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Reimagining the future game-plan of Bangladesh’s RMG industry

RMG sector of Bangladesh is proudly said to be the standalone growth-enabler of the economy contributing more than 84% of the total export. Let alone this national pride, for years our RMG sector is making a dent when it comes to global ranking (ranked after China).

reshaping Bangladesh’s RMG industry
Figure 1: RMG manufacturers should increasingly focus on R&D and design to move up the value chain and cater to higher-value brands.

Admittedly and unfortunately, we are on the verge of going downward in this sector. Yes, it is likely that in the near future we will no longer hold the second position. Apparently, Vietnam has jumped on the bandwagon of positioning as a new frontier in RMG exports worldwide, chasing Bangladesh.

Reportedly, in the first nine months of this calendar year. Vietnam exported garment products worth US$27.10 billion, compared to Bangladesh’s apparel exports of US$27.63 billion during the period.

Recently, Bangladesh’s share in global RMG exports was 6.4% as against 6.2% share of Vietnam. Therefore, this is no surprise to us since this has long been predicted by the experts and industry insiders. The biggest blow came when Vietnam obtained duty-free benefit from the EU which scrapped Vietnam from paying 12% duty and eventually, made them a tough competitor of Bangladesh.

By the signing of this agreement, Vietnam is now the first of its kind with a developing country in Asia who received tariff reductions on 99% of goods between the 28-member bloc and the Southeast Asian country. Moreover, Vietnam is now spelled due to its sustainably developed industry and strong labor codes.

However, the rise of Vietnam on the competition-table alone is not the prime concern for us rather matters related to our loss of competitiveness are of greater significance.

While regional competitors are busy enveloping their success-stories, fifty-nine garment factories of ours have been shut and around 26000 workers have lost jobs in the last seven months.

“The government must aggressively pursue remedial measures to safeguard the RMG industry from shrinkage.”

Reportedly, the firms went defunct are mostly SMEs who failed to maintain compliance stringently and struggled to pay their workers under the new wage regime. Provided these factors, Bangladesh’s apparel export has declined in recent months whereas its competitors have seen a rise in the field.

Moreover, the inflow of investment in the garment sector is also slow both in terms of new entrepreneurship and expansion as the buyers are not paying good prices. Evidently, buyers are now trying to cash in on the presence of unhealthy price competition among the local garment makers and less production of value-added items in Bangladesh.

Furthermore, avenues like poor product diversification, rising online businesses, closure of retail outlets in western countries, and a 1.2% fall in global apparel consumption as predicted by the WTO are mainly responsible for the declining trend in Bangladesh.

So, concerns are blowing in the air whether this shift-away will persist or Bangladesh will be able to marshal over-arching reforms to retain its long-held position. Therefore, a game-changing plan is much-required to equip this growth-driver to cap its success for the days to come.

Commercial & tailored monetary policy BD RMG

In this connection, industry-insiders and relevant stakeholders are seen vocal in streamlining following game-plans they considered as pre-requisites to turbo-charge the growth of this sector:

Commercial diplomacy

  • It is often pointed to factory owners that they are reluctant to explore new markets due to be coupled with reluctance and lack of skills in terms of commercial diplomacy. This, eventually, leads to a lack of market exploration. We will have to emphasize this particular area beforehand.
  • We have lots of potentials in the Middle East and CIS countries to expand markets for our products. So, it is needed to take special initiatives both in government and private sectors to diversify the market, especially in Russia and CIS countries for access of products and export expansion.

Tailored Monetary Policy

  • Formulation of special export monetary policy to protect exporters against a strong position of Taka against the US dollar. So, Bangladesh Bank’s policy should be to maintain the currency value and not allow appreciation for the sake of exporters.
  • Canceling the provision of Bangladesh Bank, which prevents a group of companies from getting all kinds of banking facilities when one of the group’s units becomes a defaulter.
  • Adopting special refinancing schemes to provide loans from the foreign currency reserve of Bangladesh Bank with a lower interest rate for modernization and automation of factories.
  • Extending deferred payment time limit of Bangladesh Bank from one year to five years in case of importing capital machinery.
  • Additional 5 percent cash incentive should be provided on FOB values of exported garments for next few years. Moreover, cash incentives should be provided to the Primary Textile industry too.
  • There can be a policy on using some amount from the reserved fund to import technologies for industries. Businesses can present a proposal on how Bangladesh Bank can accelerate technical excellence in the industrial sector by utilizing the reserve fund.

Revisiting NBR-Customs regime      

  • Withdrawal of source tax from the exports of ready-made garments for two years and providing 2 percent special incentives to protect the industry.
  • Digitalizing the bond system for auto-renewal of customs bonds and ensuring the transparency of bonds.
  • Withdrawal of VAT on all local products and services.
  • To increase the manpower of customs and shift the customs office from Khulna to Mongla.

Harboring product value-addition

  • Adopting a special strategy and effective measures to manufacture value-added products with design and innovation. Therefore, RMG conglomerates should increasingly focus on R&D and design to move up the value chain and cater to higher-value brands.
  • We are still producing only basic T-shirts, polo shirts and tops-bottoms, which are basically cotton based. So, diversification of products is also very important.
Infrastructure development in Bangladesh
Figure 2: For infrastructure developments, Bangladesh needs to focus on the above things.

Infrastructure development

  • Removing existing obstacles at Chittagong port, Dhaka airport and Benapole land port; taking measures to raise capacity standards of the ports. So that we can do better in ‘Fast to Market’ issue similarly doing in the ‘Fast to Fashion’ issue.
  • Taking necessary measures to relocate small and medium factories by establishing ICD and special economic zones in areas adjacent to the capital city. Moreover, all haphazardly built factories and other relevant backward industries should be shifted to economic zones quickly.
  • The developments in the Dhaka airport can be replicated in Chittagong port.
  • Detailed plans need to be drawn up to increase the navigability of the naval routes.
  • Both sides of the road from Tongi to Gazipur have been illegally occupied. Additionally, the Ashulia road could not be upgraded to 4 lanes even after putting much effort. Moreover, the area lacks a proper sewerage system. Despite these bottlenecks, around 25% of our export earnings come from this region. So, to combat the anomalies existing there, we will have to draw up a plan as to how we can come out of this situation and work together to realize the potential.
opportunities Bangladesh special economic zones
Figure 3: All haphazardly built factories and other relevant backward industries should be shifted to economic zones quickly.

Proper branding

  • Evidently, our ready-made garment industry is now doing a lot of good works, but there is a lack of proper branding. So, branding the unprecedented success of Bangladesh’s RMG industry in ensuring a safe working environment after the Rana Plaza incident and the silent revolution for greenery industrialization is of utter importance. In doing so, we will be able to overcome our image crisis if we become united against the negative propagandas.
  • There should be a specific policy for handling the media to deal with the negative campaigns in the media against the ready-made garment industry.

Lastly, it is to reiterate that the government must aggressively pursue remedial measures to safeguard the RMG industry from shrinkage. Time is of critical essence right now!

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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