Emergence of the global market has heightened the role of trade in world economy and made industrialization as an integral system of global trade and production.
Executive summary
Emergence of the global market has heightened the role of trade in world economy and made industrialization as an integral system of global trade and production. Bangladesh economy at present is more globally integrated than at any time in the past. The MFA phase-out will lead to more efficient global realignments of the textile and clothing industry. After the introduction of Agreement on Textile and Clothing (ATC), the RMG industry of Bangladesh is facing new and unique challenges. The phase out was expected to have a negative impact on the economy of Bangladesh. But recent data reveals that Bangladesh absorbed the shock successfully and indeed RMG exports grew significantly. Due to a number of steps taken by the industry (e.g., successful in diversifying products and markets, increased backward integration, high level of investment, and supportive policy regime), Bangladesh still remains competitive in RMG exports even in this post phase-out period. But much more needs to be done (e.g., removal of structural impediments, establishment of training and research institute, sharing of knowledge and technology) in order to maintain the competitiveness in the global RMG market.
Over View of Bangladesh Economy:
According to the IMF list of 2007, Bangladesh ranked as the 48th largest economy in the world. The economy has grown 6-7% over the past few years despite inefficient state-owned enterprises, delays in exploiting natural gas resources, insufficient power supplies, and slow implementation of economic reforms. Bangladesh remains a poor, overpopulated, and inefficiently-governed nation. Although more than half of GDP is generated through the service sector, nearly two-thirds of Bangladeshis are employed in the agriculture sector, with rice as the single-most-important product. Garment exports and remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, fuel economic growth. Although one of the world’s poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production.Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk, and that food security is at risk for 45% of the population. Bangladesh’s predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving at a very fast rate, infrastructure to support transportation, communications, and power supply is poorly developed.
Economic history
East Bengal–the region that was to become East Pakistan and later Bangladesh – was a prosperous region of South Asia until modern times.It had the advantages of a mild, almost tropical climate, fertile soil, ample water, and an abundance of fish, wildlife, and fruit. The standard of living compared favorably with other parts of South Asia. As early as the thirteenth century, the region was developing as an agrarian economy It was not entirely without commercial centers, and Dhaka in particular grew into an important entrepôt during the Mughal Empire. The British, however, on their arrival in the late eighteenth (18th) century, chose to develop Calcutta as their commercial and administrative center in South Asia. The development of East Bengal was thereafter limited to agriculture. The adminstrative infrastructure of the late eighteenth and nineteenth centuries reinforced East Bengal’s function as the primary producer–chiefly of rice and jute–for processors and traders in Calcutta and beyond. Some of the same factors that had made East Bengal a prosperous region became disadvantages during the nineteenth and twentieth centuries. As life expectancy increased, the limitations of land and the annual floods increasingly became constraints on economic growth. Traditional agricultural methods became obstacles to the modernization of agriculture. Geography severely limited the development and maintenance of a modern transportation and communications system.
The partition of British India and the emergence of India and Pakistan in 1947 severely disrupted the former colonial economic system that had preserved East Bengal (now Bangladesh) as a producer of jute and rice for the urban industrial economy around Calcutta. East Pakistan had to build a new industrial base and modernize agriculture in the midst of a population explosion. The united government of Pakistan expanded the cultivated area and some irrigation facilities, but the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with rural population increase. Pakistan’s five-year plans opted for a development strategy based on industrialization, but the major share of the development budget went to West Pakistan, that is, contemporary Pakistan. The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payments problem. Without a substantial industrialization program or adequate agrarian expansion, the economy of East Pakistan steadily declined. Blame was placed by various observers, but especially those in East Pakistan, on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan.
Following the violent events of 1971 during the fight for independence, the highest rural population density in the entire world, an annual population growth rate between 2.5 and 3 percent, chronic malnutrition for perhaps the majority of the people, and the dislocation of between 8 and 10 million people who had fled to India and returned to independent Bangladesh by 1972. The new nation had few experienced entrepreneurs, managers, administrators, engineers, or technicians. There were critical shortages of essential food grains and other staples because of wartime disruptions. External markets for jute had been lost because of the instability of supply and the increasing popularity of synthetic substitutes. Foreign exchange resources were minuscule, and the banking and monetary system was unreliable. Although Bangladesh had a large work force, the vast reserves of undertrained and underpaid workers were largely illiterate, unskilled, and underemployed. Commercially exploitable industrial resources, except for natural gas, were lacking. Inflation, especially for essential consumer goods, ran between 300 and 400 percent. The war of independence had crippled the transportation system. Hundreds of road and railroad bridges had been destroyed or damaged, and rolling stock was inadequate and in poor repair. The new country was still recovering from a severe cyclone that hit the area in 1970 and cause 250,000 deaths. India, by no means a wealthy country and without a tradition of giving aid to other nations, came forward immediately with massive economic assistance in the first months after the fighting ended. Between December 1971 and January 1972, India committed US$232 million in aid to Bangladesh, almost all of it for immediate disbursement.
Bangladeshi leaders slowly began to turn their attention to developing new industrial capacity and rehabilitating its economy. The static economic model adopted by these early leaders, however–including the nationalization of much of the industrial sector–resulted in inefficiency and economic stagnation. Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. A few state-owned enterprises have been privatized, but many, including major portions of the banking and jute sectors, remain under government control. Population growth, inefficiency in the public sector, resistance to developing the country’s richest natural resources, and limited capital have all continued to restrict economic growth.
