Bangladesh is the world’s second largest clothing exporter. Furthermore, it is the second biggest clothing supplier to the EU and the third biggest clothing supplier to the USA. Between 2011/12 and 2017/18, Bangladeshi clothing exports grew by more than 60% to reach almost US$31 bn, which accounted for almost 85% of the country’s total exports.
The clothing industry’s development has been aided by government policies aimed at encouraging foreign investment and allowing private enterprise to take the leading role. The industry has set an ambitious clothing export target of US$50 bn for the country’s 2020/21 financial year. But to achieve this target, it will have to continue to tackle issues of occupational safety, regulatory compliance and labour rights
The export-oriented RMG sector in Bangladesh started as a small non-traditional export sector in the late 1970s. Within three decades, RMG has transformed itself into the country’s highest revenue generating sector, contributing 81.2 percent of Bangladesh’s total exports. From spinning to weaving, from knitwear to leisurewear and high street fashions, the textiles and clothing industry designs and produces for the world’s leading brands and retailers. This rapidly growing sector of the Bangladeshi economy offers a unique competitive edge that supports profitable expansion into new strategic markets.
Bangladesh is located in South Asia and shares its borders with India and Myanmar and impendence in 1971. The Bangladesh economy is helped by its big readymade garment (RMG) industry sector, which contributes more than two-thirds of the country’s trade.
Trade Policy Environment and Market Access:
Upon receiving membership with World Trade Organization (WTO), the government has liberalized the trade regime and significantly reduced non tariff restrictions. Bangladesh is the founder member of South Asian Association for Regional Cooperation (SAARC) that creates South Asian preferential trade arrangement and in latest South Asian Free Trade Area, 2005. Bangladesh is also the member of many International economic and trade blocks like, OIC, ICC, ISO, G-77 and BIMSTEC. As a least developed country, Bangladesh has duty free access to EU market under its Everything but Arms (EBA). Bangladesh also signed Trade Agreement with India and China. Bangladeshi products receive duty market access to Canada. Currently, Bangladesh is negotiating with USA for duty free market access under Trade and Investment Facilitation Agreement (TIFA
Investment Climate and Incentives :
The primary attraction is Bangladesh’s gas reserves. Other areas of attraction for investment are container ports, airport, hotel, composite textile mills, etc. Among the main home countries of FDI are the United States, Japan, Malaysia, the republic Korea, Singapore, India, China and the United Kingdom. Policy regime for foreign Direct Investment in Bangladesh is hopefully best in South Asia. Foreign investors in Bangladesh have access to the capital market and free to invest in the thrust export sectors. Cash incentives, ventures capital and other facilities are provided to these thrust sectors. The industrial policy, special economic zones policy and Public-Private Partnership model of the government provide extensive incentives and facilities to attract FDI in Bangladesh. These includes tax holiday, concession in import duty on machinery, repatriation of profits dividends, invested capital and capital gain and salaries of foreign personal and exemption of export oriented industries from paying local taxes, up-to 90% financing of labor cost value of export.
Legal and Regulatory Framework :
Bangladesh boosts a business friendly investment regime. Recently, more flexible rules and policies have been implemented to attract foreign investment. Over recent years the government has opened up to private investment and more liberal foreign investment policies have been adopted, liberalized measures have included earlier insurance of work permits for foreign national reduced approval time for new investments, relaxation of the foreign exchange control act
Cost of Doing Business and Economic Freedom :
According to a Survey of the Economist-risk factors for FDI in Bangladesh are minimum compared to many other countries of this region. Cost of living is also quite low and reasonable and there are no communal or ethnic problems. Working capital loan as well as term loan from local commercial banks allowed to the industries setup with foreign capital. Bangladesh has eliminated licensing system and simplified government approval procedure for investment. Cost of doing business in Bangladesh
Skills Level and Their Availability :
Bangladesh work force is one of the country’s principal assets that attract enthusiasm of both foreign and domestic business people with some qualification. Workers in Bangladesh are seen as enthusiastic, flexible, hard working and trainable, but they are poorly trained. There are vocational institutes at district level across the country offering trade courses for skill development; however, they do not offer training courses on garment manufacturing to the young poor girls and boys who migrated from rural areas for jobs. A good number of training institutes offer training on apparel merchandising, but not for the workers. However, informal small scale training institutes offer training to these workers in cities.
