RMG 2021 – $50 billion on the 50th Anniversary of Bangladesh

Md. Atiqul Islam

The story of the ready made garment industry (RMG) in Bangladesh reads almost like a miracle. Over the last three decades, this industry has established itself as a global player.Its contribution to the economy of Bangladesh, and in providing employment, is indeed remarkable.

As may be expected, the industry has faced numerous challenges in the growth process, which averaged about 15%+ per year. It has overcome hurdles such as the elimination of child labour in the industry, open competition in the post-MFA era, and progress in social compliance, safety reforms, etc. That the industry has come of age is demonstrated by the manner in which it handled the tragic industrial accidents. Despite all the adverse publicity, RMG exports growth during the last fiscal year 2013-2014, was 13.8%.

Bangladesh already has a strong foothold in the world’s apparel market, and we hope this will enable us to grow in the coming years. Our vision: to increase Bangladesh’s RMG industry’s global market share from the current 5% to 8% by 2021, which requires increasing our exports to about US$ 50 billion. Many may consider this to be over-optimism; it is our contention that for Bangladesh’s RMG industry, this is an achievable goal.

Snapshot: Growth of the RMG Industry

Could one have predicted the growth of the RMG industry in Bangladesh? After our war of liberation in 1971, Bangladesh inherited a shattered economy with industrial production close to nil. The jute sector, which was the major foreign exchange earner saw no further growth in the immediate aftermath of independence. Following a few hesitant steps, the RMG sector gradually established a firm base from which to grow. Table-1 shows indicators depicting performance of the apparel industry in Bangladesh over selected periods.

Table-1:Comparative Statement on Readymade Garment (RMG) & Total Export of Bangladesh

The Milestones of the RMG Industry:

Strengths of the Bangladesh RMG Industry

Bangladesh has numerous advantages, some of which are listed below:

• 30 years of experience & reputation in garment manufacturing
• Competitive Price
• Economies of Scale
• International standard Quality
• Vibrant population, 70% below 40 years age, fast learning and dedicated workforce
• Irresistible & resilient entrepreneurial spirit
• Duty free market access in most developed and many developing countries
• Rapid adoption of environment friendly and green concepts
• Rapidly developing backward linkage such as washing/Dying/ Finishing/Embroidery etc
• Versatility of factories to produce different type of products
• Increasing trend of direct sourcing through local liaison offices

Forecasts about Bangladesh RMG Industry

McKinsey Forecast, summer 2014: The McKinsey & Co surveyed 29 chief procurement officers (CPOs) in 2013 at leading apparel companies responsible for a combined €28 billion in purchasing volume. They found that Bangladesh remains at the top of the list of apparel-sourcing markets expected to grow in importance in the next few years. As per McKinsey & Co.’s forecast in 2011, Bangladesh is on the radar-screen of all European and US apparel buyers and likely to grow nearly triple (USD45 billion) by 2020.

US Fashion Industry Association’s (USFIA) Forecast, June 2014: The ‘Benchmarking Study’ published by the U.S. Fashion Industry in June 2014 shows that apparel retailing companies are not leaving Bangladesh, and are committed to compliance there and elsewhere. Among the respondents of the survey, 76.9% currently source from Bangladesh. Despite the recent tragedies, Bangladesh is still regarded as a popular sourcing destination with growth potential. About 60% of respondents say they expect to somewhat increase sourcing from Bangladesh in the next two years, and 5% say they expect to strongly increase sourcing from Bangladesh in the next two years. Another 15% expect no change in their current scale of sourcing in Bangladesh.

HSBC Trade Confidence Index, September 2014: The trade confidence index rose sharply from 103 in H2 2013 to 141 in H1 2014 – the second highest in the sample of 23 countries – underpinned by strong demand from the West for Bangladeshi garments and textiles. The authorities are introducing more safety regulations to the garments sector and this appears to have provided an additional boost to confidence.

Opportunities that clearly marks the vision for Bangladesh apparel by 2021 are –

Trade Generation by 2020: At present the volume of world apparel trade is almost $450 billion, which was USD 351 billion in 2010. Bangladesh occupies only a meager 4.83% share, indicating a tremendous potential to further penetrate the global market. The global apparel market is predicted to be $ 650 billion by 2020, indicating a further demand for $ 200 billion dollars apparel to be catered to in the next 6 years. Bangladesh RMG sector can gain a large share of this new market.

China Plus: The ‘China Plus’ issue has once again led a fresh restructure of clothing sourcing countries and, Bangladesh has got a strong footing. Many discussions have been held on the possible gain for Bangladesh from China’s gradual reduction of bulk apparel production. The rising production costs, socio-economic and livelihoods uplift, and shift to high-tech industries are some of the reasons why apparel buyers have become increasingly concerned to shifting their sourcing from China to other countries. Bangladesh has become the biggest beneficiaries of this outcome.

