Bangladesh Knitwear Industry Crisis and Beyond: Challenges and Strategies

1. Bangladesh Knitwear IndustryCrisis and Beyond: Challenges and Strategies Dr. Nazneen Ahmed Research Fellow Bangladesh Institute of Development Studies (BIDS)

2. Overview of the Presentation Global Economic Crisis Bangladesh Knitwear sector Global economic crisis and Bangladesh knitwear export: EU market Global economic crisis and Bangladesh knitwear export: USA market Some possible scenarios after the economic crisis is over exploring new markets The Challenges faced by Bangladesh: Preparation for ongoing crisis and post crisis world Short run and medium run strategies

3. Global Economic Crisis

4. Global economic slowdown(1) • Originated in the US financial market in 2007 • Developed industrial economies were the first victims • The crisis has transmitted to the emerging and developing economies by 2008. • It is apprehended that the year 2009 would experience the first contraction of the global economy in the post World War II era • Severe recession is likely to continue well into 2010.

5. Global economic slowdown (2) • Global economic activity— • grew by 3.1% in 2008, • projected to decline by 1.4% in 2009, • projected to rise modestly by 2.5%in 2010. • Volume of world trade – • grew by 2.9%in 2008, • projected to shrink by 12.2% in 2009; • growth is projected to be 1.0% in 2010. • Overall, a depressed and uncertainty-clouded outlook for the global economy remains in 2009 and 2010.

6. Bangladesh Knitwear sector

7. Knitwear highlights • Export Earnings: US$ 6.43 billion in FY 2008-09 • Average Growth Rate per year: About 20 % (Last 12 years) • 52% share in total garments export in FY 2008-09 • Highest Share in National Export: 41.25% in FY 2008-09 • Domestic Value Addition: about 75% • Employment generation: Direct 1.2 million • 3rd Largest supplier of knitwear in the world after China &Turkey • 2nd Largest supplier of knitwear in the world in terms of quantity • Price Competitiveness

8. Knitwear in national export (1)

9. Knitwear in national export(2)

10. Growth of knitwear export

11. Quarterly Export Growth

12. Export market of knitwear 76% goes to the EU

13. Global economic crisis and Bangladesh knitwear export:EU market ((January 2008 – July 2009)

14. Knitwear in the EU market

15. Top-10 knitwear exporters in EU (excluding intra EU trade)

16. Top -5 Bangladeshi knit products in the EU Market

17. Product 1 in EU

18. Product 2 in EU

19. Product 3 in EU

20. Product 4 in EU

21. Product 5 in EU

22. Competitive position of Bangladesh in EU market • Product concentration • In terms of export value of top 5 products of Bangladesh, China and India are competitors and during crisis their export trend of these products more or less follow the regular seasonal cycles. --- These countries do not seem to have problems in export of these commodities. • For these top-5 products, Bangladesh’s prices are the lowest, price competition is mainly with Vietnam and Cambodia. • Indian and Chinese prices are higher, but gap is narrowing down

23. Global economic crisis and Bangladesh knitwear export:USA market (January 2008 – August 2009)

24. Bangladesh knitwear in USA

25. Bangladesh knitwear in USA

26. Top – 5 Bangladeshi knit products in US market

27. Product 1 in US

28. Product 2 in US

29. Product 3 in US

30. Product 4 in US

31. Product 5 in US

32. Competitive position of Bangladesh in US market • Product concentration • Situation is worse than in EU market • US total import of knit has dropped in 2009 • Seasonal cycles reveal the competitive pressure • India shows slowing down, but China reveals strong presence in these products; also Vietnam and Cambodia are close competitors

33. When the economic crisis is over…

34. Some Possible scenarios…… After 2010 • Demand situation in developed countries goes back to normal (pre-crisis situation or more) • Oil price rises • Given the experiences of crisis --- • protectionism increases • China, India and other large apparel producers change their production basket and produce mor of low-end products and/or change market destinations (China may concentrate more on EU countries and USA)

35. Possible scenarios……after 2010 (continued) • Preference for GSP facility in EU market will gradually be over (WTO) • Possible surge of Chinese products as safeguard against China is over (also all ongoing cases in US market are solved). • Countries heavily dependent on one source for textile may reduce share of dominant source country, for example, Japan may shift some import from China to other countries.

