Recent challenges in Bangladesh RMG and

possible way outs

April 17, 2017

Textile Today Research

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 50th
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

Major signs Growth Percentages (%) Time Period & Source

+4.85% (-2.3% than July 2016 to March 2017

Knitwear export
strategic target for the period) (EPB)

0.18% (-9.2% than strategic July 2016 to March 2017

Woven garment export
target for the period) (EPB)

2.39% (-5.98% than strategic July 2016 to March 2017

Total RMG export
target for the period) (EPB)

March 206 to February

Export to USA in volume -1.7%
2017 (Otexa)

March 206 to February

Export to USA in value -4.23%
2017 (Otexa)

Month on month- March

Only Canada export -7.10%
2017

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

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.