Prospects of RMG export to USA under Obama
Monday, 10 November 2008
Shahiduzzaman Khan
THE country's apparel manufacturers and exporters appeared to remain cautiously optimistic about the prospects of increased ready-made garments (RMG) export to the United States following the election of Democrat Barack Obama to the White House. In fact, tough policies hinted by Obama against imports from China might offer Bangladesh a chance to increase its garment exports to the US.
China remains a mighty rival of all exporting countries and so any US import curbs on China will offer opportunities for Bangladesh and other developing countries to boost their exports. Yet Bangladesh must keep in mind that the US Democratic Party prefers protectionist trade policy and stresses more on labour and environment issues. As such, the country needs to remain careful and attentive to labour and compliance issues.
The USA is the world's largest market for apparels and in the year 2007 Bangladesh exported readymade garment worth $3.1 billion to that country becoming the fifth largest supplier in term of earnings. It is feared that during the democrats' protectionist regime, Bangladesh's move for getting duty- and quota-free access to US textile market might face difficulties. The US politicians are under mounting pressure from their textile groups who are alarmed by the influx of garments from China, which alone grabbed nearly one-third of the $74 billion US imports in 2007.
A week before winning the White House race, Barack Obama disclosed that his trade policy would rest on that same belief in change and that he wanted safeguards for the US textile industry from a surge of cheap products mainly from China. Obama said he would use monitoring to help ensure that imports from China did not violate applicable laws and treaties and make diplomatic pressure on Beijing to make its currency stronger.
But the fact remains that the global financial turmoil seems to have weighed on Bangladesh's lifeline, garments, as orders are being deferred by buyers from the countries, where stores have reported declining sales. Overseas buyers are trying to cut down costs of imports to cope with a slump in consumer confidence. Generally, September is a golden month for knitwear exporters, but this year's orders appear to be declining for the first time in four years. However, remittance inflows, also allied with the global economies, are still immune to probable fallout from the unfolding financial crisis that rattled depositors and investors worldwide.
Earlier, Nobel Laureate Professor Muhammad Yunus warned that Bangladesh's export and remittances would take a hit from the global crisis, which prompted governments and central banks around the world to initiate nationalisation and cut interest rates to restore confidence. Bangladeshi exports, mostly to the US and Europe, are set to become vulnerable to the debacle, although knitwear and garments registered 84 percent and 58 percent growth in July from the same period a year ago. The IMF has recently projected that income growth in Bangladesh's export markets will decline to 0.5 percent in 2009 from 1.5 percent in 2008.
However, the problems might run deeper because of the likely delay in garments export receipts and the possible cancellation of orders. Of Bangladesh's export, only less than 30 percent goes to retail giants such as Wal-Mart, Jc Penny's, Levis, Gap, Zara, Van-Heusen and H&M, while others are mostly small and mid-sized companies, more vulnerable to any financial shock or surprise. However the ultimate impact may be little less because of diversion of orders from other countries such as Vietnam and China due to rising labour costs in those countries, experts feel. Some analysts suggested that Bangladesh Bank should maintain a competitive exchange rate to encourage exporters and remitters. They also favoured a mechanism for timely delivery, cheap sourcing of raw materials and no hike in utility prices.
In Bangladesh, the bulk of remittance inflows, which recorded a significant rise in the first quarter of the current fiscal year, come from the Middle East, and less than a third comes from the US, UK and Germany. However, if a deep and protracted recession starts in the US and EU, the Middle Eastern economies are likely to be adversely affected. Even if the current nearly $8.0 billion level of remittances is sustained, it would be challenging to maintain its growth momentum if the world economy remains depressed for an extended period.
Country's apparel entrepreneurs are considering these events as important for the RMG industry in terms of expanding and exploring its markets worldwide. All concerned are expected to pay proper attention to the legitimate requirements of the RMG industry in the greater interest of the nation. If the garments industry falls sick, the social and political consequences will be severe on both economy and society.
In fact, country's RMG sector has flourished since two decades without any notable cooperation and support from the government side. Basing exclusively on its entrepreneurs' own thoughts and limitations, the industry has thrived offering jobs to hundreds and thousands of people -- mainly female workers. The sector is now country's number one foreign exchange earner -- generating maximum revenue for the nation's public exchequer.
Starting from a paltry US $ 1.0 million two decades ago, the volume of business has reached upto dollar five billion. The country made its first apparel export in 1978 but the progress since early 1980 has been simply phenomenal. It has by now become the colossus in industry. Thus, the role of the RMG sector in the national economy is very significant.
