Local and foreign investments increased significantly in textile and RMG industry
Bangladesh’s textile and apparel sector has seen a sharp rise in investment as local investment and Foreign Direct Investment (FDI) in 2018 in the sector have increased. However, the overall net inflows of foreign direct investment in the country declined. The country’s textile and apparel sector has received a foreign investment of around $500 million in the year 2018, which was $421.68 million in 2017 and $364.44 million in 2016.
On the other hand, according to a recent data from the Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), garments accessories and packaging manufacturers have made an investment of Tk722.5 crore, with more proposals in the pipeline.
New investment has been made in woven fabric production and processing. Bangladesh was having a huge supply gap in woven fabric. A huge amount of denim and non-denim woven fabric is being imported to meet the local demands.
However, this is to note that the real investment is not completely represented in the figures above. Many existing companies have reinvested and expanded their capacities and exact amounts could not be accumulated.
As apparel export has been rising significantly the companies had to increase their production and so they invested to add capacities to their existing plants and also invested in increasing productivity. Investments made to make the supply chain further smooth and faster.
Significant investment has been made in both forward and backward linkage. To cope with supply need to the apparel manufacturers strong demand prevailed for fabric production and accessories production. Some significant number of woven fabric production mills started operation in 2018. Some others have increased their fabric production capacities. Significant investment has been continued to make in the denim sector as well. The growth of knit sector was also continued. Existing companies prompted to increase their capacity. The same trend is likely to be continued in the coming days as well.
As export of woven garment is increasing, so the demand of woven fabric is also rising. As the buyers were asking for shorter lead-time and they are as well keen to develop a good supply base from Bangladesh, they encouraged Bangladesh companies to invest more in the woven sector. And so many companies invested a lot in increasing capacity of producing woven fabric and processing them.
A sister concern of Mithela Group, Mithela Textile Industries Limited (MTIL) is world’s first LEED Platinum certified woven dyeing factor. They have invested hugely to develop their production and products quality.
“Achieving the LEED Platinum certificate was not that easy, we had to invest huge money for it. We have built a solid reputation and market leadership in this short span of time and over the foundation of quality, timely delivery, and top-class services,” said Azahar Khan, Chairman of Mithela Group and a Director of BTMA.
A huge investment was made by the textile and RMG millers in green building project. Of the top 11 LEED-certified factories in the world, eight are from Bangladesh. All eight are “Platinum” rated, which is the highest category that can be reached under this globally recognized certification. Twenty factories are in the LEED Platinum category and 40 are in LEED Gold. Indeed, there are 73 Bangladeshi LEED Green garment factories certified by the USGBC. There are some 320 factories in the pipeline waiting for LEED certification.
Significant investment has been made in improving safety conditions. As of a November update on Accord’s site, the Accord noted that 90 percent of remediation for safety issues have been completed where the ninety-seven percent of Accord factories have removed lockable and collapsible gates, and 90 percent have adequate lighting in fire exists.
On the other hand, 93 percent remediation across Alliance-affiliated factories is complete and 428 factories completed all material items in their initial Corrective Action Plans (CAP), according to the 5th annual report of Alliance.
However, many RMG units have been shut down due to failure in Accord-Alliance inspection process that has increased default loans in the apparel sector. Most of the default loans lie in readymade garment (RMG) and textiles sector in a number of banks in the country.
The reason behind the rise of investment
As Bangladesh is the second largest exporter of apparel products in the world after China, there is a huge investment opportunity in the textile and garment industry. So, though by the end of the year many investment processes have been slowed down due to the approaching election, the year overall has seen some significant investments.
The available workforce at a reasonable wage, duty-free market access in the major export destination, preferential location in the heart of the Asia-Pacific region acted as a catalyst to attract foreign investment in the textile and apparel industry.
At the same time, the government has reduced corporate tax from 15% to 12% and also brought down the tax at source on export items, except jute goods, from 0.6% to 0.25% for the current fiscal year for garments sector, the $30 billion industry. It encouraged the local investors, though, they want longtime policy support for the sector that will help them to make the decision for investment.
Also Read: Government cuts source tax to 0.25% for RMG
“As a government organization, Bangladesh Investment Development Authority (BIDA) is providing all-out service through one-stop service. While the digitized system has made the process very easy, which pushed the foreign investment in the textile sector up,” BIDA Executive Chairman Kazi M Aminul Islam said.
Bangladesh government has taken steps to establish 100 Special Economic Zones (SEZs). On the other hand, it has given importance to ease the registration process for the foreign as well as the local investors through one-stop service, Commerce Minister Tofail Ahmed said to Textile Today.
As a result, foreign investors have become more interested to invest here. In the year to come, the investment in the textile sector from the foreign investors will see a sharp rise as the SEZs are becoming ready for investment, he added.
Already, China, Japan, India and many native entrepreneurs, including Sterling Group, invested in SEZs.
FDI could be more
FDI flow could be more increased is foreign investors got more supports. Many Chinese and multinational companies were interested to invest in fabric production and manufacture dyes and chemicals in Bangladesh. Leading Chinese company Color Root was keen to invest about the US $500 million to set up manufacturing plants in Bangladesh. However, the investment went back as they did not get proper support and facilities in Bangladesh.
Md Delwar Hossain, MD of D & D Chemicals (Color Root’s agent in Bangladesh), said, “We needed around 400 bighas land to establish the manufacturing plant and other supports regarding utility and safety. Therefore, the Bangladesh government should have a master plan regarding the matter.”
A number of Chinese companies expressed their interest to invest in Bangladesh. Though Bangladesh government and textile garments associations like BGMEA and BTMA won’t encourage investment in traditional product production, they welcomed investment in technically new products. They also asked foreign investments which will help to reduce import dependency.
“Foreign investment in the textile sector will help Bangladesh building a strong backward linkage for the woven sector,” said Exporters Association of Bangladesh (EAB) President Abdus Salam Murshedy.
In an exclusive interview with Textile Today recently Rubana Huq, Managing Director of Mohammadi Group also have mentioned that we don’t need any foreign investment in the products which we easily can do, we need investments in the products which we are not yet habituated.
Such foreign investment has been made in this year in Bangladesh. Such an example is Huaren Linen Group who has invested in Anwar Group to produce Linen fabric in Bangladesh. Bangladesh has been importing a huge amount of Linen fabric every year. The investment will reduce import dependency of the country.
Finally, to attract more investment from local and foreign investors improvement of trade competitiveness, the increment in physical and social infrastructures, quality of economic and political institutions, reforms in trade policy, monetary and fiscal policies, industrial policy and quality service delivery by the public institutions are needed.