Challenges and prospects of Bangladesh RMG industry
2022 was a difficult year for the RMG industry due to a difficult global and local climate. But if we can continue the momentum of our growth and development, we may make it to the end of the tunnel sooner than expected
2022 was supposed to be the year we try to recover from the damage caused by the Covid-19 pandemic, unfortunately in the middle of our struggle to achieve this, we were forced to face new challenges such as geopolitical tensions, a downward global economy, fears of another recession, etc. Now in this new year, 2023, Bangladesh once again has to combat both local and global challenges to maintain the growth momentum we have achieved and excel even further.
Global Challenges - 1. Inflation Rate
The global inflation rate was the highest in 2022 with a rate of more than 9%. Starting from necessary commodities to utilities, everything experienced a price hike during the period.
2. Change in brands behaviour
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Due to the potential threat of a global recession, brands and buyers began taking cautionary steps. Many of our factories have disclosed that they do not have enough orders from February onwards to run the factories at full capacity.
3. Increased production cost
Throughout 2022, we faced a difficult situation with record-high cargo rates and container shortages. Many brands favoured nearshoring countries to ensure the fastest delivery. In accordance with the global trend, production costs increased significantly in our sector as well. Diesel and other utility prices had been increased to balance with the current world trend, which put significant pressure on the manufacturers.
Local Challenges - 1. Utility price increase
Utility bills, i.e. gas, water and electricity cover a big portion of the costs in RMG factories. Plunged by the dire effects of Covid-19, factories were already struggling to retain competitiveness in the global market.
Amidst that, the price of gas, electricity and fuel has increased. Due to the geopolitical situation, production cost has already significantly increased in the last few years. And this new price hike will challenge the sustainability of the industry.
2. Overdependence on markets and products
Even though the industry has been operating for almost 40 years, our markets and products have been heavily congested towards a few products and markets. T-shirts, trousers and knit items are our strengths, however the current world demand is for non-cotton and manmade fibre-based products.
Our market is also heavily concentrated towards the EU and a select few traditional markets. In order to grab more market share and utilise the untapped opportunities, we have to explore more in the coming days.
3. Backward linkage
As mentioned in the previous point, our backward linkage is very weak at this moment; this poses a serious problem after Bangladesh's LDC graduation.
After LDC graduation, we will have to follow the double transformation rules of origin. We will also have to produce our own fabric before making the clothes. Due to this, joint venture or FDI is a must in this sector, so that along with financial and technical know-how, the necessary skills can be learned by our industry.
4. Ease of doing business
Under the prudent and visionary leadership of the Prime Minister Sheikh Hasina, Bangladesh has been documented as a development surprise across the world. In the recent report of 'Ease of Doing Business' published by the World Bank, Bangladesh jumped to the 168th position from 176th in the preceding year.
But there is still enormous room for development to attract foreign direct investment and ease the overall business environment within the country. Bangladesh needs an average of 168 hours to deal with one single export, while it takes Singapore only 10. With regards to import, the required time for Bangladesh is 216 hours, whereas it takes Singapore 33 hours.
5. Infrastructure
Mega projects like the Padma Bridge, Power Plants, Metro Rail, and bringing the country under a railway network are making solid progress.
Electricity generation capacity has reached more than 25,227 megawatts. 100 Economic Zones (EZ) are being developed to encourage structured and balanced investments. However, the timely completion of mega projects is indeed crucial. We have set a target to export $100 billion within 2030; to achieve this, a revolutionary change in infrastructure is a must.
6. A dedicated lane for export import at Chittagong Port
The two major ports of our country - Chittagong and Mongla, account for around 65 billion USD of the annual trade. 98% of Bangladesh's container cargo and 92% of the total cargo is handled at Chittagong port. The drafting capacity of the port has been increased recently, which is a positive development, but a separate lane for the export-import procedure will expand its capacity more.
Prospects - 1. Highest-ever export figure
The overall picture is not so gloomy and if we can continue the momentum of our growth and development, we may make it to the end of the tunnel sooner than expected.
Amidst all the challenges, our export reached a new milestone last year. Our total export was more than $52 billion. For the first time in history, Bangladesh's RMG industry contributed its highest-ever export value of $42.61 billion.
2. Regained lost position
In all major markets like the USA, EU and non-traditional markets, our exports have seen positive growth. As per the latest published "WTO Trade Statistical Review 2021", we have also regained our position as the second largest apparel exporter in the world. We have become the top denim sourcing country both for the USA and the EU.
3. Green factories
Bangladesh achieved another milestone in 2022, becoming home to the highest number of green garment factories in the world with 183 USGBC LEED-certified factories. A record high of 30 factories got the certification in 2022.
Going forward, we should keep a positive tone in our strategy approach - a dual combination of sustainability and growth.
Market diversification, product development, shifting to high-end fashion items, technological upgradation, design and skill development should be our priorities in the coming years. We should also focus on medium and small-sized businesses so that they can also thrive amidst the market difficulties.
4. Virtual marketplace
The virtual marketplace can also be a big source of our growth. To enter such a new arena of business, we have to work on several issues such as reforming foreign exchange, export-import and tax policies, alongside extending fiscal incentives to those who want to develop their collection and invest in innovation.
Opportunities and challenges go hand in hand. In the coming year, we have to try to overcome our challenges - both local and global, and move towards more excellence!
Md Shahidullah Azim is the Vice President of BGMEA.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
