bd garments

8/8/2019 Bd Garments

http://slidepdf.com/reader/full/bd-garments 1/169

Master /

Garment

Individual Study

A Research paper On Export Growth Sources of Bangladesh ReadymadeGarment Industry.

(Constant Market Share Model).

BY

Sk. Ashiquer Rahman ID#4585974929A Thesis Submitted In Partial Fulfillment of the Requirement for theDegree of Masters in International Economics and Finance

TO, Prof.Paitoon Wiboonchutikula, Ph.D ,Associate professor and

Chairperson, Faculty of Economics, CHULALONGKORN UNIVERSITY,Supervisor: Sirima Bunnag, Assistant Professor, Faculty of Economics,Chulalongkorn University, Thailand.

Masters in International Economics and Finance Faculty of Economics,Chulalongkorn University, Phayathai Road, Bangkok-10330,Thailand.Tel:(662) 218 6295, (662) 218 6218,Fax:(662) 218 6295, Phone: 555-555-5555E-mail: [email protected],http://www.econ.chula.ac.th/programme/ma_inter.html Fax: 555-555-5555E-mail: [email protected]



â¼ExportÂ GrowthÂ SourcesÂ ofÂ BangladeshÂ ReadymadeÂ GarmentÂ Industry.Â (ConstantÂ MarketÂ ShareÂ Model)â¼Â

2002

Â

Letter of TransmittalJuneÂ 1,Â 2003Â To,Â SirimaÂ Bunnag,Â Supervisor,Â AssistantÂ Professor,Â FacultyÂ ofÂ Economics,Â ChulalongkornÂ University,Â Thailand.Â Â Subject:Â LetterÂ ofÂ Transmittal.Â Â DearÂ Madam,Â HereÂ isÂmyÂ paperÂ onÂ â¼ExportÂ GrowthÂ SourcesÂ ofÂ BangladeshÂ ReadymadeÂGarmentÂ Industry.Â (ConstantÂ MarketÂ ShareÂ Model)â¼Â thatÂ IÂ wa

sÂ assigned.Â ItÂ wasÂ aÂ greatÂ opportunityÂ forÂ meÂ toÂ acquireÂ practicalÂ knowledgeÂ ofÂ theÂ masterÂ inÂ economicsÂ andÂ finance.Â Â

IÂ haveÂ concentratedÂ myÂ bestÂ effortÂ toÂ achieveÂ theÂ objectivesÂ ofÂ theÂ reportÂ andÂ hopeÂ thatÂ myÂ endeavorÂ willÂ serveÂ theÂpurpose.Â Â IÂ believeÂ thatÂ theÂ knowledgeÂ andÂ experienceÂ IÂ ha

veÂ gatheredÂ duringÂ myÂ paperÂ preparationÂ willÂ immenselyÂ helpÂmeÂ inÂ myÂ professionalÂ life.Â IÂ willÂ beÂ obligedÂ ifÂ youÂ kindlyÂ approveÂ thisÂ effort.Â Â SincerelyÂ yours,Â Â Sk.Â AshiquerÂ RahmanÂ Id#4585974929Â MastersÂ inÂ InternationalÂ EconomicsÂ andÂ FinanceÂ Bangkok,Â ThailandÂ Â Â

ii




2002

Â

PrefaceAny institutional education would not be completed if it were confinedwithin theoretical aspects. Every branch of education has become morecompeted by their practical application and accomplishment of fullknowledge. We shall be benefited by our education if we caneffectively apply the institutional education in practical fields.Hence, we all need practical education to apply theoretical knowledgein real world. By considering this importance â¼faculty ofeconomicsâ¼ arranges the individual study for the students of Mastersin International Economics and Finance. As a part of this program mytopic was selected as

â¼â¼ExportÂ GrowthÂ SourcesÂ ofÂ BangladeshÂ ReadymadeÂ GarmentÂ Industry.Â (ConstantÂ MarketÂ ShareÂ Model)â¼Â Â Â I tried mybest to conduct an effective study by arrange and analysis data. Theremay be some mistakes, which are truly unintentional. So, I wouldrequest to look at the matter with merciful mind.

Sk. Ashiquer Rahman Id#4585974929 Chulalongkorn University Masters inInternational Economics and Finance Bangkok, Thailand

iii




2002

Â

AcknowledgementFirst, all praises go to almighty Allah, the most gracious, the mostmerciful to give me the ability for all these I have done.Then I would like to thank Ms. Wanwadee Wongmongkol. Now I would liketo thank SirimaÂ Bunnag,Â

paperÂ Supervisor,Â AssistantÂ Professor,Â FacultyÂ ofÂ Economics,Â ChulalongkornÂ University,Â Thailand to give me the opportunity to dothis project. Â I would also like to thank Professor. PaitoonWiboonchutikula, Ph.D ,Associate professor and Chairperson of Facultyof Economics, Chulalongkorn University & Professor Salinee.

Secretatery international economics and finance. My striking thanks goto honorable sir Dr. MN.Sirker who has helped me in all aspect toprepare the report.

I would like to thank lab incharge Ms. Mink . Last but not the least Iwish to thank my friends, William Lloyed ,Nakarin and Athipat, fortheir very helpful discussions.

Sk. Ashiquer Rahman Id#4585974929 Chulalongkorn University Masters inInternational Economics and Finance Bangkok, Thailand

iv



Export performance in the world market for Bangladeshi readymadeGarment Â

2003Â

Abstract

Bangladeshâ¼s recent export performance in the world market forreadymade garment has improved markedly. In this study, ConstantMarket Share Analysis is used in order to determine thecompetitiveness of Bangladesh and its competitors, which are the mainreadymade garment producers, in the USA, UK.CANADA AND ALL othersmarkets between 1989 and 1998 periods. Constant Market Share (CMS)analysis is a popular tool for analyzing changes in exports of acountry. Nevertheless, its theoretical foundations (and policyrelevance) have been questioned. In this paper, we provide such afoundation by relating CMS analysis of export growth. An indication ofthe empirical relevance of this relationship is given by comparing theCMS analysis. The analysis reveals this improvement to be

predominantly the result of competitive advantages of ready madegarment industry . Bangladesh is able to export s readymade garment ofhigh and consistent quality at low costs, under conditions which meetthe world standards set by the world. In addition to competitiveadvantages, Bangladesh has benefited from growth in the overall sizeof the world export market for readymade garment, but has sufferedfrom having only relatively small shares in the important markets ofsome member States. Market research on consumersâ¼ demand andpreferences could further improve Bangladeshâ¼s recent exportperformance of readymade garment. Keywords: Bangladesh,Competitiveness, Constant Market Share Model. Ready made Garment.

CHAPTER I

IntroductionBangladesh economy experienced a trend rate of growth of 4.8 per centduring 1990s as against 4.4 per cent during the previous decade. Therate of growth of per capita GDP has also been impressive during the1990s. In addition to the higher growth rate of overall GDP, this wasfacilitated by a sharp fall in the rate of growth of population.During the 1980s, population grew at an annual compound rate of 2.2per cent, and the rate of growth of per capita GDP was recorded at 1.7per cent per annum. In contrast, population growth rate came down to1.7 per cent during the 1990s.Per capita GDP grew at an annualcompound rate of 3.3 per cent of during per the 1990s.However, income,

against in terms of the to absolute US$370 level compares capitaBangladesh the continues

remain at the lower end of the income scale. Per capita income ofunfavorably low-income country average of US$410.During 1990s,Bangladesh's total exports in

1




2003Â

current US$ value grew at an annual compound rate of 14.4 per cent. In

fact, Bangladesh experienced double digit export growth in most of theyears during the 1990s. Imports, on the other hand, grew at an annualcompound rate of 10.9 per cent during 1990s. The gap between exportand import widened from -US$1792 million in 1990/91 to -$2814 millionin 1999/00, although the share of export earnings in import paymentssteadily rose from 31 per cent in 1980/81 to 67 per cent in 1999/00.The openness of the economy as measured by total external trade as aproportion of GDP went up from around 22 percent in 1990/91 to nearly30 per cent in 1999/00 with the share of export in GDP rising from 7per cent to 12 percent during the same period. The structure of exportto has changed significantly exports. In over the past two decades.commodity Bangladesh seems to have made the transition from resource-

based process-based 1980/81, primary constituted nearly 29 per cent oftotal exports. In 1990/91, this share came down to 17.8 per cent andfurther down to 8.2 per cent in 1999/00. There has been shift fromjute-centric to garmentscentric export. In 1980-81, raw jute and jutegoods together constituted 68 percent of total exports. Between1980/81 and 1999/00, export of both raw jute and jute productsdeclined in absolute terms and their total share came down to only 6per cent in 1999/00. In contrast, woven and knit garments togetheraccounted for less than 1 per cent of exports in 1980/81. Theircombined share in exports rose to nearly 76 percent in 1999/00.Achange in the composition of output and employment away from theagricultural sector in the direction of manufacturing and servicesectors is often used as a measure of development. In Bangladesh, theshare of agriculture in GDP declined from 29.2 percent in 1990-91 to25.5 percent in 1999-00 - a decline of 3.7 percent. The fall wascompensated and by an increase Despite in the share share of ofmanufacturing construction. declining

agriculture in GDP, the increase in food production has been quitesatisfactory moving the country from a state of chronic

2




2003Â

food

deficit

to

near

self-sufficiency

level.

Manufacturing

industry in Bangladesh achieved respectable growth during 1990s. Thecontribution of manufacturing to GDP increased from 12.9 per cent in1990-91 to 15.4 high per cent of in 1999-00. However, Thus, the forsector's current share in GDP appears rather modest for it tospearhead sustained growth the economy. example, in Thailand the shareof manufacturing in overall GDP was 22 per cent in 1980 and it rose to32 per cent by 1998. The growth of Bangladeshâ¼s manufacturing sectorhas also been rather narrowly based with readymade garments accountingfor nearly a quarter of the scrotal growth. Other important exportindustries contributing to scrotal growth are Fish & seafood, andLeather tanning. Major import during substituting this periodindustries include experiencing significant growth Pharmaceutical,

Indigenous cigarettes (bidi), Job printing and Re-rolling mills. Othersuccess stories of Bangladesh include maintenance of low level ofinflation, rapid spread of micro credit program largely at theinitiative of NGOs, and significant improvements in the social sector.However, in spite of such successes, the structure of production andexports has remained extremely narrow in Bangladesh. Bangladesh hasalso failed to attract adequate amount of FDI into the country. Whilethe opening up of gas, electricity and telecommunication sub-sectorsto private investment has resulted in the inflow of considerableforeign direct investments (FDI) in these sectors, the overall inflowof FDI has remained sluggish. and The narrow export by base its has

main rendered trading Bangladeshâ¼s partners. The external sectorextremely dependent on global trading environment preferentialtreatment recent poor performance of exports in the face of globaleconomic slowdown has confirmed this vulnerability of theBangladeshâ¼s external sector. Other weaknesses of Bangladesh economyinclude a dysfunctional banking system overburdened with classifiedloans, persistent loss of the state owned enterprises, poor

3




2003Â

infrastructure, deficient tax efforts, political disturbances and

unsatisfactory law and order situation. Now we are going to theCountry Competitiveness Indicators of Bangladesh. Because exportgrowth performance depend on competitiveness factors Table-1. OverallPerformance: GNP per capita (US$) 1996 Average Annual Growth of GNPper capita (%) 1965-96 Standard Deviation of Income DistributionSource- World Bank Group Table Table 2. Macro and Market Dynamism:2(a) .Investment and Productivity Growth 1996 17% 13.6% 62.5% 0% 0%2.4% Average annual growth of Gross Domestic Investment(%) 1990-1996Private Investment (% of Gross Domestic Fixed Investment) 1996 NetForeign Direct Investment FDI (% of GDP)1996 Average annual differencein Net FDI (%) 1980-82 to 1990-92 Average Annual Growth of Real GDPper worker(%) 1980-90 Source- World Bank Group Table-2(b). Overall

