When opportunity knocks

Is Bangladesh ready to capitalize on global developments working in its favour?

It would appear the stars are aligning for our RMG industry, as shifting trends in global politics create economic opportunities which are simply too strong to ignore. These changes all centre around the US -- a massively important trading partner to Bangladesh.

The US is already Bangladesh’s single largest trading partner. Bangladesh exports to the US registered a 6.42% rise to $5.60 billion in 2018, according to Otexa data, with apparel products alone fetching $5.40bn.

Recent developments between the US and some of its other trading partners potentially are opening up opportunities for Bangladesh to increase that figure.

First, President Trump has threatened to impose across-the-board 5% tariffs on Mexico if it doesn’t crack down on the flow of migrants into the US. This would impact nearly $360bn in Mexican exports to the US and such tariffs would significantly impact Mexico’s competitiveness.

In regard to the apparel sector, we are all aware that margins are tight, therefore, an effective 5% increase on the cost of apparel imports is very sizeable. Importers might, if such an increase in tariffs comes to pass, look to source elsewhere.

There are further developments. The US has also recently terminated its General System of Preferences (GSP) agreement with Turkey and India because they no longer comply with the statutory eligibility criteria.

India’s termination from GSP was made due to a failure to provide the US with assurances that it will provide equitable and reasonable access to its markets in numerous sectors. Turkey’s termination followed a finding that it is sufficiently economically developed and should no longer benefit from preferential market access to the US.

Under GSP arrangements, products can enter a country duty-free. Again, in an industry of fine margins, the introduction of duties onto Indian and Turkish apparel imports will likely impart apparel exports from both those countries to the US.

These developments are all part of an increasingly hard-line, protectionist stance which is being taken by the US. The US spent many decades allowing its domestic manufacturing base to be outsourced to poorer nations as it, instead, opted to focus on higher value service industries. Present Trump has decided, however, that his predecessors went too far in this approach, and now wants to bring some domestic manufacturing back to the US.

There are other issues to consider, the most pertinent of which is China. In a recent announcement, the Trump administration proposed tariffs on products from countries which are found to have undervalued currencies. In fact, the move was seen by many as a clear measure against Vietnam -- another major apparel exporter -- which many claim has devalued its currency to grow its export base. 

Currency manipulation is as old as the hills. By devaluing its currency -- effectively by printing more money -- a country can make its products proportionately more competitive in foreign markets (although a side effect of this is, in many cases, domestic inflation).

As well as being aimed at Vietnam, Trump also has China in mind with this move. China has regularly been accused of currency manipulation in recent years. Indeed, only at the recent Copenhagen Fashion Summit, one speaker made the claim that China had been allowed into the WTO without “addressing its artificially deflated currency” -- hence the sizeable growth in its textile and apparel exports in the past two decades, to the detriment of domestic manufacturing in other countries.

The upshot of all of this is that there are, potentially, opportunities for Bangladesh. Note that word: Potentially. It is one thing having these opportunities and quite another to be ready to capitalize on them. 

A factor here is that, in the case of China for instance, the apparel products being exported to the US are in many cases different to those being exported from Bangladesh. They are of a higher value in some cases, and there is the question of whether Bangladesh would be ready to take up the slack left by China -- and, indeed, by Turkey and any other country which President Trump sees fit to target.

The message in all of this is that opportunity knocks right now for Bangladesh. But to take advantage of this opportunity, it needs to upgrade. For sure, it can continue to provide the staple apparel items for which it has become globally renowned and, if Trump does impose tariffs on some of our competitors, these will become comparatively more competitive.

But Bangladesh also needs to innovate and evolve, if it wants to truly capitalize on the shifting tectonic plates of international trade. That means investment in people and technology, in better management and smarter, more sophisticated products.

Decisions in these areas need to come from the top. Our government and policy-makers need to be on the ball right now, and ready to strike while the iron is hot.

Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). He can be reached at [email protected].