research on bangladesh readymade garments

BY Sk. Ashiquer Rahman

ID#4585974929

A Thesis Submitted In Partial Fulfillment of the Requirement for the Degree of Masters in Inter-national Economics and Finance

TO, Prof.Paitoon Wiboonchutikula, Ph.D ,Associate professor and

Chairperson, Faculty of Economics,

CHULALONGKORN UNIVERSITY, Supervisor: Sirima Bunnag, Assistant Professor,

Faculty of Economics, Chulalongkorn University, Thailand.

A Research paper On

Export Growth Sources of Bangladesh Readymade Garment Industry. (Constant Market Share Model).

Master /

Garment

Phone: 555-555-5555 Fax: 555-555-5555 E-mail: [email protected]

Masters in International Economics and Finance Faculty of Economics,

Chulalongkorn University, Phayathai Road, Bangkok-10330,Thailand.Tel: (662) 218 6295, (662) 218 6218,Fax:(662) 218 6295,

E-mail: [email protected], http://www.econ.chula.ac.th/programme/ma_inter.html

Individual Study

“Export Growth Sources of Bangladesh Readymade Garment Industry. (Constant Market Share Model)” 2002

ii

Letter of Transmittal June 1, 2003

To,

Sirima Bunnag, Supervisor,

Assistant Professor, Faculty of Economics,

Chulalongkorn University, Thailand.

Subject: Letter of Transmittal.

Dear Madam,

Here is my paper on “Export Growth Sources of Bangladesh Readymade Garment Industry.

(Constant Market Share Model)” that I was assigned. It was a great opportunity for me to

acquire practical knowledge of the master in economics and finance.

I have concentrated my best effort to achieve the objectives of the report and hope that my

endeavor will serve the purpose.

I believe that the knowledge and experience I have gathered during my paper preparation

will immensely help me in my professional life. I will be obliged if you kindly approve this

effort.

Sincerely yours,

Sk. Ashiquer Rahman

Id#4585974929

Masters in International Economics and Finance

Bangkok, Thailand


iii

Preface Any institutional education would not be completed if it were confined within theoretical aspects.

Every branch of education has become more competed by their practical application and

accomplishment of full knowledge. We shall be benefited by our education if we can effectively

apply the institutional education in practical fields. Hence, we all need practical education to apply

theoretical knowledge in real world. By considering this importance “faculty of economics”

arranges the individual study for the students of Masters in International Economics and Finance.

As a part of this program my topic was selected as ““Export Growth Sources of Bangladesh

Readymade Garment Industry. (Constant Market Share Model)”

I tried my best to conduct an effective study by arrange and analysis data. There may be some

mistakes, which are truly unintentional. So, I would request to look at the matter with merciful

mind.

Sk. Ashiquer Rahman Id#4585974929 Chulalongkorn University Masters in International Economics and Finance Bangkok, Thailand


iv

Acknowledgement First, all praises go to almighty Allah, the most gracious, the most merciful to give me the ability for

all these I have done.

Then I would like to thank Ms. Wanwadee Wongmongkol. Now I would like to thank Sirima Bunnag,

paper Supervisor, Assistant Professor, Faculty of Economics, Chulalongkorn University,

Thailand to give me the opportunity to do this project.

I would also like to thank Professor. Paitoon Wiboonchutikula, Ph.D ,Associate professor and

Chairperson of Faculty of Economics, Chulalongkorn University & Professor Salinee. Secretatery

international economics and finance. My striking thanks go to honorable sir Dr. MN.Sirker who

has helped me in all aspect to prepare the report.

I would like to thank lab incharge Ms. Mink . Last but not the least I wish to thank my

friends, William Lloyed ,Nakarin and Athipat, for their very helpful discussions.

Sk. Ashiquer Rahman Id#4585974929 Chulalongkorn University Masters in International Economics and Finance Bangkok, Thailand


v

Table of Content

Title Page Letter of Transmittal ii

Preface iii Acknowledgement iv Table Of Content v Abstract 1-1 CHAPTER I Introduction

1-15 1-15

CHAPTER II 2.1. Statement of the Problem and its Significance 2.2. The objective of the study 2.3. Scope of the study 2.4. Organization of the study

15-18 15-16 16-17 17-17 17-18

CHAPTER-III 3. 1. Market structure of Bangladeshi Garment Industry 3.2. Recent Performance of the Apparel Export Sector

18-34 18-25 25-34

CHAPTER IV 4.1. Literature Review 4.2. Conceptual Framework 4.3.Empirical result of Bangladeshi garment industry

34-53 34-42 42-52 52-53

CHAPTER V 5.1.Sources Of International Competitiveness 5.2. Measure of Competitiveness 5.3. Macroeconomic Developments 5.3. Developments:Macroeconomic 5.3.1.Recent Growth Performance 5.3.2 Savings-Investment Performance 5.3.3. Readymade garment 5.3.4 Trends in External Sector 5.3.5 Bangladesh's Export Sector 5.3.6 Exchange Rate Policy and Export Performance 5.3.7. Export Performance 4.3.8. Primary And Manufactured Commodities 4.3.9. Export: Country Wise 5.3.10. Economic Trends 5.3.11. Future Growth Prospects 5.3.12 .Readymade garment and potential service

53- 108 53-53 53-54 54-54 54-54 54-60 60-62 62-65 65-65 65-68 69-80 80-85 85-88 88-97 98-101 101-103 103-108

CHAPTER –VI Conclusion

108-111 108-111

CHAPTER VII Recommendation

111-117 111-117

References 118-119 Appendix 120-123

Export performance in the world market for Bangladeshi readymade Garment 2003

1

Abstract

Bangladesh’s recent export performance in the world market for readymade garment has improved markedly. In this study, Constant Market Share Analysis is used in order to determine the competitiveness of Bangladesh and its competitors, which are the main readymade garment producers, in the USA, UK.CANADA AND ALL others markets between 1989 and 1998 periods. Constant Market Share (CMS) analysis is a popular tool for analyzing changes in exports of a country. Nevertheless, its theoretical foundations (and policy relevance) have been questioned. In this paper, we provide such a foundation by relating CMS analysis of export growth. An indication of the empirical relevance of this relationship is given by comparing the CMS analysis. The analysis reveals this improvement to be predominantly the result of competitive advantages of ready made garment industry . Bangladesh is able to export s readymade garment of high and consistent quality at low costs, under conditions which meet the world standards set by the world. In addition to competitive advantages, Bangladesh has benefited from growth in the overall size of the world export market for readymade garment, but has suffered from having only relatively small shares in the important markets of some member States. Market research on consumers’ demand and preferences could further improve Bangladesh’s recent export performance of readymade garment. Keywords: Bangladesh, Competitiveness, Constant Market Share Model. Ready made Garment.

Introduction

Bangladesh economy experienced a trend rate of growth of 4.8

per cent during 1990s as against 4.4 per cent during the previous

decade. The rate of growth of per capita GDP has also been

impressive during the 1990s. In addition to the higher growth

rate of overall GDP, this was facilitated by a sharp fall in the

rate of growth of population. During the 1980s, population grew

at an annual compound rate of 2.2 per cent, and the rate of

growth of per capita GDP was recorded at 1.7 per cent per annum.

In contrast, population growth rate came down to 1.7 per cent

during the 1990s.Per capita GDP grew at an annual compound rate

of 3.3 per cent during the 1990s.However, in terms of the

absolute level of per capita income, Bangladesh continues to

remain at the lower end of the income scale. Per capita income of

US$370 compares unfavorably against the low-income country

average of US$410.During 1990s, Bangladesh's total exports in

CHAPTER I


2

current US$ value grew at an annual compound rate of 14.4 per

cent. In fact, Bangladesh experienced double digit export growth

in most of the years during the 1990s. Imports, on the other

hand, grew at an annual compound rate of 10.9 per cent during

1990s. The gap between export and import widened from -US$1792

million in 1990/91 to -$2814 million in 1999/00, although the

share of export earnings in import payments steadily rose from 31

per cent in 1980/81 to 67 per cent in 1999/00. The openness of

the economy as measured by total external trade as a proportion

of GDP went up from around 22 percent in 1990/91 to nearly 30 per

cent in 1999/00 with the share of export in GDP rising from 7 per

cent to 12 percent during the same period. The structure of

export has changed significantly over the past two decades.

Bangladesh seems to have made the transition from resource-based

to process-based exports. In 1980/81, primary commodity

constituted nearly 29 per cent of total exports. In 1990/91, this

share came down to 17.8 per cent and further down to 8.2 per cent

in 1999/00. There has been shift from jute-centric to garments-

centric export. In 1980-81, raw jute and jute goods together

constituted 68 percent of total exports. Between 1980/81 and

1999/00, export of both raw jute and jute products declined in

absolute terms and their total share came down to only 6 per cent

in 1999/00. In contrast, woven and knit garments together

accounted for less than 1 per cent of exports in 1980/81. Their

combined share in exports rose to nearly 76 percent in 1999/00.A

change in the composition of output and employment away from the

agricultural sector in the direction of manufacturing and service

sectors is often used as a measure of development. In Bangladesh,

the share of agriculture in GDP declined from 29.2 percent in

1990-91 to 25.5 percent in 1999-00 - a decline of 3.7 percent.

The fall was compensated by an increase in the share of

manufacturing and construction. Despite declining share of

agriculture in GDP, the increase in food production has been

quite satisfactory moving the country from a state of chronic


3

food deficit to near self-sufficiency level. Manufacturing

industry in Bangladesh achieved respectable growth during 1990s.

The contribution of manufacturing to GDP increased from 12.9 per

cent in 1990-91 to 15.4 per cent in 1999-00. However, the

sector's current share in GDP appears rather modest for it to

spearhead sustained high growth of the economy. Thus, for

example, in Thailand the share of manufacturing in overall GDP

was 22 per cent in 1980 and it rose to 32 per cent by 1998. The

growth of Bangladesh’s manufacturing sector has also been rather

narrowly based with readymade garments accounting for nearly a

quarter of the scrotal growth. Other important export industries

contributing to scrotal growth are Fish & seafood, and Leather

tanning. Major import substituting industries experiencing

significant growth during this period include Pharmaceutical,

Indigenous cigarettes (bidi), Job printing and Re-rolling mills.

Other success stories of Bangladesh include maintenance of low

level of inflation, rapid spread of micro credit program largely

at the initiative of NGOs, and significant improvements in the

social sector. However, in spite of such successes, the structure

of production and exports has remained extremely narrow in

Bangladesh. Bangladesh has also failed to attract adequate amount

of FDI into the country. While the opening up of gas, electricity

and telecommunication sub-sectors to private investment has

resulted in the inflow of considerable foreign direct investments

(FDI) in these sectors, the overall inflow of FDI has remained

sluggish. The narrow export base has rendered Bangladesh’s

external sector extremely dependent on global trading environment

and preferential treatment by its main trading partners. The

recent poor performance of exports in the face of global economic

slowdown has confirmed this vulnerability of the Bangladesh’s

external sector. Other weaknesses of Bangladesh economy include a

dysfunctional banking system overburdened with classified loans,

persistent loss of the state owned enterprises, poor


4

infrastructure, deficient tax efforts, political disturbances and

unsatisfactory law and order situation.

Now we are going to the Country Competitiveness Indicators

of Bangladesh. Because export growth performance depend on

competitiveness factors

Table-1. Overall Performance:

GNP per capita (US$) 1996 $260

Average Annual Growth of GNP per capita (%) 1965-96 1.00%

Standard Deviation of Income Distribution 11.31

Source- World Bank Group

Table 2. Macro and Market Dynamism:

Table 2(a) .Investment and Productivity Growth

Gross Domestic Investment (% of GDP) 1996 17%

Average annual growth of Gross Domestic

Investment(%) 1990-1996

13.6%

Private Investment (% of Gross Domestic Fixed

Investment) 1996

62.5%

Net Foreign Direct Investment FDI (% of GDP)1996 0%

Average annual difference in Net FDI (%) 1980-82 to

1990-92

0%

Average Annual Growth of Real GDP per worker(%)

1980-90

2.4%


Table-2(b). Overall Trade Dimensions Trade

Surplus/Deficit (% of GDP) 199500% -8%

Export Share of World Trade (%) 1994 0.1%

Average Annual Growth in Export Share (%) 1989-95 6.697%

Export Concentration Index 1992. 0.246

Percent Change in Export Concentration Index (%) -2.381%


5

Exports of goods and services (% of GDP) *

( total)

Bangladesh

14.0

Total debt service (% of exports of goods and services)** (total)

9.2


Figure-1

*

**

Source: World Development Indicators database, July 2000

Table-2 (c). Export Competitiveness

Average Annual Nominal Export Growth (%) 88-

89 to 93-94

16.4%

Export Growth from World Demand (%) 88-89 to

93-94

7%


6

Export Growth from Market Share (%) 88-89 to

93-94

8.8%

Export Growth from Market Diversification (%)

88-89 to 93-94

0%


Table-2 (d) . Export Structure

Manufactured Exports (% of total exports)

1995

83%

Percent Change in Share of Manufactured

Exports (%) 1980-93

20.29%

High Tech. Exports (% of manufactured

exports) 1995

0%


Table-2 (e). Trade Policy

Mean Tariff (%) 1990-93 84.1%

Standard Deviation of Tariff Rates (%) 1990-93 26.1

Percent of Products covered by Non-Tariff

Barriers (%) 1990-93

N/A


Table-2 (f). Government Involvement in the Economy

Government Consumption (% of GDP) 1996 14 %

Average Annual Growth of Government

Consumption (%) 1990-95

3.4%

Value Added of State Owned Enterprises SOE (%

of GDP) 1990-95

3.4%

SOE's Investment (% of Gross Domestic Fixed

Investment) 1990-95

23.5%

Government Surplus/Deficit (% of GDP) 1995 N/A


Table 3. Financial Dynamism

Net Present Value of External Debt (% GDP) 1996 30.0%

Growth in Total External Debt (%) 1980-94 89.82%


7

Average Outstanding Money M2 (% of GDP) 1996 36%

Average Annual Growth Rate of GDP Deflator (%)

1990-96

4.9%

Credit to Private Sector (% of GDP) 1996 20.6%

Stock Market Capitalization (% of GDP) 1996 14.3%

Real Interest Rate (%) 1996 8%


Actually, growth has accelerated in Bangladesh in the 1990s.

Much of this acceleration in growth took place in the context of

rapidly declining external aid. External aid has fallen from 12%

of GDP in the early 1980s to only about 2% of GDP now. There have

not been any compensating private flows during this time. This

enhanced growth performance occurred during a period of policy

reforms. However, it does not necessarily mean that policy

reforms were alone responsible for the acceleration. Some

increase in total factor productivity was responsible as was some

increase in the savings rate, due largely to an increase in

public sector savings. Much of the growth in large-scale industry

has been driven by ready-made garments (RMG). Growth in the non-

RMG large-scale industry has been slow about 4% in the 1990s.

This is less than that in the 1980s. Why is it that so few

industries have managed to duplicate the performance of the RMG

sector? One question worth exploring is whether the RMG sector,

by absorbing the domestic savings, crowded out the other

industries. The RMG sector has had phenomenal growth. Growth

rates of earnings, in real dollar terms, jumped from about 6%

during the 1980s to 15% during the 1990s. For the first time in

FY01-02, there was a 10% drop is export earnings. But, even in

this bad year, the volume of exports actually went up by 10%,

albeit not by enough to compensate for the 20% drop in average

prices. There are some fronts, however, where the industry has

not been very successful. One such area is marketing. The

industry has not yet developed good marketing skills of its own


8

and continues to rely heavily on foreign buying houses, notably

those from India and Sri Lanka. These intermediaries capture a

large part of the margin. The scope for the industry to benefit

from devaluations is limited in such a situation. The industry

should have used the last 20 years to go deeper into the

marketing channel. The fact that foreign direct investment had

not been allowed in the industry is one possible reason for our

failure to do so. The Bangladesh Garments Manufacturers and

Exporters Association (BGMEA) is now thinking of setting up

marketing centers abroad. This is an area where public-private

sector collaboration may be required. The only import-

substituting industry that grew significantly, reflecting

somewhat the East Asian pattern, is pharmaceuticals. It first

grew under protection alongside imported pharmaceuticals. It then

out-competed the imported products and has now started exporting.

It is possible that some parts of the industry are not very

efficient but are surviving due to protection while other parts

are efficient and competing in world markets. The shrimp

processing industry is an interesting case. A few years ago, the

industry faced serious reputation problems due to the fraudulent

practices of a few producers. The malpractices of a few

jeopardized the entire industry indicating that reputation is a

public good. In other words, the industry as a whole needed to

take remedial actions. The industry is now finally realizing this

and has started taking steps at self-regulation. Having concluded

that the government’s standards institute is inefficient, it has

adopted measures to impose standards on their own and monitor

compliance. The capital goods industry has declined, e.g.,

textile machinery industry has virtually disappeared. It is

important to have a capital goods industry. Adaptation of

technology is important for industrial growth. For this to

happen, one needs a domestic capital goods industry. Small scale

industries have done quite well in recent years and have largely

benefited from liberalization. On the one hand, they are not much


9

affected on the output side (do not compete with imports) but

benefit from the liberalization of imports of inputs. They

expanded at the expense of inefficient large-scale industries as

well as cottage industries. Poverty reduction will require

further growth in such small scale enterprises. The contribution

of export industries and large-scale industries to poverty

reduction will be less direct. Their main contribution will be

through generating capacity to import by earning foreign

exchange. This will help small-scale enterprises who need

imported inputs and this, in turn, will help reduce poverty. Cash

subsidies are currently given to various activities, such as

agro-processing, leather goods and light engineering. The

practice of providing cash subsidies started with Grameen

check(garment). It was meant to compensate for duties paid on

imports and amounted to 25% of total sales value, a high amount

by any standard. The rationale for providing cash subsidies,

especially at the current scale, is weak. Import duties have gone

down due to import liberalization. If compensation is to be

provided, the amount required for various products will have to

be re-calculated, taking into account the changes in duty rates.

Many people fear that the RMG industry will be hard hit after

2005 when quota privileges are withdrawn. However, the fears may

be exaggerated. The European market is already open and

Bangladeshi exporters are doing reasonably well there. The key is

to improve productivity and go deeper into the marketing chain.

Dispersed, non-farm growth in rural areas and in and around small

towns is probably the way to go. There is some potential in

micro-level enterprises but not much. Self-employment in low-

productivity activities does not hold much promise. Wage rates

will increase through small-scale activity, not much through

micro-enterprises. Industrial development will require

improvements in governance. Bangladeshi industry can do quite

well without much protection if there is better governance, e.g.,

if there is no toll collection and if utilities can be provided


10

efficiently. A recent study has shown that the costs of giving

tolls, as percentage of turnover, is greatest for small-scale

industry, and lower for micro and large enterprises.

Consistent with the on-going trend of the free-

market economic system and globalization of world economy, a

liberal trade policy was pursuer in the financial year ended on

30th June, 2000 as in the preceding year with the objective of

providing protection to the domestic industries, trade

liberalization and expansion of export trade. So a small change

has occurred in Bangladeshi trade policy, especially garments

sector. Earning from the export of the readymade garments which

stood at 4352.0 million us dollar during 1999-2000 was 8.3%

higher than 4020.0 million us dollar during 1998-1999. The USA,

Canada, and EC countries were the principal buyers. Export

receipts from readymade garments were 1.2% higher than the target

of 4380.53 million us dollar for the year and accounted for 75.7%

of the total export receipts of the country.

Seventy-five per cent of Bangladesh's exports is

dominated by only one item-ready-made garment (RMG) - and the

bulk of the volumes of RMG exports goes to North America and

Europe. After RMG, the only other mentionable items are shrimp,

jute and leather. Even the buyers of these secondary export items

are limited in number. The composition of the export trade to

such a small number of goods and their limited number of buyers

mean that the country's external trade is vulnerable to any

downturn in the external environment in the form of price

fluctuation or reduced demand. Both prices and demand for

Bangladeshi RMG products have recently much declined in the Us

market the biggest single market for Bangladesh's ready-made

garment . Similar is the condition of the other export items with

the only exception of leather. But notwithstanding the global


11

recession and setbacks in certain markets, the country's export

trade would not slump badly perhaps and could be maintained at a

reasonable level if steps were taken much earlier to achieve

diversification of both exportable and their buyers. In that

case, the country would be hedged considerably against any

drastic fall in export earnings as reduced earnings of some items

or from some countries could be offset by good or steady earnings

from other sources. Exporters of Bangladeshi garment industries

must get used to being dynamic for a change. They must shake off

the habit of waiting for orders to come to them automatically.

