Value addition in readymade garment product exports dropped to 51.39 percent, reaching $10,274.34 mn, in the first quarter (July-September) of the current financial year, mainly owing to an increase in prices of raw materials in the global market.
Raw material import cost was $4,984.13 mn in the same period, which is 48.51 percent of the total export earnings from the RMG sector. The net export from the sector stands at $5,290.21 mn, which was $4,839.5 mn in the same quarter of the previous fiscal year, it showed.
To calculate import value of raw materials, the Bangladesh Bank considers the value of components like raw cotton, synthetic/viscose fibre, synthetic/mixed yarn, cotton yarn and textile fabrics and accessories for garments instead of back-to-back letters of credit’s raw materials.
The sector had enjoyed a 64.98 percent value addition during the first quarter of the fiscal 2020-21, the highest since 2012-13, data from the Bangladesh Bank show. According to Bangladesh Bank data, in the first quarter of FY22, the sector’s export growth was 53.42 percent or $9,059.44 mn, while the raw material import cost was $4,219.94 mn.
Apparel exporters acknowledged the value addition decreased due to an increase in prices of raw materials in the global market, but the comparison between data of the same quarter was not justified as the industry imports raw materials a minimum 45 days to a maximum of 120 days before shipments.
They also mentioned that in cases of repeat orders, they used to import some raw materials long ahead of shipments.
Talking with The Business Standard, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Vice President Akhter Hossain Apurbo said the drastic fall in value addition of apparel items was due to the price hike of raw materials, especially yarn which had almost doubled in price, but buyers had not increased product prices in line with that.
The BKMEA leader also expressed worries about value addition in the next quarter and the business scenario as almost every manufacturer was running their factories at less capacity, resulting in increased overheads.
Apurbo said, “If we can run factories at full capacity that may help to regain the value addition as cotton prices come down.” He said where they would barely make $1 profit on a dozen t-shirts, now they have to pay an additional dollar just as diesel costs, which hurts profits further.
Sheikh H M Mustafiz, Chairman of the Standing Committee on Sustainability, BGMEA (Bangladesh Garment Manufacturers and Exporters Association), said the industry was passing through a challenging time due to the ongoing Russia- Ukraine war. “If we export the same value as last year, the overall industry export growth might be negative as we have to export a higher quantity of products to reach last year’s value,” he said .
Mahmud Hasan Khan Babu, Managing Director of Rising Group, one of the leading RMG exporters in the country, said, as the exporters cutting and making (CM) cost is almost the same as always, the rate of value addition will decrease if the export price (freight on board or FOB) of the product increases. And if it decreases, the rate of value addition will increase.
Giving an example, he said, let’s say a product’s FOB is Tk100 and the CM is Tk25, ie the CM is 25 percent. If this FOB is Tk80 then the value addition will be a little more than 31 percent. But as the CM is almost unchanged, the rate of value addition has increased.
He said the main reason for the low rate of value addition was the high cost of raw materials. He said, if Bangladesh can supply more raw materials locally, then the rate of local value addition will increase.
He attributed the change in the rate of value addition to the volatility of the raw material market. He, however, said, at present, the price of raw materials is a little low, so the clothes made from these raw materials will be exported in January and March, which is when the value addition rate may be higher, he added.
Khandoker Rafiqul Islam, Vice President of the BGMEA, echoing the same, said although the CM was the same, the price of raw material yarn or fabric for clothing is less than six months ago. As a result, if the products made from these raw materials are exported next January, the rate of value addition may increase at that time.
