After a couple of years of pandemic-induced slowdown, Bangladesh’s apparel export has bounced back strongly and continues its good run unabated as it reaches the apparel export target set for the current financial year with two months to spare.
COVID-19 loosening its grip globally, especially in the West, seems to have augured well for Bangladesh as brands and buyers came back to the country for their sourcing requirements with a renewed vigour, evidenced from the increasing volume of work orders.
“Bangladesh is the most important sourcing destination for our company,” said Regional Head of Swedish retail giant H&M for Bangladesh, Pakistan and Ethiopia, Ziaur Rahman, adding, considering the current geo-political situation, Bangladesh is in a very good position vis-à-vis other manufacturing destinations, in terms of successfully catering to the global buyers.
The support from the brands– not to speak the export performance– has now led the industry to set its sight to achieve a new milestone.
“The apparel sector is contemplating to reach US $ 100 billion in exports by 2030,” said Vice Chairman of Bangladesh’s Export Promotion Bureau (EPB), AHM Ahsan, speaking to Apparel Resources (AR).
To accelerate the export growth, the H&M Regional Head, in the meanwhile, called for investing in circularity, innovation and sustainable offerings.
New goals, new endeavours
It may be mentioned here that BGMEA had earlier announced US $ 50 billion export target by 2021, which unluckily could not be achieved due to a host of reasons including the global economic crisis and the Coronavirus pandemic.
However, BGMEA President Faruque Hassan is hopeful that if everything goes as per plan, US $ 50 billion (in apparel exports) by 2023 is very much on the cards.
Bangladesh has already recorded apparel export to the tune of US $ 35.362 billion in the first ten months of fiscal 2021-22 as against the target of US $ 35.144 billion, and exports for the months of May and June are still not accounted for.
This could very well push the total earning from apparel shipment close to US $ 40 billion, hoped industry insiders.
But achieving US $ 100 billion by 2030 will be an altogether different ball game as it would effectively translate to doubling earnings from exports (apparel) in the next 7 years, assuming Bangladesh is able to attain the US $ 50 billion target by 2023.
And this won’t be a cakewalk, felt the experts adding a number of factors would determine how things pan out going forward as questions still remain on a host of issues including whether Bangladesh has the required infrastructure to match the capacity; is electricity and gas supply going to be doubled by 2030; are the ports doubling their capacity, etc.
In the given context, they highlighted the need and importance of framing a robust roadmap with focus on key strategic issues like human resources; product and processes; infrastructure; exploring new markets; attracting FDIs; capacity enhancement, etc., so as to give the required boost to achieve US $ 100 billion target by 2030.
Numbers in the equation
According to the BGMEA website, the trade body has around 4,500 member factories: 40 per cent knitwear and sweater manufacturers and 60 per cent woven manufacturers. Meanwhile, as per leaders of the BKMEA, the other garment makers’ body in Bangladesh, there are roughly around another 2,000 factories registered with it.
However, of the 2,000, only 700 are said to be active.
This means currently there are around 5,200 active export-oriented apparel units in the country and together they account for roughly US $ 36 billion in apparel exports.
At the current production capacity, it would be a herculean task to come anywhere close to US $ 100 billion even in the next 10 years, stated an industry insider to AR on condition of anonymity.
This year, about 110 entities have obtained BGMEA memberships for setting up new units and applications are still coming in, claimed BGMEA Vice-President Shahidullah Azim, while Fazlee Shamim Ehsan, Vice-President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) on his part observed in the past six months, about 50 factories took approval from the trade body (BKMEA) for machinery import, primarily to expand capacities of the existing units.
There are also those who are making fresh investments (for establishing new facilities), further claimed the BKMEA Vice-President, adding irrespective of the efforts being put in, the current power scenario remains a major hindrance (towards ramping up capacities of existing facilities or establishing new units).
Power holds key to future
Currently, Bangladesh’s installed power generation capacity is about 24,000 MW, on the back of 146 power plants, captive and off-grid sources. The Bangladesh Government is nevertheless embarking on several large-scale power projects, including building seven coal-fired plants with total capacity of 6,830 MW. A 1,200 MW nuclear power plant is also being built, expected to become operational by 2025, and a second one is also under consideration.
