Brexit Blues – Apparel Export and Supply Chain – Impact Perceptions
Speculations and views abound on the impact of Brexit. We do a round-up of the sentiment amongst the apparel exporting communities and countries.
The Biggest Concerns are around two issues –
1. Currency fluctuations. GBD declined 12% from the levels prevailing at the time of vote for Brexit. This impacts the money that the British buyers will be paying to honour their USD contracts with their suppliers. A downward pressure on prices is the natural outcome.
2. India EU FTA – which was being negotiated between India and EU. With Brexit, the FTA terms may need to be re-evaluated and renegotiated. Britain makes up for roughly a third of India’s apparel exports to the EU. Out of the 28 nation block, Britain alone has 37% share. India enjoys a 20% tariff preference in the EU under its GSP program. It remains to be seen, how this gets impacted after Brexit for exports to the UK.
The Concerns in Bangladesh around Brexit –
1. Britain accounts for nearly 12% of total Global export of Bangladesh. Worth $3.4 Billion, out of which $2.9 Billion led by RMG and other non-traditional products. Needless to say, Bangladesh stands to be impacted by whatever impact occurs on Britain due to its Exit from EU. Whether it is low purchasing power or conservative consumer sentiment, it is likely to impact the order volumes.
2. Britain gave good prices to Bangladesh Exporters (probably better than other EU nations), so exporters are concerned whether Brexit will impact and bring down the prices they could get for their apparel exports to UK.
3. GSP Benefit which allows duty free imports of Bangladesh goods to EU is the biggest advantage which is enjoyed by Bangladesh Exports to EU. With Brexit, it remains to be seen whether Britain will extend similar privileges as EU GSP. Any change will have a major impact on Bangladesh RMG Exports.
Brexit’s impact is already being felt in Vietnam. And How?
1. Chairman of Vietnam Textile and Apparel Association (VITAS) Vu Duc Giang told reporters that export firms with big export orders to UK were facing difficulties. Many British firms in Vietnam were scaling down and offering workshops for sale in the wake of Brexit and the sharp devaluation of the GBP currency.
2. UK is the biggest importer of Vietnam’s textile garment products. Vietnam earned over US$257 million from exporting such products to the UK in the year’s first five months compared to annual exports of some US$400 million to this market. US$257 million made up 21% of Vietnam’s total textile-garment exports to the EU in the period.
3. The difference between the Vietnam-EU FTA terms versus the Vietnam-UK FTA are also an area of speculation and concern which will need to be sorted out in the next two years.
Sri Lanka –
The only country which probably stands to gain from Brexit. Any Why?
1. Sri Lanka lost duty free access to EU under the GSP plus scheme in 2010. This made them less advantageous compared to other countries like Bangladesh which enjoyed Duty free access to EU and UK as part of EU. Brexit is likely to create a level playing field for Sri Lanka’s Apparel exporters as the other nations may also lose the duty free access to UK.
2. According to Central Bank data, 29 percent of Sri Lanka’s exports reach the EU and out of which 34 percent go to UK. From the total exports from Sri Lanka, the UK accounts for slightly under 10 percent or slightly above US $ 1.0 billion. Apparel exports accounted for 46 percent of total exports from Sri Lanka in 2015
The story of China in the wake of Brexit is more of a victor than a loser, as it emerges as a power to reckon with.
1. Brexit and a divided EU is likely to increase China’s bargaining platform. As was visible in German Chancellor Merkel’s recent griping on her visit to Beijing, that foreign firms deserved to ‘enjoy the same rights and privileges’ as the foreign firms. This is a reverse story, where the west is pleading for a level playing field.
2. China’s aggressive shopping spree in Europe even buying beloved football clubs and the fact that European Nations have been competing amongst themselves vying for better business deals with China, makes it evident that a United EU stood better chances than now, as the 2nd largest economy-UK exits.
3. While in the short run, China does get affected by Brexit, EU being the largest trading partner, in the long run a divided Europe would be a lesser power to deal with compared to a United EU.
So the common themes are, that devaluation of GBP ultimately means that British will end up paying more on orders paid for in euros or dollars. In turn, these extra costs will likely be passed on to the consumer, leading to price inflation. Second theme is the EU FTAs that would now need to be renegotiated separately for EU and UK. The lengthy time for such deals to reach closure could keep uncertainty going for some time.
There is an interesting survey done by Just-Style on the prevailing sentiments on the outcome of Brexit and its impact on Global Apparel Industry. The Key findings are –
• It will take at least two years before the implications of the Brexit vote become clear
• Reduced confidence in global apparel industry’s short and medium-term prospects
• Non-UK Europe respondents most pessimistic for the future
• Four in ten respondents suggest it will take up to two years before the implications of the Brexit vote are fully understood
Well, I want to end this article on the note that it’s the people who know the best. It’s the public sentiment which decides the turns the economies take in the end! Let’s wait and watch which way the wind blows. We would like to know your comments and views.