Success in global trade is vital to Bangladesh’s economic growth prospects and its hope of meeting the MDG target of halving poverty by 2015. As global competition in the Readymade Garments (RMG) industry heats up, Bangladesh cannot afford to be sidelined. Presently, three-quarters of Bangladesh’s export earnings come from sales of knitwear and woven goods, of which 96 percent are destined for the US and EU markets. The apparel sector is the biggest source of industrial jobs and, along with the accessories industry, provides direct employment for over 2 million workers, mostly women. Moreover, RMG export is a major source of foreign exchange earnings for the country. Bangladesh emerged as a global supplier of RMG thanks to the Multi-Fibre Arrangement (MFA). Textile and garment quotas under the MFA were finally phased out as of January 2005 in accordance with the WTO Agreement on Textiles and Clothing (ATC) of 1994. Countries that relied on the secured market of quotas now face enormous challenges amid intense global competition. Bangladesh’s heavy reliance on this sector gives rise to certain vulnerabilities. With neighboring countries, such as India and China, building ever more formidable RMG industries, a substantial part of Bangladesh’s RMG workforce could be at risk of job loss if the industry fails to stay competitive, not to mention considerable losses in foreign exchange earnings. In order to prevent such losses and remain a notable player in the apparel market, Bangladesh must devise a strategy to improve its overall competitiveness and that of the RMG sector. A recently completed study by the World Bank titled, “End of MFA Quotas: Key Issues and Strategic Options for Bangladesh Readymade Garment Industry,” explores the factors that have brought success to Bangladesh’s RMG industry and examines the likely threats and key constraints in the post-MFA era. It also sets out a number of strategic options for the sector to pursue, building on past achievements and competitive advantages in order to enhance Bangladesh’s export competitiveness in the global marketplace. A dual approach to the challenge that would allow Bangladesh to compete efficiently comprises of: A summary of the options are as follows: Reducing lead time: Lead time—the turnaround time from receipt of an order to the delivery of the product—has emerged as an important issue in the global market and retailers value those manufacturers who can respond quickly to orders. Bangladesh currently has the longest lead time among its competitors, and it needs to find a way to reduce lead time if it is to maintain international competitiveness. Improving the domestic and regional supply chain: Contributing to the problem of lead time is the gap between demand and supply of raw material, particularly for woven garments. Local sourcing has not been able to reduce this gap significantly, and it will take time to increase domestic capacity substantially. One option may be to forge closer links with neighboring suppliers for sourcing textile and clothing (T & C) inputs at reasonably short notice. Warehousing for a quick turnaround: An innovative solution to the problem of long lead time could be the establishment of a central bonded warehouse (CBW) to stock duty-free imported inputs. A CBW could be set up by any firm, and its duty-free imports would not be subject to conditions, unlike individual bonded warehouses. The CBW operator could be permitted to stock a whole range of T & C inputs, such as finished and grey fabric, accessories, dyes and chemicals, yarn, RMG, and textile machinery and spare parts in amounts determined by expected demand. RMG and textile manufacturers could then purchase these inputs duty-free from the CBW directly as export orders are received and save on the shipping time required for importing inputs. Opening land routes and modernizing port facilities: To reduce the time taken to source inputs from the region Bangladesh Government recently removed the ban on importing yarn from India via land routes. This should be followed up with other logistics and infrastructural reforms, such as modernizing Chittagong Port and addressing inadequate power supply, which act as major constraints on efficiency. Simplification of tariff regime: Despite increasing liberalization, Bangladesh remains one of the most protected economies in South Asia and, indeed, the world. As pointed out in a previous World Bank report, Export Competitiveness and Growth, high tariffs that protect domestic industries create disincentives to export activities and cause an anti-export bias. High import duties also increase the cost of production and reduce profit margins of manufacturers. The RMG sector has been insulated from this anti-export bias through schemes such as bonded warehouses and EPZs. This shows that Bangladeshi producers will respond to opportunities and can compete in the global market when they do not face disincentives in the domestic market. Simplifying the cumbersome import regime as a whole could make export diversification a reality. Diversification, aggressive marketing, and pursuing new markets: In order to forge a "competitive edge," Bangladesh could diversify into a new range of higher-value products, aside from the traditional T-shirts, shirts, trousers, sweaters, and jackets which make up 60 percent of the RMG exports. This would need to be associated with vigorous promotion and aggressive marketing in order to secure a position in the market for high-value apparel. Furthermore, with only a handful of countries accounting for 98 percent of Bangladesh’s RMG export market, opportunities to exploit other potential markets should be explored, including East Asia and other middle-income countries, and others which have given zero-tariff access to Bangladeshi exports. The end of the MFA presents both challenges and opportunities for the RMG sector of Bangladesh which has a strong position from which to compete and a wide choice of promising policies to pursue. March 2006
---------------------------------------------------------------------------------------------------------------------------------------- Contact:
Rezwan Alam (8802) 815-9015, Ext 4242
E-mail: salam3@worldbank.org For more information on the World Bank in Bangladesh, please visit :
http://www.worldbank.org.bd and http://www.worldbank.org |
RSS