Additionally, eight small-scale gas and liquefied natural gas plants, with total capacity of 1,609 MW, are currently under construction. And five large-scale gas plants, with capacity of 8,750 MW, are in the planning stage.
Other projects include a 500 MW solar farm, a 1 MW biomass plant running on municipal solid waste and four wind farms. Together, they will boost Bangladesh’s total installed capacity to 40,000 MW by 2030, according to the Bangladesh Power Division.
Till then garment makers, it seems, will have to make do with power shortage and distribution bottlenecks.
But, there is an option for Bangladesh to overcome the same by importing power from neighbouring countries — Bangladesh is likely to have a new avenue for importing electricity from Nepal after the Himalayan kingdom agreed to install a cross-border electricity transmission line through West Bengal (India) — to make up for the current situation.
Nevertheless, question mark still remains on the availability of gas.
Irregular gas supply to the industries is a recurring development amidst complaints from textile makers of failing pressure and production loss, which ultimately impacts the garment exporters as they have to import more raw materials from overseas, pushing up the production cost and lead time.
“I have been facing decreasing pressure over the last one month which has put my investment at stake as yarn production has come down drastically,” complained Md Mosharaf Hossain, Chairman of Mosharaf Group, a leading spinner, earlier last year.
Khorshed Alam, Chairman of Ashulia-based Little Star Spinning Mills Ltd., echoed similar concern after production in his unit fell to 13,000 pounds from 22,000 pounds per day, resulting in production loss amounting to Taka 26 lakh.
It did not end there; this April, again production in many spinning mills in the major industrial hubs like Gazipur, Savar, Ashulia, Shreepur, Dhaka, Narayanganj, Narsingdi and Bhaluka, remained halted for over six days because of severe scarcity of gas.
According to Dr Badrul Imam, Honorary Professor of Department of Geology, University of Dhaka, Bangladesh had seen a steady rise in the local daily gas production until mid-2016, when the production level peaked at about 2,750 million cubic feet per day (mmcfd-million cubic feet per day).
Since then, the production rate started to decline and came down to the level of 2,280 mmcfd — according to reports, daily gas consumption in Bangladesh stands somewhere at 3,040 mmcf (one million cubic feet of gas is denoted as MMCF) against the demand for 4,194 mmcf even as local companies supply 853.8 mmcf and international oil companies provide 1586.3 mmcf, while the rest comes in the form of liquefied natural gas (LNG) — by the beginning of May 2021.
The chance that local production will go up again is remote in the near future unless new gas fields are discovered, claimed Dr Badrul.
To fix the problem, import of LNG has been initiated and since late 2018, the shortfall of gas supply is being partly compensated through LNG, a very expensive alternative (costs three times more than the local gas) to say the least.
The fluctuating LNG spot prices in the global market only added to the predicament — LNG prices in the spot market had skyrocketed to US $ 29-US $ 30 per MMBtu (Metric Million British Thermal Unit) last year from what was US $ 8-US $ 9 per MMBtu — leading Bangladesh to restrict LNG import from the spot market despite the shortfall back home.
Spot purchases refer to fuel that physically changes hands for delivery on a pipeline or via barge or cargo even if deals are always done in bulk.
The challenges do not end there!
Rising real-estate price, space crunch put spanner on expansion efforts
Setting up new units means availability of space, which is a big constraint in Dhaka and adjoining areas and the port city of Chittagong, the principal apparel manufacturing hubs in Bangladesh.
Adding to it are rising real-estate prices and over-burdened logistic channels that have made it virtually impossible to set up new manufacturing units even as growing handicaps of working in these hubs are leading garment makers to look at alternate options, which are but few and far between at present though things are about to change in the days to come.
Bangladesh Government is now setting up 100 special economic zones across the country as setting up production facilities in unchartered territories is easier said than done as one is forced to deal with a host of challenges including infrastructural bottlenecks, connectivity issues and availability of workforce, to name a few.
