FUNG BUSINESS INTELLIGENCE CENTRE

Asia Sourcing Update

Bangladesh, India, Pakistan and Turkey
September 2013

IN THIS ISSUE: I. In the News II. Major Economic Indicators III. Daily Exchange Rates

Turkey Exports recovered in July Textile workers ended strike with a favorable deal 16 large-scale logistics centres/ villages will be established Pakistan Exports grew by 2.65% yoy in July Power tariff for textile industry surges by 61.4% starting August Punjab-China Garment Industrial Zone to be set up

India Rupee plummeted to record low amid economic slowdown Garment exports grew by 19.1% yoy in July Rapid expansion of the textile sector strains the countrys human resource capacity

Bangladesh Bilateral agreements to be signed for more reliable cotton supply Exports grew 11.2% yoy in the 2012-13 fiscal year One-third of RMG factories to be relocated to improve working conditions Stakeholders organized unprecedented efforts to protect worker safety

Bangladesh, India, Pakistan and Turkey

In the News
Bangladesh: Bilateral agreements to be signed for more reliable cotton supply The Indian government assured steady supply of cotton to Bangladesh in a meeting between Bangladeshi Textiles and Jute Minister Abdul Latif Siddique and Indian Textiles Minister Sambasiva Rao on 19 August. Close to 1.6 million bales (480-pound US bales) of cotton are promised for the 2013-14 cotton season starting in October, and a formal purchase agreement will be finalized soon. At the same time, Bangladesh is also negotiating a memorandum of understanding with Uzbekistan for the annual purchase of about one million bales of cotton from Uzbekistan. These agreements are expected to mitigate the vulnerability of Bangladeshs textile and garment industries, which are heavily dependent on imported cotton yarn and fabrics (see Exhibit 1). The risk was made apparent in March 2012 when Indian authorities banned exports of cotton after record overseas sales raised concerns about domestic supply, causing major disruptions to apparel manufacturing in Bangladesh. However, the negotiation with Uzbekistan comes at a time of mounting criticism of the alleged use of child labour in Uzbekistans cotton industry. As consumer concerns intensify, more than 120 international apparel brands and retailers have already banned the use of cotton from Uzbekistan.

Exhibit 1: Production, utilization and trade of cotton in selected countries

(1 August 2012 - 31 July 2013) (Unit: thousand 480-pound bales)

Bangladesh India Uzbekistan

Production 120 28,000 4,250

Imports 3,600 1,200 0

Mill Use 3,800 23,250 1,500

Exports 0 6,250 3,000

Source: USDA-Foreign Agriculture Service

Bangladesh: Exports grew 11.2% yoy in the 2012-13 fiscal year Despite the ongoing global economic recession, the countrys merchandise shipment to key North American and European destinations increased substantially in the recently concluded 2012-13 fiscal year (July 2012 - June 2013). According to data from the Export Promotion Bureau (EPB), exports totaled US$27.03 billion in the 2012-13 fiscal year, registering a growth of 11.2% compared to the 2011-12 fiscal year. Exports of readymade garments fetched US$21.52 billion in the 2012-13 fiscal year, accounting for 79.6% of the total export revenues in the period. Exports of readymade garments grew 12.7% yoy in the 2012-13 fiscal year, 1.5 ppts faster than the yoy growth of total exports, suggesting a growing reliance on the apparel sector for export.

For a breakdown of total exports and garment exports by top export destination, please refer to Exhibit 2.

Bangladesh: One-third of RMG factories to be relocated to improve working conditions In response to the Tazreen Fashions fire and the Rana Plaza building collapse, the Bangladesh Bank (BB) and the Japan International Cooperative Agency (JICA) jointly announced on 11 July a Tk 1 billion (US$12.9 million) fund to provide flexible loans for retrofitting and rebuilding vulnerable apparel units and improving safety standards in the labor-intensive industry. According to the announcement, apparel factories of the members of the Bangladesh Garment Manufacturers and Exporters

