Bangladesh looks poised to reap multiple benefits from the resolution of US tariff issues as mandatory higher local value addition to exports spurs textiles rebound while pared-down duty on apparel promises its trade expansion.
Industry insiders appear upbeat about textiles pickup following the United States government-set requirement of 40-percent local value addition to exports shipped to the US market. They feel the compliance criterion has started significantly strengthening the country's backward- linkage industries, creating opportunities for domestic yarn and fabrics producers.
Under the US Presidential reciprocal tariff provisions, export goods that use at least 20-percent US-origin components will receive duty exemptions on that portion of the product value, offering further incentives for local mills to source raw materials from the US.
Two domestic factors have also contributed to the production uptick: the government ban on yarn imports through land ports and an improved gas supply for industries. Customs data show that yarn imports have been declining since the import ban was enforced following diplomatic spat centering around last year's political changeover in Bangladesh.
Speaking to The Financial Express, Kutubuddin Ahmed, founder-chairman of Envoy Textiles Ltd -- world's first LEED-certified denim mill -- said the conditions requiring local value addition and the use of US raw materials would help attract investment in Bangladesh's spinning and textile mills, which will create more employment opportunities in the country.
Envoy Textile has production capacity of around 54 million yards of denim fabrics annually, 60 per cent of which go to the US market. Thanks to the growing demand, they have already secured full-capacity orders for the next four months to December this year, said Mr Ahmed.
The company imports 24,000 tonnes of cotton annually and currently only 15 per cent of the cotton is sourced from the United States. Now the company plans to ramp up its imports of US cotton, with the potential to raise the share by nearly 60 per cent.
Kutubuddin Ahmed, buoyed by the prospect, says, "We are already in talks with a US supplier to import 250 tonnes of cotton, considering the tariff issue."
The business magnate holds the hope that for the US tariff decision, Bangladesh will be able to expand its business on the US market.
"However, this may also have an impact on other markets as India and China will try to increase their exports to Europe and elsewhere, where Bangladesh also competes," observes Kutubuddin Ahmed, a former president of garment apex-body BGMEA.
MA Rahim, vice chairman of DBL Group, one of the largest apparel exporters, says the textile industry is now running at full capacity as gas supply has improved following government initiatives to ensure smooth industrial supply.
"With the leadership of the BGMEA president, we recently met officials of the relevant ministries. They assured us that LNG imports will be increased in the next two to three months," he told the FE.
Mr Rahim added: "We hope the situation will further improve in the coming days."
He notes, however, that August and September are traditionally lean months for the knitwear industry, resulting in lower workloads. Demand is expected to pick up from October as uncertainty over US tariffs has now been resolved. On the other hand, a steep 50-percent tariff on Indian exports to the US came into effect this week.
Mr Rahim points out that shifting sourcing decisions takes time, with reputed buyers usually requiring at least a month to move orders to an existing supplier, and around six months for fresh supplier shifts.
Echoing Rahim's views, Salehuddin Jitu, managing director of NZ Group, says the industry has not faced serious gas shortages since Eid-ul-Adha. "After Eid, the energy adviser visited several industries and subsequently took initiatives to ensure smooth gas supply."
However, Jitu notes that last month was marked by uncertainty as many European buyers delayed order confirmations due to the US-tariff dilemmas. "Most waited to see the US decision. If it had gone against Bangladesh, they might have pressured for further price reductions," he explains.
At present, many European buyers' senior officials are on vacation. "They usually take two to three weeks off after placing orders. We expect fresh confirmations once they return," he adds.
Jitu, also vice president of BTMA, warns that India and China may resort to dumping products in other markets to survive, creating uneven competition for Bangladeshi exporters. He also points out that several large garment factories remain closed, which, if operational, could have brought in more business.
Another major challenge he lists is that some banks are failing to release export receivables. "A number of troubled banks are unable to make payments after receiving export earnings. This has created liquidity problems for many factories. Until this issue is resolved, textile mills will not be able to expand their business as funds remain stuck in these banks," he laments.
Talking to The Financial Express, Shasha Denims Ltd Managing Director Shams Mahmud said, "We still face significant challenges in securing energy for industries. However, the situation is better than it was a few months ago. This improvement is partly because some large industries are currently not in operation. If they resume production, it could lead to energy disruptions again."
He strongly feels the urgency of energy security to make the most of potential for real business gains to boost the economy. "We have not seen enough urgency from the authorities," he regrets about the problem Bangladesh has faced over time.
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