Bangladesh currently has eight Export Processing Zones (EPZs) in different regions — in the EPZs, 30 per cent of the industries produce woven garments, 6 per cent knit garments, 7 per cent textiles and 20 per cent accessories and together they contribute 20 per cent to the country’s annual export earnings — but there is not enough space in many to accommodate new units in large numbers.
“Trained manpower is available only in the established hubs. The further one moves from those, workforce becomes even scarce,” claimed a garment maker in the meanwhile, adding the industry is already facing a severe crunch of workers, especially the trained ones, in the aftermath of the pandemic.
Developing manpower crucial to further growth
But if the industry is to expand further, there’s no alternative to developing manpower.
According to reports, the apparel sector today employs around 4 million people, which ought to go up to around 12 million by 2030 as the industry works resolutely towards tripling its current export value even if according to Statista, manufacturing industry in Bangladesh comprises around 22 per cent of the country’s total workforce, while remaining 78 per cent is employed in agriculture and service industry.
But as Bangladesh graduates to a developing nation by 2026, hiring another 7.50 million workforce in the garment industry will be a challenging task as the demand for manpower for other sectors — sectors such as ceramic, leather energy, tourism, cement, construction amongst others are already booming — will also continue to grow and so would the employment avenues for the workers.
As per President of the Bangladesh Apparel Workers Federation Towhidur Rahman, and President of the Sammilito Garment Sramik Federation Nazma Akter, the current shortage of garment workers ranges from 15 per cent to 20 per cent after a large number of workers migrated to other professions during the pandemic period when factories remained closed for prolonged periods on account of countrywide lockdowns.
“We have lost about 2 lakh workers during the pandemic and many of them have started their own business,” claimed BKMEA Executive President Muhammad Hatem while proprietor of Fatullah Apparels and Director of BKMEA Fazlee Shamim Ehsan, on his part, observed, “Workers who went back to their villages (during the pandemic) didn’t come back. They are engaged in other vocations now.”
Given the existing scenario, there is marked scepticism amongst industry people on how to make available those many hands, that would be needed to expand capacities let alone run the upcoming manufacturing units.
A concerted and holistic approach is the only option, they said calling to embrace the India model to address the situation.
The neighbouring country has achieved a great deal of success in mitigating the critical gap of skilled manpower by implementing Integrated Skill Development Scheme (aimed at creating robust human resources for the country’s textile sector) through a multi-pronged approach involving drawing manpower through various channels, incentivising them sufficiently and providing fiscal assistance to individual factories engaged in workers’ training even if the BGMEA has already started training workers through a good number of training institutes that it runs across the country while also signing an MoU recently with Skills for Employment Investment Program (SEIP) as part of which anyone wishing to work in the apparel industry will be imparted necessary skills and placed on jobs. Separately, workers and mid-level management already employed in the sector will also be re-skilled and up-skilled as part of this project.
“I believe a dedicated initiative by each of our factories to train workers will actually complement the whole industry. If factories take similar initiative and existing capacities can be scaled up, it is the industry which will be benefited. In fact, workplace-based training is more effective than classroom training,” added in the meanwhile the BGMEA President calling upon the industry players to help develop manpower.
Backward linkage and raw material challenge
Though Bangladesh has emerged as the second biggest apparel exporter globally, local availability of raw materials remains its Achilles’ heel. In 2017, Bangladesh imported T&A commodities worth US $ 11.3 billion from various countries.
With a share of about 60 per cent, fabric forms the major component in total T&A imports followed by fibre and yarn with share of 18 per cent and 15 per cent, respectively.
However, it is noteworthy that during last few years, increasing demand of fabric and yarn has made Bangladesh to invest heavily in spinning and weaving. As per the data released by Bangladesh Textile Mills Association (BTMA), local entrepreneurs have invested average of US $ 165 million per year in the primary textile sector in this time period.
Despite this, the country is still dependent on raw material imports substantially. According to an assessment report of the Bangladesh Trade and Tariff Commission (BTTC), it imports some 60 per cent of its woven fabrics from China alone.
