Bangladesh Garment Industry Faces Energy and Demand Crises | Business and Economy News

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The world’s second largest clothing exporter is experiencing a slowdown that will threaten the country’s economic recovery.

The garment industry in Bangladesh, the world’s second largest exporter after China, is facing a double whammy from slowing global demand and an energy crisis at home that threatens to thwart the country’s pandemic recovery.

Plummy Fashions Ltd., a supplier to PVH Corp., the parent company of fashion brand Tommy Hilfiger, and Inditex SA’s Zara, saw new orders drop 20% in July from a year earlier, said its general manager Fazlul Hoque.

“Retailers in European and American markets are postponing shipments of finished goods or delaying orders, he said in an interview. “As inflation soars in our export destinations, this is having a serious impact on us.”

Falling orders are a risk to the economy, where the garment industry accounts for more than 10% of gross domestic product and employs 4.4 million people. It couldn’t come at a worse time for Bangladesh, as authorities resort to productivity-harming power cuts to preserve fuel supplies amid a region-wide energy crisis, caused in part by the war in Ukraine.

“An uninterrupted energy supply is key to delivering products on time,” Hoque said. “We are facing a combination of multiple issues at home and abroad.

3 hour breaks

With the energy crisis, the cost of doing business has skyrocketed. Standard Group Ltd., a major exporter that supplies Gap Inc. and H&M Hennes & Mauritz AB depends on generators for at least three hours a day to power its dyeing and washing units at the Gazipur manufacturing center in the outskirts of Dhaka.

“The cost of electricity from the generators is three times what we get from the national grid because diesel is expensive,” said Atiqur Rahman, chairman of Standard, in a separate interview. “We cannot keep our dyeing and washing units closed due to the power outage. If we do, all tissues will be wasted.

Add to this the weakness of the euro against the dollar which erodes the attractiveness of Bangladeshi exports, which are priced in dollars.

“Clothing is a discretionary item,” said Charlie Robertson, chief global economist at Renaissance Capital. “If your energy bill in Europe is skyrocketing, then people need to cut discretionary spending and clothing will be one of those areas,” he said.

Regional contagion

The concern in the South Asian nation’s garment industry recalls canceled orders at the start of the pandemic. Apparel exports fell to a five-year low of $27.95 billion in the fiscal year ending June 2020, before starting to recover. The country saw apparel exports soar to a record $42.6 billion in the year ended June, accounting for 82% of total exports.

Exporters are also seeing worrying signs of Walmart Inc.’s slashing full-year earnings forecast and commitment to slashing apparel prices.

And there’s a regional spillover effect from Sri Lanka, Robertson said, pointing out that Pakistan’s exports are getting “so much cheaper” because of its weak currency. “This adds pressure on Bangladesh and major export markets like Europe will buy fewer textiles” as sales growth suffers.

Bangladesh has applied for a loan from the International Monetary Fund, the latest South Asian country to ask for help as more expensive oil eats into the region’s dollar stocks.

Bangladesh’s foreign exchange reserves fell to $39.79 billion as of July 13 from $45.33 billion a year earlier. This is enough to cover about four months of imports, slightly more than the IMF’s recommended three-month cover. The country’s trade deficit widened to a record $33.3 billion in the fiscal year ending June.

“We just recovered from the Covid pandemic and then came the war,” said Rahman of the Standard Group. “We are just unwitting victims.”

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