They should be rather out in the field hunting for such orders.

Experts in the RMG field say that good markets are there for

Bangladeshi products in some South American countries, in the CIS

countries and in Japan. RMG producers should lose no time in

immediately exploring these markets and Bangladeshi missions’

abroad need to work round the clock in support of such market

identification and development activities. Government's fiscal

and other polices will have to be quickly adjusted as the

exporters search out new markets and attempt entering into them.

Apart from the conventional items, exporters need to be

encouraged in every way to go all-out to try and export

unconventional items and in greater quantities. It was estimated

that Bangladesh produces about 4.2 million tons of fresh fruits

and vegetables a year and a substantial quantity of such produce

gets wasted. But the same have good market demand abroad and can

earn good amounts in foreign currencies provided government makes

the right move to reduce freight, handling and other charges and

provides other incentives to exporters of fruits and vegetables.

Government policies taken in support of the moves of exporters of

agro-produces can probably create quickly new items for export at

a time when the country is in a rather desperate situation to

earn more foreign currency from its export trade.


12

A recent study has shown that the costs of giving tolls, as

percentage of turnover, is greatest for small-scale industry, and

lower for micro and large enterprises. Consistent with the on-

going trend of the free-market economic system and globalization

of world economy, a liberal trade policy was pursuer in the

financial year ended on 30th June, 2000 as in the preceding year

with the objective of providing protection to the domestic

industries, trade liberalization and expansion of export trade.

So a small change has occurred in Bangladeshi trade policy,

especially garments sector. Earning from the export of the

readymade garments which stood at 4352.0 million us dollar during

1999-2000 was 8.3% higher than 4020.0 million us dollar during

1998-1999. The USA, Canada, and EC countries were the principal

buyers. Export receipts from readymade garments were 1.2% higher

than the target of 4380.53 million us dollar for the year and

accounted for 75.7% of the total export receipts of the country.

Seventy-five per cent of Bangladesh's exports are dominated by

only one item-ready-made garment (RMG) - and the bulk of the

volumes of RMG exports go to North America and Europe. After RMG,

the only other mentionable items are shrimp, jute and leather.

Even the buyers of these secondary export items are limited in

number. The composition of the export trade to such a small

number of goods and their limited number of buyers mean that the

country's external trade is vulnerable to any downturn in the

external environment in the form of price fluctuation or reduced

demand. Both prices and demand for Bangladeshi RMG products have

recently much declined in the Us market the biggest single market

for Bangladesh's ready-made garment. Similar is the condition of

the other export items with the only exception of leather. But

notwithstanding the global recession and setbacks in certain

markets, the country's export trade would not slump badly perhaps

and could be maintained at a reasonable level if steps were taken

much earlier to achieve diversification of both exportable and

their buyers. In that case, the country would be hedged


13

considerably against any drastic fall in export earnings as

reduced earnings of some items or from some countries could be

offset by good or steady earnings from other sources. Exporters

of Bangladeshi garment industries must get used to being dynamic

for a change. They must shake off the habit of waiting for orders

to come to them automatically. They should be rather out in the

field hunting for such orders. Experts in the RMG field say that

good markets are there for Bangladeshi products in some South

American countries, in the CIS countries and in Japan. RMG

producers should lose no time in immediately exploring these

markets and Bangladeshi missions’ abroad need to work round the

clock in support of such market identification and development

activities. Government's fiscal and other polices will have to be

quickly adjusted as the exporters search out new markets and

attempt entering into them. Apart from the conventional items,

exporters need to be encouraged in every way to go all-out to try

and export unconventional items and in greater quantities. It was

estimated that Bangladesh produces about 4.2 million tons of

fresh fruits and vegetables a year and a substantial quantity of

such produce gets wasted. But the same have good market demand

abroad and can earn good amounts in foreign currencies provided

government makes the right move to reduce freight, handling and

other charges and provides other incentives to exporters of

fruits and vegetables. Government policies taken in support of

the moves of exporters of agro-produces can probably create

quickly new items for export at a time when the country is in a

rather desperate situation to earn more foreign currency from its

export trade.RMG business started in the late 70s as a negligible

non-traditional sector with a narrow export base and by the year

1983 it emerged as a promising export earning sector; presently

it contributes around 75 percent of the total export earnings.

Over the past one and half decade, RMG export earnings have

increased by more than 8 times with an exceptional growth rate of

16.5 percent per annum. In FY06, earnings reached about 8 billion


14

USD, which was only less than a billion USD in FY91. Excepting

FY02, the industry registered significant positive growth

throughout this period

In terms of GDP, RMG’s contribution is highly remarkable; it

reaches 13 percent of GDP which was only about 3 percent in FY91.

This is a clear indication of the industry’s contribution to the

overall economy. It also plays a pivotal role to promote the

development of other key sectors of the economy like banking,

insurance, shipping, hotel, tourism, road transportation, railway

container services, etc. A 1999 study found the industry

supporting approximately USD 2.0 billion worth of economic

activities (Bhattacharya and Rahman), when the value of exports

stood at a little over USD 4.0 billion. One of the key

advantages of the RMG industry is its cheap labor force, which

provides a competitive edge over its competitors. The sector has

created jobs for about two million people of which 70 percent are

women who mostly come from rural areas. The sector opened up

employment opportunities for many more individuals through direct

and indirect economic activities, which eventually helps the


15

country’s social development, woman empowerment and poverty

alleviation So, There in the light of importance of garments

industry in Bangladeshi economy, we intend to evaluate its export

growth and to analysis it’s structural change.

So, There in the light of importance of garments industry

in Bangladeshi economy, we intend to evaluate its export growth

and to analysis it’s structural change.

CHAPTER II

2.1. Statement of the Problem and its Significance:

A total of 1,276 ready-made garment (RMG) factories

had closed down in the aftermath of the 11 September 2001

incident in the USA of which 1,178 were located in Dhaka and 98

in Chittagong. As a result of the factory closure 350,000 workers

were rendered jobless. Although, some of the factories have

gradually reopened since March 2002, 501 factories still remain

closed while some 2,25,000 workers - mostly women - remain

jobless.

Needless to mention, the government, the factory owners and

the BGMEA have a moral and social responsibility towards these

workers. The prospect resulting from the joblessness of millions

of unemployed women on the streets has the potential to create

mass social and add to the dismal economic situation resulting

from the garment industry crisis.

The international and national trade bodies, policymakers

and the media are primarily focusing their attention on the

economic causes and fall-out of the RMG sector crisis in

Bangladesh. Little attention is being paid to the impact of the

crisis on livelihood security of the workers. Since the majority


16

of workers in the garment industry in Bangladesh are women, it is

these women who are bearing the brunt of the market decline. At

present, there is not a single industry where this volume of

narrowly skilled workers call be reemployed. The crisis will

therefore have a devastating social effect, not only for the

women who will lose their jobs, but also for their families and

communities. With a modest beginning in the late seventies the

RMG sector in Bangladesh rapidly grew. Within a very short period

of time, it attained prominence in terms of its contribution to

Bangladesh’s gross domestic product (GDP), foreign exchange

earnings and employment. The industry flourished due to the cheap

and predominantly female labor market and the favored

international textiles and clothing regime under the Multi-Fibre

Agreement (MFA).

2.2. The objective of the study:

The purpose of the present study has been to assess

the direct and indirect contribution made by RMG in the economy

of a developing country like Bangladesh. With this aim in view,

we tried to estimate the direct and indirect linkages of growth

in the economy of Bangladesh. Since, the RMG industry presently

earns Bangladesh the largest amount of foreign exchange and is

considered to be the leading 'growth industry' of Bangladesh, we

made a particular attempt to assess the contribution o f growth

of RMG manufacturing and exporting activity. These exercises,

together with an examination of the current international trade

growth of Bangladesh, made it possible to outline the future

development and potential international trade of garment in

Bangladesh. Besides on, the main interest of this study is to

analyze the sources of the observed rapid increases of

Bangladeshi readymade garments exports. This will also analyses

the sources of the growth of readymade garments exports. Then the


17

barriers to readymade garment exportation will be reviewed and

its impact on exports growth sources will be evaluated.

2.3. Scope of the study:

The period under the study will cover approximately

ten years from 1989 to 1998 and the historical development will

be included to show this industry can become one the major export

earning sources. In employing the constant-market- share method,

five market are considered, namely(1) USA,UK.CANADA AND ALL

OTHERS.Export of garment products consist of 4 commodities,

namely slandered trade classification (SITC) code numbe-

48119,48219,4851,48511,48512 and 48522.

2.4. Organization of the study:

My paper is consists of six chapter-

Chapter 1 gives the introduce the present condition of

Bangladesh.

Chapter 2 gives the statement of the problem, scope of the study

Chapter 3 -gives the general view about Bangladeshi’s garment

industry.

Chapter 4- is devoted to the methodology and definition used to

assess the export growth of Bangladeshi garment industry. Then it

shows the empirical results of the export growth of Bangladeshi

garment product. This chapter identifies the importance factors

of the export growth of Bangladeshi garment industry usining the

“Constant Market Share Model”

Chapter 5 -Is mostly devoted to explain the results obtained in

chapter 3 concentrating on the competitiveness factors and

explains the market stricture of Bangladeshi garment export and

discusses the relationship between factor requirement of garment

product and their export market.


18

Chapter 6 gives the summary of the result and conclusions.

3.1. Market structure of Bangladeshi Garment Industry:

Textile Sector in Bangladesh is predominantly made of

natural fiber using cotton. This sector is broadly classified

into the following stages/sectors based on the value addition.

• Yarn

• Fabric

• Apparel

Each of the above sectors is analyzed to generate an overall

perspective on the industry. Apparel is the high Growth Sector

of garments sector. The liberalization of industrial policy of

Bangladesh along with development of export processing zones at

Dhaka and Chittagong, attracted investment in the Ready-Made

Garment (RMG) industry in Bangladesh to set up large plants

working on higher economies of scale. This enabled Bangladesh to

achieve a phenomenal growth in export of RMG. The export of RMG

from Bangladesh increased from a meager US $ 7 million during

1981-82 to about US $ 1.95 billion during 1995-96. The RMG

Sector achieved a growth of 20% per annum over the past ten

years. Such high growth was catalysed by the low wages along with

Multifibre Agreement (MFA) on textile quotas principally with

U.S.A., Canada and European countries. The Generalised System of

Preferences (GSP) provided import tax breaks worth about 15% of

the import valuation, giving Bangladesh's RMG export a

considerable advantage in these markets. In addition to the

above, the financing arrangements created through a system of

back- to-back Letters of Credit (LOC) covering imported inputs

and finished exports, greatly contributed to the accelerated

growth of RMG sector. The above factors enabled Bangladesh to

CHAPTER-III


19

become the fifth largest exporter of RMG to the European Union

and Sixth largest to the USA. The apparel industry in Bangladesh

is broadly classified into Knitwear, RMG, speciality/linen

including terry towels and others. The total export of apparel

was about Takas 105.87 billion during 1995-96. The share of RMG

export in this sector is above 75%. The composition of export of

apparel by type is indicated in the following chart:

The further break-up of main items of knitwear and RMG export

is provided in the following charts:

Break-up of main items of export

in apparel sector of Bangladesh

The quality of fabric produced domestically in Bangladesh is

not upto the standard required for the production of export

quality garments. Therefore, exporters of garment, largely have

to depend upon import of quality fabric. There are about 26

weaving mills in Bangladesh reported as in 1996, with a total of

7,179 looms. About half of these mills are government owned.

There are also another 515 thousand hand looms in the country

apart from about 488 hosiery units. About 30 per cent of these

hosiery units produce export quality knit fabric. The local

fabric production is reported to be about 915 million meters

during 1995-96. The total demand for fabrics against this

production level is estimated to be about 3155 million meters

(approximately 3.45 billion yards) during 1995-96. Hence apart

Value of RMG Export: Taka 79.7 Billion

KNITWEAR

(Approx. US $ 2 billion)


20

from the quality considerations mentioned earlier, domestic

production is inadequate to meet the fabric demand. The

composition of demand of fabrics for garments for domestic market

and garments for export market is illustrated in the following

chart:

Composition of Demand for Fabric from Garment Sector

The above chart indicates the importance of export market

for textile sector of Bangladesh. The local demand for fabric,

which is reported to be about 1325 million meters, is largely met

by the traditional hand looms, small power looms and textile

mills in the government and private sector. However as domestic

production falls short to meet even the domestic demand for

fabric, about 410 million meters is imported during 1995-96 to

meet the short fall. The overall scenario of fabric sector in

Bangladesh is indicated in the following table and chart: The

following chart illustrates the interpretation of above table in

graphical form.

Fabric Sector in Bangladesh during 1995-96

Million Meters Total Market Segment

Domestic Export

Demand 3155 1325 1830

Production 915 915

Import 2240 410 1830

Million Meters


21

The above chart indicates that about 82% of the fabric

imported is consumed in the production of garments for export,

while the balance 18%, is consumed to meet the domestic demand,

which by itself is about 30% of the requirement of domestic

market. This emphasis’s the need for investment in

textile/weaving segment in Bangladesh. After assertazzining the

need for setting-up a weaving unit, the following paras

investigate the prospects and key success factors for such

weaving mill: Yarn is the primary input to the weaving mill.

Yarn is spun in a spinning mill using spindles. Bangladesh has

about 118 spinning mills. About 25% of these mills are owned and

managed by the government. It is reported that about 45% of these

spinning mills are out dated and run at a loss. The production

of yarn in Bangladesh is reported to be about 100,000 tonnes

during 1995-96. The demand for yarn is, however, as high as

470,000 tonnes. Hence the domestic production meets only about

21% of the domestic demand for yarn. The huge deficit in

production of yarn to meet its demand in Bangladesh, is met

through imports. Bangladesh sources its requirement of yarn

mainly from countries like India. Pakistan apart from China,

Korea, Singapore, Thailand, USA, Canada, Egypt, etc. It is

estimated that about 116 additional spinning units with a

capacity of 25,000 spindles each are required to meet the demand-

supply gap for yarn


22

Table 1: Apparel Exports from Bangladesh in Value and Volume

YEAR

TOTAL APPAREL EXPORT (Millions of $)

TOTAL APPAREL EXPORT (Thousands of dozens)

Gro

wth in Monthly Totals

Growth in

Monthly

Totals

WOVEN KNIT TOTAL WOVEN KNIT TOTAL

Total

Monthly

Total

Monthly

Total

Monthly

Total

Monthly

Total

Monthly

Total

Monthly

1992-93

1,240.48

103.37

204.54

17.05

1,445.02

120.42

36,053.88

3,004.49

10,663.56

888.63

46,717.44

3,893.12

1993-94

1,291.65

107.64

264.14

22.01

1,555.79

129.65

7.67%

34,351.00

2,862.58

10,815.00

901.25

45,166.00

3,763.83

-3.32%

1994-95

1,835.09

152.92

393.26

32.77

2,228.35

185.7

43.23%

47,210.00

3,934.17

15,301.90

1,275.16

62,511.90

5,209.33

38.40%

1995-96

1,948.81

162.4

598.32

49.86

2,547.13

212.26

14.31%

48,820.04

4,068.34

23,185.45

1,932.12

72,005.49

6,000.46

15.19%

1996-97

2,237.95

186.5

763.3

63.61

3,001.25

250.1

17.83%

53,450.33

4,454.19

27,536.07

2,294.67

80,986.40

6,748.87

12.47%

1997-98

2,844.43

237.04

937.51

78.13

3,781.94

315.16

26.01%

65,590.00

5,465.83

32,604.37

2,717.03

98,194.37

8,182.86

21.25%


23

1998-99(JULY-AUGUST)

561.54

280.77

177.21

88.61

738.75

369.38

17.20%

12,186.00

6,093.00

6,464.00

3,232.00

18,650.00

9,325.00

13.96%

Source: Bangladesh Exports Promotion Bureau (EPB)

Table 2: Major Items of Apparel Exported from Bangladesh

(Millions of $) Table 3: Export Markets for Bangladesh Apparels

YEAR SHIRT T-SHIRT TROUSERS JACKET SWEATER Mont

hly Average

Monthly Average

Monthly Average

Monthly Average

Monthly

Total

Total

Total

Total

Total

Average

1993-94

805.34

67.11

225.9

18.83

80.56

6.71 126.85

10.57

0 0

1994-95

791.2

65.93

232.24

19.35

101.23

8.44 146.83

12.24

0 0

1995-96

807.66

67.31

366.36

30.53

112.02

9.34 171.73

14.31

70.41

5.87

1996-97

759.57

63.3 391.21

32.6 230.98

19.25

309.21

25.77

196.6

16.38

1997-98

961.13

80.09

388.5

32.38

333.28

27.77

467.19

38.93

296.29

24.69

1998-99 (JUL-AUG)

201.12

100.56

49.05

24.53

60.51

30.26

105.25

52.63

81.61

40.81

Source: Bangladesh Exports Promotion Bureau (EPB)

RDTI Cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

Our own calculations of monthly averages and growth factors


24

YEAR

EXPORTS TO THE U.S.

(millions, $)

U.S. MARKET SHARE (%)

EUROPEAN UNION SHARE

(%)

CANADA AND OTHERS (%)

1991-1992

581.1 49.14 46.62 4.23

1992-1993

703.96 48.71 46.46 4.82

1993-1994

592.46 38.08 55.96 5.95

1994-1995

1006.08 45.07 49.67 5.08

1995-1996

1001.68 39.33 54.12 6.56

1996-1997

1245.14 41.49 54.11 2.1

1997-1998

1494.02 43.6 51.26 5.14

Source: Bangladesh Exports Promotion Bureau (EPB) RDTI Cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA)

Our own calculations of monthly averages and growth factors

Table 4: Apparel Exports to Major Markets (1997 - 1998) TOTAL APPAREL EXPORT IN MILLION US$

WOVEN KNIT TOTAL % OF TOTAL

COUNTRY

USA 1,443.21

228.69 1,671.90

44.21%

CANADA 66.89 27.88 94.77 2.51% AUSTRIA 12.13 5.84 17.97 0.48% BELGIUM 78.91 60.37 139.28 3.68% DENMARK 16.69 23.81 40.50 1.07% FINLAND 9.55 4.23 13.78 0.36% FRANCE 206.78 137.43 344.21 9.10% GERMANY 352.78 130.09 482.87 12.77% GREECE 2.40 1.41 3.81 0.10% IRELAND 5.17 3.30 8.47 0.22% ITALY 171.42 46.11 217.53 5.75% NETHERLANDS 127.94 75.47 203.41 5.38% PORTUGAL 1.97 0.83 2.80 0.07%


25

SPAIN 32.26 10.75 43.01 1.14% SWEDEN 31.34 14.63 45.97 1.22% UK 226.33 144.78 371.11 9.81% OTHERS 58.66 21.89 80.55 2.13%

TOTAL 2,844.43

937.51 3,781.94

100.00%

Source: Export Promotion Bureaus (EPB)

Table 5: Top Five European Destinations for Bangladesh Apparel (July 1997- May 1998) RANK

COUNTRIES

VALUE

(Millions, $)

1 Germany 434.77 2 United Kingdom 343.89 3 France 305.72 4 Netherlands 183.63 5 Italy 195.82

Source: Bangladesh Exports Promotion Bureau (EPB) RDTI Cell of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Our own calculations of monthly averages and growth factors

3.2. Recent Performance of the Apparel Export Sector

In a liberalized trade regime, competition among textiles

and clothing exporting countries is likely to become intense. The

objective of this paper is to identify the prospects of RMG

industry after the MFA phase out by analyzing the current

scenario along with different policy measures and the available

options in order to be more competitive in the new regime.The

export made by Garments Industries of Bangladesh is improving


26

year after year except some of the year. Strike, layout, shutdown

of company, political problem, economic problem, inflation etc.

are the prime cause of decreasing export in this important

sector. But above it, Readymade Garments Industries is the

leading sector in export sector.

