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HomeNews & ViewsIndustry FocusThe Unsolved Challenges for Bangladesh RMG Sector of Decade

The Unsolved Challenges for Bangladesh RMG Sector of Decade

Mohammad Nurul Alam

Bangladesh RMG sector is in constant crisis for decades of time where some issues are discussed many times, talk shows picked them as hot topics for industry crises, and owners and all the stakeholders are urged to get a permanent solution from the government. But to the limit of resources Bangladesh government also not able to provide the necessary support with full strength. In this situation, matters should not be kept unsolved and put hanging for talking and rolling over that industry insiders believe. Textile Focus as a part of RMG media wants to review the unsolved issues that remain for years in the RMG sector.

Bangladesh RMG sector unsolved challenges

1)RMG and its backward linkage affected by low gas supply and electricity disruption

Bangladesh’s RMG industry desperately suffering and sometimes failing to meet deadlines set by buyers due to the power crisis and through of long decades of time RMG owners and related stakeholders talking about this but the crisis never goes.

Particularly the apparel backward supply linkage was severely affected and not able to continue production in the spinning and textile mills as because of the unavailability of gas supply even the pick season machines are kept idle for the power problem.

The issues are discussed and vastly analyzed but year after year problems and crises are remaining without any final solution.

During the gas crisis mills generally gets gas at a rate of 1.5-2 pounds per second when it was supposed to be 15 PSI a report shows. At this time production progress gets reduced up to 60% and the impact goes directly to apparel shipment either the RMG industry fails to meet the deadline or the consequent mostly observed as cancellation or air shipment.

Recently an occasion of the BTMA annual dinner and Gala night on 26 January 2023 at a hotel in the capital where Minister of Textile and Jute Mr Golam Dastagir Gazi, Advisor to the Prime Minister of Bangladesh, Salman F Rahman MP were present, BTMA President Mohammad Ali Khokon said  “We did not want the hike to this extent and we want uninterrupted gas supply to keep up production” he further added “Our Spinning, weaving, dyeing-printing-finishing industries of Bangladesh are run on the basis of captive power generation, where gas is the main fuel”

The problem is not only to gas supply but rather a price hike also interrupts the entire business. In this regard, government and stakeholders should sit together and try to find a reasonable solution. Electricity disruption is also another big problem for the sector to continue the industry operation.

2)Burden of compliance cost on the RMG factories set by the customers

After the Rana Plaza collapse Bangladesh RMG industry has been pushed to improve its working conditions as well as meet all compliance demands but the problem arise that there was no central governing body to monitor the progress.

Accord on Fire and Building Safety in Bangladesh and The Alliance for Bangladesh Worker Safety were the five-year legally binding agreement between brands and trade unions to ensure a safe working environment in the Bangladesh RMG Industry formed after the Rana Plaza incident. These two Buyer representatives many times audited the garments factories and put their thorough monitoring process and advised for necessary changes in the factory and installation of new safety measures for which RMG owners have to bear additional costs.

The owners showed their concern that the above regulatory bodies applied many of the unnecessary changes as part of safety measures that really cost a huge amount and sometimes the cost gets higher than the operational cost.

The story could end here that just above two Buyer’s representatives were the only legal authorities to monitor the progress of safety measures but that did not happen in the Bangladesh RMG sector.

It has been seen both the regulatory body ACCORD and ALLIANCE were not agreeing to accept each other even if any of the RMG factories gets well compliance audited by any of the above regulatory body, the other refused it.

Not only ACCORD and ALLIANCE but also giant retailers were not satisfied over the above two regulatory body and so they separately arranged their own office compliance audit and put additional direction for safety measures that cost huge.

None of the compliance body accept each other even if one asks to make additional widows in the building as safety measure, there other ask to close them in the audit report. This makes the safety process complicated and haphazard everything.

As part of retailer’s responsibility, if they want apparel which has been produced in a safer condition and environment, where workers are not ill-treated, where production and delivery has been done at a high environmental standard but still expecting to pay cheap prices to Bangladesh that never can be logical rather it shows brands duel face mentality.

