Falling euro taking toll on RMG, frozen foods, footwear exports
Thursday, 27 May 2010
A Z M Anas and Siddique Islam
Bangladesh's major export-earning sectors including apparels and sea food stand to suffer as a weakening Euro threatens to dent profits, eroding competitiveness in Europe, their biggest market.
Industry leaders say it's going to be a double whammy for some of the foreign exchange earners feared to face renewed challenges in the wake of the Greek debt crisis.
The Euro fell to a four-year low of $1.2142 last week and has lost more than 13 per cent since January.
"The Euro's difficulties will surely affects us. If the currency (Euro) is converted to either dollar or taka, it can reduce our margins," BGMEA President Abdus Salam Murshedy said.
Mr. Murshedy who is leading a 4000 member-strong Bangladesh Garments Manufacturers and Exporters' Association (BGMEA) noted that many exporters' earnings might be in the red as a result of the plunging value of the Euro, even though there was no rise in prices of clothing in the international markets.
"Our exports and earnings have already hit the rock-bottom. The plummeting Euro will just kill us," said Mohamad Musa, President of the Bangladesh Frozen Food Exporters' Association (BFFEA), a trade group.
European Union is Bangladesh's major export market that accounted for more than 60 per cent of the country's apparel shipment last year.
Bangladesh's exports grew by 6.3 per cent to 5.8 billion euro in 2009 when China, India and Vietnam's growth went negative. China's exports growth came down to 13.4 per cent, India's 13.9 per cent, while growth of Vietnam slashed to 9.5 per cent last year.
"Except for Qatar, with export of about 3 billion euro, there is no significant exporting country with a positive growth in exports to the EU in 2009," Zillul Hye Razi, trade adviser to the European Union told reporters recently.
Frozen food shipment dropped by 30 per cent to Tk 29 billion in 2009, compared to Tk 42 billion a year earlier in the aftermath of the global recession that crimped demand for the luxury item in the US and the European markets. Production was also lower due to the cyclone Aila.
"This sector risks losing its rank as the country's second largest export earner. That will mean lower foreign income and more job losses," he told the Financial Express.
So could happen in the shipments of footwear that fetched $245 million so far in export earnings.
The problem with the Euro has already lowered the value of the country's over US$10 billion foreign exchange reserves stocked in triple-A rated banks in the United States and Europe.
The Bangladesh Bank (BB), the central bank, has estimated that the fluctuations in the Euro have caused an exchange valuation loss of more than US$240 million in the current month.
A source who was briefed on the central bank's valuation loss said that the BB calculated around $338 million in exchange valuation loss so far in May while it gained only $94 million at the same time.
The central bank has invested its reserves in six major currencies -Greenback, Euro, Great Britain Pound (GBP), Australian dollar (AUD), Canadian dollar (CAD) and Japanese Yen.
"The bulk of our reserves is invested in the US currency. But we've also increased the share of the Euro in reserves," another senior official at the BB said.
He added that the decision to increase the share of foreign currency deposits in the Euro was taken in the wake of the global recession.
The central bank also invests its reserves in treasury bills and bonds in Asian countries and central banks.
Officials said a good portion of the reserves is deposited in Sri Lanka, India, Malaysia and Indonesia, mostly in the form of bonds.
They, however, admitted that the central bank would face a "nominal" exchange loss following a sharp decline in the value of the euro for the last several weeks.
A BB official said the central bank has started monitoring the turmoil of the euro closely to avoid financial risk of its investment in the European currency.
"We're monitoring the overall situation closely to avoid any financial risk," a senior official said Wednesday.
But he dismissed the notion of a massive valuation loss, saying Bangladesh's reserves are kept in foreign banks and countries in the Euro as investment, not traded in overseas currency markets.
The country's forex reserve stood at $10.12 billion Wednesday thanks to a robust growth of inward remittances as well as declining import payments in the recent months.
Bangladesh's major export-earning sectors including apparels and sea food stand to suffer as a weakening Euro threatens to dent profits, eroding competitiveness in Europe, their biggest market.
Industry leaders say it's going to be a double whammy for some of the foreign exchange earners feared to face renewed challenges in the wake of the Greek debt crisis.
The Euro fell to a four-year low of $1.2142 last week and has lost more than 13 per cent since January.
"The Euro's difficulties will surely affects us. If the currency (Euro) is converted to either dollar or taka, it can reduce our margins," BGMEA President Abdus Salam Murshedy said.
Mr. Murshedy who is leading a 4000 member-strong Bangladesh Garments Manufacturers and Exporters' Association (BGMEA) noted that many exporters' earnings might be in the red as a result of the plunging value of the Euro, even though there was no rise in prices of clothing in the international markets.
"Our exports and earnings have already hit the rock-bottom. The plummeting Euro will just kill us," said Mohamad Musa, President of the Bangladesh Frozen Food Exporters' Association (BFFEA), a trade group.
European Union is Bangladesh's major export market that accounted for more than 60 per cent of the country's apparel shipment last year.
Bangladesh's exports grew by 6.3 per cent to 5.8 billion euro in 2009 when China, India and Vietnam's growth went negative. China's exports growth came down to 13.4 per cent, India's 13.9 per cent, while growth of Vietnam slashed to 9.5 per cent last year.
"Except for Qatar, with export of about 3 billion euro, there is no significant exporting country with a positive growth in exports to the EU in 2009," Zillul Hye Razi, trade adviser to the European Union told reporters recently.
Frozen food shipment dropped by 30 per cent to Tk 29 billion in 2009, compared to Tk 42 billion a year earlier in the aftermath of the global recession that crimped demand for the luxury item in the US and the European markets. Production was also lower due to the cyclone Aila.
"This sector risks losing its rank as the country's second largest export earner. That will mean lower foreign income and more job losses," he told the Financial Express.
So could happen in the shipments of footwear that fetched $245 million so far in export earnings.
The problem with the Euro has already lowered the value of the country's over US$10 billion foreign exchange reserves stocked in triple-A rated banks in the United States and Europe.
The Bangladesh Bank (BB), the central bank, has estimated that the fluctuations in the Euro have caused an exchange valuation loss of more than US$240 million in the current month.
A source who was briefed on the central bank's valuation loss said that the BB calculated around $338 million in exchange valuation loss so far in May while it gained only $94 million at the same time.
The central bank has invested its reserves in six major currencies -Greenback, Euro, Great Britain Pound (GBP), Australian dollar (AUD), Canadian dollar (CAD) and Japanese Yen.
"The bulk of our reserves is invested in the US currency. But we've also increased the share of the Euro in reserves," another senior official at the BB said.
He added that the decision to increase the share of foreign currency deposits in the Euro was taken in the wake of the global recession.
The central bank also invests its reserves in treasury bills and bonds in Asian countries and central banks.
Officials said a good portion of the reserves is deposited in Sri Lanka, India, Malaysia and Indonesia, mostly in the form of bonds.
They, however, admitted that the central bank would face a "nominal" exchange loss following a sharp decline in the value of the euro for the last several weeks.
A BB official said the central bank has started monitoring the turmoil of the euro closely to avoid financial risk of its investment in the European currency.
"We're monitoring the overall situation closely to avoid any financial risk," a senior official said Wednesday.
But he dismissed the notion of a massive valuation loss, saying Bangladesh's reserves are kept in foreign banks and countries in the Euro as investment, not traded in overseas currency markets.
The country's forex reserve stood at $10.12 billion Wednesday thanks to a robust growth of inward remittances as well as declining import payments in the recent months.