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Long lead times, fabric imports reduce competitiveness of woven garment exports

2018-01-24 21:19:07
Increased dependence on fabrics import and a lack of proper policy on energy supply are negatively impacting the competitiveness of Bangladesh’s woven garment exports in the global market. Industry insiders and trade analysts have blamed longer lead time, poor backward linkage, the absence of value addition and modern technology and lack of proper policy support on gas and electricity connection for the decline. According to the Export Promotion Bureau (EPB), export earnings from the woven garment products have seen a 2.35% fall in the last fiscal year to $14.39 billion. It has, however, posted a 4% growth in the first half of the current fiscal to $7.17 billion. During the same period, knitwear products earning has seen an 11.47% rise to $7.6 billion. The woven sector has also seen negative growth in major export destinations including Germany and the US, two of the largest export destinations. Experts have suggested new investments in backward linkage to reduce import dependence and technology upgradation for value addition in order to make a comeback.Lack of competitiveness To boost export of woven garments, the issue of longer lead time caused by import dependence is a key factor while the price edge is another important element. “Bangladesh is doing better in knit products exports. This is because of we have strong backward linkage industry,” Faruque Hassan, BGMEA senior vice president told the Dhaka Tribune. “However, woven products manufacturers are highly dependent on import for fabrics, which costs more. As a result, export earnings from woven goods have seen slower growth and it is losing its strength in the global market,” he added. On the other hand, value addition of woven products is less than the knit products which led to lower prices, Hassan said. “We do not have manmade fibre, polyester and petrochemical, which we have to import. We will be competitive if we can meet the demand from the local sources,” he added. “Stakeholders are investing to upgrade machinery to go value addition. This will boost the buyers’ confidence and they will place orders for higher end woven products in Bangladesh,” the BGMEA senior vice president said.The challenges Shorter lead time is the key to remaining competitive in the global market. To reduce the lead time, Bangladesh has to improve its backward linkage industry to meet the demands locally. It takes about 35 days to ship goods to the US from Bangladesh. But shipping from China takes 20 days and it is 15 days for Turkey, Exporters Association of Bangladesh president Abdus Salam Murshedy noted. “As a result, Bangladesh cannot take urgent orders from buyers due to longer lead time,” he told the Dhaka Tribune. While getting a gas connection is a big challenge, business will not be viable if the manufacturers have to run a factory with diesel instead of gas. “Only using gas can make the production less expensive, which will help us be competitive,” he said, urging a proper energy policy for the sector. The size of investment and costs of land are two other challenges. “Setting up woven fabric factories cost two to three times more than establishing a knit composite factory,” Salam said. “It also needs more land.”Ways forward Bangladesh can only meet 30% to 35% of local demands of woven fabrics. So, there is a huge gap between the supply and demand of woven fabrics. It is clear that there is big opportunity to grow by making new investments. “First, we have to try to meet the demands locally to reduce lead time as it takes so many days to import fabrics. For this, new investment is a must to increase production capacity in line with the demands,” said Salam, also managing director of Envoy Textile. “Then, the government should ensure infrastructure to ship finished goods within a possible shorter time as it is the key to success to grab more orders and remain competitive in the global market,” he added. The former BGMEA president said there were many capable investors but they were unwilling to make investments due to lack of proper policy support and utility services. “Losing market share of woven garments is alarming for Bangladesh as over 82% export earnings come from apparel sector and the woven sector contributes almost half of it,” former caretaker government adviser AB Mirza Azizul Islam told the Dhaka Tribune. “We have to ensure balanced export earnings to attain a sustainable exports growth,” he said. “The government, along with the stakeholders, should jointly take steps to overcome the challenges.” He said he believed that new investment could improve the industry capacity to meet the demand of fabrics locally. Currently, Bangladeshi manufacturers mostly produce basic fabrics, which is not for higher-end products. “Since the fashion trend is changing every day and the consumers want latest fashion products, the clothing retailers are looking for more technical fabrics instead of basic ones. To cope up with the latest demand, we should focus on multifunctional fabrics to diversify products,” Md Mostafiz Uddin, managing director of Denim Expert Limited, told the Dhaka Tribune. He also suggested product development by research and innovation as well as introducing technology in manufacturing to get higher prices.  Add Comment | 0   comment page number 1

