RMG sector: Looking to its laurels
Tuesday, 10 July 2007
Syed Fattahul Alim
The other day, this paper carried a report that spoke with an upbeat note about the prospect of the garment sector in Bangladesh. In fact, it was about an Indian perspective based on a newspaper report in that country, which expressed its fear that due to appreciation of rupee against dollar, Bangladesh was having an edge over India, especially in the export of garment products in the overseas markets. To substantiate its claim, the report mentioned that the volume of Indian garment export in the last fiscal, which amounted to US$8 billion, was closely followed Bangladesh's at US$7.8 billion. The report went on to say that the cause of Bangladesh's relative advantage lay not only in the appreciation of rupee; the low cost of labour coupled with the incentives it has been receiving from the overseas markets did also to a large measure contributed to this development. As a result, the Bangladesh's export volume has been rising at the rate of 20 to 25 per cent annually.
Quoting the President of Clothing Manufacturers' Association of India (CMMAI), it concluded that if the trend continues, Bangladesh would surpass India in the export of garments products by the year end.
There should, however, be no cause for complacency here. So far as it is a competitor's point of view, the evaluation may be a little bit embellished for the simple reason that it presumably has a cause to establish. In the face of this expressly stated concern about Bangladesh's export performance vis-à-vis that of India's, one need to be more circumspect. The challenge now is not just to ensure that Bangladesh is able to maintain the pace it has already gained, it must also be able to beat its own success. Otherwise, there is the risk that our competitors will leave no stone unturned to get the better of us in the export of garments products.
While one would like to bask in the inadvertent compliment from a neighbouring competitor about the performance of the country's Readymade Garments (RMG) sector, warning signals are also coming from the different overseas markets. A recent evaluation prepared by the International Monetary Fund (IMF) reveals the threat Bangladesh's RMG products have been exposed to in the two big overseas markets in the European Union (EU) and Canada. The source of the new threat is China as the safeguard restrictions on the entry of textile and garment export from that country is being lifted from the EU and Canadian markets. The market share of Bangladesh's RMG products in Canada has gradually declined during the last two years from 7.4 to 6.9 per cent. This has been the case in spite of the fact that the Bangladesh's export to Canadian market has experienced robust growth during this time, with its position securely ensconced at number two. But that comparative advantage is being gradually eroded. That is so because, the competitors have already started to make inroads into Bangladesh's market niche in Canada in absence of the safeguard against export of Chinese fabrics there.
But it would be too simplistic to conclude that in absence of the safeguard on Chinese exports is the only challenge to our RMG markets abroad. Vietnam is also an emergent tough competitor, and a tough one at that, as it enjoys quota-free access of its garment products to the same big markets where Bangladesh has been having its field day. What is more, the country has meanwhile acceded to the global trading club, the World Trade Organisation (WTO) since January this year.
Against the backdrop, Bangladesh's garments sector will have to look to its laurels and prepare for the coming challenges from the competitors from near at home as well as afar.
However, looking at the present status and performance of the country's RMG sector, there is still sufficient reason for reassurance. The IMF evaluation, for instance, still offers high score points to Bangladeshi garment products in the international market due to its excellent competitive edge over similar products from other countries since the expiry of the Agreement on Textiles and Clothing (ATC).
As it has been with the Indian assessment, so it has been in the case of IMF report. The strength of Bangladesh's RMG sector has been attributed to the abundance of low cost labour, flexible exchange rate of taka against US dollar and increasing rapport with major international buyers. The rapport, it says, has also been instrumental in the transfer of knowledge and technology from the advanced markets to the local context.
