The curious case of RMG import growth overtaking export’s

Infographic: TBS

The country's imports meant for manufacturing its readymade garments show an unexplained trend if compared with apparel exports.

For example, the RMG sector's imports of raw materials, such as cotton, synthetic fibre, yarn and other accessories, rose 51.2% year-on-year in FY22, but exports saw only 24.6% growth.

This means the growth in raw material imports was nearly double the growth of exports – a phenomenon that has never been witnessed before.

Central bankers and industry people can only guess the reason behind.

"The figures mean exporters sold their products at a loss, which is not true for the overall industry," said SM Majedur Rahim, director of Giant Group that exports $40 million worth of products annually.

He said import growth should not be higher than that of exports because it cannot be sustainable business.

Rising prices of raw materials in the global market may push import costs up, reducing profit margin, but exporters are still not making a loss, he added.

On condition of anonymity, a central banker said there may be a possibility of over-invoicing. The issue of mismatch between imports and exports has not come to the attention of the relevant department of the Bangladesh Bank.

An investigation is needed to find out the real reason behind it, he noted.

For a comparative study, one can look at import and export figures for the industry in FY21.

While raw material imports grew 4.8% in that fiscal year, exports increased by 18.6%. So, export growth was much higher than import growth, which should be the case because of value addition.

Figures also reveal that Bangladesh's RMG is also losing out on value addition. In FY21, raw materials made up 69% of exports value. But this dramatically shot up to 83% just a year later. In the January-March quarter of the last fiscal year, the value was over 90%, leaving a thin margin for exporters.

With such a thin margin, exporters cannot meet their operational costs.

But an exporter is not supposed to import raw materials worth more than 75% of exports value as per the Bangladesh Bank rule.

Industry insiders say exporters cannot survive if they import more than 80% of export value as there are other operational costs.

The import growth of garment-related goods was 58% in the last fiscal year, of which growth of raw cotton import was 39.32%, yarn 115%, textile and articles thereof 51.63%, staple fibre 50.89% and dyeing and tanning materials 24.60%, data from the central bank shows.

Apparel also led capital machinery imports

After three years of negative growth, the country saw a big jump in capital machinery imports in the last fiscal year led by the apparel industry.

The capital machinery imports grew by 40.78% in FY22, overcoming the negative growth of 12.39% in the previous fiscal year.

Textile and garment sectors mostly led the imports in the last fiscal year, registering 24% and 46% growth respectively. The capital machinery imports of these two sectors were negative in the last three years.

How garment exporters explain the mismatch

Kutubuddin Ahmed, former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "The growth comparison between raw material imports and exports will not be justified as we textile makers import cotton at least five months before a shipment of readymade garments."

He further explained that spinning mills import raw cotton at least two months before getting orders, shipping lines take at least one and a half months and garments makers also receive orders at least two months before shipments.

"The textile and apparel industries always react like Rhinoceros [slow to react]," he added.

Echoing Kutubuddin, BGMEA acting president Shahidullah Azim said, "We always ship goods a minimum 60 days after fabric imports and in some cases, we procure raw materials at a time to meet a long-time demand."

Replying to a query, Shahidullah Azim said, "There is no chance of over-invoicing at this moment as garment exporters are trying to save their back."

A number of brands have deferred shipments owing to global economic slowdown, while some buyers are cancelling orders, he added.

Kutubuddin Ahmed, chairman of Envoy Textile, said, "Last fiscal year, cotton prices almost doubled, which was also reflected in our raw material import payments, but buyers are not willing to pay in line with that."

BKMEA Executive President Mohammad Hatem said the apparel sector's value addition had gone slow in the last three fiscal years owing to some valid reasons – during the pandemic year of FY20, a number of buyers cancelled over $3 billion worth of apparel orders and a part of these orders shipped at discounted prices in the following year.

In the pandemic year, a number of brands had gone bankrupt and they did not pay their exporters, and last year, all types of raw material prices almost doubled, he added.

At this moment, local sourcing of fabrics has been hampered because of power supply shortage. That is why garment exporters are importing those at high prices to meet their export deadlines, he noted. 

But the additional costs will not be adjusted with product prices, Mohammad Hatem said.