Bangladesh’s exports to the UK unaffected by Brexit

Published in The Daily Star on October 31, 2017

Photo: The Daily Star

Buoyed by higher shipments of apparel items, Bangladesh’s exports to the UK are on the rise although British consumers have been hit hard by rising inflation amid Brexit pressure.

The UK’s key inflation rate hit its highest for more than five years in September, driven up by increases in transport and food prices.

The Consumer Prices Index climbed to 3 percent, a level it last reached in April 2012, and up from 2.9 percent in August, according to BBC.

Shoppers suffered a big jump in clothing prices, particularly for womenswear, plus pricier petrol at the pumps, the Guardian reported.

The fall in the pound since last year’s Brexit vote has been one factor behind the rise in the inflation rate, as the cost of imported goods has risen.

But exports from Bangladesh increased 22.29 percent year-on-year to $1.03 billion in the July-September period of the fiscal year.

During the quarter, garment shipment to the UK grew 10.47 percent to $862.28 million.

Exporters say the shipment to the UK remained insulated because Bangladesh exports basic garments at lower prices, and consumers prefer cheaper products during tough times.

The UK is the third largest export destination for Bangladesh after the US and Germany.

Not only garments, some other local items like fruits and vegetables are seeing higher demand from the UK thanks to the presence of a sizeable Bangladeshi diaspora there.

“Garment export from Bangladesh to the UK is increasing as British customers get cheaper products,” said Kutubuddin Ahmed, chairman of Envoy Group, a leading garment exporter.

Recently, British retailers have increased the volume of sourcing from Bangladesh, he said.

The upward trend in the exchange rate of the pound sterling against the taka is also a major cause for the rise in exports from Bangladesh to the UK, said Abdus Salam Murshedy, a former president of Bangladesh Garment Manufacturers and Exporters Association.

The pound sterling was trading at Tk 109.44 yesterday. Sometimes, the amount goes above Tk 110 per pound sterling.

The exchange rate of the local currency hovered around Tk 95 and Tk 98 since Brexit vote in June 2016.

“The exporters’ confidence received a boost because of the higher exchange rate of the pound sterling,” Murshedy said.

Moreover, Bangladesh was able to ride out an image crisis in the garment sector after factory remediation, he said.

“Overall, European buyers are placing orders for higher volume of garment items as workplace safety has been ensured following the inspections,” he said.

Although the UK market is attractive, it accounts for only 8-9 percent of total garment exports from Bangladesh, said Dhyana van der Pols, CEO of Nash International, which advises 200 European garment retailers that source $200 million worth of apparel items from the country every year.

In an email interview, she said the average price level in the UK is extremely low in comparison with other EU markets and is under constant pressure.

“Traditionally, UK buyers tend to pay far less for similar products than the other EU retailers. This situation will aggravate further with Brexit, the plummeting of the pound sterling and the absence of a bilateral trade deal with Bangladesh.”

Bilateral negotiations with the UK should start as soon as possible to secure a future export position or to prevent the current position from sliding further, van der Pols said.

The EU will shortly sign a free trade agreement with Vietnam and could reinstate GSP-plus trade privilege for Sri Lanka.

“Those market dynamics will again cause an alteration of sourcing dynamics and country shifts. The sourcing caravan is out of options for cheap labour so future trade deals and benefits between nations are a factor that should not be underestimated.”