How FDI can secure the future of the garment, textile industry
In 2018, foreign investment dropped by $13 million compared to 2017. In the same year, the total foreign investment in other sectors has seen a 68% rise compared to the previous year
It is the high time to bring foreign investment in the 35 billion dollar garment and textile industry to keep it running, and sustain in the long run. Considering the pandemic effect on a country like Bangladesh, we should not expect massive support from the government because the government must look after every industry, as almost everyone has been affected during the ongoing crisis.
Some challenging factors
Standing in 2021, if we look at the overall industry of Garment and Textile, I have to say that we are suffering from an overwhelming number of issues created that developed both internally and externally over the time. If we analyse a figure of FDI in the Garment sector from 2014–2018, we will see that foreign investors are not showing faith in investing in this sector.
Keep updated, follow The Business Standard's Google news channel
In 2018, foreign investment dropped by $13 million compared to 2017. In the same year, the total foreign investment in other sectors has seen a 68% rise compared to the previous year.
There are a couple of reasons why investors are getting less interested in investing in an industry that contributes to 85% of total export. The main reason they are losing interest is government policy is unfavourable to some extent and rising production cost due to an increase in energy cost.
Bangladesh as a country has significant constraints in cotton growing. Due to its geographical position and land- shortage, we cannot grow cotton. We must remember that in the coming years customers will move towards a one-stop solution. They will likely move where the industry enjoys the full length of value addition in backward and forward linkage.
By 2030, automation will take place in apparel manufacturing, and Bangladesh will lose the advantage of low-cost labour and mass production. Investors then are more likely to invest in the African region because of their ability to grow cotton.
The value addition in primary textile is missing in our country. We are still stuck to basic yarn and fabric manufacturing techniques. Currently, our primary textile sector can meet around 90% yarn demand of knit RMG and 40% yarn demand of woven RMG. On the other hand, 50% demand for denim fabric is met, while higher-end fabric is mostly sourced through import.
Value addition in garments is also missing here. Neither do we have an international level design house nor do we concentrate on research and development. Rather we depend on the buyer placements. We don't have capabilities to offer solutions to buyers and as a matter of fact, we don't have strong negotiating capacity over our buyers.
Why we need FDI
We cannot expect the government to take the entire responsibility as other sector's recovery is as important as the garment industry.
We need FDI to invest in non-cotton based fibre manufacturing. We need to bring up-gradation to yarn and fabric manufacturing as well, to bring value addition in the primary textile sector.
We need to develop quality design houses, research, and development teams to cope up with the international market.
We need to keep our workforce updated and develop technical skills to retain the industry in the long run.
Foreign investment should be encouraged, and we can even develop technical institutions to replace foreigners in the long run. We must change the entire institutional guideline and bring the most modern textile and apparel manufacturing courses to train our youths.
Role of the association
The textile and garment industry's governing bodies, BGMEA, BKMEA, BGBA and other relevant associations must sit with the international fundraisers like ADB, IFC, World Bank, ILO with specific proposals to attract the FDI for the next 10-20 years. However, a combined approach with the government is required. I will discuss the potential government role in the next section. The associations should set up a joint venture program with international companies to bring in investment.
Besides encouraging green factories, the association must help establish R&D through hiring professionals, design and concept houses, and modern sampling units, to help the industry sustain in the long run.
Role of the government
Foreign investment can reduce pressure on the government. But the government must play a considerable role to make it happen.
The government must ensure a favourable business environment by taking up a policy. It must take steps to reduce energy prices or create opportunities for renewable energy to reduce the production cost of the industry.
The government must take a policy that will ensure the return on investment to attract investors. A policy should be made to develop joint ventures between well-established industry leaders and foreign bodies over the next three to five years. Any new investment by industry leaders should be approved upon being a joint venture.
Trade war – the new horizon
The ongoing trade war between the US and China has opened an opportunity for us to bring in investment. Investors are moving their capital from China to anywhere else, depending on the opportunity offered by the country.
I must say, the last 20 years have been a struggle for our businesses. But they were dedicated to the industry and have invested to ensure compliance security, worker welfare, building security, fire security and so many other things. We have invested a lot and we are not getting the returns from customers. Investors are getting frustrated and shutting down the floors. It's time for the industry leaders to be strict on getting the right CM from the buyers. Of course, price benefits should be offered by bringing efficiency in production.
Salauddin is the chairman of ASK Apparel & Textiles Sourcing and the Chief Advisor of Bunon.
