The economic growth of Bangladesh, to a great extent, depends on the export of apparels which account for approximately 80 per cent of the country's total export earnings. It also constitutes approximately 12 per cent of country's GDP. It is the only sector that provides an employment of about 4 million people where about 85 per cent are women. The export of apparels increased tremendously during the last three decades from US $ 868 million in 1990-91 to US $ 30 billion in 2018-19. The journey started in 1978 with a shipment of 10,000 men's shirts worth 13 million Francs to a French company from Reaz Garments Ltd, although Desh Garments Ltd. was the first fully export-oriented garment factory in the country.
During the last three decades, this industry has rapidly grown due to policy support from the government, the availability of cheap labour, quota facility, cash incentives against export, and entrepreneurial skills such as dynamism of private sector entrepreneurs, among others. However, over the years the industry faced serious problems including legitimacy threats in connection with labour rights and factory working conditions, health and safety issues. Over and above, recently the industry is fraught with many disadvantages due to covid-19. However, it appears that it is trying to ride out the crises with strong commitment and dynamic approach. This short op-ed article provides an overview of how this industry, overcame some of the major obstacles including the covid-19 and what would be its next export destinations and why.
The first backlash this industry suffered was during the late 1990s, which was a threat arising from the use of child labour or so called 'sweat shop'. The industry was exposed to a serious threat of legitimacy from the Western buyers. However, with the help of ILO, BGMEA, Westerns buyers, local and international NGOs, and policy support of the government, it successfully regained its legitimacy and the RMG sector become child labour-free by the end of 2004.
The second major obstacle it faced was due to the withdrawal of 'MFA quota'. Bangladesh had been enjoying the trade quota facility since 1985, and since it has enough manpower, it fully utilised its trade quota unlike its neighbours India, Pakistan, Sri Lanka and Nepal. However, the industry remained competitive even after the withdrawal of export quotas by 2005 although at that time critics were opinioned that the garments sector will lose its market and would not survive in the quota-free global market. Surprisingly, the RMG sector overcame that 'withdrawal of quota facilities' successfully and even they were able to capture more market share in the quota-free global apparel industry. That was a major milestone for the RMG manufacturers which eventually increased the confidence of Bangladeshi garments manufacturers about the quality of their products in the global marketplace.
The third occurrence happened when Rana plaza collapsed and caused the death of 1150 garments workers in 2013. After the 'Rana Plaza' collapse, there were huge international pressures to improve factory working conditions and therefore health and safety issues. As a result, two international bodies such as Accord (European retailers) and Alliance (North American buyers) started their activities in Bangladesh to improve the working conditions, and safety of the factory workers. By the end of 2018, both of the bodies were successful in implementing their objectives and improving the working conditions, health and workplace safety of the factories of Bangladesh. During this period, even some of the Bangladeshi garments factories implemented green manufacturing processes and are now ranked among the top in the global green manufacturing lists. A very recent report by USGBC (LEED) stated that out of top 27 environmental friendly establishments, 14 belong to Bangladeshi garments and textile factories. Having such recognition from the USGBC (LEED) is highly loadable for the garments and textile sector of Bangladesh and for its overseas brands and this will further enhance the credibility of the safety issue of the factories located in Bangladesh. At the onset of 2019, the BGMEA targeted US $ 50 Billion export by 2021. While these are very positive news and developments, this industry suddenly fell into the clutches of the most disastrous pandemic.
Bangladesh traced the first covid-19 confirmed case on March 8, 2020 and it enforced a complete lock down from 23rdMarch, 2020. During this period, China closed its shipment of raw materials, as a result some factories were forced to shut down their operations. It is noted that most of the Bangladeshi garments factories are dependent on China for their raw materials and other necessary accessories for production of garments. As the customers also banned shipments or canceled orders, the factory owners faced problems from both supply side and demand side. In fact, the whole apparel supply chain was disrupted from top to bottom. Brands and retailers cancelled or postponed order as well as deferred payments. Primark, Arcadia Group, M&S, H&M, Nordstrom, American Eagle, VF Corporation, PVH Corp, Levi's, Target and similar high-end brands either cancelled or paused new orders. A total of 738 factories received order cancellation emails and as a result, orders for US $ 2.4 billion worth of products have been canceled as reported by newspapers quoting BGMEA sources.
