Bangladesh's main export industry cries for a transformation as value addition to traditional garments depreciated deeply from pre-pandemic levels mainly because of price rises of raw materials.
Data analyses show that value addition to apparel exports fell to 54.50 per cent in the last fiscal year, 2021-22, from 59.13 per cent in the previous fiscal.
According to central bank data, local ready-made garment (RMG) items' value addition remained almost static at 60 per cent from fiscal year (FY) 2013-14 to FY 2017-18.
In FY'22, Bangladesh earned US$42.61 billion from RMG exports, while the industry imported raw materials worth $19.43 billion. Thus, the country's net RMG export stood at $23.22 billion in the last fiscal, showing a 54.50-percent value addition.
The value addition remained lower than the pre-pandemic 64.32 per cent in FY'19, as per the data.
The central bank considered the main head value of the components, like raw cotton, synthetic/viscose fibre, synthetic/mixed yarn, cotton yarn, textile fabrics, and accessories for garments, instead of only raw materials brought through back-to-back LCs, according to its latest quarterly report.
Meanwhile, industry-insiders say, Bangladesh is largely dependent on imported raw materials, such as cotton, petrochemicals and chemicals, despite being second-largest apparel exporter on a global scale.
They say the value addition in the knitwear sub-sector is higher than in woven segment as knit exporters source about 80 per cent of their required raw materials from the local market while woven entrepreneurs meet their larger share with imported fabrics.
When asked, former president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Fazlul Hoque said prices of raw materials had significantly gone up during the last two years mainly because of the pandemic, demand surge in the post-lockdown period, high freight costs and the latest fallout from the Russia-Ukraine war.
"Though exporters received a huge volume of work orders, especially after the lockdown in major markets, prices of finished products didn't increase in line with the high prices of raw materials. The skyrocketing raw-material prices have eaten up our value addition," he says explaining the trade paradox.
As majority of the raw materials were imported, the value addition declined, he notes.
Terming this trait 'temporary', the RMG businessman, however, hopes the value addition might increase with the decline in raw materials' prices. He hastened to add that prices have taken a downturn as demand decreased due to disruptions in major markets.
He finds the industry's efforts towards product diversification and producing higher-value items on right track.
Demands for non-cotton or manmade fibre have been on the rise on the global market, and so in the country, he said. What required now is to develop a strong backward-linkage industry of non-cotton items to reap the full benefits.
Echoing Mr Hoque's views, Mahmud Hasan Khan, a director of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) says the rate of CM remained almost 'unchanged' compared to raw materials' price hike.
To raise value addition, it is a must to have a backward linkage to woven and sweater segments as the knitwear sector, he adds.
The exiting fabrics makers cannot fully utilize their capacity due to the shortage of gas, he notes, stressing improvement of current infrastructure.
In contrast to global scenario of rising demand for MMF-based items, Bangladesh largely manufactures cotton-based ones, both the leaders mentioned.
They feel that government policy support is imperative to attract investment in production of man-made fibre-based garments - not only to increase value addition but also to face the post-graduation challenges and remain competitive.
The BGMEA and BKMEA leaders both requested the government to extend requisite policy supports, including incentives for non-cotton or man-made fibre production and effective measures to develop expertise in the segment and technology transfer.
According to Bangladesh Textile Mills Association (BTMA), local textile millers meet 85 per cent of knitters' demand for fabrics, while the percentage is only 35-40 for woven fabrics.