New challenges in the RMG sector
Friday, 28 December 2007
Amirul Islam
Restriction on export of Chinese apparels to the lucrative US market -- which were designed expressly to help garments exporting countries like Bangladesh -- would be withdrawn early in the new year. The European Union (EU) countries are also about to enforce new regulations that would mean profitable operations of Bangladeshi garments exporters from more value-addition in the garments to be exported. In the new emerging scenario, Bangladesh's main strength can be no other than acquiring greater competitiveness for its garments industries. And the single most important factor in improving this competitiveness is considered to be its having sufficient number of linkage industries, locally, to support the RMG sector. Keeping this factor in clear view, the RMG sector entrepreneurs, the policy planners in the government and all others concerned, should engage in determined activities to facilitate the establishment of these linkage industries.
When the export-oriented ready-made garments (RMG) industries were emerging in Bangladesh from the late seventies, no one was sure of their sustainable future. But the banks of the country came forward with confidence to invest in the RMG sector. The result has been a great success for the investors in such industries, the banks and the country. From a handful of such industries in the mid seventies, there are thousands of garments industries today and most of their owners did very well for themselves from deciding to invest in this sector. The banks that financed the substantial amounts of the capital requirements of these industries and followed up with providing working capital to them, were also well rewarded for sponsoring entrepreneurship in this field.
There are many projects in other sectors where the banks did not get a good return on their investments. In many such cases, the loans extended by the banks turned classified long ago and have been adding seriously to their liabilities; the garments industries were a different story altogether. The investment of the banks in garments industries generally proved to be a success. Ever since the start of a few of these industries in the mid seventies, the RMG sector has seen only addition to their number and there was no looking back for the operators of this sector. Bangladeshi apparel export grew on average 22 per cent in each of the years of the last decade and even higher in the present one.
But the point is that the banks were extremely successful, so far, on the whole with their investment operations related to the garments sector. They recovered their loans extended to RMG industries to satisfaction with high rates of interest. Therefore, the banks did very good business in relation to the RMG sector.
Like their support to the RMG industries of the first generation in the decades of the seventies, eighties and nineties, the banks can now come forward wholeheartedly to invest in the second generation of industries linked to the garments sector. There is a huge opportunity awaiting for anybody wanting to invest in the backward linkage industries needed by the RMG sector. Investment in such industries can prove to be just as rewarding -- if not more -- like in the RMG industries that have been set up with banking finance.
Presently, there is a scope for the establishment of 148 spinning mills, each with 25,000 spindles, and 295 weaving and 280 dyeing cum finishing units. Thus, it should be obvious that massive investments are waiting to be made profitably in the textile sector. The same should also create many jobs and expand economic activities in different ways. But ironically, these investments are not being made up to the desired level. One may contend that establishment of even a single spinning mill to make yarn or a composite mill to produce both yarn and fabric requires huge investments. For a local bank in the past, it was easy to finance even a dozen medium to large RMG industries rather effortlessly by itself in a short period of time.
The bank's resource base allowed such investment without a thought. But the spinning mills or composite mills are another matter. However, the banks can get around this problem by forming consortiums among themselves or through syndication arrangement pool enough resources into a fund for investment exclusively in backward linkage industries for the RMG sector.
There are several reasons why the banks should be promoting the linkage industries. First of all, these would be sound investments with good returns in the long run. Secondly, the banks would be hedging their investments made in the first generation of RMG industries. If the RMG industries face setbacks from the insufficiency in the number of locally available linkage industries, then the effects of the same will be passed on to the banks. If the garments industries start failing as a consequence of insufficient linkage support locally, then the huge investments made by the banks in the RMG industries would be at serious risk. Thus, in their own narrow interests the banks should be specially enthusiastic to encourage the establishment of the linkage industries.
The government should have been playing a lead role in promoting the linkage industries. But it hasn't played such a role so far and this is very odd. It should have gone all-out by now to mobilise a special fund, independent of the banks, to set up linkage industries. Such a fund could be mobilised long ago after successful negotiations with lending bodies like the World Bank, the Asian Development Bank, International Finance Corporation (IFC), etc. Funds could be obtained from such organisations at bearable low rates of interest. Even funds could be mobilised by selling bonds to expatriate Bangladeshis. But no such activism was seen on the part of the government although an investment scheme for RMG's linkage industries drawn up by it and funds for the purpose mobilsed by it, could be very helpful in securing the all too important RMG sector apart from making a contribution towards value-addition in export activities, industrialisation of the country and employment creation.
It is better to be late than never. Appreciating these words of wisdom afresh, the government, the banks, other financial institutions and all potential investors are expected to waste no further precious time in getting their act together to invest in RMG sector's linkage industries.