Year Export (in US $ million) Percentage change

1991 – 92 624.16 32.49

1992 – 93 866.82 38.88

1993 – 94 1182.57 36.43

1994 – 95 1445.02 22.19

1995 – 96 1555.79 7.67

1996 – 97 2228.35 43.47

1997 – 98 2547.13 14.11

1998 – 99 3001.25 17.83

1999 – 00 3781.94 26.01

2000 – 01 4019.98 6.29

2001 - 02 4349.41 8.19

2002 – 03 4859.83 11.74

2003 – 04 4583.75 5.68

2004 – 05 4912.12 7.21

2005 – 06 5686.09 15.83

Year Export by the garments industries (in US $ million) Average Quota Prices of Selected Garments Items Exported by Bangladesh, 2006


27

Table: Quota Prices of Selected Garments Items Exported Position of Bangladesh is exporting product in USA is not very satisfactory but this situation is better than any other condition of the previous time. But if our Government take some essential law and break out the wall of biasness then the position of Bangladesh in Garments sector would be hope to better. Table: Exports of Knit and Woven Garments to the United State

(Source: Export Promotion Bureau of Bangladesh)

Besides the floods, there were several other crises that

impacted the garment industry in 1998. The disruption of the

normal functioning of the Chittagong port due to labor unrest was

certainly one of them. The BGMEA has repeatedly requested the

government to ban labor strikes in the Chittagong port on grounds

of national interests. Another source of disruption was the


28

perennial problem of hartals (nationwide general strikes) called

upon and enforced by the opposition political parties to protest

government policies. Although, in a major concession to the

apparel exporters, the leader of the main opposition party had

declared that the garment industry would be exempt from such

hartals, in practice the situation is more complex. On the

ground, the firms cannot take chances to send their products on

the road for fear that these will be attacked. The psychological

impact of these events on the existing and potential buyers

cannot be overstated. Buyers in the global garment markets remain

highly sensitive to the risks of unfulfilled orders. The image of

Bangladesh as a somewhat unpredictable supply source may have

been strengthened due to the floods, as the floods received

considerable world media attention and by the violent political

unrest that spills over in the streets of urban areas. In the

early months of 1999, it has gradually become apparent that there

may have been a substantial reduction in new orders received by

Bangladeshi manufacturers as a result of these problems and also

due to increased competition from the East Asian manufacturers

whose currencies have been severely devalued.Historically,

apparel exports from Bangladesh have grown at an annual rate of

more than twenty percent, roughly doubling every three years. In

1996-1997 the exports in gross terms equaled three billion

dollars. At this rate, these exports could potentially reach six

billion dollars by the year 2000 and possibly exceed ten billion

dollars in the not too distant future. However, in the year 2004,

the Multi-Fiber Arrangement (MFA) quotas will end, ushering in a

globally competitive market for clothing products. One of the

most important factors responsible for the success of this

industry has been dynamic entrepreneurship. In fact, we believe

the garment entrepreneurs should receive a national award for

their creative initiatives in overcoming the crises during this

period. The industry presents a model that entrepreneurs in other

sectors could emulate with benefit. The many hurdles the industry


29

overcame in 1998 include the floods, the shocks from the most

severe economic collapse and currency devaluation in East Asia

economies in recent history, and other domestic crises.

Strategies pursued by the industry in 1998 include the following:

the decision to hold monthly meetings between BGMEA officials and

leaders of the labor unions in the industry; efforts to implement

the child labor agreement of 1995; hiring a high-profile American

politician to lobby for the industry in Washington D.C.; and

asking the U.S. government to increase quotas for apparel made in

Bangladesh by thirty percent to reward the progress made in

reducing the use of child labor in the garment factories.

Manufacturers and Exporters Association (BGMEA); Author's

calculations of monthly averages and growth factors. What

implications does the success of the apparel exports have for the

economy of Bangladesh? The positive impacts are considerable and

widespread. For several years now, apparel exports have been the

largest manufacturing industry, and also the biggest source of

foreign exchange earnings. It may be a "soft goods" industry but

nevertheless it has created positive changes in the economy and

society by creating employment and income for poor women workers

and by bringing in foreign exchange for the country. In terms of

gross foreign exchange receipts, in the most recent period for

which we have data (July 1997- May 1998) export of readymade

garments earned $3392.45 billion or 73.18 percent of the total

export earnings of Bangladesh. The share of apparel products in

total exports has steadily risen for several years. In both

absolute and relative terms, the industry dominates the modern

economy of Bangladesh. In addition, the positive sociological,

demographic, political and economic impact of 1.5 million workers

employed in the manufacturing sector is huge. This is especially

true since ninety percent of these workers are women, many of

whom have migrated from the countryside in search of a life free

of poverty. The forward and backward linkage industries and

services such as textiles, accessories, transportation, and


30

packaging and the private sector in general have also been

significant beneficiaries. The government has gained tax

revenues, and the foreign investors to a large extent have been

exposed to Bangladesh as a result of the success of garment

exports. However, the biggest winner has been the private

entrepreneur in Bangladesh. Entrepreneurship is alive and well in

Bangladesh. The sustained success of apparel exports underscores

this point. The Future of Garment Exports and the Economy of

Bangladesh The growth rate in overall exports from Bangladesh

peaked in 1994-1995 at 40 percent a year. However, export growth

has remained strong. Currently, the garment exports alone bring

in close to four billion dollars in gross terms. The imports of

fabrics and related intermediate goods account for $2.3 billion

resulting in net earnings of approximately $1.7 billion. The

garment and knitwear exports accounted for the bulk of these

exports. The knitwear sector has been especially dynamic in

recent years. Given the fact that the market for knitwear exports

is unprotected by quotas, this bodes well for the post MFA future

of the industry. Bangladesh apparel exports can now point to a

proven track record of successfully competing in the global

competitive environment. Unfortunately, other potentially

promising exports from Bangladesh- leather, jute goods, frozen

foods - have not fared as well over this period. This has

accentuated the already narrow export base of the country and is

a matter of concern for policymakers. The excessive dependence of

the economy on the garment sector for foreign exchange earnings

and export growth demands policies that would diversify the

export base of the economy. What can be said about the future

performance of the apparel export industry in Bangladesh? What

are the risks for exports of Bangladeshi apparel? First, supply

shocks such as the debilitating floods of 1998 that shaved off

several percentage points from the expected GDP growth this year

and caused widespread disruption in production and transportation

can never be accurately anticipated. The other major crisis the


31

industry had to deal with in 1998 was external and once again

hardly anticipated. We refer to the East Asian economic debacle

of 1997-1998. The financial panic and the subsequent economic

meltdown that afflicted several economies in the East Asia -

Malaysia, Indonesia, Thailand, Philippines and South Korea-

certainly have been a restraining element in the economic

performance of the regional economies. What are the links between

the East Asian economies and garment exports from Bangladesh?

There are several avenues by which negative economic shocks from

these emerging economies can impact this export industry in

Bangladesh. First, several of these nations are also big apparel

exporters in same markets to which Bangladesh exports apparel. A

steep depreciation in their currency makes their products more

competitive in both the open and the quota-protected apparel

markets. In the markets protected by quotas, such a development

would be a deflationary force pulling down the unit prices and

the profit margins for Bangladesh apparel exporters. Second,

given the crunch, these economies would try to export themselves

out of their severe recession. In the recent crisis, these

regional and international forces have greatly increased

competition for Bangladesh exports. Third, to help them recover

from their downturn, the U.S. government and others have already

relaxed quota restrictions on exports from the worst affected

economies, making the playing field more difficult for

Bangladeshi exporters. Fourth, prior to this crisis, some of

these nations were potentially big investors in Bangladesh in the

textile and infrastructure projects. Their economic troubles have

meant a dramatic scaling back in their direct investments in

Bangladesh. On the other hand, partly as a result of the East

Asian economic debacle, there was a massive return of Bangladeshi

workers from this region that has swelled the urban labor force

pool from which garment factories recruit their workers. Second,

when some of these economies weakened, their ability to compete

was impaired from the economic or political collapse. This could


32

mean new opportunities for those competitors who were unaffected

by the economic crisis. Finally, Bangladesh has tried to take

advantage of the crises by demanding from the U.S. equal quota

concessions, pointing to its efforts in reducing the underage

worker problem in the apparel factories. In our view, the biggest

threat to apparel exports in Bangladesh comes from the financial

sector. Although we do not anticipate a financial panic similar

to the Asian crisis since the influx of short-term foreign

investment (hot money) and borrowing by the private and public

sector has been rather limited in Bangladesh, there are some

similarities. One common element that we share with these

affected economies is a weak banking sector with little

transparency or central bank control. Elements of crony

capitalism and moral hazard are certainly present in Bangladesh,

especially in the nationalized banking sector and in credit

markets. According to the World Bank-Asian Development Bank

report, the financial sector in Bangladesh remains fragile with

33 percent of the portfolios of the NCB's and domestic private

banks in the non-performing category. Notwithstanding the fifty

billion taka of taxpayer money that was used to re-capitalize the

nationalized commercial banks (NCBs) in the early 1990s, the

system-wide capital inadequacy today is estimated to be taka 133

billion. This situation could cause the entire banking system to

collapse as a result of a large external shock or even from a

domestic shock such as a run on a major financial institution.

One important lesson from the East Asian crisis is that moral

hazard and the resulting financial panic can be very costly for

an economy, even when the fundamentals are sound. Without

fundamental reforms in the banking sector, the financial sector

in Bangladesh remains susceptible to a financial panic where a

speculative price bubble crashing in the real estate sector or

elsewhere in the economy could start a systemic self-fulfilling

crisis. Such a collapse could seriously impact apparel exports,

which are critically dependent on a healthy banking system for


33

the institutional support in exports and for short-term

financing.Other potential hazards include an overvaluation of the

taka compared to the currency of its competitors. Despite the

repeated devaluation in the recent past, according to the World

Bank, the taka remains overvalued in real terms. This could

undermine the long- term competitiveness of the industry.

Finally, in the year 2004, under the Uruguay Round Agreement on

Textiles and Clothing, MFA quotas will be phased out. Bangladesh

will lose its preferential access to its most important markets

and will have to compete with India, China and other apparel

exporters in a truly global competitive environment. Many apparel

firms in Bangladesh are not ready for this change, although the

more efficient larger firms that have diversified their products

and markets are expected to do well in the post MFA world.

Finally, we anticipate that the biggest source of problems for

the apparel export industry is likely to be domestic, not

external. The politicians could seriously damage this sector by

creating instability and attempting to achieve their goals by

violent means in the streets instead of the parliament. The

bankers, the bureaucrats, and the politicians remain a source of

threat. In their attempt to further extract rent from this

sector, they could undermine the long-term viability of this

industry. The failure of the law enforcement forces to control

the menace of mastans and toll collectors may create a climate

that debilitates commerce and production in the economy. Labor

disturbances and frequent disruptions in the Chittagong port also

remain a source of concern to exporters in general. Increased

contacts between factory owners and the union leadership would

help the industry. Garment workers remain one of the hardest-

working segments of the labor force in Bangladesh. The working

conditions and benefits for workers should improve as the

industry matures and human capital increases. In the long run,

this is the best defense against labor union agitation. Investing

in worker training and in improved working conditions would


34

certainly enhance productivity. The apparel factory owners must

be proactive instead of reactive on this important issue.

CHAPTER IV

4.1. Literature Review:

Several authors have analyzed aspects of the garment

industry in Bangladesh. Of the various aspects of the industry,

the problems and the working conditions of female workers have

received the greatest attention. There are several studies

including the Bangladesh Institute of Development Studies (BIDS)

study by Salma Chowdhury and Protima Mazumdari (1991) and the

Bangladesh Unnayan Parisad ii(1990) study on this topic. Both of

these studies use accepted survey and research methodology to

analyze a wealth of data on the social and economic background,

problems and prospects of female workers in the RMG sector.

Professor Muzaffar Ahmad looks at the industrial organization of

the sector and discusses robustness and long-term viability of

apparel manufacturing in Bangladesh.iii Wiig (1990) provides a

good overview of this industry, especially the developments in

the early years.iv One of the few studies on the Bangladesh

apparel industry to be published in a reputed journal in the U.S.

is that of Yung Whee Rhee (1990) who presents what he calls a

“catalyst model” of development. The Bangladesh Planning

Commission under the Trade and Industrial Policy (TIP) project

also commissioned several studies on the industry. v Hossain and

Brar (1992) consider some labor-related issues in the garment

industry.vi Quddus (1993) presents a profile of the apparel sector

in Bangladesh and discusses some other aspects of the industry.vii

Quddus (1996) presents results from a survey of apparel

entrepreneurs and evaluates the performance of entrepreneurs and

their contribution to the success of this industry.viii Islam and


35

Quddus (1996) present an overall analysis of the industry to

evaluate its potential as a catalyst for the development of the

rest of the Bangladesh economy.ix

Many economist have wrote about garment sector but I have

observed three presentation papers ( Dr.Khaled Nadvi, Dr.Salma

Chaudhuri Zohir and Dr.Naila Kabeer.) and one seminar paper (Ms

Simeen Mahmud).Dr. Nadvi’s paper deals with the nature of current

challenges for Bangladesh in the global garment industry and

discusses some of the salient observations from the trade data

analysis illuminating how Bangladesh’s position in the global

garment trade has changed over time. Dr. Salma Chaudhuri Zohir

provided details on findings from Bangladesh garment sector firm

surveys and Dr. Kabir presented some preliminary evidences from

the garment and non-garment workers surveys conducted in Dhaka.

Dr. Nadvi identifies four sets of global challenges that are

especially key for a low- income garment exporting country like

Bangladesh. These challenges are : a) The phasing out of Multi

Fiber Agreement by January 2005 b)Increased competition from

China which at present controls 18 percent of the global trade in

garments and severely quota constrained in leading markets. c)

Growing concerns around meeting global standards. These include

standards that address labor conditions, environmental impacts

and quality assurance as well as wider social and ethical

concerns in production. d) Changes in the retail structure of the

global industry and the new competitive pressures from the global

buyers. Buyers are increasingly seeking to not only outsource

production to local suppliers, but also shift more functions and

risks associated with such task further down the value chain.

More over one of the key demands that is emerging in the

increasingly more fashion driven global industry is the need to

reduce the lead times and to bring about quick changes in

products in keeping with changing market demands.


36

Dr.Nadvi then tries to map Bangladesh’s position in the

global garment industry by comparing the changes in Bangladesh’s

unit price of exports and market access with those of her major

actual and potential competitors in the EU market. A mixed story

emerged form his analysis. Bangladesh has significantly increased

its market share during the last decade. But the discomforting

feature is that in most items studied Bangladesh has seen its

unit values decline more or as rapidly over time as those of its

competitors. In this context he cited the example of Vietnam

whose share in the cotton shirt sector in the EU market has gone

up from less than 0.5% in 1990 to 3.7% in 1999 and at the same

time it’s unit value has risen by an average of 6.8% a year

during the 1990s. This suggests significant improvements for

Vietnam which is indicative of some productivity gains. The

decline in Unit value in Bangladesh can be an indicative of the

lowering labor cost and even with large reserve army of labor

there are limits to which labor cost can be reduced. Thus the

challenge at the firm level for Bangladesh to upgrade is critical

if it is to sustain its market share in the long run.

Dr. Salma Chaudhuri Zohir’s paper provided some important

insights from an enterprise survey covering 30 firms of different

size. Initial finding suggests the following overall performance

indicators: Export volume has increased for all but one firm.

Number of buyers has mostly declined to 3 to5. Average unit price

of garment has declined due to local and international

competition. Average product quality has improved Net profit has

declined mostly. Costs are increasing as firms have to set up own

building with facilities .Employment has increased in all but one

firm . On average lead time in woven has declined to 80 to 90

days from 120 days . Average lead time for imported yearn is

90 days and for local yearn is 60 to 70 days for sweater .

Average lead time for knitwear is around 45 days.


37

She suggested that the firms in Bangladesh are constantly

adapting themselves to the changing demands of the market. They

are responding to the buyers demand in terms of upgrading

products, upgrading plants and compliance with standards. She

then discussed some of the major future challenges for the

industry and summarized her presentation with the following

observations: Medium and large firm will survive and the small

firm will die. MFA phase out will affect woven garments in both

USA and EU. Women are mainly employed in woven and hence are more

at risk of being unemployed than men. Knitwear and sweater will

survive if GSP continues. Duty free access to USA and EU is

essential for the survival of woven RMG. Rules of Origin should

be carefully considered. Firms need to seek direct orders from

the retailers. We should go for lower and medium price products.

To survive in future the garment industry has to maintain price

competitiveness and reduce the lead-time. Measures must be taken

to avoid balance of payment crisis and mass unemployment of

women. FDI in the garment industry should be welcomed Dr. Naila

Kabeer undertakes a comparison of the condition of the female

workers of RMG sector and that of a non-RMG sector in Bangladesh.

The research was conducted among both types of female workers

living in the same place. Some of the initial findings are as

follows: Although both the RMG and non- RMG female workers come

from the similar social background, the RMG workers are

financially better off than the non-RMG workers. RMG workers

mainly come from moderately poor families while majority of the

non- RMG female workers are coming from extremely poor

families .RMG workers migrate with their friends not with their

close relatives, whereas the non-RMG female workers migrate with

their close relatives and they stay with their families.

Compared to the non RMG female workers the RMG workers have

better education and better access to health care facilities. The

RMG workers perceive themselves to be temporary migrants to the

city and therefore they have higher savings and they send


38

remittance to their family members in the villages to a large

extent. Female RMG workers face greater problems on their way to

the work place. Most of the RMG workers think the working hours

are increasing day by day. Involvement in trade union among the

female RMG workers is very limited RMG workers cope with bad

situation by cutting their expenses while the non- RMG workers

cope by borrowing.

Dr. Kabeer opined that through the wider

participation of female workers in RMG the inner capacity of the

female work force has been exposed and recognized in a male

dominated society. The female themselves have also found out that

they can be involved in the industrial production, even with low-

level of education. This discovery will prevail even if the RMG

sector does not exist. By sending the remittances to the rural

area to the poor family members the female RMG workers are

helping the alleviation of rural poverty.They are mention that

already around 40% of the fabric for woven garments is produced

domestically. They argued that textile sector should be provided

some support so that RMG does not become totally dependent on

imported fabric. In this regard some initiatives were suggested:

(a) Our textile producers should be given credit as per the

global rate of interest, which is far lower than the rate

prevailing in Bangladesh, (b) Utilities like electricity, gas

etc. should be provided at a confessional rate to the textile

sector as the prices of these things are lower in countries from

where imported textile is brought, (c) Port facilities should be

improved, (d) duties on import of textile machinery should be

reduced, (e) a green fund on an interest free basis should be

provided to comply with the environmental norms. At this point

some discussant commented that RMG export can be sustained even

without backward linkage industries and cited the example of

Vietnam where despite the presence of large textile sector, the

export of RMG is totally dependent upon imported textile. The


39

textile secretary informed the participants that the government

is in the process of setting up a training institute where

workers and managers of both RMG and textile sector will be

trained. He called for the active participation of BGMEA and BTMA

in this regard. Ms Simeen Mahmud have focused on policy issues

regarding the RMG sector of Bangladesh in the context of the

changed global scenario after 2005. In the one hand, the policy

makers got to know the research findings and recommendations made

by different stakeholders and on the other hand they informed the

participants about the approach and the initiative of the Govt.

regarding the challenges that lies ahead of the growth and

sustainability of the RMG sector in Bangladesh.

Improving the market access

Participants strongly demanded greater attention of the

government on improving the market access of Bangladeshi RMG

products. They gave stress on creating facilities so that the

producers can have direct relationship with the buyers, mainly

with retailers. This attempt will reduce the amount of surplus

captured by the buying houses and other middlemen. The need for

exploring the Japanese and other Asian market also received

attention. The secretary for commerce informed the participants

that government is very much concerned about the market access

issue. He gave example of the Canadian market case where

Bangladesh has recently received not only duty free entry but

also soft rules of origin condition. The effort is going on to

get similar facilities from Australia.

Workers’ welfare considerations

The discussion concerning the workers’ welfare covered the

following issues— workers should be given prior notice before

closing any factory .Employers should give attention to improve

the skills of existing workers, otherwise when the RMG sector

moves to higher value products the low skilled workers will lose


40

job as higher value products require higher skill. At this point

Dr. Salma C. Zohir mentioned that during the survey of factories

she found that even with the present level of skill, workers are

capable of producing quality products and thus moving to high

quality products is very much feasible. trade union should be

permitted in the RMG sector. However unholy alliance of trade

unions with the non- trade union people has to be stopped.

Democratic trade union laws have to be implemented. Dr. Rehman

Sobhan suggested that workers might be given equity share in

their companies to ensure that they benefit properly from the

value chain. At this point some discussants also mentioned that

too much of emphasize on the distribution may indeed harm the

interest of the industry. They argued that if competition is

ensured by say, allowing FDI, the condition of the workers will

improve automatically as the market will drive their wages up.

