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.
Recently comes some sad news about several traditional markets and in some important exporting countries that sound ominous for Bangladesh.
- 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.
- 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.
- 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.
- In addition Chinese currency depreciation is helping RMG exporters to remain competitive.
- 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|
|Knitwear export||+4.85% (-2.3% than strategic target for the period)||July 2016 to March 2017 (EPB)|
|Woven garment export||0.18% (-9.2% than strategic target for the period)||July 2016 to March 2017 (EPB)|
|Total RMG export||2.39% (-5.98% than strategic target for the period)||July 2016 to March 2017 (EPB)|
|Export to USA in volume||-1.7%||March 206 to February 2017 (Otexa)|
|Export to USA in value||-4.23%||March 206 to February 2017 (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)|
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.
Any unauthorized use or reproduction of Textile Today content for commercial purposes is strictly prohibited and constitutes copyright infringement liable to legal action.