Since its independence, Bangladesh has witnessed a remarkable rise in entrepreneurship, largely thanks to the crucial role played by bankers and bureaucrats. Many individuals from various backgrounds—educated and uneducated, skilled and unskilled—found the courage and resources to become entrepreneurs with the help and guidance of these key figures both before and after liberation.
Early Beginnings and Private Sector Initiative
The journey of Bangladesh’s garment sector began with private initiatives in the late 1970s. High labor costs in developed countries prompted garment factories to relocate to countries with cheaper labor, creating an opportunity for Bangladesh due to its low wages and surplus labor force. Entrepreneurs in Bangladesh capitalized on this opportunity, establishing garment factories that would later become the backbone of the country’s economy.
Government Policy Support
From the outset, the Bangladeshi government provided extensive policy support to nurture the nascent garment sector. Key policy measures included:
- Duty Draw Back and Bond Facility: Initially, the government implemented a duty draw back system, allowing entrepreneurs to reclaim duties paid on imported raw materials after exporting the finished goods. Due to delays and corruption in this system, the government introduced the bond facility, enabling garment manufacturers to import raw materials duty-free, significantly reducing production costs and enhancing competitiveness.
- Back-to-Back Letters of Credit (LCs): Introduced in the mid-1980s, this system allowed entrepreneurs to secure the necessary raw materials and ancillary products without upfront payments, with banks bearing the financial responsibility. This innovation was crucial in reducing financial barriers for new entrants in the industry.
- Cash Incentives: In the late 1990s, the government provided a 25% cash incentive to the textile and clothing sector, which was later reduced to 15% and then 5%. These incentives helped boost the industry’s growth by increasing profitability and encouraging investment.
- VAT Exemption: From the fiscal year 2004-05, the garment sector was exempted from value-added tax (VAT), further reducing the financial burden on manufacturers.
The Role of Government Officials and Bankers
Government officials, including customs officers from the National Board of Revenue (NBR), and bankers played a pivotal role in the industry’s growth. These officials, often with experience in mentoring businesspeople, provided crucial guidance and support to emerging entrepreneurs. They shared expertise in customs bonded warehouse systems and facilitated financial support, enabling entrepreneurs to navigate the complexities of international trade and finance.
After the independence in 1971, Bangladesh was one of the poorest countries in the world. No major industries were developed in Bangladesh when it was known as East Pakistan, due to the discriminatory attitudes and policies of the government of the then West Pakistan. So, rebuilding the war-ravaged country with limited resources appeared to be the biggest challenge.
The industry that has been making crucial contributions to rebuilding the country and its economy is none other than the readymade garment (RMG) industry, which is now the single biggest export earner for Bangladesh. The sector accounts for 81% of total export earnings of the country.
One notable example from the late 1980s involves a group of entrepreneurs who, with the collaborative efforts of experienced industry veterans and supportive government officials, established a successful apparel factory. Bankers took significant risks to provide the necessary financial backing, demonstrating their belief in the potential of these entrepreneurs and the RMG sector.
My father, Mr. Reaz Uddin, is one such example. In 1974, he sought opportunities to export readymade garments and regularly corresponded with the Trading Corporation of Bangladesh (TCB). Through persistent efforts and with the guidance of the TCB Chairman, Textile Secretary, various bankers, and NBR officials, he managed to send his samples to buyers. Their continued support and encouragement helped him achieve success, paving the way for the country’s RMG industry and inspiring other entrepreneurs. This dedicated assistance was instrumental in making the first export of RMG from Bangladesh a reality. Unfortunately, finding such supportive bankers, NBR officials, and bureaucrats is rare today, though many still work silently in various sectors.
Formation and Growth of BGMEA
The formation of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) in 1980 marked a significant milestone for the RMG sector. Initially, the BGMEA office was situated at Chawkbazar before moving to Purana Paltan. In its early years, BGMEA struggled to cover office expenses, relying on monthly donations that were insufficient to sustain operations. To address this, BGMEA approached the NBR with a proposal to grant them the authority to issue Utilization Declarations (UDs), allowing them to generate revenue through fees. The NBR accepted the proposal, officially granting BGMEA the right to issue UDs, which provided a steady income stream for the organization. This financial stability enabled BGMEA to grow and effectively support its members, contributing significantly to the industry’s development. Today, the revenue from issuing UDs, along with member fees, has made a substantial impact on BGMEA’s growth and capacity to serve the industry. This is an excellent example of the support from bureaucrats and NBR officials and their understanding of the industry’s needs in that time.
In 1994, the industry tackled the issue of child labor, successfully making the sector free from child labor by 1995. The MFA-quota system was instrumental in allowing the industry to take root and develop. When the quota system ended in 2004, many predicted a downturn for the industry, but Bangladesh’s RMG sector defied these predictions, growing stronger in the post-MFA era. By 2014-15, the apparel industry had become Bangladesh’s biggest export earner, with exports valued at over $25.49 billion.
Despite its successes, the RMG industry faced significant challenges, notably after the tragic building collapse in 2013. Many thought this disaster would mark the end of the industry, but it instead prompted a renewed focus on worker safety and sustainability. For the first time in the global garment industry, all stakeholders—governments, brands, buyers, suppliers, entrepreneurs, and workers—recognized that ensuring the safety and wellbeing of workers was a shared responsibility. This collective effort has made the industry safer and more sustainable. Contrary to the tragic events of the past, like Rana Plaza, many of our factories now meet international standards of safety and aesthetics. These facilities are a testament to our commitment to the well-being of our workers and the quality of our products positive strides and improvements in the Bangladesh RMG sector.
Impact of the Quota System and Open Competition
The growth of Bangladesh’s garment sector can be divided into two phases:
- Quota System (Pre-2005): Under the Multi-Fibre Arrangement (MFA), Bangladesh enjoyed quota facilities, ensuring a guaranteed market for its garments. This period saw substantial growth in the industry, with entrepreneurs benefiting from assured market access.
- Post-Quota System (Post-2005): The removal of the quota system in 2005 opened the industry to global competition. Despite initial challenges, Bangladesh’s garment sector thrived, with the number of factories increasing by 30% and the industry becoming more competitive internationally.
Challenges and Future Prospects
Despite the significant contributions of government policies and the dedication of entrepreneurs, the relationship between the RMG sector and key stakeholders, such as bankers and NBR officials, has deteriorated in recent years. Rebuilding these crucial relationships is essential for the continued growth and success of the industry. Recognizing and honoring the contributions of past leaders and government officials can inspire current and future generations to foster a supportive and cooperative environment.
Conclusion
The rise of Bangladesh’s apparel industry is a testament to the synergistic efforts of entrepreneurial innovation and robust government policy support. The strategic support from the government in terms of regulatory framework, infrastructure development, training initiatives, diplomatic efforts, and favorable policies created an enabling environment that allowed the industry to flourish. The success of Bangladesh’s garment sector highlights the interplay between private sector initiative and strategic government interventions.
As we reflect on this journey, it is essential for the new generation and those outside the garment industry to understand the collaborative effort and visionary leadership that transformed the RMG sector into a cornerstone of Bangladesh’s economy, providing livelihoods for millions and contributing significantly to the nation’s GDP. Documenting these historical insights not only preserves the industry’s legacy but also provides valuable lessons for future generations. Strong relationships with NBR, bankers, and government officials are the backbone of the RMG industry, essential for its continued success and growth.
Author: Md. Salauddin, Director, Reaz Garments Ltd.