Trade Dimensions Trade Surplus/Deficit (% of GDP) 199500% Export Shareof World Trade (%) 1994 Average Annual Growth in Export Share (%)1989-95 Export Concentration Index 1992. Percent Change in ExportConcentration Index (%) -8% 0.1% 6.697% 0.246 -2.381% $260 1.00% 11.31

Gross Domestic Investment (% of GDP)

4




2003Â

Bangladesh Exports of goods and services (% of GDP) ( total) Total

debt service (% of exports of goods and services)** (total) Source-World Bank Group Figure-1 * ** * 14.0 9.2

Source: World Development Indicators database, July 2000 Table-2 (c).Export Competitiveness Average Annual Nominal Export Growth (%) 8889to 93-94 Export Growth from World Demand (%) 88-89 to 93-94 7% 16.4%

5




2003Â

Export Growth from Market Share (%) 88-89 to 93-94 Export Growth from

Market Diversification (%) 88-89 to 93-94 Source- World Bank GroupTable-2 (d) . Export Structure Manufactured Exports (% of totalexports) 1995 Percent Change in Share of Manufactured Exports (%)1980-93 High Tech. Exports (% of manufactured exports) 1995 Source-World Bank Group Table-2 (e). Trade Policy Mean Tariff (%) 1990-93Standard Deviation of Tariff Rates (%) 1990-93 Percent of Productscovered by Non-Tariff Barriers (%) 1990-93 Source- World Bank Group

8.8% 0%

83% 20.29% 0%

84.1% 26.1 N/A

Table-2 (f). Government Involvement in the Economy GovernmentConsumption (% of GDP) 1996 Average Annual Growth of GovernmentConsumption (%) 1990-95 Value Added of State Owned Enterprises SOE (%of GDP) 1990-95 SOE's Investment (% of Gross Domestic FixedInvestment) 1990-95 Government Surplus/Deficit (% of GDP) 1995 Source-World Bank Group Table 3. Financial Dynamism Net Present Value ofExternal Debt (% GDP) 1996 Growth in Total External Debt (%) 1980-9430.0% 89.82% N/A 23.5% 3.4% 14 % 3.4%

6




2003Â

Average Outstanding Money M2 (% of GDP) 1996 Average Annual Growth

Rate of GDP Deflator (%) 1990-96 Credit to Private Sector (% of GDP)1996 Stock Market Capitalization (% of GDP) 1996 Real Interest Rate(%) 1996 Source- World Bank Group

36% 4.9% 20.6% 14.3% 8%

Actually, growth has accelerated in Bangladesh in the 1990s. Much ofthis acceleration in growth took place in the context of rapidlydeclining external aid. External aid has fallen from 12% of GDP in theearly 1980s to only about 2% of GDP now. There have not been anycompensating private flows during this time. This enhanced growthperformance occurred during a period of policy reforms. reforms

However, were it does not necessarily for the mean that policy Somealone responsible acceleration.

increase in total factor productivity was responsible as was someincrease in the savings rate, due largely to an increase in publicsector savings. Much of the growth in large-scale industry has beendriven by ready-made garments (RMG). Growth in the nonRMG large-scaleindustry has been slow about 4% in the 1990s. This is less than thatin the 1980s. Why is it that so few industries have managed toduplicate the performance of the RMG sector? One question worthexploring is whether the RMG sector, by absorbing the RMG domesticsector savings, has had crowded phenomenal out the other Growthindustries. The growth.

rates of earnings, in real dollar terms, jumped from about 6% duringthe 1980s to 15% during the 1990s. For the first time in FY01-02,there was a 10% drop is export earnings. But, even in this bad year,the volume of exports actually went up by 10%, albeit not by enough tocompensate for the 20% drop in average prices. There are some fronts,however, where the industry has not been very successful. One sucharea is marketing. The industry has not yet developed good marketingskills of its own

7




2003Â

and continues to rely heavily on foreign buying houses, notably those

from India and Sri Lanka. These intermediaries capture a large part ofthe margin. The scope for the industry to benefit from devaluations islimited in such a situation. The industry should have used the last 20years to go deeper into the marketing channel. The fact that foreigndirect investment had not been allowed in the industry is one possiblereason for our failure to do so. The Bangladesh is Garments nowManufacturers of setting and up Exporters sector Association (BGMEA)may that be thinking The

marketing centers abroad. This is an area where public-privatecollaboration industry required. grew only importsubstitutingsignificantly, reflecting

somewhat the East Asian pattern, is pharmaceuticals. It first grewunder protection alongside imported pharmaceuticals. It then out-competed the imported products and has now started exporting. It ispossible that some parts of the industry are not very efficient butare surviving due to protection while other parts are efficient andcompeting in world markets. The shrimp processing industry is aninteresting case. A few years ago, the industry faced seriousreputation problems due to the fraudulent practices of a fewproducers. The malpractices of a few jeopardized the entire industryindicating that reputation is a public good. In other words, theindustry as a whole needed to take remedial actions. The industry isnow finally realizing this and has started taking steps at self-regulation. Having concluded that the governmentâ¼s standardsinstitute is inefficient, it has adopted measures to impose standardson their own and monitor compliance. textile important technology tois The capital a goods has industry virtually goods has declined,e.g., It is of to machinery have industry disappeared. For

capital for

industry. growth.

Adaptation this

important

industrial

happen, one needs a domestic capital goods industry. Small scaleindustries have done quite well in recent years and have largelybenefited from liberalization. On the one hand, they are not much

8




2003ÂThey

affected on the output side (do not compete with imports) but benefitwell of as export from the liberalization industries. and of importsof inputs. will to expanded at the expense of inefficient large-scaleindustries as cottage Poverty reduction industries by require povertyforeign who need as The further growth in such small scaleenterprises. The contribution industries large-scale to reduction willbe less direct. Their main contribution will be through exchange.subsidies practice generating This are of will capacity help importearning small-scale to enterprises activities, with

imported inputs and this, in turn, will help reduce poverty. Cashcurrently leather providing given cash various and such agro-

processing, goods light engineering.

subsidies

started

Grameen

check(garment). It was meant to compensate for duties paid on importsand amounted to 25% of total sales value, a high amount by anystandard. to The rationale for providing If cash subsidies, is to beespecially at the current scale, is weak. Import duties have gone downdue import liberalization. compensation provided, the amount requiredfor various products will have to be re-calculated, taking intoaccount the changes in duty rates. Many people fear that the RMGindustry will be hard hit after 2005 when quota privileges arewithdrawn. However, the fears may be exaggerated. The European marketis already open and Bangladeshi exporters are doing reasonably wellthere. The key is to improve productivity and go deeper into themarketing chain. Dispersed, non-farm growth in rural areas and in andaround small towns is probably the way to go. There is some potentialin micro-level enterprises but not much. will increase through small-scale Self-employment in lownot much through require productivityactivities does not hold much promise. Wage rates activity,development micro-enterprises. Industrial will

improvements in governance. Bangladeshi industry can do quite wellwithout much protection if there is better governance, e.g., if thereis no toll collection and if utilities can be provided

9




2003Â

efficiently. A recent study has shown that the costs of giving tolls,

as percentage of turnover, is greatest for small-scale industry, andlower for micro and large enterprises.

Consistent market economic system

with and

the

on-going

trend of

of

the

freea

globalization

world

economy,

liberal trade policy was pursuer in the financial year ended on 30thJune, 2000 as in the preceding year with the objective of providingprotection to the domestic industries, trade liberalization andexpansion of export trade. So a small change has occurred inBangladeshi trade policy, especially garments sector. Earning from theexport of the readymade garments which stood at 4352.0 and EC millioncountries us dollar the during 1999-2000 was 8.3% higher than 4020.0million us dollar during 1998-1999. The USA, Canada, were principalbuyers. Export receipts from readymade garments were 1.2% higher thanthe target of 4380.53 million us dollar for the year and accounted for75.7% of the total export receipts of the country. Seventy-five percent of Bangladesh's exports is

dominated by only one item-ready-made garment (RMG) - and the bulk ofthe volumes of RMG exports goes to North America and Europe. AfterRMG, the only other mentionable items are shrimp, jute and leather.Even the buyers of these secondary export items are limited in number.The composition of the export trade to such a small number of goodsand their limited number of buyers mean that the in or country'sexternal reduced external demand. market trade Both for is invulnerable the form and of to any for downturn the environment price



fluctuation market the

prices

demand

Bangladeshi RMG products have recently much declined in the Us biggestsingle Bangladesh's ready-made garment . Similar is the condition ofthe other export items with the only exception of leather. Butnotwithstanding the global

10




2003Â

A recent study has shown that the costs of giving tolls, as percentage

of turnover, is greatest for small-scale industry, and lower for microand large enterprises. Consistent with the ongoing trend of the free-market economic system and globalization of world economy, a liberalfinancial year ended on 30 with So a the objective change garments ofhasth

trade policy was pursuer in the protection in to the trade exportdomestic policy, of the

June, 2000 as in the preceding year

providing occurred

industries, trade liberalization and expansion of export trade. smallBangladeshi from the especially sector. Earning

readymade garments which stood at 4352.0 million us dollar during1999-2000 was 8.3% higher than 4020.0 million us dollar during 1998-1999. The USA, Canada, and EC countries were the principal buyers.Export receipts from readymade garments were 1.2% higher than thetarget of 4380.53 million us dollar for the year and accounted for75.7% of the total export receipts of the country. Seventy-five percent of Bangladesh's exports are dominated by only one item-ready-madegarment (RMG) - and the bulk of the volumes of RMG exports go to NorthAmerica and Europe. After RMG, the only other mentionable items areshrimp, jute and leather. Even the buyers of these secondary exportitems are limited in number. The composition of the export trade tosuch a small number of goods and their limited number of buyers meanthat the country's external trade is vulnerable to any downturn in theexternal environment in the form of price fluctuation or reduceddemand. Both prices and demand for Bangladeshi RMG products haverecently much declined in the Us market the biggest single market forBangladesh's ready-made garment. Similar is the condition of the otherexport items with the only exception of leather. But notwithstandingthe global recession and setbacks in certain markets, the country'sexport trade would not slump badly perhaps and could be maintained at

a reasonable level if steps were taken much earlier to achievediversification of both exportable and their buyers. In that case, thecountry would be hedged

12




2003Âas

considerably

against

any

drastic

fall

in

export

earnings

reduced earnings of some items or from some countries could be offsetby good or steady earnings from other sources. Exporters ofBangladeshi garment industries must get used to being dynamic for achange. They must shake off the habit of waiting for orders to come tothem automatically. They should be rather out in the field hunting forsuch orders. Experts in the RMG field say that good markets are therefor Bangladeshi products in some South American producers countries,should in the no CIS countries in and in Japan. RMG lose timeimmediately exploring these

markets and Bangladeshi missionsâ¼ abroad need to work round theclock in support of such market identification and developmentactivities. Government's fiscal and other polices will have to bequickly adjusted as the exporters search out new markets and attemptentering into them. Apart from the conventional items, exporters needto be encouraged in every way to go all-out to try and exportunconventional items and in greater quantities. It was estimated thatBangladesh produces about 4.2 million tons of fresh fruits andvegetables a year and a substantial quantity of such produce getswasted. But the same have good market demand abroad and can earn goodamounts in foreign currencies provided government makes the right move

to reduce freight, handling and other the charges of and provides ofother incentives can to exporters of fruits and vegetables. Governmentpolicies taken in support of moves exporters agro-produces probablycreate quickly new items for export at a time when the country is in arather desperate situation to earn more foreign currency from itsexport trade.RMG business started in the late 70s as a negligible non-traditional sector with a narrow export base and by the year 1983 itemerged as a promising export earning sector; presently it contributesaround 75 percent of the total export earnings. Over the past one and




2003Âgrowth

USD, which was only less than a billion USD in FY91. Excepting FY02,the industry registered significant positive throughout this period

In terms of GDP, RMGâ¼s contribution is highly remarkable; it reaches13 percent of GDP which was only about 3 percent in FY91. This is aclear indication of the industryâ¼s contribution to the overalleconomy. It also plays a pivotal role to promote the development ofother key sectors of the economy like banking, insurance, shipping,hotel, tourism, road transportation, railway container supportingstood at a services, etc. A USD USD 1999 2.0 4.0 study billion foundworth the of of industry economic the key approximately little over

activities (Bhattacharya and Rahman), when the value of exportsbillion. One advantages of the RMG industry is its cheap labor force,which provides a competitive edge over its competitors. The sector hascreated jobs for about two million people of which 70 percent arewomen who mostly come from rural areas. The sector opened upemployment opportunities for many more individuals through direct andindirect economic activities, which eventually helps the

14




2003Âpoverty

countryâ¼s

social

development,

woman

empowerment

and

alleviation So, There in the light of importance of garments industryin Bangladeshi economy, we intend to evaluate its export growth and toanalysis itâ¼s structural change.