Contractionary monetary policy on the cards

2018-01-23 20:47:56
Bangladesh Bank is preparing a contractionary monetary policy statement (MPS) for the second half of the current fiscal year to control the supply of credits and inflation in a bid to maintain economic stability, according to officials. To ensure price stability and gain public trust in currency, the monetary policy is expected to play a vital role in controlling the flow of money through setting a target of interest and inflation rates, they said. Bangladesh Bank Governor Fazle Kabir is likely to announce the MPS late this month. Abul Kalam Azad, general manager and deputy spokesman at the central bank, told the Dhaka Tribune: “We have yet to finalize the date of MPS announcement. It could, however, be announced between January 29 and 31.” He added that they had taken all necessary preparations to announce the MPS. The bank has already finalized the MPS, and it is now being reviewed by the government authorities concerned, according to sources. Bangladesh Bank officials said proposals and suggestions from eminent economists and the bank’s officials would be incorporated in the MPS. In the draft MPS, Bangladesh Bank has given special focus on ensuring the quality of credits and keeping inflation at a reasonable level, they added. With the MPS being a contractionary policy, the officials claimed that it would be a growth-supportive measure. Economic growth will not be hampered as orders to reduce credit disbursement and strengthen the monitoring and supervision of loans will be imposed according to the central bank’s directives, they added. The growth in credit flow to the private sector was projected to rise to 16.2% by December 2017 and 16.3% by July this year. However, it rose to 19.06% by November 2017, according to Bangladesh Bank data. On the other hand, the projected inflation rate set by the government and the central bank is 5.5% for FY2017-18, but it stood at 5.70% on a 12-month-average basis in December 2017 due mainly to the rising food prices. As a part of announcing the MPS, Bangladesh Bank has already hinted at taking some steps such as discouraging credit supply to less productive sectors. The MPS will focus on disbursement of more SME and agricultural loans and microcredit to create employment opportunities across the country, said a Bangladesh Bank official. There may be an announcement from the bank for lowering consumer financing to bring down the inflation rates by the end of the current fiscal year. The central bank is also likely to announce that the limit to advances-deposit ratio (ADR) might be slashed in order to keep the private sector’s credit growth rates within the stipulated limit. The ADR limit will likely come down to 85% for sharia-compliant Islamic banks from the existing 90%, and for the rest of the banks, it will come down to 80% from 85%. Add Comment | 0   comment page number 1

BEPZA International Investors Summit 2018 on Wednesday

2018-01-23 20:52:26
 The Bangladesh Export Processing Zones Authority (BEPZA) will host the BEPZA International Investors Summit 2018 at Bangabandhu International Conference Centre in Dhaka on Wednesday, aiming to inform people about BEPZA’s success during the tenure of the current government. The summit will also highlight the achievement of the country’s investments, exports and employment through BEPZA, its special role in strengthening the economic base of the country through the establishment of a peaceful environment and a friendly industrial climate that ensures secure investments, industrialization, and low cost national export and Foreign Direct Investment. Prime Minister Sheikh Hasina is expected to inaugurate the BEPZA Economic Zone via video conference to unveil the foundation stone, and will visit the exhibition stall of Export Processing Zone (EPZ) products. A Memorandum of Understanding was signed on May 2017 between BEPZA and Bangladesh Economic Zones Authority (BEZA) for establishing a new area of investment to set up an economic zone in Mirsarai, Chittagong on 1,150 acres of allocated land. Finance Minister AMA Muhith and Commerce Minister Tofail Ahmed are expected to be present as special guests at the summit. The summit will also include a plenary session with two panel discussions titled “Investment Friendly Bangladesh: Road to the Ease of Doing Business” and “Social & Environment Compliance and Safety Issues”, moderated by Principal Coordinator of Sustainable Development Goals to the Prime Minister’s Office (PMO) Md Abul Kalam Azad and Principal Secretary to PMO Md Nojibur Rahman. The third phase of the show will include a cultural event and a fashion show organized by EPZ workers. Comprised of a total of eight EPZs in the country, from 2009 to 2017, BEPZA has attained over $3 billion in investments, $45.24 billion in exports, generated employment for 283,620 workers, and established 179 new operating industries. The ceremony will be presided over by the Executive Chairman of BEPZA, Major General Mohd Habibur Rahman Khan. Around 700 investors from 38 countries, diplomats from 24 countries, members of BEPZA Governor Board, Chief of Army, Air force and Navy, VC of Dhaka University and BUET and 600 workers of EPZ are expected to be present at the program. Add Comment | 0   comment page number 1

