By Ashis Biswas
As the war in Ukraine is about to roll over into its second year, Bangladeshi garments exports to Russia have suffered a major drop. A number of Western firms active in the Russian market also downed their shutters within weeks of the Russian offensive launched in February 2022, as Western anti Russian sanctions kicked in.
Yet one year on, with no immediate end of the hostilities in sight, Bangladeshi garment exporters currently expect an upturn in their business: recent trends in the garments sector suggest that the brief turmoil seen during the first and second quarters of fiscal 2022 may have been overcome. And the explanation is simple: many brands, Western or otherwise, never really left the Russian market. According to one survey, only the brands that were not doing well left first and immediately, whereas more established companies/ fashion brands stayed on. The stayers include brands and parties based in Japan and Korea as well.
Bangladesh-based industry circles confirm that there has occurred no noticeable decline in overall Russian demand for garments. So most Western companies opted to avoid the sanctions by routing their trade with Russia through business channels in the UAE, Turkey, Dubai or Singapore. Also, several Western companies/agencies have continued their normal business activities in Russia all these months!
Dhaka-based analysts have named some of these entities in their recent interactions with the local media. Some were involved earlier in joint venture projects In Russia.
A few units have ‘shifted out of Russia’ in theory, but as already stated, have carried on business by setting up new operating offices in Dubai or elsewhere in the UAE, for instance. Naturally they outsourced their garments purchases from Bangladesh, among other countries, which kept the industry alive in South Asia. They adopted what is usually called the ‘third country route.’
But for Bangladesh as well as other exporters, payments were mostly received in dirhams, dinars and other currencies, not in terms of dollars or euros. This led to a decline in the value of the Bangladeshi taka, triggering inflation. As the US dollar gained increasing strength vis-à-vis most national currencies in FE transactions, Bangladeshi taka went into a free fall, fast losing its value.
For Viet Nam or Bangladesh, top garment exporting countries in the middle segment of production after world leader China, it has not just been a question of losing the steady Russian market. Following the havoc caused by the Covid-19 pandemic and then the outbreak of the Ukraine war, Bangladesh exporters faced a slew of trouble sowing to factors beyond their control.
As some Russian banks were forced out of the SWIFT international system of payments, it became increasingly difficult for Bangladesh and other countries to secure payments in dollars, euros or pounds, for goods already delivered. There were long procedural delays which led to domestic economic tensions.
Worse, there was a steep and unexpected decline in orders coming in from the US, Canada or the EU countries, which account of 80% of the overall Bangladesh garment export earnings in 2021 — a record-breaking $42 billion.
But Bangladesh industry sources claim that post-Ukraine, Western orders fell by around 30 to 35% on average for many weeks. Among major reasons cited: rising inflation, market instability, disruptions in fuel supply, and recessionary pressures in most economies. Coming on top of already unresolved issues relating to now disturbed Russian trade, this proved to be another major hurdle for Asian exporters.
As with Viet Lam and Laos, Bangladesh responded by concentrating on accessing new markets in Asia, targeting affluent countries like Japan, South Korea and Singapore, in addition to nurturing existing markets in West Asian countries. Recent reports suggest Asian exporters will now diversify their production to attract more participation from internationally established fashion brands, and arrange for special exhibitions in Japan, and South Korea. There would be more emphasis in turning out more upmarket leisure/athletic wear to suit current preferences, with more youth appeal.
With western brands operating out of west Asia, Bangladeshi garment exports to Turkey and the UAE, have risen in recent times by over 80% and 20% respectively, over an estimated six month period. This has helped the exporters to shake off the massive loss of the erstwhile strong Russian market, which earned Dhaka over $650 million until recently. Currently, the figure is well below $200 million, according to some estimates and could well go further down. (IPA Service)
