The Financial Express

Adding more value to RMG

| Updated: October 25, 2017 05:29:13

Adding more value to RMG

Newspaper reports say that the country's readymade garments export has lately experienced a fall in value addition. Given the importance of value addition, this no doubt is demoralising, especially in the context of increasing use of local materials, including fabrics, in both woven and knit products. However, a careful examination may not prove the report disheartening in that the slump is too small to be worried about.

One can well recall what the situation of value addition was like even a decade back. That the country was able to increase value addition from a meagre 20-30 per cent to well over 75 per cent is no small accomplishment. At the initial stage when Bangladesh went into exporting apparels, the only value that could be added to finished products was that of cutting and stitching. But it was from such a state that value began to be added on various counts-mainly from the availability of local fabrics and a host of accessories associated with garment production.

Credit goes to the entrepreneurs in the textile sector who did make great efforts to set up textile mills, including composite textile mills, with massive investments. This is particularly significant for a country that had virtually no textile base. As imports were open to feed the garment industry, emergence of these local textile mills was fraught with serious challenges. And for the overseas importers, preference for local materials also went a long way to render value addition a remarkable achievement in our overall textile sector.

As mentioned, it is no mean accomplishment that Bangladesh's RMG industry today is in a position to fetch more than 75 per cent value addition. The average value addition from the fiscal year 2010 to FY20 17 remained at around 75.0 per cent.  In the fiscal year 2014-15, value addition peaked at 75.67 per cent, according to a Bangladesh Bank report. In the last financial year (2016-17), gross value addition fell by 0.28 per cent. The central bank prepares report on value addition considering yearly data on RMG exports and import of raw materials under back-to-back letters of credit.  In the FY'17, import prices of raw materials stood at over $7.0 billion through back-to-back L/Cs which was 24.93 per cent of total RMG export value. Value addition of knit products is believed to be around 90 per cent and that of woven products around 50 per cent. In some cases, value addition of both clothing products vary.

The figures stated here point to the fact that in recent years, despite growth in RMG exports, value addition is in a state of stagnation hovering around 75 per cent. In this context, we must not forget that exports have been growing every year, though not at the same pace. This growth in exports does not make the case of value addition simplistic as many quarters in the country may tend to consider it so. In fact, growth in exports offers the challenge of maintaining value addition, which our RMG sector has been able to do.

As for the slump in value addition, slight though, there is a general observation that it is a reflection of the slump in demand for apparel products in global market, especially in the EU markets. The country's overall exports grew by 1.16 per cent to US$ 34.65 billion in the past fiscal year-with knitwear registering 3.0 per cent growth while woven products experienced decline by 2.36 per cent. Over and above, falling prices of exported apparel products may also be attributed to the decline in value addition. Industry insiders inform that throughout the last fiscal, prices have been falling. As a result, although the volume of exports increased, it didn't get reflected in the export earnings.

There are quarters within the country who believe that value addition in Bangladesh's RMG sector has almost reached the optimal level given the production and export of low-end products. This, no doubt, is an improper way of looking at the industry and its projected growth. True, export of cheap and low-end products has impeded the desired rise in value addition. But this is only a current reality. 

For Bangladesh, as of now, value addition is mainly reliant on backward linkages. And so, adding value by way of accessing the up-end market segment is still a long way ahead. There are state-of-the-art factories in the country which do cater for the up-end segments, but this does not reflect the overall situation dependent mostly on producing cheaper products for big international retailers. For value addition to stand out very significantly in the country's garment exports, it is a combination of backward linkage and capacity building for diversified products, including up-end products that should gain increasing prominence in strategising exports.


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