“Our requirement is 3,000 tonnes of denim yarns monthly. As of now, we buy around 67 per cent of our denim yarns’ requirement from outside. The growth is inevitable but to tap that growth, we need to drastically reduce our dependency on raw material outsourcing, hence we are investing in an in-house fibre and yarn unit – a trend that can be seen in the entire country,” observed Rafee Mahmud, Director of a leading denim group in Bangladesh.
It may be mentioned here denim is one of the principal revenue fetching product categories (Bangladesh tops in denim exports to both USA and EU) but lacks local availability of denim fabrics as local suppliers are able to meet only around 50 per cent of the country’s annual demand for denim fabrics, while the rest is met through imports from countries like Pakistan, China and India.
“We need to have more investment in the textile sector,” said BGMEA President Faruque Hassan, while President of Bangladesh Textile Mills Association (BTMA) Mohammad Ali Khokon sought policy support, including tax waiver to attract local investments and FDIs to strengthen the backward linkage sector so that it can appropriately support the apparel manufacturers at this critical juncture.
Then there are other things to take care of too including the pressing need to diversify product offering while also moving up the value chain.
Of Bangladesh’s total apparel shipment, around 75 per cent is cotton-based garments (according to BGMEA, around 75 per cent of global consumption today is from non-cotton apparels) even if around 82 per cent of the revenue is shared by five categories (trousers, sweaters, shirts and blouses, T-shirts and underwear).
In FY ’21, Bangladesh shipped US $ 31.45 billion worth of apparels in which these five products collectively contributed US $ 25.81 billion.
“We know we need to work to increase share of other products too, especially those that are made of synthetic fibres,” observed the President of BGMEA.
BGMEA has recently signed an MoU with a consulting firm to conduct a study titled Fibre Diversification Study of Non-Cotton Textile and Apparel for Bangladesh in the Global Apparel Market, to identify potential scope of non-cotton textile and apparel for Bangladesh in the global apparel market and formulate a strategy to develop the country’s overall competitiveness and strength in the area.
With the regular product categories having reached a saturation point and failing to earn expected profit margins, many industry players have already forayed into new products like workwear, sportswear, lingerie, etc., to move up the value chain.
“If we can get hold of a portion of the global lingerie market, our exports will go up significantly,” said BGMEA Vice-President Shahidullah Azim as many established and new names like Apex Group, SQ Group, Hop Lun BD, Blue Planet Knitwears, Chorka Textiles, KDS Group, Zaber & Zubair, Mondol Group, Four H Group, Mahdeen Group, etc., continue to make and export lingerie with a new-found enthusiasm, to make the most of opportunities that are on offer in the global market.
Infrastructural bottlenecks impeding growth
As per the World Bank, infrastructure bottlenecks are amongst the largest inhibitors of economic growth in Bangladesh. The transportation sector alone was projected to need between US $ 36 and US $ 45 billion of investments.
However, in the year FY 2020-2021, only around US $ 6.1 billion was spent in this sector by the Government (as per Ministry of Finance, Economic Review, assuming Taka 84.81 per US $).
The apparel exporters often complain how poor logistics have pushed up their overall transportation cost drastically.
It may be mentioned here that road transport rates of the country range from US $ 0.06 for a 16-tonne truck to US $ 0.12 for a trailer (in per tonne, per kilometre terms), which is way higher than most countries.
Further, studies show the inventory carrying cost of Bangladesh is US $ 21 (in per tonne, per kilometre terms), which is also higher than most countries globally even as removal of traffic congestion alone can lower the logistics cost by 7 to 35 per cent depending on the sector, the study found.
Then there is the question of how to manage high dwell time (the amount of time that cargo or ships spend within a port) which increases the logistics costs further.
According to reports, dwell times at the Chittagong Port are four days for an export container and 11 days for an import container.
Chittagong Port is Bangladesh’s premier sea port and is responsible for handling bulk of import and export consignments.
“The issues are not as much with exports as they are with the imports,” claimed MD of Plummy Fashions Limited Md. Fazlul Hoque speaking to AR, who claimed in the absence of sufficient berthing space, ships have to wait at the outer anchorage for a long.
