High energy costs affecting business
In sudden hike of gas prices in different slabs by the government there is an uncertainty whether the readymade garments exporters will be in the competitive market. Prices were increased in January this year and effective from February which is likely to affect the country's garment exporters. The garment industry is a key sector in Bangladesh's economy, accounting for more than 85 per cent of the country's export earnings.
The gas price hike will increase the production cost of garment factories as we heavily rely on natural gas for power generation in captive plants. As a result, the cost of production is likely to increase, which may lead to lower profit margins for the exporters.
Besides, the gas price hike may also affect the competitiveness of the Bangladeshi garment industry in the global market. Bangladesh's garment industry competes with other garment-producing countries, such as China, Vietnam, and India. If the production cost increases due to the gas price hike, Bangladeshi garment exporters may lose their price competitiveness, which could lead to a decline in export orders.
The government has raised the retail gas prices for public, private and captive power plants and also for industries and commercial users with effect from February 1. The increase is 100 per cent to almost 300 per cent. The captive power plants, small power plants and commercial power plants will pay Tk30 per unit (cubic meter) instead of previous price of Tk16.
As per the gazette notification, the public and private power plants including the IPP and rental power plants will pay gas price at Tk14 per unit instead of previous price of Tk5.02. The large, medium and small industries will pay Tk30 per unit against the previous price of Tk11.98 for large, Tk11.78 for medium and Tk10.78 for small, cottage and other industries and for industrial boilers it is from Tk10.5 to Tk30. The world is yet to overcome from the persisting pandemic corona virus and Bangladesh's export destinations are still facing the trouble.
Along with the gas price hike, the garment industry in Bangladesh is also facing the challenges of the COVID-19 pandemic and the increasing competition from other countries. To overcome these challenges, Bangladeshi garment exporters need to focus on enhancing their productivity, improving the quality of their products, and diversifying their export markets.
The government increased gas prices at the time when gas pressure is not as per requirements to run captive power plants. On the other hand we get export orders on 4-5 months lead time process. We get payments on four to months' earlier estimation and we do business in that process. So, sudden hike of gas prices and its effectiveness within short time are affecting us.
It is a retrospective consequence for Bangladesh's ready-made garment (RMG) exporters. The increase of gas prices are significantly impacting on the cost of production for garment factories, which heavily rely on natural gas for power generation. The higher production costs can lead to a decline in profit margins for the exporters, and they may have to bear the brunt of the additional expenses.
As mentioned earlier, Bangladesh's garment industry faces stiff competition from other garment-producing countries, and any increase in production costs can impact its price competitiveness. In such a scenario, Bangladeshi RMG exporters may find it challenging to secure new orders from global buyers, which can negatively impact their businesses.
Moreover, the retrospective consequences of a sudden gas price hike can also impact the overall economy of Bangladesh. The country heavily relies on its RMG industry for export earnings, and any decline in its performance can lead to a significant dent in the country's GDP.
Therefore, it is essential to carefully consider the impact of any sudden gas price hike on Bangladesh's RMG industry and take necessary steps to mitigate its adverse effects on the economy. The government can consider providing subsidies or incentives to the industry to help them cope with the increased production costs and maintain their price competitiveness in the global market.
Bangladesh's apparel industry has come to a long way that currently almost cent per cent knit fabrics are locally produced and about 40 per cent woven fabrics are being outsourced from local textile mills. Now it is time for man-made fibres and Bangladesh can increase its productions as the demands are on rise for export market.
The use of man-made fibres in readymade garment export can help in value addition and reduce lead time. Man-made fibres such as polyester, nylon, and rayon are synthetic fibres that are commonly used in the textile industry. Compared to natural fibres like cotton, man-made fibres are cheaper, have consistent quality, and can be easily produced in large quantities.
By using man-made fibres, we can increase the value addition of their products. Man-made fibres can be easily dyed, printed, and blended with other fibres to create unique textures and designs, which can add value to the final garment product. Additionally, man-made fibres can be used to create technical textiles, such as moisture-wicking, UV-protective, and water-resistant fabrics, which can further enhance the value of the garment product.
Moreover, the use of man-made fibres can also help reduce the lead time in the garment production process. Man-made fibres have a shorter production cycle than natural fibres, which means that they can be produced and delivered to garment factories in a shorter time frame. This can help reduce the lead time of the entire garment production process, which can lead to faster delivery times and increased customer satisfaction.
So for greater interest of the nation and for its growing economy it is inevitably needed to help the export sector that accounts the major per cent of the total export earnings and main source of foreign currencies. Once the government takes care of this sector our foreign currency reserves will rise and there will be more employment opportunities.
The writer is managing director of Rupa Group and former senior vice-president of Bangladesh Garments Manufacturers and Exporters Association (BGMEA)