Investment in backward linkage industry for greater supplies of raw materials for RMG sector, particularly in composite textile mills, has been quite phenomenal. Country's private sector has come up in a large number. Quite slowly, but steadily, nearly Tk 140 billion has already been invested over the years. Quite a number of composite textile mills for knitwear and woven fabrics were set by a group of enthusiastic entrepreneurs. However, such entrepreneurs need more equity capital from financial institutions.
At present garment factories are located in every nook and corner of the major cities. This causes environmental pollution, traffic jam and seriously impedes compliance issue. Moreover, the political unrest adversely affects the export promotion and goodwill. Such problems can be overcome gradually if the government comes forward to build a garments village both in Dhaka and Chittagong. Such a village can be developed as an exporters' plaza providing them the space for factory outlets plus residential quarters for the employees too.
In order to address the lead time issue properly, production at the RMG units needs to be increased considerably. The government should also go for importing raw materials against contact letters or without letters of credit. In order to mobilise fund from the international buyers, each and every entrepreneur should invest their money for a short period for marketing purpose. Added to this, there is a need to set up a central bonded warehouse for woven and gray fabrics in order to help the manufacturers collect the fabrics within seven days from the issuance of LCs and thus reduce lead time.
Chittagong being the largest sea port of the country is contributing to 80 per cent of import and 75 per cent of export of the total international trade. The standard of customs service at the port has improved a lot after 1/11, still there is a scope for its further development up to the international level. Responding to the demand of the time, the customs service to the RMG owners should be relaxed and related officials must do their job with honestly and sincerity.
In order to expand the market share and survive in the upcoming free global competition in the international market, product diversification appears to be an indispensable strategy. The more stretched the product lines and ranges, the better is the competitive strength. Technical experts should be brought in from abroad in this connection. There is a need to set up a separate Apparel Board for the RMG industry. For several years, the garments factory owners have been pressing for setting up of a separate Apparel Board to free the industry from time wasting bureaucratic shackles and make it more dynamic. This has become more necessary as the day-to-day operation of the industry needs to get prompt service from the government in every phase -- from policy making to implementation.
If the government and the garment manufacturers and exporters take good care of this sector and implement the suggested measures for the purpose, It is expected that the country would be able to attain the status of a major exporter to the extent of $ 25 billion in the next two decades.
szkhan@thefinancialexpress-bd.com
THE country's apparel manufacturers and exporters appeared to remain cautiously optimistic about the prospects of increased ready-made garments (RMG) export to the United States following the election of Democrat Barack Obama to the White House. In fact, tough policies hinted by Obama against imports from China might offer Bangladesh a chance to increase its garment exports to the US.
China remains a mighty rival of all exporting countries and so any US import curbs on China will offer opportunities for Bangladesh and other developing countries to boost their exports. Yet Bangladesh must keep in mind that the US Democratic Party prefers protectionist trade policy and stresses more on labour and environment issues. As such, the country needs to remain careful and attentive to labour and compliance issues.
The USA is the world's largest market for apparels and in the year 2007 Bangladesh exported readymade garment worth $3.1 billion to that country becoming the fifth largest supplier in term of earnings. It is feared that during the democrats' protectionist regime, Bangladesh's move for getting duty- and quota-free access to US textile market might face difficulties. The US politicians are under mounting pressure from their textile groups who are alarmed by the influx of garments from China, which alone grabbed nearly one-third of the $74 billion US imports in 2007.
A week before winning the White House race, Barack Obama disclosed that his trade policy would rest on that same belief in change and that he wanted safeguards for the US textile industry from a surge of cheap products mainly from China. Obama said he would use monitoring to help ensure that imports from China did not violate applicable laws and treaties and make diplomatic pressure on Beijing to make its currency stronger.
But the fact remains that the global financial turmoil seems to have weighed on Bangladesh's lifeline, garments, as orders are being deferred by buyers from the countries, where stores have reported declining sales. Overseas buyers are trying to cut down costs of imports to cope with a slump in consumer confidence. Generally, September is a golden month for knitwear exporters, but this year's orders appear to be declining for the first time in four years. However, remittance inflows, also allied with the global economies, are still immune to probable fallout from the unfolding financial crisis that rattled depositors and investors worldwide.
Earlier, Nobel Laureate Professor Muhammad Yunus warned that Bangladesh's export and remittances would take a hit from the global crisis, which prompted governments and central banks around the world to initiate nationalisation and cut interest rates to restore confidence. Bangladeshi exports, mostly to the US and Europe, are set to become vulnerable to the debacle, although knitwear and garments registered 84 percent and 58 percent growth in July from the same period a year ago. The IMF has recently projected that income growth in Bangladesh's export markets will decline to 0.5 percent in 2009 from 1.5 percent in 2008.
