Grim stats show sluggish future for apparel sector

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Badrul Ahsan New investment in the country's key garment sector has fallen sharply this year, hit by a protracted energy crisis and an economic turmoil in Europe and the United States. Only two garment plants have been listed with the Regsitrar, Joint Stock Companies and Firms in the first 11 months of 2011, reflecting the uncertainty that has gripped the industry accounting for 80 percent of Bangladesh's US$23 billion exports. The number of new factory applications at the Bangladesh Garment Manu­facturers and Expor­ters Association (BGMEA) has declined to 146, from 176 in 2010 and 184 two years back. During the year Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) has approved 89 new memberships, down from 117 two years back. Import orders for new apparel machinery declined by nearly 25 per cent in the first four months of the 2011-12 fiscal year, underlining lack of appetite for risks among the manufacturers, a central bank official said. Letters of Credit (LCs) worth US$ 104.10 million were opened to import apparel machinery in July-October this year against $137.92 million during the same period last year, the Bangladesh Bank statistics showed. "These are ominous signs for the garment sector. These grim figures suggest that the sector is heading for a sluggish future," said BGMEA president Shafiul Islam Mohiuddin. Mohiuddin said export orders have slopped off since September as the debt crisis in Europe Union, Bangladesh's major buyer, shows no sign of abating, while growth in the US remain below expectations. Together the EU and the US make up nearly 90 per cent of Bangladesh's annual garment exports, with the EU buying every six of the 10 garment items Bangladesh ships every year. "The situation in some major European nations is extremely depressing. Many buyers have either cancelled or delayed orders, or simply sought to make payment later," said BGMEA vice-president Siddiqur Rahman. Retailers from Spain, Italy, Portugal and Greece, the nations hit hard by the sovereign debt crisis, cut orders worth hundreds of millions of dollars even in the busy Christmas season. The BGMEA chief said the gas and power crisis have weighed on the investment climate as the authorities have largely frozen fresh connections to new factories and the expanded units of the existing plants. The government has drawn up a plan to ease the energy crisis by middle of 2011, but gas output remained at least 20 percent less than the demand. Power situation improved slightly, but only a few factories got new supply. "Infrastructural problems, including high cost of land and paucity of skilled labour, and volatility in the international market have discouraged fresh investment in the garment sector," said Mohiuddin, adding its impact will be felt early next year. "Many potential orders have been redirected to Latin America and Asia," he said, and noted that in the long run retailers may head to Myanmar thanks to its thawing ties with the West. Senior Research Fellow of Center for Policy Dialogue (CPD) Khondaker Golam Moazzem said Bangladesh has missed a golden opportunity to grab the orders worth billions of dollars being diverted from increasingly costly China. "New retailers switching orders from China to Bangladesh prefer experienced, bigger and composite factories for their orders. New and small units can not comply with their demand, which is another reason the sluggsih trend in orders," he said. Even sharply depreciating Taka could not lure the buyers, as the western retailers are more worried about the Bangladeshi factories ability to cope with new orders than a better bargains for their purchase, he said. Taka has depreciated more than 10 percent over the last six months owing to surging imports and growing strains on the balance of payment. Leading exporters have urged the government to set up task-force toface the latest threats to the garment industry. "We need government intervention to ride out the new challenges. Some of these problems are so complex they require multi-prong approach," said president of Exporters Association of Bangladesh Abdus Salam Murshedy.