Foreign Direct Investment in the RMG sector

Most of the participants welcomed FDI in the RMG sector of

Bangladesh. They gave example of Sri Lanka where welcoming FDI

lessened the worry about developing the backward linkages. It was

argued that FDI would not only ensure higher investment in this

sector, but also transfer technology and ensure bigger market

access by providing direct linkages with the retailers at the

export market. The minister informed the participants that

decision on whether or not FDI will be allowed in the RMG sector

will be taken soon. He told that FDI will be welcomed if interest

is shown to develop at least one backward linkage by each

investor. But some discussants also pointed out that putting a

stringent condition for FDI will indeed be self defeating as

foreign investors will switch to other countries where the

investment regime is more liberal. Increase in Efficiency in RMG

production Discussants unanimously agreed that production of

quality product is a must in the post MFA period. Therefore

increasing labour productivity is required. It was argued that


41

low skilled labour is not really cheap if we consider the low

level of productivity of those workers. Dr.Zaidi Satar of World

Bank argued that we have to ensure that the producers get the

inputs at the world price during the free trade environment of

post MFA era. He decries the tendency of linking RMG with textile

at the excuse of promoting backward linkage and called for

independent formulation of policies for the RMG sector. He gave

the example of Sri Lanka in this respect where the degree of

backward linkage is almost as it is in Bangladesh but the RMG

producers get textile at zero percent duty. Improvement of the

infrastructure and the need for better shipment facilities also

drew considerable attention. These steps were considered

necessary for Bangladeshi exporters to move at FoB level instead

of the existing CM/CMT level.

Mr. Suhel Ahmed Chowdhury, Secretary, Ministry of Commerce

raised the issue of viability of many of the small RMG units

during the globally competitive environment of post MFA period.

He stressed the need of merger and acquisition among the existing

RMG units so that they can benefit from the economies of scale.

Some of the discussants also argued for technological up

gradation. But the suggestions faced objection from Dr.Naila

kabir as she thought that disappearance of small factories and

introduction of capital intensive technology might lead to loss

of employment by the women workers. At this point some of the

discussants emphasized the need for skill up gradation so that

the existing workers can be assimilated in the newly formed

improved technology based and relatively large RMG units. Some

discussants argued for discontinuation of cash incentives for RMG

exporters after 2005 as they need to become competitive to

survive at that stage. Concern was also raised that after 2005

cheap import from China may pose a threatening challenge to the

industry. But some discussants argued that China couldn’t

continue with her present policy of veiled subsidy after 2005, as


42

they have to come under strict scrutiny on the basis of the

Agreement on Textile and Clothing (ATC). ATC does not allow for

subsidization of primary textile, which China is currently

practicing. It was also mentioned that the US has reserved some

safeguard against Chinese flooding of market after 2005. This may

provide a certain level of protection to our export also.

4.2. Conceptual Framework:

THE EXPORT GROWTH FACTOR OF BANGLADESHI GARMENT PRODUCT:

(CONSTANT-MARKET-SHARE MODEL)

In discussion and explaining the export growth of

Bangladeshi garment products an analytical device as the constant

market share model is employed. To examine a country’s export

growth, this model basically ascribes favorable or unfavorable

export growth either to a country’s export structure or to it’s

“competitiveness”. The basic assumption of constant market share

model is that a country’s export share in world market should

remain unchanged over time. The difference between the export

growth implied by this constant share norm and the actual export

performance is attributed to the effect of competitiveness, and

actual growth in exports in divided into competitiveness,

commodity composition and market distribution effect. Demand for

exports in a given market from two competing sources of supply

may be described by the following relationship:

q1 / q2 = f ( p1 / p2 ) ----------------------------

----------------------------------------------(1)

where q1 and p1 are quantity sold and price of the commodity from

the ith supply source.

Relation (1) may be altered by multiplying by p1 / p2 to

obtain-

p1 q1 / p2 q2 = ( p1 / p2 ) f ( p1 / p2 )--------------------

-------------------------------------(2)

this implies-


43

p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -

1 ) -1 )

= g ( p1 / p2 ) ---------------

---------------------------------------------(3)

which indicates that country 1’s share of the market in question

will remain constant except as p1/p2 varies. This establishes the

validity of the constant-share norm and suggests that the

difference between export growths may be attributed to price

changes. The discrepancy between the constant-share norm and

actual performance has been labeled the competitiveness effect.

To make several interesting calculation under the CMS

model we need following definitions:

ijV = value of A’s exports of commodity to country j in

period 1

ijV ′ = value of A’s exportsn.3 ��

EMBED Equation.3 �� EMBED Equation.3 ��--------------------

-------------------- ( 4)

and similarly for??period 2. in addition??the value of A’s

exports in period 1 is given by

� EMBED Equation.3 ��-------------------

--------------------------- (5)� EMBED Equation.3 �� EMBED

Equation.3 �� ?? The application of CMS

model will depend on the nature of the market that we have in

mind when writing (1). At first level of analysis, n.3 .ij

ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

n.3 �� EMBED Equation.3 ��---------------------------------

------- ( 4)


44



� EMBED Equation.3 ��-------------------





ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

.3 �� EMBED Equation.3 ��----------------------------------

------ ( 4)



� EMBED Equation.3 ��-------------------





ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

similarly for??period 2. in addition??the value of A’s exports in

period 1 is given by

� EMBED Equation.3 ��-------------------





ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)


45

imilarly for??period 2. in addition??the value of A’s exports in

period 1 is given by

� EMBED Equation.3 ��-------------------





ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

� EMBED Equation.3 ��-----------------------------------

----------- (5)� EMBED Equation.3 �� EMBED Equation.3 ��

?? The application of CMS model will depend on the

nature of the market that we have in mind when writing (1). At

first level of analysis, n.3 .ij

ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

-------------------------------------------- (5)� EMBED

Equation.3 �� EMBED Equation.3 �� ?? The

application of CMS model will depend on the nature of the market

that we have in mind when writing (1). At first level of

analysis, n.3 .ij

ij VV =∑ ji

ij VV .=∑ --------------

-------------------------- ( 4)

------------------------------------------- (5)� EMBED Equation.3

�� EMBED Equation.3 �� ?? The application

of CMS model will depend on the nature of the market that we have

in mind when writing (1). At first level of analysis, n.3

.ij

ij VV =∑ ji

ij VV .=∑ -----------------------------

----------- ( 4)


46

ation of CMS model will depend on the nature of the market that

we have in mind when writing (1). At first level of analysis, n.3

.ij

ij VV =∑ ji

ij VV .=∑ -----------------------------

----------- ( 4)

of the market that we have in mind when writing (1). At first

level of analysis, n.3 .ij

ij VV =∑ ji

ij VV .=∑ -----

----------------------------------- ( 4)

f the market that we have in mind when writing (1). At first

level of analysis, n.3 .ij

ij VV =∑ ji

ij VV .=∑ -----

----------------------------------- ( 4)

iting (1). At first level of analysis, n.3 .ij

ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

ting (1). At first level of analysis, n.3 .ij

ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

and similarly for period 2. in addition the value of A’s


.... VVVVj

ji

ii j

ij === ∑∑∑∑ --------------------

-------------------------- (5) The

application of CMS model will depend on the nature of the market

that we have in mind when writing (1). At first level of

analysis, we may view exports as being completely

undifferentiated as to commodity and region of destination. That

is to say, exports may be viewed as a single destination for a

single market. If A maintained its market share in this market,

then exports would increase by rV and may be written in the

following identity


47

V .. – V .. = rV .. + (V .. – V .. –rV .. ) ----

---------------------------------------------(6)

Equation (6) nay be referred as a one-level analysis. It

divides the growth in A’s exports into a part associated with the

central increase in world demand and an unexplained residual, the

competitiveness effect.

Exports are in fact diversified into many markets, and what

we have in mind is the diversified markets for a particular

commodity class. We may write an expression analogous to (6)

V • j ′ - V • j = r j V. j + ( V. j - V. j - r j V.

j) -----------

--------------------------------(7)

Which may be summed over j?

V′ • • - V • • = ∑j

jr V. j + ∑j

( V.j- V. j - r j V. j )

=r V)(a

r V ..+ ∑j

( rj-

)(b

r) V. j + ∑j

(V. j -

V. j)(c

- r j V. j ) -------------(8)

exports is broken into parts attributed to : (a) the general rule

in world demand; (b) the market distribution of A’s exports in

period 1 ; and (c) an unexplained residual indication the

difference between A’s actual exports increase and the constant-

share norm increase. The market distribution effect in identity

(8) is defined by (r j -r) V. j ---------------------------(9)

And is meant ti indicate the extent to which A’s exports are

concentrated in markets with growth rates more favorable than the

world average.


48

Thus if world import in market j increased by more than

the world average ( )rr j − will be positive. Accordingly the term

(b) would be positive if A had concentrated on the markets where

the demand were growing relatively fast and would be negative if

A had concentrated on slowly growing markets.

Finally we may observe that exports are differentiated

by destination as well as by commodity type. The appropriate norm

in this case is a constant share of exports of a particular

commodity class to a particular region. The identity analogous to

(6) and (7) is

ijij VV − ijr≡ )( ijijijijij VrVVV −−+ ---------------------

------------------------- (10)

Which when aggregated yields-

iji

i jiji

ii

a

ijiji j

ijijiji j

ij

VrrVrrrV

VrVVVrVV

cb

)_()(..

)(....

)()(

.

)(

∑∑∑

∑∑∑∑

+−+≡

−−+≡−

+ ))(

( ijijijdi j

ij VrVV −−∑∑ -------------------------

-------------------------------(11)

Identity (11) re[presents a “three-level” analysis in which the

increase in A’s exports is broken into parts attributed (a)

the general rise in world demand; (b) the commodity composition

of A’s exports; (c) the market distribution of A’s exports; and

(d) a residual reflecting the difference between the actual

export growth and the growth that would have occurred if A had

maintained its share of the exports of each commodity to each

company.The commodity composition term in identity(11) may be

interpreted in the same manner as the market distribution effect.

It would be positive if A had concentrated on the exports of

commodities whose markets were growing commodity markets.


49

Problems of constant market share model: The CMC model provides a

useful tool for analyzing export growth performance by allowing

achieved export growth to be separated in to commodity , market

distribution , and competitiveness effects. However, the initial

appeal of the CMS identity as a simple analytic and policy tools

is considerable blurred by fundamental problems which arise in

the basic equation (1) and (3).

Firstly, what is the appropriate measure of relative

competitiveness?

Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -

1 ) -1 )

= g ( p1 / p2 )

Assume that the change in export share be the function of

relative prices. In practice, relative price are generally used

as a measure of competitiveness. Since the competitiveness

residual results from the complex interaction of demand and

supply, it neglects such factor as: quantity improvement,

improving in servicing, shortening of waiting lines, improvement

financial arguments, and change in discriminatory non- price

policy. Secondly, what is the appropriate measure of export

shares? Obviously quantity share are required in order to satisfy

the requirement that share very directly with relative

competitiveness could lead to a decreases in export shares, given

a elasticity of substitution less than one in absolute value.

Also in the case a positive commodity(market) effect, we usually

presume that’s the country commodity exports are relatively more

skewed towards goods which are growing in the world demand. But

these cases could be equally well explained by a country’s

exports being relatively more skewed towards goods those prices

are rising relatively rapidly.


50

At more fundamental level, the elasticity of substitution

relation implicit in equation

q1 / q2 = f ( p1 / p2 ) and equation

p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -

1 ) -1 )

= g ( p1 / p2 )

is the subject to the number of theoretical reservations having

to do with commodity homogeneity. When commodities are very

homogenous, relative price are locked into very small rang of

variation. Geographical market share may be much more sensitive

to demand factors in the market of buyers who are relatively

indifferent to the nationality of the supplier. Commodity market

share may be much more sensitive to the supply factors. On the

other hand, when commodity are not homogeneous, relative prices

are likely to be only one of the arguments which enter the

function for export share.

Finally, the CMS model assumes that a country’s export

share in the world should remain unchanged overtime. The

interpretation of the CMS analysis of a country’s export change

depends on the validity of this assumption. However, the

structure of the world trade very over time, especially for the

rapidly expending the economy the export market structure and

export commodity composition very with wide fluctuation.

Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -

1 ) -1 )

= g ( p1 / p2 )

Assume that the change in export share be the function of

relative prices. In practice, relative price are generally used

as a measure of competitiveness. Since the competitiveness


51

residual results from the complex interaction of demand and

supply, it neglects such factor as: quantity improvement,

improving in servicing, shortening of waiting lines, improvement

financial arguments, and change in discriminatory non- price

policy. Secondly, what is the appropriate measure of export

shares? Obviously quantity share are required in order to satisfy

the requirement that share very directly with relative

competitiveness could lead to a decreases in export shares, given

a elasticity of substitution less than one in absolute value.

Also in the case a positive commodity(market) effect, we usually

presume that’s the country commodity exports are relatively more

skewed towards goods which are growing in the world demand. But

these cases could be equally well explained by a country’s

exports being relatively more skewed towards goods those prices

are rising relatively rapidly.

At more fundamental level, the elasticity of substitution

relation implicit in equation

q1 / q2 = f ( p1 / p2 ) and equation

p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -

1 ) -1 )

= g ( p1 / p2 )

is the subject to the number of theoretical reservations having

to do with commodity homogeneity. When commodities are very

homogenous, relative price are locked into very small rang of

variation. Geographical market share may be much more sensitive

to demand factors in the market of buyers who are relatively

indifferent to the nationality of the supplier. Commodity market

share may be much more sensitive to the supply factors. On the

other hand, when commodity are not homogeneous, relative prices

are likely to be only one of the arguments which enter the

function for export share.


52

Finally, the CMS model assumes that a country’s export

share in the world should remain unchanged overtime. The

interpretation of the CMS analysis of a country’s export change

depends on the validity of this assumption. However, the

structure of the world trade very over time, especially for the

rapidly expending the economy the export market structure and

export commodity composition very with wide fluctuation. Thus,

when the CMS analysis is applied to the case of drastic changes

in trade structures , the validity of the interpretation will be

blurred. 1

4.3.Empirical result of Bangladeshi garment industry:

Appendix 1 and 2 shows result of the computation of the export

growth factors of Bangladeshi readymade garment products during

1989-1998. the result present that the international

competitiveness factors had leads the readymade garment export

growth during the period of 1989-1998 (82.94%),while the role of

the world factors – world demand increase, the favorable

structural change in the commodity composition and the market

distribution are negligible respectively (3.24% and 3.22% ).so

the world demand factors has increase. However we can assert

that Bangladeshi readymade garment products was initiated by the

competitiveness factors during 1989-1998 according to the result

.for the sources of the competitiveness I will explain in the

next chapter.To see the structural change in readymade garment

export growth in detail, I computed the export growth factors of

each commodity group by using the constant market share model.

1 Rchardson,j.David “Constant- Market-Share analysis of export growth” Journal of The International

Economic, voll1 1971.pp.190-207.


53

Three growth factors are calculated for each commodity group

instead of four factors, namely (1) the factors of world demand

increase. (2) The factors of market distribution and (3) the

factors of international competitiveness. The results are shown

in appendix 1 and 2.

5...1.SOURCES OF INTERNATIONAL COMPETITIVENESS:

see-appendix (table-1)

5.2. Measure of Competitiveness:

Revealed Comparative Advantage (RCA):

Revealed Comparative Advantage (RCA) measures the change in

the comparative advantage of a country’s exports. Two major

indicators are used to capture the changes in the comparative

advantage of textile and apparel product exports; these are:

export performance ratios and net export/total trade

ratio(Balassa, 1965, UNIDO 1982., Ariff and Hill 1985).These two

indicators are interrelated and highlight different facts of the

same phenomenon.

Export Performance Ratio (EPR): Export

Performance Ratio (EPR) is used to measure Revealed Comparative

Advantage of a country. Export performance ratio (epij) measure

expresses the share of country i’s export of commodity j in total

world export of commodity j, as a ratio of the share of country

i’s total export in the world total exports. If the export

performance ratio is one, this indicates a normal export

CHAPTER V


54

performance of commodity j relative to the size of country i’s of

commodity j exporter. If the export performance ratio is two,

this suggests that the commodity j’s share in country i’s export

is twice the corresponding world share and so forth. A ratio of

more than one is taken as an indication of revealed comparative

advantage. A rise in the ratio suggests a Strengthening in terms

of revealed comparative advantage (Balassa 1965, UNIDO 1982.,

Ariff and Hill 1985). The measure yields a ratio ranging from

zero to infinity but for certain reasons large numbers Will be

unusual. An export performance ratio of more than unity is

regarded as a revealed comparative advantage, while a rise in the

ratio suggests a strengthening on the basis of Revealed

5.3. Developments:Macroeconomic

The macroeconomic developments in the 1990s, characterized by

varying and often contrasting trends in major indicators, reveal

Bangladesh's continued susceptibility to economic vulnerability.

Despite the government's successful mitigation of the short-term

losses ensuring a much better macroeconomic performance than

apprehended after the 1998 floods, several weaknesses persist in

the macroeconomic balances. These are reflected in three major

macro-indicators in the current fiscal year: (i) slow growth in

manufacturing output; (ii) deceleration in the rate of

investment; and (iii) slow growth in exports.

5.3.1.Recent Growth Performance

While the average GDP growth rate was 4.4 per cent per year

during the first half of the 1990s, the growth rate has

accelerated to over 5 per cent in recent years. The growth rate

is projected at 5.47 per cent in 1999/00. A notable feature of

the growth process during the 1990s is the fluctuating role of

both agriculture and industrial sectors. The average growth rate


55

of crop and horticulture was -0.43 per cent per annum until mid-

1990s which increased to 6.13 per cent in 1999/00. The growth in

manufacturing sharply decelerated from an average of 8.20 per

cent during the first half of the 1990s to 4.25 per cent in

1999/00. The deceleration started in 1998/99 as an aftermath of

the 1998 floods. The growth rate of construction sector has also

declined since 1997/98: from 9.48 per cent in 1997/98 to 8.92 per

cent in 1998/99 and further to 8.00 per cent in 1999/00.

Table 1 Sectoral GDP growth

FY 99

FY 00

FY 01

FY 02

I. Agriculture 25.3 25.6 25.0 24.6

a) Agriculture and Forestry 19.3 19.5 19.5 19.2

i) Crop and Horticulture 14.3 14.6 14.7 14.4

ii) Animal Farming 3.1 3.0 2.9 2.9

iii) Forest and Related Services 1.9 1.9 1.9 1.9

b) Fishing 5.9 6.1 5.5 5.4

2. Industry 25.7 25.7 26.2 26.5

a) Mining and Quarrying 1.0 1.0 1.1 1.1

b) Manufacturing 15.6 15.4 15.6 15.6

i) Large and Medium Scale 11.2 11.0 11.1 11.0

ii) Small Scale 4.4 4.4 4.5 4.6

c) Power, Gas, Water Supply 1.4 1.4 1.5 1.5


56

d) Construction 7.7 7.8 8.1 8.3

3. Services 49.0 48.7 48.8 48.9

a) Wholesale and Retail Trade 13.2 13.4 13.5 13.6

b) Hotel and Restaurant 0.6 0.6 0.6 0.7

c) Transport, Storage and Communication 9.2 9.2 9.4 9.5

d) Financial Intermediation 1.6 1.6 1.6 1.6

i) Banks 1.2 1.2 1.2 1.2

ii) Insurance 0.3 0.3 0.3 0.3

iii) Other 0.1 0.1 0.1 0.1

e) Real Estate, Renting and Other Business Activities

9.1 8.9 8.7 8.6

f) Public Administration and Defence 2.6 2.5 2.6 2.6

g) Education 2.2 2.2 2.2 2.3

h) Health and Social Work 2.2 2.2 2.2 2.2

i) Community, Social and Personal Services 8.4 8.1 8.0 7.8

GDP (at FY 96 constant factor cost) 100.0 100.0 100.0 100.0

Table -2 Sectoral growth rates of GDP (Per

cent, constant 1995/96 prices)

Source: Bangladesh Bureau of Statistics


57

Sector Average

1990/91

-

1994/95

1995/

96

1996/

97

1997/

98

1998/

99

1999/0

0a

Agriculture 1.55 3.10 6.00 3.19 4.77 6.43

Crops & horticulture -0.43 1.74 6.44 1.05 3.16 6.13

Animal farming 2.38 2.51 2.58 2.64 2.69 2.74

Forest & related services 2.82 3.46 4.03 4.51 5.16 5.16

Fishing 7.86 7.39 7.60 8.98 9.96 9.50

Industry 7.47 6.98 5.80 8.32 4.92 5.55

Manufacturing 8.20 6.41 5.05 8.54 3.19 4.25

Construction 6.27 8.50 8.64 9.48 8.92 8.00

Services 4.63 4.29 4.91 4.77 4.90 4.97

GDP 4.39 4.62 5.39 5.23 4.88 5.47


58


59

Table 3. Sectoral GDP shares

(at FY96 constant factor costs: percent)

FY 99 FY 00 FY 01 FY 02

I. Agriculture 25.3 25.6 25.0 24.6

a) Agriculture and Forestry 19.3 19.5 19.5 19.2

i) Crop and Horticulture 14.3 14.6 14.7 14.4

ii) Animal Farming 3.1 3.0 2.9 2.9

iii) Forest and Related Services 1.9 1.9 1.9 1.9

b) Fishing 5.9 6.1 5.5 5.4

2. Industry 25.7 25.7 26.2 26.5

a) Mining and Quarrying 1.0 1.0 1.1 1.1

b) Manufacturing 15.6 15.4 15.6 15.6

i) Large and Medium Scale 11.2 11.0 11.1 11.0

ii) Small Scale 4.4 4.4 4.5 4.6

c) Power, Gas, Water Supply 1.4 1.4 1.5 1.5

d) Construction 7.7 7.8 8.1 8.3

3. Services 49.0 48.7 48.8 48.9

a) Wholesale and Retail Trade 13.2 13.4 13.5 13.6

b) Hotel and Restaurant 0.6 0.6 0.6 0.7

c) Transport, Storage 9.2 9.2 9.4 9.5


60

and Communication

d) Financial Intermediation 1.6 1.6 1.6 1.6

i) Banks 1.2 1.2 1.2 1.2

ii) Insurance 0.3 0.3 0.3 0.3

iii) Other 0.1 0.1 0.1 0.1

Source: SAARC information net work, Country Profile-Bangladesh.

