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The Financial Express

Is Bangladesh garment sector facing headwinds?

| Updated: October 24, 2017 20:25:05


Is Bangladesh garment sector facing headwinds?

It has not exactly been a path of roses for Bangladesh garment sector as it began its momentous journey over three decades ago. There were various domestic problems to contend with. But it was the challenge faced in the external markets that proved daunting, if not intractable. To the credit of the fledgling sector the odds were to overcome and Bangladesh became a star performer in the realm of readymade garments. It has become the second largest manufacturer and exporter of both woven and knitwear garments, now poised to stake a claim to the first position.
Among the problems that threatened the spectacular success of Bangladesh garment sector was the financial crisis of 2008 that hit the markets in the developed countries. The sector weathered the crisis with aplomb and confidence. Then came the disaster in the home front in the form of Tazreen fire accident and Rana Plaza collapse resulting in scores of death of workers that shook the conscience of buyers making them impose a long list of expensive programmes on the garment manufacturers for workplace safety and labour rights. The damage to the image of the sector may still be haunting the minds of garment makers but most of them have, by and large, been able to comply with the requirements proving the resilience of the sector. The Trans-Pacific Partnership Agreement (TPP) and the withdrawal of generalised system of preference (GSP) by America had potential risks for the Bangladesh garments sector but have not dealt any body blow because the first has not become effective and the significance of the second has not been much as the garment sector was not covered by GSP.  
Now comes the news about several developments in the external market and in some exporting countries that sound ominous for the Bangladesh garment sector. The foreign trade policy of the newly-elected American President has threatened to become protectionist as imposition of additional or new taxes on import to American market has become likely across the board, making no exception to developed and developing or for that matter, to least developed countries (LDCs). If the threat becomes reality it will have severe repercussions for the Bangladesh garment sector because America is the biggest market for garment export. 
Brexit that marks the exit of United Kingdom (UK) from the European Union (EU) within two years has the implication that Bangladesh garments to the UK market will not automatically enjoy duty- and quota-free access as was the case when the country was a member of EU. 
Recent news from the garment sector in China has not been assuring or favourable for Bangladesh. Being the focus of much of the new American Administration's anti-free trade rhetoric China apprehends slapping of a hefty duty on its exports, including garments. Currently the country is the biggest exporter of garments to the American market. To fend off the possible restrictions in the form of higher tariffs and to remain competitive with other exporters China is reported to be drawing up plans to reduce the prices of various items of garments, particularly in the upscale market. 
India, another major supplier of garments to the American market, has already given several financial incentives to the sector to maintain its competitive edge. 
All told, an unprecedented crisis originating in the external market appears to be looming in the not too distant horizon. 
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the export earnings for the sector have been languishing with declining trends in both volume and prices in recent months. The reason that has been identified for this is the shrinkage of the global market for garments. The purchasing power of consumers worldwide, particularly in the developed countries has diminished due to unemployment and lower wages. If the trend continues, it will be difficult for the garment manufacturers to sustain even the present level of production, according to BGMEA. As evidence for this it has pointed out the gradual reduction in the growth of garment exports from Bangladesh. The latest figure for February 2017 shows that exports of knitwear declined by 2.47 per cent. The decrease in respect of oven items for the same month is 8.68 per cent. Overall, exports of garments declined by 5.95 per cent compared to March last year. Though exports to the EU increased by 7.28 per cent, this was offset by decline in the American market to the tune of 7.8 per cent. The exports to Canada, another major destination of Bangladesh garments, declined by 7.10 per cent over the same period. More worryingly, the prices of garments have declined along with the decrease in the volume of exports. According to BGMEA, the prices of garments exported to the 28 member-countries of the EU declined by 2.47 per cent during June to September last year. In the same way, the price of garment exports to the USA decreased by 0.53 per cent. Taken together, the effect of rise in the cost of production and the fall in the value of Taka have led to a decline by 62.84 per cent, according to BGMEA. 
This apparently makes the target of attaining US$ 50 billion export earnings for the sector aspirational, unless there is a dramatic turn-around in the performance of the sector. This will not take place simply on the basis of wishful thinking.
The garment sector of Bangladesh has proved its resilience, time and again in the past. It should take determined steps to avert the present and impending crisis based on past experience. Raising the productivity of labour is one way to reduce the cost of production; measures needed for this should be undertaken without any delay. New markets for exports should be explored, particularly in the Middle-East and Latin America where the footprint of the sector is almost non-existent. Rather than be driven by existing buyers, the garment sector should be on the offensive and find new buyers through direct contact. 
But there are limits to what the sector can do on its own. The government should gather information about what other countries are doing, particularly India and China, to maintain and expand their export markets. Both fiscal and monetary policies should be geared up to help the garment sector that has been the highest foreign exchange earner of the country for the last three decades. Negotiations should be started with the government of UK to retain the same duty- and quota-free status after Brexit that the country enjoys now. Efforts to restore GSP in the American market should be intensified emphasising the fact that Bangladesh is still an LDC. This may at least lead to no spike in taxes on Bangladeshi exports. The garment sector has become well aware of the crisis looming ahead. The question is whether the government is on board with it.  
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