Economic outlook
Efforts to achieve Bangladesh’s macroeconomic goals have been problematic mostly due to corruption within the government. The privatization of public sector industries has proceeded at a slow pace–due in part to worker unrest in affected industries–although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country’s largest and most costly state-owned enterprise. The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded. State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%.
The IMF and World Bank predict GDP growth over the next 5 years will be about 6.5%, well short of the 9-10% needed to lift Bangladesh out of its severe poverty. The initial impact of the end of quotas under the Multi-Fiber Arrangement has been positive for Bangladesh, with continuing investment in the ready-made garment sector, which has experienced annual export growth in excess of around 20%. Downward price pressure means Bangladesh must continue to cut final delivered costs if it is to remain competitive in the world market. Foreign investors in a broad range of sectors are increasingly frustrated with the politics of confrontation, the level of corruption, the slow pace of reform and privatisation and deregulation of the public sector and the lack of basic infrastructure e.g. roads. While investors view favorably recent steps by the interim government to address corruption, governance, and infrastructure issues, most believe it is too early to asepses the long-term impact of these developments.
Agriculture
Map showing the growing areas of major agricultural products.
Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, maize and vegetables are assuming greater importance. Due to the expansion of irrigation networks, some wheat producers have switched to cultivation of maize which is used mostly as poultry feed. Tea is grown in the northeast. Because of Bangladesh’s fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh’s labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks. With 28.8 million metric tons produced in 2005-2006 (July-June), rice is Bangladesh’s principal crop. By comparison, wheat output in 2005-2006 was 9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. Underemployment remains a serious problem, and a growing concern for Bangladesh’s agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force. Manufacturing & Industry
Many new jobs – mostly for women – have been created by the country’s dynamic private ready-made garment industry, which grew at double-digit rates through most of the 1990s. By the late 1990s, about 1.5 million people, mostly women, were employed in the garments sector. During 2001-2002, export earnings from ready-made garments reached $3,125 million, representing 52% of Bangladesh’s total exports.
Eastern Bengal was known for its fine muslin and silk fabric before the British period. The dyes, yarn, and cloth were the envy of much of the premodern world. Bengali muslin, silk, and brocade were worn by the aristocracy of Asia and Europe. The introduction of machine-made textiles from England in the late eighteenth century spelled doom for the costly and time-consuming handloom process. Cotton growing died out in East Bengal, and the textile industry became dependent on imported yarn. Those who had earned their living in the textile industry were forced to rely more completely on farming. Only the smallest vestiges of a once-thriving cottage industry survived. Other industries which have shown very strong growth include the chemical industry, steel industry, mining industry and the paper and pulp industry.
The stock market capitalisation of the Dhaka Stock Exchange in Bangladesh crossed $ 10 billion in November 2007 and the $15 billion dollar mark. Major investment from foreign investors have led to a massive building boom in Dhaka and Chittagong.
Bangladesh’s textile industry, which includes knitwear and ready-made garments along with specialised textile products, is the nation’s number one export earner. The sector, which employs 2.2 million workers, accounted for 75 per cent of Bangladesh’s total exports of US$10.53 billion in FY2005-06, in the process logging a record growth rate of 24.44 per cent. However, since May 2006 the industry has been plagued by on-going industrial unrest, as textile workers, who are among some of the most lowly paid in the world, have staged regular violent demonstrations in a bid to achieve a higher minimum wage, regular rest days and safer working conditions. Following the worst of the unrest in late May, which saw at least one worker killed as police shot live rounds at protesters, the government formed a Wage Commission, ordering it to report on a suitable new minimum wage in three months.
The Commission, which included business and worker representatives finally released its conclusions on October 9, recommending the wage be set at Tk1,662.50, up from the current level of Tk950, but far below initial worker demands for Tk3,000. After initially condemning the unrest as the work of outsiders attempting to capture the nation’s share of global markets, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders appear to have finally accepted the need to raise wages.