The recent growth performance of the economy is largely driven by

the agriculture sector which has a potential source of

vulnerability due to its dependence on the nature. An emerging

concern in promoting steady growth in the country is the slow

growth and continued failure over the last two years of the

manufacturing sector to regain its momentum. While agricultural

production, particularly rice output, has increased steadily over

the last three years creating favourable macroeconomic conditions

and increased growth, sustaining the gains in the future would

largely depend on success in bringing quick recovery and ensuring

momentum of the manufacturing sector.

5.3.2 Savings-Investment Performance

Table 4. Domestic savings and investment

(As percent of GDP )

FY98 FY99 FY00 FY01 FY02

Investment 21.6 22.2 23.0 23.1 23.2

Private 15.3 15.5 15.5 15.9 16.1

Public 6.4 6.7 7.4 7.3 7.1


61

Domestic savings 17.4 17.7 17.9 18.0 18.0

Private 16.4 16.7 16.9 17.0 17.0

Public 1.0 1.0 1.0 1.0 1.0

Savings-investment gap

4.2 4.5 5.1 5.1 5.2

Source: SAARC information net work, Country Profile-Bangladesh.

According to the new national income accounts, gross

domestic savings increased from 13 per cent of GDP in 1989/90 to

about 18 per cent in 1999/00. During the same period, gross

national savings increased from 18 per cent to 23 per cent of

GDP. The investment - GDP ratio, on the other hand, increased

from 17 per cent in 1989/90 to 22 per cent in 1999/00.

(Per cent, constant 1995/96 prices) Table-5 Source: Bangladesh Bureau of Statistics.

An important macroeconomic concern in sustaining higher growth is

to ensure increased level and quality of investment. The

1990/

91

1991/

92

1992/93 1993/94 1994/

95

1995/

96

1996/97 1887/98 1998/99 1999/

00a

Investment 1.42 4.44 9.52 9.35 9.11 10.60 11.08 12.06 9.85 8.19

Private 6.07 2.57 16.69 8.87 11.21 16.17 7.70 19.73 8.46 8.52

Public ‐5.06 7.35 ‐1.13 10.19 5.46 0.40 18.25 ‐2.72 13.13 7.45

Gross domestic savings 22.21 28.03 ‐6.95 22.02 ‐10.64 3.62 34.50 26.00 11.46 11.60

Gross national savings 43.54 13.43 11.21 6.99 14.47 25.59 7.20 16.82 14.95 11.72


62

deceleration in recent growth of investment is a major cause of

concern: the growth rate declined from 12 per cent in 1997/98 to

10 per cent in 1998/99 and further to 8 per cent in 1999/00 at

constant 1995/96 prices.

Annual changes in savings and investment Provisional

Despite liberal and attractive policies, foreign investment

is yet to make a significant contribution to the country. The net

direct and portfolio investment was US $ 252 million in 1997/98

which declined by 24 per cent to US $ 192 million in 1998/99. The

projection for 1999/00 is US $ 155 million recording a further

fall of 19 per cent over the previous year. The net inflow of

foreign investment in the EPZs is also relatively low: US $ 54

million in 1996/97, US $ 69 million in 1997/98, and US $ 71

million in 1998/99.

Since 1998/99, savings and investment performance reveals a

downward trend. It is important to identify the causes as to why

the momentum in the growth of savings and investment could not be

maintained despite acceleration in the growth rate of the economy

and implement effective measures to ensure sustained growth and

economic stability. So Growth has accelerated in Bangladesh in

the 1990s. Much of this acceleration in growth took place in the

context of rapidly declining external aid. External aid has

fallen from 12% of GDP in the early 1980s to only about 2% of GDP

now. There have not been any compensating private flows during

this time. This enhanced growth performance occurred during a

period of policy reforms. However, it does not necessarily mean

that policy reforms were alone responsible for the acceleration.

Some increase in total factor productivity was responsible as was

some increase in the savings rate, due largely to an increase in

public sector savings.

5.3.3. Readymade garment:


63

Much of the growth in large-scale industry has been driven

by ready-made garments (RMG). Growth in the non-RMG large-scale

industry has been slow – about 4% in the 1990s. This is less than

that in the 1980s. Why is it that so few industries have managed

to duplicate the performance of the RMG sector? One question

worth exploring is whether the RMG sector, by absorbing the

domestic savings, crowded out the other industries.

The RMG sector has had phenomenal growth. Growth rates of

earnings, in real dollar terms, jumped from about 6% during the

1980s to 15% during the 1990s. For the first time in FY01-02,

there was a 10% drop is export earnings. But, even in this bad

year, the volume of exports actually went up by 10%, albeit not

by enough to compensate for the 20% drop in average prices.

There are some fronts, however, where the industry has not

been very successful. One such area is marketing. The industry

has not yet developed good marketing skills of its own and

continues to rely heavily on foreign buying houses, notably those

from India and Sri Lanka. These intermediaries capture a large

part of the margin. The scope for the industry to benefit from

devaluations is limited in such a situation. The industry should

have used the last 20 years to go deeper into the marketing

channel. The fact that foreign direct investment had not been

allowed in the industry is one possible reason for our failure to

do so. The Bangladesh Garments Manufacturers and Exporters

Association (BGMEA) is now thinking of setting up marketing

centers abroad. This is an area where public-private sector

collaboration may be required.

The only import-substituting industry that grew

significantly, reflecting somewhat the East Asian pattern, is

pharmaceuticals. It first grew under protection alongside

imported pharmaceuticals. It then out-competed the imported

products and has now started exporting. It is possible that some


64

parts of the industry are not very efficient but are surviving

due to protection while other parts are efficient and competing

in world markets.

The shrimp processing industry is an interesting case. A few

years ago, the industry faced serious reputational problems due

to the fraudulent practices of a few producers. The malpractices

of a few jeopardized the entire industry indicating that

reputation is a public good. In other words, the industry as a

whole needed to take remedial actions. The industry is now

finally realizing this and has started taking steps at self-

regulation. Having concluded that the government’s standards

institute is inefficient, it has adopted measures to impose

standards on their own and monitor compliance.The capital goods

industry has declined, e.g., textile machinery industry has

virtually disappeared. It is important to have a capital goods

industry. Adaptation of technology is important for industrial

growth. For this to happen, one needs a domestic capital goods

industry.

Small scale industries have done quite well in recent years

and have largely benefited from liberalization. On the one hand,

they are not much affected on the output side (do not compete

with imports) but benefit from the liberalization of imports of

inputs. They expanded at the expense of inefficient large-scale

industries as well as cottage industries. Poverty reduction will

require further growth in such small scale enterprises. The

contribution of export industries and large-scale industries to

poverty reduction will be less direct. Their main contribution

will be through generating capacity to import by earning foreign

exchange. This will help small-scale enterprises who need

imported inputs and this, in turn, will help reduce poverty.Cash

subsidies are currently given to various activities, such as

agro-processing, leather goods and light engineering. The

practice of providing cash subsidies started with Grameen check.


65

It was meant to compensate for duties paid on imports and

amounted to 25% of total sales value, a high amount by any

standard. The rationale for providing cash subsidies, especially

at the current scale, is weak. Import duties have gone down due

to import liberalization. If compensation is to be provided, the

amount required for various products will have to be re-

calculated, taking into account the changes in duty rates.

5.3.4 Trends in External Sector

The share of foreign trade (exports and imports) in GDP increased

from 17 per cent in 1989/90 to over 29 per cent in 1998/99.(See-

appendix-table-2)

5.3.5 Bangladesh's Export Sector:

In the recent past Bangladesh's macroeconomic performance

has come to be increasingly dependent on the performance of her

external sector. This is manifestly demonstrated by the shift in

the relative importance of aid and trade in the economy of the

country. In 1990 total disbursed aid was equivalent to 8.1% of

Bangladesh's GDP; in 2000 the share had come down to 4.0%;

exports as a percentage of GDP, on the other hand, has gone up

from 6.8% to14.5% over the same period. In 1990 the country's

earnings of the foreign exchange from export and remittance was

1.3 times that of the aid disbursed; by the year 2000 it was

almost 5 times as high. Bangladesh's graduation from a

predominantly aid recipient country to a predominantly trading

country is one of the major achievements of the 1990s. The

structural shift from primary to manufacturing exports, from

resource-based to process based exportable and from the


66

traditional jute-centric to the emergent RMG-centric export is

remarkable by any standard. Over the same period the country had

also to import an increasing amount of production and non-

production related commodities. Increasing exports have allowed

the country to service a large part of this growing import demand

without seriously undermining the balance of payments position of

the country and the country's debt servicing record.

Consequently, in view of the increasing degree of openness of the

Bangladesh economy, factors such as competitiveness of the

external sector, market access capacity and ability for

strengthened global integration are becoming key determinants in

terms of not only the performance of the external sector but also

the overall growth and development of the country. The present

paper traces the growth dynamics of Bangladesh's export sector

interims of a number of major correlates and looks at some of the

major challenges which are expected to impact on export sector

performance in the short and medium terms.

Bangladesh's external sector has experienced fluctuating

fortunes in recent years. Export growth rate in FY1997 and FY1998

were a robust 13.8% and 16.8%, only to subsequently came down to

2.9% in FY1999, in part as a consequence of the 1998 flood. In

FY2000 export sector was able to make some rebound and posted a

growth of 8.3% compared to FY1999.This growth rate was, however,

below the trend growth rate of about 12.0% for the 1990s and was

built on the relatively lower base of the previous fiscal year. A

development of some concern to Bangladesh in FY2000 was the

deceleration in the growth of woven-RMG sector, the single-most

important sector accounting for 56.0% of total exports. RMG

registered a growth of only 5% in FY2000. This, in effect pulled

down the exports earnings in FY2000 to the level of $5.7 billion,

resulting in the relatively low growth of 8.3%. A positive

development though was the continued robust performance of the

knit-RMG exports, which having registered a growth of 10.4% in


67

FY1999, was able to grow by22.6% in FY2000. The share of the

sector in total export has doubled over the last five years, form

12.0% to 22.0%. This is clearly demonstrated by Table-1

Table 1: Structure of Exports, Incremental Exports and Net Export (in percent)

Commodities Structure of Export

Structure of Incremental Export

Structure of Net Export

Growth of Net export in FY 2000 over FY 1999

FY 1999 FY2000

FY 1999 FY2000

FY1999 FY2000

Raw jute 1.3

1.2 -23.8

0.0 2.4 2.2 -0.2

Tea .7 .3 -5.8 -4.8 1.3 .5 -54.2

Foreign food 5.2 6.1 -12.6

15.8 9.2 10.5 25.3

Primary commodities

7.9 8.2 -52.5

10.7 14.2 14.3 11.1

Jute goods 5.7 4.6 14.8 -8.6 10.2 8.1 -12.5

Leather 3.2 3.4 -14.5

6.1 5.7 6.0 15.9

Woven RMG 56.2 53.6 93.3 22.2 33.4 31.4 3.3

Knit RMG 19.5 22.1 62..7

53.6 23.2 25.9 22.6

Chemical product

1.5 1.6 3.2 3.3 2.7 2.9 18.8

All Mfg. commodities

92.1 91.8 152.4

89.3 85.8 85.7 9.8

TOTAL (million US$)

100 (5312.9)

100 (5752.2)

100 (151.7)

100 (439.3)

100 (2679.5)

100 (2946.5)

9.9

Source: Compiled from EPB Annual and Monthly Data

An interesting development of recent years is that since the

local value addition of knit-RMG is relatively high (50% as

against 25% for woven-RMG) its share in net exports is gradually

catching up with that of the woven-RMG. If the structure of


68

incremental export is analyzed, this growing importance is even

more clearly manifested. For every dollar of incremental export

earned by Bangladesh in FY2000 53 cents was contributed by knit-

RMG. In FY2000 other important exportable such as jute goods

(4.6%), frozen food (6.0%) and leather(3.4%) performed below the

levels achieved during recent years. As is evidence by Figure-1,

in recent years an increasing share in the incremental growth is

originating from changes in the volume index as compared to that

of the price index. This trend is a cause for major concern which

was first pointed out in IRBD1998/99 and has continued to persist

in FY2000 as well. In FY2000 the increase in unit price value

contributed only 0.5% to the growth in total exports, which was

8.3%; compared to this the increase in export volume contributed

7.8%. This would imply that the weak growth rate of prices of our

principal exports in the international markets has to be

increasingly compensated for by an ever-increasing volume of

exports. The underlying dynamics of the changes in price, volume

and value indexes is easily discernible from Figure 1. The price

trend perhaps also reflects deterioration in Bangladesh's terms

of trade in recent years. If FY1980 is taken to be the base year,

the terms of trade has come down to the level of 89.2 in FY2000.

Figure 1


69

5.3.6 Exchange Rate Policy and Export Performance

In the recent past Bangladesh has resorted to frequent

depreciation of the taka. Through this flexibility in the nominal

exchange rate was maintained in line with movements in the real

effective exchange rate. In all, the taka has been devalued 18

times over the tenure of the current government, which led to a

cumulative depreciation of the currency to the extent of 19.1%.

Maintaining external competitiveness of Bangladeshi exports and

minimizing adverse developments in the balance of payments

position of the country were often cited as the principal

rationale for pursuing such a policy. Exchange rate policy was

also mentioned in the budget speech of the Finance Minister on 8

June, 2000 as one of the major policies to stimulate export

sector of the country. Such a policy of creeping devaluation is

consistent with the need to maintain exchange rate flexibility in

order to sustain Bangladesh's export competitiveness. However, if

we track the movement of the real effective exchange rate (REER)

over the 1990s, it will be seen that the taka actually

appreciated for most of the 1990s despite the frequent nominal

devaluations. It was only subsequent to December, 1997 that the

taka actually started to depreciate in real terms. It is also of

interest to note here that no discernible correlation is visible

between the movements in the REER and the growth rates of either

Bangladesh's exports or imports.Figure-2 brings out this mismatch

very clearly. It appears that other structural factors, specially

supply side constraints and global market dynamics play a more

important role in stimulating exports and improving the balance

of payments position compared to movements in the nominal and

real exchange rates.


70

Figure 2

In recent years the relatively slow growth performance

registered by Bangladesh's commodity export sector was somewhat

compensated by the robust growth of the remittances sent by

Bangladeshis working abroad. As was pointed out earlier, in the

recent past this increased inflow had a positive impact on the

current account transfer and the balance in current account of

the country. Table-3 shows the dynamics of remittance in recent

years.


71

Table 3: Dynamics of Growth of Remittance: FY1995 - FY2000

Indicators 1995 1996 1997 1998 1999

2000

Remittances (in million US$) 1198 1217 1475

1525 1709 1953

Growth of Remittance (%) 10.0 1 .6 21.

2 3.4 12.1 14.2

Growth of Exports (%) 37.1 11.8

14.0 16.8 2.9 8.3

Source: Compiled from Bangladesh Bank data.

As can be seen from Table-3, remittances have registered a

robust growth of 14.2% inFY2000 compared to FY1999. This was

almost double the growth of exports during the corresponding

period. The growth rate of remittances in FY1999, at 12.1%, was

also substantially higher than the growth of exports in FY1999,

which was only 2.9%. The increasing flow of remittance reflects,

at least in part, the incentives for inward remittances through

legal channels under the current market determined exchange rate

system. Increased flow of remittances have played an important

role in replenishing the fore reserves of the country in recent

years. Given the potential for exchange earning capacity of this

sector, there is need to design a comprehensive plan for skill up

gradation of her immigrant laborers. Towards this a comprehensive

labor market survey and a study to determine domestic skills up

gradation capacity need to be undertaken on an urgent basis.

Foreign aid commitment for FY2000 was equivalent to $1480.9

million, which was significantly lower than the corresponding


72

commitments for the same period in FY1999,which was $2648.5

million. Thus, commitments came down by about 44.0% in FY2000.

This decrease was mainly due to drastic fall in commitments for

food and commodity aid. However, it is to be noted that project

aid commitments also came down significantly over

This period, from $2017.2 million to $1254.5 million- a fall

of 37.8%. Throughout the 1990s disbursement of project aid as a

percentage of commitment had experienced a sharp decline. In

spite of the robust growth of the remittances, the substantial

deficit in the trade account (equivalent to about $1.1 billion in

FY2000) and low aid disbursed during FY2000 meant a growing

pressure on the reserves which came down to about 1.6 billion by

the end of FY2000. Evidently, with imports picking up, it was

around 20% during the first quarter of FY2000, from the low

growth of 1.6% registered in FY2000, the pressure on the reserves

is expected to go up in the coming months. The foreign exchange

reserve in the 1990s peaked in FY1995 when reserves reached

$3.07 billion, which was equivalent to 6.3 months of imports.

Since then reserves have declined steadily to reach about $1.3

billion in recent months, is expected to lead to major changes in

the area of competitiveness in global apparels market. Once the

quotas are removed, and preferential margins are gradually

eroded, comparative advantage scenarios which informed the market

behavior under the MFA regime will be subjected to radical

change. New entrants such as Cambodia, Laos and Vietnam will also

bring more competitive pressure into the market. Bangladesh will

need to make a comprehensive study on the implications of these

developments, and design an

adequate strategy to address the attendant issues.

Over the past years Bangladesh's policies have tended to

focus on exchange rate management and export promotional

incentives as two important instruments to boost the country's


73

export and in order to stimulate export sector diversification in

the country. The taka was devalued eighteen times during the

tenure of the present government - twice during FY2000. Export

sector has also received substantial amount of financial help in

the form of subsidies and other forms of assistance. Such

assistance amounted to Tk. 635.0 Core ($131.3 million) in FY2000

alone. Budget FY2001 also makes an allocation of another $126.4

million towards this. The budget also provides for general

reduction in the duties on basic raw materials (5% on average)

and intermediates and semi-finished goods (15% on average) with a

view to stimulate export-oriented investment in the economy.

Duties on various raw materials used in the textiles, leather,

footwear and some other export-oriented industries have also been

brought down in the budget for FY2001.

The budget provides for a number of incentives to stimulate

non-traditional exports. To promote export-oriented agro-

processing industrialization duty rates on machinery, spare

parts, raw materials and packaging materials of agro-processing

industries have been substantially reduced. To encourage export-

oriented activities in the jeweler industries, the import quota

of gold has been doubled and duty rate reduced. A lump allocation

equivalent to Tk. 150 million has been kept with a view to

encourage training of programmers and for promoting Bangladesh's

emerging IT sector. It is becoming increasingly evident that

technology in the RMG sector is becoming a key determinant of

Bangladesh's continued competitiveness in the global apparels

market. Bangladesh's low wage based comparative advantage needs

to be translated into productivity based competitive advantage

and it is here that technology comes to play a crucial role.

