Bangladesh’s apparel sector has presented itself as a mature contributor to the nation’s export and growth, contributing to 81% of our export ($25.4 billion FY14-15), employing a 4.2 million-strong workforce. The sector’s meteoric rise in the global apparel market in the early 90s and onwards has been augmented by inexpensive labour, favourable government policies, and preferential trade agreements. Bangladesh currently sits as the second largest player in the market, after China, with a promising export forecast. While the sector has made remarkable achievements over the last two decades, with changing dynamics in global market and economy, RMG manufacturers and policy-makers cannot afford to rest on their laurels.Bangladesh has been experiencing the benefits of shifting orders from China since 2010, as the latter suffered from higher labour wages and rising overheads. China also consciously adopted a strategy of moving towards manufacturing higher margin products as opposed to apparel.This propelled Bangladesh to becoming he second largest apparel manufacturer. McKinsey, in their study on the apparel market in 2012, clearly pinpointed Bangladesh as the biggest beneficiary, as most chief procurement officers (CPOs) of major clothing brands identified Bangladesh as the most popular sourcing destination. New players emerging Over the last three years, several different players have emerged, including Myanmar, which returned to the mainstream on the back of recent political reforms. Others are also offering competitive costing, with the likes of Cambodia and Vietnam leading the way. The biggest long-term threat for Bangladesh are some of the sub-Saharan African nations, with Ethiopia in particular posing as the major potential challenger. According to the latest Mckinsey report on the apparel sector, published in 2015, Bangladesh still retains the preferred position for apparel sourcing, but is closely followed by Vietnam, India, and Myanmar. Ethiopia became the first African country to make it to the list.Sub-Saharan countries like Ethiopia enjoy a number of benefits through preferential trade agreements (GSP to USA and EU), cheap labour (lower than Bangladesh), surplus electricity, cheap land price, preferential investment terms, and proximity to the EU and the US. In the next decade, countries like Ethiopia can pose a major challenge in the low-value segment of the apparel market. International headwind Despite sporadic political turmoil within the country, our RMG industry has maintained a steady growth. However, in the international arena, several economic and political factors have been weighing against Bangladesh’s apparel sector growth. Over the last year, Euro has depreciated by almost 18% against Taka, which is bad news for the local apparel sector. EU countries collectively import 61% of Bangladesh’s apparel export and a depreciating Euro means Bangladeshi apparels have become more expensive to import. The recent devaluation of the Chinese RMB also means that Chinese products will artificially get more competitive in the international market. However, raw material procured from China will become cheaper, contributing to cost competitiveness of Bangladeshi apparel. US, the single largest importer of apparel from Bangladesh, has recently cancelled the GSP for Bangladesh’s export, citing a number of reasons. Although apparel was never part of GSP, BGMEA had been lobbying hard to earn tariff-free access for apparel. Turkey, considered to be an emerging export destination, has recently imposed tariff on Bangladeshi apparel. As a result, Bangladesh’s apparel export to Turkey has plummeted to $488m in FY14-15 from $623m in FY13-14. The game plan Moving towards higher value products: As Bangladesh’s wage rate increases and as cheaper competitors come up, it will become increasingly difficult to sustain businesses with razor-thin margins. RMG conglomerates should increasingly focus on R&D and design to move up the value chain and cater to higher-value brands. Sri Lanka’s shift upwards in 1980s is a case in point.Cheaper currency: Bangladesh Bank’s policy should be to maintain the currency value and not allow appreciation for the sake of exporters.While the government is already offering export incentives, cheaper currency will also be a major boost. Alongside, cheaper currency might also attract FDIs in the apparel sector, specifically from China.Forward contract and farming: Our apparel sector does not have a robust backward linkage since raw materials, eg cotton, are not grown locally. As a result, the sector has to fully depend on imported cotton. This may prove to be the Achilles’ heel of our apparel sector. Textile and apparel manufacturers should consider exploring forward contracts for cotton to hedge against price fluctuation in the cotton market.This will likely help evade any potential market shocks in the cotton market. In the long run, manufacturers can collectively look into acquiring lands in Africa for engaging in the farming of cotton, ensuring steady supply.Developing mid-tier management: Our RMG sector is starving for talented mid-level management. Due to branding issues and low pay, many talented people are unwilling to enter the industry. RMG leaders must understand the importance of quality human resource and create financially-lucrative opportunities for talented graduates. Government intervention and investments are imperative in order to introduce courses in educational institutions for creating skilled professionals for our apparel sector. Diplomatic overtures: The government must aggressively pursue economic diplomacy by mending and strengthening relationship with top importers, including the US and EU countries. Also, concrete steps need to be taken to establish presence in emerging apparel markets like Japan, Turkey, Brazil, Australia, and Canada.In their 2012 report, McKinsey had projected that Bangladesh’s RMG export would grow to $42bn by 2021, whereas local industry leaders have earmarked a $50bn target within 2021. All these promises would be in vain unless effective steps are taken to ensure sustainable growth for our biggest industry.
