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Charting a path ahead for the RMG sector
Bangladesh has emerged as an economic success story, primarily through its booming ready-made garments (RMG) sector. The country’s exports in this industry surged from $23.5 billion to $47.38 billion between 2013 and 2023, lifting millions out of poverty and gaining international recognition. Key factors driving this growth include a cost-effective workforce, dedicated entrepreneurs, strong financial systems, and political stability, resulting in a remarkable seven percent annual growth rate. Bangladesh is now the world’s second-largest apparel exporter, solidifying its status in the global fashion market.
The Covid pandemic, global supply chain disruptions, and the Russia-Ukraine conflict have revealed the vulnerability of Bangladesh’s economy, which relies heavily on a single industry. This dependence has resulted in insufficient revenue from other sectors to meet financial obligations. The country is facing high inflation and unemployment, largely due to poor policy decisions and a lack of economic diversification. Overall, Bangladesh is grappling with significant economic challenges.
Despite significant growth in the RMG industry, Bangladesh faces numerous challenges, particularly its impending transition from Least Developed Country (LDC) status by 2026. Following this graduation and a subsequent three-year grace period ending in 2029, Bangladesh will lose its duty-free, quota-free, and preferential Rules of Origin benefits for apparel exports to the European Union, a crucial market that represents nearly half of its RMG exports.
The loss of LDC-specific trade preferences will raise Bangladesh’s effective tariffs by approximately 5.7 percent, potentially causing a 14.3 percent drop in apparel exports, equating to a loss of $5.37 billion annually. In response, Bangladesh has launched an ambitious plan to reach a $100 billion annual export target by 2030. This optimism is supported by the country’s strong historical growth, policies to enhance backward linkages, product diversification, and a stable political environment, which collectively suggest a promising future for its export sector.
To achieve its policy goals, the nation must strategically enhance value addition, particularly in the RMG sector. Currently, value addition has stagnated at 50-65 percent over the past decade. By increasing the use of domestic fabrics and yarns, Bangladesh could elevate this figure to 70-75 percent, which would significantly boost net export earnings.
Bangladesh produces 85 percent of the yarn needed for knitted cotton fabrics, but only meets 35 percent of the demand for woven garments and man-made fibre (MMF) based apparel domestically. The country faces challenges with limited domestic production of MMF materials. Enhancing the production of woven and non-cotton yarns and fabrics could significantly increase Bangladesh’s export earnings.
Bangladesh can boost its apparel manufacturing sector by leveraging MMF, such as polyester, to meet the growing global demand for non-cotton textiles. Currently, MMF constitutes 77.6 percent of global fibre production, while natural fibres, including cotton, account for 22.4 percent. This trend is driven by consumer preferences for functional and stylish clothing, which MMF-based garments can provide. Additionally, MMF products typically command higher prices and can yield greater export revenue compared to cotton-based apparel.
Bangladesh currently holds a modest 16.9 percent share of MMF apparel exports, significantly less than China (42.8 percent) and Vietnam (46.9 percent). To enhance its position in the growing MMF market, Bangladesh needs to improve its MMF manufacturing capabilities. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) aims to increase MMF-based garment production to 40 percent by 2030. By expanding MMF production, Bangladesh can better meet global demand, diversify its ready-made garment sector, and enhance domestic value addition in the supply chain.
The rapid scaling of MMF production by 2030 faces three main challenges: the need for significant foreign capital investment, a shortage of specialised knowledge and skills in Bangladesh to operate the required capital-intensive machinery, and a lack of incentive programmes to attract investors to MMF manufacturing facilities.
The remarkable growth in MMF apparel exports of countries like China and Vietnam was significantly driven by foreign investment. Foreign investment brings in foreign currency, machinery, technology, and expertise to develop high-value industries like the MMF. In Bangladesh, the Bangladesh Investment Development Authority (BIDA) is responsible for attracting investment and should serve as the central coordinating body to streamline bureaucratic processes and instil confidence in foreign investors. BIDA should analyse successful markets and devise a comprehensive and best-in-class strategy. A major challenge for foreign investors in Bangladesh is the absence of downstream liquidity in the capital markets, which hinders their ability to exit or diversify their investments. BIDA should spearhead collaboration between government agencies and the private sector to address this issue.
Saleudh Zaman Khan, managing director of NZ Textile and a vice president of the Bangladesh Textile Mills Association, shared in an interview how Bangladesh can rapidly gain a foothold in the highly competitive MMF apparel market, which is currently dominated by China and Vietnam. “Bangladesh government must adopt a fast-track strategic approach and offer substantial incentives to encourage the manufacturing of MMF and MMF-based garments,” he said. “The incentive programmes must ensure the long-term sustainability of MMF manufacturing facilities by providing additional incentives to compete against foreign competitors, especially China and Vietnam,” added Saleudh. He also emphasised that these incentives should be extended to both local and foreign investors in the MMF production sector, in-order-to promote and reinforce the domestic supply chain.
Bangladesh’s dependence on imported cotton and MMF poses risks such as price fluctuations, supply chain issues, and geopolitical tensions. To mitigate these challenges, establishing a strategic reserve for cotton and MMF is recommended, allowing for a reliable raw material source during disruptions. This reserve would require specific storage facilities for at least a six-month supply and could be developed without direct investment by incentivising suppliers to store their inventory within the country. This approach would help spinning mills access materials quickly and cost-effectively, saving on inventory costs while ensuring prompt delivery.
Finally, Bangladesh needs to broaden its economic base, and the government should enhance research funding in science and technology to reduce dependence on the garment sector. Bangladesh’s graduation from LDC status will allow the country to diversify its product offerings and strengthen its supply chain for higher-value goods. This transition encourages the use of advanced technology and automation to boost productivity and profitability. To comply with stricter origin requirements, particularly the “double transformation” criterion for the EU market, establishing strong backward linkages will be essential once preferential trade access ends.
Dr Quamrul Ahsan
is managing director of Sarah Textile Mills Ltd, and a former faculty member at BUET. He can be reached at qahsan1960@gmail.com.
The rapid scaling of MMF production by 2030 faces three main challenges: the need for significant foreign capital investment, a shortage of specialised knowledge and skills in Bangladesh to operate the required capital-intensive machinery, and a lack of incentive programmes to attract investors to MMF manufacturing facilities.