Published in The Financial Express on Tuesday, 3 March 2015.
Euro slide, turmoil may hurt country’s exports
Ziaur Rahman
The country’s exports, especially to the European Union (EU) market, are likely to be affected seriously due to continuous depreciation of Euro, the official currency of eurozone, and prolonged political turmoil.
According to industry sources, unabated fall in Euro against the local currency (Bangladesh taka) and the prevailing political turmoil are hampering exports of readymade garments (RMG), leather and leather goods and frozen foods from the country.
“Export from the country’s RMG sector will decrease at least by 7-8 per cent in the current fiscal year only because of the Euro impact,” said Md Shahidullah Azim, vice president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
“We are now under pressure from the EU buyers to reduce our export prices because of the erosion in Euro value,” he added.
Returns from exports to the EU have dropped sharply in recent times. A dozen apparel units sold in the EU countries a year ago at 100 Euros would fetch Tk 10,700 in local currency as against Tk 8,700 nowadays, said Mr. Azim.
Even six months ago, this consignment was worth about Tk 10,000. One Euro was worth about Tk 105-107 in February 2014, but now it fetches around Tk 87.
Not only the RMG sector, the country’s leather and leather goods industries also are not being able to take full advantage of export to the EU market compared to exports from other competitive countries, said Nasim Manzur, managing director of Apex Footwear Ltd.
According to Mr. Nasim, the slide in Euro has already eroded about 20 per cent of their income from exports, leading to a substantial loss of market share. The development is also discouraging new investments and hampering product diversification. Of the total exports from leather industry, 60 per cent go to the EU, 30 per cent to Japan and 10 per cent to other countries.
To overcome the crisis, Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB) has urged the government to make them eligible for Green EDF low cost fund and demanded 7 per cent reduction in interest rates for exporters with their 50 per cent or more export earning coming in Euros.
Besides political turmoil that hampers production, transportation and export severely, exports of frozen food have also been affected for devaluation of Euro and Rouble – the European and Russian currencies – against the dollar.
Usually, Bangladesh receives a large volume of export orders for its black tiger shrimps from the European and North American markets in the run-up to Christmas Day, but this year the exporters of frozen food saw a substantial decline in their export orders mainly because of Eurozone crisis, said Abul Bashar, executive director of Bangladesh Frozen Food Exporters Association (BFFEA).
“The stiff fall in Euro value has badly affected the buyers and reduced their purchasing power,” said another exporter who exports most of his consignments to the EU countries.
Nearly 70 per cent of the country’s frozen food exports are targeted to EU countries, most of which are facing economic slowdown. “Instead of buying delicious Bangladeshi shrimps like black tigers, they are seen switching over to low-cost shrimps like Vannamei from India,” he said, adding that such a trend will have a negative impact on the country’s frozen food exports.
Already hit hard by the ongoing political turmoil that disrupts production and delivery schedules, Bangladeshi exporters are likely to face some financial smacks unless some measures are taken right now to offset the impact of falling Euro.
“Violent politics has made us helpless and now this continual drop in Euro value is squeezing our incomes,” said Md Hatem, former vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
The European Union is the biggest market for Bangladesh’s garment exports, which enjoys preferential trading status there. According to Export Promotion Bureau (EPB), about 55 per cent of the country’s export earnings come from the EU countries. Euro zone countries contribute 20 per cent of this in Euro. Except the UK, trading with all other European countries like Germany, France, Belgium, Italy and the Netherlands is done in Euro.
Economists also apprehended an adverse impact of the depreciation of the EU currency on inward inflow of remittance, especially from EU countries, in the coming months.
Asked if the depreciation of Euro would have negative impact on exports and remittance inflow, CPD Executive Director Dr. Mustafizur Rahman said: “A huge fall in Euro value would have an impact. This has to be taken into consideration.”
He, however, said there was ‘positive aspects’ of Euro’s depreciation. “It will reduce the cost of imported goods.”
mzrbd@yahoo.com