Economy of Bangladesh
| Economy of Bangladesh | |
| Currency | Bangladesh Taka (BDT) |
| Fiscal year | 1 July – 30 June |
| Trade organizations | WTO, SAFTA, D8 |
| Statistics | |
| GDP (PPP) | $208.6 billion (2007 est.) |
| GDP growth | 6.5% (2007 est.) |
| GDP per capita | $1,400 (2007 est.) |
| GDP by sector | Agriculture (19%), industry (28.7%), services (53.7%) (2007 est.) |
| Inflation (CPI) | 10.11% (2008 est.) |
| Population
below poverty line |
41.3% (2007 est.) |
| Labour force | 69 million (2006 est.) |
| Labour force
by occupation |
Agriculture (65%), industry (25%), services (10%) (2005 est.) |
| Unemployment | 2.4% (2008) |
| Main industries | jute manufacturing, cotton textiles, garments, tea processing, paper newsprint, sugar, light engineering, chemical, cement, fertilizer, food processing, iron and steel |
| External | |
| Exports | $14.11 billion (2007 est.) |
| Export goods | garments, jute and jute goods, leather, frozen fish and seafood |
| Main export partners | US 31.8%, Germany 10.9%, UK 7.9%, France 5.2%, Netherlands 5.2%, Italy 4.42% (2000) |
| Imports | $21.6 billion (2007) |
| Import goods | machinery and equipment, chemicals, iron and steel, raw cotton, food, crude oil and petroleum products, |
| Main import partners | India 10.5%, EU 9.5%, Japan 9.5%, Singapore 8.5%, China 7.4%(2004) |
| Gross External Debt | $21.23 billion (31 December 2007 est.) |
| Public finances | |
| Public debt | $1.2 billion (June 2005 est.) |
| Revenues | $8 billion (2007 est.) |
| Expenses | $9 billion (2007 est.) |
| Economic aid | $1.575 billion (2000 est.) |
| Main data source: CIA World Fact book | |
Major Export Item And Receipt:
Over View of Garments Industry:
Industry Large-scale production of readymade garments (RMG) in organized factories is a relatively new phenomenon in Bangladesh. Until early sixties, individual tailors made garments as per specifications provided by individual customers who supplied the fabrics. The domestic market for readymade garment, excepting children wears and men’s knit underwear (genji) was virtually non-existent in Bangladesh until the sixties. Since the late 1970s, the RMG industry started developing in Bangladesh primarily as an export-oriented industry although; the domestic market for RMG has been increasing fast due to increase in personal disposable income and change in life style. The sector rapidly attained high importance in terms of employment, foreign exchange earnings and its contribution to GDP. In 1999, the industry employed directly more than 1.4 million workers, about 80% of whom were female. With the growth of RMG industry, linkage industries supplying fabrics, yarns, accessories, packaging materials, etc. have also expanded. In addition, demand for services like transportation, banking, shipping and insurance has increased. All these have created additional employment. The total indirect employment created by the RMG industry in Bangladesh is estimated to be some 200,000 workers. In additions to its economic contribution; the expansion of the RMG industry has caused noticeable social changes by bringing more than 1.12 million women into labour force. The economic empowerment of these working girls/women has changed their status in the family. The attractive opportunity of employment has changed the traditional patriarchal hegemony of the fathers, brothers and husbands. Most working women/girls can now chose when to get married or become mothers. The number of early marriages is decreasing; so is the birth rate; and the working girls tend to send their little bothers and sisters to school, as a result, the literacy rate is increasing. They can participate in family decision-making. Most importantly, the growth of RMG sector produced a group of entrepreneurs who have created a strong private sector. Of these entrepreneurs, a sizeable number is female. A woman entrepreneur established one of the oldest export-oriented garment factories, the Baishakhi Garment in 1977. Many women hold top executive positions in RMG industry. The RMG industry is highly dependent on imported raw materials and accessories because Bangladesh does not have enough capacity to produce export quality fabrics and accessories. About 90% of woven fabrics and 60% of knit fabrics are imported to make garments for export.
The industry is based primarily on sub-contracting, under which Bangladeshi entrepreneurs work as sub-contractors of foreign buyers. It has grown by responding to orders placed by foreign buyers on C-M (Cut and Make) basis. During its early years, the buyers supplied all the fabrics and accessories or recommended the sources of supply from which Bangladeshi sub-contractors were required to import the fabrics. However, situation has improved. At present, there are many large firms, which do their own sourcing. The hundred percent export-oriented RMG industry experienced phenomenal growth during the last 15 or so years. In 1978, there were only 9 export-oriented garment manufacturing units, which generated export earnings of hardly one million dollar. Some of these units were very small and produced garments for both domestic and export markets. Four such small and old units were Reaz Garments, Paris Garments, Jewel Garments and Baishakhi Garments. Reaz Garments, the pioneer, was established in 1960 as a small tailoring outfit, named Reaz Store in Dhaka. It served only domestic markets for about 15 years. In 1973 it changed its name to M/s Reaz Garments Ltd. and expanded its operations into export market by selling 10,000 pieces of men’s shirts worth French Franc 13 million to a Paris-based firm in 1978. It was the first direct exporter of garments from Bangladesh. Desh Garments Ltd, the first non-equity joint-venture in the garment industry was established in 1979. Desh had technical and marketing collaboration with Daewoo Corporation of South Korea. It was also the first hundred percent export-oriented company. It had about 120 operators including 3 women trained in South Korea, and with these trained workers it started its production in early 1980. Another South Korean Firm, Youngones Corporation formed the first equity joint-venture garment factory with a Bangladeshi firm, Trexim Ltd. in 1980. Bangladeshi partners contributed 51% of the equity of thee new firm, named Youngones Bangladesh. It exported its first consignment of padded and non-padded jackets to Sweden in December 1980.Within a short period, Bangladeshi entrepreneurs got familiar with the world apparel markets and marketing. They acquired the expertise of mobilizing resources to export-oriented RMG industries. Foreign buyers found Bangladesh an increasingly attractive sourcing place. To take advantage of this cheap source, foreign buyers extended, in many cases, suppliers’ credit under special arrangements. In some cases, local banks provided part of the equity capital.
The problem of working capital was greatly solved with the introduction of back-to-back letter of credit, which also facilitated import of quality fabric, the basic raw material of the industry. The government assigned high priority to the development of RMG industry.
