Garment exports to UK drop amid Brexit fears
Garment shipments to the UK, Bangladesh's third largest export destination, declined 5.19 percent in the first half of 2016-17 in what can be termed as a harbinger of the Brexit fallout, expected to take effect in 2019.
Between July and December last year, Bangladesh's garment exports to the UK stood at $1.53 billion, according to data from the Export Promotion Bureau.
“Our garment exports to the UK will face further challenges in the near future as British consumers are facing rising inflation and weakness of the pound,” said Abdus Salam Murshedy, managing director of Envoy Group, a longstanding supplier of British retailers.
The Britons voted to withdraw from the European Union on June 23 last year. And following the shock decision the value of the pound tumbled.
The decline in the value of the pound sterling stoked inflation, which hit its highest level in more than two years in December 2016. In fiscal 2015-16, Bangladesh's garment exports to the UK soared 21.37 percent to $3.52 billion.
Bangladesh has been enjoying zero-duty benefit to the UK under the EU's “Everything but Arms” scheme since 1971. But the duty privilege might not continue once Britain leaves the EU trade bloc.
“If Bangladesh cannot sign a bilateral trade deal with the UK for the continuation of zero-duty benefit, our export to the British markets will fall further,” said Siddiqur Rahman, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Murshedy said Bangladeshi exporters are getting a lot of work orders from British retailers, but they are offering lower prices.
“We can't supply products at the prices being offered as our production cost has gone up.”
According to the former BGMEA president, the small and medium-sized exporters have come under pressure as they cannot sell their products at the reduced prices.
“On the other hand, the big suppliers are catering the British customers despite the cut in prices because of longstanding business relationship,” he said. Murshedy's company usually clocks at least 10 percent growth in shipments to the UK market every year. But this year it might decline to 7 percent.
Envoy Group exports more than $10 million worth of apparel products to the UK every year, according to Murshedy.
The exporter's concern is also being felt by Britain's largest clothing retailer Next, a major importer from Bangladesh, which said it was preparing for tough trading conditions in 2017 as inflation erodes real earnings growth.
Previously, the retailer said: “The year ahead looks set to be another challenging year. Therefore, we are preparing the company for tougher times and have set our full price sales budget accordingly.”
Next, the largest clothing retailer by sales in the UK, has slashed work order volume for Bangladesh.
The retailer had planned to buy apparel items worth $260 million from Bangladesh in 2016. But at the end, the retailer took garment items of about $180 million, said a senior merchandiser, who works for the retailer.
Global banking giant HSBC also predicted a slowdown in exports to the UK due to Brexit.
A slowdown in trade with weakening demand from the UK would hit Bangladesh's exports in the near future, HSBC said recently. This scenario is based on the UK enduring a 'hard' exit from the EU involving loss of access to the common market, the bank said.
BGMEA's Rahman suggested the government continue negotiation with the UK so a bilateral trade deal that maintains the preferential duty benefit could be signed once Brexit comes into effect.