Bangladesh Garment Exports Post-MFA

UNCLAS DHAKA 004154

SIPDIS

E.O. 12958: DECL: N/A
TAGS: ECON ETRD EINV BG
SUBJECT: Bangladesh Garment Exports Post-MFA



1. Bangladesh Export Promotion Bureau reports that
half yearly (January - June 2005) ready made garment
(RMG) exports have increased by six percent (from
$3,118 to $3,302 million) compared to the same
period in 2004. These results reflect higher volumes
at lower prices and mask variances among RMG
sectors.


2. The value of knit RMG exports increased 25% to
$1,420, whereas the woven RMG export decreased by 4%
to $1,781. Knit RMG exports are gaining momentum
because backward linkage industries are providing
80% of the raw materials (bypassing Bangladesh's
weak and costly port infrastructure),whereas, in
the case of woven, it is 30%.


3. Exporters attribute the increase to higher
volumes, which have offset a significant drop in FOB
prices. Overall, Bangladesh has not yet seen the
loss of market share that many had predicted;
however, one of the leading RMG exporters recently
told the Acting DCM that the lower prices had cut
his margins to the minimum. The company is barely
surviving, but expects better days in the near
future, he said. The Secretary of the Bangladesh
Garments Manufactures and Exporters Association
(BGMEA) told the Embassy Economic Specialist that
the rumor of safeguards against certain Chinese RMG
items is bringing some buyers back to Bangladesh
again.


4. Exports of RMG products, which account for over
70% of Bangladesh's total exports, are facing major
competition from Chinese products, especially at the
low end. Many buyers, however, continue to source
from Bangladesh for several reasons: i) buyers want
to source from diversified markets to reduce risk;
ii) consumers still consider Bangladeshi apparel
products a good choice; and iii) manufactures are
lowering their prices to meet competition and
survive in the market. Moreover, ADB assistance to
the current Chittagong port and proposed private
operation of the New Mooring container terminal will
begin to address infrastructure weaknesses that add
to the cost of Bangladesh RMG goods.


5. Comment: Although early results are positive,
it is still too early to say how the Bangladesh RMG
sector will perform post-MFA over the medium and
long term. Thus far, however, industry investment
and exporters' efforts to create backward linkages,
coupled with competitive pricing and a reputation
for meeting social compliance requirements have
enabled the industry to hold its own in the new
competitive environment. End Comment.

Chammas