Wednesday, January 19, 2011

Why Should Neighbors Be Jealous Of Bangladesh RMG’s Success?

The apparel exporters of two neighboring countries Bangladesh and India have worries of divergent nature.

Bangladesh apparel exporters are worried that their export orders have been on the decline for a number of domestic and external reasons. Their counterparts in neighboring India are anguished that Bangladesh is set to beat them in garment exports in the wake of an appreciating rupee.

Bangladeshi exporters blame internal political disturbances, reduced demand in their key markets-the USA and the European Union countries-for the decline in export growth in recent months.

The Indian apparel manufacturers and exporters, it seems, are ashamed of the fact despite having sufficient backup of raw materials they are lagging behind their Bangladeshi counterparts, who are largely dependent on imported fabrics and other raw materials– in the international market. A recent Indian newspaper report quoted a number of apparel sector leaders expressing their frustration over the rise of the Bangladesh apparel sector.

But the fact remains that with its low cost of labor and sufficient back-up support of raw materials, including fabrics, apparel exporters of India– a regional economic superpower– should have competed with China rather than grumbling about RMG export performance by a poor neighbor like Bangladesh.

The Indian apparel exporters must have forgotten the issue of value addition while becoming jealous of the success of the Bangladesh RMG. The average value addition in case of woven garment exports by Bangladesh still remains as low as 30 per cent and the same for knitwear exports hovers around 60 to 70 per cent. Since Indian exporters do not have to depend on imported raw materials, the value addition of their exports should be nearly 100 per cent.

There is another dark side of such unnecessary moaning by the Indian RMG exporters: It, rightly or wrongly, lends credence to widespread suspicion that the neighbors are involved in conspiracy to cause damage to the emerging Bangladesh garment sector. Such suspicion had become quite strong during a persistent campaign against Bangladesh RMG in the name of child labor, the recent workers unrest in the garment sector and the buyers’ insistence on so-called compliance issues.

The socio-economic conditions in many Indian cities are almost similar to that of Bangladesh cities where most garment units are located. It is highly unlikely that the working conditions or involvement of child labour in many RMG units have been very different from that of many Bangladeshi RMG units. But has anyone ever heard a word or seen a report in the international electronic and print media or deep concern among US trade union bodies about the situation in apparel units in India?

However, Indian apparel exporters should have reasons to be happy to learn that the Bangladesh RMG sector, which proved many doomsday preachers wrong following the total phase-out of the multi-fiber arrangement (MFA) from January 1 2005 and recorded impressive export growth, has for the first time in many years had a poor export performance in recent months.

The country’s apparel exports recorded a 31.28 per cent growth in the period between the months of July and September of the just concluded financial year. But the average growth at the end of May last stood at only 16.45 per cent.

Industry sources have claimed that export orders in recent months have declined by about 30 per cent. Many buyers had withdrawn from Bangladesh markets during political troubles in the last months of 2006 and placed their import orders with apparel manufacturers in China, the world’s largest exporter of textile products having control over 70 per cent of the huge US market, and Vietnam, an emerging apparel exporter. The Indian business leaders do need to explore the reasons for buyers not going to India in large numbers. The appreciating rupee may not be the only reason for that.

The political troubles that started from the month of October last took a heavy tool on industrial production and exports. The Bangladesh exporters, who have invented their own way of running their business operations amidst frequent shutdowns or blockades, also had become helpless in the face of complete halt of operations at the Chittagong port, enforced by the then opposition political activists led by mayor of Chittagong City Corporation ABM Mohiuddin Chowdhury.

That disruption was followed by a slower demand from the buyers in the USA and the EU countries. The intensity of cold being less than previous years during the last winter in most EU countries, the demand for knitwear dropped this time. And in case of the USA, the consumers decided to spend less because of the rising oil prices.

The RMG exporters view these developments as temporary and are hopeful about their exports picking up again in coming months. But the researchers on RMG markets are seeing some ominous signs on the horizon. They feel that the buyers, who had withdrawn from the Bangladesh and gone to other markets, may not come back again.

However, the exporters, it seems, would have to keep their finger crossed for a major turnaround in demand for apparels in the developed markets.

The political troubles have proved more damaging to exports than any other factor. If the same returns to the street-nobody, however, want that-the RMG exporters would find it really hard even to keep their existing buyers satisfied.

BY :  Shamsul Huq Zahid.