Although zero-tariff access of capital machineries and other

incentives are welcome initiatives of GOB in this respect, more

vigorous efforts and comprehensive approach are required. An

important initiative of budget FY2001 is the decision to allocate

Tk. 1.0 billion for establishing an Equity Development Fund in


74

the Bangladesh Bank with the objective of promoting investment in

software export and agro-processing industries. The fund will be

invested in financially viable software, food processing and

agro-processing activities; maximum investment from this fund

will be limited to 25% of the equity. It is hoped that this

dedicated fund will give a boost to two sectors which appear to

have high export potentials. It needs to be appreciated and given

due recognition that the fiscal, financial and institutional

incentives provided to the export sector and export-oriented

activities in Bangladesh in the recent past have played an

important role in ensuring the 12% average real growth rate of

the sector in the 1990s. However, lack of adequate infrastructure

facilities, absence of infusion of technology in export-oriented

sectors and weakness in the management of the sector have

severely constrained the sector’s performance and its move

towards a diversified base. Major concerns continue to severely

constrain realization of many of the potential opportunities

which globalization offers to Bangladesh. If Bangladesh fails to

address these concerns, needless to say, the attendant risks will

became originating from globalization even more acute.

Narrow export base and lack of diversification of exports

has led to a situation where the Bangladesh's export sector

performance has come to predominantly hinge dependent on the

performance of the RMG sector. Global market of textiles and

apparels is around $300 billion and there is a wide intra-market

diversity. Thus, perse dependence on exports of RMG should not by

itself be a major concern. What is of more concern are the

followings: (a) exports have continued to remain concentrated in

the lower segment of the demand curve; (b) local value addition

has been delimited to 25-30%; (c) product and process

modification cpacities have not improved significantly because of

constraints in the areas of technology and skills; (d) limited

backward and forward linkages. There is also lack of product


75

diversification within the RMG sector itself. Till now any

discernible shift favouring higher value-added fashionable

product categories in the RMG market is not visible. As a result

potential market opportunities continue to remain unaccessed. In

view of the growing RMG-centric export base in Bangladesh, the

growth dynamics of the sector needs to be put under close

scrutiny. Any deceleration in the performance of this particular

sector severely tests the efficacy of Bangladesh's export-led

growth strategy. As quotas increase across countries in the run

up to the year 2005 (MFA quota will increase at the rate of 16%,

25% and 27% over the first three stages of MFA phase out), a

process of restructuring of the global RMG market is expected to

gradually evolve where price competitiveness and quality aspects

will predominantly dictate the market behaviour. The slow-down in

the growth of woven-RMG in FY2000 should serve as a wake up call

specially in view of (a) the upcoming third phase of the

integration of Multi-Fibre Arrangement (MFA) into the Agreement

on Textiles and Clothing in WTO (ATC) and its potential

consequences for Bangladesh's apparels sector; (b) China's entry

into the WTO; (c) structural shifts in sourcing of apparels by

USA following establishment of NAFTA; (d) the recently enacted

Trade and Development Act of 2000 in USA which provides zero

tariff and quota-free access to US markets to 72 African and

Caribbean Basin countries and (e) heightened competition in the

EU market in view of granting of quota-free access to

Bangladesh's major competitors in 2005.

Bangladesh will need to carefully study why in recent years

Bangladesh's quota-fill performance in some of the traditionally

important categories of apparels export has registered a

significant decline. Careful analysis should be carried out as to

why Bangladesh's performance in a number of categories has not

matched those of the corresponding period of the last year. In

this context Bangladesh should also monitor the quota fill


76

performance of some of the competitors including Sri Lanka,

China, India and Pakistan. The rising importance of knit-RMG,

contributing an increasing share in both net exports and

incremental exports, needs to be given special attention. The

local value addition in the knit- RMG sector varies from 50% to

60%, which is double the current level in the woven-RMG sector.

It is of importance to note that Bangladesh's knit-RMG sector was

able to demonstrate a quite robust performance in recent years

within the quota-free environment in the EU. However, one of the

underlying factors contributing to this success is the fact that,

major competitors of Bangladesh in the EU market such as India

and Pakistan are compelled to operate under quota restrictions.

Such quotas will be eliminated as of January 1, 2005. In view of

the promise of this particular sector, specially in the context

of possible deceleration in the growth of woven-RMG exports, it

is of critical importance that a comprehensive policy package be

developed in order to stimulate the competitive strength of the

export-oriented knit-RMG sector of the country. Over the recent

years, imports of capital machineries for textile industries have

registered significant growth, testifying to some degree of

backward linkage activity taking place in the export-oriented

apparels sector. A comprehensive strategy to stimulate such

backward linkage activities ought to be designed and implemented

on an urgent basis. This is essential on four counts: (a) to face

the challenges of post-MFA regime; (b) to comply with stringent

rules of origin requirement for accessing GSP; (c) to increase

local value addition and (d) to create employment opportunities

within the country. Of course a strategy for developing the

backward linkage industries must of necessity take into

cognizance the dynamic comparative advantage of Bangladesh in a

fast changing global market.

The recently introduced US Trade and Development Act of 2000

(US TDA2000) provides duty and quota free access for textiles


77

products to US markets from 72 countries under the Africa Growth

and Opportunity Act and the US Caribbean Basin Trade Partnership

Act. The benefits under the Act is to be offered from October 1,

2000 and will continue till September 30, 2008. The bill, subject

to fulfillment of certain conditional ties, provides the

aforementioned countries, in effect, a NAFTA - parity. Since a

number of the beneficiary countries, specially some of the

Caribbean countries are major textile exporters to the US market

and compete with Bangladesh in some of the important product

categories, Bangladesh will need to carefully study and monitor

the implications of this Act in terms of the future export

performance of the country's RMG sector in the US market.

Till Bangladesh's debt-servicing record had been one of the

best amongst the LDCs - at less than 10% of her forex earnings

from exports of commodities and remittances. The pressure on

reserves is also expected to go up on account of gas purchase and

sales agreement (GPSA) with IOCs. As of now these payments are

equivalent to about $100.0 million but is expected to go up to

about $500 million over the immediate future. Bangladesh will

need to ensure increased export earnings from export and

remittance in order to service these claims without adverse

impact on imports and forex reserves of the country. Energetic

steps will need to be

taken to maintain this good record.

Emerging market access problems, phase out of the MFA,

commitments under the WTO pertaining to gradual withdrawal of

subsidies, the need to conform with standards such as ISO-9000

and ISO-1400 and persistence of protectionist trends in developed

country markets have confronted LDCs such as Bangladesh with new

challenges in the era of globalisation. As the spokesman of the

LDCs Bangladesh also has an added responsibility to articulate

the voice of the LDCs in the various global trade platforms.


78

Voices are being raised in many LDCs as to the justification of

any new round of trade negotiations under the WTO at a time when

most of the promises favouring the LDCs during the Uruguay Round

(Special and Differential status, technical assistance,

strengthening of the aid-trade nexus, greater market access,

technology transfer etc.) are yet to be implemented. As leader of

the LDCs

Bangladesh should also feel an added responsibility to

ensure that the objectives of the Integrated Framework Initiative

of the six agencies which is designed to address the technical

assistance needs of the LDCs are achieved. The LDCs and

developing countries also need to explore the possibility of

designing common approaches in future WTO negotiations. GATT UR

provisions stipulates that, under the WTO provisions countries

get not what they deserve, but what they negotiate. It is, thus,

important that the LDCs raise their bargaining strength by

pooling their resources in any future negotiations. This is more

so because future trade battles will be mainly waged in such WTO

forums as the dispute settlement body (DSB) which are becoming

increasingly important in terms of enforcement of the global

trade regime. Low domestic capacities of LDCs to put forward

their cases is being manifested in the form of constrained market

access, imposition of anti-dumping and countervailing duties, as

also in terms of interpretation of the Uruguay Round provisions

in ways which tend to go against the interests of the developing

countries on the one hand, and the spirit of multilateral

negotiations, on the other hand. Thus, whilst acting locally

Bangladesh will need to coordinate her policies globally as an

LDC. The task of monitoring the impact and implications of the

WTO provisions and decisions is an on-going continuous process.

Thus, the Special and Differential Status given to the LDCs in

the WTO and Decisions on Measures in Favour of Least Developed

Countries annexed to the Final Act of the Uruguay Round needs to


79

be carefully studied and monitored by Bangladesh in order to

guarantee maximum advantage for the LDCs.

It is perhaps of some interest to note that Bangladesh's

export sector has demonstrated a good recovery during the first

quarter of FY2001 (July-September, 2000). Export accruals during

the first quarter for FY2001 was about 25.4% higher compared to

the corresponding period of FY2000. In terms of growth rate,

export earning performance of some of the major sectors including

woven-RMG (20.5%) and knit-RMG (31.2%), frozen foods (54.6%) and

leather (5.4%) was significantly better compared to the

corresponding period of FY2000. However, the export base has

continued to remain narrow and no mentionable breakthrough in the

performance of the thrust sectors is visible. The growth in

export was mainly achieved thanks to increase in volumes rather

than that of price. The contribution of price index to the

incremental export over the first quarter of FY2001 was 12.9%,

whilst that of volume index was 87.1%. With MFA phase-out

programmed gradually nearing its completion, Bangladesh will also

be required to increase her vigilance in terms of monitoring the

global dynamics in apparels and textile markets in the coming

months and years. This is specially so since price levels of most

of the apparel categories is expected to experience a sharp

decline once the MFA phase-out is completed. The GOB needs to

recognize the enormity of the challenges confronting Bangladesh

under the new global order and will have to equip itself

adequately to meet these challenges. The GOB will need to design

a dynamic export strategy and put in place the capacity to

realize such a strategy rather than just talk about it. To carry

through such an exercise in intelligent policy design and its

implementation, GOB will need both strong political commitment as

well as good governance, and will also be required to pursue a

proactive external policy underwritten by coalition-building and

skillful negotiating strategies. To this end, it will need to


80

draw upon the best available professional resources in the

country as well as draw in external expertise in selected areas.

Priority should be given to preparing a joint action agenda with

other LDCs which need to be pursued in any future round of trade

negotiations. This task is of immediate importance also in view

of the forthcoming Third LDCs Conference which is to be held in

Brussels in May, 2001.

5.3.7. Export Performance

The most significant recent development in the external

sector is the deceleration of export growth in 1998/99. While

export growth is expected to increase to about 9 per cent in

1999/00, it is yet to reach its trend growth path. The trends in

exports during the first nine months of the current fiscal year

(July 1999 - March 2000) suggest that total exports during the

period grew by 8.4 per cent over the same period of the previous

fiscal year. Readymade garments, which accounted for 56 per cent

of total exports in 1998/99, registered a growth of 6 per cent.

The growth of readymade garments exports was 15 per cent in

1996/97, 27 per cent in 1997/98 and only 5 per cent in 1998/99 in

dollar terms. In view of the importance of the sector, the causes

of deceleration require in-depth analysis to devise future

strategies. In recent years, knitwear exports have increased

rapidly with an average growth of more than 20 per cent over the

last three years. With supportive policies, knitwear has the

potential to emerge as a thrust export sector with significant

domestic value additions and linkages.Total export from

Bangladesh during 1997-98 amounted to US Dollar 5161.20 million

(Taka 234163.75 million) as against US$ 4418.28 million (Taka

188130.42 million) during 1996-97 showing an increase of US

dollar 742.92.86 million i.e 16.81%.A statement of comparative

year-wise export earning for nine years is given below.


81

Million Dolla ( Corer

Taka)

FY Export Earnings (+) Increase

(-) Decrease

Increase

Decrease in

%

1988-89 ( 1291.56)

40968.40

(+ 60.36)

(+) 2887.34

(+ 4.90%)

(+) 7.58%

1989-90 ( 1523.70)

49764.21

(+ 232.14)

(+) 8795.81

(+ 17.97%)

(+) 21.47%

1990-91 ( 1717.55)

60560.88

(+ 193.85)

(+) 10796.67

(+ 12.72%)

(+) 21.70%

1991-92 (1993.92)

75908.56

(+ 276.37)

(+) 15347.68

(+ 16.09%)

(+) 25.34%

1992-93 (2382.89)

92575.40

(+ 388.97)

(+) 16666.84

(+ 19.51%)

(+) 21.96%

1993-94 ( 2533.90)

100975.94

(+ 151.01)

(+) 8400.54

(+ 6.34%)

(+) 9.07%

1994-95 (3472.56)

139284.58

(+ 938.66)

(+) 38308.64

(+ 37.04%)

(+) 37.94%

1995-96 (3882.42)

158790.87

(+ 409.86)

(+) 19506.29

(+ 11.80%)

(+) 14.00%

1996-97 ( 4418.28)

188130.42

(+ 535.86)

(+) 29339.55

(+ 13.80%)

(+) 18.8%

1997-98 (5161.20)

234163.75

(+ 742.92)

(+) 46033.33

(+ 16.81%)

(+) 24.47%

Source-Bangladesh bankAmong the principal commodities there has

been increase in the export earnings during the year under review

in respect of tea (24.46%), agricultural products (36.61%),

handicrafts (5.83%), knitwear 3.19%), readymade garments

(27.05%), engineering product (21.84%), and other commodities

(21.23%). These commodities which registered decrease in export


82

earning are leather (2.67%), Jute goods (11.46%) frozen food

(8.38), raw jute (7.35%), chemical products (31.58), petroleum by

products (33.56%).

Export From Bangladesh

During 1997-98

A comparative statement showing

export earning in terms of

U.S. dollar and Bangladesh Taka

during the FY 1997-98 & 1996-97

is given below. (Value in

million

Source-Bangladesh bank

Commodities 1997-

98

1996-97 Increase

(+)

Decrease (-

)

% Increase

(+)

% Decrease

(-)

Frozen food (293-

84)

13331.3

2

(320.73)

13656.50

(-26.89)

(-) 325.18

(-) 8.38%

(-) 2.38%

Agricultural

products

(39.14)

1775.98

(28.65)

1219.97

(+ 10.49)

(+) 556.01

(+) 36.61%

(+) 45.58%

Tea

(Incl.packet

tea)

(47.47)

2153.56

(38.14)

1623.86

(+ 9.33)

(+) 529.70

(+) 24.46%

(+) 32.62%


83

Petroleum by

products

(10.93)

495.96

(16.45)

700.44

(- 5.52)

(-) 204.68

(-) 33.56%

(-) 29.22%

Chemical

products

(74.22)

3367.30

(108.48)

4618.91

(- 34.26)

(-) 1251.61

(-) 31.58%

(-) 27.10%

Leather (190.26

)

8632.09

(195.48)

8323.50

(- 5.22)

(+) 308.59

(-) 2.67%

(+) 3.71%

Raw Jute (107.77

)

4889.39

(116.32)

4952.92

(- 8.55)

(-) 63.53

(-) 7.35%

(-) 1.28%

Jute goods (281.42

)

12768.2

4

(317.86)

13534.55

(- 36.44)

(-) 766.31

(-) 11.46%

(-) 5.66%

Handicrafts (5.99)

271.98

(5.66)

241.11

(+ 0.33)

(+) 30.87

(+) 5.83%

(+) 12.80%

Knitwear (940.31

)

42661.7

5

(763.30)

32501.13

(+ 177.01)

(+)

10160.62

(+) 23.19%

(+) 31.26%

Readymade

garments

(2843.3

3)

129001.

77

(2237.95)

95291.80

(+ 605.38)

(+)

33709.97

(+) 27.05%

(+) 35.36%

Engg.

Products

(19.64)

(16.12)

686.33

(+ 3.52)

(+) 204.87

(+) 21.84%

(+) 29.85%


84

891.20

Other (306.88

)

13923.4

1

(253.14)

10779.40

(+ 53.74)

(+) 3144.01

(+) 21.23%

(+) 29.17%

Total (5161.2

0)

234163.

75

(4418.28)

188130.42

(+ 742.92)

(+)

46033.33

(+) 16.81%

(+) 24.47%

#Export as a percentage to imports

Export earnings FY 1997-98 was 5161.20 million and import payment

for the same year was million which shows that export earnings

covered % of our import bill During 1995-96 and 1996-97 export

earnings covered 56.86% and 61.79% of import bills respectively.

A statement of export as a percentage to import for the period

1982-83 to 1997-98 is given below.

Value in million US$)

FY Exports Imports Export as a

Percentage

to imports

1 2 3 4

1982-83 687 1923 35.73%

1983-84 811 2073 39.12%

1984-85 934 2641 35.37%

1985-86 819 2120 38.63%

1986-87 1074 2260 47.52%

1987-88 1231 2961 41.57%

1988-89 1292 2997 43.11%


85

1989-90 1524 3759 40.54%

1990-91 1718 3511 48.93%

1991-92 1994 3466 57.53%

1992-93 2383 3986 59.78%

1993-94 2534 4191 60.46%

1994-95 3473 5834 59.53%

1995-96 3882 6827 56.86%

1996-97 4418 7150 61.79%

1997-98 5161 N.A N.A


4.3.8. PRIMARY AND MANUFACTURED COMMODITIES:

Out of the total export earning of US dollar 5161.20

million during the FY 1997-98 the share of primary commodities

stood at US dollar 501.93 million and that of manufactured

products at US dollar 4659.27 million i.e. 9.73% and 90.27%

respectively as against US dollar 526.43.84 million and US

dollar 3891.85 million i.e. 11.91% and 88.09% respectively

during the FY 1996-97. A Statement of total export earning and


86

share of primary and manufactured commodities from FY 1982-93

to 1997-98 showing values both in US dollar and Bangladesh Taka

is given below.

PRIMARY & MANUFACTURED

COMMODITIES

Value in million Dollar) Value

in million Taka

Fiscal

Year

Total

Export

Primary Commodities Manufactured

Commodities

Value % Share Value % Share

1982-83 (686.60)

16162.46

(243.17)

5724.08

35.42 (443.43)

10438.38

64.58

1983-84 (811.00)

19901.90

(281.54)

6908.89

24.71 (529.46)

12993.01

65.29

1984-85 (934.43)

24154.92

(316.62)

8184.58

33.88 (617.81)

15970.34

66.12

1985-86 (819.21)

24314.02

(299.33)

8884.13

36.54 (519.88)

15429.89

63.46

1986-87 (1076.61

)

32631.99

(298.37)

9043.67

27.71 (778.24)

23588.32

72.29

1987-88 (1231.20 (286.69) 23.29 (944.51) 76.71


87

)

38081.06

8867.33

29213.73

1988-89 (1291.56

)

40968.40

(300.72)

9538.82

23.28 (990.84)

31429.58

76.72

1989-90 (1523.70

)

49764.21

(322.96)

10547.85

21.20 (1200.74

)

39216.36

78.80

1990-91 (1717.55

)

60560.88

(306.13)

10794.21

17.82 (1411.42

)

49766.59

82.18

1991-92 (1993.92

)

75908.56

(267.26)

10174.69

13.40 (1726.66

)

65733.87

86.60

1992-93 (2382.89

)

92575.40

(313.91)

12195.47

13.17 (2068.98

)

80379.93

86.83

1993-94 (2533.90

)

100975.9

4

(346.80)

13820.11

13.69 (2187.10

)

87155.83

86.31

1994-95 (3472.56

)

139284

452.20

18137.81

13.02 (3020.36

)

121146.7

6

86.98

1995-96 (3882.42 (475.84) 12.26 (3406.58 87.74


88

)

158790.8

7

19461.6

)

139329.2

2

1996-97 (4418.28

)

188130.4

2

(526.43)

22415.58

11.91 (3891.85

)

165714.8

4

88.09

1997-98 (5161.20

)

234163.7

5

(501.93)

22772.55

9.73 (4659.27

)

211391.2

0

90.27


4.3.9. EXPORT: COUNTRY WISE

The destination wise export pattern during FY 1996-97 was

that U.S.A with an intake of goods worth US dollar 1432.15

continued to be most prominent buyer of Bangladesh products,

U.K. & Germany occupied the second & third position respectively.

The other principal importing countries of Bangladesh products in

descending orders were France, Belgium, Netherlands, Belgium,


89

Japan, Canada, Hong Kong, India, Spain, China, Sweden, Pakistan,

Denmark, Australia, Iran, UAE & Singapore.

Export earning of Bangladesh during 1992-93 to 1996-97 from 20

major importing countries was as follows:

(Value in million dollar) value in million taka )

COUNTRIES

1992-93

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

U.S.A (822.5

1)

31954.