Asia Sourcing Update

September 2013

Exhibit 2: Exports to top destinations (July 2012 - June 2013) Total exports (yoy change) US$5.42 billion (6.3%) US$3.96 billion (7.4%) US$2.76 billion (13.1%) US$1.51 billion (9.6%) US$1.30 billion (13.4%) US$1.09 billion (9.7%) US$1.04 billion (6.0%) US$27.03 billion (11.2%) Garment exports (yoy change) US$5.00 billion (10.3%) US$3.68 billion (8.2%) US$2.45 billion (14.9%) US$1.39 billion (9.4%) US$1.22 billion US$0.98 billion US$0.91 billion US$21.52 billion (12.7%)

US Germany UK France Spain Canada Italy All countries

Source: Export Promotion Bureau, Bangladesh

Association (BGMEA) and the Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA) employing 100-2,000 employees will be eligible for a loan of up to 90% of the rebuilding cost to be assessed by a joint team of engineers from the Public Works Department (PWD) and the JICA. The maximum amount of financing for an individual factory is Tk 100 million (US$1.29 million). The highly flexible loan will be provided to the successful applicants for a period of up to 15 years with a two-year grace period for repayment, and the rate of interest will not exceed 10% per annum. According to Shahidullah Azim, Vice President of the BGMEA, its members are going to relocate about one-third of their active factories using the JICA fund. The relocation, retrofitting and rebuilding of these factories would be done in three phases considering the present status of the buildings. Vulnerable factories will be relocated first, factories housed in commercial or residential and rented buildings second, and shared buildings third. This massive relocation is going to bring about major changes to the structure of Bangladeshs garment industry, and is expected to promote sustainable and sound growth of the industry. Industry insiders are also anticipating further rationalization and consolidation of the industry as a number of small to medium sized factories will be unable to obtain the finance necessary to relocate or upgrade their facilities for meeting the new fire and safety standards.

Bangladesh: Stakeholders organized unprecedented efforts to protect worker safety After the Accord on Fire and Building Safety in Bangladesh (the Accord) was created in May to establish enforceable safety standards for factory workers in Bangladesh, a similar effort the Alliance for Bangladesh Worker Safety (the Alliance) was also announced on 10 July. While the Accord is joined by predominantly European brands, the Alliance is formed so far exclusively by North American retailers. Exhibit 3 below highlights the salient features of the two worker safety pacts. While the two agreements cover only less than a third of Bangladeshs 5,000 garment factories, the National Tripartite Plan of Action on Fire Safety and Structural Integrity in the Garment Sector of Bangladesh (NTPA) is going to promote fire and building safety in the sector nationwide. Created on 25 July jointly by the Bangladeshi government and local business associations and trade unions, the NTPA brings together previous national tripartite efforts created in response to the Tazreen factory fire and the Rana Plaza tragedy. Key activities identified in the NTPA include assessment of the structural integrity and fire safety of RMG factory buildings, strengthening labour inspection, training on occupational safety and health and worker rights, and rehabilitation of disabled workers.

Bangladesh, India, Pakistan and Turkey

Exhibit 3: Comparison of two corporate safety initiatives for Bangladeshi workers The Accord on Fire and Building Safety in Bangladesh (signed on 13 May) More than 70 retailers and brands from 15 countries, including Britain, France, Italy and Japan. The brands include Abercrombie & Fitch, Benetton, H&M, Inditex, Marks & Spencer and PVH. Labor federations and nongovernmental organizations also joined. Within nine months, inspections will be done in the 1,200 factories used by participating companies. A steering committee chaired by the International Labour Organization, with equal representation of business and labour. The companies have pledged at least US$60 million over five years for monitoring and committed to provide sufficient funding for the necessary renovations and upgrades. Legally binding. International Labor Rights Forum The Alliance for Bangladesh Worker Safety (announced on 10 July) About 20 retailers and brands from either the United States or Canada, including the Childrens Place, Costco, Gap, Hudson Bay, J.C. Penney, Macys, Nordstrom, Target and Walmart. Six Business associations (from the North America) also joined. Within a year, inspections will be done in the roughly 500 factories used by the retailers. A board of directors consisted of company and stakeholder representatives, but no independent worker representatives are involved. The retailers will pay US$42 million for inspections and worker safety and are offering US$100 million in loans. But they have not pledged to cover all improvements. Not legally binding. The Alliances website

Participants

Inspections

Governance

Funding

Enforcement More information

Source: International Labor Rights Forum, Canadian Broadcasting Corporation, New York Times

According to the Bangladeshi government, the NTPA will start inspection on 15 September. Within three months, around 2,000 garment factory buildings not covered by the two abovementioned agreements will be checked.