Capital market outlook for 2018

2018-01-23 20:57:21
Stock markets in Bangladesh experienced a strong bullish trend from 2008-10. Average daily turnover almost doubled (Tk281.8 crore) from 2007. The positive sentiment persisted through 2009-10. However, nearing the end of 2010, the bullish trend turned into an erratic bubble. The broad index reached its historic high of 8,919, while the highest turnover recorded in a single day stood at Tk3,250 crore. Market capitalization as a percentage of GDP went up to 35.0% while the average market P/E shot up to 29.2x in 2010. The Nominal Gross Domestic Product (GDP) of the country grew moderately, by 13.2%, whereas the equity market cap grew by more than 80.0%. As such, market headed towards an inevitable downturn, with the bubble bursting in the latter half of December 2010. The downward spiral continued throughout 2011 and 2012, with the index bottoming out at 3,610 in April, 2013. Investors lost confidence in the capital market in the aftermath of the debacle, resulting in subdued trading activity. Recurrent political turmoil aggravated the situation further. However, from the second half of 2016, revamped-enthusiasm among investors was witnessed. The market became highly active, particularly in the last quarter of 2017, with an average daily turnover of Tk696.5 crore. This positive trend is still ongoing. The (Year to date) YTD average daily turnover in DSE stands at Tk909.3 crore. The broad index (DSEX) increased by 20.7% between May 2016 and December 2016, and 24.6% in 2017 (YTD). Despite such massive gains, the Market P/E ratio did not increase by much, at 16.1x only. This confirms the justification of pricing based on earnings. The banking sector booked 76.7% year over year (YoY) growth in earning in the third quarter of 2017. Although June ending stocks showed substandard performance, registering 2.3% YoY growth in its FY2017 earnings, they came back strongly in the first quarter of 2018, securing a 14.9% YoY growth in earnings. Attractive stock market valuation, very low interest rates, stable inflation, excess liquidity, excellent corporate profitability, and an overall bullish trend in the market has directed quite a significant amount of fund flow to the market during the past year. The Bangladesh economy has continued this growth despite a slowdown of the global economy. The country achieved GDP growth of 7.28% in FY2017, recording a GDP growth over 7% rate for the second consecutive year. We can reasonably expect that the export of RMG will bounce back, as most of the export oriented factories have become compliant with regulations. Moreover, with a depreciating currency, export competitiveness should improve to some extent.Effects of low interest rate Record low interest rates have encouraged credit growth in the country. Low interest rates discourage savings and thus encourage more consumer spending. Consumer demand is likely to be further reinforced, as the implementation of the uniform VAT law was deferred. We can expect that significant funds will continue to flow to the capital market in 2018 due to a sustained downtrend in interest rates and a depressed real estate sector. Since January 2006, the weighted average deposit rates (WADR) of banks declined by 137bps to 4.8% in Jun 2017. Though, the WADR experienced moderate pick up in September 2017 (4.9%), the real interest is still negative as the point to point inflation rate stood at 6.1% in the month. With projected inflation at around 5.5% to 6.0% for FY2018, we believe that the capital market will attract funds that flow away from bank deposits. Furthermore, the gap between interest rates on saving certificates (~11.0%) and market deposit rates (~5.3%) is ever widening. As a consequence, the sale of savings certificates surged in FY2017; Due to high returns on savings tools, the government’s interest rate liability is increasing. Even though there has not been any mention of rate cuts on savings certificates in the FY2018 budget, we anticipate that the government will be compelled to cut the rates to stay closer to market rates. Such a cut would also direct funds away from savings certificates and towards equity investment in the capital market. Given the 11th national election is due at the beginning of 2019, we expect that institutional investors will remain watchful in last three or four months before election. Trading activity may become sluggish to some extent for a transient period, yet given the strong fundamental landscape, and promising economic growth, we believe, the market will remain vibrant for most of 2018.   Add Comment | 0   comment page number 1

Contractionary monetary policy on the cards

2018-01-23 20:59:57
The monetary policy is expected to play a vital role in controlling the flow of money through setting a target of interest and inflation rates. Bangladesh Bank is preparing a contractionary monetary policy statement (MPS) for the second half of the current fiscal year to control the supply of credits and inflation in a bid to maintain economic stability, according to officials. To ensure price stability and gain public trust in currency, the monetary policy is expected to play a vital role in controlling the flow of money through setting a target of interest and inflation rates, they said. Bangladesh Bank Governor Fazle Kabir is likely to announce the MPS late this month. Abul Kalam Azad, general manager and deputy spokesman at the central bank, told the Dhaka Tribune: “We have yet to finalize the date of MPS announcement. It could, however, be announced between January 29 and 31.” He added that they had taken all necessary preparations to announce the MPS. The bank has already finalized the MPS, and it is now being reviewed by the government authorities concerned, according to sources. Bangladesh Bank officials said proposals and suggestions from eminent economists and the bank’s officials would be incorporated in the MPS. In the draft MPS, Bangladesh Bank has given special focus on ensuring the quality of credits and keeping inflation at a reasonable level, they added. With the MPS being a contractionary policy, the officials claimed that it would be a growth-supportive measure. Economic growth will not be hampered as orders to reduce credit disbursement and strengthen the monitoring and supervision of loans will be imposed according to the central bank’s directives, they added. The growth in credit flow to the private sector was projected to rise to 16.2% by December 2017 and 16.3% by July this year. However, it rose to 19.06% by November 2017, according to Bangladesh Bank data. On the other hand, the projected inflation rate set by the government and the central bank is 5.5% for FY2017-18, but it stood at 5.70% on a 12-month-average basis in December 2017 due mainly to the rising food prices. As a part of announcing the MPS, Bangladesh Bank has already hinted at taking some steps such as discouraging credit supply to less productive sectors. The MPS will focus on disbursement of more SME and agricultural loans and microcredit to create employment opportunities across the country, said a Bangladesh Bank official. There may be an announcement from the bank for lowering consumer financing to bring down the inflation rates by the end of the current fiscal year. The central bank is also likely to announce that the limit to advances-deposit ratio (ADR) might be slashed in order to keep the private sector’s credit growth rates within the stipulated limit. The ADR limit will likely come down to 85% for sharia-compliant Islamic banks from the existing 90%, and for the rest of the banks, it will come down to 80% from 85%.   Add Comment | 0   comment page number 1

