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30 July, 2016 00:00 00 AM
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Impact of Brexit on Bangladesh’s RMG

Md Harunur Rashid
Impact of Brexit on Bangladesh’s RMG
Figure: RMG export growth, Source: EPB (Export Promotion Bureau)

Bangladesh earned $28.09bn from RMG exports in the FY 2015-16 which just ended around 10.21% growth from the previous year according to EPB figure. Whereas country’s RMG exports concentrated to major destination like EU (European Union). The EU is the basket of RMG exports and United Kingdom (UK) is the potential part of this basket. But the matter of concern is now the UK people decided to leave European Union (EU) as 52% people voted for exit while 48% cast vote to stay with the union by a referendum held on June 23. Britain’s exit (Brexit) from the EU will hurt Bangladesh exports especially the RMG sector to UK markets as it will cast shadow on the exchange rates, fear the country’s economists and RMG exporters.
The UK buyers of Bangladeshi garment products have started putting price pressure on manufacturers following the freefall of pound sterling as a result of Brexit. The UK buyers will try to cut prices and to some extent even to cancel the orders. This pressure on price will further affect exporter’s margins that have already been squeezed due to a rise in operational and compliance costs. If the trend continues for a long time, inflation will go up and the British consumers will buy less, which will then affect our exports there. Now the question arises that $50 billion garment export target by 2021 may not be possible.
While UK is the third largest single export destination for Bangladesh, it is very important for us as the exporters enjoy duty-free market access for all products under Generalised System of Preferences (GSP). That is why it has become a big question for the country as to whether it will be able to enjoy the trade facilities after the exit of UK.
Bangladesh's exports to the UK may greatly be affected due to a possible suspension of duty benefits by the British government following Brexit. But it seems the British retailers are not ready to pay more for the garment products they source from Bangladesh, according to RMG exporters. Bangladesh’s exports to the UK totaled US$ 3.20 billion in the financial year 2015-16 with US$ 2.90 billion coming from the RMG sector data from EPB.
During the period between January-July 2015, the price of RMG products imported by the EU fell by 1.41%, in spite of the fact that every factory had to spend Tk 5 crore to Tk 20 crore to upgrade infrastructure, fire safety, and electrical safety facilities to meet international standards, even though social compliance had already been established after the Rana Plaza building collapse at Savar, Dhaka in 2013. But RMG exporters are yet now getting lower price from buyers of major RMG importer countries in EU.
In practical view I had noticed that in one of EU countries like Italy buyers and retailers are sourcing RMG products from Bangladesh by a low price and sell to consumers with high price in the various shopping malls.
Faruque Hassan, the vice-president of BGMEA said that we have a target to grow apparel exports to the UK by 12 percent to 15 percent year-on-year. It is expected that it will cross the $5 billion mark in the next five years in UK. Still, if the 12.5 percent duty-benefit is cut, Bangladeshi exporters will lose competitiveness. So, UK market is very significant for RMG exporters of Bangladesh. But it needs to be pointed out here that the country needs to achieve about 12% of total RMG export growth to reach $50bn export target by 2021.
In recent times, the short-term visible impact of the Brexit is devaluation of currency that has already witnessed an about 10% fall. Bangladesh will bear the brunt of the exit as it is the third largest single export destination for our products. This fall will also slim down remittance and foreign direct investment in Bangladesh. Brexit will also have a negative impact on remittance earnings and spill a catastrophic impact on the bilateral trade and investment relationship. In the mean time buyers try to get price benefits out of their devaluating exchange rate. The declining exchange rate of pound sterling will make imports costlier for UK businesses.
Additionally, industry insiders are thinking that Brexit would cause uncertainty in the markets and pose other economic risks like exporters to the UK will get less value in currency exchange. The issue was not directly related with Bangladesh but the country might have to face immediate impact of Brexit. If Brexit poses negative impact on both the EU and UK economy, Bangladesh would have to suffer and if the Brexit leads positive in the economy we will be benefited. It is true RMG sector will be at risk, unless we explore more new markets with additional basket of export products.
Since the exit will be executed by next two years; Bangladesh government has to negotiate with UK for continuing the trade facilities which may not be effective after two years. Recently most of the country’s economists also suggested the government should form a national committee comprising trade bodies, experts, international trade law practitioners, economists, researchers, and representatives
from concerned ministries and agencies to observe and report findings on post-Brexit global economic order.  
RMG sector is the lifeline of Bangladesh economy. It constitutes more than 80% of the country’s total export and enjoyed a double-digit growth rate, helping the country remain on track. So, it is not only the responsibility of the owners of apparel industries to showcase a positive image, but the government also has a responsibility to start negotiation to deal the issue bilaterally with UK.

The writer is Assistant Deputy Secretary, BKMEA. Email: harun.bkmea@gmail.com

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Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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