RMG sector: navigating the challenging times ahead
"> In matters concerning safety of workers in the garment sector, zero-tolerance should be the overriding motivation. Photo: StarBangladesh's export performance in the first quarter of fiscal 2014 has been quite robust -- export earnings were 21.2 percent higher than the corresponding period of fiscal 2013. Excepting the negative growth in the Canadian market (-1.4 percent), export was high in all major markets (EU 27 percent, USA 15.7 percent).
Exports record in quarter 1 would imply that a growth of 10.3 percent will be required over the next nine months to reach the target of 12.9 percent planned for the whole of fiscal 2014.
In regards to RMG exports, performance in Q1 of fiscal 2014 was equally impressive. Growth of RMG was 24.2 percent, with knitwear recording a rise of 24.4 percent and woven wear 23.9 percent over the corresponding period of fiscal 2013.
RMG exports will need to register a growth of 8.6 percent over the next three quarters from the same time last year if the overall RMG growth target of 12.2 percent for fiscal 2014 is to be achieved. This appears to be an attainable target in view of current trends and emerging market signals.
However, a number of factors will make the journey over the upcoming months a particularly challenging one to navigate.
Firstly, the high RMG growth in the first quarter was based on a relatively low growth of 3.8 percent posted in the first quarter of fiscal 2013. There was, thus, a favourable base-line effect. In October-June of fiscal 2013, RMG growth was 15.7 percent. This would imply that growth over the next three quarters will have to be attained on the relatively more robust performance record and higher base line of the preceding year.
Secondly, over the next few months, the orders placed in the post-Rana Plaza tragedy period will start to be reflected in the export figures. As of now, market intelligence is not transmitting any disquieting signals.
However, much will depend on Bangladesh's ability to undertake the needed homework and implement the various action plans that have been put in place in view of the Rana Plaza incident.
These include various activities envisaged as part of tripartite agreement, ILO Work Plan and measures to be taken under the purview of 'Accord' and the 'Alliance'.
In matters concerning work place safety of workers and employees in the RMG sector, zero-tolerance should be the overriding motivation. Any failure in this regard will also put the RMG sector at a disadvantage in addressing the generalised system of preferences (US-GSP review in December 2013, EU-GSP review in January, 2014), assuaging the concerns of consumer groups in developed country markets and, most importantly, in dealing with the major buying houses. There should be full commitment in this regard on the part of all involved stakeholders. This is critical to safeguarding the medium to long term interests of the sector.
Thirdly, in spite of Bangladesh's good performance in both the EU and the US markets, Vietnam has been outperforming Bangladesh in the US market and Cambodia in the EU market.
In recent years, market share of all these three countries have gone up at the cost of China whose exports and market share have continued to decline, particularly in the US market.
In the foreseeable future, the advantage and attention that Bangladesh has enjoyed thanks to the China plus one policy pursued by major buyers is likely to face increasing competitive pressure from Vietnam, Cambodia and also India, among others. Bangladesh will need to keep competitors on the radar screen and calibrate policies and initiatives accordingly.
Fourthly, Bangladesh's RMG export performance received a positive jolt in the EU market in recent times, thanks to changes in the rules of origin for woven-RMG products under the EU-GSP scheme. The initial advantages resulting in higher exports, which arose from Bangladesh's capacity to access the preferences, is likely to taper off over the medium term. Bangladesh will need to be cautious about this prospect.
Fifth, a sharp depreciation of the currencies of some of Bangladesh's competitors, particularly India, has put Bangladesh to some disadvantage. A market analysis at disaggregated level shows that, for example, in the EU market, out of Bangladesh's ten topmost (six digit-level) knitwear items eight items figure among India's top ten items (for wovenwear the number is six).
Although no adverse impact of the relative appreciation of the taka has been visible in major export markets till now, it will be prudent to keep a sharp eye on the dynamics of the relative market shares over the coming months and take corrective measures if needed.
Sixth, enterprise-level production costs in the RMG sector will go up in view of the investment needed to address compliance-related concerns and also consequent to the expected rise in the minimum wage for the apparels workers.
Bangladesh's continued competitiveness will depend on the ability of the entrepreneurs to remain competitive, go for higher productivity and more value addition, move upmarket and the ability to pass on a part of the higher cost on to the buyers. On all these counts, there will be formidable challenges, which will need to be addressed.
Seventh, in view of recent market dynamics and the likely changes in the strategy pursued by major buyers, the prevailing sub-contracting system is likely to be eased out.
The RMG sector will undergo important structural changes. This may not necessarily have a negative impact on overall export performance, but from the medium term perspective, the longstanding production practices based on sub-contracting model will no longer remain the predominant mode. Careful planning will be required so that the RMG sector is able to adjust to the changes that will occur both in production and marketing of apparels. This will call for concerted efforts both at the enterprise and policy level.
Eighth, the Rana Plaza incident has exposed serious contradictions that are emerging between the productive forces and the production relations in the sector.
Ensuring workers' welfare by giving living wages, providing better work place safety, allowing workers to pursue collective bargaining ought to receive priority and urgent attention on the part of entrepreneurs, government institutions and other stakeholders.
Entrepreneurs will need to look at the issues from the perspective of enlightened self-interest. The government must be mindful of its responsibility as regards implementation and enforcement of provisions stipulated its own laws and regulations, and the ILO conventions to which Bangladesh is a signatory.
A coalition of the willing must recognise these as key components of a winning strategy for the future of Bangladesh's apparels sector.
Bangladesh at present is delicately poised in view of the anticipated challenges and the emerging possibilities in a fast changing global apparels market. Let us seize the opportunities by doing the needed homework and by being adequately equipped and ready.
The writer is executive director at Centre for Policy Dialogue.