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Problem : Prospect : Challenges

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16th-May-2018       
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Apparel exports saved dollars
The favourable US dollar-taka exchange rate has lent a helping hand to apparel exporters in the last (2017) calendar year, cushioning the fallout from the uncertain political climate in the Western world. In the first 11 months of 2017, Bangladesh exported garment items worth $26.40 billion, up 1.38 per cent year-on-year, according to the data from the Export Promotion Bureau.
Ahsan H Mansur executive director of the Policy Research Institute of Bangladesh said, at the start of the year, the green-back traded between Tk 78 and Tk 79 and during the course of the year it crawled up. On December 20, it traded at Tk 83.20. The current exchange rate is favourable for exporters. We should handle the exchange rate softly. He went on to suggest that the dollar can be allowed to appreciate to up to Tk 85. If it goes past the Tk 85-mark, it will be bad for the balance of payment and macroeconomic stability as importers would become costlier. However, exporters want further devaluation of the local currency.
Faruque Hasan, managing director of Giant Apparels, a leading garment exporter mentioned, the exchange rate has only started becoming export-friendly. The local currency should be devaluated further against the dollar to compensate for the rising cost of production such that exporters can continue to be competitive on the global stage. At last 10 per cent devaluation of the currency is fine for the sector as garment exporters have faced low exchange rate over the last five years.
Abdus Salam Murshedy, Managing Director of Envoy Group, said, the exchange rete is still not up to the mark when compared with our competing countries like India and Turkey. Apart from the favourable exchange rate, the rising shipment of value-added items, brighter image of Bangladesh's garment sector after remediation works, relative political calm and automation of production also helped prop up garment exports in 2017. The outgoing year was good for us, the absence of any major untoward incident like labour or political unrest was a boom for the apparel exporters. Garment exporters are cautiously optimistic about the new year as the country's apparel sector is on a strong footing following the thumb-up from the Accord and Alliance, the two foreign factory inspection agencies. Nearly 80 per cent of the remediation works to fix electrical, fire and structural flaws have been completed. After the inspection and remediation, our capacity has been internationally recognized. We are hoping for better business opportunities after this. Besides, the economies of major export destination are rebounding gradually from the shocks of Bexit and general elections in many EU countries.
Siddiqer Rahman, President of the Bangladesh Garment Manufacturers and export Association, forecasts that export receipts will be about 10 per cent higher next year. Ideally, it should be more than 15 per cent given the current capacity of the factories. However, for achieving higher export growth the government should give the higher priority to addressing issues like congetions in the premier port in Chittagong, Hazrat Shahjalal International Airport and Benapole land port to shorten the led-time. Adequate power and energy should be ensured and the infrastructures, especially the Dhaka-Chittagong high-way, must be enhanced. The exporters see the political instability as a major challenge in the new year as the general election is due to be held at the end of this year or in early 2019. We expect there will not be any political instability - we hope the political leaders will give priority to a stable export growth for the sake of the country. A good number of new factories will come into operation next year as entrepreneurs are putting in money in the sector targeting the shifted work orders from China, the largest garment exporter worldwide.
Faces lot of challenges
Bangladesh Foreign Trade Institute (BFTI) carried out the study titled, 'Expansion and Facilitation of the RMG Sector of Bangladesh', focus in their findings that, low productivity, shortage of mid-level management pro-professional and limited backward and forward linkages are among major challenges that need to be addressed for further expansion of the country's RMG sector. Product and market concentration, high tariff and non-tariff barriers to entering the potential non-traditional markets, lower ranking in international indices, less-than-satisfactory performance with regard to standard and compliance issues, lack of branding and coordination among authorities concerned as the challenges. It also put forward some recommendations concerning product and market diversification, development of productivity and professional capacity and branding. Dependency on import of raw materials, inadequate supply of utilities, transport services and high costs, limited facilities in ports, lack of interest in financing small and medium procedures, administrative and regulatory constraints. The production cost has increased but the buyers quote unjustified prices, unhealthy competition and pricing are also other challenges. The diversification of both ready-made garment products and their market is required, only five items account for 74 per cent of total RMG exports. Bangladesh's RMG is heavily dependent on the markets of the European Union, the USA and Canada which accounts for some 63 per cent, 18 percent and 3.0 per cent of total RMG exports. New and potential markets must be explored for diversification and sustainability of the sector and South Asian region, Oceania, CIS and Latin American countries may be considered as destination. Bangladesh should concentrate on up-gradation and move towards high-end products like suit, blazer, lingerie, jackets, swimwear, sportswear, uniform, raincoat and fishing wear.