Restriction on export of Chinese apparels to the lucrative US market -- which were designed expressly to help garments exporting countries like Bangladesh -- would be withdrawn early in the new year. The European Union (EU) countries are also about to enforce new regulations that would mean profitable operations of Bangladeshi garments exporters from more value-addition in the garments to be exported. In the new emerging scenario, Bangladesh's main strength can be no other than acquiring greater competitiveness for its garments industries. And the single most important factor in improving this competitiveness is considered to be its having sufficient number of linkage industries, locally, to support the RMG sector. Keeping this factor in clear view, the RMG sector entrepreneurs, the policy planners in the government and all others concerned, should engage in determined activities to facilitate the establishment of these linkage industries.
When the export-oriented ready-made garments (RMG) industries were emerging in Bangladesh from the late seventies, no one was sure of their sustainable future. But the banks of the country came forward with confidence to invest in the RMG sector. The result has been a great success for the investors in such industries, the banks and the country. From a handful of such industries in the mid seventies, there are thousands of garments industries today and most of their owners did very well for themselves from deciding to invest in this sector. The banks that financed the substantial amounts of the capital requirements of these industries and followed up with providing working capital to them, were also well rewarded for sponsoring entrepreneurship in this field.
There are many projects in other sectors where the banks did not get a good return on their investments. In many such cases, the loans extended by the banks turned classified long ago and have been adding seriously to their liabilities; the garments industries were a different story altogether. The investment of the banks in garments industries generally proved to be a success. Ever since the start of a few of these industries in the mid seventies, the RMG sector has seen only addition to their number and there was no looking back for the operators of this sector. Bangladeshi apparel export grew on average 22 per cent in each of the years of the last decade and even higher in the present one.
But the point is that the banks were extremely successful, so far, on the whole with their investment operations related to the garments sector. They recovered their loans extended to RMG industries to satisfaction with high rates of interest. Therefore, the banks did very good business in relation to the RMG sector.
Like their support to the RMG industries of the first generation in the decades of the seventies, eighties and nineties, the banks can now come forward wholeheartedly to invest in the second generation of industries linked to the garments sector. There is a huge opportunity awaiting for anybody wanting to invest in the backward linkage industries needed by the RMG sector. Investment in such industries can prove to be just as rewarding -- if not more -- like in the RMG industries that have been set up with banking finance.
Presently, there is a scope for the establishment of 148 spinning mills, each with 25,000 spindles, and 295 weaving and 280 dyeing cum finishing units. Thus, it should be obvious that massive investments are waiting to be made profitably in the textile sector. The same should also create many jobs and expand economic activities in different ways. But ironically, these investments are not being made up to the desired level. One may contend that establishment of even a single spinning mill to make yarn or a composite mill to produce both yarn and fabric requires huge investments. For a local bank in the past, it was easy to finance even a dozen medium to large RMG industries rather effortlessly by itself in a short period of time.
The bank's resource base allowed such investment without a thought. But the spinning mills or composite mills are another matter. However, the banks can get around this problem by forming consortiums among themselves or through syndication arrangement pool enough resources into a fund for investment exclusively in backward linkage industries for the RMG sector.
There are several reasons why the banks should be promoting the linkage industries. First of all, these would be sound investments with good returns in the long run. Secondly, the banks would be hedging their investments made in the first generation of RMG industries. If the RMG industries face setbacks from the insufficiency in the number of locally available linkage industries, then the effects of the same will be passed on to the banks. If the garments industries start failing as a consequence of insufficient linkage support locally, then the huge investments made by the banks in the RMG industries would be at serious risk. Thus, in their own narrow interests the banks should be specially enthusiastic to encourage the establishment of the linkage industries.
The government should have been playing a lead role in promoting the linkage industries. But it hasn't played such a role so far and this is very odd. It should have gone all-out by now to mobilise a special fund, independent of the banks, to set up linkage industries. Such a fund could be mobilised long ago after successful negotiations with lending bodies like the World Bank, the Asian Development Bank, International Finance Corporation (IFC), etc. Funds could be obtained from such organisations at bearable low rates of interest. Even funds could be mobilised by selling bonds to expatriate Bangladeshis. But no such activism was seen on the part of the government although an investment scheme for RMG's linkage industries drawn up by it and funds for the purpose mobilsed by it, could be very helpful in securing the all too important RMG sector apart from making a contribution towards value-addition in export activities, industrialisation of the country and employment creation.
It is better to be late than never. Appreciating these words of wisdom afresh, the government, the banks, other financial institutions and all potential investors are expected to waste no further precious time in getting their act together to invest in RMG sector's linkage industries.