Fuel oil price hike to badly hit expected RMG export earning

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Talha Bin Habib and Badrul Ahsan The recent hike in price of fuel oil by the government will put a damper on the expected growth of export earnings from the RMG (ready-made garment) sector, leaders of the sector and experts said. They said the sector has for some time been facing multifarious problems, such as high interest rates, inadequate gas and power supplies which hampered smooth industrial operation. They also said the recent price hike of fuel oil would only add to the financial burden of the entrepreneurs thus worsening the situation. They observed that prices of essential commodities would increase and it might ignite labour unrest over demand for higher wages. Former adviser to the caretaker government Dr Akbar Ali Khan said the garment sector had managed to supply items to international buyers at competitive prices, despite depending heavily on import of two basic important components -- cotton and machinery. He suggested that the sector should be given the utmost priority before taking any major decision directly involving it. "The RMG sector tops the list of foreign currency earners. The fuel price hike might force it to be less competitive," Akbar Ali Khan said adding that if the production cost went up, then the international buyers might shift their orders to the neighbouring countries like Myanmar, and other Southeast Asian countries. The president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) termed the fuel price hike 'suicidal' for the country's highest export earning sector. "Price hike of fuel oil will push the production cost up that will make us less competitive in the global market, since our productions are mostly dependent on fuel supply," BGMEA president Md Shafiul Islam Mohiuddin told the FE Sunday. President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Salim Osman said many garment units have been using oil-based power generators due to shortage of power supply. The production cost would jump significantly due mainly to fuel price hike and thus the sector would be less competitive on the international market and the country might not achieve its projected target of earning $36 billion by 2020. According to McKinsey & Company, an international management consulting firm, had predicted that Bangladesh's apparel exports would reach $36 billion by 2020. The World Trade Organisation (WTO) declared Bangladesh as the second-largest RMG exporter after China in 2010-11, when the country's export grew 43.36 per cent year-on-year to $15.66 billion in spite of global recession in 2007-2008. But the sector witnessed a slow export growth of only around seven per cent in the last fiscal (FY2011-12) due to the country's perennial gas and power shortages, global economic meltdown and topsy-turvy political scenario in some parts of the world. At present, the RMG sector employs 3.5 million workers, 80 per cent of whom are women. The country's 60 per cent RMG products enter the EU, while 23 per cent to the USA, 4.8 per cent to Canada and 12.1 per cent to other destinations. According to data of Export Promotion Bureau, the RMG sector's contribution to the country's export was 3.9 per cent in fiscal 1983-84, which now stands at nearly 80 per cent. The apparel (both knitwear and woven) sector earned around US$ 19 billion during the FY 2011-12. And the target for the current fiscal is about $22 billion.