Low-productivity of labour
Khondoker Golam Moazzem, Research Director, CPD suggested making demand-based targeted exports and tailor-made strategies for each country. The government may fund these sorts of analyses and also incentivize the targeted diversification. Lower productivity of workers poses another challenge for the country's RMG sector. The country is lagging behind its international competitors like India, Vietnam and Srilanka in terms of efficient production. For creation of qualified managers and professionals, the country needs to have quality institutions. There is a need for making investments both in public and private sectors to help establish quality fashion designing and technology institutes with global recognition. Other recommendations included steps to remove tariff and non-tariff barriers, improve marketing strategy, and reduce dependence on external sources of raw materials and development of infrastructures. Branding plays an important role in expanding and facilitating the sector and harmonized and targeted approach in this regard essentially required.
Commerce Minister Tofail Ahmed terming the political situation stable, an industry-friendly environment, marked by availability of sufficient manpower, exists across the country. There is a need for diversifying exports, global competition is increasing and is not wise to depend only on RMG exports. We need to be more cautious about the banking sector as it plays an important role in expanding trade and business. It is expected that the Finance Ministry will take necessary measures related to loan scams.
Enters in Indian market
Bangladesh has started making inroads in India's readymade garments market, due to manufacturing cost advantages there after implementation in Mumbai of the Goods and Services Tax (GST). The over-arching tax was implemented in India from July 01, 2017. And, import of RMG from Bangladesh jumped 56 per cent to $87.4 million from then to November over the corresponding period last year. Of this, import of knitted apparel surged 69 per cent to $30.1 million. Import of woven apparel contributed the rest, $57.3 million from $38.1 million in the same period last year.
In terms of volume and market size, overall import from Bangladesh isn't so much. However, the fast increase poses a threat for Indian manufacture. The effective protectionist duty on import from Bangladesh during the pre-GST regime ended with the new tax. For, the cost of production at Bangladesh manufacturers provides them an advantage.
'We have written to government, seeking changes in the provisions', said Sanjay Jain, Chairman, Confederation of Indian Textile Industry. Garment makers in Bangladesh, says, the industry, procure fabric from China duty-free. Their two other basic advantages over Indian manufacturers are cheaper electricity and cheaper labour.
Indian garment makers have to pay 20 per cent import duty for the same fabric from China; their power and personnel costs are also higher.
'We have taken a number of steps, including a Rs 6,000 crore special package, technology up-gradation funds, etc, to make cost of manufacturing government in India competitive,' said a senior government official.
Industry sources say many RMG retailers in the organized sector have started producing from Bangladesh in a big way.
'In the pre-GST regime, the government had protected domestic garment manufacturers through levy of countervailing duty on import, equivalent to the excise dutyon domestically manufactured garments, in addition to education cess. This protection has gone away after GST implementation. With the current regulations, Bangladeshi garment manufacturers get 10-15 per cent of cost advantage over production in India. This needs to be addressed immediately,' said Rahul Mehta, President, Clothing Manufacturers Association of India.
Collaborative role with Kenyan
For decades, the global garments industries has been dominated by the powerhouses in Asia - China, Bangladesh, Vietnam, India, Pakistan, Taiwan, Korea, etc. However, the growth of Asian industry and its dominance have come under increased threat in recent years. Several Asian producers are switching over to a more service sector-based economy from the manufacturing-based one. China - the world leader - has started to embrace a more service sector-based economy. It is predicted that the number of Chinese manufacturing jobs will be cut down by 85 million by 2030. This coupled with the rising production costs in Asia has contributed to the recent decline of the garment sector in Asian market. Kenya is among the front runners to make the most out of this opportunity and fill in the void left in the market by the Asian Tigers.
With an area of 581,309 square kilometers and a population of around 47  million, the Republic of Kenya is a leading country in East African Community (EAC). Kenya gained its independence on December 12, 1963 from its colonial rule, the United Kingdom.
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