TBS Focus Group Discussion: To chase $100b target by 2030, exporters need an answer to customs, energy woes
They made the recommendations while speaking at a Focus Group Discussion organised by The Business Standard in December as part of the newspaper’s 4th anniversary celebration
Rather than wasting energy on concerns over any possible trade sanctions by the US, leading exporters emphasise the need to address pressing domestic issues, especially extensive customs complications and energy insecurity, which drain valuable resources and cripple their competitiveness.
Exporters said a $100 billion readymade garment export target by 2030 is quite achievable, but for this, the two key constraints in energy and smooth customs processing have to be addressed.
They made the recommendations while speaking at a Focus Group Discussion organised by The Business Standard in December as part of the newspaper's 4th anniversary celebration.
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Foreign investment is welcome only for new technologies
Shams Mahmud
Former president, DCCI
Global trade is going through some trend shifts. Those who were wholesalers are now moving one tier upwards. Those considered high-value brands in Bangladesh — Marks and Spencer, Zara — are mainly high-street brands and they are now in a transition, trying to move up to the premium end. And premium brands such as Hugo Boss are looking to move on to the next stage, i.e., luxury. Luxury brands too are experiencing consolidation.
When such shifts take place, then the quantity of merchandise decreases globally. Brands then intend to go close to the home markets. That is why some orders are being shifted to Turkey, causing some diversion of orders from Bangladesh at this moment. This emerges as one of the biggest challenges for Bangladesh now.
We have a lot of entrepreneurs here, with readymade garments and textiles having the best setups. All of them are not doing bad. There are many companies which are performing well. But taken together, the overall performance of the industry is not up to the mark now because of global challenges.
Technology-wise, Bangladesh is a leading country in the world in textile and RMG factories — both forward and backward linkage facilities. We have so many LEED certified, platinum-rated green factories. Even then, lack of diversification remains one of our biggest drawbacks that holds us back from reaching the level where we should have been.
If we talk about jeans pants, which is a huge sub-segment, the main value addition here comes from washing, apart from garment and fabric. Having a washing machine is not enough, anyone can buy it. What is in great need is someone who understands the chemistry of washing — Bangladesh faces a severe shortage of skilled chemists for washing jobs. Whatever washing machine you use, if chemists are skilled, they will be able to bring out world class products.
In my factory, I deliver products at a $45 rate on FOB, which is high. We are exporting fabric at an $8 rate. My average price for yarn is $3.15 per yard, which is a very high price. We are getting it.
How? Because we are investing in R&D. We retain 35% of our annual profit for training and R&D. Traditionally we used to export knit products — men's upper undergarments, bottoms, trousers etc. Within this, we are focussing on diversification, adding items like caps. Emphasis is also given on finishing.
But, we are not getting any policy support for R&D. This is a big drawback. We decided to invest Tk2,000 crore this year (2023), but we cut it down to Tk500 crore. Why? The reason is we do not see any policy regarding devaluation. When I wake up next morning and see my project cost has jumped Tk100 crore overnight, it will not be an easy task to source this amount. The government has to pay attention to this issue — there should be a policy for devaluation.
The government has so far supported us with subsidies in energy. We do not have an objection to paying energy prices without subsidies, but we need a long-term roadmap; you tell us what energy price will be in the next one or two years, then we will be able to make re-investment, plan further investment in technology or R&D.
Foreign investment is welcome particularly from countries where the cost of funds is low, such as Japan where the interest rate is negative. If they want to invest here in technologies which we do not have, we should welcome them with a red carpet. There should be caution about like for like foreign investment in sectors, such as knit, garment and textile, which already have the best setups. Because foreign investors will make profit here and take it away, whereas we, the local investors, re-invest our profit here.
Energy remains key concern for industries
Mohammad Ali Khokon
President, BTMA
The biggest obstacle in export sectors is energy shortage. We have long been asking Petrobangla for the last 10 years why they were not exploring new gas wells. For sustainable industrialisation, a country needs its own energy resources. You will find no country which has succeeded in industrialisation by importing energy.
During our meetings with energy authorities, we asked them to ensure uninterrupted supply and guarantee the load frequency and voltage, since voltage fluctuations cause damage to our devices. For a big factory like ours, a voltage stabiliser will cost $3 million and it is too big for an industry to invest to protect its devices from the damage caused by voltage fluctuations. Until and unless you solve the country's energy problem, no journey — billion dollar or trillion dollar or a hundred dollar — will be achieved.
Still we have a 4 billion-metre gap in fabric demand for woven garment. Still we have to import fabrics worth $12 billion for apparel exports. Our value addition would have been much higher had we not import fabrics.
