Exports of textiles, clothing, and ready-made garments (RMG) accounted for 77% of Bangladesh’s total merchandise exports in 2002. By 2005 the (RMG) industry was the only multibillion-dollar manufacturing and export industry in Bangladesh, accounting for 75 per cent of the country’s earnings in that year.
Textile industry in Bangladesh
The textile and clothing industries provide the single source of growth in Bangladesh’s rapidly developing economy. Exports of textiles and garments are the principal source of foreign exchange earnings. By 2002 exports of textiles, clothing, and ready-made garments (RMG) accounted for 77% of Bangladesh’s total merchandise exports. In 1972, the World Bank approximated the gross domestic product (GDP) of Bangladesh at USD 6.29 billion, in 2014, the GDP stood at USD 173.82 billion, growing by almost 27 times in a matter of four decades. Bangladesh’s exports industry alone comprised USD 31.2 billion in FY 2014-15, 81.69% of which was made up by ready-made garments. On its own, the knitwear sector encompasses 39.83% of total exports—a staggering USD 12.43 billion. Bangladesh is, second only to China, the world’s second-largest apparel exporter of western brands. Sixty percent of the export contracts of western brands are with European buyers and about forty percent with American buyers. Only 5% of textile factories are owned by foreign investors, with most of the production being controlled by local investors.
Bangladesh’s textile industry has been part of the trade versus aid debate. The encouragement of the garment industry of Bangladesh as an open trade regime is argued to be a much more effective form of assistance than foreign aid. Tools such as quotas through the WTO Agreement on Textiles and Clothing (ATC) and Everything but Arms (EBA) and the US 2009 Tariff Relief Assistance in the global clothing market have benefited entrepreneurs in Bangladesh’s ready-made garments (RMG) industry. In 2012 the textile industry accounted for 45% of all industrial employment in the country yet only contributed 5% of the Bangladesh’s total national income. After several building fires and collapses, resulting in the deaths of thousands of workers, the Bangladeshi textile industry and its buyers have faced criticism. Many are concerned with possible worker safety violations and are working to have the government increase safety standards. The role of women is important in the debate as some argue that the textile industry has been an important means of economic security for women while others focus on the fact that women are disproportionately textile workers and thus are disproportionately victims of such accidents. Measures have been taken to ensure better worker conditions, but many still argue that more can be done.
History of textile production in Bangladesh
From 1947 to 1971 the textile industry, like most industries in East Pakistan, were largely owned by West Pakistanis. During that period, in the 1960s, local Bengali entrepreneurs had set up their own large textile and jute factories. Following its separation from East Pakistan the newly formed Bangladesh lost access to both capital and technical expertise. Until the liberation of Bangladesh in 1971, the textile sector was primarily part of the process of import substitution industrialization (ISI) to replace imports. After the liberation, Bangladesh adopted export-oriented industrialization (EOI) by focusing on the textile and clothing industry, particularly the readymade garment (RMG) sector. Immediately after the founding of Bangladesh (1971), tea and jute were the most export-oriented sectors. But with the constant threat of flooding, declining jute fiber prices and a significant decrease in world demand, the contribution of the jute sector to the country’s economy deteriorated. In 1972 the newly formed government of Sheikh Mujibur Rahman who was also the head of the Awami League, enacted the Bangladesh Industrial Enterprises (Nationalization) Order, taking over privately owned textile factories and creating a state-owned enterprise (SOE) called Bangladesh Textile Mills Corporation (BTMC). President Rahman promoted democracy and a socialist form of capitalism. The BTMC never managed to match the pre-1971 output and in every year after the 1975–1976 fiscal year, lost money. Until the early 1980s the state owned almost all spinning mills in Bangladesh and 85 percent the textile industry’s assets (not including small businesses). Under the 1982 New Industrial Policy (NPI) a large number of these assets including jute mills and textile mills were privatized and returned to their original owners.
In the devastating famine in 1974, one million people died, mainly of starvation caused in part by the flooding of the Brahmaputra River in 1974, and a steep rise in the price of rice. Partly in response to the economic and political repercussions of the famine, the Bangladeshi government shifted public policy away from its concentration on a socialist economy, and began to denationalize, disinvest and reduce the role of the public sector in the textile industry while encouraging private sector participation. The 1974 New Investment Policy restored the rights to both private and foreign investors. Bangladesh’s development model switched from a state-sponsored capitalist mode of industrial development with mainly state-owned enterprises (SOE) to private sector-led industrial growth.
