The world economy is experiencing a period of sluggish growth so market participants are increasingly worried about the prospect of the world economy in the upcoming years. Most economists are fearing that we might be heading toward a recession.
IMF has already revised its 2023 global growth forecast and reduced the figures. It also speculates that approximately one-third of the world could be in recession just next year. “The three largest economies, the United States, China, and the euro area, will continue to stall,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said in a statement. “In short, the worst is yet to come, and for many people, 2023 will feel like a recession.”
Global political moves and the trade war among the strongest countries are slowly but surely leading the global economy toward recession. If the economic policymakers fail to address the issue and have an effective response to the slowdown, definitely, the world will see a recession late this year or early next year.
From the inception of RMG in 1978 Bangladesh has seen tremendous growth in the number of factories consistent with the amount of export. In the year 1983-84, there were only 134 RMG units and only 40,000 workers were working in this sector. However, today Bangladesh is the world’s second-largest textile and apparel exporter of western fast fashion brands after China. The industry has been making a crucial contribution to rebuilding the country and is the single biggest export earner for Bangladesh. According to Export Promotion Bureau data, woven and knitted apparel, clothing accessories, and home textiles exports together accounted for 84.93 percent of $52.082 billion worth of total exports made by Bangladesh during 2021-22. Exporting garments currently produces roughly $5 billion in revenue for the government each year. The garment industry makes up more than 10% of the gross domestic product and employs 4.4 million people, more than 58 percent of whom are women. Buyers from Europe, Canada, the USA, Japan, Australia, and India are the main importers of Bangladeshi garments and Textile products. Currently, Bangladesh is home to more than 8,000 garment factories and 828 fabric manufacturing/weaving mills.
Both the textile and apparel sectors of Bangladesh are currently facing a double whammy from slowing global demand and an energy crisis at home that’s threatening to thwart the nation’s pandemic recovery and face an unparalleled struggle to sustain in the global competitive market. If we analyze the recent trends in our Garment and Textile Sector, we can identify three different phases-
1. Phase One: Pandemic Disaster
2. Phase Two: Post-Pandemic Recovery
3. Phase Three: The Ongoing Crisis
Phase One: Pandemic Disaster
The textile and apparel sectors have always shown steady growth. However, the onset of the Covid-19 outbreak had led to the cancellations of orders worth over $3 billion from almost every brand, except H&M. 1,048 factories experienced cancellations of export orders totaling almost 00 million items. Almost 2.10 million workers became jobless. In the first week of April 2020, RMG exports declined by almost 84 percent. Textile exports had fallen at this time from $34.13 billion to $27.95 billion. Orders decreased by as low as 50%.
Apart from the fall in demand, freight costs rose by almost four times and the price of raw materials also increased by 15-20%, along with other inputs, resulting in a disastrous downfall and an uncertain future for the 4.4 million people associated with the sectors.
Phase Two: Post-Pandemic Recovery
During this phase, the industry started to rebound Strongly. The export-oriented textile and garment industry registered a record-high volume of exports worth $42.61 billion, surpassing the previous high by almost $8 billion. However, this recuperation was overwhelmingly short-lived as the global economy once again started to get ambushed from every possible direction.
Phase Three: The Ongoing Crisis
After the post-pandemic revival period, Bangladesh’s textile and ready-made garments industry is now bracing for another battle for survival as most factories are getting orders less than 30% of their capacity (July-February). This is a direct result of the unprecedented inflation rates that hit Europe and the US just recently and are continuing to get worse every day. Retail buyers who are mostly based in the west are struggling to survive and fulfill their day-to-day needs. Most of them at present do not have the luxury to invest in fashion accessories as they are worried about what the future is holding for them. As a result, the buyers are either deferring the shipments of finished products or delaying orders. This phase began with the Russian invasion of Ukraine. Sanctions on Russia and an energy crisis in the European economy both started simultaneously. Although the price of cotton has decreased, the price of petrochemicals is increasing due to the war. As a result, the overall price of raw materials has gone up by up to 15%. Apart from this, Bangladesh’s textile industry is facing many internal issues which are increasing the cost of the business in the country like unfavorable trade policies, internal security concerns, the higher cost of imported inputs apart from post-Covid-19 supply chain disruptions, and a decline in global demand. The gas crisis is seriously affecting the export-oriented apparel and textile sectors which already struggling to cope with power cuts for more than a week. Although the two-hour power cut could be manageable, the gas supply disaster is taking its toll on the export-oriented textile and apparel industry. According to a report published by New Age on July 26 of this year, the export-oriented knitwear sector’s production came down to 50 percent mainly due to the gas crisis. Export-oriented textile mills also witnessed a sharp drop of 40–50 percent due to the fall in gas supply. Woven and knitted apparel, clothing accessories, and home textiles exports together accounted for 77.05 percent of $3.984 billion worth of total exports made by Bangladesh during July 2022.
What is to expect in the coming days?
• The purchasing power of the EU buyers is decreasing as inflation is hitting the EU pretty hard and the value of the euro and the dollar is now almost equal. So the demand for our products in major European markets is expected to fall even more in the coming days.
• To adjust the diminished buying power, brands will be bidding at a much lower price than before.
• It is feared that many factories would be unable to pay wages from December 2022 onwards as they would face a liquidity crisis. There is a high risk of worker protests during that time. Proactive measures need to be in place in order to tackle the liquidity crisis and prevent any kind of sabotage.
• There is a high chance that a lot of buyers will defer the shipments of finished products or even cancel orders that have already gone to production. Factories need to act proactively to manage this huge amount of unsold/undelivered goods by increasing their warehouse capacity.
• Although Bangladesh is the second-largest individual country in the world for textile/apparel manufacturing, it is not the quality of manufacturing that attracts retail companies to the country, rather it is the low manufacturing costs. Companies need to increase their focus on quality and invest more in R&D activities to bring significant improvement in quality.
What to do now?
• First and foremost, local factories need to make the best use of the existing competitive advantage that has set Bangladesh apart from any other garment/textile exporting country. Our competitive advantages are-
> Cheap and highly available labor force
> A high rate of technological adoption
> Ready consumers in developed countries
> Duty-free trade
• We need to invest more in technical education that focuses on the textile and garment sectors. Investing in education naturally stimulates growth in R&D, which is a dire need for these sectors in terms of the Current needs. We have a total of 41 textile vocational institutes scattered around the country. All of these institutes are controlled by the Department of Textiles of Government. The Government is planning to set up 12 more textile vocational institutes in the coming years.
• Bangladeshi firms are heavily lagging behind their international competitors in terms of the product range. Product diversification is a must in order to survive in the upcoming economic threat. Technical textile is a potential segment where Bangladesh has the opportunity to explore and expand its business. Technical textiles are engineered products with specific functionality. These products find end use applications across multiple industries such as sports, construction, defense, agriculture, aerospace, automotive, and healthcare sector. The global market for technical textiles is projected to reach $298.1 billion by 2030 from $178.92 billion in 2020. If Bangladesh can tap this huge market, there is a high chance that we can retain our steady growth even during the tough times.
Our textile and garment sectors are two of the most resilient sectors in the country. No matter how adverse the situation is, they come back with much more enthusiasm and extraordinary growth. We faced two garment factory disasters, one in 2012 and one in 2013, which left almost 1,200 garment factory workers dead and tremendous international pressure. But the sectors rebounded with far better performance and continued to thrive. We saw the same resilience in the post Covid-19 period as well. However, this time the problem is far more complicated and many experts think that the only way out from this disaster is the end of the Ukraine-Russia war.