India: Rupee plummeted to record low amid economic slowdown The Indian rupee tumbled to a record low of 68.8 against the US dollar on 28 August and rebounded slightly to 65.7 at the end of the month, weakening by 8% in August alone, according to Bloombergs currency spot exchange rate. Since May this year, the rupee has depreciated cumulatively by 18%, making it the second-worst performer after the Japanese yen among Asias 11 most-active currencies. The depreciation came as foreign investors are pulling money out of the country amid concerns about the economic slowdown in India and the scaling back of stimulus measures in the US.

Indias once-booming economy, which grew by over 8% annually before the global financial crisis, continues to lose momentum. Real GDP growth slowed down to 4.4% yoy in the AprilJune quarter of 2013-14, the lowest rate since 2009. The countrys manufacturing PMI fell from 50.1 in July to 48.5 in August, the lowest in four and a half years. The sharp fall of the rupee weighs on the Indian economy. Inflationary pressure is high as the country relies heavily on imported oil and gold. Exporters may see their profit margins go up in the short run, but they may not reap the full benefits from a weak rupee as foreign buyers are trying to renegotiate contracts with lowered prices. Once the rupee recuperates, exporters will suffer losses and find it hard to raise prices.

Asia Sourcing Update

India: Garment exports grew by 19.1% yoy in July Garment exports grew by 19.1% yoy to reach US$1.28 billion in July, according to a press release by the Apparel Export Promotion Council (AEPC) on 4 September. Exports of garments in the first four months of the current fiscal year (April 2013 - March 2014) reached US$4.84 billion, up by 13.1% yoy (see Exhibit 4). The consecutive growth of garment exports in the past four months points to market recovery.

September 2013
On 31 July, the government announced an increase in the interest subsidy rate on rupee export credit from 2% to 3%. Exporters in many labour-intensive sectors such as handlooms, handicrafts, readymade garments, toys and sports goods, can benefit from the measure. In view of a weakened rupee and the strong industry performance, the Government of India has recently raised the annual export target for textiles and garments from US$36 billion to US$43 billion for the current fiscal year.

Exhibit 4: India's garment exports to the world (April - July 2013) 2013 (Indian rupee, (US$, million) million) 63,540 1,150 62,780 1,172 72,600 1,240 76,460 1,279 275,380 4,841 2012 (Indian rupee, (US$, million) million) 57,170 1,059 55,690 1,040 60,560 1,106 59,580 1,074 233,000 4,279 yoy growth (%) (Indian (US$) rupee) 11.1 8.6 12.7 12.7 19.9 12.1 28.3 19.1 18.2 13.1

April May June July April-July

Source: DGCI&S, Kolkata

India: Rapid expansion of the textile sector strains the countrys human resource capacity In the 2012-13 fiscal year (April 2012 to March 2013), Indias textile industry accounted for 14% of the countrys industrial production and 4% of the GDP, employed 45 million people, and generated almost 11% of the countrys total exports. During a meeting with various industry associations in Bangalore on July 5, the newly appointed Union Textiles Minister Dr. K. Sambasiva Rao urged the industry to modernize manufacturing capacities and pursue opportunities in technical textiles, which has a huge potential for growth, so as to achieve the th relevant targets in the countrys 12 Five Year Plan (2012-2017). The ambitious growth target for the textile sector th as specified in the 12 Five Year Plan an average annual growth rate of 11.5% in production volume and 15% in export value is expected to create an additional 10-16 million jobs within the sector by 2017. A report entitled Human Resource and Skill Requirements in