So, There in the light of importance of garments industry inBangladeshi economy, we intend to evaluate its export growth and toanalysis itâ¼s structural change.

CHAPTER II 2.1. Statement of the Problem and its Significance: A totalof 1,276 ready-made garment (RMG) factories had closed down in theaftermath of the 11 September 2001 incident in the USA of which 1,178were located in Dhaka and 98 in Chittagong. As a result of the factoryclosure 350,000 workers were rendered while jobless. some Although,some of the factories women have gradually reopened since March 2002,501 factories still remain closed 2,25,000 workers mostly remainjobless. Needless to mention, the government, the factory owners andthe BGMEA have a moral and social responsibility towards theseworkers. The prospect resulting from the joblessness of millions ofunemployed women on the streets has the potential to create masssocial and add to the dismal economic situation resulting from thegarment industry crisis. The international and national trade bodies,policymakers and the media causes are primarily fall-out focusing ofthe their RMG attention sector on the in economic and crisis

Bangladesh. Little attention is being paid to the impact of the crisis

on livelihood security of the workers. Since the majority

15




2003Â

of workers in the garment industry in Bangladesh are women, it is

these women who are bearing the brunt of the market decline. Atpresent, there is not a single industry where this volume of narrowlyskilled workers call be reemployed. The crisis will therefore have adevastating social effect, not only for the women who will lose theirjobs, but also for their families and communities. With a modestbeginning in the late seventies the RMG sector in Bangladesh rapidlygrew. Within a very short period of time, it attained prominence interms of its contribution to Bangladeshâ¼s and gross domestic femaleproduct labor (GDP), foreign and the exchange favored earnings andemployment. The industry flourished due to the cheap predominantlymarket international textiles and clothing regime under the Multi-Fibre Agreement (MFA).

2.2. The objective of the study: The purpose of the present study hasbeen to assess the direct and indirect contribution made by RMG in theeconomy of a developing country like Bangladesh. With this aim inview, we tried to estimate the direct and indirect linkages of growthin the economy of Bangladesh. Since, the RMG industry presently earnsBangladesh the largest amount of foreign exchange and is considered tobe the leading 'growth industry' of Bangladesh, we made a particularattempt to assess the contribution o f growth of RMG manufacturing andexporting activity. These exercises, together with an examination ofthe current international trade growth of Bangladesh, made it possibleto outline the future development analyze the and potential ofinternational the observed trade rapid of garment in of Bangladesh.Besides on, the main interest of this study is to sources increasesBangladeshi readymade garments exports. This will also analyses thesources of the growth of readymade garments exports. Then the

16




2003Â

barriers to readymade garment exportation will be reviewed and its

impact on exports growth sources will be evaluated. 2.3. Scope of thestudy: The period under the study will cover approximately ten yearsfrom 1989 to 1998 and the historical development will be included toshow this industry can become one the major export earning sources. Inemploying the constant-marketshare method, five market are ofconsidered, garment trade namely(1) USA,UK.CANADA of 4 (SITC) code ANDALL OTHERS.Export namely products consist commodities, numbe-

slandered

classification

48119,48219,4851,48511,48512 and 48522. 2.4. Organization of thestudy: My paper is consists of six chapterChapter 1 gives theintroduce the present condition of Bangladesh. Chapter 2 gives thestatement of the problem, scope of the study Chapter 3 -gives thegeneral view about Bangladeshiâ¼s garment industry. Chapter 4- isdevoted to the methodology and definition used to assess the exportgrowth of Bangladeshi garment industry. Then it shows the empiricalresults of the export growth of Bangladeshi garment product. Thischapter identifies the importance factors of the export growth ofBangladeshi garment industry usining the â¼Constant Market ShareModelâ¼ Chapter 5 -Is mostly devoted to explain the results obtainedin chapter 3 concentrating on the competitiveness factors and explainsthe market stricture of Bangladeshi garment export and discusses therelationship between factor requirement of garment product and theirexport market.

17




2003Â

Chapter 6 gives the summary of the result and conclusions. CHAPTER-III

3.1. Market structure of Bangladeshi Garment Industry: Textile Sectorin Bangladesh is predominantly made of natural fiber using cotton.This sector is broadly classified into the following stages/sectorsbased on the value addition. â¼¢ Yarn â¼¢ Fabric â¼¢ Apparel Each ofthe above sectors is analyzed to generate an overall perspective onthe industry. Apparel is the high Growth Sector of garments sector.The liberalization of industrial policy of Bangladesh along withdevelopment of export processing zones at Dhaka and Chittagong,industry attracted in investment to in the up Ready-Made plantsGarment (RMG) Bangladesh set large

working on higher economies of scale. This enabled Bangladesh toachieve a phenomenal growth in export of RMG. The export of RMG fromBangladesh increased from a meager US $ 7 million during 1981-82 toabout US $ 1.95 billion during 1995-96. The RMG Sector achieved agrowth of 20% per annum over the past ten years. Such high growth wascatalysed by the low wages along with Multifibre Agreement (MFA) ontextile quotas principally with U.S.A., Canada and European countries.The Generalised System of Preferences (GSP) provided import tax breaksworth about 15% of the import valuation, giving Bangladesh's RMGexport a considerable advantage in these markets. In addition to the

above, the financing arrangements created through a system of back-to-back Letters of Credit (LOC) covering imported inputs and finishedexports, greatly contributed to the accelerated growth of RMG sector.The above factors enabled Bangladesh to

18




2003Â

become the fifth largest exporter of RMG to the European Union and

Sixth largest to the USA. The apparel industry in Bangladesh isbroadly classified into Knitwear, RMG, speciality/linen includingterry towels and others. The total export of apparel

was about Takas 105.87 billion during 1995-96. The share of RMG exportin this sector is above 75%. The composition of export of apparel bytype is indicated in the following chart: The further break-up of mainitems of knitwear and RMG export is provided in the following charts:

Value of RMG Export: Taka 79.7 Billion

Break-up of main items of export in apparel sector of Bangladesh

KNITWEAR(Approx. US $ 2 billion)

The quality of fabric produced domestically in Bangladesh is not uptothe standard required for the production of export quality garments.Therefore, exporters of garment, largely have to depend upon import ofquality fabric. There are about 26 weaving mills in Bangladeshreported as in 1996, with a total of 7,179 looms. About half of thesemills are government owned. There are also another 515 thousand handlooms in the country apart from about 488 hosiery units. About 30 percent of these hosiery during units produce The export total qualitydemand knit fabric. The local this fabric production is reported to beabout 915 million meters 1995-96. for fabrics against production levelis estimated to be about 3155 million meters (approximately 3.45billion yards) during 1995-96. Hence apart

19




2003Âdomestic The

from

the

quality is

considerations to meet

mentioned the

earlier,

production

inadequate

fabric

demand.

composition of demand of fabrics for garments for domestic market andgarments for export market is illustrated in the following chart:Composition of Demand for Fabric from Garment SectorFabric Sector in Bangladesh during 1995-96 Million Meters Total MarketSegment Export 1830

Domestic Demand Production Import 3155 915 2240 1325 915 410

1830

The above chart indicates the importance of export market for textilesector of Bangladesh. The local demand for fabric, which is reportedto be about 1325 million meters, is largely met by the traditionalhand looms, small power looms and textile mills in the government andprivate sector. However as domestic production falls short to meeteven the domestic demand for fabric, about 410 million meters isimported during 1995-96 to The

meet the short fall. The overall scenario of fabric sector inBangladesh is indicated in the following table and chart: graphicalform. following chart illustrates the interpretation of above table in

Million Meters

20




2003Âfabric

The

above

chart

indicates

that

about

82%

of

the

imported is consumed in the production of garments for export, whilethe balance 18%, is consumed to meet the domestic demand, which byitself is about 30% of the market. need for This emphasisâ¼s a therequirement of domestic for the investment following factors for inneed unit,

textile/weaving segment in Bangladesh. After assertazzining thesetting-up the weaving and paras such investigate prospects keysuccess

weaving mill:

Yarn is the primary input to the weaving mill.

Yarn is spun in a spinning mill using spindles. Bangladesh has about118 spinning mills. About 25% of these mills are owned and managed bythe government. It is reported that about 45% of these spinning millsare out dated and run at a loss. The production of yarn in Bangladeshis reported to be about 100,000 tonnes during 1995-96. The demand for

yarn is, however, as high as 470,000 tonnes. Hence the domesticproduction meets only about 21% of the domestic demand for yarn. itsThe huge deficit of in production of yarn to meet its through mainlyKorea, imports. from Singapore, that Bangladesh like 116 Thailand,countries about demand in Bangladesh, is met requirement apart Egypt,etc. units yarn It with is a Pakistan Canada, from China,

sources India. USA,



estimated

additional

spinning

capacity of 25,000 spindles each are required to meet the demandsupplygap for yarn

21




2003Â

Table 1: Apparel Exports from Bangladesh in Value and Volume YEA R

TOTAL APPAREL EXPORT (Millions of $) Gro wth in Mon thl y Tot alsWOVEN Tot Mon al thl y 199 293 199 394 199 495 199 596 199 697 199 7981,2 103 40. .37 48 1,2 107 91. .64 65 1,8 152 35. .92 09 1,9 162 48..4 81 2,2 186 37. .5 95 2,8 237 44. .04 43 KNIT To Mon ta thl l y 204. 54 26 4. 14 39 3. 26 59 8. 32 76 3. 3 93 7. 51 17. 05 22. 01 32. 7749. 86 63. 61 78. 13 TOTAL Tot Mon al thl y 1,4 45. 02 1,5 55. 79 2,228. 35 2,5 47. 13 3,0 01. 25 3,7 81. 94 120 .42 129 .65 185 .7 212 .26250 .1 315 .16 7.6 7% 43. 23% 14. 31% 17. 83% 26. 01% WOVEN Tot al 36,053 .88 34, 351 .00 47, 210 .00 48, 820 .04 53, 450 .33 65, 590 .00Mon thl y 3,0 04. 49 2,8 62. 58 3,9 34. 17 4,0 68. 34 4,4 54. 19 5,465. 83 KNIT Tot al 10, 663 .56 10, 815 .00 15, 301 .90 23, 185 .45 27,536 .07 32, 604 .37 Mo nt hl y 88 8. 63 90 1. 25 1, 27 5. 16 1, 93 2.

