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Bangladesh RMG sector cannot survive without strong backward linkage

Bangladesh primary textile sector is experiencing a dull and tough situation that mill owners are either partially closing units or keep the production off completely. The sale of fabric and local yarn has reduced drastically and 50-60% of the looms have been remained closed for a long period of time.

Estahak Ahmed Shaika, Basher Group
Figure 1: Engr. Estahak Ahmed Shaika, Managing Director of Basher Group of Industries and a Director of Bangladesh Textile Mills Association (BTMA).

In the spinning mills only 8 million spindles are running out of 11 million spindles, around 50-60 thousand power looms have been shut down so far out of 1 lakh, according to Bangladesh Textile Mills Association (BTMA). Sector leaders are worried about the situation and they are trying to identify the factors that are responsible for the crisis.

Engr. Estahak Ahmed Shaika, the Managing Director of Basher Group of Industries and a Director of Bangladesh Textile Mills Association (BTMA), is a successful young entrepreneur and iconic person in the spinning sector.

In a recent conversation with Textile Today team, he shared his views about the crisis situation of Bangladesh spinning mills and the opportunities to make it a leading sector by overcoming the challenges.

The crisis in the spinning mills are global

The crisis situation in the cotton market is not only a problem of Bangladesh rather it is a global phenomenon. China and India witnessing a decline in cotton export in recent years.

In 2018, the global cotton sale totaled US$59.2 billion which is decreased by an average -7.8% for all exporting countries since 2014 that valued at $64.2 billion. Year over year, cotton shipments appreciated by 4.3% from 2017 to 2018.

Declining Global Cotton
Figure 2: Global export trend of cotton market is showing a decline.

Engr. Estahak Ahmed Shaika said, Bangladesh RMG sector is mostly dependent on Europe and USA market, so any changes in buying policy will hamper our export growth. Now the US is prioritizing to import yarn and garment from Pakistan. Meaning, Bangladesh is getting less priority in the US market.

According to Estahak Ahmed, the biggest reason for the market slowdown in the Apparel sector is the new trend was not seen for market-lead this year. EU market also in a stagnant situation due to uncertainty over Brexit and economic slowdown in some places in Europe. But he expressed hope that these crisis situations will change and improve in the coming months as overall market forecast revealed.

Factors that reasoning for the crisis in the Bangladesh spinning sector

As a Director of BTMEA Engr. Estahak thinks there are many triggering reasons for the present crisis other than international market.

Lowest cotton price: At present cotton price is lowest in the last 10 years and worryingly, buyers are asking to reduce the price, whereas Bangladeshi millers imported the cotton 3-4 months back when cotton was not cheaper. The cheaper cotton will be in-housed later to 3 months from now, that means spinning mills are in direct loss.

High Bank interest: Higher bank interest rate that drags down the Bangladesh textile and apparel industry and never allows the breathing space for the entrepreneurs and this is one of the biggest reason for the crisis. Bangladesh’s neighboring countries keep the interest rate in single digit to promote the industry, on the contrary Bangladeshi mills has to count a double-digit interest rate to get financial support from the banks.

Position Managing Director, Basher Group of Industries
Association Director, Bangladesh Textile Mills Association (BTMA)
Education Graduate from Devry Inst of Tech, Canada
Achievement Best Young Entrepreneur Award in 2013 from the government of Bangladesh
Hobby Passing time with Family
Favorite food Traditional Bangladeshi Food

Gas price hike: Bangladesh government has increased gas prices by 37.88% from Tk7.76 to Tk10.70 per cubic meter for industrial use and 43.97% from Tk9.62 to Tk13.85 per cubic meter for captive power. The primary textile sector will suffer a lot as the sector is highly dependent on gas to run the factory.

Congestion at port: Port congestion is the bottleneck barrier for the backward linkage and weakening the sector. Because Bangladesh imports about 8.28 million bales of raw cotton valued at $3 billion yearly but due to congestion in Chattogram port, the millers have to bear the additional cost to release the goods as well as extra bank charges for the delay arrival at factory.

Late payment: Engr. Estahak informed that the spinning millers never get payment from the RMG owners after delivering the yarn unless it is passed 6-8 months. But banks are imposing interest on spinning mills month on month so millers are really not in a situation to stand. Even if they provide instant LC, that also takes more than 3 months to get effected.

Bonded Leakage: Leakage of bonded ware is another factor to remain unsold yarn in our warehouse. The government should take strong step to stop illegal use of bonded facilities.

Knit factory has spinning mill: Now all the leading knit composite factories have their own spinning mills that can fulfill internal demand so, the spinning mills are not receiving any order from those factories.

Basher Group factory
Figure 3: premises of Basher Group of Industries.

Backward linkage remains backward

Bangladesh RMG sector is growing based on backward linkage but in most cases backward linkage remains unseen in the eye of sector leaders.

Whereas Bangladesh is capable of supplying 85% of yarn and fabric for its RMG sector from backward linkage, along with 40% of woven fabric, required by the knitwear sector, which helped to take the value addition to 75%. Value addition to the woven sector is now around 35% to 40% meaning that Bangladesh is unable to fulfill 60% demand for woven fabrics.

A recent Bangladesh Bank report showed that import price of raw materials in the July-December period of FY 19 stood at $6.28 billion which is 36.77% of total export earnings from RMG sector of $17.08 billion in the period.

Thus, raw materials prices shared 36.77% of the total value of RMG export, it means local value addition is estimated at 63.23%. This portrays a clear picture, how backward linkage sector is contributing to the Bangladesh RMG sector.

Generally investment for the backward linkage is higher than the RMG factories but no policy support or any financial benefit is going in favor of the spinning sector. This is due to the perception that backward linkage is a part of the RMG sector but its contribution is beyond any question.

Engr. Estahak expressed, “imagine the scenario, that there is no backward linkage in the textile and apparel industry same to 80’s how the sector will survive? So it is high time that all the leaders of the BGMEA, BKEMEA and BTMEA have to think over the crisis moment of the spinning sector to keep it alive for the sake of the RMG sector.”

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