Published in The Financial Express on Saturday, 17 January 2015.
BD export to EU gets into dark patch
Euro fall, domestic political blockade play down trade
Jasim Uddin Haroon
A sharp fall of the euro, an official currency of the 19 EU-member countries, is affecting Bangladesh’s export, mainly of apparels.
The development has emerged as a double trouble when the trade is also struggling hard against the damaging domestic problem stemming from a non-stop blockade and strikes.
The 27-member eurozone remains largest export destination for Bangladesh and the continental bloc’s currency, the euro, has fallen to a four-year low in January through erosion of its value by 12 per cent.
On the other hand, in view of the downturn, some developing countries considered rival to Bangladesh on the export market have depreciated their currencies to tap the benefits from the fall of the euro.
Exports of Vietnam and Cambodia to the eurozone grew 28.9 per cent and 23.9 per cent respectively in July-September.
Even the export of Pakistan that is enjoying a GSP-plus status from the European Union surged by 30 per cent during the period under review.
Bangladesh’s total garment exports rose only 5.1 per cent during July-September period to the EU market. The usual growth in the market share used to be double-digit earlier.
Leading economists said the decline in the value of euro is affecting the garment sector in terms of price cuts as buyers usually want to lower the prices of their imported goods to remain competitive in their respective countries.
They also said the buyers will procure low from Bangladesh if they get the same items from cheaper sources where the currencies have been depreciated against the dollar.
They said competitiveness of Bangladesh exports is being eroded following the rise in the real effective exchange rate of taka.
Vietnam currency dong has depreciated less than 1.0 per cent while Bangladesh’s currency, taka, remained almost stable during the period.
Dr. Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB), said Bangladesh’s garment export is being affected by the fall of the euro in two ways: price cut of garment products and decrease of Bangladesh holding of reserves in the euro.
Dr Hussain also sees the current political situation as a damper as “the non-stop blockade is causing an uncertainty in delivery of goods”.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), said Bangladesh’s earning from the exports to the Euro market is on a losing streak.
“The European buyers pay in euro and in terms of dollar the value falls,” he said.
Dr Mansur noted that Bangladesh’s real effective exchange rate (REER) had been growing since 2012 and, since then, local exportable products had been losing their competitiveness.
The REER was 88 per cent in 2012 and rose by 22 per cent in June 2014 to 106.
Dr Khandker Golam Moazzem, an additional director at the Centre for Policy Dialogue (CPD), mentioned that many competing countries are deriving from the fall of the euro by way of depreciating their own currencies.
Dr Moazzem said in the event of price cut by the local manufacturers, profitability of the local garment sector would shrink.
“If the buyers from the eurozone lower their imports from Bangladesh, then it will adversely impact the export volumes.”
jasimharoon@yahoo.com