12 2, 29 4. 67 2, 71 7. 03 TOTAL Tota l 46,7 17.4 4 45,1 66.0 0 62,511.9 0 72,0 05.4 9 80,9 86.4 0 98,1 94.3 7 Mon thl y 3,8 93. 12 3,7 -3.32% 63. 83 5,2 38.40% 09. 33 6,0 15.19% 00. 46 6,7 12.47% 48. 87 8,121.25% 82. 86 TOTAL APPAREL EXPORT (Thousands of dozens)

Growth in Monthly Totals

22




2003Â

199 899( JUL YAUG UST )

561 280 .54 .77

17 7. 21

88. 61

738 .75

369 .38

17. 20%

12, 186 .00

6,0 93. 00

6,4 64. 00

3, 23 2. 00

18,6 50.0 0

9,3 13.96% 25. 00

Source: Bangladesh Exports Promotion Bureau (EPB) Table 2: YEAR MajorItems of Apparel Exported from Bangladesh SHIRT Mont hly Tota Aver agel 805. 67.1 34 1 791. 65.9 2 3 807. 67.3 66 1 759. 63.3 57 961. 80.013 9 201. 100. 12 56 T-SHIRT Mont hly Tota Aver age l 225. 18.8 9 3232. 19.3 24 5 366. 30.5 36 3 391. 32.6 21 388. 32.3 5 8 49.0 24.5 5 3TROUSERS Mont hly Tota Aver age l 80.5 6.71 6 101. 8.44 23 112. 9.3402 230. 19.2 98 5 333. 27.7 28 7 60.5 30.2 1 6 JACKET Mont hly TotaAver age l 126. 10.5 85 7 146. 12.2 83 4 171. 14.3 73 1 309. 25.7 21 7467. 38.9 19 3 105. 52.6 25 3 SWEATER Mont hly Tota Aver l age 0 0 070.4 1 196. 6 296. 29 81.6 1 0 5.87 16.3 8 24.6 9 40.8 1

199394 199495 199596 199697 199798 199899 (JULAUG)

Source: Bangladesh Exports Promotion Bureau (EPB) RDTI Cell ofBangladesh Garment Manufacturers and Exporters Association (BGMEA) Ourown calculations of monthly averages and growth factors (Millions of$) Table 3: Export Markets for Bangladesh Apparels

23




2003Â

EXPORTS TO THE U.S. YEAR 19911992 19921993 19931994 19941995 19951996

19961997 19971998

U.S. MARKET SHARE (%)

EUROPEAN UNION SHARE (%) 46.62 46.46 55.96 49.67 54.12 54.11 51.26

CANADA AND OTHERS (%)

(millions , $) 581.1 49.14 703.96 592.46 1006.08 1001.68 1245.141494.02 48.71 38.08 45.07 39.33 41.49 43.6

4.23 4.82 5.95 5.08 6.56 2.1 5.14

Source: Bangladesh Exports Promotion Bureau (EPB) RDTI Cell ofBangladesh Garment Manufacturers and Exporters Association (BGMEA) Ourown calculations of monthly averages and growth factors Table 4:Apparel Exports to Major Markets (1997 - 1998) TOTAL APPAREL EXPORT INMILLION US$ WOVEN COUNTRY USA CANADA AUSTRIA BELGIUM DENMARK FINLANDFRANCE GERMANY GREECE IRELAND ITALY NETHERLANDS PORTUGAL 1,443. 2166.89 12.13 78.91 16.69 9.55 206.78 352.78 2.40 5.17 171.42 127.941.97 228.69 27.88 5.84 60.37 23.81 4.23 137.43 130.09 1.41 3.30 46.1175.47 0.83 1,671. 90 94.77 17.97 139.28 40.50 13.78 344.21 482.87 3.818.47 217.53 203.41 2.80 44.21% 2.51% 0.48% 3.68% 1.07% 0.36% 9.10%12.77% 0.10% 0.22% 5.75% 5.38% 0.07% KNIT TOTAL % OF TOTAL

24




2003Â

SPAIN SWEDEN UK OTHERS TOTAL

32.26 31.34 226.33 58.66

10.75 14.63 144.78 21.89

43.01 45.97 371.11 80.55 3,781. 94

1.14% 1.22% 9.81% 2.13% 100.00 %

2,844. 937.51 43 Source: Export Promotion Bureaus (EPB)

Table 5: Top Five European Destinations for Bangladesh Apparel (July

1997- May 1998) VALUE (Millio ns, $) 434.77 343.89 305.72 183.63195.82

RANK 1 2 3 4 5

COUNTRIES Germany United Kingdom France Netherlands Italy

Source: Bangladesh Exports Promotion Bureau (EPB) RDTI Cell ofBangladesh Garment Manufacturers and Exporters Association (BGMEA) Ourown calculations of monthly averages and growth factors

3.2. Recent Performance of the Apparel Export Sector In a liberalizedtrade regime, competition among textiles and clothing exportingcountries is likely to become intense. The objective of this paper isto identify the prospects of RMG industry after the MFA phase out byanalyzing the current scenario along with different policy measuresand the available options in order to be more competitive in the newregime.The export made by Garments Industries of Bangladesh isimproving

25




2003Â

year after year except some of the year. Strike, layout, shutdown of

company, political problem, economic problem, inflation etc. are theprime But cause of decreasing Readymade export in this important isthe sector. above it, Garments Industries

leading sector in export sector. Year Percentage change 1991 â¼³ 9232.49 1992 â¼³ 93 38.88 1993 â¼³ 94 36.43 1994 â¼³ 95 22.19 1995 â¼³ 96 7.67 1996 â¼³ 97 43.47 1997 â¼³ 98 14.11 1998 â¼³ 99 17.83 1999 â¼³ 00 26.01 2000 â¼³ 01 6.29 2001 8.19 02 Export (in US $ million) 624.16866.82 1182.57 1445.02 1555.79 2228.35 2547.13 3001.25 3781.94 4019.984349.41 4859.83 4583.75 4912.12

2002 â¼³ 03 11.74 2003 â¼³ 04 5.68 2004 â¼³ 05 7.21

2005 â¼³ 06 5686.09 15.83 Year Export by the garments industries (inUS $ million) Average Quota Prices of Selected Garments Items Exportedby Bangladesh, 2006

26




2003Â

Table: Quota Prices of Selected Garments Items Exported Position of

Bangladesh is exporting product in USA is not very satisfactory butthis situation is better than any other condition of the previoustime. But if our Government take some essential law and break out thewall of biasness then the position of Bangladesh in Garments sectorwould be hope to better. Table: Exports of Knit and Woven Garments tothe United State

(Source: Export Promotion Bureau of Bangladesh) Besides the floods,there were several other crises that impacted the garment industry in1998. The disruption of the normal functioning of the Chittagong portdue to labor unrest was certainly one of them. The BGMEA hasrepeatedly requested the government to ban labor strikes in the

Chittagong port on grounds of national interests. Another source ofdisruption was the

27




2003Â

perennial problem of hartals (nationwide general strikes) called upon

and enforced by the opposition political parties to protest governmentpolicies. Although, in a major concession to the apparel exporters,the leader of the main opposition party had declared that the garmentindustry would be exempt from such hartals, in practice the situationis more complex. On the ground, the firms cannot take chances to sendtheir products on the road for fear that these will be attacked. Thepsychological impact of these events on the existing and potentialbuyers cannot be overstated. Buyers in the global garment marketsremain highly sensitive to the risks of unfulfilled orders. The imageof Bangladesh as a somewhat unpredictable supply source may have beenstrengthened due to the floods, as the floods received considerableworld media attention and by the violent political unrest that spills

over in the streets of urban areas. In the early months of 1999, ithas gradually become apparent that there may have been a substantialreduction in new orders received by Bangladeshi manufacturers as aresult of these problems and also due to increased competition fromthe East Asian manufacturers whose currencies have been severelydevalued.Historically, apparel exports from Bangladesh have grown atan annual rate of more than twenty percent, roughly doubling everythree years. In 1996-1997 the exports in gross terms equaled threebillion dollars. At this rate, these exports could potentially reachsix billion dollars by the year 2000 and possibly exceed ten billiondollars in the not too distant future. However, in the year 2004, theMulti-Fiber Arrangement (MFA) quotas will end, ushering in a globallycompetitive market for clothing products. One of the most importantfactors responsible for the success of this industry has been dynamicentrepreneurship. In fact, we believe the garment entrepreneurs shouldreceive a national award for their creative initiatives in overcomingthe crises during this period. The industry presents a model thatentrepreneurs in other sectors could emulate with benefit. The manyhurdles the industry

28




2003Â

overcame in 1998 include the floods, the shocks from the most severe

economic collapse and currency devaluation in East Asia economies inrecent history, and other domestic crises. Strategies pursued by theindustry in 1998 include the following: the decision to hold monthlymeetings between BGMEA officials and leaders of the labor unions inthe industry; efforts to implement the child labor agreement of 1995;hiring a high-profile American politician to lobby for the industry inWashington D.C.; and asking the U.S. government to increase quotas forapparel made in Bangladesh by thirty and percent to reward theprogress (BGMEA); made in reducing the use of child labor in thegarment factories. Manufacturers calculations of Exporters Associationand Author's What monthly averages growth factors.

implications does the success of the apparel exports have for theeconomy of Bangladesh? The positive impacts are considerable andwidespread. For several years now, apparel exports have been thelargest manufacturing industry, and also the biggest source of foreignexchange earnings. It may be a "soft goods" industry but neverthelessit has created positive changes in the economy and society by creatingemployment and income for poor women workers and by bringing inforeign exchange for the country. In terms of gross foreign exchangereceipts, in the most recent period for which we have data (July 1997-May 1998) export of readymade garments earned $3392.45 billion or73.18 percent of the total export earnings of Bangladesh. The share ofapparel products in total exports has steadily risen for severalyears. In both absolute and relative terms, the industry dominates themodern economy of Bangladesh. In addition, the positive sociological,demographic, political and economic impact of 1.5 million workersemployed in the manufacturing sector is huge. This is especially truesince ninety percent of these workers are women, many of whom havemigrated from the countryside in search of a life free of poverty. Theas forward and backward linkage industries and and services suchtextiles, accessories, transportation,

29




2003Âbeen tax

packaging

and

the

private

sector The

in

general

have has

also gained

significant

beneficiaries.

government

revenues, and the foreign investors to a large extent have beenexposed to Bangladesh as a result of the success exports. However, thebiggest winner has been of garment the private

entrepreneur in Bangladesh. Entrepreneurship is alive and well inBangladesh. The sustained success of apparel exports underscores thispoint. The Future of Garment Exports and the Economy of Bangladesh Thegrowth rate in overall exports from Bangladesh peaked in 1994-1995 at40 percent a year. However, export growth has remained strong.Currently, the garment exports alone bring in close to four billiondollars in gross terms. The imports of fabrics and relatedintermediate goods account for $2.3 billion resulting exports. in Thenet earnings of approximately has been $1.7 billion. dynamic The in

garment and knitwear exports accounted for the bulk of these knitwearsector especially recent years. Given the fact that the market forknitwear exports is unprotected by quotas, this bodes well for thepost MFA future of the industry. Bangladesh apparel exports can nowpoint to a proven track record of successfully competing in the globalcompetitive foods have environment. not fared as Unfortunately, wellover this other potentially This has



promising exports from Bangladesh- leather, jute goods, frozen period.accentuated the already narrow export base of the country and is amatter of concern for policymakers. The excessive dependence of theeconomy on the garment sector for foreign exchange earnings and exportgrowth demands policies that would diversify the export base of theeconomy. What can be said about the future performance of the apparel

export industry in Bangladesh? What are the risks for exports ofBangladeshi apparel? First, supply shocks such as the debilitatingfloods of 1998 that shaved off several percentage points from theexpected GDP growth this year and caused widespread disruption inproduction and transportation can never be accurately anticipated. Theother major crisis the

30




2003Â

industry had to deal with in 1998 was external and once again hardly

anticipated. We refer to the East Asian economic debacle of 1997-1998.The financial panic and the subsequent economic meltdown thatafflicted several economies in the East Asia Malaysia, certainlyIndonesia, have been Thailand, a Philippines element and in South theKoreaeconomic restraining

performance of the regional economies. What are the links between theEast Asian economies and garment exports from Bangladesh? There areseveral avenues by which negative economic shocks from these emergingeconomies can impact this export industry in Bangladesh. First,several of these nations are also big apparel exporters in samemarkets to which Bangladesh exports apparel. A steep depreciation in

their currency makes their products more competitive in both the openand the quota-protected apparel markets. In the markets protected byquotas, such a development would be a deflationary force pulling downthe unit prices and the out profit of margins for Bangladesh Inapparel the exporters. Second, these given the crunch, these economieswould try to export themselves their and severe recession. recentcrisis, regional international forces have greatly increased

competition for Bangladesh exports. Third, to help them recover fromtheir downturn, the U.S. government and others have already relaxedquota restrictions on exports from the worst affected economies,Bangladeshi making the playing Fourth, field to more this difficultcrisis, some for of exporters. prior

these nations were potentially big investors in Bangladesh in thetextile and infrastructure projects. Their economic troubles havemeant a dramatic scaling back in their direct investments inBangladesh. On the other hand, partly as a result of the East Asianeconomic debacle, there was a massive return of Bangladeshi workersfrom this region that has swelled the urban labor force pool fromwhich garment factories recruit their workers. Second, when some ofthese economies weakened, their ability to compete was impaired fromthe economic or political collapse. This could

