RMG in shadows of global turmoil
Protesters demonstrate outside the Bank of England in London yesterday. The picture, right, shows a number of firms that crumbled or were bought out in the global crisis.
The global financial turmoil seems to have weighed on Bangladesh's lifeline, garments, as orders are being deferred by buyers from the countries, where stores have reported declining sales.
Exporters have also said buyers are trying to cut down costs of imports to cope with a slump in consumer confidence.
“Generally, September is a golden month for knitwear exporters, but this year's orders appear to be declining for the first time in four years,” said Fazlul Hoque, president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
However, remittance inflows, also allied with the global economies, are still immune to probable fallout from the unfolding financial crisis that rattled depositors and investors worldwide.
“If 9/11 had affected Bangladesh's export growth significantly, I don't believe this huge crisis would bypass us,” said Hoque.
Hoque's remarks came a day after Nobel Laureate Professor Muhammad Yunus and others warned that Bangladesh's export and remittances would take a hit from the global crisis, which promoted governments and central banks around the world to initiate nationalisation and cut interest rates to restore confidence.
Bangladeshi exports, mostly to the US and Europe, are set to become vulnerable to the debacle, although knitwear and garments registered 84 percent and 58 percent growth in July from the same period a year ago.
“Buyers are now bargaining for price reduction,” said Habibur Rahman, owner of Pandemic Fashion Ltd that exports knitwear to Scandinavian countries.
The IMF has recently projected that income growth in Bangladesh's export markets will decline to 0.5 percent in 2009 from 1.5 percent in 2008.
“The growth of orders received by the exporters in July has slowed down in the last two months,” said Centre for Policy Dialogue Executive Director Mustafizur Rahman, citing his talks with knitwear exporters.
Anwar-ul-Alam Chowdhury Parvez, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), has said buyers seem slow to place orders in an apparent sign of businessmen losing confidence in the world markets.
“They (buyers) are now waiting out the turmoil,” the BGMEA president said.
But Mustafizur Rahman of CPD said: “It's not clear whether this is because of the global economic turmoil or a seasonal outcome. But RMG prices may go down further amid buyers' move to cut costs.”
Mamun Rashid, chief of Citibank NA in Bangladesh, thinks the problems might run deeper because of the likely delay in export receipts and the possible cancellation of orders.
Of Bangladesh's export, only less than 30 percent goes to retail giants such as Wal-Mart, Jc Penny's, Levis, Gap, Zara, Van-Heusen and H&M, while others are mostly small and mid-sized companies, more vulnerable to any financial shock or surprise.
However the ultimate impact may be little less because of diversion of orders from other countries such as Vietnam and China due to rising labour costs in those countries, Rashid said.
BRIGHTER SIDE
Zaid Bakht, research director of Bangladesh Institute of Development Studies, believes RMG exporters would receive increased orders for its edge over China where the production costs would jump another step in the wake of the crisis.
Professor MA Taslim, chief executive of Bangladesh Foreign Trade Institute, also looks at the brighter side of the situation.
“It's also an opportunity. Garment makers can take advantage of the decline in exports from other countries by increasing competitiveness,” said Taslim, citing the example of China, which raised exports after the 9/11 attacks on the US.
Analysts suggested that the regulator maintain a competitive exchange rate to encourage exporters and remitters. They also suggested a mechanism for timely delivery, cheap sourcing of raw materials and no hike in utility prices.
Although some argue that remittance inflows would slow due to the global turmoil, Zahid Hussain, a senior economist for the World Bank's Dhaka office, said any direct immediate impact on remittance looked unlikely, as its inflows remained resilient against the previous financial crises in the world.
In Bangladesh, the bulk of remittance inflows, which recorded a significant rise in the first quarter of the current fiscal year, come from the Middle East, and less than a third comes from the US, UK and Germany.
“However, if a deep and protracted recession starts in the US and EU, the Middle Eastern economies are likely to be adversely affected,” Hussain said.
“Even if the current nearly $8 billion level of remittances is sustained, it would be challenging to maintain its growth momentum if the world economy remains depressed for an extended period,” he said.
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