Overview of Textile and Garment Industry Sector in Bangladesh :
Bangladesh’s textile and apparel industries have successfully overcome challenges and are now flourishing despite the ongoing global recession and stiff competition with a number of countries with strong backward linkage industries. Big exporting countries like China and India have recorded slowdowns or declines in export in recent months, following double-digit expansion over a prolonged period. Other economies like those of Malaysia, Thailand, the Philippines and Cambodia are also experiencing decline in their exports of textiles and garments due to the economic meltdown in North America and Europe. In contrast, exports of textile products from Bangladesh remain surprisingly quite buoyant. Recently, Bangladeshi exports of apparel and textile products in the U.S. market surpassed those of India.
Cotton Sub-Sector :
Cotton is the main raw for yarn production while production of cotton in Bangladesh has very limited profit margin due to limited land. Bangladesh is almost entirely dependent on imports to meet rapidly growing demand for raw cotton. Domestic production of raw cotton can hardly meet 2% of its demand of the country. More than 40% of raw cotton imports are meant for the export oriented RMG sector.
Uzbekistan continues to be the principal supplier of raw cotton in Bangladesh, enjoying 50% market share due to competitive prices and a short delivery period. India has also emerged as a major supplier of raw cotton (16%) due to its price competitiveness and geographical proximity. Bangladesh also imports raw cotton from African countries which is around 10%. Major African countries exporting raw cotton to Bangladesh are USA, Zimbabwe, Zambia, Nigeria, Chad, Burkina Faso, Cameron, Uganda, and Egypt.
The total demand for yarn is more than 21 lakh tones in the sector. Of the amount, nearly 30 percent is imported, mainly from India, China, Vietnam and Pakistan. Cotton import in Bangladesh has been increasing between 20 and 25 percent over the last few years, Last fiscal year, Bangladesh imported nearly 70 lakh bales [480 pounds make a bale], , adding that the quantity will increase 25 percent this year. Bangladesh’s 430 spinners can supply nearly 90 percent of the demand for yarn from the knitwear sector and 35 percent from the woven sector. As a result, Bangladeshi woven garment manufacturers import fabrics worth more than $6 billion from countries like China, India, Vietnam and Pakistan. Raw cotton consumption is projected to increase to 6.7 million bales in fiscal 2017-18 on stronger sales of garment and other value-added products in domestic and foreign markets as well.
Major readymade garments exported from Bangladesh are made of polyester filament fabrics, man-made filament mixed fabrics, PV fabrics, viscose filament fabrics and man-made spun yarns. There are only a few weaving mills in Bangladesh offering a sufficient quality standard for exports and consequently the majority of fabrics that are used for woven garments exports has to be imported. This means higher purchasing costs, stronger dependence on an external supplier and also pricing disadvantages due to higher import duties on the EU markets . The existing weaving capacity in Bangladesh can meet only about 40 percent of fabric demand. Despite a remarkable growth in backward linkage industries, the country’s current demand supply gap of fabric is about 50 percent in terms of cotton-based uses and around 25 percent in terms of non-cotton based uses in RMG sector. As the exports have increased in the knitwear sector, the capacity of backward linkage has also gradually increased accordingly. The result is that local suppliers can provide 90% of the total fabric requirement of the knitwear sub-sector sector.
The spinning sub-sector has been witnessing robust growth over the past decade due to growing demand for yarn from both the domestic textile market and production of fabrics for the export-oriented readymade garment (RMG) industry.
As mentioned above, the self-sufficiency of garment production in Bangladesh is quite high in knitwear (approximately 80%), whereas the woven garments sector only has a self sufficiency of 40%. Spinning and weaving mills commissioned in recent years are capable to supply quality yarns and fabrics required for the export oriented RMG sector but typically at 10-12 percent higher price compared to those sourced from China and India.
At present, there are 400 modern textile weaving factories in Bangladesh with an annual capacity to produce 1,600 million meters of woven fabrics for the export-oriented ready made garment industries. However, this volume of production of woven fabrics meets only 40% demand of the country’s ever growing readymade garment industries. These modern textile factories employ around 80,000 workers. Apart from these weaving factories, there are also 1,065 specialized textile and power-loom factories in Bangladesh producing around 400 million meters of woven fabrics for the export as well as local market. Around 45,000 workers are employed in this sub-sector of the country textile sector. Most of Bangladesh’s woven apparel exports use 50-70% of imported contents even though the textile sector also continuously increasing their production capacity over the last decade however not with the same pace like the apparel sector.
