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(Textile Today is a regular publication )

Recent challenges in Bangladesh RMG

industry and possible way outs
Textile Today Research
April 17, 2017
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Bangladesh Garments Manufacturers and Exporters Association (BGMEA) has announced an
export goal three years ago in Apparel Summit 2014 for increasing annual export of readymade
garments to US$50 billion by 2021 on the 50 th anniversary of the People’s Republic of Bangladesh.
The goal was literally ambitious but it was not impossible. However, the path of the success has not
been bed of roses for Bangladesh RMG sector as it began its historical journey over three decades
ago.
Some of the problems that threatened the remarkable success of Bangladesh garment sector that
are the financial crisis of 2008,Tazreen fire accident, Rana Plaza collapse, the Trans-Pacific
Partnership Agreement (TPP) and the withdrawal of generalized system of preference (GSP) by
America. The unexpected damage to the image of the sector may still be haunting the minds of
garment makers.

Figure 1:
Incidents that affected RMG sector image badly.
Recently comes some sad news about several traditional markets and in some important exporting
countries that sound ominous for Bangladesh.
 Figure 2:
Challenges are even going bigger with recent developments.
1. The foreign trade policy of the newly-elected American President has threatened to new
additional taxes on import to American market. It’s still not confirmed.
2. After Brexit Bangladesh garments will not automatically enjoy duty- and quota-free access in
the UK market as was the case when the country was a member of EU.
3. Even if China has not been assuring or favorable for Bangladesh. Now China more focus
about new American Administration’s anti-free trade hyperbole China catches slapping of a
hefty duty on its exports, including garments. Currently the country is the biggest exporter of
garments to the American market. To fend off the possible restrictions in the form of higher
tariffs and to remain competitive with other exporters China is reported to be drawing up plans
to reduce the prices of various items of garments, particularly in the upscale market. On the
other hands China is our power house of the raw materials.
4. In addition Chinese currency depreciation is helping RMG exporters to remain competitive.
5. India has already given several financial incentives to the sector to maintain its competitive
edge.
As per BGMEA, the export earnings for the sector have been languishing with declining trends in
both volume and prices in recent months.

Table 1: Important recent parameters in RMG industry

Growth Percentages
Major signs (%) Time Period & Source

+4.85% (-2.3% than

strategic target for the
Knitwear export period) July 2016 to March 2017 (EPB)

0.18% (-9.2% than

strategic target for the
Woven garment export period) July 2016 to March 2017 (EPB)

Total RMG export 2.39% (-5.98% than July 2016 to March 2017 (EPB)
strategic target for the
 period)

March 206 to February 2017

Export to USA in volume -1.7% (Otexa)

March 206 to February 2017

Export to USA in value -4.23% (Otexa)

Only Canada export -7.10% Month on month- March 2017

28 EU countries average export price -2.47% June to September 2016

Domestic cash incentive -2% FY 2016-17

Last commercial gas bill 52% According to the BERC

 

The above images make the target of attaining US$ 50 billion export earnings for the sector
ambitious, unless there is a dramatic swing-around in the performance of the sector. The target is
not impossible but Bangladesh need to take best time effective action plan.

Bangladesh has established its resilience or capacity to recover quickly from various difficulties, time
and again in the past. Recovery after the Raza Plaza collapse in 2013 was the best example for
Bangladesh’s resilience. In the compliance issues the country has done tridimensional improvement.
Since 2016 reports published in local and international media have highlighted improvements in
safety and compliance of Bangladeshi RMG industries.

Possible way outs

Now the country should take definite steps to prevent the present and impending crisis based on
past experience. The experienced industrial insider said that there is some way to come out from the
present scenario.

