What Makes Bangladesh – A Hub Of Garment Manufacturing?

There is no doubt that Bangladesh has emerged as a powerful garment manufacturing country in the past decade. What is it that brought Bangladesh’s apparel industry where it is today? Let’s find out!

Bangladesh is the world’s second largest Readymade Garment (RMG) exporter, just behind China. Country’s 81% of exports come from the RMG sector, and the textile and Apparel sector contributes around 20% to Bangladesh’s GDP. It employs around 20 million people in the country and is the major driving force of the country’s economy.

Bangladesh plans to get the middle-income country status by 2021, and RMG sector is going to play a major role in it. Bangladesh has set itself a target of achieving apparel exports worth $50 billion by 2021, and it seems to be on the right track. In the last financial year, FY18, the Export Promotion Bureau (EPB) states that Bangladesh’s overall exports grew by 5.81%, reaching $36.67 billion, owing to the growth in apparel exports. The garment exports as per EPB registered an 8.76% growth in this fiscal year, which was 1.51% higher than the set target.

Bangladesh’s RMG sector has many factors that attract global attention:

Quick Returns

The biggest factor being the quick returns this segment offers the investors. This is the only sector in the country that gives returns in 3 to 5 years. Also, being the second biggest apparel exporter globally, there are huge growth opportunities that the sector offers.

Share of Global Apparel Exporters (2016)

Moreover, China is losing ground, owing to its growing production costs, which opens an immense prospect for Bangladesh to seize more market share.

Labor Availability

The biggest strength that Bangladesh has over its competitors is its cheap and vast workforce. The minimum wage in Bangladesh is lower than that in China, Cambodia, India, and Vietnam.

Also, there are around 37 private and public universities producing textile graduates in the country every year, further adding to the skilled manpower for the segment. Moreover, favorable government policies, bank facilities (for raw material purchase), and strengthening backward linkage supporting industries create a strong case for the sector.

The Duty-free Advantage

Bangladesh has Least Developed Country (LDC) status that qualifies it for duty-free market access or reduced tariff facilities to many developed and developing nations, globally. Bangladesh enjoys duty-free access to around 52 countries, including countries in the EU, the USA, Australia, Switzerland, Japan, Turkey, Russia, Norway, New Zealand, China, South Korea, Thailand, Malaysia, and India, for the trade of many products.

Bangladesh has also signed many trade deals offering Bangladesh exports a preferential treatment, like SAARC Preferential Trading Arrangement, Asia-Pacific Trade Agreement, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation, South Asian Free Trade Area, and the Trade Preferential System among the OIC member states.

Technology Adoption

Bangladesh has attracted many major global retail brands, and with the technology and quality compliance parameters has also seeped in Bangladesh’s apparel manufacturing systems. Moreover, Bangladeshi manufacturers and exporters have built excellent vertical capacities, which only China could offer before, which help global brands to ensure more transparency and coordination in their supply chains.

The country has henceforth adopted the most sophisticated apparel manufacturing and management technologies to cater to their international customers. This has resulted in a substantially high rate of quality achievement and technical compliance in Bangladesh’s RMG sector.

The growing export numbers from the sector is a sound example of the same

Future of Bangladesh’s RMG Sector

Bangladesh has three financial years left to match its annual apparel exports target of USD 50 Bn. This requires the sector to grow at a war footing at a rate above 60%.

The year 2016-17 showed a sluggish growth for the country, owing to the slowing down of trade with the US. The 2017-18 shows more promise, but the current trends make it difficult for Bangladesh to achieve the set target, but it is not yet impossible.

To achieve a USD 50 Bn target, an annual CAGR of 16.9% is needed, which can be achieved, provided Bangladesh keeps on capitalizing on available opportunities and its strengths.

What is holding Bangladesh Back?

After multiple incidents like Rana Plaza, Bangladesh came on global radar for its labor practices and safety standards. Since then, Bangladesh has come to a long way building green factories and meeting safety standards and compliance strictly.

What still worries industry experts is the fact that garment workers are still being paid one of the world’s lowest minimum wages in the country. Fashion industry thrives in the west but standing on the backbone of the workers from the third world countries like Bangladesh, which struggle every day to survive above the poverty line. The government’s vision of achieving USD 50 Bn worth of apparel exports by 2021, nowhere mentions of concerns itself with the well-being of its workers.

An Oxfam research has highlighted that for every garment sold in Australia; only 2% of its price goes to the factory worker who made it. Cheap labor is the main factor; Bangladesh’s apparel industry is capitalizing on when it comes to attracting big retail brands. Hence, the demand of raising the minimum wages substantially cannot be fulfilled, at least in the near future.

The Road Ahead

The numbers indicate a positive shift in Bangladesh’s apparel exports, after a sluggish FY17. Achieving the USD 50 Bn target in the next three years seems insurmountable at the first sight, but is not impossible. A fast and consistent growth in the sector, owing to the favorable government policies, and global attention will felicitate this feat. What needs to be kept in mind during this journey is to take the workers of the garment industry in the country along with the growth. The government will have to take stringent steps to ensure better living standards for its garment workers and their survival.

A technology advancement plan can also help, which also focuses on the skill development of the workers through regular training programs. This will enable the garment manufacturers and exporters to make more profits and pass on the benefits to the workers in form of better pay.

Hence, the growth that Bangladesh’s apparel industry envisions needs to be a holistic growth to stay sustainable in the long run.