Bangladeshi exporters vexed about customs, energy woes

Rather than wasting energy on concerns over any possible trade sanctions by the US, leading exporters emphasise the need to address pressing domestic issues, especially extensive customs complications and energy insecurity, which drain valuable resources and cripple their competitiveness.

Exporters said a $100 billion readymade garment export target by 2030 is quite achievable, but for this, the two key constraints in energy and smooth customs processing have to be addressed.

They were speaking at a focus group discussion organised by The Business Standard on 20 December at its office as part of its 4th-anniversary celebration. 

Exporters also pointed out some other challenges, including the need to attract foreign direct investment in backward linkage industries and address tax issues related to the recycling of waste generated from garment manufacturing.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, "Impacts of US sanctions on Bangladesh, which are being heavily discussed, will be nothing compared to the hassles we face every day by customs officials."

For example, he said customs officials block shipments if a T-shirt's price is below $1. Also, they bar export of non-bonded companies to branded buyers despite their high value addition.

"Is there a specific provision prohibiting the export of T-shirts valued below a dollar?" he asked.

"There are many more instances of customs hassles and we have become used to it. So, we are not at all worried by possible US sanctions," said Hatem. He also said China's exports to the US did not decline despite the imposition of 40% tax by the US government.

Regarding energy concerns, he said that industries in the Narayanganj belt do not have gas supply for the past two months and there is uncertainty about whether they will receive sufficient energy before 2026. 

Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said he told customs officials recently that their business is time-bound and fashion-bound and any delay in this can be detrimental.

"After this, customs officials have become more rigid. If they can hold on for even a day, they can fatten their purse," he said. 

"These delays have no justification," he noted. 

He cited an example of a customs-related anomaly in his own factory, saying, "I sent fabric from one of my factories to another. For this, a Utility Declaration (UD, an entitlement of materials taken from the association) was taken. But for not taking the Utility Permission (which is taken from the Customs Bond Commissionerate, primarily for deemed exports), he was fined. 

"They [officials] are trying to complicate our work instead of making it easier," he said.

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association (BTMA), expressed concern over the practices of customs officials, noting that importers are frequently subjected to unnecessary inquiries that consume time and money. 

He cited instances where importers are questioned about seemingly silly questions, "Why have you brought ink in this imported pen?" or "Why did you include spare parts with a generator?" 

"The country is grappling with a dollar crisis, energy shortages, and customs issues. Also, without a deep-sea port, how can we possibly achieve the $100 billion export target?" questioned the President of BTMA. 

"In the backward linkage industry, energy is the main challenge. Ensuring it will make us competitive," noted Khokon. 

Anxious over energy

However, his growing concern stems from the increasing dependence on imported energy, as historically, no country has achieved success solely relying on energy imports.

He suggested that the government should consider implementing a policy to incentivise investment in the woven textile industry as it is very capital-intensive. 

Bangladesh, having spent $12 billion on fabric imports, could have significantly boosted apparel value addition if it had domestically produced such fabrics, he said.

Khokon said textile millers are grappling with a dollar shortage, holding them back from opening Letters of Credit. Also, some commercial banks have diverted export proceeds through cross-matching, with no action taken by the Bangladesh Bank, as highlighted by the BTMA president.

Feeling powerless with bureaucrats

Khokon criticised the imbalance in power dynamics, stating that bureaucrats wield more influence than politicians. He alleged that customs officials are subjecting them to unacceptable harassment, and wanted urgent resolution.

PRAN-RFL Group's Chairman and CEO Ahsan Khan Chowdhury emphasised the importance of diversifying exports for Bangladesh, citing Vietnam as a successful example. He highlighted the necessity of attracting foreign investments to achieve this goal.

In order to attract Foreign Direct Investment, Ahsan suggested Bangladesh to provide enticing incentives, such as tax benefits, simplified processes for repatriation of dividends, and easy tax payment. Also, he said offering foreign investors a VVIP (very very important person) treatment is very important. 

Ahsan also pointed out that bureaucratic complexities pose a significant barrier to attracting Foreign Direct Investment (FDI) and need to be addressed for a more investor-friendly environment.

Policy consistency needed

Shams Mahmud, managing director of Shasha Denims, said exporters want consistency in policies, such as exchange rates and energy subsidies so that entrepreneurs can make their investment plans.