Till the end of 1982, there were only 47 garment manufacturing units. The breakthrough occurred in 1984-85, when the number of garment factories increased to 587. The number of RMG factories shot up to around 2,900 in 1999. Bangladesh is now one of the 12 largest apparel exporters of the world, the sixth largest supplier in the US market and the fifth largest supplier of T-shirts in the EU market. The industry has grown during the 1990s roughly at the rate of 22%. In the past, until 1980, jute and jute goods topped the list of merchandises exported from Bangladesh and contributed more than 50% of the total export earnings. By late 1980s, RMG exports replaced jute and jute goods and became the number one in terms of exports. In 1983-84, RMG exports earned only $0.9 billion, which was 3.89% of the total export earnings of Bangladesh. In 1998-99, the export earnings of the RMG sector were $5.51 billion, which was 75.67% of the total export earnings of the country. The net foreign exchange earnings were, however, only about 30% of the figures quoted above because approximately 70% of foreign exchanges earned were spent in importing the raw materials and accessories to produce the garments exported. Both external and internal factors contributed to the phenomenal growth of RMG sector. One external factor was the application of the GATT-approved Multifibre Arrangement (MFA) which accelerated international relocation of garment production. Under MFA, large importers of RMG like USA and Canada imposed quota restrictions, which limited export of apparels from countries like Hong Kong, South Korea, Singapore, Taiwan, Thailand, Malaysia, Indonesia, Sri Lanka and India to USA and Canada. On the other hand, application of MFA worked as a blessing for Bangladesh. As a least developed country, Bangladesh received preferential treatment from the USA and European Union (EU). Initially Bangladesh was granted quota-free status. To maintain competitive edge in the world markets, the traditionally large suppliers/producers of apparels followed a strategy of relocating RMG factories in countries, which were free from quota restrictions and at the same time had enough trainable cheap labour.
They found Bangladesh as a promising country. So RMG industry grew in Bangladesh. By 1985, Bangladesh emerged as a strong apparel supplier and became a powerful competitor for traditional suppliers in the US, Canadian and European markets. Since 1986, Bangladesh has been increasingly subjected to quota restrictions by USA and Canada. RMG industry suffered setback in a number of countries in the 1980s. Some countries had internal problems, for example, Sri Lanka; and some other countries of Southeast Asia experienced rapid increase in labour cost. Buyers looked for alternative sources. Bangladesh was an ideal one as it had both cheap labour and large export quotas. The EU continued to grant Bangladesh quota-free status and GSP privileges. In addition, USA and Canada allocated substantially large quotas to Bangladesh. These privileges guaranteed Bangladesh assured markets for its garments in USA, Canada and EU. The domestic factor that contributed to the growth of RMG industry was the comparative advantage Bangladesh enjoyed in garment production because of low labour cost and availability of almost unlimited number of trainable cheap labour. The domestic policies of the government contributed to the rapid growth of this sector. The government provided various kinds of incentives such as duty-free import of fabrics under back-to-back L/C, bonded warehouse facilities, concessionary rates of interest, cash export incentive, export processing zone facilities, etc. The government also took a number of pragmatic steps to streamline export-import formalities. There are several weaknesses of the RMG industry of Bangladesh. Labour productivity in the RMG sector of Bangladesh is lower than many of its competitors. Bangladeshi workers are not as efficient as those of Hong Kong, South Korea and some other countries and in most factories, technologies used are not the latest. In addition to the fact that the industry is vulnerable because it is highly dependent on the imported raw materials, the infrastructure in the country is deplorably underdeveloped. Problems in power supply, transportation and communication create serious bottlenecks. Inadequate port facilities result in frequent port congestion, which delays shipment. All these increase the lead-time to process an order, i.e. the time from the date of receiving an order to the date of shipment. The application of MFA had negative impact on many garments exporting countries. The countries, which were adversely affected by quotas under MFA, created pressure to discontinue MFA by integrating textile and clothing industries into GATT system.
As a result, the Uruguay Round negotiations envisaged the phasing out of MFA by the end of 2004. With the phasing out of MFA, the position of Bangladesh in the world market will change as all countries including those under quota restrictions, will enjoy quota free status. Bangladesh will have to compete with a larger number of established and powerful suppliers of readymade garments. Bangladesh has taken some steps to face the new challenges. Such steps include removing infrastructural bottlenecks, building additional supply capacity, use of cost reduction strategy, and increase in value-addition through backward integration. For RMG sector, the backward linkages are weaving the fabric, spinning the yarn, and dyeing, printing and finishing operations.
Prospects of the RMG Industry:
Despite many difficulties faced by the RMG industry over the past years, it continued to show its robust performance and competitive strength. The resilience and bold trend in this MFA phase-out period partly reflects the imposition of ‘safeguard quotas’ by US and similar restrictions by EU administration on China up to 2008, which has been the largest supplier of textiles and apparel to USA. Other factors like price competitiveness, enhanced GSP facility, market and product diversification, cheap labour, increased backward integration, high level of investment, and government support are among the key factors that helped the country to continue the momentum in export earnings in the apparel sector. Some of these elements are reviewed below.