31




2003Â

mean new opportunities for those competitors who were unaffected by

the economic crisis. Finally, Bangladesh has tried to take advantageof the crises by demanding from the U.S. equal quota concessions,pointing to its efforts in reducing the underage worker problem in theapparel factories. In our view, the biggest threat to apparel exportsin Bangladesh comes from the financial sector. Although we do notanticipate a financial panic similar to the Asian crisis since theinflux of short-term foreign investment (hot money) and borrowing bythe private and public sector has been rather limited in Bangladesh,there are some similarities. affected transparency especially markets.in One or the common is a central element weak bank that bankingcontrol. banking we share Elements sector and with with of in theselittle crony credit Bank economies sector

capitalism and moral hazard are certainly present in Bangladesh,nationalized to the According World Bank-Asian Development

report, the financial sector in Bangladesh remains fragile with 33percent of the portfolios of the NCB's and domestic private banks inthe non-performing category. Notwithstanding the fifty billion taka oftaxpayer money that was used to re-capitalize the nationalizedcommercial banks (NCBs) in the early 1990s, the system-wide capitalinadequacy today is estimated to be taka 133 billion. This situationcould cause the entire banking system to collapse as a result of alarge external shock or even from a domestic shock such as a run on amajor financial institution. One important lesson from the East Asiancrisis is that moral hazard and the resulting financial panic can bevery costly for an economy, even when the fundamentals are sound.Without fundamental reforms in the banking sector, the financialsector in Bangladesh remains susceptible to a financial panic where aspeculative price bubble crashing in the real estate sector orelsewhere in the economy could start a systemic self-fulfillingcrisis. Such a collapse could seriously impact apparel exports, whichare critically dependent on a healthy banking system for

32




2003Â

the

institutional

support

in

exports

and

for

short-term

financing.Other potential hazards include an overvaluation of the takacompared to the currency of its competitors. Despite the repeateddevaluation in the recent past, according to the World Bank, the takathe remains longovervalued in real terms. of the This could undermineterm competitiveness industry.

Finally, in the year 2004, under the Uruguay Round Agreement onTextiles and Clothing, MFA quotas will be phased out. Bangladesh willlose its preferential access to its most important markets and willhave to compete with India, China and other apparel exporters in atruly global competitive environment. Many apparel firms in Bangladeshare not ready for this change, although the more efficient largerfirms that have diversified their products and the markets apparel areexpected to do is well in the to post be MFA world. not Finally, weanticipate that the biggest source of problems for export industrylikely domestic, external. The politicians could seriously damage thissector by creating instability and attempting to achieve their goalsby violent threat. sector, means In in the streets to instead furtherthe of the parliament. rent from of The this this bankers, thebureaucrats, and the politicians remain a source of their couldattempt extract they undermine long-term viability

industry. The failure of the law enforcement forces to control themenace of mastans and toll collectors may create a climate thatdebilitates commerce and production in the economy. Labor disturbancesand frequent disruptions in the Chittagong port also remain a sourceof concern to exporters in general. Increased contacts between factoryowners and the union leadership would help the industry. Garmentworkers remain one of the hardestworking segments of the labor forcein Bangladesh. The working conditions and benefits for workers shouldimprove as the industry matures and human capital increases. In the



long run, this is the best defense against labor union agitation.Investing in worker training and in improved working conditions would

33




2003Â

certainly enhance productivity. The apparel factory owners must be

proactive instead of reactive on this important issue.

CHAPTER IV

4.1. Literature Review: Several authors have analyzed aspects of thegarment

industry in Bangladesh. Of the various aspects of the industry, theproblems and the working conditions of female workers have receivedthe greatest attention. There are several studies including theBangladesh Institute of Development Studies (BIDS) study by SalmaChowdhury and Protima Mazumdari (1991) and the Bangladesh Unnayan

Parisadii

(1990) study on this topic.

Both of

these studies use accepted survey and research methodology to analyzea wealth of data on the social and economic background, problems andprospects of female workers in the RMG sector. Professor MuzaffarAhmad looks at the industrial organization of the sector and discussesrobustness and long-term viability of apparel manufacturing inBangladesh.iii Wiig (1990) the early years.iv provides a good overviewof this industry, especially the developments in One of the fewstudies on the Bangladesh apparel industry to be published in areputed journal in the U.S. is that of Yung Whee Rhee (1990) whopresents what he calls a â¼catalyst modelâ¼ of development. TheBangladeshv

Planning

Commission under the Trade and Industrial Policy (TIP) project alsocommissioned several studies on the industry. Hossain and Brar (1992)consider some labor-related issues in the garment industry.vi Quddus

(1993) presents a profile of the apparel sector in Bangladesh anddiscusses some other aspects of the industry.vii Quddus (1996)presents results from a survey of apparel Islam and entrepreneurs andevaluates the performance of entrepreneurs and their contribution tothe success of this industry.viii

34




2003Â

Quddus (1996) present an overall analysis of the industry to evaluate

its potential as a catalyst for the development of the rest of theBangladesh economy.ix Many economist have wrote about garment sectorbut I have observed three presentation papers ( Dr.Khaled Nadvi,Dr.Salma Chaudhuri Zohir and Dr.Naila Kabeer.) and one seminar paper(Ms Simeen Mahmud).Dr. Nadviâ¼s paper deals with the nature ofcurrent challenges for Bangladesh in the global garment industry inand discusses some of the salient observations from the trade dataanalysis illuminating how Bangladeshâ¼s position the global garmenttrade has changed over time. Dr. Salma Chaudhuri Zohir provideddetails on findings from Bangladesh garment sector firm surveys andDr. Kabir presented some preliminary evidences from the garment andnon-garment workers surveys conducted in Dhaka. Dr. Nadvi identifies

four sets of global challenges that are especially key for a low-income garment exporting country like Bangladesh. These challenges are: a) The phasing out of Multi Fiber Agreement by January 2005b)Increased competition from China which at present controls 18percent of the global trade in garments and severely quota constrainedin leading markets. c) Growing concerns around meeting globalstandards. These include standards that address labor conditions,environmental impacts and quality assurance as well as wider socialand ethical concerns in production. d) Changes in the retail structureof the global industry and the new competitive pressures from theglobal buyers. Buyers are increasingly seeking to not only outsourceproduction to local suppliers, but also shift more functions and risksassociated with such task further down the value chain. More over theone of the key and demands to that is emerging quick in the inincreasingly more fashion driven global industry is the need to reducelead times bring about changes products in keeping with changingmarket demands.

35




2003Âin the

Dr.Nadvi

then

tries

to

map

Bangladeshâ¼s

position

global garment industry by comparing the changes in Bangladeshâ¼sunit price of exports and market access with those of her major actualand potential competitors in the EU market. A mixed story emerged formhis analysis. Bangladesh has significantly increased its market shareduring the last decade. But the discomforting feature is that in mostitems studied Bangladesh has seen its unit values decline more or asrapidly over time as those of its competitors. In this context hecited the example of Vietnam whose share in the cotton shirt sector inthe EU market has gone up from less than 0.5% in 1990 to 3.7% in 1999and at the same time itâ¼s unit value has risen by an average of 6.8%a year during Vietnam the 1990s. is This suggests of significant someimprovements gains. for The which indicative productivity

decline in Unit value in Bangladesh can be an indicative of thelowering labor cost and even with large reserve army of labor thereare limits to which labor cost can be reduced. Thus the challenge atthe firm level for Bangladesh to upgrade is critical if it is tosustain its market share in the long run. Dr. Salma ChaudhuriZohirâ¼s paper provided some important insights from an enterprisesurvey covering 30 firms of different size. Initial finding suggeststhe following overall performance indicators: of garment Export volumehas increased for all but one firm. has declined due to local andinternational Number of buyers has mostly declined to 3 to5. Average

unit price competition. Average product quality has improved Netprofit has declined mostly. Costs are increasing as firms have to setup own building with facilities .Employment has increased in all butone firm . On average lead time in woven has declined to 80 to 90 daysfrom 120 days . Average lead time for imported yearn is . 90 days andfor local yearn is 60 to 70 days for sweater Average lead time forknitwear is around 45 days.

36




2003Â

She suggested that the firms in Bangladesh are constantly adapting

themselves to the changing demands of the market. They are thenresponding discussed and to some the of buyers the her demand in termsof upgrading for the products, upgrading industry plants andcompliance with standards. She major future challenges with thepresentation following

summarized

observations: Medium and large firm will survive and the small firmwill die. MFA phase out will affect woven garments in both USA and EU.Women are mainly employed in woven and hence are more at risk of beingunemployed than men. Knitwear and sweater will survive if GSP

continues. Duty free access to USA and EU is essential for thesurvival of woven RMG. Rules of Origin should be carefully considered.Firms need to seek direct orders from the retailers. We should go forlower and medium price products. Measures must be taken massunemployment of To survive in future the garment industry has tomaintain price competitiveness and reduce the lead-time. to avoidbalance of payment crisis and

women. FDI in the garment industry should be welcomed Dr. Naila Kabeerundertakes a comparison of the condition of the female workers of RMGsector and that of a non-RMG sector in Bangladesh. The research wasconducted among both types of female workers living in the same place.Some of the initial findings are as follows: Although both the RMG andnon- RMG female workers come from the similar social background, theRMG workers are financially better off than the non-RMG workers.nonRMG female workers are coming from RMG workers poor

mainly come from moderately poor families while majority of theextremely families their .RMG workers migrate with their friends notwith their relatives and they stay with their families.

close relatives, whereas the non-RMG female workers migrate with closeCompared to the non RMG female workers the RMG workers have

better education and better access to health care facilities. The RMG

workers perceive themselves to be temporary migrants to the city andtherefore they have higher savings and they send

37




2003Â

remittance to their family members in the villages to a large extent.

