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Policy Dialogue Series

No. 2021 August 2007

Title of the presentation: Prospects of RMG Sector in Bangladesh

Speaker: Md. Fazlul Hoque, President, BKMEA

Introduction:The Ready Made Garments (RMG) industry is the mostimportant sector driving the economy as a whole.During the last fiscal year, the RMGs total export worthwas $9.2 billion. In context of Bangladeshs total export,RMGs contribution is approximately 76%. Over the

years, this sector has had around 18% growth rate.

The RMG sector faced several problems in the last fiscalyear of 2006. In May 2006, there was labor unrest andthe last quarter of 2006, witnessed political unrest aswell. Because of these reasons, some buyers shifted theirorder to other countries like China and Cambodia.Md. Fazlul Hoque, President, BKMEA

he garments industry has suffered because of the warmer winters in the western

he RMG sector was also affected by the 9/11 which had an impact on the world

otential problems to the RMG sector:

aker were:

liance

EU and China: The strategic partnership between China and the EU is of

Tcountries. For example, during the second week of January, it was around 12-14degrees in Europe whereas 5 degrees in some places of Bangladesh. Usually, orders

are placed during the terms of March to June. However, because of the variousproblems, there was less order placed for the winter clothes. Due to these problems,for the first time in 5 years, the RMG sector could not reach its set target.

Teconomy. The national growth rate was 5-7% and during the last 10 years, knitwearsgrowth has been around 28%. However, despite the various challenges, RMG has hada significant contribution to the economy of Bangladesh. It has generatedemployment and contributed to trade.

P

The main problems highlighted by the spe1. EU and China2. Investment3. Social Comp

immense importance, not just in terms of trade but also in terms of the effect itwill have on other economies. EU will withdraw its quota system for China which


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means that China will grow to become a bigger competitor in the trade system.In terms of BKMEA, this may pose as a threat as the RMG sector will face toughercompetition from China.Investment: In light of th e socio-economic and political aspects, the investment

factors which hinders the growth of the

scenario in Bangladesh is uncertain.

Social Compliance: There are someRMG sector. For example, the power supply, labor conditions, pollution,bureaucracy and standards of the factories are obstacles for the growth of theRMG sector. For any kind of real improvement or advancement, financial supportis required along with commitment from government and other bodies. Forexample, USA spent $20 billion for a project to make Chicago pollution free in atime frame of seven years. Therefore, it is not possible for Bangladesh to becomefree of pollution within 6 months.

Key Issues: RMG is not an isolated area of the country; it is an integral part of the society and

economy. rd linkage is very important for the RMG sector.The backwa The minimum wage issue has not been solved however; there are efforts

towards solving this. ce tougher competition from China.The RMG sector may fa RMG sector drives the economy and it should not have an ending like the jute

sector. lanning, government policies, effective entrepreneurship is required forProper p

facing the challenges in world market. not receive adequate support from theEconomic and commercial wings do

government hrough its lobbyist failed to get duty-free market access to USA.Government t Recruitment policy need to be changed, which has been politicized so far. No real effort made for branding Bangladesh in international market. Bangladesh needs to enhance its image in the foreign market in order to attract

more buyers and investors. he country needs to be improved.The economy diplomacy of t There is need of investment to improve the backward linkage of the RMG

industry especially in the woven sector.

Way forward:uitable for the lower segment market and for the RMG sector, in terms

ith its more expensive labor and inputs, it is switching to

th India and Pakistan is concentrated more on textile and ound 297 factories and none is owned by the Cambodians. It

Bangladesh is sof growth it is envisioned that the sky is the limit. Bangladesh can build up on its

competitive edge because: As China is growing, w

high value products.On the other hand, boless on apparel.Cambodia has arhas no backward linkage and labor force is not highly skilled.


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Sri Lanka is may not optimally utilize its resources to create a big enough marketwhich will stand as a threat to Bangladesh.

However, Vietnam can pose develop as a threat because they have strong industrialbase and became a member of the WTO.

Therefore, the world market is open for Bangladesh and it depends on us on howmuch we can grab. Other than tougher competition from China, Bangladeshs mainchallenges will come from internal sources. Factors like entrepreneurship, governmentpolicy and planning, diversification etc. will affect the growth of the industry. Thus forthe boom of the RMG sector, UNDP and other alliances have a vital role to play.

Q & A Session:Q1) Is the growth in the RMG sector notreflected in the overall national growth?Fazlul Hoque (FH): RMG has a vital role becauseit is putting the GDP in an acceptable level.Maybe the accurate picture is not portrayed asother sectors maybe performing negative. Thereis scope for RMG sector to contribute to a higherlevel.

Q2)What is meant by international standards of factories?FH: There are certain norms and standards set for factories. For example, there are setstandards for lighting in a factory. However, such norms maybe unknown to thebusinessmen and for this reason, factories in Bangladesh are not in compliance withinternational rules for factories. This is usually because the lack of education of thebusinessmen. For maintaining such standards, financial and other resources arerequired.

Q3) What is governments role in removingbureaucracy?Ans: There are several changes required to ensurethe efficiency of government officials: Proper recruitment policy Modification of salary structure Privatization scheme for certain sectors

However, whatever deadlines are set to reachcertain targets also need to be realistic.

Md. Fazlul Hoque, President, BKMEA and

Ms Shaila Khan, UNDP, Bangladesh

Q4) What strategy does the RMG sector need to follow in order to face the moreaggressive competition from China?FH: Although there has been a lot of discussion on this issue, there has been no realeffort towards building a positive image of Bangladesh in the foreign arena. We needto enhance the image of Bangladesh so that people perceive it as a safer, calmer


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nation. In appropriate branding, we can attract more buyers and investors which willmake the overall economy thrive.Q5) How the target of export is usually fixed?FH: The target of exports is usually fixed on historical data. There are no scientific ormathematical ways of setting the export target. For example, this years target has

been set after adding a growth rate of 15%.

Q6) How can UNDP and other government agencies assist to utilize the gains of tradefor the poor?FH: The support of UNDP and other development partners is very crucial to the RMGindustry. One of the most important factors is the training for workers and potentialworkers. We have shortage of both skilled and unskilled workers. There was aninitiative taken by UNDP to start training centers in the northern region Bangladesh.

The challenge is through effective training; make the government sector moreequipped with skilled workers, this will help to solve many problems that we arecurrently facing.

Q7) What is the current status of economic diplomacy in Bangladesh?FH: Government is not giving much effort towards the economic diplomacy of thecountry. The performance of the economic and commercial wings is disappointing asthey have scope to do much more. For example, China can be a good market forapparel. They have made 83 items duty free including woolen products which wecannot produce. Therefore, this shows that the efficiency and effectiveness of theeconomic diplomacy is not that good.

Q8) Does a trust gap between the workers and employers exist in the RMG sector?FH: If there was a huge trust gap between workers and owners, then the RMG sectorcould not have thrived. Certainly there is gap, but everyone is working towards

reducing it and augmenting the employee-worker relationship.

Q9)What is the role of the research and development (R & D) in the sustainability ofthe sector?FH: The RMG industry does have R&D facility but in a small scale. As part of buildingthe foundation of research, Institute of Apparal Research and Technology (IART) will belaunched.

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