Market Diversification
Bangladeshi RMG products are mainly destined to the US and EU. Back in 1996-97, Bangladesh was the 7th and 5th largest apparel exporter to the USA and European Union respectively. The industry was successful in exploring the opportunities in markets away from EU and US. In FY06, a successful turnaround was observed in exports to third countries, which having a negative growth in FY05 rose three-fold in FY06, which helped to record 23.1 percent overall export growth in the RMG sector. It is anticipated that the trend of market diversification will continue and this will help to maintain the growth momentum of export earnings. At the same time a recent WTO review points out that Bangladesh has not been able to exploit fully the duty free access to EU that it enjoys. While this is pointed out to be due to stringent rules of origin (ROO) criteria, the relative stagnation in exports to EU requires further analysis.
Region-wise Share of RMG Export
| Year | Export Share to USA | Export Share to European Countries | Combined Share of USA & EU (%) | Export Share of Other Countries (%) |
| 2001-2002 | 42.67 | 55.43 | 98.10 | 1.90 |
| 2002-2003 | 38.02 | 57.12 | 95.14 | 4.86 |
| 2003-2004 | 28.64 | 65.42 | 94.06 | 5.94 |
| 2004-2005 | 30.64 | 64.24 | 94.88 | 5.12 |
| 2005-2006 | 33.67 | 49.77 | 83.43 | 16.57 |
Product Diversification
The growth pattern of RMG exports can be categorized into two distinct phases. During the initial phase it was the woven category, which contributed the most. Second phase is the emergence of knitwear products that powered the recent double digit (year-on-year) growth starting in FY04.
Growth Pattern of Woven and Knitwear Categories
| Year | Woven | Knitwear | Total RMG Export |
| 2002-03 | 4.28 | 13.34 | 7.16 |
| 2003-04 | 8.59 | 29.88 | 15.76 |
| 2004-05 | 1.70 | 31.26 | 12.87 |
| 2005-06 | 13.50 | 35.38 | 23.11 |
Source: Export Promotion Bureau (EPB)
In the globalize economy and ever-changing fashion world, product diversification is the key to continuous business success. Starting with a few items, the entrepreneurs of the RMG sector have also been able to diversify the product base ranging from ordinary shirts, T-shirts, trousers, shorts, pajamas, ladies and children’s wear to sophisticated high value items like quality suits, branded jeans, jackets, sweaters, embroidered wear etc. It is clear that value addition accrues mostly in the designer items, and the sooner local entrepreneurs can catch on to this trend the brighter be the RMG future.
| Year | Shirt | Jackets | T-Shirt | Trousers | Sweater |
| 2000-01 | 1067.22 | 570.33 | 593.87 | 652.44 | 474.04 |
| 2001-02 | 871.22 | 412.34 | 546.28 | 636.61 | 517.83 |
| 2002-03 | 1019.88 | 464.51 | 642.62 | 643.66 | 578.38 |
| 2003-04 | 1116.57 | 364.78 | 1062.11 | 1334.85 | 616.31 |
| 2004-05 | 1053.34 | 430.28 | 1349.71 | 1667.72 | 893.12 |
| 2005-06 | 1056.87 | 408.97 | 1781.51 | 2165.25 | 1042.61 |
Backward Integration
RMG industry in Bangladesh has already proved itself to be a resilient industry and can be a catalyst for further industrialization in the country. However, this vital industry still depends heavily on imported fabrics. After the liberalization of the quota regime some of the major textile suppliers Thailand, India, China, Hong Kong, Indonesia and Taiwan increased their own RMG exports.
If Bangladesh wants to enjoy increased market access created by the global open market economy it has no alternative but to produce textile items competitively at home through the establishment of backward linkage with the RMG industry. To some extent the industry has foreseen the need and has embarked on its own capacity building. The trend of back-to-back import has been declining over the years implying a rising contribution of domestic value addition (Figure 2). This is an optimistic indication that a well equipped and modern backward linkage industry may well prove cost effective and thus helping Bangladesh to meet the challenges in the post-MFA era.
Flow of Investment
It is plausible that domestic entrepreneurs alone may not be able to develop the textile industry by establishing modern mills with adequate capacity to meet the growing RMG demand. It is important to have significant flow of investment both in terms of finance and technology. Figure 3 indicates that the investment outlook in this sector is encouraging, although the uncertainties before the MFA phase-out period caused a sluggish investment scenario. In part the momentum in the post-MFA phase-out period is indicative of the efforts underway towards capacity building through backward integration. This is evident in the pace of lending to the RMG sector and in the rising import share of RMG related machinery. However further progress would be necessary to improve and sustain competitiveness on a global scale.
A Supportive Policy Regime
Government of Bangladesh has played an active role in designing policy support to the RMG sector that includes back-to-back L/C, bonded warehouse, cash incentives, export credit guarantee scheme, tax holiday and related facilities. At present government operates a cash compensation scheme through which domestic suppliers to export-oriented RMG units receive a cash payment equivalent to 5 percent of the net FOB value of exported garments. The FY04 budget also lowered the corporate income tax rate for the RMG industry from 30 to 10 percent for the period up to June 30, 2006. From FY05 the tax regime has been further changed, and a 0.25 percent tax at source will be deducted from the value of the export proceeds of Woven and Knitwear category. At the same time, income tax rate for textile manufacturers were reduced to 15 percent from its earlier level for the period up to June 30, 2008. The reduced tax rates and other facilities are likely to have a positive impact on the RMG sector.