There is no question that, as highlighted in the IMF report, this sector alone contributes to more than 81 per cent of the growth in the value of country's export over the past 22 years between 1984 and 2006. It may be worthwhile to note that in early eighties when garments sector emerged as a stakeholder on the industrial map of Bangladesh, its contribution to export earning was only 10 per cent. Compared to that modest beginning, at present it accounts for about 76 per cent share of the country's total foreign exchange earning through export. It is in itself a huge achievement for a single sub-sector under the manufacturing sector. It accounts for 25 per cent of the total value added in manufacturing, while its share in the Gross Domestic Product (GDP) is 17 per cent. The impact of this sector on the economy is also huge and diversified. Various sectors of the economy including transport, distribution of goods and services and construction activities have been receiving the desired boost from the sector. If one views only the scenario of industrial employment in the country, it would be found that the garment has appeared as the single largest provider of blue collar jobs in the economy at 40 per cent of the total workforce in manufacturing. Considering all the other business activities associated with RMG, the number of people directly employed in this sector ranges between 10 to 20 million. This is unquestionably a colossal employment market for an economy afflicted with the classical syndrome of unemployment and poverty. Apart from the quantity of foreign exchange it earns, the garment sector should occupy the centre stage of national priorities also for the sheer size of the employment market under its command.
In the circumstances, if the sector in question is to square up to the threats coming from the competitors, some work at home is also necessary. At stake are not only the markets niches abroad. The jobs of millions of workers have also to be saved. The recent unrest in the RMG units in and around the capital city is an issue the government as well as the direct stakeholder in the RMG sector must take seriously. As is well known, the unrest has a lot to do with the demands for pay raise of the workers, existing safety standards in the factories and the overall condition of work. The media continues to cover reports of sporadic eruption of turbulence in the garment units. Safety issues again come to the fore as one is dumbstruck to note that the frequency of the fire accidents is far from diminishing.
These are serious issues at home that the stakeholders in the RMG sector need to address without much foot-dragging.
The history of the RMG sector of Bangladesh over the last two and half decades is a breathtaking story of success. But that is about the formative years of an industry that has been able to show enough robustness and resilience so far. On this score, one has also to remember that as the products from a Least Developed Country (LDC), the RMG products from Bangladesh got protection against stronger competitors in their larger markets in EU and North America. The honeymoon period should be over by now. It is time it must face the real world of a competitive market. To be up to the task, the RMG sector of Bangladesh will have to concentrate on the quality and class of its products. That requires the industry to improve its standards in terms of the overall setting where the employees are at work, the quality of management and the employment condition of the workers. If all concerned fails to address these issues immediately, the sector runs the risk of losing its competitive edge in the world market within a short time.
The other day, this paper carried a report that spoke with an upbeat note about the prospect of the garment sector in Bangladesh. In fact, it was about an Indian perspective based on a newspaper report in that country, which expressed its fear that due to appreciation of rupee against dollar, Bangladesh was having an edge over India, especially in the export of garment products in the overseas markets. To substantiate its claim, the report mentioned that the volume of Indian garment export in the last fiscal, which amounted to US$8 billion, was closely followed Bangladesh's at US$7.8 billion. The report went on to say that the cause of Bangladesh's relative advantage lay not only in the appreciation of rupee; the low cost of labour coupled with the incentives it has been receiving from the overseas markets did also to a large measure contributed to this development. As a result, the Bangladesh's export volume has been rising at the rate of 20 to 25 per cent annually.
Quoting the President of Clothing Manufacturers' Association of India (CMMAI), it concluded that if the trend continues, Bangladesh would surpass India in the export of garments products by the year end.
There should, however, be no cause for complacency here. So far as it is a competitor's point of view, the evaluation may be a little bit embellished for the simple reason that it presumably has a cause to establish. In the face of this expressly stated concern about Bangladesh's export performance vis-à-vis that of India's, one need to be more circumspect. The challenge now is not just to ensure that Bangladesh is able to maintain the pace it has already gained, it must also be able to beat its own success. Otherwise, there is the risk that our competitors will leave no stone unturned to get the better of us in the export of garments products.
While one would like to bask in the inadvertent compliment from a neighbouring competitor about the performance of the country's Readymade Garments (RMG) sector, warning signals are also coming from the different overseas markets. A recent evaluation prepared by the International Monetary Fund (IMF) reveals the threat Bangladesh's RMG products have been exposed to in the two big overseas markets in the European Union (EU) and Canada. The source of the new threat is China as the safeguard restrictions on the entry of textile and garment export from that country is being lifted from the EU and Canadian markets. The market share of Bangladesh's RMG products in Canada has gradually declined during the last two years from 7.4 to 6.9 per cent. This has been the case in spite of the fact that the Bangladesh's export to Canadian market has experienced robust growth during this time, with its position securely ensconced at number two. But that comparative advantage is being gradually eroded. That is so because, the competitors have already started to make inroads into Bangladesh's market niche in Canada in absence of the safeguard against export of Chinese fabrics there.
