Bangladesh is the 2nd largest Ready-Made Garments (RMG) exporter in the world after China. Its RMG sector has been rapidly expanding for the last four decades.
In the beginning, the RMG industry was not adequately supported by the domestic supply chain (e.g. spinning, weaving, knitting, fabric processing, and the garment accessories industries).
Until FY 1994, Bangladesh’s RMG industry was mostly dependent on imported fabrics- the Primary Textile Sector (PTS) was not producing the necessary fabrics and yarn.
According to Bangladesh Textile Mills Association (BTMA) presently around 90% yarn demand for knit RMG and 35-40% yarn demand for woven RMG are met by Primary Textile Sector (PTS). Once, it was a dream but our visionary entrepreneurs have made it a reality. They have invested more than US$4.5 billion in the Primary Textile Sector.
There are 1461 member mills under BTMA, of them yarn manufacturing mills: 425, fabric manufacturing mills: 796, and dyeing-printing-finishing mills: 240.
At Present, due to some international and national policy and realities, this industry is facing severe crisis and some millers forced to close their factories.
Some core crises are discussed below
Increasing cost of production: The cost of production has been surged due to many reasons, including increasing interest rate, double-digit inflation and decreasing value of Bangladeshi Taka.
These reasons have increased the cost of production of the textile industry which created some difficult challenges for the primary textile sector to compete in the international market.
Energy crisis: the Energy crisis is one of the major problems in Bangladesh textile industry.
- Price hike of electricity and electricity crisis: As a consequence of load-shedding, the textile production capacity of various sub-sectors have been reduced by up to 30 percent. The load-shedding of electricity causes a rapid decrease in production which also reduces the export order. The cost of production has risen due to the sudden increase in electricity tariff. For such a dramatic turn of events, the capability and competitiveness of this industry in the international market affected seriously.
- Price hike of gas and gas shortage: Low pressure of gas continues in textile industries despite a significant increase in temperature. Continuous gas disconnection over months, causing huge production losses and badly affecting the capability of the industry. Because of the low pressure of the gas, some mill owners use an alternative source of energy like generator which increases their cost of production further. PTS (Primary Textile Sector) industries are producing around 1200 MW power through Captive Generator. Presently, Captive Power Generator per cubic meter gas price is Tk.13.85, previously which was Tk.8.62. It shows an increase by 60.67%. In addition, if the gas price hikes according to the recent proposal then many textile mills will be forced to shut their units.
Cost of compliance: To implement compliance operational working environment millers are investing a lot. Though the buyers are pushing the compliance issue strictly, they are not increasing apparel prices from their end.
Competition to attract the buyer: Factory owners compete among themselves to attract buyers, it reduces the price of the product which impacts on the profit.
Tight monetary policy: The continuity of tight monetary policy causes an intensive increase in the cost of production. Due to the high-interest rate, the financing cost increased, which has a severe effect on production. Increasing the problems for the industry.
Fourth-generation automation: We are entering a robotic economic or robotic industrialization – meaning automation – but we are not ready for the notion and challenges it brings for our labor sector. We have to prepare ourselves for that kind of situation.
US-China trade war
US’s widening trade deficit with China is a major cause for the country’s economic woes. US government has started imposing protectionist measures on import from major trading partners like China and Canada.
US has recently decided to slap 25% tariff on imports worth up to USD 200 billion from China. Bangladesh can directly benefit in the event of an escalating trade war between the US and China, especially if the US imposes higher tariffs on imported Chinese apparel.
Alongside, Bangladesh can be benefited from the capital flight, as some Chinese apparel manufacturers would be seeking to relocate operations to a country having normal trade ties with the US.
The trade war is contributing to price volatility in the cotton market, which is a key raw material for the apparel sector. China’s stockpiling and procurement of cotton from regional cotton producers like Uzbekistan and India, instead of the US- will cause a mismatch in the demand-supply scenario. Bangladeshi textile manufacturers may suffer, as a result.
Reduced-order: Almost all top clothing retailers like H&M, Walmart, JC Penney, Inditex, Zara, Gap, M&S, Uniqlo, C&A, Tesco, Hugo Boss and Adidas have been souring garment items worth of billion dollars from Bangladesh every year. Presently they are shifting orders from Bangladesh to others country.
Raw material prices: Prices of cotton and other raw materials used in the textile industry fluctuate rapidly in Bangladesh. The rapid increase in the price of raw material affects the cost of production badly.
The above all scenarios are badly affecting the textile industry. The demand for textile products going down locally and internationally as well. The export order reduced due to unpredictable conditions and other various reasons in Bangladesh. The cut down in the production of textile increases unemployment.
More worryingly, Bangladesh’s garment and textile manufacturers will have to face steep competition from countries such as India, Pakistan, China, and Thailand, from whom the country now imports fabric to meet the demands of its RMG sector.
We are importing most of the items to produce readymade garments except our unskilled or semiskilled workforce. It is tough to compete with countries like China or India as they are producing raw cotton to machinery as well.
So, they can sell their product at a lower price than us. In this regard, it is the high time for our regulatory body to look into the matter-how the textile industry can survive in this situation.