41

(734.82

)

29282.4

5

(1184.2

8)

47501.4

4

(1197.5

4)

48979.3

6

(1432.1

5)

60980.7

9

(1929.47)

87540.05

U.K. (183.4

2)

7125.8

4

(259.26

)

10331.6

7

(318.31

)

12767.8

9

(417.70

)

17083.9

1

(437.69

)

18636.9

5

(440.19)

19971.42

Germany (216.2

1)

8399.8

2

(275.21

)

10967.2

4

(300.26

)

12043.4

0

(369.18

)

15099.6

4

(428.29

)

18236.5

1

(510.79)

23174.54

France (127.3

6)

4947.7

3

(157.72

)

6285.08

(192.93

)

7738.32

(272.88

)

11160.7

3

(312.65

)

13312.4

4

(368.54)

16720.66

Belgium (83.14

)

3229.8

(98.41)

3921.55

(128.58

)

5157.50

(186.93

)

7645.56

(210.57

)

8966.20

(210.87)

9567.17


90

5

Netherlands (85.80

)

3333.1

2

(104.90

)

4180.19

(136.66

)

5481.26

(183.22

)

7493.86

(208.59

)

8881.88

(235.83)

10699.61

Italy (137.4

0)

5337.8

6

(170.61

)

6798.63

(211.26

)

8473.70

(207.10

)

8470.38

(203.62

)

8670.14

(270.24)

12260.79

Japan (53.31

)

2071.0

9

(61.02)

2431.79

(99.65)

3997.14

(120.80

)

4940.65

(114.05

)

4856.44

(112.31)

5095.50

Hongkong (51.45

)

1998.8

2

(72.10)

2873.07

(107.07

)

4294.53

(104.46

)

4272.50

(109.18

)

4648.72

(87.25)

3958.53

Canada (44.38

)

1724.2

3

(57.23)

2280.42

(69.38)

2782.91

(69.09)

2825.72

(69.12)

2943.04

(106.88)

4849.15

China

(8.54)

331.64

(13.22)

526.82

(45.29)

1816.38

(26.38)

1078.81

(55.59)

2366.79

(48.63)

2206.34

Spain (25.10 (29.56) (53.16) (58.74) (55.01) (60.63)


91

)

975.22

1177.90

2132.06

2402.52

2342.28

2750.78

Iran (36.26

)

1408.5

5

(34.26)

1365.20

(30.98)

1242.40

(33.88)

1385.52

(53.00)

2256.73

(35.47)

1609.27

Denmark (12.29

)

477.36

(34.68)

1381.97

(39.24)

1573.87

(53.00)

2167.79

(51.24)

2181.61

(43.59)

1977.68

India (9.85)

382.59

(16.81)

669.72

(45.17)

1811.60

(72.48)

2964.23

(46.25)

1969.43

(65.58)

2975.36

Pakistan (28.78

)

1118.1

2

(21.06)

439.40

(26.74)

1072.52

(43.08)

1762.02

(38.97)

1659.20

(44.77)

2031.21

Sweden (15.87

)

616.62

(14.63)

582.84

(24.89)

998.37

(35.96)

1470.75

(38.13)

1623.55

(48.22)

2187.74

UAE (7.48)

(13.32)

(16.17)

(14.37)

(11.55)

(28.44)

1290.32


92

290.73

530.93 648.50 587.58 491.75

Singapore (79.93

)

3105.2

6

(52.90)

2107.99

(38.02)

1524.96

(22.87)

935.25

(30.00)

1277.21

(26.07)

1182.80

Australia (16.45

)

639.08

(21.35)

850.68

(16.50)

661.93

(23.40)

956.89

(28.48)

1212.76

(35.72)

1620.62

Others ( 337.

36)

13106.

44

(290.83

)

11589.5

8

(388.83

)

15563.4

8

(363.36

)

14861.4

2

(484.15

)

20615.1

1

(451.71)

20494.08

Total (2382.

89)

92575.

40

(2533.9

0)

100975.

94

(3472.5

6)

139284.

58

(3882.4

2)

158790.

87

(4418.2

8)

188130.

42

(5161.20)

234163.75

Exports From Bangladesh by region,1997-1998


93

IMPORETS, EXPORTS & BALANCE OF TRADE OF BANGLADESH

Value in million dollar)

Value in million Taka

Year

(July-

June)

Exports Imports Balance

of

Trade

% of

annual

Change

Exports Imports

1978-79 (618381)

9282.2

(1471.56

)

22073.4

(-

852.75)

(-

)12791.2

(+25.33)

(+)25.33

(+21.17)

(+)21.17

1979-80 (749.44)

11241.6

(2034.99

)

30524.9

(-

1285.55)

(-

)19283.3

(+21.11)

(+)21.11

(+38.29)

(+)38.29


94

1980-81 (709.85)

11599.0

(2281.97

)

37287.5

(-

1572.12)

(-

)25688.5

(-5.28)

(+)3.18

(+12.14)

(+)22.15

1981-82 (625.89)

12555.4

(1930.68

)

38729.4

(-

1304.79)

(-

)26174.0

(-

11.82)

(+)8.25

(-15.39)

(+)3.87

1982-83 (686.59)

16162.4

(1922.89

)

45264.9

(-

1236.30)

(-

)29102.5

(+9.70)

(+)28.73

(-0.40)

(+)16.87

1983-84 (811.00)

19901.9

(2073.08

)

50873.5

(-

1262.08)

(-

)30971.6

(+18.12)

(+)23.14

(+7.81)

(+)12.39

1984-85 (934.42)

24154.9

(2640.73

)

68262.9

(-

1706.31)

(-

)44108.0

(+15.22

(+)21.37

(+27.38)

(+)34.18

1985-86 (819.20)

(2120.27

)

(-

1301.07)

(-

12.33)

(-25.75)

(-)7.81


95

24314.0 62929.6

(-

)38615.6

(+)0.66

1986-87 (1076.61

)

32632.0

(2259.85

)

68496.1

(-

)1183.24

(-

)358541.

1

(+)31.42

(+)34.21

(+)6.58

(+)8.85

1987-88 (1231.20

)

38081.1

(2961.14

)

91588.2

(-

)1729.94

(-

)53507.1

(+)14.36

(+)16.70

(+)31.03

(+)33.71

1988-89 (1291.56

)

40968.4

(2997.32

)

95075.0

(-

)1705.76

(-

)54106.6

(+)4.98

(+)7.56

(+)1.22

(+)3.81

1989-90 (1523.70

)

49764.2

(3758.70

)

122759.1

(-

)2233.00

(-

)72994.9

(+)17.97

(+)21.47

(+)25.40

(+)29.12

1990-91 (1717.55

)

60560.9

(3510.55

)

123782.0

(-

)1793.00

(-

(+)12.72

(+)21.70

(-)6.60

(+)0.83


96

)63221.1

1991-92 (1993.92

)

75908.6

(3465.64

)

131937.0

(-

)1471.72

(-

)56028.4

(+)16.09

(+)25.34

(-)1.28

(+)6.59

1992-93 (2382.89

)

92575.40

(3986.00

)

156012.0

4

(-

)1603.11

(-

)63436.6

4

(+)19.51

(+)21.96

(+)15.01

(+)18.25

1993-94 (2533.90

)

100975.9

4

(4191.00

)

167643.7

7

(-

)1657.10

(-

)66667.8

3

(+)6.34

(+)9.07

(+)5.14

(+)7.46

1994-95 (3472.56

)

139284.5

8

(5834.00

)

234526.8

0

(-

)2361.44

(-

)95242.2

2

(+)37.04

(+)37.94

(+)39.20

(+)39.90

1995-96 (3882.42

)

158790.8

7

(6827.00

)

278790.7

9

(-

)2944.58

(-

)119999.

92

(+)11.80

(+)14.00

(+)17.02

(+)18.87


97

1996-97 (4418.28

)

188130.4

2

(7150.00

)

305305.0

0

(-

)2731.72

(-

)117174.

58

(+)13.80

(+)1848

(+)4.73

(+)9.51

1997-98 (5161.20

)

234163.7

5

Source- United Nations, 2003


98

5.3.10. Economic Trends

GROSS DOMESTIC PRODUCTS OF BANGLADESH AT CURRENT MARKET (SEE

APPENDIX-TABLE-3)

ACCORDING to recent media reports, Bangladesh stood tall with 11.88 per cent export growth

until May 2009 amid tumbling shipments from major Asian countries because of the lingering

global financial recession. As recorded in official data, goods worth US$14.14 billion were

exported by the country between July 2008 and May 2009, compared to US$12.63 billion during

the same period of last year. India, China, Pakistan, Malaysia, Vietnam and Thailand were

struggling to stop the free fall in export shipments as the global recession cut demand of goods in

both sides of the Atlantic. China’s export fell by a record margin in May. Exports tumbled 26.4

per cent from a year earlier, exceeding previous record drop in February of 25.7 per cent. The

growth in India’s merchandise exports dipped to 12.9 per cent for May 2009. Pakistan’s exports

also came down by 5.14 per cent during the same period.

Exporters and trade experts attribute Bangladesh’s export success to the ‘competitiveness’ of the

country’s readymade garment sector and availability of cheap labour, although exports of frozen

food, leather and jute fell. Garment manufacturers produced lower-end products whose demand

did not fall significantly in global markets. Remaining competitive in these days of difficulties

since the quota system was withdrawn and the ongoing lingering economic slide worldwide is

rewarding for Bangladesh. There are other factors for Bangladesh remaining tall, Better delivery,

lower price and sewing quality kept Bangladesh still high and attractive when its rival countries

had to pump in billions of dollars in stimulus packages to halt the export slide. Bangladesh would

have to keep up the trend in the coming days for continuing its hold on the garment export

markets to regain the accelerated export growth rate.


99

Source: Export Promotion Bureau.

One important concern in the country's export sector is the

trend of increasing contribution of the volume index in

incremental exports vis-a-vis the price index. During the July -

March period of 1999/00, the price index of exports increased by

July - March Percent

change

(July-

March)

1998/9

9

1998/99 1999/00 1999/00-

1998/99

Primary products 422.6 317.16 318.74 0.5

Raw jute 71.6 47.77 52.18 9.2

Tea 38.6 36.36 15.21 -58.2

Frozen food 274.7 202.07 225.52 11.6

Others 37.7 30.96 25.83 -16.6

Manufactured goods 4889.6 3487.71 3805.95 9.1

Jute goods 303.4 211.66 208.32 -1.6

Leather 168.7 124.03 143.91 16.0

Readymade garments 2985.0 2125.63 2251.29 5.9

Knitwear 1035.0 735.84 884.08 20.2

Others 397.5 290.55 318.35 9.5

Total exports 5312.2 3804.87 4124.69 8.4


100

0.38 per cent while the volume index increased by 8.03 per cent

over the same period in 1998/99. This indicates that export

volume has to increasingly compensate for slow growth in prices

of the country's exports in increasing export earnings. The

recent deterioration of the country's terms of trade is also

noteworthy: compared to 1997/98, the terms of trade declined by

4.6 per cent in 1998/99 and further 8.2 per cent in 1999/00.

Import Performance

In 1998/99, the growth in imports was 6.6 per cent in US

dollars compared to 5.1 per cent in 1997/98 and 4.1 per cent in

1996/97. A major aspect of structural change of imports is the

decline in the share of capital goods in total imports from 27.5

per cent in 1997/98 to 24.6 per cent in 1998/99. The absolute

value of capital goods import also declined by about 5 per cent

in 1998/99.

As for recent trends, a comparison of the LCs opened during

the period of July-January 1999/00 with the corresponding period

of 1998/99 indicates that the total value declined by 0.6 per

cent.

The LCs settled during the period suggest 0.8 per cent

increase in the value of imports. The total value of outstanding

LCs at the end of January 2000 is US $ 2380 million. The above

trends indicate that import demand is likely to pick up during

the rest of the period of the current fiscal year.

Workers Remittances

In US dollar terms, the growth in workers remittances was

8.3 per cent in 1998/99 compared to 6.8 per cent in 1997/98 and

21.2 per cent in 1996/97. During July - January 1999/00, total

remittances was US $ 1125 million compared to US $ 964 million

during the same period of the previous fiscal year -- a growth of

nearly 17 per cent.


101

Major Concerns:

The real exchange rate appreciation is basically a short-

term problem affecting Bangladesh's export competitiveness. While

nominal depreciation of Taka is necessary to ensure

competitiveness vis-a-vis the major trade competitors in the

export market, it also affects the relative profitability of the

country's import dependent capital goods sector. Hence the

pursuit of an import neutral depreciation could be considered

e.g. currency depreciation accompanied by tariff reductions so as

to leave import prices of capital goods unchanged. From a long

term perspective, Bangladesh's export competitiveness needs to be

rooted in micro-level competitiveness e.g. through productivity

growth and technological upgradation. This requires improvement

in the efficacy of the financial sector to enable the export

industries to invest and strive for productivity improvements and

build competitive strengths. The efforts also need to address the

problems of key infrastructure sectors to improve the delivery

capacity of the country's exportables.

In view of increasing globalization, success in export

promotion of Bangladesh will largely be conditioned by its

ability to integrate into the global economy. A significant

mechanism of ensuring entry into global markets is through

incorporation into international networks of trade and production

which can be facilitated by inflow of foreign direct investment

(FDI). The inflow of FDI is, however, dismally low at present.

5.3.11. Future Growth Prospects

The present macroeconomic situation of the country

demonstrates two broad concerns: first, fragility and low

performance of several macroeconomic indicators as reflected in

slow growth of investment, manufacturing output and exports; and

second, underlying constraints that relate to longer run issues

of efficient resource allocation, accelerated growth, and


102

sustainability of the growth process. The success of

macroeconomic management is ultimately judged by its impact on

the growth process and its capability to promote social goals.

There seems to exist a broad consensus that a growth rate of 5-6

per cent is not an indicator of satisfactory performance of the

economy. At present, the Bangladesh economy has reached a stage

that could very well yield a growth rate of 7 per cent and above

on a sustained basis, provided `right' policies are in place.

One key question is whether the required resources are

available to support such a path of growth. The gross domestic

savings rate is around 18 per cent of GDP but could go up further

by 2-3 per cent with sustained domestic savings mobilization

efforts, fiscal reforms, and measures to improve the performance

of public sector enterprises. The current investment rate is 22

per cent of GDP. With reforms to put the economy in a strong

position to attract foreign investment and measures for foreign

direct investment in infrastructure and other key areas,

Bangladesh could target net foreign investment flows of about US

$ 2-3 billion per year which could contribute to raising our

investment rate by about 4 per cent of GDP. Achieving investment

rates of 28-30 per cent of GDP could support a growth rate of 7

per cent or more even at the current level of efficiency in

capital utilization.

The sustainability of the higher growth path, however,

would require actions on several fronts e.g. macroeconomic

management that ensures stable internal and external balances,

removal of infrastructural bottlenecks, and ensuring socio-

political stability to provide right and consistent signals to

the economic agents. For the purpose, the pursuit of the reform

process and ensuring credibility to the reform measures are

necessary to consolidate the gains achieved during the 1990s.

With the revolution in information technology in transforming the

global economic structure, Bangladesh needs to contemplate a


103

`second generation' of reforms in the context of problems and

opportunities for growth in the coming decade. These reforms

should aim to acquire technological knowledge and innovations in

selected areas and encourage the entrepreneurs to exploit full

opportunities of the knowledge-based global economy.

5.3.12 .Readymade garment and potential service:

Gone are the days of Adam Smith, David Ricardo and Karl Marx

when services were viewed as unproductive and the mention of

trade in services was hardly found in economics literature.

However, things have changed since then. Nowadays, services are

recognized to constitute an important sector of the economy �no

less than the agriculture or industry. Not only do services

contribute significantly towards GDP and employment in both

developed and developing countries, the use of new technologies

has made many services storable, transportable and consequently,

tradable. Lately, a large proportion of the world economic

Transactions are taking place in service trade. Again, services

may be classified as those consumed directly and those used as

intermediate inputs. These intermediate services, also known as

'producer services' play a much more complex and important role

in the development process than is suggested by their direct

contribution to gross domestic product (GDP) and employment-

creation. This is reflected in the inter-linkages between

services and the rest of the economy. Production and export in

agriculture, industry and the service sectors require many

services

Starting in late 1970s as a small non-traditional sector of

export, the Ready-made Garment (RMG) industry has emerged as the

largest foreign exchange-earner for Bangladesh. In 1997-98,

Bangladesh's total exports were 5161.2 million U.S. dollars. The

RMG share was 55% of total exports and 61% of total manufacturing

exports from Bangladesh. Out of this total RMG-exports, 43% went


104

to countries belonging to the European Union (EU) and 40% went to

the United States and Canada10. Currently, Bangladesh enjoys

preferential access in these markets. The removal of Multi-Fiber

Agreement (MFA) quotas in the year 2004 under the Uruguay Round

Agreement on Textiles and Clothing (ATC) will result in

Bangladesh’s losing its preferential access in the EU and

American markets11. Consequently, Bangladesh will be compelled to

compete with other low-cost RMG-exporting countries of Asia and

elsewhere. So the continuation of Bangladesh's present success in

RMG exports will depend on her ability to reduce costs and

improve the quality of output. In the preceding sections, we have

seen the crucial role of services in manufacturing production. In

this section we examine the role of services in the RMG industry,

particularly. The RMG manufacturers are scattered all over

Bangladesh. But those who manufacture RMG for exports only are

mainly located in Dhaka and Chittagong. There are about 2,600 RMG

manufacturers registered with the Bangladesh Garment

Manufacturers' and Exporters' Association (BGMEA). Time and other

constraints did not permit us to contact more than 100 RMG

manufacturers. But because of general aversion to disclose

business information to outsiders, we were able to collect

information only from 83 RMG manufacturers. Again, information

from some RMG manufacturers was not comprehensive. So we finally

settled for 74 RMG manufacturing units to carry out our analysis.

Out of these 74 RMG manufacturing firms,36 are located in Dhaka

and 38 in Chittagong. Of the 38 RMG manufacturing units selected

from Chittagong, 8 are located in the Chittagong Export

Processing Zone (CEPZ) and the rest are situated in the city and

its surrounding areas. Of the 74 firms under study, 50 belong to

an 'average group' employing up to 300 people,15 belong to a

'medium group' employing more than 300 but less than 1,000 people

and 9 belong to a 'large group' employing more than 1,000 people.

We now proceed to investigate the type of services used by RMG

manufacturing firms and their level of adoption, sources of


105

supply and method of securing these services and, finally,

estimate the extent of service use in RMG manufacturing and

exporting activity.

After receiving orders from the customers, the RMG

manufacturing firms carry out production planning. All firms

(100%) perform production planning without any formal outside

help. On the other hand, input procurement is carried out in

almost 87% of the cases (64 out of 74) by the firms themselves if

and when they are the direct suppliers to the foreign buyers. In

13% of the cases foreign buyers supply inputs to the RMG

manufacturing firms. But RMG manufacturing firms that supply to

the domestic RMG firms (for export) receive inputs from the

latter in 100% of the cases. That is, in such cases, input

procurement is done 100% outside the firm. Management control and

accounting are performed by almost all of the firms, and these

are carried out internally except in the case of a few large and

joint-venture firms where the services of external audit firms

are used. Quality control is performed by all the firms, and it

is done mostly internally (82%). Banking and Insurance Service

Almost all firms (98%) turn to banks for working capital against

their sales orders from abroad and about 57% (42 out of 74)

borrowed from banks to purchase their machines and equipment as

well. Bank loans are used invariably by all firms to buy inputs

and to meet a certain percentage of running expenditure, except

for a couple of partially (joint- venture) and fully foreign-

owned firms. All firms use banking services in varying degree.

All firms have their machines and plants insured and,

additionally, all input-importers (87%) and 15% of the exporters

get their imports/exports also insured. Shipping Service and

Shipping Agent & Port-use Shipping service is widely used by RMG

manufacturers. Shipping service is required for procuring inputs

and exporting outputs. Sometimes air-freight service is also

used. RMG manufacturers have to hire services of Clearing &

Forwarding Agents for clearing inputs from the port/custom and


106

loading the finished goods onto ships for export. Port-charge is

a normal expenditure by all RMG manufacturers for using the port-

facilities for the purpose of import and export.

Within the country, to get the imported inputs from the

ports to the plant-premise and to carry the finished goods to the

ports, wheel transportation and rail transportation are the chief

transport modes. Services are also widely used by RMG

manufacturing and exporting firms for moving cargo. Wheel

transport service is procured by almost all firms (about 98%)

from independent transport companies and, only in a few cases,

from sister companies (belonging to the same parent

organization). Railway service is used by 68% (50 out of 74) of

the firms. Of course, when a particular firm operates as a

subcontractor to the exporting firm, the service-charges for

wheel transport/railway transport are paid by the latter. All RMG

manufacturing firms use telephone, telex, fax and courier service

extensively. All firms own telephones, and about 62% (45 out of

74) firms own telex/fax machines. Several firms (about 10%) use

the Internet also. Of course, for maintenance of their

communication equipment, all firms use external service.