RMG labour assocs demand Tk 16,000 as minimum wage

2018-01-23 21:04:00
Garment Shramik Odhikar Andolan, a platform of 12 labour organisations, on Tuesday submitted to the Bangladesh Garment Manufacturers and Exporters Association a memorandum, demanding Tk 16,000 as the minimum wage with 10 per cent annual increment for the readymade garment workers.The platform also demanded permanent rationing system, contributory provident fund and variable dearness allowances for the RMG workers.Since the formation of a wage board by the government on January 14 for reviewing the minimum wage for RMG workers, the combine of the labour organisations has been holding a series of programmes across the country to press for its demands.Criticising the process of the formation of the wage board, labour leaders said that the government was in fact working for garmentfactory owners as it disregarded the recommendation made by the garment sector workers’ leaders in appointing the workers’ representative to the board.‘Without movements the interests of the RMG workers will not be protected in the wage board as the government and the workers’ representative are actually representing the factory owners in the board,’ Garments Sramik Oikya Forum president Mushrefa Mishu said at a rally in front of the BGMEA headquarters in the capital before submitting the memorandum.She said, ‘The garment factory owners in Bangladesh are living their lives in the lap of luxury, while the country’s RMG sector workers are the lowest paid in the world.’The government and factory owners always tell the tales of the success of the garment sector but both of them are united to deprive workers of their rights, Mishu claimed.The workers who raised their voice for wage hike have faced job termination and cases have been filed against them on charge of sedition, she alleged.Bangladesh Garment Shramik Sanghati president Taslima Akhter said that request from the BGMEA for forming a wage board was nothing but an election year policy of the government.‘BGMEA leaders requested the government for forming a wage board and on the other hand the police have been restricting opening of branch offices of trade unions situated in the industrial belt following the formation of the board so that workers cannot raise their voice,’ she said.The government and the BGMEA are planning to pass unilateral recommendation in the wage board as the real representation of workers are completely absent in the board, she alleged.Garment Shramik Odhikar Andolan coordinator Mahbubur Rahman Ismail, also the president of Bangladesh Textile-Garment Workers’ Federation, called upon the workers and workers’ leaders to remain vigilance so that garment factory owners cannot deprive them of their rights.OSK Garment and Textile Workers Federation president Md Yeasin and Garment Workers Trade Union Centre general secretary Jolly Talukder also spoke at the demonstration.   Add Comment | 0   comment page number 1

INTECH Basis for Qualified Opinion

2018-01-23 02:05:47
The auditor of the company has given the following "Basis for Qualified Opinion " and "Emphasis of Matter" Paragraphs in the audit report of the company for the year ended on 30 June 2017. Basis of Qualified Opinion: The company has recognized deferred tax income Tk. 1,019,700 and deferred tax assets Tk. 3,333,653. Details of deferred tax assets and income have been shown in note-5 where it has been mentioned that deferred tax was measured and recognized as per previous practice. Tax return for the year 2014 has been submitted and remains under process of assessment by the tax authority. Due to absence the tax assessment for the year 2014 tax depreciation status of major part of depreciable property, plant and equipment valued Tk. 76,89,000 which came into use in the year 2014 (assets of fish project Tk. 38,346,000 and office space Tk. 38, 550,000) could not be ascertained resulting inability to confirm the amount of deferred tax asset and income. Emphasis of matter: We draw attention that, As per note 22.00 to the financial statements operating Profit from software service was Tk. 54,884,445 and operating loss from Internet service and fisheries project was Tk. 26,214,447. But balance of direct non-current assets (Property, Plant and Equipment) for Software service is Tk. 2,862,388, for Internet service Tk. 35,729,280, for fisheries project Tk. 52,122,783. Our opinion is not qualified in this matter.   Add Comment | 0   comment page number 1