The cabinet approved allowing foreigners to invest directly in the industry last month following the phasing out of an international quota pact which gave Bangladesh guaranteed access to markets in the United States and Europe.

"We're confident (the government step) will help us woo more than one billion dollars of foreign direct investment in the sector and create more than a million job in the next couple of years," chief executive of the country's investment promotion office, Mahmudur Rahman, told AFP.

"It's a huge development as far as our survival in the quota-free textile regime is concerned," he said.

The garments industry underpins the economy of Bangladesh, one of the world's poorest nations, and generates 75 per cent of its annual foreign revenues (5.7 billion dollars).

Rahman gave no details about where the investment was expected to come.

Reports have said at least five firms in India, which has a massive garments sector, were interested in setting up production units in Bangladesh as part of a drive to expand production worldwide. The Indian firms were seeking joint-venture partnerships with Bangladeshi companies, the reports said.

Most international surveys have said smaller Bangladesh garment factories would be shut down and nearly one million workers, mostly women, would lose jobs as a result of the end of the Multifibre Arrangement (MFA).

Direct investment by foreign firms was previously banned to ensure that only Bangladeshi companies benefited from the quotas allocated under the deal.

Some 1.8 million people, mostly women earning between 25 and 35 dollars a month, are employed in the sector.

The MFA quota system ended on December 31 last year prompting the United Nations Development Fund to predict that one million jobs could be wiped out as Bangladesh loses out to China with its vast economies of scale.

"We did not oppose the move. More foreign investment means more competition which is good for the industry," president of the Bangladesh Garments Manufacturers and Exporters Association Annisul Huq said.

Huq warned, however, that smaller factories stood to lose from the withdrawal of the quotas because foreign firms would pay higher wages.

Experts say it could be up to a year before the impact of the MFA's expiry is clear.