***An enabling environment must exist. The law and order necessary to operate the industry must be maintained. Mustanism, hartals, illegal trade unionism, etc. leading to stoppage of work at ports, transport movement, etc. must not be allowed to disrupt the normal operation of the industry. Infrastructural bottlenecks must be removed.

GIVEN The investment needs and future uncertainty, one can safely conclude that Bangladesh will not be able to invest Tk 21.000 crore (twerity one thousand crore) to develop the total capacities in the backward linkage industries required to meet the demand of RMG in 2005. To be self-sufficient in the production of export quality yarn and fabrics is neither necessary nor feasible.

However, it is necessary to make the RMG industry more compeUUve than it is now because the post MFA world market will create new challenges for Bangladesh.

One such possible challenge will be that the traditional sources of supply will shrink which may adversely affect the RMG industry of Bangladesh. For example, the supply of cheap cotton, yarn and fabrics from India. China and Pakistan will decrease because they will first use their surplus cotton, yarn and fabrics to manufacture garments to create new value addition and earn more foreign exchange by exporting them. (This will be possible due to the phasing out of MFA).

Therefore. Bangladesh must try to reduce its dependence as much as it can on foreign sources for yarn and fabrics by increasing its capacity to produce that much of yarn and fabrics which our traditional suppliers will refuse to supply because they themselves will be using them for the production of garments.

This means Bangladesh must create a certain amount of new capacity to spin yarn, weave cloth and process "gray fabrics. It will still continue to partly depend on imported yarn and fabrics as do Hong Kong and Singapore. This should not create a serious problem for Bangladesh to remain competitive in the world market after 2004.

It is unlikely that our traditional suppliers will stop exporting cotton or yarn or fabrics completely by diverting all these resources to the produc-

tion of garments. This will go against their comparative advantages. Our traditional suppliers particularly India. Pakistan. China aqd Thailand which are at a relatively higher stage of development and are richer' compared to Bangladesh will in the near future move to the production of high-technology higher-value items where return on investment will be much higher than that in RMG. The garment industry being migratory in nature will continue to thrive in a country like Bangladesh as long as labour remains cheap. Therefore, for Bangladesh, the sources of supply of cotton, yarn and fabrics will not completely dry out.

This means that the RMG industry needs to be integrated only partly; a limited number of composite mills, a larger number of independent spinning mills and processing units may be established.

But investment in these subsectors will not be viable unless the government reforms its policies of financial support. The cost of financing the linkage projects must be brought down as was done by India and other countries during the initial period of developing their textile sector. The cash incentives should continue. In addition. long term loan must be available at reasonable Interest rates. Although the current nominal rates are around 12 per cent, the actual cost of fund to the entrepreneurs amounts to some 20 to 22 per cent after various adjustments. This is quite high a rate which will discourage investment in this sector. The commercial banks need not maximize their profits at the

cost of the RMG sector. The government may direct the banks to make reasonable profit (not as much as they can squeeze from the market) and lower the interest rates for RMG sector substantially, say to 6 to 7 per cent. It does not mean that the bank should not take necessary precaution against possible defaulters.

Debt-Equity Ratio: Investment in backward linkage industries, particularly ’in composite mills is quite large. As indicated in the main text, the entrepreneurs will need equity capital from financial institutions. Currently a 50:50 debt-equity ratio is enforced. To encourage investment in this sector the government should lower the ratio to a reasonable level, say. 80:20.

Creation of Special Equity Fund: As stated earlier, if all the backward linkage industries a spinning, weaving, dyeing. printing and processing are to oe developed by 2004 a total of Tk 21,000 crore will be needed as equity fund. The government should create a Special Fund of at least Tk 15,000 crore to provide equity capital to those sound entrepreneurs who can come up with 20 per cent equity. It may be mentioned here that similar supports are available in many countries including India.

Human Resource Development: The floor workers. supervisors and production managers in general are not properly trained. This is true of spinning, weaving, dyeing, processing and garment manufacturing. Bangladesh must improve substantially both labour

Sroductivity and managerial ef-ciency. Human resource development must be given high priority otherwise equity support and confessional rates of interest will not be of much help. The quality of yarn and fabrics in addition to design and making of the garments must be of nigh standard. The competitors of Bangladesh, namely. Hong Kong. India. Sri Lanka and others have established special training institutes. For example, the Institute of Textile and Clothing at Hong Kong Polytechnic university offers three-year diploma programmes in the relevant fields. The BGMEA should discuss with universities, particularly private universities and finance introduction of modern courses which will enhance the skills of production workers of the spinning mills, weaving mills, processing units and garment factories. It must be reiterated that the quality of the product and delivery services. including marketing will finally determine the fate the RMG industry after 2004.

Diversification of Product and Market: The importance of product and market diversification has already been emphasized. So far Bangladesh did not need much marketing efforts because most of the firms have been working as sub-contractors. But to remain competitive in the post MFA world market, the number of the independent firms must increase from the current level of 8 per cent to at least 30 per cent. These firms must be able to identify, through market research, new market segments (new products including). Both India and Sri

Lanka are Implementing tills strategy. By successfully export-ing non-quota items. Bangladeshi entrepreneurs have demonstrated that they can get into new markets. Therefore, there is no reason for unnecessary panic about post MFA market when comi>e-tltion will increase. Assuming that adequate government support will be available, the important thing is that Bangladeshi entrepreneurs emphasise the quality'of the products. product diversification and aggressive marketing.

Market Access: As a member of WTO. Bangladesh must insist to have duty free access to such large markets as India, Japan and China. There are many new types of garments (it needs research to identify the specific market segments) which Bangladesh can produce with the support of the new backward linkage facilities and serve these markets. As one of the 48 least developed countries of the world. Bangladesh should resort to the Provisions of WTO which entitle Bangladesh to have non-reciprocal market access to such countries as mentioned above. If Bangladesh can get into the markets of Japan. India. ASEAN countries and China, it will not have problem's in maintaining its leadership in RMG exports after 2004. However, the success will mostly depend on how efficiently Bangladesh conducts its business/economic diplomacy.

Above all. an enabling environment must exist. The law and order necessary to operate the industry must be maintained. Mustanism. hartals. II-• legal trade unionism, etc. leading to stoppage of work at ports, transport movement, etc. must not be allowed to disrupt the normal operation of the industry. Infrastructural bottlenecks must be removed. The image of Bangladesh must further improve. Bangladesh must gain confidence of the investors, local and foreign.

The author is Pro-Vice Chancellor. North South University. Dhaka