Electricity All firms use electricity supplied by the Government-

owned Power Development Board (PDB).Disruption in power supply

hampers production in the RMG manufacturing firms. To overcome

such disruptions, about 70% firms (50 out of 74) own and use

small power generators.

About 85% of the firms (61 out of 74) use legal service from

professional legal consultants. Most medium and large firms have

one or more legal consultants employed on a permanent basis and

hire others (both local and foreign as per requirement) to look

after the legal matters concerning the firms. The firms

themselves except for those who work as subcontractors to the

exporting firm perform sales and Distribution Marketing services,


107

in the form of securing orders for output.

In Bangladesh, RMG manufacturers who export to foreign

countries do not normally take the service of electronic or print

media to advertise their products. They do, however, organize and

participate in trade fairs to display their products to and

secure orders from foreign distributors. Almost all firms (99%

per cent)get their products distributed in foreign markets by

foreign distributors. Only one joint-venture firm in the sample

was found to secure distribution of its product by its foreign-

owner. All firms have their own security and cleaning staffs to

maintain security and tidiness of their plant premises. The

plant-premises are secured on a rental basis in 95% cases (62 out

of 66 firms located outside Export processing zone).About 25% of

the firms (18 out of 74) own one or more than one computer. Data

processing is carried out internally in all the firms with

computers or without computers. Maintenance service for computers

is, of course, secured from outside, normally, the computer-

supplier. About 30% of the firms (23 out of 74) own a photocopy

machine, although all firms use photocopy service in variable

amount.

RMG manufacturing firms use some special services that they

get by dint of their membership in some association or location

in a certain area of the country. For example, the BGMEA lobbies

on behalf of all members, with national and foreign governments

and international organizations to facilitate and promote RMG

trade.It organizes trade fairs for display of wares produced by

the members, arranges for participation of members in

international trade fairs, provides the members with various

relevant information, gives them legal and other aid/assistance

and so on. Again,the RMG manufacturing firms located in export

processing zones enjoy certain privileges and facilities which

are not available to firms located in other areas. For


108

example,RMG manufacturing firms located in the Chittagong Export

Processing zone enjoy the privilege of getting their cargo

containers cleared (by the custom) right at their own plant-

premise instead of at port-sheds. This enables the firms to avoid

losses incurred through pilferage of their wares

(imported/intended for export) during clearance at the port

sheds.

Conclusion

From the above discussion, we can see that readymade garment

is the main export product of Bangladesh and for the

Bangladesh, the readymade garment export industry has been the

proverbial goose that lays the golden eggs for over fifteen years

now. The sector now dominates the modern economy in both export

earnings, secondary impact and employment generated. The events

in 1998 serve to highlight the vulnerability of this industry to

both internal and external shocks on the demand and supply side.

Given the dominance of the sector in the overall modern economy

of Bangladesh, this vulnerability should be a matter of some

concern to the policymakers in Bangladesh. Although in gross

terms the sector’s contributions to the country’s export earnings

is around 74 percent, in net terms the share would be much less

partially because the backward linkages in textile have been slow

to develop. The dependence on a single sector, no matter how

resilient or sturdy that sector is, is a matter of policy

concern. We believe the policymakers in Bangladesh should work

to reduce this dependence by moving quickly to develop the other

export industries using the lessons learned from the success of

apparel exports. Support for the apparel sector should not be

reduced. In fact, another way to reduce the vulnerability is to

diversify the product and the market mix. It is heartening to

observe that the knit products are rapidly gaining share in

CHAPTER -VI


109

overall garment exports as these products are sold in quota-free

markets and reflect the strength of Bangladeshi producers in the

fully competitive global apparel markets. Preliminary data and

informal evidence indicate that this sector seems to have

weathered the devastating floods relatively well. The floods did

create a crisis for the tightly scheduled export industry, but to

its credit the firms responded swiftly and creatively to the

unexpected dislocation and transportation disruptions. The

industry is one hundred percent export-oriented and therefore

insulated from domestic demand shocks; however, it remains

vulnerable to domestic supply shocks and the smooth functioning

of the banking, transportation and other forward and backward

linkage sectors of the economy. The Dhaka-Chittagong road

remains the main transportation link connecting the production

units, mostly situated in and around Dhaka and the port in

Chittagong, where the raw material and the finished products are

shipped in and out. Despite increased this road. Eventually,

this road link was completely severed for several days when large

sections of the road went under water for a few weeks during the

latter phase of the floods. This delinking of the road

connection between Dhaka and the port in Chittagong was as

serious a threat as one can imagine for the garment exporters.

The industry responded by calling upon the Bangladesh navy to

help with trawlers and renting a plane from Thai Air that was

used to directly fly garment consignments from the Dhaka airport

to the Chittagong airport several times a day. According to

industry sources, the list of flood-related damage to the garment

industry is extensive.x According to the September 1998 BGMEA

newsletter, garments worth taka 1,000 crore ($208 million) could

not be exported on time due to the disruption of the Dhaka-

Chittagong road Attendance and worker productivity in factories

was down as much as 35 percent during the worst period of the

floods. As many as 300,000 workers were unable to work as their

homes and families were stricken by the flood conditions. Many


110

more workers fell sick from waterborne diseases. Besides natural

disasters, there were several other crises that impacted the

garment industry in 1998. The disruption of the Chittagong port

due to labor disputes was certainly one of them. BGMEA, the

industry association, has repeatedly requested the government to

ban labor strikes in the Chittagong port for national security

reasons. Another source of disruption for the industry was the

perennial problem of hartals or general strikes called for and

enforced by the political opposition. Although the leader of

the main opposition party has declared, in a major concession to

this industry, that the garment industry would be exempt from

such hartals, in practice the situation is more difficult.

Lastly, the psychological impact of these events on the existing

and potential buyers cannot be overstated. Buyers in the global

garment dependence on air transportation, trucks remain the main

vehicles for transporting raw materials and finished products for

Bangladesh garment exports. The floods disrupted the normal flow

of traffic on markets remain highly sensitive to the risks of

unfulfilled orders. As a result of the floods, the image of

Bangladesh as a somewhat unpredictable supply source may have

been strengthened since the floods received considerable world

media attention. But The Ready-Made Garments (RMG) industry

occupies a unique position in the Bangladesh economy. It is the

largest exporting industry in Bangladesh, which experienced

phenomenal growth during the last 25 years. By taking advantage

of an insulated market under the provision of Multi Fibre

Agreement (MFA) of GATT, it attained a high profile in terms of

foreign exchange earnings, exports, industrialization and

contribution to GDP within a short span of time. The industry

plays a key role in employment generation and in the provision of

income to the poor. To remain competitive in the post-MFA phase,

Bangladesh needs to remove all the structural impediments in the

transportation facilities, telecommunication network, and power

supply, management of seaport, utility services and in the law


111

and order situation. The government and the RMG sector would have

to jointly work together to maintain competitiveness in the

global RMG market

RECOMMODUCATIONS

Bangladesh economy at present is more globally integrated

than at any time in the past. The MFA phase-out will lead to more

efficient global realignments of the Garments and Clothing

industry. The phase out was expected to have negative impact on

the economy of Bangladesh. Recent data reveals that Bangladesh

absorbed the shock successfully and indeed RMG exports grew

significantly both in FY06 and (especially) in FY07. Due to a

number of steps taken by the industry, Bangladesh still remains

competitive in RMG exports even in this post phase-out period.

Our Garments Industries can improve their position in the world

map by reducing the overall problems. Such as management labor

conflict, proper management policy, efficiency of the manager,

maintainable time schedule for the product, proper strategic plan

etc.Government also have some responsibility to improve the

situation by providing- proper policy to protect the garments

industries, solve the license problem, quickly loading facility

in the port, providing proper environment for the work, keep the

industry free from all kind of political problem and the

biasness. Credit must be provided when the industry fall in

need.To be an upper position holder in the world Garments Sector

there is no way except follow the above recommendations. We hope

by maintaining proper management and policy strategies our

country will take the apex position in future.Despite many

difficulties faced by the RMG industry over the past years, it

continued to show its robust performance and competitive

strength. The resilience and bold trend in this MFA phase-out

period partly reflects the imposition of ‘safeguard quotas’ by US

and similar restrictions by EU administration on China up to


112

2008, which has been the largest supplier of textiles and apparel

to USA. Other factors like price competitiveness, enhanced GSP

facility, market and product diversification, cheap labor,

increased backward integration, high level of investment, and

government support are among the key factors that helped the

country to continue the momentum in export earnings in the

apparel sector. Some of these elements are reviewed below.

Market Diversification

Bangladeshi RMG products are mainly destined to the US and

EU. Back in 1996-97, Bangladesh was the 7th and 5th largest

apparel exporter to the USA and European Union respectively. The

industry was successful in exploring the opportunities in markets

away from EU and US. In FY07, a successful turnaround was

observed in exports to third countries, which having a negative

growth in FY06 rose three-fold in FY07, which helped to record

23.1 percent overall export growth in the RMG sector. It is

anticipated that the trend of market diversification will

continue and this will help to maintain the growth momentum of

export earnings. At the same time a recent WTO review points out

that Bangladesh has not been able to exploit fully the duty free

access to EU that it enjoys. While this is pointed out to be due

to stringent rules of origin (ROO) criteria, the relative

stagnation in exports to EU requires further analysis.

Product Diversification

The growth pattern of RMG exports can be categorized into

two distinct phases. During the initial phase it was the woven

category, which contributed the most. Second phase is the

emergence of knitwear products that powered the recent double

digit (year-on-year) growth starting in FY04. In the globalized

economy and ever-changing fashion world, product diversification

is the key to continuous business success. Starting with a few


113

items, the entrepreneurs of the RMG sector have also been able to

diversify the product base ranging from ordinary shirts, T-

shirts, trousers, shorts, pajamas, ladies and children’s wear to

sophisticated high value items like quality suits, branded jeans,

jackets, sweaters, embroidered wear etc. It is clear that value

addition accrues mostly in the designer items, and the sooner

local entrepreneurs can catch on to this trend the brighter be

the RMG future.

Backward Integration

RMG industry in Bangladesh has already proved itself to be a

resilient industry and can be a catalyst for further

industrialization in the country. However, this vital industry

still depends heavily on imported fabrics. After the

liberalization of the quota regime some of the major textile

suppliers Thailand, India, China, Hong Kong, Indonesia and Taiwan

increased their own RMG exports.

Figure: Trend to back-to-back linkage

If Bangladesh wants to enjoy increased market access created by

the global open market economy it has no alternative but to


114

produce textile items competitively at home through the

establishment of backward linkage with the RMG industry. To some

extent the industry has foreseen the need and has embarked on its

own capacity building.

Flow of Investment

It is plausible that domestic entrepreneurs alone may not be

able to develop the textile industry by establishing modern mills

with adequate capacity to meet the growing RMG demand. It is

important to have significant flow of investment both in terms of

finance and technology. Figure 3 indicates that the investment

outlook in this sector is encouraging, although the uncertainties

before the MFA phase-out period caused a sluggish investment

scenario. In part the momentum in the post-MFA phase-out period

is indicative of the efforts underway towards capacity building

through backward integration. This is evident in the pace of

lending to the RMG sector and in the rising import share of RMG

related machinery. However further progress would be necessary to

improve and sustain competitiveness on a global scale.

Policy Regime of Government: Government of Bangladesh has

played an active role in designing policy support to the RMG

sector that includes back-to-back L/C, bonded warehouse, cash

incentives, export credit guarantee scheme, tax holiday and

related facilities. At present government operates a cash

compensation scheme through which domestic suppliers to export-

oriented RMG units receive a cash payment equivalent to 5 percent

of the net FOB value of exported garments. At the same time,

income tax rate for textile manufacturers were reduced to 15

percent from its earlier level for the period up to June 30,

2008. The reduced tax rates and other facilities are likely to

have a positive impact on the RMG sector.


115

Infrastructural Impediments

The existence of sound infrastructural facilities is a

prerequisite for economic development. In Bangladesh, continuing

growth of the RMG sector is dependent on the development of a

strong backward linkage in order to reduce the lead time.

However, other factors constraining competitiveness of

Bangladesh’s RMG exports included the absence of adequate

physical infrastructure and utilities.

Labor Productivity

The productive efficiency of labor is more important

determinant for gaining comparative advantage than the physical

abundance of labor. In Bangladesh, the garment workers are mostly

women with little education and training. The employment of an

uneven number of unskilled labors by the garment factories

results in low productivity and comparatively more expensive

apparels. Bangladesh labor productivity is known to be lower when

it compared with of Sri Lanka, South Korea and Hong Kong.

Bangladesh must look for ways to improve the productivity of its

labor force if it wants to compete regionally if not globally.

Because of cheap labor if our country makes the labor

productivity in the apex position, then we think the future of

this sector is highly optimistic.

Research and Training

The country has no dedicated research institute related to

the apparel sector. RMG is highly fashion oriented and constant

market research is necessary to become successful in the

business. BGMEA has already established an institute which offers

bachelor’s degree in fashion designing and BKMEA is planning on

setting up a research and training institute. These and related

initiatives need encouragement possibly intermediated by donor-


116

assisted technology and knowledge transfer. A facilitating public

sector role can be very relevant here.

Supportive Government Policy

In contrast to the public sector-led import-substituting

industrialization strategy pursued during the first few years

after independence, the industrialization philosophy of the

government changed rather dramatically from the late 1970s when

the emphasis was on export-oriented growth to be spearheaded by

the private sector. Towards this end, various policy reforms were

implemented in the 1980s and 1990s. Some of these reformed

policies contributed considerably to the growth of the RMG

industry in Bangladesh. During the 1980s, a number of incentives

were introduced to encourage export activities. Some of them were

new like the Bonded Warehouse Facility (BWF), while others like

the Export Performance License (XPL) Scheme 37 were already in

operation and were improved upon. Also, rebates were given on

import duties and indirect taxes, there were tax reductions on

export income, and export financing was arranged. Under the XPL

scheme, exporters of non-traditional products received import

licenses for specific products over and above their normal

percentage allotment based on the f.o.b. value of their exports.

Under the Duty Drawback System, exporters of manufactured goods

were entitled to get refund of duties and taxes paid on imported

inputs used in export production, and also all excise duties paid

on exported finished goods. For certain fast-moving items such as

RMG, a notional system of duty payments was adopted in 1982-83.

Under this system, exporters were exempted from paying duties and

taxes on imports used in export production at the time of

importation, but were required to keep records of raw and

21packaging materials imported. The duties and taxes payable on

the imports were kept in a suspense account. Liabilities to pay

the amounts in suspense were removed on proof of exports. The


117

discussion in this section clearly points to the positive

contribution made by policy reforms to the growth of the RMG

industry in Bangladesh. In particular, two policies– the SBW

facility and the back-to-back L/C system- led to significant

reduction in cost of producing garments and enhanced

competitiveness of Bangladesh’s garments exports. It also allowed

garment manufacturers to earn more profit which, when necessary,

could be used to overcome difficulties arising from weak

governance. Furthermore, poor governance, reflected in the

leakage of duty-free imported fabrics in the domestic market,

paradoxically enough also helped the garment manufacturers to

earn extra ‘profit’ and thereby enabled them to absorb the ‘high

cost of doing businesses – a fall out of bad governance.


118

References:

1 .Chaudhuri, Salma and Pratima Paul-Majumdar, The Conditions of

Garment Workers in Bangladesh - An Appraisal, Report, Bangladesh

Institute of Development Studies, October 1991.

2. Bangladesh Unnayan Parisad, A Study On Female Garment Workers

in Bangladesh, draft report, Dhaka, May 1990.

3 Ahmad, Muzaffar, "Readymade Garments Industry in Bangladesh,"

Bangladesh Journal of Political Economy, Vol. 9, No. 2, 1988, 94-

122.

4. Wiig, Arne, "Non-tariff Barriers to Trade and Development--the

case of garment industry in Bangladesh," in Norbye (edited)

Bangladesh Faces the Future, University Press Limited, Dhaka,

1990. Ather, S. A., "The Readymade Garments Industry: Current

Status, Problems and Prospects," Doc-TIP-MPU-B-11, June 1987.

5. Hossain, Najmul and Jagjit Brar, "The Garment Workers of

Bangladesh: Earnings and Perceptions Towards Unionism," Journal

of Business Administration, Vol. 14, No. 4, 1988.

6. Quddus, Munir., Entrepreneurship in the Apparel Export

Industry of Bangladesh," Journal of Asian Business, Vol. 9, No.

4, Fall 1993, 24-46

7. Quddus, Munir, “Apparel Exports From Bangladesh: Brilliant

Entrepreneurship or Spurious Success? Journal of Asian Business,

Vol. 12, No. 4, Winter 1996, 51-70.

8. Islam, Anisul M, and Quddus, Munir, “The Export Garment

Industry in Bangladesh: A Potential Catalyst for Breakthrough,”

in Wahid and Weis (edited)


119

9.The Economy of Bangladesh: Problems and Prospects, Praeger,

Westport, 1996.

BGMEA Newsletter, September 1998 issue.

10.The world bank group

11.Bangladesh statically bureau.

12.Book of Bangladesh bank.


120

Appendix

Market Analysis

(US $)

Constant-Market-Share Analysis of Bangladeshi Garment Exports

(1889- 1998)

(1)

(2)

(3)

(4)

(5) (6) (7) (8)

Actual world

Exports

Actual

Bangladeshi

Export. V • j

V • j ′

(

r j )

( r j

V. j )

( r

V. j )

∑( ijr ijV )

MARKETS (1989)

(1998)

(1989)

(1998)

USA 19697725

20

5138652

112

58968

394

174833

007

1.609 94880145

.95

9045751

6.40

9486564

4.85

UK 446553680

1114081728

6714191

16798352

1.495 10037715.55

10299568.99

10036667.51

CANADA 187133954

319349281

1271937

11202227

0.707 899259.46

1951151.35

898658.78

FRANCE 657507600

1459470576

4797424

29597385

1.202 5852857. 28

7359248.42

5851425.03

ALL OHTERS

127854666

556298409

205278

457065 3.351 687886. 58

314896.45

687891.01

TOTAL 3388822420

85877852106

71957224

232888036

1.532 ( r )

112357864.80

110382381.60

110394614.20


121

COMMODITY ANALYSIS (US $)

Constant-Market-Share Analysis of Bangladeshi Garment Exports (1889-1998)

(1) (2) (3) (4) (5) (6) (7) (8) Actual world Exports . Actual Bangladeshi

Export. V • j V • j ′ ( r j )

( r j V. j ) ( r V. j ) ∑( ijr ijV )

COMODITY SITC‐3

(1989) (1998) (1989) (1998)

Other Outer Garment.(men’s or girls)

1055859416 2401808544 52268129 100881717 1.422 74325279.44 33922015.72 66628665.64

Other Outer Garment(women’s or girls)

642057664 1317517176 16885777 76326212 0.863 14572425.55 10958869.27 17764227.94

Babies Garments and Cloths

760276580 2017400484 1033324 274109290 1.617 1670804.91 67057.23 1708610.18

Babies Garment & Clothing Accessories(not knitted)

3100113890 639948597 990736 26321986 0.759 751968.62 642987.67 1054398.53

Babies Garment & Clothing Accessories (knitted)

45026240 1631260968 162530 1251723 2.208 358866.24 105481.97 426301.42

Boys & Girls Garment made up of Fabric

170352124 579916337 616728 695469 1.421 876370.49 4002530.97 1482750.62

Total 3388822420 8587852106 171957224 232888036 0.649 ( r)

111600238.40 111600238.4 263811614


122

Analysis

Bangladeshi Exports in 1998----------------------$232888036 Bangladeshi Exports in 1969----------------------$171957224 Change in Exports $60930812 100% 1. Due to increase in world trade: $ 110382381.60 18.12

2. Due to commodity composition: $1975483.20 3.24

3. Due to market distribution: $ -1963250.60 -3.22

4. Due to increase competitiveness: $ 50536197.80 82.94

Notation- ijV = value of A’s exports of commodity to country j

in period 1, ijV ′= value of A’s exports of commodity I to country j in period 2, r= percentage increase in total world exports from period 1 to period 2, ir = percentage increase in world experts of commodity i from period 1 to period 2, ijr = percentage increase in world exports of commodity i to

country j from period 1 to period 2. * ijr was first computed from the cross classification of actual world exports by market destination and commodity

groups and multiplied by ijV , the cross classification of change in actual Bangladeshi exports by market destination and commodity groups from 1989.


123

research on bangladesh readymade garments

Documents

finance faculty of economics

study chapter

export performance

apparel export sector

conclusion chapter

introduction chapter

chulalongk thailand

practical education