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2019 in review: Bangladesh textile and apparel industry

After the incidents of unrest for a few years, mainly for wage hike for the 4.4 million workers, the garment sector witnessed a peaceful and stable environment in the year 2019. However, the garment sector, which typically contributes 84 percent in the national export in a year experienced a negative shipment since August.

Bangladesh apparel export 2019
Figure 1: In 2019 the apparel manufacturers are increasing new technologies and automation to catchup with the other apparel manufacturing countries.

The negative trend continued up to November this year and the export trend showed that the earning might be in the negative zone also in the month of December. But looking ahead, garment manufacturers are expecting a better year in 2020.

The slowdown trend
In the first 11 months, between January and November in 2019, Bangladesh exported garment items worth $30.14billion, according to data from the Export Promotion Bureau (EPB). In the year 2018, Bangladesh exported $32.93billion worth of apparel items, the data also said.

The earning from the garment started declining mainly because of five reasons. The slowdown in export growth is apparently a reflection of the decaying competitiveness of Bangladesh’s RMG industry.

“I consider this is a correction,” said David Hasanat, Chairman and Managing Director of Viyellatex Group, a leading garment exporter.

“Companies can take this opportunity to restructure their capital expenditure, operating expenditure and supply chain. Then they will have a very good future,” David Hasanat added.

Between July and November, garment exports declined 7.74 percent year-on-year to $13.08 billion, which was 13.63 percent below the target set for the period, according to data from the Export Promotion Bureau (EPB), whereas as per the latest information Vietnam’s export grew by 6.41 percent during July-October 2019.

Reasons for slowdown in export
The five major reasons behind such slowdown in export could be –stronger currency exchange rate.
Policy incentives by competitor countries, which is why they are being able to get more business by lowering prices.

Few policy supports promised for the RMG industry and most of those are yet to be materialized.
Increase in production cost which is significantly fueled by the minimum wage increase in December last year.

Poor efficiency and relatively higher cost of doing business (evident by the Doing Business index) are significant drawbacks to our trade competitiveness. Over concentration of the industry to a few product items ranging in the lower tier of price and over-concentration of markets are also among the top-rated challenges.

slowdown in Bangladesh apparel export in 2019
Figure 2: Main reasons for the slowdown in Bangladesh apparel export in 2019.

The year 2019 was a time of reforms in the garment sector. The factories have completed their corrective action plans given by the Accord and Alliance earlier. As a result, the image of the sector was brightened to the international communities.

Closure and establishment of new factories

Still, between January-November 2019 a number of 61 factories have been shut down that resulted in a job cut of 31600 workers. But, at the same time, some 58 new garment factories were established during this time with the creation of employment for almost 60,000 workers.

The export data on a monthly basis, the trend is still giving a dull picture. The analysis of export data for the first fortnight of December shows a decline by more than 3 percent meaning that the growth trend may still remain plummeted in December.

It is difficult to project the trend since the global market looks volatile due to the emergence of a number of factors like EU-Vietnam FTA, the strategic move by China to offset the impact of punitive tariff by lowering prices, and the emergence of new sourcing destinations.

The growing share of online sales will also bring a major disruption in the conventional way of doing business in the medium term. If we do not take proper steps now to get ourselves on par with our competitors, it will be difficult to get the rhythm back in our exports.

“Diversification of the industry is one of the most important priorities now and we need special incentives to encourage product and material diversification and innovation. For long term business sustainability, we need an exit policy.”

Rubana Huq, President of Bangladesh Garment Manufacturers and Exporters Association

Outcomes of closure of the factories

The probable fallout could be more shut down of factories resulting in more displacements of workers, the decline in export earning which might affect the overall micro-macro economic performances of our country if there is a shortfall in export earnings and economy-wide less transaction and less money circulation.

Garment exporters have appealed to the government for a few policy supports to tackle the crisis.
The source tax on RMG export has been lowered to 0.25 percent, however, we have demanded for the retrospective effect of it like previous years.

At the same time, we have requested for withdrawing the conditions to avail the 1percent special incentive and also to withdraw tax on incentives.

Steps taken by sector leader

“Since exchange rate has become a major downside of our competitiveness, we hope government will be considerate to allow a premium on the local retention on our exports (i.e. Tk. 5 per dollar on 25% of export value),” according to Rubana Huq, President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

“Diversification of the industry is one of the most important priorities now and we need special incentives to encourage product and material diversification and innovation. For long term business sustainability, we need an exit policy,” Huq said.

