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Bangladesh - December 2, 2023

RMG sector facing multifaceted challenges

Mahfuja Mukul: Bangladesh’s ready-made garment industry (RMG) has been facing major challenges due to internal political unrest in the country and tensions in global geopolitics in recent times. At the same time, there is an increase in the prices of various fuel materials in the domestic market, wide fluctuations in the price of cotton in the international market. Apart from this, the damage to foreign buyers due to the corona epidemic and Vietnam’s free trade agreement with the European Union have also emerged as challenges in the country’s garment industry. Due to these challenges, it has become difficult to maintain the continuity of the country’s garment exports.
This information was obtained from a report prepared by the Central Bank published on Thursday night.
According to the report, some more challenges are coming in the preparation phase to leave the list of LDCs or least developed countries. Due to being in the list of least developed countries, some countries enjoy tariff and quota benefits for garment exports. If you get out of this list, those benefits will no longer be available. Then the garment should be exported through open competition. Then Bangladesh will have to face tougher competition. Bangladesh needs to solve the problem in the medium to long term. For this, the necessary reforms in the trade sector must be promised. Among these, export subsidies should be withdrawn in some sectors. Coordination in investment policy, policy of establishing rights in intellectual property should be strengthened.
Export growth depends on global conditions. Global economic activity is also facing major challenges. Among these, high inflation, high interest rates on loans, great uncertainty about the future, geopolitical constraints, weakness in productivity growth and a challenging financial environment may further shrink the export sector’s earnings and prospects in the future.
According to sources, political unrest has started in the country since October 28. From that time till last Thursday 20 days strike and blockade program was observed. A blockade has been called for next Sunday and Monday. This is affecting the normal activities of the garment industry. On the one hand, the production cost is increasing, on the other hand, it takes more time to export the product. Which made the buyers think. Due to this, many buyers are monitoring the situation by reducing new export orders.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) called for settlement of the problem through compromise instead of political unrest.
In this context, BKMEA Executive President Mohammad Hatim said that due to the global recession and the country’s political instability, 40 to 45 percent of business has already been lost. If this situation continues, the situation will get worse.
Politically, Bangladesh is now facing a complicated situation. A participatory election and human rights situation in the country has created a cold relationship between Bangladesh and the United States. The European Union is also affected by this. The United States has already threatened to enforce labor policies. This may hamper garment exports to the US and EU countries.
About 82 percent of the country’s total garment exports are going to Europe and America. Out of this, the single largest export is to the United States i.e. 22 percent. 13 percent in Germany, 12 and a half percent of garments are exported to UK. In other words, the big markets for Bangladeshi clothing are the United States and Europe. If the export is interrupted here, there will be a negative impact on this industry. Especially employment and foreign exchange flow will decrease. Many fear that this could incite social unrest.
Besides, the challenges of the economic sector are also increasing. Interest on loans in the country has increased from 9 percent to 11.5 percent. Interest on export loans increased from 5 percent to 10.5 percent. Access to low-interest foreign currency loans from the Export Development Fund has shrunk. Because the size of this fund has been reduced from 7 billion dollars to 4 billion dollars. Its size is further reduced. Global interest rate hikes and reserve crunches have also shrunk foreign borrowing. Due to which the flow of foreign loans also decreased. Globally, interest rates rose from 6 percent to over 9 percent. The existing political situation in the country, there has been a kind of uncertainty in the geopolitical situation. All in all, there is a glimpse of a kind of negative situation on the garment industry, the main export income sector of the country.
Vietnam is the main competitor country of Bangladesh in the export of clothing in the international market. The European Union recently signed a free trade agreement with the country. As a result, Vietnam will have special advantages in exporting garments to Europe. Which Bangladesh will not get.
According to the report, Bangladesh is one of the exporters of ready-made garments in the world. The RMG sector has made a significant impact on the economy of Bangladesh by creating employment opportunities. Strengthening women’s empowerment and increasing foreign exchange is playing a major role. Till now, most foreign exchange is coming from this sector. Which is playing a major role in the country’s foreign exchange management and economic balance.
In the last financial year, the garment industry contributed 10.35 percent to the GDP of Bangladesh. In the last financial year, the total export income from this sector was $4,699 million. Which is 10.27 percent more than the previous financial year. 84 percent of the country’s total export income comes from this sector. 70 percent of the total foreign exchange earnings come from garment exports.
Meanwhile, the rate of value addition in the garment industry is increasing every year. Net value addition in apparel sector was 65 percent in July September 2020. Now it has increased to 71 percent.
Bangladesh has now started increasing export orders from major international buyers. Globally famous brands affected by the impact of Corona and Russia-Ukraine war are starting to be active again. It brought a possibility for the country.
Several recommendations have been made in Bangladesh Bank’s report to utilize this potential. These include diversifying apparel manufacturing, shipping products quickly after placing export orders, increasing efficiency and reducing costs, ensuring effective research and development, finding new global markets to increase exports, prioritizing skilled RMG workforce and modernization of production processes. So that Bangladesh can be one of the exporters of ready-made garments in the world in terms of RMG export income in the future.

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