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13 August, 2017 09:35:34 AM

RMG sector facing Stumbling blocks

$50b export target by 2021
Kaniz Fatima with Sharif Ahmed
RMG sector facing Stumbling blocks

The garments sector in Bangladesh is facing several stumbling blocks in its endeavour to achieve the ambitious export target of “USD 50 billion by 2021”.
According to industry insiders, the country’s export earnings from the apparel industry have seen only a 0.20 per cent growth in the just-concluded fiscal year, which is the lowest in the past one-and-a-half decades. The insiders said the garments manufacturers’ target, which was set in 2014 to commemorate the 50th anniversary of the Republic of Bangladesh, is losing steam as a result of some domestic and foreign barriers.

Talking to The Independent, FBCCI president Shafiul Islam said it would be “very difficult, but not impossible” to achieve USD 50 billion worth of garments export by 2021. “We need 12 to 13 per cent growth in order to reach the target. But the reality is that we have only seen a 0.20 per cent rise to USD 28.15 billion in the 2016–17 fiscal year,” said Shafiul Islam, who is also the former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

He further disclosed that exports to the US, one of the major markets for Bangladeshi garments, have seen a decline of 9.11 per cent during the July–December period.  In for a stricture Pointing out some of the challenges, the FBCCI president said, “Our port, utility services such as gas and electricity, and infrastructure need to be developed further in order to achieve the USD 50 billion target.”
He added: “We also need to relocate the factories that have already closed down due to inadequate power supplies.”

Bangladesh has emerged as the second largest exporter of RMG globally after China. The country recorded RMG exports worth USD 26 billion in 2015, making for an average year-on-year growth of 13.05 per cent between 1996 and 2015. This helped Bangladesh to account for 5 per cent share in the USD 450-billion global garments market.

According to the BGMEA, production has dropped by 17 per cent over the past two years due to shortage of gas and electricity, high interest rate on bank loans, devaluation of the US dollar, and cut in prices of its products.

BGMEA president Siddiqur Rahman explained that 90 per cent of the country’s exports and imports are carried out through the Chittagong port. “However, for the past two months, it has been facing huge congestion of vessels. Most of the equipment at the port is lying out of order, thereby reducing efficiency drastically,” he added.

Echoing his BGMEA counterpart’s concern, Shafiul said, “We first import raw materials from abroad and then we export the finished products. Thanks to the congestion at Chittagong port, we are facing difficulties in shipping our products on time. This has led to increasing lead time and decreasing efficiency.”

Small factories were facing the biggest challenge to maintain both competitiveness and compliance. They need support from the low-cost funds to survive, but the interest rates act as a big stumbling block, apparel makers said. The FBCCI president said the interest rate was 13 to 14 per cent for small and medium enterprises (SMEs), “which is ridiculous because this sector drives the country’s economy”.

Shafiul added: “The Bangladeshi Taka has appreciated against the US dollar, and we need special dollar exchange rate for export-oriented businesses. Therefore, we are losing the competitive advantage.”

 Growth engine

The RMG sector is a vital growth engine for Bangladesh, and the impediments need to be removed for speeding up growth. “To achieve the targeted growth, we want everyone to be engaged and involved unilaterally,” Shafiul said. The past growth rates in RMG have been in the double digits, but given the current economic and trade environment globally, it was tough to go beyond single digit growth rates.

Market insiders said the retail prices of garment products have gone down by 30 per cent between 2000 and 2015. At the same time, production cost has increased. To cope with this reality was the industry’s biggest challenge, they said.

To achieve the target of USD 50 billion, the need was to get fair price for the products to notch up double-digit growth rates. Buyers should pay fair price for products, and the governments of retailing countries like Bangladesh can play an important role in this regard.

Commerce minister Tofail Ahmed has criticised foreign buyers several times for not raising prices of RMG products, especially after pressure mounted on the Bangladeshi RMG sector regarding safety issues after the deaths of more than 1,100 workers in Rana Plaza collapse in 2013.

Speaking at a programme last month, the minister had said that different types of conditions, including trade unions, were imposed on Bangladesh after the Rana Plaza tragedy. “We have implemented all those conditions. But the foreign buyers are not paying reasonable prices to the Bangladeshi RMG manufacturers,” he said.

“We have doubled the manpower for factory inspection. We have done many things and now we are in sustainability compact mode,” he added. The government had hosted the second follow-up meeting on the Bangladesh Sustainability Compact in Dhaka in January last year. Apart from the EU, the US, the ILO and the Bangladeshi government, Canada had joined the meeting as a new partner. They assessed the progress on the implementation of the Compact.

Policy measures

When asked about challenges, Centre for Policy Dialogue (CPD) research fellow Towfiqul Islam Khan told The Independent that it would be difficult to achieve the target of USD 50 billion by 2021. Towfiqul Khan explained that the demand as well as the price of RMG products has declined in major markets such as USA and Europe. “Moreover, compliance issues with Accord and Alliance as well as weak infrastructure in the country have compounded the problem,” he added.

Highlighting the issue of international currency fluctuation, he said the foreign currencies that had fallen in the international market have not fully recovered as yet. “On the other hand, our local currency, the taka, has been getting stronger for quite a few years now,” he said. The CPD research fellow suggested that it was high time for Bangladesh to go in for product diversification.

Owing to the rise of the e-commerce business, exporters need to diversify RMG products into several categories to be more unique to meet consumer demands, he added. Khan also suggested that the government should provide policy support along with incentives to the RMG sector to help achieve the export target.

The global apparel market is valued at USD 3 trillion, and the market increased at an average annual growth of 5.1 per cent between 2007 and 2013.

Bangladesh’s rivals in this very competitive market, including Vietnam, Sri Lanka and the Philippines, have increased facilities in the RMG sector, leading to downward pressure on global prices. Hence, Bangladesh has its task cut out to press buyers to raise RMG prices. But the country can boost its share of the high-end products. It can also boost profitability, without increasing price, by increasing productivity, quality management, and efficiency, experts said.


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Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
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Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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