Bangladesh has been unable to secure billions of dollars in readymade garment orders since the previous fiscal year due to a prolonged gas supply constraint and electrical problems.
Most sectors have not received enough gas supply with the requisite pressure over the last two years, and the situation was exacerbated in May of this year when the pressure in pipelines in many locations dropped to nearly zero.
Furthermore, the country has seen up to eight hours of daily load-shedding in many areas, reducing factory production capacity.
Garment factory owners have claimed that their production capacity has gone down by up to 40 per cent. Factories are resorting to diesel-fired or LPG-based generators to fill the gap but this move is shooting up their production costs.
Due to the decline in production, RMG exporters are now in hot water since they are failing to manage worker salaries and fulfil loan installments on time. Many businesses have already lowered their sizes, and many more plan to do so.
A buying house’s national manager in Europe, who requested anonymity, told The Business Post, “We shifted work orders worth over US $ 50 million to Sri Lanka and India in FY 2023-24 as Bangladesh’s exporters have been failing to deliver goods on time.”
The energy crisis has had a severe detrimental influence on RMG production and the country’s total export growth.
According to Bangladesh Bank’s (BB) Balance of Payment figures, earnings from merchandise exports fell 6.8 per cent year on year to US $ 33.68 billion in the July-April period of FY ’24.
During this period, the apparel sector, which makes up the lion’s share of Bangladesh’s export sector, posted US $ 29.68 billion in earnings — which is 6.7 per cent lower year-on-year.
Exporters indicated that exports in May and June of FY ’24 were also weak, and when the data for these two months is available, it will most certainly reveal that growth has slowed even further.
Amid this situation, the central bank has reduced the cash incentive for local export-oriented textile mills from 3 per cent to 1.5 per cent, following a previous reduction of 4 per cent. The actual incentive rate now stands at 1.2 per cent, calculated at 80 per cent of the Free on Board (FoB) price.
