Extra cash incentive planned for non-cotton RMG exports
The government could pay additional incentives to the exporters of non-cotton apparel items in order to help them offset the severe impacts of the Russia-Ukraine war on the shipment of garment items.
A file from the commerce ministry was sent to the finance ministry a few days ago, recommending at least 5 per cent additional cash incentive for the shipment of non-cotton garment items, which are made from man-made fibre (MMF).
The aim is to give some relief to exporters facing difficulties owing to the war, said Tapan Kanti Ghosh, senior secretary of the commerce ministry.
The move came after the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) sent a letter to the commerce ministry, demanding a 10 per cent cash incentive on the export of non-cotton garment items as the demand for MMF-made apparel products is growing worldwide and the prices are also better than cotton-based ones.
In a letter to the commerce ministry, the association also pointed out the importance of producing a diverse range of products and high-value items to remain competitive in the post-LDC era.
"So, it is the right time to pay an additional cash incentive on the export of MMF-made garments in order to accelerate garment shipment from Bangladesh and overcome the impacts of the war," Ghosh said.
The decision about the new cash incentive will come into effect very soon since it is being noticed that orders are declining in some destinations because of higher inflation, the senior secretary said.
Last week, Achim Troster, German Ambassador to Bangladesh, also said the prolonged war, energy crisis and rising inflation are likely to slow Bangladesh's present export momentum to Germany in the days to come.
Inflation in Germany recently hit a 50-year high of 8 per cent.
Inflation, along with the increasing energy price, will squeeze the purchasing power of German consumers and prompt them to spend less on consumer goods like readymade garments and leather, Troster said.
Germany is not the lone country that is suffering from higher consumer prices.
In the US, inflation accelerated to a fresh 40-year high of 8.6 per cent in May and it was 8.1 per cent in the eurozone – the two biggest export destinations of Bangladesh.
Inflation is also running high in other major markets such as the UK, Spain, France, Canada, and Italy.
Garment exports from Bangladesh to Germany, the second-largest export destination for Bangladesh after the US, stood at $5.95 billion in the fiscal year of 2020-21 and to the US market $6.97 billion.
Despite the gloomy global outlook, exports from Bangladesh hit an all-time high of $52.08 billion in the just-concluded fiscal year. Garment shipment clocked 35.47 per cent year-on-year growth, netting $42.61 billion.
In June, the shipment stood at $4.908 billion, the highest ever on record in a single month, rebounding from a nine-month low of $3.83 billion registered in May.
"We need to maintain the export growth. So, we are going to introduce this special incentive," Ghosh said.
Currently, the government pays a 5 per cent cash incentive on the sales of garment items made from locally spun yarn, a 1 per cent additional incentive for exports in all markets and a 4 per cent cash incentive in non-traditional markets. Bangladesh considers all markets as non-traditional except the US, the EU, the UK and Canada.
Faruque Hassan, president of the BGMEA, said the demand for non-cotton garment items is rising thanks to the change in fashion and styles.
For example, of the total garment items produced in the world, 78 per cent are made from MMF and the rest 22 per cent are cotton-made.
In Bangladesh, the picture is opposite.
From Bangladesh, of the total garment items shipped, 74 per cent is made from cotton fibre and the rest is manufactured from the non-cotton fibre.
The price gap between cotton and MMF-made items is also large. For instance, if a cotton-made garment item is sold at $5 apiece, the asking price of an MMF apparel item is $10.
"As a result, our exporters are getting very low prices," Hassan said.
"So, any form of incentive at the time of the war will definitely help the sector grow," he said, urging the government to continue such incentives at least until 2026, the year when Bangladesh is set to graduate from the group of least-developed countries to finally become a developing nation.
China dominates the $700-billion global market of MMF-made garments.
Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, called for changing rules on the import of raw materials of non-cotton items apart from extending the cash incentive in order to make the shift to MMF.
The government has halved the value-added tax on the sales of MMF to Tk 3 per kg from Tk 6 and extended the 15 per cent corporate tax rate for the textile sector up to 2025 to help the sector grow.
Entrepreneurs have so far invested $20 billion in the primary textile sector.