“We work under tight deadlines and such delays adversely impact the business,” rued Fazlul.
As the industry expands further, it will only add pressure on the already weak infrastructure, feel industry people.
Then there are issues related to sectoral policies, such as the Customs policies that limit inland containerisation and allow only 37 commodities to be cleared outside the port, causing further logistical inefficiencies in terms of both time and money, as per the World Bank even as lack of a deep sea port continues to be a major hindrance and makes long lead time even longer as apparel shipments first have to be sent to transhipment ports — shipments go either via Colombo, or are rerouted through Singapore, Shanghai or Hong Kong that takes as much as 45-60 days to reach USA — from where they are shipped to the major export destinations of Europe and USA.
Government’s efforts at addressing the pain points
Apart from inducting latest machinery and equipment to improve the infrastructure of Chittagong Port, Bangladesh Government has also undertaken some other bold steps by prioritising eight mega-infrastructures as ‘fast-track projects’ including the Padma Bridge and Rail Link, Matarbari Port project and the Payra Sea Port.
The Matarbari port, which will be a deep sea port, will boost cross-border trade through facilitating speedy port service and integrated connectivity.
Recently, Bangladesh has also started direct shipment to EU (Italy, Germany) and to China while it is working with India for easy transit from India to Bangladesh (India is a major source of raw materials for industries in Bangladesh including the garment sector).
Then there is the Bay Terminal project in Chittagong, which in particular will be transformational as it would not only be supporting domestic cargo but also enable passage of regional cargo in the Bay of Bengal area, and help increase Chittagong port’s handling capacity from 3.1 million Twenty-foot Equivalent Units (TEUs) to close to 5.6 million TEU containers by the year 2036, as forecasted in the Strategic Master Plan.
“We are also extending more policy and fiscal support, rationalising corporate tax and offering bonded warehouse facilities, which are amongst the major features of Export Policy Order for 2021-24, the main objective of which is to encourage exploration of new markets and products so as to give that much-needed boost,” said the EPB Vice-Chairman highlighting more Government initiative to support the industry, adding, “We are also providing cash incentives, subsidies, priority at the port and tax rebate apart from support to attract foreign investment, support for research and development, support to explore new markets and so on.”
The roadmap for the industry on how to achieve the goals is also very clear, he claimed.
It has undertaken a multi-pronged approach with emphasis on producing high value-added apparel products like synthetic garments, while on the other hand, the focus is also laid on fast emerging market of protective attires (masks, PPEs, gloves and gowns, etc.) to boost earnings, not losing view of the fact LDC graduation is also round the corner and would come with its own share of challenges.
“Retaining duty-free market access has become very important, for which we want to conclude trade agreement with existing and potential trading partners in Asia, Africa and South America,” claimed Ahsan, who is also the CEO of the EPB, adding the Government is planning to send high-level trade delegations to non-traditional markets to explore opportunities there.
In the meanwhile, EPB also looks forward to extending all possible support it can to the Ministry of Commerce for successful FTA negotiations to ensure apparels continue to enjoy duty-free market access.
The Government’s stance and its pragmatic initiatives— US $ 590 million loan for RMG sector for the payment of salary and wages as granted by Prime Minister Sheikh Hasina, increase in the size of Export Development Fund (EDF) along with lowered interest rate, reduction of interest rate on Pre-Shipment Guarantee Scheme Loan, increase of loan repayment period, etc. — which had helped the apparel makers counter the fallouts of the pandemic and consolidate their position to make a strong export turnaround, will continue as going forward, he assured.
The apparel sector is after all the lifeline of Bangladesh’s economy.
“We have achieved a certain level of growth and momentum already and it is now time to leapfrog to the next level of growth,” maintained an industry stalwart even as BGMEA President Faruque Hassan exuded confidence, by 2025, Bangladesh will also be able to increase its share in the global apparel market to 10 per cent from the current 6.3, which will give that much-needed momentum to touch that magical mark of US $ 100 billion by 2030.
