last year but this year, export figures will be unimpressive, as he did not net any new client. “We are simply serving existing clients at profit for survival.”

SM Jahangir Hossain, president of Bangladesh Fruits, Vegetables and Allied Products Exporters Association (BFVAPEA), said the export of vegetables and allied products declined by at least 40 percent over the last few months.

“Many exporters halted sending vegetables abroad as the currencies of the receiving countries have significantly devalued,” Jahangir Hossain said.

Kazi Belayet Hossain, president of Bangladesh Frozen Foods Exporters Association (BFFEA), said both the demand and prices of frozen food declined considerably recently.

He said the downward trend indicates the export figures for frozen food would be gloomier this year, as export growth declined by 4.05 percent in the July-December period of the current fiscal year.

In this period, Bangladesh exported frozen food worth $268.84 million, compared to $280.2 million in the same period of the previous year.

Anwar-Ul-Alam Chowdhury Parvez, outgoing president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said corrective measures taken by competing countries, would hurt future Bangladesh exports.

“Competing countries like India allocated $10.5 billion in the name of technological up-gradation fund, Pakistan provided 6 percent subsidy on free on board (FOB) price in the name of R and D (research and development) fund and some other funds, China had given 17 percent tax rebate on export,” Parvez said.

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Source: The Daily Star,Dhaka