However, the problems might run deeper because of the likely delay in garments export receipts and the possible cancellation of orders. Of Bangladesh's export, only less than 30 percent goes to retail giants such as Wal-Mart, Jc Penny's, Levis, Gap, Zara, Van-Heusen and H&M, while others are mostly small and mid-sized companies, more vulnerable to any financial shock or surprise. However the ultimate impact may be little less because of diversion of orders from other countries such as Vietnam and China due to rising labour costs in those countries, experts feel. Some analysts suggested that Bangladesh Bank should maintain a competitive exchange rate to encourage exporters and remitters. They also favoured a mechanism for timely delivery, cheap sourcing of raw materials and no hike in utility prices.
In Bangladesh, the bulk of remittance inflows, which recorded a significant rise in the first quarter of the current fiscal year, come from the Middle East, and less than a third comes from the US, UK and Germany. However, if a deep and protracted recession starts in the US and EU, the Middle Eastern economies are likely to be adversely affected. Even if the current nearly $8.0 billion level of remittances is sustained, it would be challenging to maintain its growth momentum if the world economy remains depressed for an extended period.
Country's apparel entrepreneurs are considering these events as important for the RMG industry in terms of expanding and exploring its markets worldwide. All concerned are expected to pay proper attention to the legitimate requirements of the RMG industry in the greater interest of the nation. If the garments industry falls sick, the social and political consequences will be severe on both economy and society.
In fact, country's RMG sector has flourished since two decades without any notable cooperation and support from the government side. Basing exclusively on its entrepreneurs' own thoughts and limitations, the industry has thrived offering jobs to hundreds and thousands of people -- mainly female workers. The sector is now country's number one foreign exchange earner -- generating maximum revenue for the nation's public exchequer.
Starting from a paltry US $ 1.0 million two decades ago, the volume of business has reached upto dollar five billion. The country made its first apparel export in 1978 but the progress since early 1980 has been simply phenomenal. It has by now become the colossus in industry. Thus, the role of the RMG sector in the national economy is very significant.
Investment in backward linkage industry for greater supplies of raw materials for RMG sector, particularly in composite textile mills, has been quite phenomenal. Country's private sector has come up in a large number. Quite slowly, but steadily, nearly Tk 140 billion has already been invested over the years. Quite a number of composite textile mills for knitwear and woven fabrics were set by a group of enthusiastic entrepreneurs. However, such entrepreneurs need more equity capital from financial institutions.
At present garment factories are located in every nook and corner of the major cities. This causes environmental pollution, traffic jam and seriously impedes compliance issue. Moreover, the political unrest adversely affects the export promotion and goodwill. Such problems can be overcome gradually if the government comes forward to build a garments village both in Dhaka and Chittagong. Such a village can be developed as an exporters' plaza providing them the space for factory outlets plus residential quarters for the employees too.
In order to address the lead time issue properly, production at the RMG units needs to be increased considerably. The government should also go for importing raw materials against contact letters or without letters of credit. In order to mobilise fund from the international buyers, each and every entrepreneur should invest their money for a short period for marketing purpose. Added to this, there is a need to set up a central bonded warehouse for woven and gray fabrics in order to help the manufacturers collect the fabrics within seven days from the issuance of LCs and thus reduce lead time.
Chittagong being the largest sea port of the country is contributing to 80 per cent of import and 75 per cent of export of the total international trade. The standard of customs service at the port has improved a lot after 1/11, still there is a scope for its further development up to the international level. Responding to the demand of the time, the customs service to the RMG owners should be relaxed and related officials must do their job with honestly and sincerity.
In order to expand the market share and survive in the upcoming free global competition in the international market, product diversification appears to be an indispensable strategy. The more stretched the product lines and ranges, the better is the competitive strength. Technical experts should be brought in from abroad in this connection. There is a need to set up a separate Apparel Board for the RMG industry. For several years, the garments factory owners have been pressing for setting up of a separate Apparel Board to free the industry from time wasting bureaucratic shackles and make it more dynamic. This has become more necessary as the day-to-day operation of the industry needs to get prompt service from the government in every phase -- from policy making to implementation.
If the government and the garment manufacturers and exporters take good care of this sector and implement the suggested measures for the purpose, It is expected that the country would be able to attain the status of a major exporter to the extent of $ 25 billion in the next two decades.
szkhan@thefinancialexpress-bd.com