RMG value addition falls to 55.4% in Jul-Mar of FY24; Exporters fear for GSP Plus

In light of recent updates in Bangladesh's balance of payment data, which indicate significant changes in valuation, the country's apparel industry now faces an even tougher challenge in securing the Generalized System of Preferences Plus (GSP+) status in the EU market after its graduation from Least Developed Country (LDC) status in 2026.

Also, the country may not retain its position as the second-largest apparel exporter after the correction of export data.

The apparel industry's yarn imports saw approximately 13% growth during July-April FY24 compared to the same period of FY23. Exporters said local spinning mills are struggling to operate due to the ongoing gas crisis, which has created a necessity to import yarn despite the prevailing dollar crisis.

Moreover, the recent cuts in cash incentives may further encourage the import of yarn, potentially impacting the RMG sector's value addition.

Business leaders have urged the government to reconsider its export targets of $110 billion by 2027 under the current export policy, noting that the just-concluded fiscal year fell significantly short of these targets – a shortfall that can be attributed to erroneous export figures.

According to the central bank's latest update on the balance of payment, Bangladesh's apparel export was $27.30 billion during the last three quarters of the fiscal 2023-24. However, the earnings were reported as $37.20 billion in the old data of the central bank.

The gap stands at about $10 billion, with knitwear exports reduced by $6.49 billion and woven by $3.41 billion.

Additionally, the central bank's latest data revised the RMG-related import payment figure to $12.17 billion, while the import value was $10.61 billion according to the central bank's RMG quarterly reports (July-March) FY24.

The latest update on the balance of payment mentioned that during July-March of FY24, Bangladesh's RMG sector had one of the record lowest value additions at 55.4%. 

However, the central bank's March FY24 quarterly reports mentioned the value addition at 71.5%.

In Q3 of FY24, Bangladesh's RMG sector achieved a record high-value addition of 72.20%, up from 71.06% in the same period of FY23.

Requesting anonymity, one of the leading denim textile manufacturers told TBS the government must revise all targets related to exports; otherwise, it will create a big gap between target and performance.

"Particularly, export targets have been set based on misinformation; it should be revised," he said.

Exporters said the country has to graduate from the LDC status by 2026. As the apparel value addition declines, it will be difficult to get the GSP+ facility in the EU market after its graduation.

As GSP+ requires two-stage value additions, the exporter said, "The EU may not rely on Bangladesh's trade data and value addition information.

"If they accept this data, this value addition is not enough to get the GSP Plus facility."

Two-stage value addition refers to the requirement that products undergo a certain degree of processing in the beneficiary country to qualify for tariff preferences under GSP+.

However, denim exports might get this access as they can add high value locally, importing only raw cotton and chemicals, the exporter said, adding that an uninterrupted gas and electricity supply is essential for the industry.

Bangladesh Garments Manufacturers and Exporters Association (BGMEA) President SM Mannan Kochi said the industry is not in good shape due to global economic volatility.

"The government should revise its policy support for the industry's survival as it has already reduced cash incentives for exporters by Tk3,400 crore this year."

He said, "If the government wants to make us competitive in the global market, cash incentives should continue without any reductions until 2029. Additionally, alternative incentives for exporters should be introduced as per the commitment made by government officials."

On 3 July, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, emphasised the need for government support to help exporters reach their 2027 export targets. He noted that exporters will need to double their exports to achieve this goal.

He highlighted the importance of ensuring adequate port facilities, simplifying customs procedures, providing uninterrupted gas and electricity, and diversifying the export basket to increase export volumes.

Bangladesh may lose its 2nd position in apparel exports

Mohammad Hatem, the executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS that Vietnam was very close to Bangladesh in apparel exports. However, with the revised data showing a $10 billion discrepancy in apparel export figures, Vietnam may be far ahead of Bangladesh.

Additionally, the ongoing gas and electricity shortages are disrupting the supply of local fabrics and yarn, potentially pushing exporters to import these raw materials. This shift could negatively impact local value addition.

According to the Vietnam Textile and Apparel Association, exports from the Vietnamese textile and garment industry reached $9.53 billion in January-March of 2024, marking a 9.62% increase over the same period of the previous year.

Vietnam has set a target of reaching $44 billion in textile and apparel exports for the year, up 9% compared to 2023.

Export Promotion Bureau (EPB) data shows that Bangladesh's apparel exports were $13.81 billion in January-March 2024. After the data revision, this figure may be $2.5 billion lower.

Bangladesh has set a target of reaching $52.27 billion in apparel exports for FY24, while exports were $46.99 billion in FY23, according to the EPB.