Female RMG workers face greater problems on their way to the workplace. Most of the RMG workers think the working hours Involvement intrade union among the RMG workers cope with bad are increasing day byday.

female RMG workers is very limited cope by borrowing. Dr. Kabeeropined

situation by cutting their expenses while the non- RMG workers

that

through

the

wider

participation of female workers in RMG the inner capacity of thefemale work force has been exposed and recognized in a male dominatedsociety. The female themselves have also found out that they can beinvolved in the industrial production, even with lowlevel ofeducation. This discovery will prevail even if the RMG sector does notexist. By sending the remittances to the rural area to the poor familymembers the female RMG workers are helping the alleviation of ruralpoverty.They are mention that already around 40% of the fabric forwoven garments is produced domestically. They argued that textilesector should be provided some support so that RMG does not becometotally dependent on imported fabric. In this regard global rate ofinterest, some initiatives were suggested: is far lower than the rate(a) Our textile producers should be given credit as per the whichprevailing in Bangladesh, (b) Utilities like electricity, gas

etc. should be provided at a confessional rate to the textile sectoras the prices of these things are lower in countries from whereimported textile is brought, (c) Port facilities should be improved,(d) duties on import of textile machinery should be reduced, (e) a

green fund on an interest free basis should be provided to comply withthe environmental norms. At this point some discussant commented thatRMG export can be sustained even without backward linkage industriesand cited the example of Vietnam where despite the presence of largetextile sector, the export of RMG is totally dependent upon importedtextile. The

38




2003Âwhere

textile secretary informed the participants that the government is inthe process of setting up a training institute workers and managers ofboth RMG and textile sector will be trained. He called for the activeparticipation of BGMEA and BTMA in this regard. Ms Simeen Mahmud havefocused on policy issues regarding the RMG sector of Bangladesh in thecontext of the changed global scenario after 2005. In the one hand,the policy makers got to know the research findings andrecommendations made by different stakeholders and on the other handthey informed the participants about the approach and the initiativeof the Govt. regarding the challenges that lies ahead of the growthand sustainability of the RMG sector in Bangladesh. Improving themarket access Participants government on strongly improving demanded

the greater access attention of of the RMG

market

Bangladeshi

products. They gave stress on creating facilities so that theproducers can have direct relationship with the buyers, mainly withretailers. This attempt will reduce the amount of surplus captured bythe buying houses and other middlemen. The need for exploring theJapanese and other Asian market also received attention. The secretaryfor commerce informed the participants that government is very muchconcerned about the market access issue. He gave example of theCanadian market case where Bangladesh has recently received not onlyduty free entry but also soft rules of origin condition. The effort isgoing on to get similar facilities from Australia. Workersâ¼ welfareconsiderations The discussion concerning the workersâ¼ welfarecovered the

following issuesâ¼´ workers should be given prior notice beforeclosing any factory .Employers should give attention to improve theskills of existing workers, otherwise when the RMG sector moves tohigher value products the low skilled workers will lose

39




2003Â

job as higher value products require higher skill. At this point Dr.

Salma C. Zohir mentioned that during the survey of factories she foundthat even with the present level of skill, workers are capable ofproducing quality products and thus moving to high quality products isvery much feasible. trade union should be permitted in the RMG sector.However unholy alliance of trade unions with the nontrade union peoplehas to be stopped. Democratic trade union laws have to be implemented.Dr. Rehman

Sobhan suggested that workers might be given equity share in theircompanies to ensure that they benefit properly from the value chain.At this point some discussants also mentioned that too much ofemphasize on the distribution may indeed harm the interest of the

industry. They argued that if competition is ensured by say, allowingFDI, the condition of the workers will improve automatically as themarket will drive their wages up. Foreign Direct Investment in the RMGsector Most of the participants welcomed FDI in the RMG sector of

Bangladesh. They gave example of Sri Lanka where welcoming FDIlessened the worry about developing the backward linkages. It wasargued that FDI would not only ensure higher investment in thissector, but also transfer technology and ensure bigger market accessby providing direct linkages with the retailers at the export market.The minister informed the participants that decision on whether or notFDI will be allowed in the RMG sector will be taken soon. He told thatFDI will be welcomed if interest is shown to develop at least onebackward linkage by each investor. But some discussants also pointedout that putting a stringent condition for FDI will indeed be selfdefeating as foreign investors will switch to other agreed countriesthat where the of investment regime is more liberal. Increase inEfficiency in RMG production Discussants unanimously productionquality product is a must in the post MFA period. Therefore increasinglabour productivity is required. It was argued that

40




2003Â

low skilled labour is not really cheap if we consider the low level of

productivity of those workers. Dr.Zaidi Satar of World Bank arguedthat we have to ensure that the producers get the inputs at the worldprice during the free trade environment of post MFA era. He decriesthe tendency of linking RMG with textile at the excuse of promotingbackward linkage and called for independent formulation of policiesfor the RMG sector. He gave the example of Sri Lanka in this respectwhere the degree of backward linkage is almost as it is in Bangladeshbut the RMG producers get textile at zero percent duty. Improvement ofthe infrastructure and the need for better shipment facilities alsodrew considerable attention. These steps were considered necessary forBangladeshi exporters to move at FoB level instead of the existingCM/CMT level. Mr. Suhel Ahmed Chowdhury, Secretary, Ministry of

Commerce raised the issue of viability of many of the small RMG unitsduring the globally competitive environment of post MFA period. Hestressed the need of merger and acquisition among the existing RMGunits so that they can benefit from the economies of scale. Some ofthe But discussants the also argued faced for technological from upgradation. suggestions objection Dr.Naila

kabir as she thought that disappearance of small factories andintroduction of capital intensive technology might lead to loss ofemployment by the women workers. At this point some of the discussantsemphasized the need for skill up gradation so that the existingworkers can be assimilated in the newly formed improved technologybased and relatively large RMG units. Some discussants argued fordiscontinuation of cash incentives for RMG exporters after 2005 asthey need to become competitive to survive at that stage. Concern wasalso raised that after 2005 cheap import from China may pose athreatening challenge to the industry. But some discussants arguedthat China couldnâ¼t continue with her present policy of veiledsubsidy after 2005, as

41




2003Â

they have to come under strict scrutiny on the basis of the Agreement

on Textile and Clothing (ATC). ATC does not allow for subsidization ofprimary textile, which China is currently practicing. It was alsomentioned that the US has reserved some safeguard against Chineseflooding of market after 2005. This may provide a certain level ofprotection to our export also. 4.2. Conceptual Framework: THE EXPORTGROWTH FACTOR OF BANGLADESHI GARMENT PRODUCT: (CONSTANT-MARKET-SHAREMODEL) In discussion and explaining the export growth of Bangladeshigarment products an analytical device as the constant market sharemodel is employed. To examine a countryâ¼s export growth, this modelbasically ascribes favorable or unfavorable export growth either to acountryâ¼s export structure or to itâ¼s â¼competitivenessâ¼. Thebasic assumption of constant market share model is that a countryâ¼s

export share in world market should remain unchanged over time. Thedifference between the export growth implied by this constant sharenorm and the actual export performance is attributed to the effect ofcompetitiveness, and actual growth in exports in divided intocompetitiveness, commodity composition and market distribution effect.Demand for exports in a given market from two competing sources ofsupply may be described by the following relationship: q1 / q2 = f (p1 / p2 ) -------------------------------------------------------------------------(1) where q1 and p1 are quantity sold and price of thecommodity from the ith obtainp1 q1 / p 2 q2 = this implies( p1 / p2)

supply source. p1 / p2 to

Relation (1) may be altered by multiplying by f ( p1 / p2

)--------------------

-------------------------------------(2)

42



and similarly for??period 2. in addition??the value of Aâ¼s exportsin period 1 is given by EMBED Equation.3 ----------------- ---------(5) Equation.3 ?? ------------------EMBED EMBED Equation.3

The application of CMS

model will depend on the nature of the market that we have in mindwhen writing (1). At first level of analysis, n.3

âÖµV ij j

=Vi.

âÖµV ij in.3

= V . j ----------------------------------------

( 4)

EMBED Equation.3 ( 4)

---------------------------------

-------

43




2003Â

and similarly for??period 2. in addition??the value of Aâ¼s exports

in period 1 is given by EMBED Equation.3 ----------------- ---------(5) Equation.3 ?? ------------------EMBED EMBED Equation.3



âÖµV ij j

=Vi.

âÖµV ij i.3 ------

= V . j ----------------------------------------

( 4)

EMBED Equation.3 ( 4)

----------------------------------

and similarly for??period 2. in addition??the value of Aâ¼s exportsin period 1 is given by EMBED Equation.3 ----------------- ---------(5) Equation.3 ?? ------------------EMBED EMBED Equation.3



âÖµV ij j

=Vi.

âÖµV ij i

= V . j ----------------------------------------

( 4)

similarly for??period 2. in addition??the value of Aâ¼s exports inperiod 1 is given by EMBED Equation.3 ----------------- --------- (5)Equation.3 ?? ------------------EMBED EMBED Equation.3





âÖµV ij j

=Vi.

âÖµV ij i

= V . j ----------------------------------------

( 4)

44




2003Â

imilarly for??period 2. in addition??the value of Aâ¼s exports in

period 1 is given by EMBED Equation.3 ----------------- --------- (5)Equation.3 ?? ------------------EMBED EMBED Equation.3



âÖµV ij j

=Vi.

âÖµV ij i

= V . j ---------------------------------------EMBED Equation.3

( 4)

----------------------------------EMBED Equation.3

- --------- (5) ??

EMBED Equation.3

The application of CMS model will depend on the

nature of the market that we have in mind when writing (1). At firstlevel of analysis, n.3

âÖµV ij j

=Vi.( 4) EMBED The

âÖµV ij i

= V . j ----------------------------------------

---------------------------------- --------- (5) Equation.3 EMBEDEquation.3 ??

application of CMS model will depend on the nature of the market thatwe have in mind when writing (1). At first level of analysis, n.3

âÖµV ij j



=Vi.( 4)

âÖµV ij i

= V . j --------------

--------------------------

--------------------------------- --------- (5) EMBED Equation.3 ??

EMBED Equation.3 The application

of CMS model will depend on the nature of the market that we have inmind when writing (1). At first level of analysis, n.3

âÖµV ij j

=Vi.( 4)

âÖµV ij i

= V . j -----------------------------

-----------

45




2003Â

ation of CMS model will depend on the nature of the market that we

have in mind when writing (1). At first level of analysis, n.3

âÖµV ij j

=Vi.( 4)

âÖµV ij i

= V . j -----------------------------

-----------

of the market that we have in mind when writing (1). At first level ofanalysis, n.3

âÖµV ij j

=Vi.( 4)

âÖµV ij i

= V . j -----

----------------------------------level of analysis, n.3

f the market that we have in mind when writing (1). At first

âÖµV ij j

=Vi.( 4)

âÖµV ij i âÖµV ij j âÖµV ij j=Vi.( 4)

= V . j -----

-----------------------------------

iting (1). At first level of analysis, n.3

âÖµV ij i âÖµV ij i



= V . j ---------------------------------------=Vi.

ting (1). At first level of analysis, n.3

= V . j ----------------------------------------

( 4)

and similarly for period 2. in addition the value of Aâ¼s exports inperiod 1 is given by

âÖµ âÖµV ij = âÖµV i i j i-------------------------- (5)

.

=

âÖµV . j j

= V .. -------------------The

application of CMS model will depend on the nature of the market thatwe have in mind when writing (1). At first level of analysis, we mayview exports as being completely undifferentiated as to commodity andregion of destination. That is to say, exports may be viewed as asingle destination for a single market. If A maintained its marketshare in this market, then exports would increase by rV and may bewritten in the following identity

46




2003Â

V

.. â¼³ V

.. = rV

.. + (V

.. â¼³ V

..

â¼³rV

.. ) ----

---------------------------------------------(6) Equation (6) nay bereferred as a one-level analysis. It divides the growth in Aâ¼sexports into a part associated with the central increase in worlddemand and an unexplained residual, the competitiveness effect.Exports are in fact diversified into many markets, and what we have inmind is the diversified markets for a particular commodity class. Wemay write an expression analogous to (6)

V

â¼¢j

â¼²

-

Vâ¼¢

j

=

r j V. j +

(

V. j - V. j -

rj

V. j ) -----------



--------------------------------(7) Which may be summed over j? Vâ¼² â¼¢ Vâ¼¢ =

â¼¢

â¼¢

âÖµrj j

V. j =r V(a )

+

âÖµ j

( V. - V. j - r j V. j )

j

r V ..+

âÖµ j

( r j(b )

r) V. j +

âÖµ j

(V. j -

V. j(c )

- r j V. j ) -------------(8)

exports is broken into parts attributed to : (a) the general rule inworld demand; (b) the market distribution of Aâ¼s exports in period 1; and (c) an unexplained residual indication the difference betweenAâ¼s actual exports increase and the constantshare norm increase. Themarket distribution effect in identity (8) is defined by (r j -r) V. j---------------------------(9)

And is meant ti indicate the extent to which Aâ¼s exports areconcentrated in markets with growth rates more favorable than theworld average.