But it would be too simplistic to conclude that in absence of the safeguard on Chinese exports is the only challenge to our RMG markets abroad. Vietnam is also an emergent tough competitor, and a tough one at that, as it enjoys quota-free access of its garment products to the same big markets where Bangladesh has been having its field day. What is more, the country has meanwhile acceded to the global trading club, the World Trade Organisation (WTO) since January this year.
Against the backdrop, Bangladesh's garments sector will have to look to its laurels and prepare for the coming challenges from the competitors from near at home as well as afar.
However, looking at the present status and performance of the country's RMG sector, there is still sufficient reason for reassurance. The IMF evaluation, for instance, still offers high score points to Bangladeshi garment products in the international market due to its excellent competitive edge over similar products from other countries since the expiry of the Agreement on Textiles and Clothing (ATC).
As it has been with the Indian assessment, so it has been in the case of IMF report. The strength of Bangladesh's RMG sector has been attributed to the abundance of low cost labour, flexible exchange rate of taka against US dollar and increasing rapport with major international buyers. The rapport, it says, has also been instrumental in the transfer of knowledge and technology from the advanced markets to the local context.
There is no question that, as highlighted in the IMF report, this sector alone contributes to more than 81 per cent of the growth in the value of country's export over the past 22 years between 1984 and 2006. It may be worthwhile to note that in early eighties when garments sector emerged as a stakeholder on the industrial map of Bangladesh, its contribution to export earning was only 10 per cent. Compared to that modest beginning, at present it accounts for about 76 per cent share of the country's total foreign exchange earning through export. It is in itself a huge achievement for a single sub-sector under the manufacturing sector. It accounts for 25 per cent of the total value added in manufacturing, while its share in the Gross Domestic Product (GDP) is 17 per cent. The impact of this sector on the economy is also huge and diversified. Various sectors of the economy including transport, distribution of goods and services and construction activities have been receiving the desired boost from the sector. If one views only the scenario of industrial employment in the country, it would be found that the garment has appeared as the single largest provider of blue collar jobs in the economy at 40 per cent of the total workforce in manufacturing. Considering all the other business activities associated with RMG, the number of people directly employed in this sector ranges between 10 to 20 million. This is unquestionably a colossal employment market for an economy afflicted with the classical syndrome of unemployment and poverty. Apart from the quantity of foreign exchange it earns, the garment sector should occupy the centre stage of national priorities also for the sheer size of the employment market under its command.
In the circumstances, if the sector in question is to square up to the threats coming from the competitors, some work at home is also necessary. At stake are not only the markets niches abroad. The jobs of millions of workers have also to be saved. The recent unrest in the RMG units in and around the capital city is an issue the government as well as the direct stakeholder in the RMG sector must take seriously. As is well known, the unrest has a lot to do with the demands for pay raise of the workers, existing safety standards in the factories and the overall condition of work. The media continues to cover reports of sporadic eruption of turbulence in the garment units. Safety issues again come to the fore as one is dumbstruck to note that the frequency of the fire accidents is far from diminishing.
These are serious issues at home that the stakeholders in the RMG sector need to address without much foot-dragging.
The history of the RMG sector of Bangladesh over the last two and half decades is a breathtaking story of success. But that is about the formative years of an industry that has been able to show enough robustness and resilience so far. On this score, one has also to remember that as the products from a Least Developed Country (LDC), the RMG products from Bangladesh got protection against stronger competitors in their larger markets in EU and North America. The honeymoon period should be over by now. It is time it must face the real world of a competitive market. To be up to the task, the RMG sector of Bangladesh will have to concentrate on the quality and class of its products. That requires the industry to improve its standards in terms of the overall setting where the employees are at work, the quality of management and the employment condition of the workers. If all concerned fails to address these issues immediately, the sector runs the risk of losing its competitive edge in the world market within a short time.