Lead Time
‘Lead time’ is a crucial factor maintaining export competitiveness. Bangladesh happens to feature the longest lead time in the RMG world. The lead time for Bangladesh is 120 days on an average, while the corresponding period for Sri Lanka is about 19-45 days and for India it is only about 12 days. Various factors like the distance from major markets, importation of raw materials, port congestion, strikes, poor roads, etc. are some of the factors responsible for this. At present the fashion seasons are becoming short with a changing trend, it would not be possible to compete if the lead time extends beyond 30-40 days. Therefore, bringing down the ‘lead time’ to about 30-40 days is a major challenge for the country’s RMG sector. Clearly more business can be captured only if the lead time could be improved.
Infrastructural Impediments
The existence of sound infrastructural facilities is a prerequisite for economic development. In Bangladesh, continuing growth of the RMG sector is dependent on the development of a strong backward linkage in order to reduce the lead time. However, other factors constraining competitiveness of Bangladesh’s RMG exports included the absence of adequate physical infrastructure and utilities (e.g., transportation, telecommunication, stable power supply, efficient seaport, political tolerance, quality control and a smoothly functioning bureaucracy). According to a recent World Bank-IFC publication (2006) records that a businessman in Bangladesh needs 35 days to export and incurs USD 902 per container, whereas his counterpart in India requires 27 days and spends USD 864 per container. The comparable figures for Pakistan, Sri Lanka and Vietnam are 24 days and USD 996, 25 days and USD 797, and 35 days and USD 701, respectively.
Labor Productivity
The productive efficiency of labor is more important determinant for gaining comparative advantage than the physical abundance of labor. In Bangladesh, the garment workers are mostly women with little education and training. The employment of an uneven number of unskilled labors by the garment factories results in low productivity and comparatively more expensive apparels. Bangladesh labor productivity is known to be lower when compared with that of Sri Lanka, South Korea and Hong Kong SAR. Bangladesh must look for ways to improve the productivity of its labor force if it wants to compete regionally if not globally.
Cheap Labor Force
The strength of a firm depends on its specific comparative advantages, which its competitors do not possess. To date the local industry has flourished in spite of the challenges cited above (e.g., lead time, infrastructure, and bureaucratic red tape) on the back of cheap female labor. The wages paid to RMG workers in Bangladesh are the lowest even by the South Asian regional standard. Figure 4 illustrates the comparative average hourly wages in apparel industry of selected developed and developing countries.
Research and Training
The country has no dedicated research institute related to the apparel sector. RMG is highly fashion oriented and constant market research is necessary to become successful in the business. Here India has had a head start and Mumbai and Delhi are on line to become fashion centers on a global scale. At present whatever design work is done in the country, these are mostly carried out with foreign workers and experts. BGMEA has already established an institute which offers bachelor’s degree in fashion designing and BKMEA is planning on setting up a research and training institute. These and related initiatives need encouragement possibly intermediated by donor-assisted technology and knowledge transfer. A facilitating public sector role can be very relevant here.
Introducing HR Department:
Most of the garments in Bangladesh have no Human Resource Department. But it is a matter of regret that garments sector of Bangladesh mainly handle with people but here HR division is absence. HR professional can improve the garments sector by solving Human related problem.
Regarding future challenges, majority of entrepreneurs have mentioned about competition with China after 2008 when the safeguard measures against China will be lifted. Besides, implementation of the new wage structure could be a challenge for the sector, since cost of production will increase (Tk.9, 40,000 on average) through implementing the new wage structure. The highest level of burden would be on small knit enterprises, about 6.6 per cent, while the lowest would be on medium sweater enterprises (0.96 per cent) and large enterprises located in EPZ (0.24). Estimates show that with the new wage structure, about 5.3 percent enterprises would earn a negative profit (ranging between -14 per cent and -1 per cent). 7 percent would earn about a 3 per cent profit. During January-August, 2007 Government took a number of initiatives to improve management and worker related issues of the Chittagong port.
U.S. Retailers – US buyers are considering Bangladesh one of the major sources as JC Penny, Wall Mart, GAP, K -Mart and other big buyers are coming to Bangladesh and setting up offices. (New Age, 2004).Recently one of the garments of Bangladesh got order of Tk 100 cr from the Wal-Mart. In past these order goes to India, Thailand. In the quota free regime exports in US market may increase. This is because during the post-MFA period, a restriction was put on the volume of exports to US market.
Lifting of those restrictions would enable knitwear firms in Bangladesh to export as much their capacity allows them to. Bangladeshi knitwear firms, though has always focused on the European markets due to GSP facilities, should explore the US market, which provides a substantial customer base.
Price of Product:
Currently Bangladesh serves the lowest end needs of the foreign market by offering the lowest price as evidenced in the following table.
