The world’s second largest apparel exporter is experiencing a slowdown that will threaten the country’s economic recovery.
Bangladesh’s garment industry, the world’s second-largest exporter after China, is facing a double whammy from slowing global demand and a domestic energy crisis that threatens to thwart the country’s pandemic recovery.
Plummy Fashions Ltd., a supplier to PVH Corp., parent company of fashion brand Tommy Hilfiger, and Inditex SA’s Zara saw orders in July fall 20% from a year earlier, said managing director Fazlul Hoque.
“Retailers in both the European and US markets are either postponing shipments of finished products or delaying orders,” he said in an interview. “With inflation rising sharply in our export destinations, this is having a serious impact on us.”
Shrinking orders are a risk to the economy, where the apparel industry accounts for more than 10% of gross domestic product and employs 4.4 million people. It couldn’t be worse timing for Bangladesh as authorities resort to productivity-crushing power outages to conserve fuel reserves amid a regional energy crisis caused in part by the war in Ukraine.
“Uninterrupted power supply is key to delivering products on time,” said Hoque. “We are facing a combination of several problems at home and abroad.
3 hour outages
When the energy crisis hit, the cost of doing business has skyrocketed. Standard Group Ltd., a leading exporter supplying Gap Inc. and H&M Hennes & Mauritz AB, relies on generators for at least three hours a day to power its dyeing and washing plants at the Gazipur Manufacturing Center on the outskirts of Gazipur dhaka
“The cost of electricity from generators is three times that of the national grid because diesel is expensive,” Standard chairman Atiqur Rahman said in a separate interview. “Because of the power failure, we cannot keep our dyeing and washing plant closed. If we do that, all fabrics will be wasted.”
Add to this the weakness of the euro against the dollar, which is undermining the attractiveness of dollar-denominated exports from Bangladesh.
“Clothes are discretionary,” said Charlie Robertson, chief global economist at Renaissance Capital. “If your energy bills skyrocket in Europe, people need to cut discretionary spending and clothing will be one of those areas,” he said.
Regional contagion
Concerns in the South Asian country’s garment industry are reminiscent of canceled orders in the early days of the pandemic. Apparel exports fell to a five-year low of $27.95 billion in the fiscal year ended June 2020 before recovering. The country’s apparel exports rose to a record $42.6 billion in June-ending year, accounting for 82% of total exports.
Exporters also see ominous signs in Walmart Inc.’s slashing of its full-year earnings guidance and its pledge to cut apparel prices.
And there is regional contagion from Sri Lanka, Robertson said, noting that Pakistan’s exports are becoming “so much cheaper” because of the weakness of its currency. “This increases the pressure on Bangladesh and major export markets like Europe will buy less textiles” as sales growth collapses.
Bangladesh has requested a loan from the International Monetary Fund, the latest South Asian nation to ask for assistance as more expensive oil eats into the region’s dollar stocks.
Bangladesh’s foreign exchange reserves slipped to $39.79 billion on July 13, from $45.33 billion a year earlier. That’s enough to cover about four months of imports, slightly more than the three-month coverage recommended by the IMF. The country’s trade deficit widened to a record $33.3 billion in the fiscal year ended June.
“We just recovered from the Covid pandemic and then the war came,” Standard Group’s Rahman said. “We are just ignorant victims.”
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