The Financial Express

Building on RMG and looking beyond

| Updated: October 25, 2017 05:26:29

Building on RMG and looking beyond

Ready-made garment (RMG) has for almost two decades been Bangladesh's much-hyped economic success story, which the nation views as the cherished economic emancipation, the pride of a nation which started from a very humble, war-torn beginning when more than ten million people left completely destitute after a war of attrition were barely able to feed themselves and their families three proper meals a day.

Over the last four decades since the Independence the RMG sector has become one of the important vehicles of economic development and wellbeing of the weakest section of people--the womenfolk of the country. It is no wonder that the World Economic Forum ranks Bangladesh 9th in the comity of nations with the fastest growing economies.

RMG has greatly contributed to lifting the nation from the "economic basket case" to the status that saw a GDP (gross domestic product) growth rate of more than seven per cent in the fiscal year (FY) 2016-2017. Currently the sector employs about four million (40 lakh) workers. About 80 per cent of the RMG workers are women who, like most average women in developing nations, were dependent and reliant on others for their own sustenance. It is well-accepted by development gurus that without participation of a half of the working age population in the productive sector, no nation will ever be able to become economically sustainable. The government's stated objective of attaining the middle income country status may not be achievable without sustained growth of the RMG sector.

RMG has ensured a sustained flow of the precious foreign exchange to the coffer of the country's central bank and allayed the concerns about sustainability of the country's economy during any global volatility. RMG has fetched about 81 per cent of the export earnings of the country in the FY 2013-2014. The RMG sector, hence, arguably is the powerhouse- the face of Bangladesh's economy.

Yet, no matter how promising and burgeoning the industry may seem, the nation has definitely has hopes and the ever luminescent future hinged on this single industry as a substantial source of foreign exchange. In a nation where a single industry, regardless of scale and size, serves as the economic powerhouse, the economy and the livelihoods of a large number of people are at risk of slipping into poverty from which they have just graduated, throwing the nation and its future into utter despair. In history no nation which has relied on a single industry/resource to collect and provide a significant portion of foreign revenue has prospered well for a long time.

An appropriate example of this would be Venezuela, satiating its hunger and escaping from the bestial grip of economic deprivation by piling debt after debt- it was because of the nation's innate reliance on oil exports as the main source of income and provider of foreign exchange earnings.

At one point of time, with the Brent crude oil soaring to $130-$140 a barrel, it looked like Venezuela, after all the years of struggle, sitting on the world's most abundant supply of crude oil, had its merry hay days in sight, finally expecting a stabilised economy that would be able to feed its people with the proceeds from oil exports. Contrary to the dogmatic belief, the nation's economy started its long road down from the apex it had sat on- now drowning below the ocean's abyss as major economies such as China decelerated and oil prices plummeted.

Now, in its very final attempts to stop being drowned in spite of sitting on its reserves of liquid gold, Venezuela's foreign exchange volume consists of a paltry ten billion US dollars or about 8.2 billion euros. It is not intended to discourage further expansion of RMG. But Bangladesh is risking too much when its hopes and future hinge on a large share of foreign exchange earnings from the RMG sector alone.

At the top of the list is a fierce competition from other developing nations and China. Although Bangladesh may boast a large number of cheap, affordable non/semi-skilled labour, it should not go as far as to think that it is the only country that reaps such population dividends - "blood diamonds" can be found for cheap elsewhere in the world too.

Apart from China, Bangladesh must compete against the fast-growing number of looms in Vietnam, Indonesia, India, Thailand and Turkey, all of which provide "blood diamonds" for a bargain, sometimes even cheaper.

If productivity of each worker is factored into the equation, in many cases, Bangladesh stands in a significantly disadvantageous position due to the low productivity of labour. In fact, Bangladesh ranks near the bottom of the productivity index of countries (assessed by GDP generated per hour) with a score of 1.98 while India stands at 3.4 and Thailand at 8.54. So, while RMG has constantly been able to play the backbone of the nation's economy, there is a possibility, a very slight one, that it may not be able to retain that position as competitors further develop and strengthen their own RMG sectors with higher production, lower prices and more appeal with high-end products for potential clients.

The second threat seems to come from what will be the most, non-conventional and radical change in the industrial revolution of the 21st century: robots are here. A huge budget currently set aside for research on robotics and developing robots for a variety of jobs that require strenuous, arduous physical activity, which directly points to mass-scale manufacturing. The robots that will replace a lot of humans in this sector will not only be faster and more productive but also be more cost effective in the longer term, encouraging companies to replace their biological workforce with a new race of AI (artificial intelligence) workers. In fact, China has already started this initiative, though on a very modest scale.

The developed world will be the first to take advantage of such an efficient workforce, while developing countries reliant on the RMG sector will fail to completely revamp their workforce and convert it to a mechanical one, leading to the loss of clients, a decline in orders ,and, of course, the loss of many, many jobs. Bangladesh and its RMG sector, therefore, face a significant challenge of being utterly outpaced.

The third problem has been a common industrial dilemma in Bangladesh ever since the inception of the RMG sector, although some of it has been improved with the technical support of the buyers and the owners of such factories. Two major accidents in the RMG sector combined with low, unsatisfying wages of barely $113 and the employment of child workers illegally have not escaped the eyes of the clients, who place great importance on industrial safety standards and compliance, and thus a good number of the industries have received the lukewarm response from their clients to supply of RMG products. And more than 200 factories had to shut down resulting in loss of employment for the weaker stratum of our society.

The focus of the nation should now be on diversifying the export sector and remove the country's heavy dependence on the RMG sector as a constant source of the foreign exchange reserves; in this case, Bangladesh has ample opportunities to introduce and install different industries that can earn revenue in the foreign currency.

This could include increasing agricultural exports, expanding the jute production and processing sector, expanding the technology and electrical products sector, pharmaceutical factories and footwear and leather units, and enabling them to market their products overseas and establishing an international service centre that will work with international consumers.

Diversification will not only distribute the task of collecting foreign revenue among more businesses, thus making the country more vibrant economically, but also it will provide a slew of employment opportunities for many of the skilled-workers in the country.

The service industry, especially, seems like an industry that can prosper well, given that 53 per cent of the local economy is powered by the services sector. But, to push this past the post, it definitely needs a substantial budgetary allocation for vast improvement in terms of public education and the English language, too. In a country where most of the citizens are monolingual, teaching the posterity and the future generations English, a global language, at the local and national levels is necessary for the nation to start its climb to the peak of the international level; education is the key and English being the lingua franca should be promoted vigorously at all levels since it is applicable almost everywhere in the world.

A significant portion of the population are bilingual and are able to communicate with global consumers, reducing the language gap and enabling easier communication between the seller and the buyer that ultimately leads to better deal making - fluency in English is the key. Without it, Bangladesh is left dangling from a rope suspended over a dark, dark abyss- economic deceleration. Finally, to conclude, 'the goose that lays golden eggs should not be killed due to greed.' Rather, it should be nurtured carefully so that the country gets the maximum dividends from it.

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