47




2003Â

Thus if world import in market j increased by more than the world

average ( r j âÖ¶ r ) will be positive. Accordingly the term (b) wouldbe positive if A had concentrated on the markets where the demand weregrowing relatively fast and would be negative if A had concentrated onslowly growing markets. Finally we may observe that exports aredifferentiated by destination as well as by commodity type. Theappropriate norm in this case is a constant share of exports of (6)and (7) is a particular commodity class to a particular region. Theidentity analogous to

V ij âÖ¶V ij âÅ¡ r ij V ij + (V ij âÖ¶ V ij âÖ¶ r ijV ij ) --------------------------------------------- (10) Which when aggregated yields-

V .. âÖ¶ V .. âÅ¡ âÅ¡ rV(a )

âÖµ âÖµ r ij V iji j

+

âÖµ âÖµ (V iji j i j

âÖ¶ V ij âÖ¶ r ij V ij ) _ r i )V ij(c )

.. +

âÖµ (r ii(b )

âÖ¶ r )V i . +

âÖµ âÖµ (r ij

V + âÖµ âÖµ ( ij âÖ¶ i j

V ij âÖ¶ r ijV ij ) ------------------------(d )

-------------------------------(11) Identity (11) re[presents aâ¼three-levelâ¼ analysis in which the increase in Aâ¼s exports isbroken into parts attributed (a) the general rise in world demand; (b)the commodity composition of Aâ¼s exports; (c) the market



distribution of Aâ¼s exports; and (d) a residual reflecting thedifference between the actual export growth and the growth that wouldhave occurred if A had maintained its share of the exports of eachcommodity to each company.The commodity composition term inidentity(11) may be interpreted in the same manner as the marketdistribution effect. It would be positive if A had concentrated on the

exports of commodities whose markets were growing commodity markets.

48




2003Â

Problems of constant market share model: The CMC model provides a

useful tool for analyzing export growth performance by allowingachieved export growth to be separated in to commodity , marketdistribution , and competitiveness effects. However, the initialappeal of the CMS identity as a simple analytic and policy tools isconsiderable blurred by fundamental problems which arise in the basicequation (1) and (3). Firstly, what is the appropriate measure ofrelative competitiveness? Equation (3) p1 q1 / (p1 q1 + p2 q2) =1

=

(1 + p2 q2 f

/ p1 q1)

-1 -

( 1 + ( p1

(p1 / p2) /p2)

)

-1

) = g ( p 1 / p2 ) share Since as: be the the function of that the ofchange in export

Assume as a

relative prices. In practice, relative price are generally usedmeasure it competitiveness. from the such and complex factor incompetitiveness of demand and improvement, nonprice residual supply,financial results interaction

neglects

quantity

improving in servicing, shortening of waiting lines, improvementarguments, change discriminatory policy. Secondly, what is theappropriate measure the requirement that share very directly with ofexport relative

shares? Obviously quantity share are required in order to satisfycompetitiveness could lead to a decreases in export shares, given a



elasticity of substitution less than one in absolute value. Also inthe case a positive commodity(market) effect, we usually presumethatâ¼s the country commodity exports are relatively more skewedtowards goods which are growing in the world demand. But these casescould be equally well explained by a countryâ¼s exports beingrelatively more skewed towards goods those prices are rising

relatively rapidly.

49




2003Â

At more fundamental level, the elasticity of substitution relation

implicit in equation q1 p1 q 1 /1

/

q2

=

f =

( p1

/ =

p2

)

and equation-1

(p1 q1 + p2 q2)

(1 + p2 q2

/ p1 q1)

( 1 + ( p1

f

(p1 / p2) /p2)

-

)

-1

) = g ( p 1 / p2 )

is the subject to the number of theoretical reservations having to dowith commodity homogeneity. When commodities are very homogenous,relative price are locked into very small rang of variation.Geographical market share may be much more sensitive to demand factors




2003Âand

residual supply, financial

results it

from

the such

complex factor in

interaction as:

of

demand

neglects

quantity

improvement, nonprice

improving in servicing, shortening of waiting lines, improvementarguments, and change discriminatory policy. Secondly, what is theappropriate measure the requirement that share very directly with ofexport relative value.

shares? Obviously quantity share are required in order to satisfycompetitiveness could lead to a decreases in export shares, given aelasticity of substitution less than one in absolute Also in the casea positive commodity(market) effect, we usually

presume thatâ¼s the country commodity exports are relatively moreskewed towards goods which are growing in the world demand. But thesecases could be equally well explained by a countryâ¼s exports beingrelatively more skewed towards goods those prices are risingrelatively rapidly. At more fundamental level, the elasticity of

substitution relation implicit in equation q1 p1 q 1 /1

/

q2

=



f =

( p1

/ =

p2

)

and equation-1

(p1 q1 + p2 q2)

(1 + p2 q2

/ p1 q1)

( 1 + ( p1

f

(p1 / p2) /p2)

-

)

-1

) = g ( p 1 / p2 )

is the subject to the number of theoretical reservations having to dowith commodity homogeneity. When commodities are very homogenous,relative price are locked into very small rang of variation.Geographical market share may be much more sensitive to demand factorsin the market of buyers who are relatively indifferent to thenationality of the supplier. Commodity market share may be much moresensitive to the supply factors. On the other hand, when commodity arenot homogeneous, relative prices are likely to be only one of thearguments which enter the function for export share.

51




2003Â

Finally, the CMS model assumes that a countryâ¼s export share depends

in on the the world should of remain this unchanged assumption.overtime. However, The the interpretation of the CMS analysis of acountryâ¼s export change validity structure of the world trade veryover time, especially for the rapidly expending the economy the exportmarket structure and export commodity composition very with widefluctuation. Thus, when the CMS analysis is applied to the case ofdrastic changes in trade structures , the validity of theinterpretation will be blurred.1

4.3.Empirical result of Bangladeshi garment industry: Appendix 1989-1998. 1 and 2 shows result of the computation of the export the result

present that the international

growth factors of Bangladeshi readymade garment products duringcompetitiveness factors had leads the readymade garment export growthduring the period of 1989-1998 (82.94%),while the role of the worldfactors â¼³ world demand increase, the favorable structural change inthe commodity composition and the market distribution are negligiblethe respectively (3.24% and 3.22% ).so world demand factors hasincrease. However we can assert

that Bangladeshi readymade garment products was initiated by thecompetitiveness factors during 1989-1998 according to the result .forthe sources of the competitiveness I will explain in the nextchapter.To see the structural change in readymade garment exportgrowth in detail, I computed the export growth factors of eachcommodity group by using the constant market share model.

1

Rchardson,j.David â¼Constant- Market-Share analysis of exportgrowthâ¼ Journal of The International

Economic, voll1 1971.pp.190-207.

52




2003Âgroup

Three

growth

factors

are

calculated

for

each

commodity

instead of four factors, namely (1) the factors of world demandincrease. (2) The factors of market distribution and (3) the factorsof international competitiveness. The results are shown in appendix 1and 2. CHAPTER V

5...1.SOURCES OF INTERNATIONAL COMPETITIVENESS:

see-appendix (table-1)

5.2. Measure of Competitiveness: Revealed Comparative Advantage (RCA):Revealed Comparative Advantage (RCA) measures the change in thecomparative of advantage and of a countryâ¼s product net exports.exports; Two these major are: trade indicators are used to capture thechanges in the comparative advantage export textile apparel andperformance ratios export/total

ratio(Balassa, 1965, UNIDO 1982., Ariff and Hill 1985).These twoindicators are interrelated and highlight different facts of the samephenomenon. Export Performance Ratio (EPR): Export Performance Ratio(EPR) is used to measure Revealed Comparative Advantage of a country.Export performance ratio (epij) measure expresses the share of country

iâ¼s export of commodity j in total world export of commodity j, as aratio of the share of country iâ¼s total export ratio in is the worldtotal exports. a If the export export performance one, this indicatesnormal

53




2003Â

performance of commodity j relative to the size of country iâ¼s of

commodity j exporter. If the export performance ratio is two, thissuggests that the commodity jâ¼s share in country iâ¼s export istwice the corresponding world share and so forth. A ratio of more thanone is taken as an indication of revealed comparative advantage. Arise in the ratio suggests a Strengthening in terms of revealedcomparative advantage (Balassa 1965, UNIDO 1982., Ariff and Hill1985). The measure yields a ratio ranging from zero to infinity butfor certain reasons large numbers Will be unusual. An exportperformance ratio of more than unity is regarded as a revealedcomparative advantage, while a rise in the ratio suggests astrengthening on the basis of Revealed

5.3. Developments:Macroeconomic The macroeconomic developments in the1990s, characterized by

varying and often contrasting trends in major indicators, revealBangladesh's continued susceptibility to economic vulnerability.Despite the government's successful mitigation of the short-termlosses ensuring a much better macroeconomic performance thanapprehended after the 1998 floods, several weaknesses persist in themacroeconomic balances. These are reflected in three major macro-indicators in the current fiscal year: (i) slow growth inmanufacturing output; (ii) deceleration in the rate of investment; and(iii) slow growth in exports. 5.3.1.Recent Growth Performance Whilethe average GDP growth rate was 4.4 per cent per year during the firsthalf of the 1990s, the growth rate has accelerated to over 5 per centin recent years. The growth rate is projected at 5.47 per cent in1999/00. A notable feature of the growth process during the 1990s isthe fluctuating role of both agriculture and industrial sectors. Theaverage growth rate

54




2003Â

of crop and horticulture was -0.43 per cent per annum until mid1990s

which increased to 6.13 per cent in 1999/00. The growth inmanufacturing sharply decelerated from an average of 8.20 per centduring the first half of the 1990s to 4.25 per cent in 1999/00. Thedeceleration started in 1998/99 as an aftermath of the 1998 floods.The growth rate of construction sector has also declined since1997/98: from 9.48 per cent in 1997/98 to 8.92 per cent in 1998/99 andfurther to 8.00 per cent in 1999/00. Table 1 Sectoral GDP growth

FY 99 I. Agriculture a) Agriculture and Forestry i) Crop andHorticulture 25.3 19.3

FY 00 25.6 19.5

FY 01 25.0 19.5

FY 02 24.6 19.2

14.3

14.6 3.0 1.9 6.1 25.7 1.0 15.4 11.0 4.4 1.4

14.7 2.9 1.9 5.5 26.2 1.1 15.6 11.1 4.5 1.5

14.4 2.9 1.9 5.4 26.5 1.1 15.6 11.0 4.6 1.5

ii) Animal Farming 3.1 iii) Forest and Related Services b) Fishing 2.Industry a) Mining and Quarrying b) Manufacturing Scale ii) SmallScale c) Power, Gas, Water Supply i) Large and Medium 1.9 5.9 25.7 1.015.6 11.2 4.4 1.4

55




2003Â8.3 48.9 13.6 0.7 9.5 1.6

d) Construction 3. Services a) Wholesale and Retail Trade b) Hotel andRestaurant

7.7 49.0 13.2 0.6

7.8 48.7 13.4 0.6 9.2 1.6

8.1 48.8 13.5 0.6 9.4 1.6

c) Transport, Storage and 9.2 Communication d) FinancialIntermediation i) Banks ii) Insurance iii) Other e) Real Estate,Renting and Other Business Activities 1.6

1.2 0.3 0.1 9.1

1.2 0.3 0.1 8.9

1.2 0.3 0.1 8.7

1.2 0.3 0.1 8.6

f) Public Administration 2.6 and Defence g) Education h) Health andSocial Work 2.2 2.2

2.5 2.2 2.2 8.1 100.0

2.6 2.2 2.2 8.0 100.0

2.6 2.3 2.2 7.8 100.0 (Per

i) Community, Social and 8.4 Personal Services GDP (at FY 96 constantfactor 100.0 cost)

Table -2 Sectoral growth rates of GDP cent, constant 1995/96 prices)

Source: Bangladesh Bureau of Statistics

56




2003Â

Sector

Average 1990/91 1994/95

1995/ 96

1996/ 97

1997/ 98

1998/ 99

1999/0 0a

Agriculture Crops & horticulture Animal farming Forest & relatedservices Fishing Industry Manufacturing Construction Services GDP

