BANGLADESH’S multi-billion dollar apparel sector faces a critical juncture despite having enormous scope to gain from business shifting from China because of a tariff war with the United States. The apparel sector has already lost its global market share in apparel exports by 0.1 percentage point to 6.4 per cent in the 2018 which was 6.5 per cent in 2017 while global apparel exports market was worth $421 billion, according to the World Trade Statistical Review 2019 of the World Trade Organisation.
Bangladesh’s earnings from apparel has posted a 14.49 per cent growth to $34.13 billion in the past financial year but the growth has happened only in physical terms. However, $16.88 billion came from knitwear and $17.24 billion from woven garment items. Of the total amount, $5.68 billion came from non-traditional export markets and the rest $28.44 billion from traditional markets, mainly the United States and Europe.
Bangladesh’s closest competitor on the global market Vietnam narrowed the gap with its competitor and it stood at 6.2 per cent in 2018, up by 0.3 percentage points, which was 5.9 per ent in 2017. Although China still retains its position as the top exporter of apparel products with $158 billion, its market share slid to 31.3 per cent in 2018 from 34.9 per cent the year before. But what are the challenges in store for the apparel sector?
According to the Bangladesh Knitwear Manufacturers and Exporters’ Association, Bangladesh has set a target of $50 billion in 2021. But Bangladesh needs to shore up a number of issues such as deep-sea port, reduction in lead time, etc to achieve the target. Improvement in the business environment is also essential to support private-sector development, which will create more jobs and foster a sustainable economic growth.
Another problem is the policy making and implementation. In Ease of Doing Business, Bangladesh stand in the 168th position out of 190 counties whereas Vietnam stand in the 70th position, according to the World Bank report 2019. Bangladesh’s apparel sector is dependent on basic items and high-value apparel cannot be produced for the absence of skills of workers.
The Fair Wear Foundation has recently reported that many buyers were not willing to pay more. Factories also accept lower prices hoping that prices would some day increase.
There is an imbalance in negotiation, as entrepreneurs fear losing work orders. The study has also found some other problems. Some 33 per cent of the entrepreneurs think that they will face the risk of closure and 29 per cent that they would face difficulties in paying workers their wages. After the recent wage increase by 51 per cent, only 13 per cent of the buyers who source from Bangladesh increased the prices of apparels.
Apparel industries now face challengers such as a continuous decline in prices at the buyer’s end, image crisis, more labour and environmental compliance and lack of product diversification and low-value products, etc. As the productivity of Bangladesh is less than all of its major competitors, it needs to address the issue as preference erosion may force Bangladesh to compete in terms of productivity and product quality. Only five products — shirts, trousers, jackets, T-shirts and sweater — account for more than 73.17 per cent of the total apparel export items. According to the Asian Productivity Organisation, per hour labour productivity of Bangladesh is $3.4 which is lower than the average productivity of other competitors but for Cambodia. Apparel production cost increased 30 per cent in the past four years. In the 2015–16 and 2018–19 financial years, more worryingly, the apparel sector’s value addition has gone down by 1.61 per cent though apparel exports have increased in the period.
Furthermore, Bangladesh is graduating from the least developed countries at a time when the WTO regime is turning bad because of an increased protectionism on the international market. The situation may worsen when the Fourth Industrial Revolution will have taken place with its full effects.
While apparel factory owners in Bangladesh have little bargaining power in situations such as this, unhealthy competition of the selling of products at low prices by exporters has badly affected the sector, triggering a significant decrease in export earnings.
Because of the ongoing tariff war, a significant volume of trade was relocated from China to other countries. In a situation like this, Bangladesh is now the safest garment exporting country in the world by the inspection of Accord, Alliance and the International Labour Organisation. It is perhaps time to be competitive.
Around 61 per cent of the total apparel export goes to only five countries — Germany, the United States, the United Kingdom, France and Spain — which indicates that market concentration is harming negotiation. Bangladesh needs to expand its market beyond the European Union and the United States.
So to grab more market share, the government should work out policies taking on board stakeholders, with a focus on product diversification and more value addition. More attention should be given to non-traditional markets, identifying products which are in demand.
Bangladesh needs to respond proactively to face the challenges of the Fourth Industrial Revolution and leverage opportunities of new technologies. Skills mapping needs to be done to find out how many people are required with certain skills. A coordinated approach needs to be in place, with entrepreneurs, policy-makers, buyers and development partners in skills development of workers.
Md Harunur Rashid is deputy secretary at the Bangladesh Knitwear Manufacturers and Exporters’ Association.
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