36. Reap the best out of post crisis possibilities….. • Enhance competitiveness in existing markets • Explore new markets ………….. Need strategies to mitigate internal challenges and external competitions.

37. Exploring new markets

38. Possibility to export in Japan

39. Possibility to export in Japan

40. Markets where Chinese operation is declining

41. The Challenges faced by Bangladesh

42. Challenges Heavy product concentration both in EU and US markets Market concentration (76% to the EU) Severe Energy Crisis Cost of Production Becoming High due to Lack of Proper Infrastructure and Utility Services (Gas, Power) . …. (still a big challenge though situation in Chittagong port has improved) High bank interest rate (though rate has been reduced in recent time it is still higher than the competitors) Buyers now offer short term orders (instead of yearly or 12 months contracts) Lead –time pressure (in some cases less than one month)

43. Challenges (continues) The new Partnership for Development Act (NPDA) initiated by US in October 2007 (big opportunity, but the mandatory requirements such as Core Labor Standards, Annual Report Cards, National Treatment and TRIPS, Rules of Origin and Cap on RMG etc are pose challenges for Bangladesh.) Low price for low end products NAMA implementation and NewRevised Draft of the EU GSP, No Preference in the US Market Shortage of skilled labour Lacks in managerial skills at supervisor level

44. Preparation for ongoing crisis and post crisis world

45. Selected initiatives by different countries to cope with global economic crisis China • USD 586 billion stimulus package (6.9% of GDP) declared on November 2008 for the entire economy • Subsidy for the Textile Sector. • Increased export incentives from 11 to 17 percent. • Raised the tax rebate rate on some textile, iron and steel, nonferrous metal, petrochemical, electronic information and light industrial exports starting from April 1, 2008.

46. Selected initiatives by different countries to cope with global economic crisis India • USD 8.1 billion Stimulus Package (Dec 08 & Jan 09) • Currency devaluation 24.6% (Jan 08 & Jan 09) • 5% subsidy on Bank Interest • Increased Duty Drawback • USD 90 million allocated for Apparel Park & another 120 million for infrastructure dev of Textile & Clothing • Duty on cotton textile and the textile articles has been reduced from 4% to Nil. • The allocation for the market development scheme for exporters has been increased 148 percent to Rs.124 crore in the budget for FY 2009-10

47. Selected initiatives by different countries to cope with global economic crisis VIETNAM: • Government Pledged USD 17.2 billion to fight Global Recession • The government plans to provide producers with about 40 dong for each dollar earned from exports.($1= around 1800 dong) • Depreciated the Dong by 4.1% between July 2008 and February 2009

48. Selected initiatives by different countries to cope with global economic crisis Bangladesh • Proactive efforts by the Bangladesh Bank to ensure adequate liquidity and to ease credit and monetary policy. • A high powered task force to take strategies to meet challenges of economic crisis. • Stimulus package worth US$500 million announced in April 2009 (13 % allocated for cash subsidy to selected export industries, 44% for agriculture, 18% for energy, 15% for agricultural credit, and 11% for social safety–nets). • The budget of FY2009-10 has declared another US $ 725 million as a means to offset the adverse impact of contraction in external demand and rebalance growth toward domestic demand. However it is not clear how this money will be spent.

49. Short run and medium run strategies • Part of the stimulus package should be invested for generating energy and meeting utility needs (medium to long run planning) ---- may tag public private partnership • Investment for infrastructure (ports, highways & inter link roads etc.) • In the short run low cost credit may be provided to the enterprises facing problems of working capital (to give salary or face daily expenses) • Initiative for special economic zone for knitwear (like ‘knit village’) to encourage establishing planned and structured factories including utility services, central ETP facility etc.

50. Short run and medium run strategies • Provide technical support to meet the conditions of Partnership for Development Act (NPDA) • Bangladeshi missions should take initiatives to explore markets – export incentives if exported to new markets. • Chittagong port have improved efficiency by 30% and cut costs by 40%, there is still much to improve. The port needs to continue contracting out operations and management to the private sector, including those of the New Mooring container terminal. • Proper marketing, lead time, and product quality.