Backward linkages face growing challenges  

Owing to an increase in raw material and fuel prices, the export growth of readymade garments and other products did not bring any benefit to the country's backward linkage companies.

Entrepreneurs say in the first four months of the current financial year, the prices of raw materials of various industries have increased by 20-40% in the international market. 

And truck owners have pushed up transportation costs by 20-25% due to an increase in diesel prices locally but the prices of accessories are not increasing at that rate, they added.

The businesses said although it has been possible to increase the product prices by 5-10%, they cannot post any profit due to the cost escalation.

As a result, even if the business grows, the profit of all the big and small companies are decreasing. It is taking 4-6 months for LC products to arrive owing to an increase in freight cost and transportation crisis. During this time, the prices of raw materials are rising again. As a result, challenges are increasing despite business growth. 

Abdul Quader Khan, president of the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), said the business of the companies has increased as the economy has become normal after the easing of coronavirus. 

"However, due to rising raw material prices and cost of transporting goods locally and internationally, profits are declining," he added.

"But the prices of the produced accessories are not increasing at the same rate. As a result, even though the business has increased, the margins of the companies have decreased."

Abdul Quader Khan believes that if this continues, many companies will struggle to maintain their management costs.

In the first three months of the current financial year, Olympic Accessories Ltd incurred a total loss of Tk1.19 crore. 

The profit of the company – listed on the stock market – has been continuously declining since 2017. Even for the last two years, it has been incurring losses.

Imam Button, another listed company, has been closed since April 2020. It has been in losses since 2011 for not being able to earn enough.

On the other hand, listed company KDS Accessories Limited has made a profit of Tk3.90 crore in the first three months of the current fiscal year.

Backward linkage companies manufacture around 40 types of accessories such as thread, zipper, button, label, motif, pocketing fabric, lining, interlining, Velcro, elastic, cord, ribbon, rivet, toggle, collarbone, hanger, hand tag, polybag, size tag, sticker, plastic clip, scotch tape, safety pin, backboard, safety sticker, brass pin, neck board and carton. 

More than 2,000 factories manufacture accessories products, of which about 1,800 factories make garment accessories. The investment in this sector is about Tk35,000 crore. It employs six lakh workers.

Market insiders say the companies have to move forward to increase the prices of backward linkage products in line with the rate of their production costs. 

Besides, an initiative must be taken to reduce the time for raw materials to reach factories after opening LCs. 

If such a situation continues, they believe that the export-oriented garment sector may suffer.