Bangladesh textile and RMG industry is known to be the second largest exporter of garments in terms of export value. The industry is successfully producing and exporting consumer garment products to almost all over of the world, making it the biggest supplier only after China. No other industry in Bangladesh has been able to even match the caliber of the textile and RMG industry. Due to huge demand in the global market and reluctance of the developed countries towards garments industry, the textile and RMG industry obligatorily found its way towards the developing countries where the labor cost is on the lower side due to abundance of population. Fortunately, Bangladesh enjoyed the biggest piece of cake as the entrepreneurs were able to capitalize the opportunity. As a result Bangladesh, despite of undesirable issues now and then, relished a free flowing business.
But the scenario is not the same any more as business is becoming competitive. Globalization, bilateral and multi-lateral trade agreements among trading partners are making product positioning and marketing complex day by day. Awareness in terms of ethical purchase of the consumers, worker’s rights, wage hikes, environmental issues, compliance etc. are also getting stringent, putting pressure on business profitability. Time has come to strengthen the factors of production and base of the industry in terms of indigenous capability of designing, development and effective management to improve quality of the textile and RMG industry.
The term qualitative development is meant to indicate the development of qualitative indicators. Only increasing in numbers without the development of the qualitative indicators cannot be sustainable. As long as the textile and RMG industry is concerned, real development can only be realized if the income generated from the industry is improving the living standards of the people and there is no exaggerated impact on the environment and society in the process. That is what a sustainable industry is all about. Sustainable development is formally defined by the World Commission on Environment and Development (WCED) as “development that meets the needs of the people today without compromising the ability of future generations to meet their own needs tomorrow”. Therefore, sustainable development refers to a shared commitment towards steady economic growth, given that this economic growth does not compromise the satisfactory management of available environmental resources. Textile industries are known for one of the most polluting and environmentally hazardous industry. Hence, the extent of natural resources that is endowed in the textile industries and the extent of hazardous impact the industry has on the environment must be considered as the qualitative indicators for the real development. So the aim is to control the resources, protect the environment, produce efficiently, pay ethically and develop gradually so that economic development is gradual and sustainable. Sustainability will be achieved by ensuring both qualitative and qualitative development of the industry. All these should bring equity in the society, in which all people within a specific society or isolated group have the same status in certain respects. All the stake-holders starting from the owners to the workers should be equally benefitted according to their level culminating a happy living for all.
Currency Retention and Value Addition
The fiscal year 2015-16 yielded 28.09 billion USD exports from the RMG industry. But the matter of fact is that the actual currency retention is not significant. A big portion of the resources (specially fabrics) for the RMG industries (cotton and yarn for textile industries) have to be imported from abroad which costs more than half of the income. As a result net income becomes considerably less compared to the total net export. Table-1 shows the amounts in USD that was earned from knitwear and woven-wear exports and the corresponding imports of textiles and textile-goods in two periods. As the data depicts more than 40% of the currency earned is spent through back to back LC to source fabrics, accessories and other textile goods. In other words 40% more value could have been added in the industry if we could supply the textile and textile articles that were sourced from abroad. The table-2 here depicts the actual products of import and import values in fiscal year 2014-15 and 2015-16. It shows a staggering $11.7 billion and $12.2 billion USD imports of materials that are directly used in RMG manufacturing for exports. The bottom line is that the backward linkage is not strong enough. In spite of being a $28 billion export industry, the currency retention is only $15-16 billion in reality. In other words, there lies an opportunity of a $12 billion worth textile and allied supply industries in Bangladesh only to manufacture raw materials for the export oriented garments industry. Exports of RMG grew 300 times in 20 years only from the EPZs, but the imports of textile and textile articles also grew simultaneously which depicts even in the EPZs where the technology transfer towards more value addition is more feasible are only confined within RMG industries. The chart shows the scenario in numbers.
