A move that was long overdue

The government and the local apparel sector entrepreneurs have finally taken a decision that was long overdue.

They have decided to allow conditional entry of foreign investors in the readymade garment (RMG) sector outside the export processing zones (EPZs).

 A meeting attended by the government officials and local apparel sector leaders, according to a report published in this paper Tuesday last, took a unanimous decision to this effect.

The government since long has been interested to make the RMG sector fully open to foreign investment. But the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) have opposed the idea tooth and nail fearing loss of their own business.

The arguments that withdrawal of barriers to the entry of foreign investors would help the country fetch more foreign exchange through export of high-end apparel products and transfer of higher technology did fail to convince the local apparel producers. The latter have always demonstrated a protectionist attitude.

A good number of investors willing to put in their money in RMG sector in Bangladesh had returned home disappointed in the past because of the stiff opposition from the local entrepreneurs. The foreign investors wanted to set up apparel units outside the EPZs because of the fact that the EPZs of their choice did not have any more space to offer.

The latest decision to allow foreign investment in RMG sector outside the EPZs is a welcome one. The government officials are upbeat about the outcome of the decision.

But it is hard to forecast anything right now. Everything has its timing. The enthusiasm that the foreign investors had demonstrated five to ten years back may not be the same now since lots of developments have taken place in the meanwhile both at home and around the globe.

Trade and investment are not specific to certain locations. Those would flourish in countries that would offer better facilities and environment.  

Cheap labour is a factor that has made Bangladesh competitive in the global textile markets. But that particular factor has lost its appeal, to a great extent, to the foreign investors/ buyers. Some new entrants to the global apparel market are, in addition to cheap labour, offering a few more attractive opportunities.

More importantly, Bangladesh's image has been tarnished in the outside world by the major RMG sector accidents in the recent past. The suspension of GSP (generalized system of preferences) by the USA for Bangladesh because of the recent developments in the RMG sector has not also gone well with the international buyers and prospective investors.

The country's RMG export recorded growth in the last financial year. But the rate of growth was well below expectation.

There is no denying that the air of comfort and confidence that used to dominate the apparel industry until two to three years back is now missing, to a large extent. An uneasy feeling prevails across the industry. The closure of a large number of small and medium apparel units during the last one year does tell a sorry tale. Thousands of workers have already lost their jobs.

It could be that the situation prevailing in the industry has helped the apparel sector leaders to take a stance in favour of the entry of foreign investments. Had they taken an identical decision some years back, the scenario in the RMG sector could have been altogether different. Bangladesh, possibly, would have been one of the leading exporters of high-end products along with that of low-end apparels.

However, it is better late than never. Everybody would expect that the investors would come in large numbers and invest in the Bangladesh apparel sector. But mere withdrawal of restriction is unlikely to attract the foreign investors. Both the government and the BGMEA and the BKMEA would have to ensure a climate congenial to foreign investment.

The government would have to extend its cooperation in all matters, starting from setting up of a factory down to utility connections. And the relevant associations will have to ensure hassle-free issuance of utilization declaration (UD) certificates to foreign operators in the RMG industry.

Bangladesh does offer one of the most attractive set of policies to the foreign investors. But the flow of foreign direct investment (FDI) into the country remains highly unattractive because of the deficiencies in the implementation of those policies and other ground-level hassles. A remarkable improvement in the situation might help the country receive higher FDI flow, at least, in its apparel sector.

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