Bright future awaits RMG sector
Bangladesh RMG sector has the huge potential to meet the increasing demand for apparels as it has some core strengths
Pallab Bhattacherja and Md. Sajib Hossain
China, the global giant of Ready Made Garments (RMG) exporter, has recently started turning its attention to capital-intensive manufacturing sector which is creating golden opportunities for countries like Bangladesh to grasp the global RMG market. The reason for Chinas such gradual shifting from the labor-intensive production items (i.e. low-end apparel) to the capital-intensive ones(i.e. technological items) is the continual increasing of labor costs resulting from its rapid socio-economic progress and the consequent improvement of the peoples living standard. According to China Labor Bulletin, published on December 14, 2016, the average monthly minimum wage in the economic capital (Shanghai) of China was 1120 Yuan in 2010, which has increased to 2190 Yuan (US$327) in 2016, except to very small and remote areas, most cities currently, have a minimum wage of 1600 Yuan (US$ 239) as of June 2016. Thus, paradoxically, China has now started importing RMG from other countries including Vietnam, Italy, Bangladesh, Turkey, Cambodia, etc. According to ITC trade-map, in 2016 Chinas total import from global RMG market amounted to US$ around 6 billion, of which, Bangladesh exported around US$0.47 billion worth of RMG products to China; it was only around US$ 0.15 billion in 2012. It is an unambiguous indication that Chinas apparel market is becoming lucrative for Bangladeshi RMG exporters.
Globally, RMG sector has been occupied a significant position in the worlds export amounted to 434.98 billion USD in 2016 and accounted for around 3per cent of all exported items of the world. In the global RMG market, currently, the major 5 importers are United States, Germany, Japan, United Kingdom and France, accounting for around 50per cent of worlds RMG import in combined, whereas major 5 RMG exporters including China, Bangladesh, Vietnam, Turkey, and India are also constituting for around 50per cent of global export share together (based on ITC trade map, 2017).
However, from the analysis of ITC trade map data, 2017, it is evident that Chinas share in global RMG market has been gradually declining which dropped to 29.54 percent in 2016, from 37.16 percent in 2012. This indicates that Chinas gradual withdrawal from the RMG production. Conversely, Bangladeshs share in the global RMG, it has risen from 5.64per cent to 7.48per cent, still holding its position as the second largest exporter in the world. For Vietnam, its share in global RMG market has reached to 5.70per cent in 2016, from only 3.84per cent in 2012, making it third-largest exporter just after Bangladesh. But one stunning feature of Vietnam is that its global market share has been increasing faster than that of Bangladesh in last 5 years although it still lags behind 1.78 percent point share. The reason for this can be attributed to Vietnams trade pacts with several countries including China, Australia and New Zealand, India, Japan and a Bilateral trade agreement with Korea in 2015, as well as a trade agreement with the Russian-led Customs Union block. As for India, on average its market share has remained constant position during the period between 2012 and2016. As for Turkeys market share, it has been slightly declining in the last 5 years except for the year of 2016, a showing an increase of only 0.12 percent share. But, both Vietnam and Bangladesh are being benefited from Chinas gradually leaving RMG market.
RMG sector is one of the lifelines of the economy of Bangladesh. According to Export Promotion Bureau(EPB), and Bangladesh Bureau of Statistics(BBS) data, total export earnings of this sector amounts to US$ 34.85 billion in the FY -2016-17, constituting for around 81 per cent of the national export earnings and positively 12.35per cent of GDP. And of this total RMG export figure, the knitwear accounted for US$13.75 billion and for the woven, it was US$14.39 billion. Nonetheless, recently, the RMG sector of BD has been facing severe competition from some neighboring Asian RMG producer countries like Vietnam, India, Pakistan, Sri Lanka, Cambodia, and Myanmar. It is mentionable that those countries are taking necessary initiatives to boost up their apparel production export level to grab the global apparel market share such as these days, India has already taken initiative for making an enormous amount of investment on Textile and RMG sector. At this backdrop, to tackle the existing challenges, to take the opportunity of Chinas gradual departure from global RMG market, to increase the volume of export and to sustain the growth as well as the competitiveness of the sector, a set of suggestions have been proposed in this article that targeting mainly the two stakeholders: one is the government and another is the RMG entrepreneurs. It is crucial that the government should take some strategic steps to deal with the sectors current existing problems and to make it as a global promising sector in the foreseeable future. But the government cannot alone do everything for the thriving of any kind of business. Keeping this fact in mind, entrepreneurs will also have to take some steps beyond their respective level along with the government efforts.
