The readymade garments (RMG) industry holds an iconic status in Bangladesh's national economy, being the fastest growing (averaging between 15-20 per cent and rising up to 40 per cent in some years for two decades during 1990s and beyond) as well as the largest export industry in the country. Against a tiny share of only 4.0 per cent in total export in the 1980s, the RMG exports now constitute nearly 80 per cent of the country's total export earnings. The industry's current export earning is over US 21 billion which is 16.7 per cent of the gross domestic product (GDP) of Bangladesh, again registering a big stride in it's GDP share from only about 3.0 per cent in 1991.
The RMG industry rapidly built a huge capacity from only 50 production units in the 1980s employing a few thousand people to 5400 factories currently employing nearly 4.0 million workers (mostly women from the rural locations) which is close to two-thirds of the total work force employed by the manufacturing sector. The industry insiders claim that in addition to direct employment, more than 10 million people are indirectly associated with the RMG industry because of development of numerous linkage industries such as RMG accessories suppliers, packaging, banking, insurance, shipping, hotels and tourism, and roads and transportation, etc.
In terms of production capacity and/or supply of orders for the foreign buyers, Bangladesh possesses a clear advantage compared to other RMG-producing countries such as Vietnam, Indonesia and Cambodia which are reported to have respectively 3174, 2600 and 260 factories. Similarly, the 4.0 million workforce employed in the industry is also significantly larger than that employed in other countries. Among other notable features of the RMG sector, significant increase in the contributions to domestic value addition to over 60 per cent, expansion in backward and forward linkages and empowerment of women especially from the rural areas, etc. which turned the RMG industry into the key driver of the country's national economy and society and of course, the prime mover of the industrialisation process.
The high profile attained by the industry in terms of its export shares, foreign exchange earnings, contributions to GDP, industrialisation, employment and income generation and poverty alleviation in the Bangladesh economy within a short span of two decades has been helped primarily by the availability of cheap labour and special promotional incentives (i.e., back-to-back letters of credit, special bounded warehouse facilities, duty drawback systems, cash incentives) and export-quota system until 2004, all of which enabled the RMG industry to grow in almost a free trade environment.
CRITICAL CHALLENGES: Experts believe that the Bangladesh RMG sector has potentials to grow much further by steadily increasing its global market share and emerge as the world's leading RMG-exporting country surpassing China. For example, much deeper penetration into European Union (EU) and US market than at present supplying only 9.2 and 5.6 per cent respectively of the markets and strong diversification of new markets into countries such as Japan, Australia, Brazil, Russia, Korea, China, Mexico and Turkey can help significant expansion of current export volumes and reduce dependence on the traditional export destinations. However, the industry is now under serious scrutiny by international buyers due to devastating factory fires and political turmoil in the recent past badly affecting the industry and tarnishing the country's image.
It is reported in the press that the apparel manufacturers are experiencing 30-35 per cent decline in orders due to compliance failures. A series of major industrial accidents between November 2012 and April 2013 which led to deaths of over 1200 workers has raised serious concerns regarding compliance in labour standards and workers safety. Additionally, almost continued labour unrest and long-standing political chaos have created a severe image crisis worldwide and put Bangladesh's international competitiveness at greater risks. The enormity of industrial accidents, unfair treatment of the workers, abysmally low wages, unsafe working conditions, lack of workers' rights in the absence of trade union rights, etc. have become issues of serious concerns and gained renewed significance in the buyers' decisions to source RMG supplies from Bangladesh. Due to lack of compliance failures, Bangladesh lost GSP (Generalised System of Preferences) facilities in the US and similar threats are looming large from the European Union markets which may prove fatal to the long-term sustainability of international competitiveness of Bangladesh's RMG industry. Undoubtedly, it is time for a "wake-up call" for all stakeholders involved in the RMG industry.
STRATEGIES: In the aftermath of Rana Plaza mayhem, national and international stakeholders have started working jointly to address the compliance issues, labour rights issues and all other matters relating to restoring buyers' confidence and a peaceful industrial relations environment in the RMG sector. The most formidable challenge lies in ensuring speedy and effective implementation of the various compliance measures (i.e., strengthening factory supervision, appointment of factory inspectors, implementation of new labour law provisions, effective functioning of various committees and councils formed to carry on compliance-related activities, etc.) aimed at restoring buyers' confidence and improving the country's image-rebuilding process. Close coordination and cohesion of activities among various national and international stakeholders engaged in the implementation process of compliance improvements is also indispensable. Other strategic issues, which are central to the efforts towards forging ahead in the global market by RMG industry in the long-run, include rapid product and market diversification, increase in labour productivity through introduction of technological innovations, increased enterprise efficiency, quality improvement, etc., which should help transform the "cheap-labour"-based comparative advantage of the RMG industry into a high-efficiency and "innovation-driven" competitive advantage. The current "volume-intensive" export growth should be gradually turned into "quality-driven" export competitiveness where superior product quality and innovative designs, robust delivery performance, and excellent customer services, etc. should constitute the distinctive operational characteristics of the Bangladesh RMG industry to overpower its competitors in the global market. Last but not least, a conducive and peaceful labour-management corporation environment should prevail in the industry to allow its full capacity operation round the clock and ensure timely delivery of export consignments negotiated with the foreign buyers.
Dr. Momtaz Uddin Ahmed is
Professor of Economics,
University of Dhaka. Email: ahmed_1947@hotmail.com
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