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Textiles and RMG, the Prodigious Industry (Part-I)

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Maeen Md. Khairul Akter
Managing Editor, Textile Focus
Lecturer, National Institute of Textile Engineering and Research (NITER)


screenshot-167Introduction:

Describing the textile and RMG industry of Bangladesh has been done from different angles in different literatures. This endeavor is to make an all-inclusive comprehensive study of the industry for the stake holders and everyone who wants to know about the prodigious industry. Prodigious- because it has grown to an enormous size in a blink, established substantial influence on the economy, alleviated unemployment considerably and produced hundreds of success stories for a country that was aguishly distressed with poverty.  The contribution of the textile and RMG industry to the overall GDP of the country and impact on the social well being have changed the scenario of Bangladesh all together. Today Bangladesh is one of the fastest growing economy of the world riding on the back of a rising textile and RMG industry. Take away the textile and RMG, the dream to reach the middle-income milestone becomes obsolete!

However, there’s other side of the coin as well; and reaching today’s position has not been a stress-free path. Back-breaking hard work of the RMG workers at the lowest pay of the world, enthusiastic entrepreneurs’ never-stopping spirit, and government’s supreme assistance led the way. Still, incidents like Tajreen fure, Rana Plaza and Standard Group fire impeded. untitledfvccbBut the ultimate strength of the industry is that, it over-came all the odds every time. As the 2nd largest knitwear exporter of the world, Bangladesh is moving fast making ‘Made in Bangladesh’ a well-desired label for the apparel consumers.

The size and growth:

The export oriented ready made garments (RMG) sector in Bangladesh started its modest journey as a small non-traditional sector of export in late 1970s. After the liberation especially from the 90s the RMG industry started to surge at a formidable pace as the country was gaining political and social stability. Within three decades, RMG has transformed itself as the country’s highest revenue generating sector, contributing 82% (USD 28.094 billion FY 15-16) of country’s total export. (Data from EPB, October, 2016) Today Bangladesh has the highest numbers of RMG industries compared to other strong competitors. The textile industry has also grown substantially to support the RMG as backward linkage. According to reports from BTMA and BGMEA there are more than 1500 export oriented textile industries and more than 6000 (4000 under BGMEA and 2000 under BKMEA as of 2015-16 FY) RMG industries operating in the country. All these industries make Bangladesh the second biggest exporter of RMG after China and the market is growing at a good rate.  Table # 01 in the next page represents the growth of the RMG industry throughout the years starting from 1984-85 fiscal year to the current fiscal year.  Around 4 million workers of which more than 80% are women are directly employed in those 4000-odd industries making apparels for most of the countries of the world. From 1984-85 to 2004-05, in 20 years the export market of RMG rose 200 folds, whereas the total export from all sectors  surged only by 10 folds. It clearly depicts the impeccable growth of the RMG industry. In the last decade form FY 2005-06 to 2015-2016 the industry again rose 3 folds to a staggering 28 billion.

The size of the textile industry is also growing as there is an increasing demand from the export oriented garments industries.     There are around 1500 units of textile processing (spinning, weaving, knitting, dyeing, finishing) units operating in the country to supply and process the materials for the export oriented RMG sector.

The textile industries are not still mature enough to be able to export textiles directly to abroad and has quality and compliance issues. Especially the dyeing and finishing units are known to be polluting the inland water base of the country by draining effluents and pollutants directly to the canals and rivers. But the situations are improving as awareness of the owners, stake-holders and the government has increased.

The textile industry supplies around 90% of the knit fabric demands and around 45% of the woven fabric demands to the RMGs.  Indigenous capacity in weaving is also increasing specially in denim sector as around 80% of the total demand of denim is supplied from the local denim industries.

The development of the textile base is really important for the RMG industries to be sustainable and profitable.

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The last fiscal year has been productive for the RMG industries as the industry registered a 10% growth (see chart # 01).  The last FY in 2014-15 was disastrous for the industry as it experienced only a minimal growth of 4% (least in the last 5 years). This happened mainly because of the   political turmoil, decreased value of products in the world market, and deprecation of euro.  According to experts of EPB- export earnings witnessed a minimal growth in terms of valuscreenshot-155e but the volume of export perhaps increased.

But fortunately in this year the RMG industry is right back on track registering a 10.21% growth.  The growth has been attributed by exporters and analysts to political calmness during the year, increased productivity, entrepreneurs’ resilience and improvement of workers’ safety standards in factories. The RMG owners didn’t stop taking orders despite the profit margin being curtailed dramatically due to the increased operational cost and lower price trending the global market.  The room for doing business is getting narrower day by day with the continuing pressure from the buyers to reduce the garments’ price and the increasing operating cost due to higher salaries and contribution towards ensuring better working conditions.  But experts are perceiving this situation positively as the entrepreneurs are trying to do value-added items along with the consumer items to compensate the low profitability.

