The pharmaceuticals industry is one of the most vibrant industries in Bangladesh that is not only meeting the majority of local needs but also being exported to many countries around the world. If we look back in the early ’80s, the industry was completely dominated by multinationals. The National Drug Policy of 1982 formulated through a committee of 8 (Eight) members during President Ershad’s regime, had dramatically changed the context of the industry and local pharmaceuticals companies started growing rapidly.
Now, the industry is dominated by the local giants like; Square, Incepta, Beximco, etc. You must be wondering what the heck with Pharmaceuticals to do with Spinning! The logic behind drawing the example of Pharmaceuticals industry is to show an example of the impact of policy in making or breaking industry and also to highlight the importance of homegrown policy that can bring the best result if it is done with a good intent through competent policymakers.
Recently, Indian Government has taken the following steps for their RMG and backward linkage industry, in order to attain their ambitious goal to export USD 30 billion RMG by 2020 and Indian textile industry be worth the US $ 300 billion by 2025:
- Spinning sector: 2% interest subsidy for modernizing spinning mills where spindles are of above 15 years’ vintage.
- Weaving and garments Sector: 10% capital subsidy for all new machines. TN Govt. to assist in setting up of trade facilitation center where 25% of the project cost with a ceiling of Rs. 10 crores shall be provided by the state.
- Dyeing, printing and wet processing sector: 10% subsidy for wider width fabric processing, 5% interest subsidy for the common effluent treatment plant, 15% capital subsidy for the individual treatment plant and RND assistance of 1 crore offered for effluent treatment plants.
An analysis of the current status of spinning in Bangladesh and a way forward:
Now, let us come to our main point of discussion – the current situation of the spinning industry in Bangladesh and seeking a way to cultivate success and assure sustainable development. We would like to divide the discussion into two stages:
- Macro or policy support from the government
- Micro or individual mill management.
A. Macro or policy support from the government
In order to assure the smooth growth of the spinning industry the following government policy supports are very crucial:
1. Delisting specific HS codes from existing bonded warehouse licenses, increase cash incentive and the to impose a ban on import of raw material through land ports, to encourage backward linkage industry:
Bangladeshi knit and Denim RMG that has already developed a very strong backward linkage industry (Spinning-Knitting/Weaving-Dyeing & Finishing) that are mostly made with cotton and cotton blends of different kinds. The spinning industry of Bangladesh with 12.50 million spindles is capable to meet 95% of local yarn demand. Rest is woven, sweater and home textile which is mostly based on imported fabric and yarn where spinning industry can support 40% of their yarn requirement.
Therefore, the government in collaboration with Bangladesh Textile Mills Association (BTMA) need to design a policy to exclude the HS codes of imported yarn (Cotton and cotton blends) and fabric (Denim fabric), from the existing bonded warehouse licenses of RMG exporters, that BTMA mills are capable to supply. In addition to that, to encourage the use of local yarn and fabric in export-oriented RMG, cash incentive can also be raised.
An alternative to it is to impose an anti-dumping duty that creates a negative country image, even if we don’t consider the difficulty in executing it. It is also important to impose a ban the on the import of any raw material (Cotton, yarn, and fabric) through any land ports and allow imports only through seaports (i.e. Chattogram and Mongla). However, to accommodate emergency shipments or sample quantity of a maximum of 500 kg can be allowed to be imported through airports.
2. Hedging opportunity against cotton import: Now, if we look at the cost component of yarn, 60-70% consists of cotton or raw material cost. Last year Bangladesh imported 7.20 million bales of cotton, the biggest importer of cotton in the world. In the ’90s cotton had little fluctuations (Say, the cotton index had a breath of maximum 5-10 cents in a year).
Over the period, the cotton index has become 2 to 3 times riskier than it was earlier. So, in such a risky market the only way to mitigate risk is hedging which is not permitted as per the existing guidelines of Bangladesh Bank. As I remember, Beximco wanted to do it back around 1999 and it was too complicated to get the permission and the market beta was quite low to exercise it in comparison with cost and benefit. As a matter of fact, the number one reason why we could not compete with imported yarn is not having a hedging opportunity. However, our spinners are also quite reluctant to hedge the risk.
3. Power: Spinning is a power hungry industry that mostly comes from captive gas generators. Still, we are not sure what is going to be the cost of power in the coming decades. Also, earlier different regions in the country had different levels of gas availability, though the situation has improved a bit in recent times.
However, this is vital for the spinning industry to be assured of uninterrupted power at a reasonable cost in the long run and the government should work out ways to assure it.
4. Money laundering /bank eating activity: Spinning is a capital intensive industry and it needs to be free from activities that encourage unscrupulous funding activities that discourage committed and performing entrepreneurs. A level playing professional financing ground is required for the spinning as well as for the banking industry.
5. Recruitment of foreign experts: Homegrown solutions work well and our spinning industry has more than four decades of experience and there are enough human resources to feed the spinning industry; both professional and technical.
At best, they may need some local and foreign training. But we find the rampant presence of top foreign officials in spinning mills. The government needs to validate thoroughly before allowing any employment of foreign nationals in the spinning industry. It is not only draining out a huge foreign currency but also resulting in unemployment and frustration for local professionals and technicians. Eventually, the spinning industry is losing grounds for sustenance.
6. Systematic pay scale review: Employees are our best resources to assure productivity, quality, and The government in collaboration with BTMA should assure systematic review of wages and salaries in order to assure the living wages of workers and executives. The working conditions need to be reviewed and updated and set a benchmark for the spinning industry. This would improve the working condition, reduce grievances and act as a boost to improve productivity, quality, and harmonious employee and employer relationship in the long run which is depleting gradually.
B. Micro or individual mill management
In Bangladesh, most of the mill’s management are still owner-centric and not managed by professionals. This is a key disadvantage for the industry. Beximco showed the path of professional management and few mills followed their footsteps that resulted in much better performance than the industry average; i.e. Square, Ha-meem, Envoy, Pahartoli, Viyellatex, etc., who experienced much better result than the existing management models in the market.
Actually, the size and capacity of our respected entrepreneurs had scaled up significantly that requires professional management. This would not only give them a solid footing on their investments but also create many opportunities for professionals and management consultants to have a mutually beneficial scope and growth to sustain. The owners need to validate their vision, mission, core values to business professionals to set strategic goals and cascade it down to activities and achieve those. Connecting the dots needs to be left with business professionals as done by top business houses throughout the world.
In brief, the challenging situation of the spinning industry in Bangladesh is a function of under management of cotton costs and risks as well unscrupulous import of yarn from outside counties, in my opinion. Last but not least, every spinning mill should have a unique strategic plan in order to face the battle in the short run and win the war in the long run. I gladly look forward to different opinions.