Is FDI a boon or bane for RMG sector?

The question of whether Foreign Direct Investment (FDI) in Bangladesh's readymade garment (RMG) sector is ultimately beneficial remains unresolved. Industry stakeholders and policymakers have yet to provide a definitive stance. There are foreign collaborations, but not in the form of any large-scale FDI. However, the government's efforts to attract FDI in both within and outside the Export Processing Zones (EPZs) is not industry-specific, and hence not meant to exclude any specific manufacturing sector beyond the scope of investment. The key question remains: is FDI outside the specialised zones a welcome proposition?

In recent years, Bangladesh has emerged as a viable destination for industrial relocation, especially from countries like China, Japan, and South Korea. Rising labour costs in those economies have prompted many manufacturers to seek alternative locations for setting up export-oriented industries. Bangladesh, despite infrastructure and governance challenges, offers competitive advantages such as low wages, abundant labour force and experience in mass garment production. Among all manufacturing sectors, the RMG industry stands out as the most promising candidate for attracting overseas investment. Industry observers argue that FDI in this area could generate multiplier effects across various related sectors-logistics, packaging, accessories, and more.

However, local RMG manufacturers remain wary of such developments. It can well be guessed that much of the concerns of the local manufacturers stem from the fear that if the government allows unconditional approval to foreign investment in the RMG sector, there might be serious competition in the low-end segment products---the key strength of Bangladesh's apparel industry. This fear is further heightened by the fact that China has already made it known that producing low-end apparels is no longer viable in that country, because of soaring wages. So, provided with adequate opportunities, chances of relocation of Chinese factories for low-end products are high.

In view of this, stakeholders are more inclined to confine foreign investment to the garment sector and the EPZs only. As for investment outside the EPZs, they reportedly agreed some time ago to accept foreign investment outside the EPZs on condition that those factories will produce fashion items for non-traditional and new markets like Russia, Brazil, China, South Africa, India, Australia and Mexico.

The country's RMG sector is now in a state of uncertainty, if not of panic. Although exports did not suffer any major setback due to the fallout of the Covid 19 and the Russia-Ukraine war on global markets and some ups and downs in export orders coming to Bangladesh, the sector did demonstrate strong resilience that eventually paid to ride out the problems of supply chain disruptions and market instability. However, in order to further strengthen the foundation of the industry, experts including foreign buyers stress upon the need for expanding and diversifying the manufacturing base in ways that will be beneficial to the local industry and the country's economy. Is FDI the right recipe in this regard?

In the recently held investment summit, the deliberations mainly centred on economic zones including what the country is ready to offer to investors in those zones. Since the event was organised by the Bangladesh Economic Zones Authority (BEZA), the focus was obviously to attract prospective investors to those zones - some of which are country-specific.

There are quarters in the country who fear foreign investment in the RMG outside the SEZs and EPZs might pose genuine threat to the sector. Looking at the scenario simplistically may not help, as there are counter-arguments that may reveal that the fear of the local manufacturers is more from better wage prospects for workers in the foreign factories, which in turn will have its effect on the local factories.

Notably, the local manufacturers at the moment are rigid in their stand on wages. The rigidity of domestic entrepreneurs on wage issues has often been a contentious topic, particularly in labour rights discussions. Allowing foreign investment in low-end segments could, they fear, disrupt the wage equilibrium and create labour unrest in existing factories. So, according to them, inviting foreign investment in the basic and low-end segment of apparels would call for undesirable chaos. In this context, critics are at ease to raise the all-important question: if foreign investors can afford to pay better and still make profits, why not the locals?

Given these complexities, any decision to allow FDI in the RMG sector - particularly outside EPZs -must be preceded by a comprehensive consultation process. Engaging local stakeholders, especially domestic manufacturers, will be critical in finding a workable solution. It is also essential to involve think tanks, policy analysts, and industry experts to weigh the broader implications of such a policy shift.

Bangladesh's RMG sector is at a crossroads. While FDI could act as a catalyst for transformation and long-term competitiveness, unregulated or poorly managed foreign entry could disrupt the delicate balance the industry has maintained over decades. A thoughtful, strategic approach - rooted in inclusive dialogue and clear regulatory frameworks - will be essential to ensure that FDI complements rather than competes with local industry.

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