The misery of the US-China trade war is taking the world by storm. But some events can become a benefit and bring some good news for others too. In this case, no country can be a better example than Bangladesh. Statistics show that textile manufacturing countries competing with China are fast gaining ground with a tremendous feat.
Bangladesh is one such country which is reviving the lost interest of sourcing from the world companies after the occurrence of Rana Plaza. Whether it is the direct result of China trade war or not, Bangladesh is getting the attention, and the country is ready to take the challenge.
Why Bangladesh is becoming the most wanted?
Total US tariffs of US$550 billion applied exclusively to Chinese goods are rising the cost of sourcing in China higher than the labor rates had taken them. As a result, U.S. brands and retailers are recognizing Bangladesh as a more potential place for product manufacturing purposes. This effect is even on those which pulled back after tragic workplace accidents in the country.
When the trade tensions and punitive duties started creating a hostile environment for business in China, companies had no choice of getting out of their comfort zone. So, they started coming out from China by choosing the best possible country for their migration.
But the number one problem for them is capacity constraints. It is very easy to understand that no country can take the manufacturing toll that China has forgone single-handedly. But as per the analysis of HSBC, Bangladesh is the country that can take the responsibility to a great extent and meet the companies’ goals.
“In terms of the capacity to grow, Bangladesh has quite a lot of ability to expand. The population is there, the ecosystem is there,” said Francois de Maricourt, CEO of HSBC Bangladesh.
“We see some new factories being set up, and you can see some factories with 5,000 workers, 10,000 workers. The country has the ability to increase the capacity quite substantially. The main thing will be around infrastructure.”
One of the biggest reasons to be the apple of the eye to many countries for Bangladesh is its reliance on China for inputs is minimal compared to some sourcing countries. And in this situation of trade tensions, this is playing a vital role.
“The dependence on China is not huge in terms of imports…The vast majority of producers in Bangladesh are actually local companies—and local companies that are growing,” de Maricourt said.
“You have companies that are owned by some Chinese groups, and more investments from Chinese groups…there’s quite a lot of interest to invest more in terms of production in Bangladesh, which was not traditionally the case.”
“In terms of the capacity to grow, Bangladesh has quite a lot of ability to expand. The population is there, the ecosystem is there.”
“Clearly, we see some interest in U.S. buyers to increase the quantity of the goods they are buying in Bangladesh,” de Maricourt said.
“I am not sure if the U.S.-China trade tensions are the main reason to change production…[but] the new duties have been perhaps a little bit of a trigger to force people to be out of their comfort zone to say ‘OK, now we have to act.’”
What about the weaknesses of the country?
Bangladesh’s weakest point is its infrastructure. But there have been investments in roads and ports, and the country has also started importing energy in the form of liquified natural gas (LNG) to increase the availability of electricity. And while land access had been an issue because of the system in place to purchase it, de Maricourt says that is improving, too, and that companies are keen to invest in capacity.
How Bangladesh is turning the pain into power?
Before the trade war, the companies had their eyes on Bangladesh because of the rising costs in China and this encouraged them to source from Bangladesh. And for some of those same companies, the Rana Plaza factory collapse that killed upward of 1,100 people in Bangladesh in 2013 either sent them packing or made them gun shy about expanding production there. But the situation has changed now in terms of security, compliance and production.
“The cost of production is much, much higher in China than it is in Bangladesh,” de Maricourt said.
“The know-how is also higher, but Bangladesh has made some good progress in terms of compliance and production.”
The Rana Plaza tragedy, de Maricourt explained, forced companies in Bangladesh to become much more compliant and install new fire doors and systems, and the process weeded out factories that couldn’t raise their safety standards to an acceptable level.
“Some factories had to close and I think it was a good thing for the industry because the small players who could not invest didn’t make it,” he said.
“But the level of compliance has increased, which is not only in terms of working conditions but also in terms of green initiatives.” This is how Bangladeshi factories are turning their pain into power after the Rana Plaza, Tazreen Fashion tragedy.
Figure: LEED platinum award.
This is evident in Bangladesh’s record number of green industries. After being battered by incidents of industrial accidents, Bangladesh’s apparel sector came back wonderfully by receiving the highest certificates from the United States Green Building Council (USGBC), the county took the total to 25.
These 25 Bangladeshi factories are the proud owners of LEED (Leadership in Energy and Environmental Design) certificate. Six out of the top 10 LEED-certified factories worldwide are located in Bangladesh. “In every consideration, Bangladesh has the highest number of green garment factories in the world,” said the USGBC. This is obviously helping Bangladesh to gain more trust from the investors.
Recent prospects of Bangladesh
According to Asian Development Bank Outlook 2019, the ongoing US-China trade tension will contribute 0.23% to Bangladesh’s Gross Domestic Products (GDP) growth by next one to two years depending on exports; especially apparel and leather goods.
Soon Chan Hong, the Senior Economist (South Asia department) at the ADB Dhaka office said, “Trade redirection is already evident in H1 2019 and will continue if the trade conflicts persist or escalate.”
During the January- July period of 2019, Bangladesh’s apparel exports to the US have seen an 11.53% rise to $3.57 billion which is a very optimistic sign. Bangladesh is currently the sixth-largest supplier of textiles and apparel to the U.S. after China, India, Vietnam, Pakistan and Mexico, according to data from the U.S. Office of Textiles and Apparel (OTEXA). Its growth in market share, however, has been in the double digits, while China continues to slip.
HSBC’s ‘The World in 2030’ report released last September; forecasts Bangladesh as likely to be the biggest mover in the global GDP rankings by 2030. The report put Bangladesh among the top-six countries for projected growth, a cohort that also includes India, Pakistan, the Philippines and Vietnam.
“We have done some forecasts looking at the world in 2030, and we have identified that Bangladesh has been the fastest in the world [for its pace of growth],” de Maricourt said. By 2030, HSBC expects Bangladesh will be the 26th largest economy in the world.
In the same report, HSBC said China will be the world’s largest economy by 2030, noting that its push toward robotics could mean “higher productivity and even faster GDP growth.”
And that could simply mean China’s days as the world’s factory will be continued to be numbered while rising countries like Bangladesh will benefit from a more robust garment manufacturing industry.
In the end, we can put de Maricourt’s quote. It summarizes the whole scenario for Bangladesh to a great extent- “In terms of countries that can really absorb an increase in capacity, Bangladesh can do it. Opportunities would be even higher if the infrastructure was better, but we expect an increase in garment exports in the coming year.”