Shams also urged the government to incentivise entrepreneurs who are eager to invest in research and development (R&D) for product diversification, which is essential for Bangladesh. Turkey and Italy are providing R&D subsidies, he added.

He also stressed the necessity for Bangladesh to formulate a comprehensive, long-term energy policy to support industrial and export growth. He also suggested the implementation of energy auditing to ensure the efficient utilisation of energy resources. 

Shams proposed that the government could consider recognising and rewarding industries based on their energy efficiency performance.

He suggested that the government should actively promote FDI in emerging industries, particularly in sectors related to apparel backward industries, where greenfield opportunities exist. He recommended caution in allowing FDI in "like-for-like industries."

Drawing a parallel with Vietnam's successful export diversification, Shams pointed out that Vietnam has industries supported by Chinese investments.

However, he expressed concerns about the potential vulnerability of such investments in the event of disruptions in the South China Sea. 

In contrast, Bangladesh boasts a predominantly local investor base, with 95% of investors being local. He termed this as a strength, highlighting the resilience of the local industry in adverse situations.

Regarding the new US labour policy and speculated sanctions, Shams said, "We hope that the US would refrain from taking any actions detrimental to job creation." 

Recycling should get tax support

BGMEA President Faruque Hassan claimed that Bangladesh is on top when it comes to the issue of workers' safety. Many factories are turning into green ones as there are 206 green factories and of the top 23 factories, 21 are in Bangladesh, he said.

He said that these factories are not getting due prices for becoming green, but he said it enhances images of the country. "We hope green factories will get higher prices for their products."

Now BGMEA and its member factories are working on waste recycling in a bid to cut its reliance on imported cotton that meets 98% of the demand.

To encourage recycling, the government should offer policy and tax support. For example, he said when these wastes go to the landfill or into the drain, the government does not get anything. 

"But when we add value and make a Tk10 waste into a Tk500 product, there is VAT. We have told it to the revenue board many times, but nothing happened," he lamented.

To address the anomaly in garment waste collection, the BGMEA president said they are considering setting up waste collection centres.

On the FDI, Faruque said they want it to be backward-linked and higher value-added items instead of the usual industries where locals are present. For instance, he said Bangladesh has no spandex factory, but it has to import hundreds of containers from Taiwan and Korea.

More things need to be done

Syed M Tanvir, managing director of Pacific Jeans, highlighted the remarkable double-digit growth in Bangladesh's exports to nontraditional markets in recent years, ranging from 25% to 35% year-on-year. 

Discussing the specific case of the Japanese market, Tanvir mentioned that Bangladesh achieved $1.6 billion in exports during the last fiscal year. Pacific Jeans has dedicated 15 years to focusing on the Japanese market, experiencing significant growth in denim exports.

He stressed the importance of understanding the unique dynamics and business models of each market for successful business operations. 

"Despite Japan's heavy reliance on Vietnam and China, Bangladesh has opportunities for further growth in the Japanese apparel market," he commented.

While Bangladesh is exploring markets in India, China, and the Middle East, Tanvir stressed the need for exporters to understand the dynamics and import patterns specific to each market to navigate them effectively. 

"We should analyse some issues to explore a new market, such as which products they are importing and what are the strengths of our products," he said. Before exporting to Japan, Pacific Jeans analysed the Japanese denim market segment by segment. 

Tanvir said still a lot of opportunities remain untapped and there is opportunity to grow more not only in Japan but in other nontraditional markets.

PRAN pivoted from local market to export

Ahsan Khan of PRAN-RFL highlighted their shift towards export diversification. Traditionally, PRAN-RFL had a strong focus on the local market, which proved successful over the years. 

However, facing a dollar crisis this year prompted them to intensify efforts in the export market. Recognising market opportunities, they repurposed their domestic production lines for export, he said.

"This year, we have entered the Iraq market and expanded exports to Africa for stationery and garments, the US for toilet cleaning brushes, and Fiji for electrical items," said Ahsan Khan, adding that they are exporting everything they produce, acknowledging the challenges in the export market while actively exploring untapped opportunities.

Drawing a parallel with China's role in diversifying Vietnam's exports, Ahsan Khan proposed offering significant incentives to foreign investors. 

He specifically mentioned Youngone chairman and CEO Ki-Hak Sung as an example. Ahsan Khan advocated for the government to provide tax benefits to attract and retain foreign investors in Bangladesh.