In the 1980s, the RMG industry of Bangladesh was concentrated mainly in manufacturing and exporting woven products. From early 1990s, the knit sub-sector has started expanding. Shirts, T-shirts, trousers, sweaters and jackets are the main products manufactured and exported by the industry. Bangladeshi knitwear is exported to over 100 countries of the world and has passed the target. Bangladesh is now the number three exporter of knitwear to the EU countries after China and Turkey and is gaining momentum due to its self-sufficiency and competitive workforce and strength in backward linkage industry. The growth of spinning mills has also been in step with the growth of knitwear exports. To date, the total investment in the backward linkage industry is more than US$ 2.00 billion. Bangladesh’s knitwear industry is growing at over 15% per annum. The volume of knitting industries increased about 10 times faster than the pre-liberation period, and it is continuing to grow simultaneously with the demand of RMG sector. Currently, there are about 2,800 knitting units, producing about 1,500 million meters of fabrics per year. Accordingly, consumption of yarn by the knitting sector is also increasing rapidly which ultimately encourages entrepreneurs to set-up new spinning mills quickly to meet the huge demand. There are 800 knitting factories producing 3,600 million meters of knit fabrics annually to meet the demand of export-oriented readymade garment industries. There are also around 2,000 hosiery factories in Bangladesh producing 500 million meters knit fabrics for the local market.
The product range of handloom is simply amazing and includes Muslin Jamdani Sharees, Bedcovers, Bed sheets, Tapestry, Upholstery, Place mats, Rugs or Blankets, Satranji, Crochet, Muslin, Tribal textiles, Silk fabrics, Sofa covers, Block Prints, Table cloth and Napkins, Towels, Dusters, Kitchen towels, Gents, Ladies and Baby Wear and Shirts, Punjabis, and other household linen in printed, plain or embroidered Khadi. There are around 500,000 handlooms in Bangladesh with the capacity to produce 850 million meters fabrics. However, only around 150,000 handlooms (30%) of the country are in operation. The handloom sub-sector are facing manifold constraints, the major ones are lack of yarn and working capital.
Dyeing, Printing and Finishing Sector:
Dyeing, printing, and finishing, the final steps in the textile industry, are also the most complicated processes. This is the final stage where the fabric either can be used for domestic or RMG sub-sector for export purposes. Dyeing, printing and finishing units in Bangladesh are currently able to process all the locally produced grey fabrics. According to Bangladesh Textile Mills Association (BTMA), the dyeing, printing and finishing sub-sector has 130 mechanized and 180 semi-mechanized units with production capacity of 1,600 million meters and 120 million meters of fabrics per annum respectively. However, the majority of dyeing, printing, and finishing units that are producing fabric suitable for export are heavily dependent on imported woven grey fabric. Due to sector restrictions on import of woven gray fabrics, the woven sub-sector industry has not flourished like knit sub-sector, where they use locally produced knit fabrics for dyeing and finishing.
Lead Time or Delivery Period :
For woven garments, the production lead time based on locally sourced raw materials ranges from 90-120 days. However, it is much lesser in case of knitwear exports since Bangladesh has full range of backward linkage supports except raw cotton. Again, if the garment is produced using imported raw materials the production lead time is at its higher level i.e. 120 days. Factories sometimes fail to meet the shipment deadline due to uncertain situation like labor unrest, lower productivity and weak sourcing and management practices and eventually, they avail air shipment at a higher cost.
Value Chain of Textile and Garments in Bangladesh:
The garment industry of Bangladesh initially concentrated mainly in manufacturing and exporting of woven products. Thereafter since 1990s, the knitwear section of the industry has started flourishing. Bangladesh exports its woven garments mainly to the USA, EU and Canada, however knitwear items are being exported to more than 70 countries in the world including these three major importing countries.
The Duty-free Advantage:
Bangladesh has Least Developed Country (LDC) status that qualifies it for duty-free market access or reduced tariff facilities to many developed and developing nations, globally. Bangladesh enjoys duty-free access to around 52 countries, including countries in the EU, Australia, Switzerland, Japan, Turkey, Russia, Norway, New Zealand, China, South Korea, Thailand, Malaysia, and India, for the trade of many products.
Bangladesh has also signed many trade deals offering Bangladesh exports a preferential treatment, like SAARC Preferential Trading Arrangement, Asia-Pacific Trade Agreement, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation, South Asian Free Trade Area, and the Trade Preferential System among the OIC member states.
Recent Benefit from US-China Trade War:
Donald Trump, the US President, has long been correlating US’s large trade deficit with China as a major cause for the country’s economic woes. In line with the president’s protectionist worldviews, US government has started imposing protectionist measures on import from major trading partners like China and Canada.
Bangladesh can directly benefit in the event of escalating trade war between US and China, especially if the US imposes higher tariffs on imported Chinese apparel. Alongside, Bangladesh can benefit from capital flight, as some Chinese apparel manufacturers would be seeking to relocate operations to a country having normal trade ties with the US.