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Could Goods Out of Bangladesh Get 5% Cheaper?

Manufacturers in Bangladesh are seeking to double their current cash incentive on exports, and the government has agreed to “favorably” consider the demand.

Before the recent calls for a greater cash incentive, a garment manufacturer could qualify to receive a 5 percent cash incentive on its exports if it exported more than $3.5 million worth of goods per year.

Now, manufacturers there look likely to see a 10 percent cash incentive instead, according to a statement from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

When manufacturers export their goods, they are able to apply for the cash incentive from the government as they are contributing to earning foreign currency for the country.

This means, if the Bangladesh government gives a 5 percent cash incentive to manufacturers, it makes it cheaper for a buyer to buy goods, as the factory could discount by a further 5 percent.

The goal of the move, however, is to protect garment exporters in Bangladesh from what the BGMEA is referring to as “the delayed impact of the global recession.” The country’s finance minister has also agreed to charge a flat rate for power instead of an increased rate during peak hours as Bangladesh works to improve its power supply situation.

Local media has already raised the issue that manufacturers will be getting an additional 5 percent cash incentive, though they firmly dismissed workers’ recent demands for higher wages. Others have said cash incentives often end up in factory owners’ hands, rather than getting passed on to buyers to lower prices.

Pakistan, facing its own challenges for its garment sector—including higher prices for gas and electricity than its competitors and regional currency devaluations—is looking to offer a similar cash incentive.

The All Pakistan Textile Mill Association said Tuesday, citing the Business Recorder, that the Pakistani government would remove customs duties and sales tax on raw cotton and man-made fibers that aren’t available in Pakistan. And the country’s prime minister, Nawaz Sharif, also agreed to a 3 percent rebate for yarn/greige fabric, 4 percent for processed fabrics, 6 percent for home textiles/knitwear and 8 percent for garments, as part of a new trade package.