Post-liberation war, Bangladesh continued to focus on the agricultural sector to feed its rural and poor masses. Even in 1978, there were only nine “export-oriented” garment manufacturing units. That same year the first direct export of garments, 10,000 shirts to a Parisian firm, was shipped from a Bangladeshi firm. The Bangladeshi government began to realize potential for the industry to flourish and offered development stimulus such as “duty-free import machinery and raw materials, bonded warehouse facilities and cash incentives.”
Readymade garment (RMG) industry
RMGs are the finished textile product from clothing factories and the Bangladeshi RMG sector is one of the fastest growing sectors in the Bangladeshi economy, with a growth rate of 55% from 2002 to 2012. Exports of textiles, clothing, and ready-made garments (RMG) accounted for 77% of Bangladesh’s total merchandise exports in 2002. By 2005 the (RMG) industry was the only multibillion-dollar manufacturing and export industry in Bangladesh, accounting for 75 per cent of the country’s earnings in that year. Bangladesh’s export trade is now dominated by the ready-made garments (RMG) industry. In 2012 Bangladesh’s garment exports – mainly to the US and Europe – made up nearly 80% of the country’s export income. By 2014 the RMG industry represented 81.13 percent of Bangladesh’s total export. Much of the tremendous growth of the sector and its role as an economic powerhouse for the country is attributed to the availability of “cheap” labour. Of the four million workers employed by the RMG industry, 85% are illiterate women from rural villages. The working environments and conditions of the factories that produce ready-made garments has undergone criticism in recent years concerning worker safety and fair wages.
Subcontracting is a major component of the RMG industry in Bangladesh. Many Western companies contract different factories, only requesting that certain quotas be met at certain times. Companies prefer subcontracting because the degree of separation presumably removes them of liability of wage and labour violations. It also makes it easier to distribute production across a variety of sources.
McKinsey report (2011): Bangladesh as next hot spot, next China
Currently Bangladesh is second largest ready-made garments (RMG) manufacturer after China, by the next five years Bangladesh will become the largest ready-made garments manufacturer. Bangladesh was the sixth largest exporter of apparel in the world after China, the EU, Hong Kong, Turkey and India in 2006.] In 2006 Bangladesh’s share in the world apparel exports was 2.8%. The US was the largest single market with US$3.23 billion in exports, a 30% share in 2007. Today, the US remains the largest market for Bangladesh’s woven garments taking US$2.42 billion, a 47% share of Bangladesh’s total woven exports. The European Union remains the largest regional destination – Bangladesh exported US$5.36 billion in apparel; 50% of their total apparel exports. The EU took a 61% share of Bangladeshi knitwear with US$3.36 billion exports.
According to a 2011 report by international consulting firm McKinsey & Company, 80 percent of American and European clothing companies planned to move their outsourcing from China, where wages had risen, and were considering Bangladesh as the “next hot spot” making it the “next China” offering ‘the lowest price possible’ known as the China Price, the hallmark of China’s incredibly cheap, ubiquitous manufacturers, much “dreaded by competitors.”
US Tariff Relief Assistance for Developing Economies Act
The United States introduced the Tariff Relief Assistance for Developing Economies Act of 2009 designated Bangladesh as one of the 14 least developed countries (LDC), as defined by the United Nations and the US State Department, eligible for “duty-free access for apparel assembled in those countries and exported to the U.S.” from 2009 through 2019. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA), an industry lobby group, claimed that in 2008 alone Bangladesh paid “$USD 576 million as duty against its export of nearly $3 billion’ mainly consisting of woven and knitwear. However, this act was temporarily suspended for Bangladesh by President Obama after the Rana Plaza collapse in 2013.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Report
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) is a recognised trade body that represents export oriented garment manufacturers and garment exporters of the country. The fundamental objective of BGMEA is to establish a healthy business environment for a close and mutually beneficial relationship between manufacturers, exporters and importers, thereby ensuring steady growth in the foreign exchange earnings of the country. After the Savar collapse, the BGMEA assembled an 11-member committee to investigate the causes of the tragedy. In its final report BGMEA pinned the blame on inspection officials who granted permits to factory owners to install heavy machinery on the two floors not authorized to exist in the first place and on local officials for neglecting to ensure proper oversight of building plans. The report also indicated that building owner Sohel Rana may have been able to corrupt municipal officials by offering bribes.