Uncertainty over Brexit and slower economic growth in Euro zone have put an adverse impact on Bangladesh’s denim exports to European countries, which saw an 11% negative growth to $977.65 million in the first eight months of 2019.
The factors have also caused negative growth in global denim goods exports to the EU markets.
According to Eurostat, statistics directorate of the European Commission, Bangladesh, the largest exporter of denim goods, exported denim products worth $977.65 million, down by 11.04%, during January-August period of 2019, which was $1.10 billion in same period a year ago.
In the first eight months of 2019, global denim exports to EU declined 11.84% to $3.40 billion, which was $3.86 billion in the same period last year.
Bangladesh’s closest competitor Turkey has posted a 10.82% negative growth to $734.5 million in the same period.
China saw a 23.68% fall from $366 million to $279 million, while Pakistan registered a 5.29% fall to $569 million.
For the negative growth, economist and industry people have blamed the slowdown in EU economy and uncertainty over Brexit.
They also find appreciation of taka against US dollar to be another reason for Bangladesh’s eroding competitiveness.
As per the latest data of the European Commission, Euro zone economic growth dropped to 0.1% in the third quarter from 0.2% in the previous one.
“Economy of the European countries is on the verge of recession, which cut the consumption,” Policy Research Institute Executive Director Ahsan H Mansur has told Dhaka Tribune.
The bloc of 28 countries also saw a rise in unemployment as a result of which imports from the global market experienced decline, he points out.
Moreover, he says, exchange rate is another reason because of which Bangladeshi manufacturers are losing competitive edge in the global market.
“Across the European Union zone, the retailing situation of denim goods is not good. Consumption in Euro zone has fallen. This is because of uncertainty over the execution of Brexit,” Sharif Zahir, a director of Bangladesh Garment Manufacturers and Exporters Association, has told Dhaka Tribune.
Every retailer has witnessed fall in sales, while there is stocks from the previous sourcing, says Zahir, adding that the retailers automatically cut new purchase leading to drop in export earnings.
Meanwhile, some have said that Bangladesh has capacity beyond demand, which may have caused the downtrend.
“In Bangladesh denim industry, the installed production capacity is higher than the work orders and there have been addition to the capacity. So, more focus on a single product is too much,” Syed M Tanvir, director of Pacific Jeans Limited, says.
“In remaining competitive and sustaining the sector, we need to have a better study about the demand and supply as concentration on single product creates uneven competitions,” Tanvir mentions.
In addition, denim makers have to move for diversification and producing different types of goods, specially value added one, he suggests.
Why Brexit matters for Bangladesh
As an EU member, the United Kingdom is very important for Bangladesh as it is the third largest export destination. In the last fiscal year, Bangladesh’s export to the UK stood $4.16 billion, which is 10.29% of total exports. But the growth to UK is slower due to the Brexit issues.
In the fiscal year 2018-19, Bangladesh’s export earnings posted a 4.51% growth, which was 11.76% in the previous year.
“As there is uncertainty over the execution of Brexit and it has been delayed several times, it has dampened importers’ confidence, which is a big reason for the downtrend in export earnings from the denim,” Mohammad Hatem, first vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), tells Dhaka Tribune.
As the importers are not sure about the tariff rate after the Brexit, importers have remained conservative in placing work orders, says Hatem.
He also calls for government steps to remain engaged with the EU so that Bangladesh can retain the current trade facilities from UK following Brexit.
Bangladesh currently exports Blue Denim Trousers WG, Blue Denim Trousers MB, Blue Denim Skirts, Blue Denim Jackets, Blue Denim Suit Type Coats MB, Playsuits, and Sunsuits, among other products, to the international markets.
The major global retailers to which Bangladeshi entrepreneurs also supply denim products include H&M, Uniqlo, Tesco, Walmart, Levi’s, Diesel, Wrangler, G-Star, s.Oliver, Hugo Boss, and Gap.
In a referendum held on June 23, 2016, the UK decided to leave the EU as 52% of the people voted for an exit, while 48% voted to stay with the union.
The current deadline for the UK to leave the EU is January 31, but if it fails to agree to a deal to do so, the legal default is to leave with no deal on that date.