#Title

Intra-RMG diversification: The next frontier
PHOTO: AMRAN HOSSAIN
FROM PAGE 8
the sector has already gained a degree of maturity to aim for the next frontier.
TASKS AHEAD
What is now needed is to be able to move into the non-cotton segment of the apparels market in a strategic manner. Both appropriate policies and concrete actions will be called for to realise the emergent opportunities. As is known, production of MMF and synthetic based items tends to be relatively more capital-intensive and is primarily technology-driven. However, technological embeddedness of Bangladesh’s exports has tended to remain rather low till now. While competitors such as Vietnam have been able to make notable transition to medium and higher technology-embedded exports, Bangladesh’s situation in this regard has remained unchanged; rather, the scenario has worsened.
The duties on import of capital machineries are already low in Bangladesh. Entrepreneurs enjoy bonded warehouse facilities to import raw materials and intermediates. Technology adoption and upgradation will need to be incentivised and encouraged. Entrepreneurs will need to have access to credit on reasonable terms; a special investment fund may be created towards this. Special training centres for workers, mid-level management, quality controllers, fashion and design professionals will need to be set up for production of upmarket MMF and synthetic apparels products. The incentive structure enjoyed by the RMG sector should be revisited and restructured to encourage entrepreneurs willing to go for intra-RMG diversification. Support will need to be put in place for establishment of strong backward linkages in non-cotton apparels sector.
Emphasis will need to be put on production of higher value-added products—men’s and women’s blazers, suits, water-proof garments, leather jackets, slow moving high-end fashion and design products. Bonded warehouse facilities and customs procedures for imports of machineries, raw materials and intermediates will need to be further simplified, and logistics and trade facilitation measures will need to be more investment-friendly and trade-supportive.
To recall, only 12 percent of Bangladesh’s exports are destined for the markets of South Asia, East Asia and ASEAN combined. Export of non-cotton items will need to be targeted at the markets of countries in the neighbouring regions which import significant amount of apparel items. Product diversification and market diversification should go in tandem. Strengthened forward linkages and greater presence of the Bangladesh brand abroad will be crucial. This is where foreign direct investment, particularly in the special economic zones, targeting traditional and non-traditional markets, could play a crucially important role. FDIs should also be welcomed because of their close connection with foreign buyers and familiarity with market trends, patterns and demands.
Bangladesh is at present preparing for its post-LDC future. Indeed, the country stands at a crossroads in this backdrop. A large part of the preferential market access will no longer be available to Bangladesh’s apparels exporters on graduation from the group of the LDCs (in November 2026). While the EU and the UK have extended the preferential market access treatment by three years for the graduating LDCs, the scenario of trading in apparels is going to change significantly for Bangladesh over the foreseeable future. To enjoy GSP Plus in the EU (the proposed single market import ceiling will need to be raised though) and the enhanced preference in the UK (new rules of origin will require double transformation in spinning and weaving), and backward and forward linkages of apparels industry will need to be significantly strengthened. Incentives for the apparels sector will need to be recalibrated to stimulate technology upgradation and skills development.
In view of its LDC graduation, Bangladesh will also need to comply with the different obligations under the various WTO agreements which are applicable for (non-LDC) developing country members of the WTO. These relate to amount of subsidy, type of support extended to the export sector, trade facilitation measures, notification requirements and other regulations and rules.
There are many regulatory measures which will need to be complied with as Bangladesh pursues intra-RMG diversification strategy. Also, compliance requirements of key destination countries and brands and buyers in areas of labour rights, environmental standards, carbon emission, gender rights, governance and management of production processes are becoming increasingly stringent. An energetic move towards intra-RMG diversification will call for upfront attention to all these newly emerging demands originating from both the multilateral trading regime, requirements of key destination countries and those of brands and buyers in areas of compliance.
CONCLUDING REMARKS
Building on their impressive track record, Bangladesh’s entrepreneurs are well- positioned to realise the potential opportunities in the increasingly growing non-cotton segment of the global apparels market. Some inroads are already being made. A number of entrepreneurs have ventured into this segment of production. However, till now, the realised investment has been far below the potential.
Having made the first transition, from the predominantly wovenwear driven to knit and wovenwear driven composition of exports, Bangladesh will now need to make the second transition, from the predominantly cotton-based exports to the twin drivers of cotton and non-cotton-based exports. Bangladesh has all the reasons to make this second transition happen. It has accomplished such a feat in the past. However, the country will need to address the emergent second generation of challenges successfully to repeat such a feat over the near- to medium-term future.