POST TIME: 23 November, 2019 00:00 00 AM
Can strong policies boost up RMG export?
RMG industry is currently facing challenges like continuous price fall, image crisis and more labour and environmental compliance, and lack of product diversification, etc
Md Harunur Rashid

Can strong policies boost up RMG export?

Bangladesh’s multibillion dollar RMG sector is facing a critical juncture despite having enormous scope to gain from the shifting business from China due to tariff war with the USA. RMG sector already lost its global market share in apparel exports by 0.1 percentage point to 6.4% in the 2018 which was 6.5% in 2017. While global apparel exports market was $421 billion according to the World Trade Statistical Review 2019 by the World Trade Organization (WTO).

Earnings from country’s apparel items saw a 14.49% growth to $34.13 billion in the last fiscal year but the growth is happening in physical terms only. However $ 16.88 billion came from knitwear and    $ 17.24 billion from woven garment items. Of the total amount, $5.68 billion came from non-traditional export markets and the rest $28.44 billion from traditional markets, mainly the USA and the Europe.  

Bangladesh's closest competitor in the global market, Vietnam, narrowed the gap with its competitor and it stood at 6.2% in 2018, up by 0.3 percentage points, which was 5.9% in 2017. Although China still retains its position as the top exporter of apparel products with $158 billion, its market share slid to 31.3% in 2018 from 34.9% in the previous year. Recently questions have arisen inside the apparel makers like what kind of challenges are going to face RMG sector? Let’s have a look at this:

The first vice president of BKMEA Mohammad Hatem noted that the country already set a target to achieve 50 billion in 2021. For achieving  the target huge positive export growth is needed, use of deep seaport is must to reduce lead time for import and export of products. Improvement of the business environment is essential for Bangladesh to support private sector development, which will create more jobs and foster sustainable economic growth.

Another problem is bureaucratic for policymaking and durability for policy implementation. As business position is concerned, Bangladesh  stands 168th out of 190 counties whereas Vietnam stands 70th according to the World Bank report of 2019.  

On the other hand, Fair Wear Foundation (FWF) recently observed  from a study that we found many buyers were not willing to pay more and the brands accept to increase prices when fabric costs increase or currency fluctuates. The factory management also accepts lower prices in the hope of price hike and profit in future.

There is an imbalance in the negotiation table. Entrepreneurs are fearful of losing work orders. The study also found some looming catastrophes. Some 33% think they will face the risk of closure and 29% will face difficulties in wage payment to workers. After the recent wage hike of 51%, only 13% of the buyers who source from Bangladesh increased the prices of apparel items.

RMG industry is currently facing challenges like continuous price fall from the buyer, image crisis and more labour and environmental compliance and lack of product diversification and low-value addition product, etc.

As the productivity of Bangladesh is less than all of its major competitors, we need to address this issue critically as preference erosion will force us to compete in terms of productivity and quality of the products. Only five products i.e. Shirts, Trousers, Jackets, T-Shirt & Sweater constitute more than 73.17% of total RMG export. According to the Asian Productivity Organisation, per hour labour productivity of Bangladesh is USD 3.4 which is lower than average productivity of other competing countries except for Cambodia.

Moreover situation is so severe that around 39% of Bangladeshi RMG exporters accept prices less than their production costs for the sake of business, a recent study finds. Cheap products should not come at the cost of workers’ miserable life or polluting the environment. Hardworking labourers cannot be provided basic necessities due to consumer’s mindset.

The apparel production cost increased by 30% in last four years and more worryingly, between fiscal years 2015-16 and 2018-19, the RMG industry’s value addition has gone down by 1.61% though the apparel exports have increased during the period. Furthermore, Bangladesh is graduating in a time when WTO situations are getting worse due to rising protectionism in the international market. This situation may worsen when the Fourth Industrial Revolution (4IR) will come into its full effect with its robotics and automation features creating huge job loss and near shoring idea for buyers.

While RMG factory owners in Bangladesh are price-takers and, as such, have little bargaining power in situation as this. Unhealthy competition of selling products at low prices by RMG exporters has badly affected the RMG sector, triggering a significant decrease in export earnings. Business friendly government was trying to find a way out in consultation with industry leaders and businesspeople.

Due to the ongoing tariff war, a significant volume of trade has been relocated from China to other countries. There's no time to wait and there's certainly no time to lose the china market and world market portion. Bangladesh is now the safest garment exporting country in the world by the inspection of Accord, Alliance and ILO. Maybe it's time to call us competitive and not the cheapest.

Around 61% of total RMG export goes to only five countries i.e. Germany, USA, UK, France and Spain indicating market concentration creating obstacles for negotiation. We need to expand our market beyond the EU and the USA. So to grab more market share, the government should formulate policy taking the sector people on board, which focuses on products diversification and add more value to final products with state-of-art design and quality.

Bangladeshi apparel makers should plan to hold rallies and human chains in major European cities to create awareness among the consumers as most of the brands did not increase the price and rejected  the idea of fixing a base price for garment items.

More attention should be given to non-traditional markets, identifying products which are on demand globally. Our economists also call for attracting foreign direct investment, which is being relocated from china.  

We need to try and attempt to correct that perception through honest narratives and professional lobbying, and we also need to make a clear connection between wages and productivity.  Bangladesh needs to play an effective role in the regional and sub-regional forums like BBIN, BCIM and BIMSTEC, etc by ensuring lobbing, diplomacy and strong leadership. Bilateral Free Trade Agreement can be a critical tool for offsetting the pressure of preference erosion.

Bangladesh needs to respond proactively to face the challenges of the fourth industrial revolution and leveraging the opportunities of new technologies. Skill mapping needs to be undertaken to find out how many people are required in which skills.

Finally, a coordinated approach needs to be initiated including entrepreneurs, policymakers, buyers and development partners to design curriculum and start re-skilling the people.

The writer is Deputy Secretary, BKMEA and independent policy analyst. E-mail harun.bkmea@gmail.com