RMG value addition wanes, yet to rise to pre-pandemic level

Value-addition to Bangladesh's ready-made garments (RMG) that has been fluctuating in recent years has yet to reach the pre-pandemic level, as higher cost of raw-material imports eats into the export gains.

Exporters mainly blame the rise in raw-material imports, especially that of yarn, for such subdued returns as prices of locally made garments have also been declining in the post-Covid period.

Local RMG items' value addition remained almost static between 60 per cent and 64 per cent since fiscal year (FY) 2012-13 until FY2018-19, according to Bangladesh Bank data.

But a data analysis shows a fluctuating trend, with a decline to 56.49 per cent in FY20 while a rise up to 59.13 per cent in FY21. The rate again dipped to 54.38 per cent in FY22 while rose to 58.11 per cent and 60.13 per cent in FY 23 and FY 24 respectively.

In FY24, Bangladesh received US$36.13 billion from apparel exports, while it imported raw materials worth $14.40 billion. Thus, the country's net value of RMG exports stood at $21.72 billion in FY24, showing a 60.13-percent value addition.

The percentage remained static at 60.09 per cent during the first half (H1) of the current fiscal of 2024-25, as net RMG exports amounted to $11.94 billion against total exports worth $19.88 billion and raw-material imports worth $7.93 billion.

The value addition remained lower than the pre-pandemic 64.32 per cent in FY19, data showed.

The central bank considered the main head value of the components (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 have said Bangladesh is largely dependent on imported raw materials, such as cotton, petro-chemicals and chemicals, despite being the second-largest exporter of garments.

"The value addition in the knitwear sub-sector is higher than in the woven segment, as the former sources 80 per cent of its necessary raw materials from local market, while woven is largely dependent on imported fabrics," says one of the sources.

When asked, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) executive president Fazlee Shamim    Ehsan said that prices of locally made garments have been decreasing over the years while costs of imports increasing.

He, however, said they were now producing many high-value-added items, and because of producing these items, their dependence on imported raw materials also increased as Bangladesh does not produce all the required fabrics, especially those of man-made ones.

As a result, value addition in RMG still remains pegged in the current position.

Otherwise, the value-addition rate would have been much lower, as prices of garment items have not increased in line with prices of raw materials and cost of production, the exporter notes.

"Value addition to knit items is higher compared to that of woven," he said, explaining that it is because they mostly manufacture products after total processing-yarn manufacturing, knitting and dying-in the country.

On the other hand, buyers have their own nominations - mostly for fabric sourcing, washing and embroidery from third countries - in case of woven garments, he notes.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) former President Faruque Hassan explains that yarn import last year increased significantly, putting an impact on value addition.

He, however, says value addition in the processes of knitting, dyeing, finishing, printing and embroidery has increased though it is yet to reach the requisite level.

Asif Ashraf, former vice -president of BGMEA, however, differs on this score. He says that value addition is not decreasing in recent years.

He, however, says last year cotton import decreased and  yarn import increased as spinners couldn't produce yarn mainly because of gas shortage.

"On the other hand, India has been exporting yarn here in the country at a dumping rate," he notes, adding that if yarn import rises, value addition would fall.

Besides, the global demand for garment items  made of non-cotton or man-made fibres  has been on the increase, whereas Bangladesh largely produces cotton-based items, the apparel-sector leaders noted.

Government policy support is needed to attract investment in producing man-made fibre-based garments - not only to increase value addition but also to face the post-graduation challenges and remain competitive, they added.

Sector leaders have requested the government for providing required policy supports, including cash incentives, for non-cotton or man-made fibre production as well as soft loan to attract investment in this segment.

According to Bangladesh Textile Mills Association (BTMA), yarn imports witnessed a significant surge in 2024.

Bangladesh imported 680.43 million kilograms of cotton yarn under bonded facility last year, which was 39.16-percent higher than the 2023 figure of 488.96 million kgs.

Besides, the imports of woven and knit fabrics recorded a 20.02-percent and a 38.35-percent rise, respectively, in 2024.

Munni_fe@yahoo.com