A Policy Story of Survival, Pressure, and the Road Ahead

Executive Summary

Bangladesh’s apparel sector is facing a structural shift marked by declining export growth, falling unit prices, rising costs, and slowing investment. Data from FY 2025–26 shows a 3.73% decline in export earnings (July–February), a 1.76% drop in unit prices, and a 6.79% fall in back-to-back L/C openings. Approximately 400 factories have closed over the past three years. Given that the sector contributes around 83% of national export earnings, targeted policy interventions are critical.

This paper proposes a structured policy framework focusing on cost competitiveness, liquidity support, operational efficiency, external competitiveness, value chain development, and investment revival. Factories going quiet. Margins shrinking. Orders becoming uncertain. Bangladesh’s apparel sector—once defined by relentless growth—is now navigating a period of intense pressure. This is not just an industry slowdown; it is a structural shift.

Cost Structure and Competitiveness

Rising operational costs are eroding competitiveness in a price-sensitive global market. Key cost indicators are presented below.

Policy Direction: Introduce preferential interest rates, stabilize energy pricing, and rationalize logistics costs.

Fiscal Support and Liquidity

Liquidity constraints are intensifying due to reduced incentives and persistent tax burdens.

Policy Direction: Remove tax on incentives, reduce source tax, and ensure consistent application of corporate tax rates.

Operational Efficiency

Operational inefficiencies increase lead times and reduce reliability. Key issues include sub-contracting taxation, VAT complexity, and regulatory delays.

Policy Direction: Simplify tax structures, streamline VAT processes, and digitize approvals.

External Competitiveness

Bangladesh faces increasing competition from countries with stronger trade agreements and policy support.
Policy Direction: Accelerate FTAs and CEPA, diversify markets, and align with Rules of Origin.

Value Chain Development

Dependence on imported raw materials increases lead times and reduces value addition.
Policy Direction: Strengthen local textile industries, promote import substitution, and develop backward linkages.

Investment Trends

Investment is slowing, as reflected in declining machinery imports.

Policy Direction: Promote investment through incentives, support green factories, and encourage technology upgrades.

The Warning Signs

Recent data points to a clear and multi-layered slowdown in Bangladesh’s apparel sector. The pressure is not isolated—it is visible across exports, pricing, and future order flow.

During July–February of FY 2025–26, export earnings declined by 3.73%, while average unit prices fell by 1.76%. This combination signals a direct margin squeeze: exporters are earning less both in volume and per unit, largely due to increased price pressure from global buyers.

More concerning is the forward outlook. Back-to-back L/C openings dropped by 6.79%, indicating weaker order pipelines in the coming months. This suggests that the slowdown is not temporary but likely to continue.

At the industry level, the impact is already visible. Around 400 factories have shut down over the past three years, reflecting the growing inability of manufacturers to absorb rising costs and declining margins.

At the firm level, the impact is already visible. Over the past three years, approximately 400 factories have shut down, pointing to a gradual erosion of industrial resilience. These closures are not limited to inefficient units alone; even relatively compliant and export-oriented factories are struggling to absorb sustained cost pressures and shrinking margins.

Beyond these headline figures, there are additional underlying concerns:

• Order volatility has increased, with buyers placing smaller, more frequent orders instead of large-volume commitments
• Lead time expectations are tightening, while domestic processes remain relatively slow
• Payment cycles are lengthening, further straining working capital
• Product mix remains concentrated in basic items, limiting pricing power

Taken together, these trends indicate that the sector is not facing a temporary slowdown, but rather a structural shift in its operating environment.

Together, these indicators point to a structural shift. The challenge is no longer just about sustaining growth—it is about maintaining competitiveness under sustained pressure.

Rising Costs, Falling Margins

While global buyers continue to push for lower prices, the cost base in Bangladesh is moving in the opposite direction—creating a sustained margin squeeze for manufacturers.

Key input costs have increased significantly over recent years. Gas prices have risen by 286% (2017–2023), electricity tariffs by 33% over the past five years, and port tariffs by 41%. At the same time, lending rates remain high at 12%–15%, increasing the cost of working capital .

On the labor side, the latest wage revision introduced a 56% increase in minimum wages, alongside higher annual increments. While necessary from a social and compliance perspective, this has added further pressure on operating costs—particularly for factories producing basic, price-sensitive items.

The challenge is that these rising costs are not being matched by higher export prices. Instead, with unit prices declining, manufacturers are absorbing the difference, leading to thinner margins and reduced financial flexibility.

In effect, the sector is caught in a structural imbalance:
costs are rising faster than both productivity gains and export earnings.

Unless this gap is addressed through targeted policy support and efficiency improvements, margin compression will continue to weaken the sector’s overall competitiveness.

Investment Slowdown

Declining machinery imports indicate reduced investment and future capacity risks.

Policy Priorities

To stabilize and transform the sector, budget proposals must focus on:
– Cost reduction
– Liquidity support
– Ease of doing business
– Trade competitiveness
– Value chain strengthening
– Investment revival

Conclusion

Bangladesh’s apparel sector stands at a defining moment. The decisions made today will determine whether it stabilizes and evolves or gradually loses its global position.

Sustaining Bangladesh’s apparel sector requires coordinated policy measures addressing cost, liquidity, efficiency, competitiveness, and investment. A structured and data-driven approach is essential for long-term sustainability.

References

1. BGMEA Budget Proposal 2026–27.
2. BTMA Budget Proposal 2026–27.
3. Bangladesh Bank Data (2025–26).
4. Industry Export and Cost Data (compiled).

Author: Farhana Shraboni, Assistant Merchandise Manager, Dongyi Sourcing Ltd