Average Price of RMG Imported in USA by Major Importers, 2007
| COUNTRY | MEN’S KNITTED SHIRTS | WOMEN’S SWEATERS | MEN’S WOVEN SHIRTS | MEN’S TROUSERS AND COTTON BREECHES |
| World | $ 6.14 | $ 7.84 | $ 6.77 | $ 8.94 |
| China | 9.35 | 9.36 | 8.20 | 9.49 |
| El Salvador | 4.23 | |||
| Guatemala | 4.79 | 7.55 | 8.79 | |
| Honduras | 4.67 | 5.44 | 8.99 | |
| Hong Kong | 10.99 | 9.65 | 8.52 | 10.24 |
| Indonesia | 8.18 | 6.60 | 8 | 9.20 |
| Bangladesh | 4.12 | 4.48 | 5.07 | 6.55 |
| Italy | 33.92 | 28.37 | 28.15 | |
| Malaysia | 9.03 | 9.74 | ||
| Mexico | 4.80 | 6.44 | 8.79 | |
| Pakistan | 5.30 | |||
| Philippines | 8.10 | 6.94 | 8.24 | 9.12 |
| South Korea | 6.14 | 6.76 | ||
| Sri Lanka | 8.10 | 5.57 | ||
| Taiwan | 8.77 | 8.68 | ||
| Thailand | 8.28 | 6.06 | ||
| Turkey | 5.83 | |||
| India | 6.52 |
In this chart we see that Bangladesh provides lowest price compare with other competitive countries like China, Thailand, India, Hong Kong, Sri Lanka, Indonesia, Hong Kong, Pakistan, Malaysia and Philippines. These prices of the product now become the most considerable for Bangladesh. If Bangladesh can maintain this competitive price it will be able to compete any type of barrier. So, we find here huge opportunities in export in low price.
FDI IN BANGLADESH:
A happier news for the nation is that Bangladesh places 65th position among 155
countries in terms of Ease of Doing Business in the world bank report. This ranking is based on 39 indicators grouped into 10 categories. It recognizes Bangladesh as one of the easiest location for doing business in south Asia, better than Sri Lanka and India. Besides, persistent growth in FDI is the best testimony of a favorable business climate prevailing in Bangladesh. (Doing Business in 2006: Creating Jobs, World Bank 2006)
In 2005, total FDI inflow in Bangladesh was increased by 84% amounting US$ 845
Million–highest ever in any year since her independence. The growth is second highest in entire South Asia (Bangladesh Investment Handbook 2007-BOI). Bangladesh now ahead of India in terms of FDI Performance Index being ranked 116th among 200 economies while India is ranked 119th (World Investment Report 2006). A component-wise analysis of FDI inflow in 2005 shows that about 50% of FDI came as equity, 29% as reinvestment, and the rest as intra-company borrowing. The higher reinvestment rate indicates unwavering confidence of foreign investors on overall investment climate of the country and competitiveness.
Table
FDI inflows from1995-2006 (US$ in million)
The table shows a fluctuating trend of the FDI inflows over the last 12 years. Data
reveals that in 1999 there was a sudden fall in the FDI, and again in 2001, 2002 and 2003 the falling trend continued for many reasons. Among others serious political unrest during the period was a major factor that discouraged foreign investment in these years and it took quite some time to regain the confidence of foreign investors. It stabilized afterwards but remained below the average achieved during 1997-2000. Later on during next two years period it becomes alive again. The following graphical presentation gives us clearer picture of the FDI inflows over the years.
Continued Interests of Foreign Investors
The recent year’s tremendous interests of foreign investors are shown to invest in
Bangladesh. In FY 2005-06, major foreign investors include Dhabi Group of United Arab Emirates, Singtel of Singapore, Orascom of Egypt, YKK of Japan and Microsoft of USA. Besides, a number of large investment proposals worth about US$ 10.5 billion are at negotiation and or approval stages. These include investment proposals from Tata Group of India, Toray of Japan, Indorama Group of Thailand, Luxon Global of South Korea, Delta Pacific Mining of United Kingdom, Dawood Group of Pakistan, Kingdom Group of Saudi Arabia and other proposals from China, Malaysia, India, Taiwan, UK, USA, Australia, Singapore, Thailand, Saudi Arabia, UAE and Kuwait.
Incentives for Foreign Investors
The foreign investors will choose Bangladesh for their next for investment destination
as Bangladesh conducted Bilateral Investment Agreement, Double Taxation, Treaties
etc. to protect the interest of foreign investors. The investors will also enjoy the following incentives investing Bangladesh.
1. Tax Exemptions: Generally 5 to 7 years. However, for power generation exemption is allowed for 15years
2. Duty: No import duty for export oriented industry. For other industry it is @5% ad valorem.
3. Tax law: Double taxation can be avoided in case of foreign investors on the basis of bilateral agreements. Exemption of income tax up to 3 years for the expatriate employees in industries specified in the relevant schedule of Income Tax ordinance.
4. Remittance: Facilities for full repatriation of invested capital, profit and dividend.
5. Exit: An investor can wind up on investment either through a decision of the AGM or EGM. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central Bank.
6. Ownership: Foreign investor can set up ventures either wholly owned on in joint collaboration with local partner.
Problems Regarding Trade Union:
A trade union or labour union is an organisation of workers who have bonded together to achieve common goals in key areas such as wages, hours, and working conditions, forming a cartel of labor. The trade union, through its leadership, bargains with the employer on behalf of union members (rank and file members) and negotiates labor contracts with employers. This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and policies.