Of the total figure, the knitwear constituted $13.35 bn and woven products $14.74 bn. Along with RMG the export earnings from Jute sector, leather products and home textile was $0.92 bn, $1.16 bn  and $0.75 bn respectively.
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Global Position:

Bangladesh has the second largest RMG exports only after China. But still the difference between the two

country’s export shares is immense; 45% and 5% of the global market respectively. Apart from China, Vietnam, India and Cambodia are the biggest challenge / competitors when RMG exports is in concern.

Product portfolio, average FOB price, wage, trade agreements, speed to market, workers’ availability and skill domain, quality of product, maturity in mid-level management and compliance are the metrics that set apart the country’s RMG sectors.

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Source: Dhaka Tribune, 20 July, 2016

Table # 03 specifically depicts the comparative position of Bangladesh RMG industry against the competitors.  The product portfolio is more or less similar but Bangladesh is still not a favorable place for the buyers to source high-end garments and only a few industries manufacture items like suits, sportswear and fashionable apparels.  India and China are more capable of manufacturing fashionable items then Bangladesh. Vietnam of late has gained a great fame by capturing USA market. Due to the blessing of cotton availability and versatile textile industry China, India and Vietnam are more favorable place to manufacture high-end and fashion items.

When capacity is in concern, Bangladesh has still the best solution with around 4300 (BGMEA data, 2015-16) woven garment industries and 2000 (BKMEA data, 2015-16) knitwear industries.   Though India has the same number of industries but they are comparatively smaller in size. Consumer apparel buyers like H&M prefers Bangladesh due to its large size factories able to customize price in terms of economy of scale.  China has 1,00,000 industries and produces almost half of the total consumption of apparel of the world.  But they are gradually transforming to medium and hi-tech products as they are no more suitable place to manufacture low-tech items with the highest worker wage around. The FOB price of a basic garment is also the highest among them.

According to the operational efficiency Bangladesh still lags behind of all as the mid-level management are un-skilled and inefficient compared to India, China and Vietnam. The lead-time is another matter of concern for Bangladesh as China and India can complete a shipment in two-third the time Bangladesh needs. Thanks to their strong local backward integration industries.

Workers are available in abundance in all of the countries but due to the demographic difference, Chinese, Indian and Vietnamese workers more efficient and intelligent then Bangladeshi workers. Matter of fact is that it is becoming difficult to attract workers in India, China and Vietnam to the RMG industries as there are other better options like electronics, telecommunication and FMCG products. Whereas, in Bangladesh still the prime industrial sector are the textiles and RMG and most of the employment comes from these two sectors.

The recent incidents in Bangladesh like Rana Plaza collapse, Tazreen fire and other safety disasters, the compliance risk in the RMG industries became the concern for all. But due to the concentrated effort from the government, accord & alliance and the RMG owner’s authority the situation has improved dramatically. Safety assessment by global buyers platform has found less than 2% factories risky to workers’ safety, which have already been closed. Meanwhile, Vietnam showed excellent performance and grown by 32% and 24% in the last two fiscal years. (VINATEX statistics)

Considering all the  parameters described here Bangladesh is still a preferable place for the western buyers for consumer products like basic knit-wears, shirts, trousers, pull-overs, kids item and basic women wear due to the industries unique ability to produce at the cheapest rate. Lead-time and the compliance issues are the things to look for.

Conclusion:

Bangladesh continues to make its firm footing in the global RMG markets as it surged by 10.21% in the concluding FY. Its global market share was 5.1% as of 2014 and this year it must have increased to some extent. Bangladesh has a set target of $50 billion export by 2021. For achieving the target, the global market share has to increase to 8% with a 12% yearly growth. (Dhaka Tribune, 20 July, 2016) For this the major challenges are to ensure political stability, seamless supply of power and gas and diversification of export to the non-traditional market.

However, in terms of value retention RMG industry is still not a standard and most of the money earned is spent importing the materials through back to back LC. For the textile and RMG sector to be sustainable and beneficial for the next generation, issues like industrial ecology, environmental and market sustainability and indigenous technological development are the key.

From the facts described in this article it can be concluded that Bangladesh is in the right path to reach the quantitative target of $50 billion exports value by 2021 but for the qualitative targets like increasing value retention and product diversification there are still lots of works to do. The part-II of the article will cover the qualitative issues of the textile and RMG sector.

 

 

 

 

About the author

Ashraful Islam

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