Retaining the ranking on the world\\\'s RMG export list

Bangladesh is the second-largest ready-made garment (RMG) hub after China. But the sector has recently been under a threat and we might lose the position we had earned.
A sharp depreciation of the Indian rupee against the US dollar is a critical factor in the sector's higher degree of competitive disadvantage than India. A rebound in taka's value against the dollar is making the RMG products of Bangladesh less attractive to foreign buyers. A dollar can now buy more rupees than a taka, of which a foreign buyer is careful.
India has had around 30 per cent depreciation of the rupee against the dollar, whereas the Bangladesh Taka appreciated around 8 per cent. This has resulted in Bangladesh's RMG getting 38 per cent costlier than the Indian RMG. Therefore, there are enough reasons why foreign buyers should turn to India. Many Western brands are flying to India to source their products from there, leaving Bangladesh on the verge of losing its position in the export market of garments.
The factory safety concern is another reason why foreign buyers, especially Western brands, are cancelling their orders from Bangladesh. Even the committed orders are left withheld. The Rana Plaza collapse and the Tazreen Fashions fire are two serious and catastrophic occurrences that are damaging the good reputation Bangladesh has earned in the global RMG sector. These events have brought into question the safety and infrastructural standards in Bangladesh's factories. Labourers are the very important stakeholders in this sector. Why Bangladesh is so favourite to foreign buyers? It is because the country offers the cheap labour that other countries cannot. Meeting the basic needs and having a secure life are the rights of the RMG workers. The value addition to RMG products is done mostly by them, but the financial benefit they get is meagre.
On the other hand, the building code is hardly followed in construction of the factories and it leaves the RMG units at risk. The ultimate victims are the helpless workers. The owners have lately started managing certificates from the BUET or other bodies to make the factories look alright. How can a building be safe which has already crossed 50 years after construction? How can an engineer pass a building as fit with fatal cracks on the walls?
These issues have made the foreign buyers averse about Bangladesh. They are moving to neighbouring India to source the garment products from there. India has started experiencing a surge in export of apparel products. The country, which witnessed a drop in RMG exports by around 5 per cent-6 per cent in 2012-`13 is now enjoying a growth rate of 14 per cent in the 2013-`14 financial year. The depreciation of Rupee, low safety standards and non-compliance issues impeded the growth in Bangladesh's apparel sector. We must be aware of the fact that India is always at a cost-disadvantage with Bangladesh, but it has managed to pocket big chunks of orders from the buyers. On the other hand, the safety standards and working environment in India are always under watch of the conscious consumers in the West. The importance of working environment and safety standard improvement in Bangladesh should not be belittled.
The poor condition which Bangladesh RMG labourers work in is overstated on occasions by the neighbouring country's media. This leaves a negative impact and should help us find the reason why buyers are poised to avoid taking apparel products from Bangladesh in large chunks. Recently, Disney and GAP have decided not to buy RMG goods from Bangladesh, especially for its non-compliance with safety standards. In the first quarter of the FY 2014, the growth in RMG exports could be more than 25 per cent, if we were able to retain these orders.
Additionally, the RMG exports consist of a few import contents. Cotton is a crucial imported ingredient that mostly comes from India. Sometimes, India imposes a ban on export of cotton to Bangladesh, and thus it leads to the shortage of raw materials which discontinues production. It is driving many RMG manufacturers out of the scene. This is also the point, where Bangladesh is at a 'competitive disadvantage'. However, trade resumes with Bangladesh after a gap. Bangladesh gets cotton from India. Right at this point, India again makes money out of selling cotton. Besides, more sales on its part have started to be in place recently, thanks to the lower price of the Rupee against the Dollar.
India is producing cotton at home, which has been tied to more 'competitive advantages' that countries like Bangladesh have always lacked. This has given India the buoyancy that a country wishes for. Side by side with the effect of the taka depreciation and non-compliance with standards, India is willing to outpace Bangladesh soon in the RMG export.
Deprecation of taka against the dollar is not the panacea. But the currency depreciation is a critical component of promoting more sales of garment products. It has been the norm in the neighbouring countries where they depreciate and appreciate their currencies simultaneously. In Bangladesh it is a different case. Around 8.0 per cent appreciation was materialised making the goods and services costly to foreign buyers. Keeping in mind the 60 per cent-70 per cent contribution of the RMG sector to the nation's export composition, the currency depreciation might be allowed so that the RMG exports could be boosted. In the recent times, Bangladesh Garments Manufacturers and Exporters Association (BGMEA) assured the workers of fulfilling the wage demands. This has, however, soothed the industrial unrest for the time being. But a long-term worker-friendly package for the RMG industry is the pure solution the BGMEA should look for. However, lessons are being 'learnt' from the events that happened back in the past years, and stakeholders are now more careful than before. Inspectors in the garment factories are being deployed to fix the issues that need to be addressed soon. Safety standards usually are built-in in the developed nations, whereas Bangladesh needs to generate them. Thus the exercise requires all-out help of buyers, who have, ironically, always exploited the cheap labour in Bangladesh's RMG sector. Monetary help and continuous surveillance will go a long way in attainment of the required standards. We want, at least, to retain our ranking on the world's RMG export list.
The writer is an ex-intern at Bangladesh Securities and Exchange Commission and student of MBA (Major in Finance), Department of Finance at the University of Dhaka. [email protected]