The readymade garment (RMG) sector of Bangladesh tells us an impressive story of the country’s successful transition towards an export-oriented economy. From an almost unknown entity in the early 1980s, the RMG sector has become a major player in export earnings and has strengthened its base in the country’s export structure over the course of time. RMG export demonstrated considerable growth from a meager US$ 31 million in 1983 to an impressive figure of over US$ 28.09 billion by the end of 2015-16 (July 2015 to June 2016) fiscal year. The industry has become the country’s main source of foreign currency earnings – thereby accounting for more than 81 per cent of total exports. Although the industry witnessed rapid expansion over the last three decades, the export markets did not expand relatively – rather it remained mostly concentrated on a few major markets.
The two major markets for Bangladesh’s garment exports have been the United States and the European Union countries (predominantly Germany, the United Kingdom, France, the Netherlands, Spain, Italy, Belgium, Denmark and Sweden). Market diversification has always been limited, with exports to these main markets accounting for as much as 84.3 per cent of the total garment exports. The United States of America holds a 20 per cent share whereas the EU as a region holds a 61 per cent share of our total apparel exports. Canada is the third largest market having a share of only 3.55 per cent.
It is quite encouraging to notice that over the past ten years, a remarkable progress has been achieved in diversifying our exports to non-traditional markets. The share of our apparel export to markets other than the EU and North America was 2.44 per cent in the fiscal year 2005-06, which increased to 15.37 per cent in the fiscal year 2015-16 amounting to an export turnover of US$ 4.32 billion. Significant improvement has taken place in exports to the Asian region, particularly Japan, China, India, South Korea and Latin American countries like Brazil, Mexico and Chile as well as to the markets like Turkey, South Africa, Russia and Australia.
These are some of the new and emerging markets for Bangladesh. Export to Turkey amounted to US$ 460.29 million in FY2015-16 although the amount was US$ 622.37 million in FY2013-14. This dent in exports to Turkey was caused by the imposition of safeguard duty by the Turkish government on their apparel imports. Among the Asian countries, China, South Korea and India showed robust growth. Exports to Japan reached US$ 774 million during the last fiscal year. The Latin America market seems to be highly promising for us. Exports to Brazil more than doubled from US$ 45.17 million in FY2009-10 to US$ 120 million in FY2015-16. The variation of the seasonal cycle in Latin America because of its location in the Southern Hemisphere creates a unique advantage for us to utilise the lean periods of winter products. Russia, Australia, Mexico and Chile are also showing encouraging growth in recent years.
This growth in non-traditional markets has been possible for a number of policy supports and initiatives taken by the government and the industry. There was no embassy of Bangladesh in any Latin American country before 2011, nor any Latin embassy in Bangladesh. As a result of rigorous persuasion by the BGMEA, the incumbent government of Bangladesh has already opened embassies in Brazil and Mexico. Brazil has also opened their embassy in Dhaka, so the visa process and travel to these countries have become easier. Nevertheless, the special incentive provided by the Bangladesh government in exports to non-traditional markets has helped significantly achieve this progress.
Market access and commercial diplomacy will be vital for us. The European Union simplified the Generalised System of Preference (GSP) rules of origin from ‘two-stage’ to ‘one-stage’ procedures from January 01, 2011. Norway and Switzerland also adopted the revised rules of EU from April 01and May 01, 2011 respectively. Japan – the second largest clothing importing country in the world with US$ 30 billion imports in a year – also relaxed its GSP rules of origin. We have got the provision for duty-free export to India and Chile. China, South Korea and Malaysia have also granted duty-free access for selected RMG products. All these policy adjustments will add an impetus to our exports. We have to discuss and negotiate with the new Trump government on duty-free issues as well as need to engage in discussions with the United Kingdom on the post-Brexit regime. Besides, strong steps are needed to pursue duty-free access to Russia, South Africa, Turkey and the Latin American countries like Brazil, Mexico, Argentina etc.
While talking about market diversification, it becomes relevant to highlight the importance of product diversification as well. Important to note is that the majority (around 80 per cent) of our exports comprise five basic products – trousers, t-shirt, sweater, shirts, and jackets, which are mostly made of cotton. In recent years, the export basket started getting expanded to include other items like – suits/blazers, lingerie, active-wear/sports-wear and outerwear, and non-cotton items. We already made a breakthrough in denim as we have become the largest denim trouser exporter to the EU markets. We are taking strategies to ensure long-term growth by means of penetrating higher market segments, fashion and innovation. Bangladesh is now gearing up to cater to the high-end and branded fashion segments.
Moreover, most of our items are cotton-based, and we have opportunities in manufacturing man-made fibre-based apparel, especially the fabrics made of man-made fibre-like viscose, rayon, spandex, polyester, etc where Bangladesh has a huge market, but with almost no production capacity. If we can bring in more investments – be it local or foreign – in these items as well, this will benefit us tremendously.
Although the world’s clothing exports could not keep positive growth in 2015 and also in 2016, it is estimated that the market will reach US$ 650 billion by 2020 which is now at US$ 445 billion. We have the possibility to grab a good share of this growth. The demographic advantage of Bangladesh coupled with duty-free and quota-free market access enjoyed as a least developed country (LDC) and increasing the capacity of backward linkage industries are indicating a bright future of the industry in its march forward. Market diversification and moving to a high value-added segment are going to be critical to pursue the next big opportunities.
Faruque Hassan is Senior Vice-President of Bangladesh Garment Manufacturers & Exporters Association (BGMEA)