Bureaucracy, legal complexities, the way bureaucrats ignore concerns of businesses stand in the way of further progress. Now-a-days, customs even weigh the export goods and hold the consignment if they find extra gross weight than declared. Recycling factories are our members. If we can recycle our pre and post-production wastage of fabrics into man-made fibre, then cotton imports would fall by 15% and we will save on foreign currency.
But the problem is here, too. When we buy 'jhut' (garment fabric waste) and reuse it, VAT people will charge 7%, when we process it into fibre, 15% VAT will be applied and if someone exports cotton made of waste, 1% AIT is there.
Customs restrictions, harassment big problems
Mohammad Hatem
Executive President, BKMEA
About 70% of BKMEA factories do not have bond licences. But their value addition is 100%. They should be encouraged. Instead, their merchandise is restricted. They are harassed at ports and their merchandise is held.
Non-bonded firms are barred from exporting any branded items. Which law says this? Now customs says no item valued less than a dollar can be exported. We tried to take the issues to the Chattogram Customs commissioner, but we could not reach him by phone. You may try too, and see he cannot be reached by phone or Whatsapp.
No problem now appears a problem for us. We just take it as another challenge which we have to solve ourselves if we want to move forward.
Say, for example, now we are facing a gas crisis. The entire Narayanganj industrial belt is facing gas shortage for the last two months. Gas authorities say they do not have any good news for us about solutions to the gas crisis before 2026. What does it mean? Should the industry continue to suffer until 2026? We have potential to raise exports to $100 billion and even more. But the question remains how much of the potential we will be able to realise. How far can we move by overcoming so many hurdles?
Still we have to import at least 60% in woven, meaning that a market for $8 billion is ready here. Foreign investors are welcome to those areas.
Recycling should get financial support
Faruque Hasan
President, BGMEA
Soon after I took responsibility (as BGMEA president), I tried to give one message to all — NBR, customs — that the business we are doing is time-bound and fashion-bound and delay for just one day matters a lot for us. But this (delay) is what they have learned well to do, because their envelopes get fattened if they can delay even for a day.
Our appeals to expedite the customs procedures have rather boomeranged back on us as they now seem to find more reasons to hold the files for even longer. Even being the BGMEA president, I myself had to go through such an ordeal.
We are working on green growth. Individually, we are adopting green and clean energy technologies, installing solar panels, at the same time we are motivating our buyers. You have seen two of our big brand clients have recently made commitments of big investment in wind power in Bangladesh.
Look at the number of our green factories. Bangladesh is home to the world's best green factories — the first, the second, so on. Of the world's top 23 green factories, 21 are in Bangladesh. Though we are not yet getting any benefit directly, I think it will be beneficial for our long-term image, branding and gradual transition towards high-value products. Buyers are not giving us any additional price for this, maybe they will give it someday.
Simultaneously, we are working on recycling, which is a future need and which should start now. We need to go for it for ourselves and brands are also joining our efforts. We need to recycle because we have huge wastage at production stage and post-production. Circularity is becoming a priority for us, because spinners need to import cotton, we need to import fabrics sometimes. If we can recycle even a part of the wastage, we won't require to import that quantity of cotton or yarn, which will save our foreign currency.
The NBR does not get any tax when a big portion of 'jhut' (garment wastage) ends up in the drains or landfills. As soon as we recycle jhut and add value to it, turning a Tk10 or Tk50 thing into a Tk500 one, then NBR will charge VAT. I think instead of being taxed, the recycling process should be given financial support.
We are doing good in new markets. We are exporting apparels worth $1 billion in India. It is not easy. Our market share is also growing in Australia, from 5% three years back to 15% now. Our apparel exports to Japan crossed $1.6 billion. Our exports to Korea are growing and are expected to grow in China too. Now we are focussing on the Middle East and we hope Saudi Arabia is going to be our biggest single market there.
In December last year, we became number one in quantity in the European Union from the second position for years. During the first six months, we grew to number one in value in knitwear. Though we are third in the US clothing market after China and Vietnam, we are number one there in terms of cotton-based garment including denim. Those eight Congressmen told the buyers to absorb whatever additional labour cost comes.
Once, when we just started to export garments, our value addition was 10%, 15% or 20%. In the last quarter, we had 71% local value addition from RMG. Value addition has grown so high because we procure buttons, hangers, other accessories, and yarn locally. If we could have our own cotton then value addition would have been even bigger. These are all positive things.
If someone from America places an order for a garment, I cannot make direct shipments for five or six pieces because of customs, Bangladesh Bank rules. These rules or laws should be amended.
Definitely we need FDI for our country, but not for just setting up a sewing unit or a T-shirt factory or trouser factory, because we do not need to hire such technology from abroad any longer. We do not even need to bring capital from abroad for such a factory. Still we have to import 70% for at least five main items, which are among the most consumed items globally. But there are a hundred other items, whose demand is negligible. Foreign investors may come in those products.
