Textile News, Apparel News, RMG News, Fashion Trends
Trade & Business

Combating pandemic-induced disruptions through FDI: Apparel sector perspective

Foreign Direct Investment (FDI) is always said to be the game-changer for Bangladesh’s apparel and textile sector, unfortunately, we are yet to catch the train. Now, this COVID-19 knocked, industry-insiders echoing for heavy investment in manufacturing yarns, fabrics and dying facilities with proper wastewater and chemical management should be core elements of the post-COVID-19 recovery efforts.

Combating-COVID-19-disruptions-apparel-through-FDI
Figure: FDI is always said to be the game-changer for Bangladesh’s apparel and textile sector.

While FDI injection in the apparel and textile sector is of utter importance for Bangladesh for a long time, the advent of COVID-19 gave a renewed interest in how our apparel and textile sector may maximize FDI post-coronavirus inflow. For the record, FDI in our apparel and textile has been hovering around $400 million which is far from the expectation.

So, to increase the export earnings and sustaining the current growth of exports, Bangladesh needs to increase production capacity and move for high-value goods to get better deals from foreign brands for its apparel items. To this end, the sector needs a huge amount of capital and a skilled workforce where FDI can play an important role.

Additionally, Bangladesh should strive for heavy investment in digitizing the process and transforming the value chain to address the post- COVID challenges. We must keep in mind that Multinational companies, who are interested in shifting from China, prefer Vietnam since the Southeast Asian nation has no ‘discrimination’ towards FDI. In this area, Bangladesh must improve meaning improving ease of doing business environment and logistics performance.

Our current dependence on imports of MMF, industrial machinery, chemicals, inefficient port facilities and customs processing has resulted in much longer shipping time compared with rivals. Furthermore, more than 70 percent of exports is concentrated on five basic items while 74 percent of items are cotton-based and 83 percent of exports are destined to the European Union and North America.

Due to this concentration on low-value-added items, Bangladesh’s per-unit price is very low. While the global market share of MMF products has increased from 28 percent to 40 percent, in Bangladesh, its share has declined or remained unchanged.

Therefore, FDI should come in backward linkage textile and high-end products of the readymade garment as it will help transfer foreign and latest technologies to embolden local industry as well as ensure preparedness in the post-pandemic recovery efforts. Inarguably, FDI in these segments can be a boon for the Bangladesh economy is moving towards value-added products.

BD-apparel-FDI-NET-inflow-countrywise-investment-2019

Bangladesh is doing well in basic and medium-end products in RMG, where primary textile is supplying fabrics and yarn. But there is a huge scope of investment in the primary textile, especially in high-end fabric textiles items namely dyeing, chemical, high-end products such as a suit, lingerie, outwear jacket and fancy items. Since there is a gap between the demand and supply of raw materials for the apparel, we need foreign investment in the primary textile, which needs huge investment.

According to BTMA, currently, the primary textile sector can meet around 90% yarn demand for knit RMG and 40% yarn demand for woven RMG.

On the other hand, denim fabrics in the country can meet around 50% demand, where higher-end fabric is mostly dependent on imports. Usually, apparel makers discourage FDI in basic product manufacturing as we have enough capacity in basic and medium segments.

As per Bangladesh Bank (BB) data, in 2018, the FDI in the sector was US$408 million which was increased by 24% to US$506.84 million. However, it is worrisome to see FDI net inflows in the textile and wearing sector stood at US$55.05 in the first three months (i.e. January-March) of 2020.

In FY2019, Hong Kong was the largest investor with an investment of US$ 61.12 million in the country’s textile and garment industry, followed by Singapore’s US$33.46 million, China with US$29.94 million, Bermuda with US$25.87 million, British Virginia Islands US$18.53 million and South Korea US$17.23 million, and according to FDI data of Bangladesh Bank.

Under the Bangladesh Export Processing Zones Authority (BEPZA) and Bangladesh Economic Zones Authority (BEZA), 100% FDI is allowed in the textile and apparel sector

However, Business people blame the rise in the production cost and cumbersome process of getting factory permission along with the scarcity of land. To further increase the FDI in the sector, the government has to promote investment opportunities by creating an enabling business climate and offering incentives to keep production cost a reasonable level.

However, the business leader hopes the FDI in the sector will rise as the government is providing an investment facility in Special Economic Zones.

Under the Bangladesh Export Processing Zones Authority (BEPZA) and Bangladesh Economic Zones Authority (BEZA), 100% FDI is allowed in the textile and apparel sector but it discourages such investment for basic items. In EPZs, 100% foreign investment in the apparel and textile sector is allowed but it discourages this in the case of regular items as there is no scope of technology transfer and knowledge and experience sharing out of such traditional investment.

Moreover, BEPZA encourages overseas investment in high valued items such as jackets, suits, army dresses, fashion jackets, outwear and protective jackets.

There is a lot of ambiguity around the post-pandemic investment landscape, in particular, how the apparel and textile sector will attract most of the investments end and how compact the contribution will be. In this respect, the Government must act fast to identify investor countries for the post-coronavirus period, and prepare an action plan and mobilize activities keeping this sector in the head.

Say, for instance, when it comes to identifying investor countries, we need to map countries that suffer more from coronavirus will likely concentrate on nation-building versus investing internationally.

As we all know, among Bangladesh’s dominant investors, Western European countries and the United States have been disproportionately affected by coronavirus than East Asia, which suggests that East Asia may be more receptive to investing in Bangladesh. Reportedly, China has recently emerged as the leader in FDI in Bangladesh, replacing the USA and UK. Other leading East Asian countries that have investments in Bangladesh are Japan and Singapore.

Japan has been a consistent economic partner and contributor to Bangladesh’s socioeconomic developments since its independence. Bangladesh needs to continue to forge these relationships to create more investment opportunities. On the other hand, we need to map less-affected countries too since there have been stark disparities in the burden of coronavirus within Europe and those affected less.

Another side is, since coronavirus originated from China, there has been an international backlash against the country for the virus’ spread and consequent economic disruptions.  Some countries like Japan have already decided to move production plants from China.

With an adequate campaign and the right incentives, Bangladesh can make itself an attractive place for the countries currently investing in China to redirect their investments. The United States is fourth in terms of FDI inflows in Bangladesh, it is the greatest source of foreign investments worldwide (about US$6 trillion) and should be pursued.

In addition, because of the ongoing trade war between the United States and China, the United States’ imports from China dropped by about US$60 billion in 2019. Bangladesh should exploit this dynamic and market itself as a promising import base for the United States moving ahead.

Although many sectors will continue to draw foreign investments after the pandemic subsides, some sectors may lose their funding and some new ones may emerge after the coronavirus crisis is over. However, whatever happens after the pandemic, we need to equip ourselves with the best resort available.

Related posts

FDI in Bangladesh textile and apparel sector rises 15.70%

Textile Today

RMG sector needs FDI to tackle post COVID-19 challenges

Textile Today

Steady growth of FDI continuing

Textile Today

Latest Publications

View All