Textiles Sector (2022) released by the National Skill Development Corporation (NSDC) also forecasts employment in the Indian textile and clothing sector to reach 60-62 million by 2022. The report also identifies specific skill sets required for capacity building, which include machine operation in fabric manufacturing and processing, and stitching and sewing machine operation in garment manufacturing. To bridge the skill gap created by the massive th expansion of the textile industry, the 12 Five Year Plan includes programmes to provide training for 35 million industry personnel. (For a full copy of the NSDC report Human Resource and Skill Requirements in Textiles Sector (2022), which contains an in-depth profile of the Indian textile industry and a projection of the human resource requirements for the industrys future, please visit: http://www.nsdcindia.org/pdf/textiles-clothing.pdf)

Pakistan: Exports grew by 2.65% yoy in July Pakistans exports of goods reached US$2.10 billion in July, up by 2.65% over the same month

Bangladesh, India, Pakistan and Turkey

of the previous year, according to the Pakistan Bureau of Statistics. Exports of textiles and apparel, which accounted for over 57% of the total exports, increased by 10.96% yoy to reach US$1.21 billion in July. By category, exports of knitwear grew by 0.99% yoy in July, amounting to US$203.23 million. Exports of woven garments surged by 16.28% yoy to reach US$182.71 million, while exports of bedwear and towels grew by 9.6% yoy and 7.1% yoy, respectively. Exports of sports goods stood at US$28.07 million in July, with a yoy growth rate of 7.8%. Among them, exports of footballs and gloves grew by 3.57% and 58.05%, respectively, in July as compared to the same month last year.

Pakistan: Punjab-China Garment Industrial Zone to be set up On 21 August, the Punjab government signed a memorandum of understanding (MoU) with China National Textile and Apparel Council (CNTAC) for establishing a special garment zone in the province, with an aim to promote bilateral cooperation in the textiles, garments and knitting industry. The Punjab-China Garment Industrial Zone will be located on 500 acres of land in close proximity to Punjabs capital Lahore. The zone will be equipped with state-of-the-art infrastructure and will be granted a Special Economic Zone status. Given the rising production costs in China, Chinese manufacturers are keen to invest in Pakistan. Besides, they are pinning hope on the EUs granting of the Generalized System of Preference Plus (GSP+) status to Pakistan in late 2013, which will allow many Pakistani exports duty free entry to the EU market.

Pakistan: Power tariff for textile industry surges by 61.4% starting August The new government announced an increase in the power tariff for industrial, commercial and residential consumers, with an aim to curb circular debt and phase out subsidy. Starting from 1 August, the power tariff rate for textile industry has been raised from 9.18 rupees per kilowatt hour (KWh) to 14.82 rupees (approximately 14.25 US cents) per KWh, up by 61.4%. The abrupt hike makes Pakistans electricity one of the highest in the region. (Power tariffs in India, China, Bangladesh and Sri Lanka prevail at around 11.3, 8.5, 7.3 and 9.2 US cents per KWh, respectively, compared to the current 14.25 US cents per KWh in Pakistan.) The power tariff hike is strongly criticized by the local business associations for making garment production costlier and Pakistans exports less competitive in the global market. The province of Punjab, where around 70% of the textile units of the country are concentrated, will be hit particularly hard by the power tariff hike amid recurrent power outages.

Turkey: Exports recovered in July Exports amounted to US$13.1 billion in July, up by 2.2% yoy, bringing the countrys export growth back to the positive territory after a 6.0% yoy decline in June. Exports to the EU surged by 22.7% in July compared to the same month last year, showing a recovery of the EU market. Exports of knitwear and woven garments witnessed impressive growth of 17.9% yoy and 10.3% yoy respectively in July, while exports of furniture surged by 20.7% yoy. In the JanuaryJuly period, exports of these three categories increased by 9.4%, 6.8% and 18.6% yoy, respectively. Turkish manufacturing activities, as measured by the purchasing managers index (PMI), expanded in August after an unexpected contraction in July. Buoyed by stronger export orders and a weak lira, the reading edged up to 50.9 in August from 49.8 in July.

