KARACHI: Fuelled by dissatisfaction with a government-imposed pay increase, hundreds of garment workers in Bangladesh took to the streets last month, leading to the closure of nearly 40 factories. Bangladesh’s woes may create a small window for textile exports.

“Wages are negotiated every five years in Bangladesh, and this time around, the wage rate adjustment fell close to the country’s elections amid soaring inflation,” explains Shahid Soorty, CEO of the Soorty Group, which has significant investments in the former East Wing.

“The resultant strikes increased the risk profile of business in Bangladesh. For example, H&M buys 60 per cent of its goods from Bangladesh — H&M’s annual sales are in the ballpark of $20-22 billion,” he says. As a result, some major retailers have tempered their orders to Bangladesh, providing Pakistan with a small window of opportunity.

“But at the end of the day, the selling price dictates the purchase decisions, and we are not as competitive as Bangladesh. Furthermore, the situation has more or less normalised as the wage rate has risen to $113 from $72.” However, he adds, there may be some agitation in the weeks leading up to the elections to be held on Jan 7, 2024 for Bangladesh.

While some orders may flow Pakistan’s way in the new year, the ship has sailed for the holiday season in the West, for which orders are placed in summer. Due to the six-month lead time in international markets, Christmas orders must be placed in June-July to ensure timely delivery three months before the holiday season.

Last year, recessionary pressures and high inventory stocks had slowed demand. This year, they fared worse. Textile and clothing exports dropped 9.95pc to $4.12bn in Q1 FY24, down from $4.58bn in Q1 FY23.

“Retailers in the West are still carrying some older stocks, plus the global recessionary pressures still exist and have suppressed demand. However, I do see some improvement in the EU,” says Saleem Parekh, Director of Al-Abbas Fabrics.

Bolstered by slowing inflation and a resilient job market, the Eurozone and its leading economies are set to avoid a recession, with growth doubling to 1.2pc in 2024, compared to 0.6pc expected for 2023, according to the latest numbers by the European Commission.

Since the protests in Bangladesh took place after most of the seasonal orders were placed, orders were not diverted to Pakistan earlier this year. “We may get a few new orders in the new season, but customers are not likely to substantially change vendors at the last minute for the holiday season,” says Mr Parekh.

The slow demand bodes ill for mills set up under the Temporary Economic Relief Facility (TERF). Low order volume and the prohibitive cost of doing business have prevented factories set up under TERF from coming online. This situation is particularly detrimental to small and medium-sized enterprises (SMEs) in the textile industry. Without economies of scale, efficient technology, or financial backing, they are unlikely to survive the current economic climate.

“Their disappearance would negatively impact the entire industry as larger players rely on SMEs for additional support and services like handling overruns,” laments Mr Parekh. Furthermore, strict import controls and limited dollar availability are creating additional challenges. Opening letters of credit (LCs) for essential raw materials like dyes and chemicals have become increasingly difficult, hindering production and impacting efficiency, he adds.

However, there has been an uptick in garment exports. Over the July-September period of the current fiscal year, large-scale manufacturing numbers show a surge of nearly 40pc. “There was some activity in the holiday season. Exports have improved because buying power has slightly revived in our exporting countries,” says Sheikh Mohammad Shafiq, Managing Partner of J Text Exports. “But, our cost of doing business is 15-18pc more than competing countries such as Bangladesh, India and Vietnam.

“Furthermore, buyers sometimes have special requests concerning the quality of yarn, such as blended or processed yarn, type of buttons, zips etc. With import restrictions through LCs, the order gets cancelled entirely if the specifications are not met,” he adds.

Despite the depressing narrative, Mr Soorty is somewhat optimistic. “Orders will definitely come into Pakistan from January onwards, but the jump will be in single digits. Once a company gets an order, the odds of recurring orders are higher,” says Mr Soorty, advocating companies to aggressively chase orders.

Published in Dawn, December 17th, 2023