 Government shouldn’t change the price of utilities and commodities every year which are
directly linked with production like oil, gas, electricity and water. The last commercial gas bill
increase was by 52 percent.
 Need more value added services for existing buyers like R&D on design, idea and
innovation. Investments are required in setting up sector level R&D centers. Factories also
should invest in setting up R&D.
 Productivity increasing to reduce costing. A sector level effective productivity improvement
cell should set. Factories also must have a separate cell.
 Lead time minimizing is one way to reduce cost of production. All system losses in local and
foreign trade, commercial and customs must be eliminated. Road transport and infrastructures
must be well managed.
 Nontraditional market for exports should be explored, particularly in the Middle-East and
Latin America where the footprint of the sector is almost non-existent.
 Export to China and India has been talked a lot. Real effort should be taken in this.
Government through EPB may take concrete steps to increase export to both these countries.
  Bangladesh can easily target the BIMSTEC (The Bay of Bengal Initiative for Multi-Sectoral
Technical and Economic Cooperation)market for supporting their backward linkage. Strategic
relationship should be built with new RMG making countries like Myanmar & Ethiopia.
Bangladesh can gain by supplying RMG input materials (fabric, accessories, packaging etc.) to
those countries.
 Government must make sure minimum road transport and port facilities for the trade.
Industrial zones have to have urban facilities. Staffs and workers in the sector must have a
better safety and environment not only inside the factories but also around the factories.
Enough and better education and health services must be ensured in key RMG zones like
Ashulia, Savar, Gazipur, Naryanganj, Chittagong etc.
 The monetary policies should be geared up to help the RMG sector that has been the
highest foreign exchange earner of the country for the last three decades. Taxes should be
reduced in the Textile and RMG businesses and also from the support businesses.
 The government should start negotiations with UK government to retain the same duty- and
quota-free status after Brexit that the country enjoys now.
 Give the best efforts to reestablish GSP in the American market. Market exploration should
be intensified emphasizing the fact that Bangladesh is still an LDC and Bangladesh is very
important for American strategic location.
 Bangladesh always shows weakness in the negotiation table whereas the country has
capacity of producing quality garments, make sure best environment of production, cost
effective and friendly people, most strategic location around subcontinent.
Potentiality of nontraditional market
Through last three decades Bangladesh constantly has been concentrating only on few traditional
markets (EU countries and America). However, recent statistics illustrates that non-traditional
markets are registering a healthy surge.

In ‘Dhaka Apparel Summit 2017’ Prime Minister of the People’s Republic of Bangladesh Sheikh
Hasina also emphasized on diversifying products and opening new markets for the apparel industry
of Bangladesh. Market and product diversification is a recent transformation and suggestions to
chalk out sustainable development goals. And so the non-traditional markets mean a lot for the
country, not just for satisfying the huge industry and the employment it stipulates to millions but also
for maintaining its vigorous contribution to the economy.

Table 2: Bangladesh RMG export to nontraditional markets in million USD (July 2016 to March
2017) (Source: EPB)

Canada 671.55

Japan 592.15

Australia 450.85

Turkey 317.95

China 285.08

UAE 126.34
 Malaysia 103.54

India 96.99

Brazil 75.72

Singapore 54.04

Saudi Arabia 53.95

South Africa 43.97

Chile 42.49
 

In the current fiscal year the garment exports to non-traditional markets increased by 3.4 per cent
which value was $2.08 billion in the six months. The industry insiders and the exporters hope that by
the end of the fiscal year, export figures would appearance healthy enough to strengthen. The non-
traditional markets are potentially qualified of contributing to the growth of the industry. The cash
incentive reduced to 2.0 per cent from earlier 4.0 per cent for that reason the industry insiders do not
trait it solely to the cash benefit but to market exploration efforts and simplification of the Rules of
Origin by some importing countries as well.

Remarkably, as a non-traditional market Japan will be our best export destination, the current fiscal
year in July-December Japan already bought $367.22 million RGM goods already. The other
markets that have also confirmed good prospects include Australia, China, Turkey and Russia- to
name only the front runners. It is the right time to penetrate more into non-traditional apparel markets
not only for the growth itself but also the opening up of alternative market places for Bangladesh’s
RMG products. Nontraditional market could be an important vehicle to achieve USD 50 billion goal.

Bangladesh should always try to diversify markets to reduce risk in export baskets.  Though
sustaining the market presence for a longer time is also important. Normally exporters here are more
focused on bulk orders from their known markets like the US and the EU. With the current levels of
growth, prospects of exporting to newer and non-traditional markets on an increased scale should be
emphasized further.