Asia Sourcing Update

Turkey: Textile workers ended strike with a favorable deal Turkish apparel workers ended a nine-day strike on 23 August after reaching an agreement with the Turkey Textile Industry Employers Association. Led by the Textile, Knitting and Clothing Industry Workers Union (Teksif), the strike involved more than 12,000 workers and affected around 30 major clothing and textile producers. The new collective labor agreement reached will see bonuses return to the previous level of 120day salary instead of the current 72-day. The three-year agreement also guarantees workers with a 5% pay rise in the first six-month period, 3% in the second, 3% in the third, 4% in the fourth, 3% in the fifth, and 4% in the sixth. If inflation surpasses these rates, additional payments will also be made. Workers who work overtime on weekdays, general holidays, national holidays and regional holidays will receive double pay. They will also receive wage increases based on experience, with TRY7 (US$3.4) added for every year worked. Social assistance payments will also rise in parallel with the rise in wages, according to the new agreement.

September 2013
Turkey: 16 large-scale logistics centres/ villages will be established The Turkish government is planning to set up sixteen logistics centres/villages throughout the country as one of its centennial goals. Standing at the crossroads of major trade routes, Turkey regards this policy move as a crucial step to develop itself into a logistics hub for Europe, Asia and Africa by the year 2023. With joint efforts of Turkeys public and private sectors, the project is expected to create an additional transport capacity of six million tonnes per year, a 35% increase as compared to the current level. In accordance with the draft action plan for 2013-2017, the railways for twelve logistics centres/villages, such as Istanbul, Samsun, Konya, and Erzurum, will be built in the first stage. The development project is expected to help reorganize and redistribute the textile, apparel, and leather industries in the regions around Istanbul and other ports. According to Frank Appel, the CEO of Deutsche Post DHL, the countrys technology and manpower for logistics industry will reach the global standard. The company has therefore decided to increase its investment in Turkey, a priority country in DHLs plan for the coming decade.

Bangladesh, India, Pakistan and Turkey

Major Economic Indicators

Bangladesh Mar-13 Quantum index of medium and large-scale manufacturing (yoy growth %)* Consumer price index (yoy growth %)* Exports (yoy growth %) Exports (FOB, US$ mn) Of which: - Knitwear (US$ mn) - Woven garments (US$ mn) - Home textile (US$ mn) - Footwear (US$ mn) - Leather products (US$ mn) Imports (yoy growth %) Imports (FOB, US$ mn) 9.2 7.7 16.2 2303.4 854.7 991.8 78.4 25.8 12.1 4.6 2436.0 Apr-13 10.9 8.4 10.0 2079.2 795.1 835.2 68.0 29.1 11.8 16.9 3110.0 May-13 13.6 8.0 15.4 2538.8 1008.4 997.7 73.7 37.0 20.4 -10.8 2901.0 Jun-13 8.1 16.3 2696.4 1085.6 1116.8 69.6 41.8 25.2 13.0 3345.0 Jul-13 7.9 24.0 3024.3 1253.8 1262.4 68.2 56.4 14.5 Aug-13 3.2 2013.4 848.2 796.1 48.8 40.8 12.7 -

* The quantum index of medium and large-scale manufacturing and the consumer price index use 2005-06 as the base year. Source: Bangladesh Bureau of Statistics, Bangladesh Bank, Export Promotion Bureau

India Mar-13 Quarterly GDP (real yoy growth %) 4.8(4Q2012-13) Index of industrial production (yoy growth %) 3.5 Manufacturing PMI (HSBC) 52.0 Wholesale price index (yoy growth %) 5.7 Consumer price index (yoy growth %) 10.4 Exports (yoy growth %) 7.0 Exports (FOB, US$ mn) 30849.7 Of which: - Readymade garments (US$ mn) 1392.2 - Cotton, yarn and fabrics (US$ mn) 790.1 Imports (yoy growth %) -2.9 Imports (CIF, US$ mn) 41164.7 Trade balance (US$ mn) -10315.1 Apr-13 May-13 Jun-13 4.4(1Q2013-14) 1.5 -2.8 -1.8 51.0 50.1 50.3 4.8 4.6 5.2 9.4 9.3 9.9 1.7 -1.1 -4.6 24164.4 24505.7 23785.6 1163.6 639.6 11.0 41951.7 -17787.4 1173.6 672.2 7.0 44649.3 -20143.6 1238.6 666.9 -0.4 36034.7 -12249.1 Jul-13 2.6 50.1 5.8 9.6 11.6 25834.5 -6.2 38102.6 -12268.1 Aug-13 48.5 6.1 9.5 13.0 26135.9 -0.7 37053.9 -10917.9