In this circumstance, many garments factories were closed and as the lockdown continued, the majority of the workers were not able to go to their homes. Some factory owners stopped making payment to their workers. However, the government took rapid action by declaring a stimulus package for export-oriented industries. The total amount of this package is BDT 5,000 crore (equivalent to US $ 5.90 billion). The allocated money from the package could only be disbursed in the form of salaries and wages for employees and workers of the export-oriented industries including the apparel industries. The needed amount can be availed from the package at 2 per cent interest. However, finally the RMG sector overcome this situation and now, most of the factories are operating in full scale.
It is surprising to know how this industry overcome this pandemic. From my personal conversations with some of the garment owners, I came to know that their utmost dedication and changing of business models worked here a lot. For example, some of the factory owners started to manufacture different types of masks, personal protective equipment's (PPE), gloves and gowns for medical staff and so on. As the pandemic spread throughout the world, this provided further opportunity for Bangladeshi garments manufacturers to produce garment products essential for covid-19. Even some of the foreign buyers cancelled their original products and re-ordered for protective gears like masks, PPEs, gloves and gowns etc.
Due to covid-19, many things in the world have changed like world geo-politics and bilateral and multinational relationships. We have already seen some growing geo-political tensions between the USA and China and between China and India which might open up further avenues of exports and joint venture opportunities for Bangladesh. Bangladesh can seriously think of its next best export destination as China. This is also stirred by the recent declaration of Chinese authority about the 'zero tariff access' to 97 per cent of its goods imported from Bangladesh, covering more than 8000 products. This implies that Bangladeshi manufacturers will now be able to avail this duty-free and quota-free facility after 40 per cent value addition to these products. This would be a perfect stepping stone for Bangladesh to act on. Bangladesh can use this for further expansion of apparel exports to China. Currently, the major destinations of RMG exports are North America and Europe. Bangladesh exports 90 per cent of its garment products to the US and EU markets and ranks third in the EU markets, after China and Turkey. But due to covid-19, the target of export might not be achieved from these destinations.
So Bangladeshi RMG exporters need to explore new and untapped market and China would be one the best target markets. There are many reasons for it. For example, China has a huge market of more than 1.4 billion people. China's share in global apparel market has declined following rising production costs, and transition to high-tech industries from labour intensive industry although it still remains the largest supplier of apparel items in the world. Since China is undergoing an economic transformation from labour-intensive to high-tech manufacturing, it is expected to relocate some of its factories to other low labour cost countries such as Bangladesh and then import those products under the zero-tariff facility. Also there are huge increase in consumer demand for high-end apparels. The shipment time is also an import factor for export as in comparison to USA or European countries, it will definitely take lesser time to deliver shipment to China due to its closer geographical location to Bangladesh. Bangladesh imports around US $ 5 billion worth of fabric annually from China. Moreover, since Bangladesh is dependent on China alone for more than 50 per cent of apparel raw materials, and about 40 per cent of the machinery and spare parts for this industry, using back to back L/C might be easier for both of the countries' to export/import their needful. Considering all of these factors, Bangladeshi apparels manufacturers might explore Chinese market as a lucrative destination for future exports. However, Bangladesh needs to concentrate on diversified and high-value products and need to focus on improving competitiveness as a matter of priority to enter into the Chinese market. On the contrary, China needs to relax some of its stringent non-tariff barriers such as Chinese Rules of Origin (RoO) in this regard. At the end, there might be a win-win situation for both countries.
There is no guarantee that covid-19 like pandemic will not come again. So the lesson we learned for future is to redesign the business models. For example, apparel industry needs to make a backup of supply chain for basic raw materials and maintain provisions for lag time as well as looking for alternative sources of raw materials. For sustainable future expansion, Bangladeshi garments and textile sector need to explore some of the untapped markets globally and China would be the best one considering the present socio-economic and geo-political issues.
Dr. Yousuf Kamal is an Associate Professor, Dongbei University of Finance & Economics, Dalian, China. He is also a Professor (on leave) of the Department of Accounting & Information Systems, University of Dhaka.