A lot of opportunities remain untapped
Syed M Tanvir
Managing Director, Pacific Jeans
Bangladesh is exporting apparels worth $1.6 billion to the Japanese market, which is a non-traditional market for us. We have seen very good growth — a higher double digit growth, 25-26% — there during the last five to six years. We have seen even 35-36% annual growth in Japan, which is a very good sign.
Each company has its own business model. The Japanese market has long been dependent on supplies from Vietnam and China. Still Bangladesh shares a very insignificant quantity of Japan's imports. It means we have a lot more opportunities there.
In addition to Japan, we are also trying to explore Indian, Chinese and Middle Eastern markets. We need to analyse what items they are importing and what strengths we have. Since we are focused on jeans and denim, we analysed each potential market segment and assessed which market we can penetrate.
Give more tax breaks, change mindset to get more FDI
Ahsan Khan Chowdhury
Chairman, Pran-RFL Group
At Pran-RFL, we in fact were inward-looking, with our focus always on the domestic market. When we started to face the dollar crisis, we decided to focus more on exports. We researched the global market to find new export destinations and started to gear up our production lines, initially meant for the domestic market, for producing export-oriented goods.
As we were searching for new export markets, we have found Iraq as a new destination for our products. We have even started exporting to Vietnam. Now, we have also entered Cambodia, Laos and are doing business with them.
We now export every item we produce in our factories. Recently, we have succeeded in exporting toilet-cleaning brushes to the US. We have shipped fans, gas stoves to Fiji. We sell stationeries in Africa.
We are also selling electronic goods in Africa. Bangladesh-made air-conditioners, refrigerators are being sold in African countries.
Bangladeshis are there in remote African towns. Our toothbrushes have reached there. Our friends in the apparel sector are having a good market for their apparels in African countries. China also exports garments to Africa in large volume. These are not high-end apparels; these are mostly synthetic, manmade-fibre products.
There are many bottlenecks in export, opportunities are huge, too. We are in the race and gaining success, though slowly.
We often talk about Vietnam's export growth. In fact their export initiatives were largely driven by Chinese and Japanese investments.
We could not properly attract such foreign investments towards us. Bangladesh has to do a lot in developing a competitive investment environment and enabling infrastructures. We, being local investors, may accept any inconvenience and run our industries overcoming all hardships that come in our way. But a Chinese entrepreneur, or one from Thailand or Japan will not invest here if they do not get the similar environment to what they get in India.
If we ask the foreign investors who are already here and foreign companies operating in Bangladesh if they are facing any problem here, we will hear them saying that Bangladesh has many prospects, at the same time the country is well ahead in terms of problems as well.
We are already used to all the inconveniences we face, and we feel no obstacle is an obstacle for us because we are locals and it is our country.
But these are big obstacles for foreign investors. Investment environment must be made easier for them, procedures should be more relaxed, so that intending foreign investors can operate at ease in Bangladesh. They should be offered, among other things, tax benefits. India offers generous tax holidays, they even offer subsidies for capital expenditure of foreign investors.
While expanding the tax net gradually, we are tightening the tax regime for foreign investment. When it comes to tax benefits, foreign investors may feel that they are not getting what they expect. If we really want to make our country an investment haven, we need to review what benefits India is offering foreign investors and prepare our excellence sheet accordingly. If we ensure the benefits for foreign investors here of what they enjoy in India, there is no reason that they will not invest in our country as well.
We are well ahead of many countries in terms of preferential treatments in trade — we are still enjoying GSP benefits and hoping to gain GSP plus in future. Considering all these aspects, we should not feel that our position (as an investment destination) is inferior to that of India. Still we are not able to compete with India to attract foreign direct investment. This is where we need to have a collective realisation why we need FDI and change our mindset.
There are some issues which need immediate attention.
Tax is a big one. There should have been more fiscal and tax benefits on offer for FDI. Repatriation of dividends of foreign companies should be hassle-free. Long-time foreign investors, like Youngone's Kihak Sung, who have been in Bangladesh for years or decades, and contributing significantly in industrialisation here, deserve some extra comfort as a token honour.
They can be treated as VIPs. Then long-staying investors like Kihak Sung may think why not his next new venture will be in Bangladesh, instead of his own country Korea, or in Vietnam or Myanmar.
A paradigm shift is required to bring much-needed investment and we all have to share the responsibility to create an environment convenient for foreign investors.
We in the private sector are trying our best, now we need to put all our strengths together. The common goal of our commerce ministry, industries ministry, investment development agency, foreign missions should be further economic progress of Bangladesh, which can only come by developing exports, more industrialisation, more job creation.