It was a happening year for the readymade garment industry as 2019 marked a number of positive developments, yet it was not a pleasant time for our export as growth had been faltering throughout the year and had a nose dive in the latter half. The end to the stalemate situation of Accord’s phase-out from Bangladesh and the formation of national safety monitoring regime the ‘RMG Sustainability Council (RSC)’ were major breakthrough initiatives.

“Our journey to sustainability continued with pride, the number of green factories crossed 100 with 25 platinum LEED-certified factories and 500 more registered for the certification,” Huq also said.

Positives of Bangladesh apparel industry 2019
Figure 3: Positive ray of hopes for the Bangladesh textile and apparel industry in 2019.

Implementation of the new minimum wage was the major challenge for us, though complied, the industry continues to face severe financial hardship, which resulted in the closure of 61 factories and export kept plummeting for the fourth consecutive month starting from August 2019.

Stronger value of Bangladeshi Taka against the US dollar compared to competitor currencies has added to the woes as the industry keeps struggling with unit price. Despite all the investments made in workplace safety, compliance, implementation of new wage structure and green industrialization the unit price did not see much improvement.

Pricing trends of per unit garment
Unit price in EU and the USA has increased by 2.22 percent and 5.57 percent respectively during Jan-Oct 2019 (year over year), yet the price level remains significantly lower on a five-year comparison. The price of apparel imported by the USA from Bangladesh during Jan-Oct 2019 compared to Jan-Oct 2014 was down by 2.20 percent (source: OTEXA), and the same happened for EU by 1.94 percent (source: Eurostat).

Expert opinion

Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh, argued for a temporary devaluation of the taka against the US dollar for some selective exportable garment items. For instance, the government can devalue the greenback for the manmade fiber garment and synthetic fiber garment exports.

“If the government devalues the local currency against the dollar for selective items, product diversification will take place automatically.” Ahsan H Mansur added.

Bangladesh is still lagging behind in the production of technical and smart clothing items, due to which it could not tap into the global market for hospital clothing, school uniforms and armed forces, worth billions of dollars.

Mansur also said the taka can be devalued to Tk 90 against a US dollar right at this moment. However, the government should also notice whether the inflation goes up due to the devaluation of the currency, and yes currency devaluation is not a permanent solution.

“The garment industry has to increase its efficiency at least 30 percent if it wants to be more competitive globally. The sector can obtain efficiency through efficient management practices, technology selection and product and market diversification,” said Mansur, also a former economist of the International Monetary Fund.

Innovation is the key

Vietnam is honing in on Bangladesh’s position as the world’s second-largest apparel supplier by focusing on product diversification. Even after four decades, the country’s garment sector is still stuck in basic items: still, 73 percent of the shipments consist of T-shirts, trousers, sweaters, formal shirts and jackets. There has been slow graduation towards value-added and high-end garment items for upscale customers in the Western world.

Bangladesh is still lagging behind in the production of technical and smart clothing items, due to which it could not tap into the global market for hospital clothing, school uniforms and armed forces, worth billions of dollars.

Emerging markets hold the potentials

The emerging markets are providing a ray of hope: garment exports to non-traditional markets grew to nearly $7 billion from somewhere between $400 million and $500 million in 2008. India, China and Japan are showing big potential, with shipments to the Fareast Asian nation crossing $1 billion.
The US-China trade war can be a boon for Bangladesh as China has been losing its export orders. However, in this case, Bangladesh will have to improve the business climate and productivity at the factory level.

In the near future, duty concessions in international trade will vanish as the country is set to graduate from the least-developed bracket to the developing bracket. So, Bangladesh needs to sign the free trade agreements or join to different regional trading blocs for the continuation of the duty benefit in international trade.

Hopes lie in the primary textile sector

Bangladesh-home-textile-market
Figure 4: Tk2,500crore was invested in the primary textile sector in 2019.

The primary textile sector has also witnessed a good expansion. Some Tk2,500crore was invested in the sector in 2019 mainly to installing new imported machines and setting up new factories.

Currently, the local spinners can supply nearly 90 percent raw materials for the knitwear sector and 40 percent for the woven sector. The local garment manufacturers have to import nearly $8billion worth of fabrics from abroad mainly from China, India, Turkey and Pakistan for making the woven items.

“We are expecting more investment in the primary textile in 2020 in the areas like manmade fiber and some technical and non-traditional goods and currently the total amount of investment in the primary textile is $8billion,” said Monsoor Ahmed, also a Secretary to the Bangladesh Textile Mills Association (BTMA).

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