Consolidating gains in the RMG sector
Sunday, 1 May 2011
Mahbub Mansur
Export prospects of Bangladeshi readymade garments (RMG) have indeed brightened. This is evidenced from a marked growth of earnings from RMG exports. The value of Bangladesh's garment exports surged to $14 billion in the eight months to March in fiscal 2010-11, up 40% at an annual rate. Realistic projections point towards potentially happy times for the RMG sector. One such look into the future see total annual earning from RMG reaching US$ 35 billion or more than a doubling from the current fiscal year's total probable earning. Two favourable developments -- one-step generalized system of performance (GSP) facility for Bangladesh to export RMG products to the European Union (EU) countries and two-stage GSP facility to export RMG products to Japan -- would be the bedrock of such expansion of exports of RMG products. A truly inspirational development in the RMG sector has been the growth of export to potentially new large markets, besides those of the USA, EU, Canada etc. The rule change by the EU merits here a particular mention. This allows clothes - and also other finished goods made in Bangladesh and other least developed countries - to come there duty-free as long as the value of their imported components do not exceed 70%. Previously, the EU, as the reports said, granted duty-free access to manufactures with an import content of 30%. China, Pakistan, India and Sri Lanka that are Bangladesh's main competitors, do not have "least developed" status. This advantage, in addition to rising labour costs elsewhere, has facilitated the boost to Bangladesh's RMG exports. So far, the higher demand for Bangladeshi RMG has continued to be met by the existing number of garments industries or making greater use of the capacities installed in them. But making the most out of the rising demand for RMG products both in the traditional importing countries and the new ones, would require establishing increased capacities for production to go on progressively meeting the higher demand. But new RMG industries in Bangladesh over the last two years have been few and far between. This is a disconcerting development. This is particularly so in view of the fact that conditions for rapid expansion in the export of RMG products from Bangladesh have otherwise been created from the comparatively lower competitiveness of China and some other countries. Buyers are now considering Bangladesh as a more cost-efficient destination for procuring RMG products. But matching this enthusiasm on the part of buyers, the country's production and supply capacity within a favourable framework of competitiveness do need to be simultaneously expanded in order to keep a balance between rising demand supply and enhanced capacity. Any mismatch in this matter resulting from Bangladeshi RMG industries' failing to adequately fulfill this demand, could lead to loss of goodwill and interest on the part of buyers and their turning away from Bangladesh in search of other suppliers. Thus, it is highly important that full capacity utilization as well as activities aimed to rapidly increase capacities are undertaken by the entrepreneurs in the field. The RMG entrepreneurs here must be commended for already doing a good job in this regard. But there is a limit to their helping themselves. The government needs to play its part in extending timely and meaningful supports to the entrepreneurs to this end. A big negative factor in RMG production is the presently squeezed conditions of gas and power supplies. Notwithstanding the prevailing supply-side constraints in a critical area like energy, the government must be guided by a policy of prioritization and give the pivotal importance to the RMG sector. It should take special care to supply gas and power to RMG producing units on a preferential basis. The RMG factories should also be aimed for protection from acts of vandalism and violence. Furthermore, the government does need also to generously extend its policy-supports to the RMG sector under its programme of giving packaged incentives to the export-oriented industries. The RMG sector is short of trained and skilled workers by some 25 per cent, according to the industry's leaders. Here, the government can play a truly useful role by training in greater number the potential RMG sector workers in its technical training centres. That will help enhance the productivity of the workforce in the sector. Furthermore, infrastructures like roads and ports do need to be kept in far better conditions to ensure the fastest transportation of RMG-related cargoes. Pro-active policy-supports for facilitating the expansion of RMG industries will be eminently sensible, also from the perspective of job creation. Greater and faster job creation is presently a big challenge for the economy. The unemployment problem may be considerably eased by creating more jobs on a relatively larger scale in new RMG as well as textile industries.
Export prospects of Bangladeshi readymade garments (RMG) have indeed brightened. This is evidenced from a marked growth of earnings from RMG exports. The value of Bangladesh's garment exports surged to $14 billion in the eight months to March in fiscal 2010-11, up 40% at an annual rate. Realistic projections point towards potentially happy times for the RMG sector. One such look into the future see total annual earning from RMG reaching US$ 35 billion or more than a doubling from the current fiscal year's total probable earning. Two favourable developments -- one-step generalized system of performance (GSP) facility for Bangladesh to export RMG products to the European Union (EU) countries and two-stage GSP facility to export RMG products to Japan -- would be the bedrock of such expansion of exports of RMG products. A truly inspirational development in the RMG sector has been the growth of export to potentially new large markets, besides those of the USA, EU, Canada etc. The rule change by the EU merits here a particular mention. This allows clothes - and also other finished goods made in Bangladesh and other least developed countries - to come there duty-free as long as the value of their imported components do not exceed 70%. Previously, the EU, as the reports said, granted duty-free access to manufactures with an import content of 30%. China, Pakistan, India and Sri Lanka that are Bangladesh's main competitors, do not have "least developed" status. This advantage, in addition to rising labour costs elsewhere, has facilitated the boost to Bangladesh's RMG exports. So far, the higher demand for Bangladeshi RMG has continued to be met by the existing number of garments industries or making greater use of the capacities installed in them. But making the most out of the rising demand for RMG products both in the traditional importing countries and the new ones, would require establishing increased capacities for production to go on progressively meeting the higher demand. But new RMG industries in Bangladesh over the last two years have been few and far between. This is a disconcerting development. This is particularly so in view of the fact that conditions for rapid expansion in the export of RMG products from Bangladesh have otherwise been created from the comparatively lower competitiveness of China and some other countries. Buyers are now considering Bangladesh as a more cost-efficient destination for procuring RMG products. But matching this enthusiasm on the part of buyers, the country's production and supply capacity within a favourable framework of competitiveness do need to be simultaneously expanded in order to keep a balance between rising demand supply and enhanced capacity. Any mismatch in this matter resulting from Bangladeshi RMG industries' failing to adequately fulfill this demand, could lead to loss of goodwill and interest on the part of buyers and their turning away from Bangladesh in search of other suppliers. Thus, it is highly important that full capacity utilization as well as activities aimed to rapidly increase capacities are undertaken by the entrepreneurs in the field. The RMG entrepreneurs here must be commended for already doing a good job in this regard. But there is a limit to their helping themselves. The government needs to play its part in extending timely and meaningful supports to the entrepreneurs to this end. A big negative factor in RMG production is the presently squeezed conditions of gas and power supplies. Notwithstanding the prevailing supply-side constraints in a critical area like energy, the government must be guided by a policy of prioritization and give the pivotal importance to the RMG sector. It should take special care to supply gas and power to RMG producing units on a preferential basis. The RMG factories should also be aimed for protection from acts of vandalism and violence. Furthermore, the government does need also to generously extend its policy-supports to the RMG sector under its programme of giving packaged incentives to the export-oriented industries. The RMG sector is short of trained and skilled workers by some 25 per cent, according to the industry's leaders. Here, the government can play a truly useful role by training in greater number the potential RMG sector workers in its technical training centres. That will help enhance the productivity of the workforce in the sector. Furthermore, infrastructures like roads and ports do need to be kept in far better conditions to ensure the fastest transportation of RMG-related cargoes. Pro-active policy-supports for facilitating the expansion of RMG industries will be eminently sensible, also from the perspective of job creation. Greater and faster job creation is presently a big challenge for the economy. The unemployment problem may be considerably eased by creating more jobs on a relatively larger scale in new RMG as well as textile industries.