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Tuesday, June 25, 2024

Home textile sector of Bangladesh is losing its lustre in the export market as the lingering gas crisis

Home textile sector of Bangladesh is losing its lustre in the export market as the lingering gas crisis, the volatile exchange rate and the higher production cost are forcing many factories to go out of business.

Home textile export crossed the $1-billion mark in the fiscal year of 2020-21, followed by $1.68 billion exports in 2021-22. The trend reversed in the last fiscal year as suppliers were hit by the gas crisis  and a significant fall in the value of the taka against the US dollar. The exports declined 32.47 percent to $1.09 billion in 2022-23 and the shipment fell 34.37 percent to $454.74 million between July and January of 2023-24.

Consequently, the number of home textile mills fell significantly, millers say. Currently, only eight mills are actively manufacturing and exporting products, down from 38 a few years ago.

The latest blow for the sector stems from the instability in the foreign exchange market. The taka has weakened by about 30 percent against the US dollar in the past two years, making exports cheaper and imports costlier. But millers did not book orders for a lengthy period after the government raised the gas price from Tk 16 to Tk 30 per unit in February last year. The move has raised their cost of production immediately and to a large extent.

Home textile production requires a lot of gas to run steam boilers and carry out the dyeing process. Consequently, international retailers and brands have started flocking to a ready market in Pakistan to source home textile. The country is strong when it comes to supplying home textile because of its own cotton whereas Bangladesh has to rely on external markets to meet almost the entire demand for the raw material used to make yarn.

The Pakistani currency has also weakened against the dollar: the rupee is trading at 278-279 per USD, which allows home textile makers to sell the items at lower prices.

Moreover, Bangladesh’s textile millers have lost the market to their Pakistani competitors as the rupee has been over-devalued for many years, the Bangladeshi exporters claim. The impact of gas cost can be judged by the fact a local home textile miller that used to pay Tk 64 crore as the gas bill a month whereas the expenditure has rocketed to Tk 126 crore now.

The cost of funds for entrepreneurs has also increased after the central bank withdrew the 9 percent lending rate ceiling in June following maintaining it for more than three years.

Due to the volatile exchange rate and the gas crunch, some big home textile companies have closed in the last few years, according to Monsoor Ahmed, chief executive officer of the Bangladesh Textile Mills Association (BTMA). BTMA President Mohammad Ali Khokon warns if the gas situation does not improve, more textile mills might close soon.

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