DAWN - Business; 20 July, 1998
Bangladesh garments: the success story
From Syed Kamaluddin in Dhaka
THANKS to the quota system imposed by the industrialized world on the import of clothing from the Third World countries, Bangladesh has emerged as a major ready-made garment (RMG) exporter. This is a recent phenomenon.
The RMG sector made its debut in the country during FY 1977-78 (July-June) with only nine factories and a total export earnings of US$70,000. Twenty years later, in FY1997-98, RMG exports exceeded the US $3.5 billion mark.
The RMG sector has made a tremendous impact on the nation's socio-economic environment. It has generated employment for about 1.8 million woman workers, who mostly came from the rural areas. Above 90 per cent of the total workers in this industry are women. Once shy and non-descript, the village girls have been transformed into confident, smart and full-fledged earning members of their families.
Society has learnt to respect them. Their changed habit of dressing better, their penchant for using cheaper variety of perfume and other such materials to make them look attractive have also created a demand for a whole image of other products. Such spin-off effects, in turn, created new avenues for investment and more employment.
This trend is likely to continue for some years. According to a study made by the government's Textile Strategic Management Unit in 1996, the industry is expected to create additional 1.7 million jobs for the female workers by 2005. However, the scenario will change after that period, when the quota system would be withdrawn.
This phenomenal growth of the garment industry in Bangladesh has been possible by the system of quota in the textile industry under the multi-fibre agreement (MFA).
Otherwise, the country's fledgling textile industry, which suffered a major setback following the blanket nationalization of all industries soon after emergence of Bangladesh could not have made any headway against tough competition from other, more advanced developing states like Hongkong, South Korea, China, Taiwan, India, Thailand and Pakistan. This relative advantage is going to end in the year 2005 when the quota system would be withdrawn and a free-for-all competition would ensue. Only the finest will survive.
According to Dr Syed Tanvir Ahmed, coordinator of the Textile Management Unit, the 1996 study pointed out that the GATT agreement will increase the share of Bangladesh textile in the world trade.
"But Bangladesh will have to compete with textile produced abroad even in its domestic market, an import bans and all sorts of restrictions will be withdrawn by the year 2005". Bangladesh can take the advantage of increased market access if it can produce textile items competitively at home through the establishment of backward linkage with RMG industry, it suggested.
After 2005, it says, it would be difficult for Bangladesh to procure fabrics from other supplying countries, as they will then increase their own RMG exports, using their own fabrics. If the country failed to develop backward linkage industries, the export market of Bangladesh garments will, in the long run, be lost, the report added.
The study, which was presented at a seminar in Dhaka in August 1996, predicted: "Unless a well-equipped and modern backward linkage is established with a view to producing cost effective, quality fabrics, Bangladesh will face a serious challenge in the coming decade".
Despite an otherwise lacklustre economic performance during FY1997-98, the country achieved an impressive 17 per cent export growth compared to FY1996-97. This was possible because of a healthy growth in the RMG sector which accounts for nearly 70 per cent of the total exports. However, this vital industry depends almost 90 per cent on imported fabrics.
The World Trade Organization (WTO), which was established after the successful conclusion of the prolonged negotiations under the GATT (Uruguay Round), Bangladesh like the rest of the world, was informed that it would have 10 years, from 1995 to 2005, to plan and develop the required backward linkages to its garment industry.
After the expiry of this period, no quota system will exist and everyone will be on his/her own in this competitive world.
The RMG sector, which includes both clothing and knitwear, accounts for about 70 per cent of the country's total export earnings. But its total value-addition is only about 30 per cent. This means, 70 per cent of the materials required by the Industry, are being imported value-addition in the knitwear sector, according to the former President of the Dhaka Chamber of Commerce and Industry (DCCI), A.S.M. Quasem, who is also a major RMG exporter, is much higher, about 70 per cent. During FY97-98, the earnings through knitwear exports was about $900 million.
Nearly 85-90 per cent of all accessories, such as buttons, sewing threads, packaging materials, labels (all kinds) are now being manufactured locally.
The only area which is lagging far behind is the textile manufacturing sector that includes spinning, weaving, dyeing, and finishing. Although the political leaders of both the BNP and the Awami League variety (the latter being in power now) have been making a lot of noise about "doing everything in support of this industry", nothing that has happened could be described as satisfactory. Meanwhile, three out of 10 years of the grace period (1995-2005) have already gone by without the national leaders noticing it.
The industry, it appears, is far from ready to enter the competitive world of 2005. And judging by the follow-up measures adopted by the administration over the recent past, it does not seem that any coordination and continuity of policy exists.
Two government-sponsored seminars, held in August 1996 and April 1997 in cooperation with the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) and ESCAP respectively, suggested different level of investment required to establish the garment sector's backward linkage facilities. The 1996 seminar suggested the ending quoted taka 30 billion, (about US$6.8 billion) worth of investment while in about eight months later, another seminar thought an investment of taka 145 billion (a little over $3 billion) would be good enough. Industry sources, however, found such divergent indications devoid of any logic.
To establish the backward linkage facilities for the clothing sector one has to go for much larger investment. Lack of adequate funds at the disposal of the prospective private investors, industry sources claim, has been the sole impediment to develop this linkage.
A knitwear fabric manufacturing plant does not require such larger involvement that explains the successes achieved in this area. Joint venture projects between some of the loss-making state-owned enterprises (SOEs) in textile sector) and foreign partners could have been a possibility. Such SOEs with ready available and developed infrastructure facilities, such as land, gas, and power supplies, communication etc., could attract overseas investors.
Of course, separate arrangements for the workers and the local management staff of such units would have to be made to make such a deal viable. But the concerned government agency perhaps never thought of trying its hand in this area.
Regardless of policy contradictions, some of the better known business houses have gone into textile sector in a big way. They have gone into all sub-sectors, - spinning, weaving, dyeing and finishing. According to the former president of the FBCCI, Salman Rahman, Bangladesh textile sector has a captive export market (RMG sector) of US$2 billion and a local market of US$1 billion.
Meanwhile, over the last year, quota to export shirts to Canada (Category 6) has been withdrawn, providing an excellent opportunity to the Bangladesh shirt exporters to prove their ingenuity and efficiency in an open, competitive world. The Bangladesh Garments Manufacturers' and Exporters' Association (BGMEA), known to be a good functional organization, has somehow failed to monitor how the exports of shirts from Bangladesh to Canada has been faring in the last one year since the withdrawal of the quota on the item.
A casual enquiry has revealed that BGMEA officials generally believe, without any concrete evidence, that shirt exports to Canada has been on the decline. It may well be, but they don't have any evidence to support this belief.
However, the New Age Group, a dynamic but small, compared to the Sinha Group, has a different story to tell. The Group's chairman A.S.M. Quasem, an engineer by training, says his exports of this particular category to Canada has almost doubled since the withdrawal of the quota. Some other exporters may have achieved similar or even more spectacular results, but the BGMEA has no clue.