Source: Ministry of Commerce & Industry, Ministry of Statistics and Programme Implementation, HSBC PMI reports

Pakistan Mar-13 Quantum index of large-scale manufacturing (yoy growth %) Consumer price index (yoy growth %) Exports (yoy growth %) Exports (US$ mn) Of which: - Garments (US$ mn) - Cotton cloth (US$ mn) - Bed linen (US$ mn) - Towels (US$ mn) Imports (yoy growth %) Imports (US$ mn) Balance of trade (US$ mn) 7.2 6.6 8.2 2134.0 304.2 254.4 153.1 73.9 5.4 3687.0 -1553.0 Apr-13 7.1 5.8 -4.4 2130.0 314.5 244.5 148.0 69.2 4.0 3909.0 -1779.0 May-13 4.8 5.1 0.8 2175.0 352.5 243.6 163.1 71.7 11.7 4346.0 -2171.0 Jun-13 4.8 5.9 2.8 2197.0 360.3 223.3 152.2 59.1 -1.0 3940.0 -1743.0 Jul-13 8.3 2.7 2095.0 385.9 232.1 170.8 65.6 4.2 3814.0 -1719.0 Aug-13 8.5 4.8 1996.0 -3.1 3572.0 -1576.0

Source: Pakistan Bureau of Statistics, State Bank of Pakistan, Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA)

Asia Sourcing Update

Turkey Quarterly GDP (real yoy growth %) Industrial production index*, manufacturing (yoy growth %) Manufacturing PMI (HSBC) Industrial turnover index* (yoy growth %) Producer price index (yoy growth %) Consumer price index (yoy growth %) Exports (yoy growth %) Exports (US$ mn) Of which: - Knitwear (US$ mn) - Woven garments (US$ mn) - Furniture (US$ mn) Imports (yoy growth %) Imports (US$ mn) Balance of trade (US$ mn) Mar-13 2.9(1Q13) 2.4 52.3 2.1 2.3 7.3 -0.6 13131.7 789.6 536.6 239.0 -0.6 20559.4 -7427.7 Apr-13 3.7 51.3 4.7 1.7 6.1 -1.1 12485.1 683.9 454.3 226.9 18.4 22825.4 -10340.2 May-13 4.4(2Q13) 1.4 51.1 5.3 2.2 6.5 1.3 13297.9 729.7 435.4 243.3 6.9 23245.7 -9947.8

September 2013

Jun-13 5.3 51.2 6.4 5.2 8.3 -6.0 12438.0 790.1 472.0 238.9 2.8 21008.4 -8570.4

Jul-13 6.2 49.8 14.8 6.6 8.9 2.2 13113.0 866.5 538.2 241.5 10.0 22918.0 -9805.0

Aug-13 50.9 6.4 8.2 -

* Since January 2013, the base year of industrial production index and industrial turnover index has changed to 2010. Source: Turkish Statistical Institute, HSBC PMI reports

Daily Exchange Rates (March - August 2013)

Bangladesh USD: BDT buy rate India USD: INR RBI reference rate

79.00 USD: BDT 78.50

72.00 67.00 USD: INR 62.00 57.00 52.00

78.00 77.50 77.00

Source: Bangladesh Bank

Source: Reserve Bank of India (RBI)

Pakistan
106.50 USD: PKR weighted average customer buy rate 104.50

2.15 2.05

Turkey USD: TRY buy rate

USD: TRY

USD: PKR

102.50 100.50 98.50 96.50

1.95 1.85 1.75 1.65

Source: State Bank of Pakistan

Source: Central Bank of the Republic of Turkey

Bangladesh, India, Pakistan and Turkey

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