The cost of compliance should be shared by the manufacturers, retailers as well as end customers as part social responsibility, opined that industry insiders.

3) Low garment price but the demand for higher quality.

According to the International Trade Centre (ITC) Bangladesh gets up to 83% lower price than rivals – The Daily Star published an analytical report on above. 

The report says for men’s woven cotton trousers made by Bangladesh were sold for $7.01 per piece in 2020, whereas global average price was $7.72 which was 9.20 % below than the global average price.

For the same product Vietnam received $10.76 per piece while Sri Lankan and Indian exporters got $8 and $8.41, respectively.

Apart from the report Bangladesh RMG owners have a regular demand to get better price from the Buyers but instead of getting better price season on season customers push to accept lower price than the previous season for the same product.

Recently BGMEA President Faruque Hassan called upon global buyers to collaborate with their suppliers and pay ethical prices to enable and encourage the factories to take more initiatives for the welfare of garment workers. “Nobody can justify a lower price to produce a socially fair good. He made the remarks while addressing a stakeholder engagement session of the “RESPECT” program organized by Tesco, a UK-based retail company.

4)Misuse of bond licence

The Customs Bond Commissionerate generally issues bond licences for various sectors like 100% export-oriented garment industry to facilitate it but some unscrupulous businessmen sell the imported products such as fabric, papers or other apparel materials on the open market and this cause local miller’s products kept unsold. Because under the bond licence facility the illegal traders could sell the materials in low cost whereas the local millers fail to offer lower price due to higher production cost after paying the all government’s tax and charges.

Though Bangladesh government have taken many time tough stance against the misuse of the bond facility but the efforts gets futile and could little to prevent evasion of import duty and safeguard the local millers.

5)Unstable US currency against taka

US doller against taka

RMG products from Bangladesh become cheaper for US buyers if taka gets lower value against the US dollar. On the other hand, payments have to do by Bangladesh RMG makers in dollars for import materials, so the weakening of taka against USD means the cost of purchasing raw materials and other resources are increasing.

Due to the dollar crisis a few months ago, the leaders of Bangladesh Textile Mills Association (BTMA) urged the central bank to extend the time of the Usance Paid At Sight (UPAS) LC or deferred LC payment to 360 days from the existing 180 days.

The crisis for USD and its unstable rate against the taka made the RMG sector weaker and insecure. The crisis should not be lasting as unsolved and unsettled for decades and so RMG experts believe if the government does not come forward in this regard then the sector will lose strength in the global competition.

6) Container congestion at port and customs bureaucracy

For the Bangladesh RMG owners, the port situation is considered one of the biggest barriers and challenges to boosting up business in the sector. This will not be exaggerated that if the port situation is not improved, gradually RMG business soon be halted entirely.

The owners of different industries and industry insiders opined that the main cause of the congestion of ships at the Chittagong port is the infrastructure crisis, lack of modern equipment and unskilled workforce.

Sometimes port congestion outside Bangladesh like Combo or European port causes to be container prices to increase by $500 to $2,000 depending on the brand and destination. The crisis was marked by an increase in fuel prices and following the Russia-Ukraine war in recent years. Though Bangladesh is doing business mostly Free on board retailers in any way try to adjust the cost with the FOB.

Besides port congestion, there is a customs bureaucracy also responsible for most of the delays at customs clearance for imported raw materials.

Experts say to speed up the clearance process for imported goods at Chittagong port need to simplify the VAT collection process of the Customs Excise and VAT Commissionerate, making easy for the activities related to the Customs Bond Commissionerate, stopping unnecessary queries as well as speeding up to release the imported goods by the customs authority. It has been said in conclusion by the decades of time RMG owners are taking and urging to improve the above situations but the progress is not remarkable. But as the RMG industry is the main economic wheel for Bangladesh so the responsibility of the industry crisis needs to be solved by the government along with industry owners and related all stakeholders.

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