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Bangladesh - February 3, 2024

RMG sector to be collapsed

Staff Correspondent : The world economy stopped after the pandemic corona. Many famous and expensive institutions are closed. Many companies are forced to lay off workers. Which is reflected in the clothing industry of the country. Export orders are closed. Later, the economy became active, the clothing sector of the country turned around. However, the Russia-Ukraine situation has again become an obstacle.
The price of fuel increases several times. Multifaceted crisis arises due to increase in gas and electricity prices.
Before dealing with these crises, the government has reduced export support or cash incentives for 43 products.
There will be no incentive from 2026 to move to developing countries. For this reason, this new decision has been effective from the current (January) month. But industrialists are not looking at it well.
According to them, the country’s export sector, especially the garment industry, is facing multiple crises. Exports of clothing to major world markets have declined. Even if the cost of production increases, the price of the product is not getting at that rate. In this situation, if the incentive support is reduced, the medium and small industries will face the problem. They said that if it is effective from next July, the crisis can be handled somewhat.
According to the government’s new directive, from January 1 to June 30, 2024, incentives or cash assistance will be given to exports in 43 existing sectors. Now the exporter will get this cash assistance at the maximum rate of 50% to 15%. Earlier that was from 1 percent to a maximum of 20 percent.
Garment exporters will get cash assistance at the rate of 50 percent instead of 1 percent in the apparel sector. Cash assistance to exporters of leather and leather products has been reduced from 15 percent to 12 percent. Jute and jute products have been reduced from 20 percent to 15 percent. The subsidy on the export of plastic products is 10 percent so far, but from now you will get 8 percent. The government has also reduced the subsidy on exports in other sectors.
In lieu of duty bonds and duty draw-backs in the domestic textile sector, alternative cash assistance has been increased to 3 per cent from 4 per cent earlier. In the euro area, the textile sector incentive rate of 3 percent and additional special support has also been reduced from 2 percent to 1 percent. However, for exporters, all small and medium industries in the ready-made garment sector, including knits, knits and sweaters, have retained an additional 4 percent. Exports to new products or new markets have been reduced from 4 percent to 3 percent. Special cash support on exports of readymade garments has been reduced from 1 percent to 0.50 percent. As a result of the new directive, no cash assistance will be available against exports of the five HS codes specified in these sectors.
In this regard, the executive president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatim told that the government has reduced the export support. Which will be effective from this month. Exports of certain categories of goods are excluded from support. As a result of this decision, there is no advantage in the export of clothing including T-shirts. Support in new markets has been reduced. This will create more pressure, the economy may be hampered.
But investment comes in the country even in a hostile environment. The factory was built. Over six hundred new factories were built in the last two years. Although the new wages are effective, several factories have also closed due to reduced purchase orders. However, declining exports in some key markets have raised concerns. In particular, the US market, which accounted for about 22 percent of total export earnings, fell by 25 percent in 11 months. Exports to the European market have also decreased. Entrepreneurs say that if this situation continues, there will be a crisis in exports. Although they are looking at something political with it.
In this regard, the vice-president of the garment owners’ organization BGMEA, Shahidullah Azim told that the incentives have been reduced at a time when entrepreneurs are going through a difficult time. It was not discussed with any stakeholder. We gave the price to the buyer five-six months ago, bought the yarn and gave a higher price. In this situation, small and medium industrial owners will be in danger if the decision to reduce incentives is effective from January. The mouth can fall, they can be closed.
He also said, we have to face many dangers, the production has increased, the interest rate of bank loans has increased. Gas-electricity bill has doubled, waste has increased by 56 percent. In this situation, as a result of reducing incentives, many factories may be closed, many large factories will not be able to pay salaries. At the time we were growing, exports to Europe-America declined. We are exporting to new markets, which are doing well but will also be hampered by withdrawal of aid.
BRAC Managing Director Salim RF Hossain said that there will be no impact on the banking sector in case of reduction of incentives. Gas has been subsidized for years, bringing it into a price would not be a waste. Moreover, we have entered the ranks of developing countries from underdeveloped countries, where we cannot provide some benefits even if we want to because of the conditions. So, we have to move away from incentives, stand on our own feet.
Economist and Honorable Fellow of CPD Mustafizur Rahman talked about export support. He told that the export incentives can be kept for two more years, as the incentives will stop after 2026. But there will be problems for exporters. It would have been very difficult for them to stop assistance all at once or in one step, in this case it is being phased out. That is why it is being done gradually. Incentives are only a part of his income and expenses. In other places where harassment occurs, they should provide assistance.
Economist Mustafizur Rahman said, now the depreciation of money is going on, the Central Bank is saying that it will continue. Even that would be some mitigation. Because one dollar was getting Tk 110, now it will get Tk 112 or Tk 113. Gradually there will be some further decline. I think the exporters can handle that too. In short, incentives are gradually being phased out as exporters prepare.

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