Steps on the part of the government
The government can consider the following aspects:
1. The initiative should start right now to sign a bilateral trade agreement, PTA, FTA in the existing major markets (i.e. EU-27, United Kingdom, Canada, Japan, Australia, Republic of Korea, and Chili), as after promoting to the middle-income status, Bangladesh will not be able to enjoy duty-free and quota-free access to export its goods and commodities including RMG. Currently, Bangladesh is enjoying these facilities due to its Least Developed Countries (LDCs) status. It is once more worth mentioning that Bangladeshs close competitor Vietnam already completed negotiating a free trade agreement with the EU in February 2016 and now is waiting for the Council of Ministers for ratification.
However, simultaneously, similar emphasis should also be placed on outside the traditional and next promising markets for BD RMG like Russian Federation, Belarus, South Africa, Mexico, Middle Eastern countries (i.e. UAE, Saudi Arabia, Cyprus, Kuwait, Lebanon, Bahrain), and others to secure the market share of the countrys RMG sector;
2. Implementation of proposed commercial wings set up at Bangladesh missions in abroad to promote the eco-friendly branding of RMG sector, and to facilitate opening outlets for its products so as to expand market share in those countries;
3. To reduce vulnerability and to ensure on-time availability of cotton, the govt. should take initiative to sign MoUs with other global cotton producer countries like Brazil, CIS countries (i.e. Uzbekistan, Turkmenistan), and Burkina Faso and others. Besides, initiatives should be taken immediately for domestic cotton production, and to produce man-made fiber like viscose using jute through ensuring technology and finance;
4. Duty-free import facilities for high tech machinery and equipment, Effluent treatment plant(ETP)s chemicals etc. should be provided for some couple of years so as to produce high-value-added products in an eco-friendly way;
5. For the smooth continuation production, supply of electricity and other fuels (e.g. diesel and gas) with the stable prices should be ensured because frequent price hike in electricity, gas, and diesel affects the RMG production greatly;
6. According to World Bank report (Stitches to Riches,2016), RMG sector of BD has ranked lower productivity standard compared to other Asian countries. Indeed, the sector needs a huge number of skilled workforce, particularly at the mid-management level. And to cater the needs of the industry, specialized training institutes for RMG sector should be set up immediately that will help fill up the skills gap, while reducing the sectors dependency on expatriate workers;
7. Arrangement of special funds for establishing fashion design centers, and conducting regular research activities in order to both product and market diversification;
8. Availability of bank loans at the lowest possible rate should be ensured by the government to bring new entrepreneurs into this sector;
9. Provision of special incentive packages should be kept for firms based on their monetary value of export;
10. Excellent port management should be ensured as inefficient port management leads to long lead time, among others;
11. Accelerating the implementation process of One Stop Service Bill 2017 by BEZA so as to attract more investment in Bangladesh from abroad and also create new local entrepreneurs in this sector, as well as the service helps to fulfill multiple business needs under one umbrella;
12. Implementation of National single window system to facilitate the RMG manufacturers and exporters to obtain the necessary papers, permits, and clearances to complete their import or export processes at a time;
13. Special RMG parks should be set up to relocate the factories which are situated on the estuary of Buriganga, Dholeshowri, and Shitolokkha river in order to prevent their pollution through allowing them to use ETP in a sharing basis, and also to ensure adequate other infrastructure facilities. And this initiative will also help bring in new entrepreneurs.
Steps on the part of entrepreneurs
Entrepreneurs should take the following necessary steps:
1. To remain cost competitiveness through resource utilization and wastage minimization, firms should install an upgraded machinery and equipment (i.e. eco-friendly and cost-effective);
2. Provision should be kept for the arrangement of training and skill development program for workers, and mid-level management at their factory level on a regular basis or whenever it appears necessary;
3. Bangladeshs export basket for RMG products is limited. So, firms should create new clothing designs, keep eyes on global fashion trends and also should give attention to produce high-end apparel along with the traditional products;
Bangladesh RMG sector has the huge potential not only to grasp Chinas leaving RMG market but also to meet the most part of the global demand for apparel as it has some core strengths: availability of labor forces, around 100per cent local ownership, the long business experience of RMG producers, ability to produce quality products at competitive prices, adoption of go green approach in keeping pace with the global sustainable apparel production, ensuring of social compliance issues, on-going new market exploration efforts, and most importantly, the governments supportive attitude towards it, etc. And all those strengths will certainly place it in an advantageous position to grab the lion share of the global apparel market.
The writers work at the Research and Development cell of BKMEA. They can be reached at sajibeconbd@gmail.com or pallab023@gmail.com