Present Trade Union Condition:
There are 16 unions representing garment workers, according to the Democratic Workers Party “…the level of unionisation among workers is very low. Where unions are involved, they act more like extortionists, taking money from management to keep the employees in line while at the same time collecting dues from their members, with whom they have virtually no contact. Most of the unions have direct or indirect links with local and foreign NGOs, and receiving lucrative grants seems to be their main goal.” Most of the trade unions appear to be tools of one or other of the political parties, strikes being used more as vehicles for pursuing political goals against rival parties than improving workers’ conditions. The Nation Garment Workers Federation apparently is an exception to this, being a more grass-roots organisation, closer to an expression of workers’ self-organisation emerging from their own struggles. It would be too easy and simplistic to apply critiques of modern western business unions to such an organisation. 11 years ago the NGWF was an organisation with 3 workers paid a basic garment workers wage operating out of a shed in a workers slum. Working in conditions more similar for workers in Europe a century or two ago, basic organization for defence and improvement of working conditions is a matter, sometimes, of whether one starves or not. With rapid large-scale proletarianisation of rural workers in many parts of Asia (China, India etc) struggles for unionisation are likely to follow. How institutionalised and bureaucratised organs like the NGWF might have become is unclear at present, and will be partly determined by their success as negotiators. One can predict that official recognition, with a greater budget and status to manage and protect, would accelerate that process.
NGWF was at one time (though apparently no longer) in an alliance with the BGWUC , which has recently shown an eagerness to promise an obedient workforce to the bosses. Though organising trade unions was banned by employers in the EPZs, this is changing, as one of the concessions won by the revolt. This is anyway a convenient concession for the bosses; a Bill is being introduced into the US Senate which, if passed, would ban all imports produced in sweatshops. This is a form of US trade protectionism and corporate image management expressed as concern for workers’ conditions. The Bill would penalise Bangladesh, Jordan etc and America’s big rival China in, for example, the garment industry, by attempting to undercut their present advantage of cheaper labour costs.
Political linkage: In most of the cases we see that types of scenario that, Trade unions are influenced by political parties and politicians. Most of the time, politicians use the trade unions for political and self- seeking purpose. In this view, trade unions are not work independently and can not server the interest of their workers in RMG sector.
Poor organizational Strength: The strength of the trade unions in the RMG sectors in Bangladesh is very weak due to the unemployment problem. The employer can fire any worker at any time if they protest for their demands because in our country manpower supply is very high. In this point of view, commitment is less on the perspective of employers regarding any cases.
Little economic strength:
Bangladesh is a developing country for that reason economic condition of this country is not so good. Most of the people of this country living under poverty line. Economic status of People is not so good. That is why they can not continue the strike for a long period of time as a result happen of the striking result will not seriously affect to the employers. If we see the actual scenario of real condition of the RMG sector workers in Bangladesh, the fact of economic condition creating that’s kinds of surrounding environment which will create a fear able position in their mind of the prospect, at this time ultimately they are not interested to create a striking environment that will enforce the employers to provide their rights in an effective and efficient manner.
Educational level: Most of the workers are not educated enough, that is why they are not conscious enough to exercise their roles, rights and responsibilities. They entirely depend on the central leaders. But most of the cases in the RMG sector in Bangladesh, we see that our Trade union leaders always interested to their self interest.
Self-seeking leadership: Majority of the union leaders at all levels; plant levels, Industrial levels and National levels are concerned with their self-interest. They are not aware for the economic and other interests of the workers. If we see the actual scenario of the RMG sector in Bangladesh, we realize that their ethical standard is very low on the perspective of their commitment regarding their duties and responsibilities.
Lack of ideological commitments: Most of the trade unions are loyal to their leaders than to the ideologies that hamper the activities of the trade unions. This actual scenario we observe RMG sector in Bangladesh.
Legal orientation: Trade unions are developed in our country because of the political pressures and politicians. So it was never free from the pressure of the political parties. Sometimes they use trade unions for their self interest like to bring change in the Government.
Multiplicity of unions: In our country, there are many numbers of trade unions available which indicates one of the weak points of them as when their bargaining with their employers for the demands it can not use its full power for the acceptance of their demands.
In the RMG sector in Bangladesh, there are many numbers of trade unions. They are not united. As result it can not influence the employers to accept their demands. Most of the trade unions are not well organized to maintain the necessary records which can be used for the future references. Most of the time, union leaders are concerned for themselves; as a result, employers are getting chance for unfair labor practice. Most of the trade unions are less concerned to their members; it tries to take its own decision that hampers the rights of the workers as well as the expectations. Most of the trade unions in our country are not able to protect the economic interest of the workers. Most of the time workers are not getting the minimum wages, working environment is not safe.
Problems Regarding Collective Bargaining:
Collective bargaining means the negotiation between and employer or group of employers and a group of work people to reach an agreement on working conditions. It is opposite to the individual bargaining.
According to the Bangladesh Labor Code, 2006, – it includes Trade union or trade union federation Works as the agent of the workers in the matter of collective bargaining. Characteristics of collective bargaining This concept was first identified by Sydney and Webb in UK and also by groups in USA.
1. Where there is only one trade union in an establishment that trade union shall be considered to be the collective bargaining