China occupies 37.35% of global clothing exports (2011) while Bangladesh’s share is 4.83% only (source: World Trade Organization). This indicates a tremendous potential to further penetrate the global market. Furthermore, we see China itself to be one of the major export destinations of our apparel in near future for the following reasons:

1. The Chinese apparel producers and exporters may find it feasible to relocate their production in Bangladesh for exports to western markets.
2. About 1.3 billion population of China creates a huge domestic market and having duty free access to China as an LDC is an added advantage for Bangladesh.

Exploring new markets

Bangladesh’s apparel exports have been concentrated to two major destinations – EU and North America. It is encouraging to note that over the last five years, remarkable progress has been achieved in diversifying our exports to non-traditional markets. The share of our apparel export to markets, other than EU and North America, was 6.88% (2008-09) fiscal year which has increased to 14.71% (in 2013-14). This diversification of export destinations, with growing exports, is a healthy sign. Over the last 5 years, there has been a significant rise in exports to Japan, China, India, South Korea, South Africa, Russia, Brazil, Mexico and Chile.

Following developments in international trade policy arena, we expect further opportunities to emerge for Bangladesh. The simplification of GSP rules of origin by European Union, Japan, Norway, Switzerland and duty free & preferential market access by India, China, Korea and Malaysia are all positive signs for us. We are optimistic that the new wave of opportunities and the growth momentum will energize the RMG industry to add new success stories in the coming years.

Product Diversification

The majority of our RMG exports is concentrated in five basic products (77% of the total export). We wish to enter the market for some higher-end products like Suits/Blazers, Lingerie, Jackets, Swimwear, Sportswear, uniform, raincoat, fishing wear, etc. For this, we would require technological upgrading and targeted expertise. We trust our RMG industry will adapt, and redefine itself. We encourage Foreign Direct Investment (FDI) from our technologically advanced partners for this product diversification in the high-end non-traditional items.

Challenges & Realities

Despite all the potential on the demand side, the question remains: will Bangladesh be able to take advantage of the increased opportunities? The ability of Bangladesh to supply is an equally important issue in the changed global sourcing scenario. A comparison of the infrastructure in selected countries is presented in Table 2 for comparison. Some areas, where increased attention is required, are listed below:

1. Infrastruture – Industrialization and opportunities to grow need road-rail-port infrastructure, trade financing, etc. Developing planned Special Industrial Zone is another important option.
2. Power & Energy – We need to ensure adequate supply of electricity, gas and energy as these act as the engine behind running the industry.
3. Access to finance at competitive bank interest rate
4. Human Resources – The RMG industry needs skilled human resource in terms of both skilled workers and mid level management. The industry is currently employing 4.4 million workers where our productivity is 77%. This is lower than our main competitors (India 92%, Vietnam 90%, Pakistan 88%). Though over the years a good backward linkage has developed we still fall short in forward linkage. The industry for maketing and design depends on agents and source countries respectively. About 19,000 expartriates working in the mid-level and high position at the garment factories of Bangladesh are remitting about Taka 4 billion every year.
5. Environmental Sustainability is also another major challenge for us.
6. Safety & Dignity of Workers – Without ensuring a safe workplace for our workers, we can’t be able to create a safe and sustainable industry. This is one of the issues that has attracted muc attention.
7. Politics – Over the years, political instability has posed as a difficult chalenges. We need to ensure a stable political situation for the sake of our industry and economy.
8. Market Diversification: Market diversification, exploration of new markets is another major area for us to ensure sustainable growth of the industry. Though our apparel export share to non-traditional markets has increased in recent times we need to further enhance this momentum.
9. Market Access: There are a number of non-tariff barriers to trade with the SAARC and other Asian countries region which includes lack of land connectivity, transit crisis, complex visa system, etc. A regional infrastructure strategy is essential for tapping economic and commercial opportunities among the Asian countries, while safeguarding the growth opportunities for underdeveloped countries such as Bangladesh.

Bangladesh has repeatedly demonstrated its resilience and ability to overcome all odds. The RMG industry is an excellent example of what the country can achieve. Despite all challenges, with accompanying global ups and downs, the country has positioned itself as the second largest apparel exporter within just three decades. The vision 2021 for Bangladesh RMG is attainable, and we have every confidence that we can exploit the potential that is before us while overcoming the challenges we face.

Md. Atiqul Islam – Former President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

Source: The article was published in the official souvenir of Dhaka Apparel Summit, organized by BGMEA held on 7^th – 9^th December, 2014.