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Local value addition to RMG

Wasi Ahmed | Published: February 07, 2017 19:38:11 | Updated: October 25, 2017 01:01:56


It is heartening to note that the country's readymade garment (RMG) industry has experienced a surge in value addition. The level reached lately, according to the analysis of the central bank, is the highest since Bangladesh started exporting garment decades back. A review of the Bangladesh Bank on RMG showed that local value addition to the industry rose to 75.35 per cent in FY16.
This is good news on a number of counts. At the start of the mid eighties, there was virtually no value addition in garment export, and all that the manufacturers earned were cutting and making (CM) charges as the fabrics and most of the accessories were imported under master LCs covering cost of import and charges for CM. Gradually, since the mid nineties things began to change for the better, especially in the 'knit' segment, followed by a slow forward movement in supplying woven fabrics produced by local textile mills. The progress became quite noticeable in the years that followed.
The requirement of two stage transformation to become eligible for the then EU Generalised System of Preference (GSP) also augmented the production of quality local fabrics with a number of composite textile mills coming into operation. However, subsequently, with a major change in 2011 in the EU GSP allowing one stage transformation to qualify for preferential duty benefit, the tempo with which local textile manufacturers had gotten themselves into the task was partly gone. This has been clearly reflected in the value addition of exports for some years in the recent past. Now, with the Bangladesh Bank's review of the current state of value addition, it is apparent that the local textile mills, despite many hazards relating to power and gas supply, are capable enough to compete with imported fabrics and the exporters of garments too are more into local sourcing than importing - to the satisfaction of their overseas buyers.
Estimation of value addition is not a cumbersome process. Calculating the cost of import of raw materials vis-à-vis earning from export in a given financial year readily gives the picture. In the FY16, import price of raw materials and accessories stood at US$6.92 billion through back-to-back L/C. The value was 24.7 per cent of the total export earnings of woven and knitwear worth US$ 28.09 billion.
The important thing that must be taken into consideration in this regard is that despite competition from giant textile manufacturing countries, Bangladesh's value addition in garment export could have increased considerably had the textile mills been in a position to avail smooth supply of power, gas and water. It is believed that in the knitwear segment, the local mills are now able to supply more than 90 per cent of the raw materials. The woven wear segment lags far behind-to the tune of 50-55 per cent, and as for accessories, local procurement is on the increase.
It's no mean achievement for Bangladesh, a traditionally non-textile producing country, to rise up to the challenge of feeding raw materials and accessories to the bourgeoning garment industry -- to the extent it has been capable of so far. Who could have imagined decades back that almost cent percent of the knit fabrics could be sourced locally! The approximation of 50 per cent or more in case of woven wear is also a monumental accomplishment given of course the formidable supply chains in the neighbouring regions.
Although setting up composite textile mills is a highly capital-intensive venture, the prospect of supplying fabric to the RMG industry has paid off well as some mills with state of the art technology have emerged, and have been able to live up to the promises in terms of quality assurance and timely delivery. The important thing is that because of the success of local sourcing, the lead time that usually was around 20-30 days - due to import of fabric and accessories -- has been drastically cut, much to the cheer of both the manufacturer-exporters and overseas retailers.
Industry insiders, however, feel that under the circumstances higher value addition is not possible unless more woven mills come up to meet demand and curb imports. With the special economic zones expected to come up in the foreseeable future, things may change a good deal, they opine. Ensuring gas and electricity would then be the essential preconditions to render the zones advantageous.
While the hike in value addition from increased local sourcing is  welcome, observers feel that despite the existing limitations, the country's garment sector has the potential to grow in terms of value addition if there is a noticeable shift to exporting up-end products. There are garment units in the country which do export up-end items, but the scope to cash in on this in a bigger scale is largely unattended. The government at this point in time should ensure that local sourcing is not affected in any way, and that facilties -- not necessarily through cash incentives -- are in place so that the textile mills are increasingly encouraged to raise their productivity.  
wasiahmed.bd@gmail.com

 

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