If the exports items are tallied according to the export HS Code (showed in the below table) it can be easily depicted that both knitwear and woven-wear products ranges only within the basic RMG items. The production of such items are less technology intensive and more labor intensive; productivity depends on the appropriate application of production management systems. The Average FOB price ranges from as low as less than $1 to $10-$15 for the basic RMG items. And most of the products are manufactured upon imports of raw materials which reduces the currency retention considerably. So the crux of the story is that, though the RMG industry is a great success, the textile industries must be developed to make the success effective and sustainable.
Trade Issues and Market Diversifications
The world is a globalized village now and market diversification is as important as product diversification. Dependence on a single market is risky and uncertain. For long Bangladesh has been exporting RMG only in the EU-region and USA but thankfully in the last five to ten years the market has been significantly diversified and the export to the new emerging markets are growing fast. Still the biggest share of exports are destined towards Europe and USA, the next big market can be China and Japan as the export to these two destinations are increasing. However, the last year’s data depicts a slight decline in the exports growth to the emerging market due to the political mishaps in the running year. RMG exports to non-traditional markets (comprising 11 new destinations) were $3.907 billion against $3.598 billion in the previous fiscal registering growth of 8.60%. Growth was registered at 20.99% in the previous year, 2013-14 and 28.75% in 2012-13. Export Promotion Bureau along with garments manufacturer’s associations are undertaking rigorous activities to penetrate Bangladeshi RMG products in the emerging economies of the world like China, japan, India and South Africa especially. However, the effort from the government in terms of managing the bilateral and multi-lateral trade issues are not significant. Trade agreements like the TICFA, Trans-Pacific Partnership and GSP issues has formidable effects on the export markets due to immense competitiveness. The above chart shows the Rules of origin (RoO) for preferential tariff that Bangladesh is enjoying at the moment.
Technology, Innovation, Education and Training
Bangladesh is not a technology producer. Hence, all the technology, methods and engineering systems used in the textile and RMG industry are imported or adopted. The education and research in the universities and institutes are not up to the standard to produce indigenous technology. However, the appropriate adoption and transfer of technology itself is a big task and Bangladesh should go for effective technology transfer in near future as new technology development is too optimistic for the current education system.
Proper adaptation, utilization and optimization of the available technologies should be the strategy for development. This is what innovation is all about. Surge in the economic growth of Bangladesh is highly dependent on the industrialization and effective industrialization relies on appropriate innovation.
University education is still not mature enough to conduct proper R&D. In fact only Bangladesh University of Textiles, which is a full-pledged university for only textiles, garments and allied education has a set-up to start research oriented education. The university is still very young and it will take time to start effective research and development. There are some other institutes conducting education in textile engineering in different levels but only National Institute of Textile Engineering and Research (NITER) is mentionable as far as research capacity is concern. However, there are still scopes to enhance the industry-academia linkage at least in order to start the innovation process effectively.
If we put light to the developed countries, it is realized that there is an effective innovation chain running among the industries and academic organizations (universities/colleges/institutes). The universities do independent research and the outcomes are immediately embraced by the industries. And as the industry starts getting benefit from a particular research/innovation, it motivates the research entity for further development. So, there is always a win-win situation and the universities are never deficient in funds. The innovation chain in one way is helping the universities to develop state of the art laboratories, research facilities and hire the most talented students/researchers; and in another way it is helping the industry being provided with cutting edge technologies continuously to be more efficient and profitable.
The aim is to gradually transform the industry from a low tech labor intensive, resource intensive and low profit making industry to less labor and resource intensive, productive and high profit making industry. For that the intellectual base of the industry that is the education, training, R&D infrastructure has to be strengthened.
This article shows the qualitative indicators that must be developed for the sustainable development of the textile and RMG industry of Bangladesh. Gradual and incremental transformation can be achieved if all the stake holders work in a harmony. Along with industry expansion emphasize must be given to expand and enrich the knowledge base as well. Textile Focus is nothing but such an endeavor. With this two articles the present scenario, both quantitative and qualitative; is being revealed to the readers so that we can think and contribute in the right way to develop our prodigious industry.
Textiles and RMG, the Prodigious Industry (Part-I)