1.55 -0.43 2.38 2.82 7.86 7.47 8.20 6.27 4.63 4.39

3.10 1.74 2.51 3.46 7.39 6.98 6.41 8.50 4.29 4.62

6.00 6.44 2.58 4.03 7.60 5.80 5.05 8.64 4.91 5.39

3.19 1.05 2.64 4.51 8.98 8.32 8.54 9.48 4.77 5.23

4.77 3.16 2.69 5.16 9.96 4.92 3.19 8.92 4.90 4.88

6.43 6.13 2.74 5.16 9.50 5.55 4.25 8.00 4.97 5.47

57




2003Â

58




2003Â

Table 3. Sectoral GDP shares (at FY96 constant factor costs: percent)

FY 99 I. Agriculture a) Agriculture and Forestry i) Crop andHorticulture ii) Animal Farming 25.3 19.3 14.3 3.1 FY 00 25.6 19.514.6 3.0 1.9 6.1 25.7 1.0 15.4 11.0 4.4 1.4 7.8 48.7 13.4 0.6 9.2 FY01 25.0 19.5 14.7 2.9 1.9 5.5 26.2 1.1 15.6 11.1 4.5 1.5 8.1 48.8 13.50.6 9.4 FY 02 24.6 19.2 14.4 2.9 1.9 5.4 26.5 1.1 15.6 11.0 4.6 1.58.3 48.9 13.6 0.7 9.5

iii) Forest and 1.9 Related Services b) Fishing 2. Industry 5.9 25.71.0 15.6 11.2

a) Mining and Quarrying b) Manufacturing i) Large and Medium Scale

ii) Small Scale 4.4 c) Power, Gas, Water Supply d) Construction 3.Services a) Wholesale and Retail Trade b) Hotel and Restaurant c)Transport, Storage 1.4 7.7 49.0 13.2 0.6 9.2

59




2003Â

and Communication d) Financial Intermediation i) Banks ii) Insurance

iii) Other 1.6 1.2 0.3 0.1 1.6 1.2 0.3 0.1 1.6 1.2 0.3 0.1 1.6 1.2 0.30.1

Source: SAARC information net work, Country Profile-Bangladesh. Therecent growth performance of the economy is largely driven by theagriculture sector which has a potential source of vulnerability dueto its dependence on the nature. An emerging concern in promotingsteady growth in the country is the slow growth and continued failureover the last two years of the manufacturing sector to regain itsmomentum. While agricultural production, particularly rice output, hasincreased steadily over the last three years creating favourablemacroeconomic conditions and increased growth, sustaining the gains in

the future would largely depend on success in bringing quick recoveryand ensuring momentum of the manufacturing sector. 5.3.2 Savings-Investment Performance Table 4. Domestic savings and investment

(As percent of GDP ) FY98 Investment Private Public 21.6 15.3 6.4 FY9922.2 15.5 6.7 FY00 23.0 15.5 7.4 FY01 23.1 15.9 7.3 FY02 23.2 16.1 7.1

60




2003Â

Domestic savings Private Public Savings-investment gap

17.4 16.4 1.0 4.2

17.7 16.7 1.0 4.5

17.9 16.9 1.0 5.1

18.0 17.0 1.0 5.1

18.0 17.0 1.0 5.2

Source: SAARC information net work, Country Profile-Bangladesh.

According about 18 per to the new national income accounts, gross

domestic savings increased from 13 per cent of GDP in 1989/90 to centin 1999/00. During the same period, gross national savings increasedfrom 18 per cent to 23 per cent of GDP. The investment - GDP ratio, onthe other hand, increased from 17 per cent in 1989/90 to 22 per centin 1999/00.Â Â 1990/Â 1991/Â 1992/93Â 1993/94Â 1994/Â 1995/Â 1996/97Â 1887/98Â 1998/99Â 1999/Â

91Â

92Â

95Â

96Â

00aÂ

InvestmentÂ Â

1.42Â

4.44Â

9.52Â

9.35Â

9.11Â

10.60Â



11.08Â

12.06Â

9.85Â

8.19Â

PrivateÂ

6.07Â

2.57Â

16.69Â

8.87Â

11.21Â

16.17Â

7.70Â

19.73Â

8.46Â

8.52Â

Â

PublicÂ

â¼5.06Â

7.35Â

â¼1.13Â

10.19Â

5.46Â

0.40Â

18.25Â

â¼2.72Â

13.13Â



7.45Â

GrossÂ domesticÂ savingsÂ

22.21Â

28.03Â

â¼6.95Â

22.02Â

â¼10.64Â

3.62Â

34.50Â

26.00Â

11.46Â

11.60Â

GrossÂ nationalÂ savingsÂ

43.54Â

13.43Â

11.21Â

6.99Â

14.47Â

25.59Â

7.20Â

16.82Â

14.95Â

11.72Â

(Per cent, constant 1995/96 prices) Table-5 Source: Bangladesh Bureauof Statistics. An important macroeconomic concern in sustaining highergrowth is to ensure increased level and quality of investment. The

61




2003Â

deceleration in recent growth of investment is a major cause of

concern: the growth rate declined from 12 per cent in 1997/98 to 10per cent in 1998/99 and further to 8 per cent in 1999/00 at constant1995/96 prices. Annual changes in savings and investment ProvisionalDespite liberal and attractive policies, foreign investment is yet tomake a significant contribution to the country. The net direct andportfolio investment was US $ 252 million in 1997/98 which declined by24 per cent to US $ 192 million in 1998/99. The projection for 1999/00is US $ 155 million recording a further fall of 19 per cent over theprevious year. The net inflow of foreign investment in the EPZs isalso relatively low: US $ 54 million in 1996/97, US $ 69 million in1997/98, and US $ 71 million in 1998/99. Since 1998/99, savings andinvestment performance reveals a downward trend. It is important to

identify the causes as to why the momentum in the growth of savingsand investment could not be maintained despite acceleration in thegrowth rate of the economy and implement effective measures to ensuresustained growth and economic stability. So Growth has accelerated inBangladesh in the 1990s. Much of this acceleration in growth tookplace in the context of rapidly declining external aid. External aidhas fallen from 12% of GDP in the early 1980s to only about 2% of GDPnow. There have not been any compensating private flows during thistime. This enhanced growth performance occurred during a period ofpolicy reforms. However, it does not necessarily mean that policyreforms were alone responsible for the acceleration. Some increase intotal factor productivity was responsible as was some increase in thesavings rate, due largely to an increase in public sector savings.5.3.3. Readymade garment:

62




2003Â

Much of the growth in large-scale industry has been driven by ready-

made garments (RMG). Growth in the non-RMG large-scale industry hasbeen slow â¼³ about 4% in the 1990s. This is less than that in the1980s. Why is it that so few industries have managed to duplicate theperformance of the RMG sector? One question worth exploring is whetherthe RMG sector, by absorbing the domestic savings, crowded out theother industries. The RMG sector has had phenomenal growth. Growthrates of earnings, in real dollar terms, jumped from about 6% duringthe 1980s to 15% during the 1990s. For the first time in FY01-02,there was a 10% drop is export earnings. But, even in this bad year,the volume of exports actually went up by 10%, albeit not by enough tocompensate for the 20% drop in average prices. There are some fronts,however, where the industry has not been very successful. One such

area is marketing. The industry has not yet developed good marketingskills of its own and continues to rely heavily on foreign buyinghouses, notably those from India and Sri Lanka. These intermediariescapture a large part of the margin. The scope for the industry tobenefit from devaluations is limited in such a situation. The industryshould have used the last 20 years to go deeper into the marketingchannel. The fact that foreign direct investment had not been allowedin the industry is one possible reason for our failure to do so. TheBangladesh (BGMEA) This is is Garments now an area Manufacturers ofsetting where and up Exporters marketing sector Association centersthinking

abroad.

public-private

collaboration may be required. The only import-substituting It firstIt grew then under industry that grew

significantly, reflecting somewhat the East Asian pattern, ispharmaceuticals. imported protection the alongside importedpharmaceuticals. out-competed

products and has now started exporting. It is possible that some

63




2003Â

parts of the industry are not very efficient but are surviving due to

protection while other parts are efficient and competing in worldmarkets. The shrimp processing industry is an interesting case. A fewyears ago, the industry faced serious reputational problems due to thefraudulent practices of a few producers. The malpractices of a fewjeopardized to take the entire industry The indicating industry isthat now reputation is a public good. In other words, the industry asa whole needed remedial actions. the finally realizing this and hasstarted taking steps at selfregulation. institute industry is hasHaving concluded it that has governmentâ¼s measures standards toimpose has inefficient, declined, adopted

standards on their own and monitor compliance.The capital goods e.g.,

textile machinery industry virtually disappeared. It is important tohave a capital goods industry. Adaptation of technology is importantfor industrial growth. For this to happen, one needs a domesticcapital goods industry. Small scale industries have done quite well inrecent years and have largely benefited from liberalization. On theone hand, they are not much affected on the output side (do notcompete with imports) but benefit from the liberalization of importsof inputs. They expanded at the expense of inefficient large-scaleindustries as well as cottage industries. Poverty reduction willrequire further growth in such small scale enterprises. Thecontribution of export industries and large-scale industries topoverty reduction will be less direct. Their main contribution will bethrough generating capacity to import by earning foreign exchange.subsidies This are will help small-scale to enterprises activities,who need as The imported inputs and this, in turn, will help reducepoverty.Cash currently leather given various and such agro-processing,goods light engineering.

practice of providing cash subsidies started with Grameen check.

64




2003Âand any by

It

was

meant to

to

compensate of total

for

duties value, a

paid high

on

imports

amounted

25%

sales

amount

standard. The rationale for providing cash subsidies, especially atthe current scale, is weak. Import duties have gone down due to importliberalization. If compensation is to be provided, the amount requiredfor various products will have to be recalculated, taking into accountthe changes in duty rates. 5.3.4 Trends in External Sector The shareof foreign trade (exports and imports) in GDP increased from 17 percent in 1989/90 to over 29 per cent in 1998/99.(Seeappendix-table-2)

5.3.5 Bangladesh's Export Sector: In the recent past Bangladesh's

macroeconomic performance has come to be increasingly dependent on theperformance of her external sector. This is manifestly demonstrated bythe shift in the relative importance of aid and trade in the economyof the country. In 1990 total disbursed aid was equivalent to 8.1% ofBangladesh's GDP; in 2000 the share had come down to 4.0%; exports asa percentage of GDP, on the other hand, has gone up from 6.8% to14.5%over the same period. In 1990 the country's earnings of the foreignexchange from export and remittance was 1.3 times that of the aiddisbursed; by the year 2000 it was almost country 5 is times one shift



to of as high. major primary Bangladesh's achievements to graduationof the and from a The from the predominantly aid recipient country toa predominantly trading the 1990s. from structural from manufacturingexportable exports,

resource-based

process

based

65




2003Â

traditional jute-centric to the emergent RMG-centric export is

remarkable by any standard. Over the same period the country had alsoto import an increasing amount of production and nonproduction relatedcommodities. Increasing exports have allowed the country to service alarge part of this growing import demand without seriously underminingthe balance of payments position of the country and the country's suchas debt servicing record. of the for Consequently, in view of theincreasing degree of openness of the Bangladesh external economy,sector, factors competitiveness and market access capacity ability

strengthened global integration are becoming key determinants in termsof not only the performance of the external sector but also theoverall growth and development of the country. The present paper

traces the growth dynamics of Bangladesh's export sector interims of anumber of major correlates and looks at some of the major challengeswhich are expected to impact on export sector performance in the shortand medium terms. Bangladesh's external sector has experiencedfluctuating

fortunes in recent years. Export growth rate in FY1997 and FY1998 werea robust 13.8% and 16.8%, only to subsequently came down to 2.9% inFY1999, in part as a consequence of the 1998 flood. In FY2000 exportsector was able to make some rebound and posted a growth of 8.3%compared to FY1999.This growth rate was, however, below the trendgrowth rate of about 12.0% for the 1990s and was built on therelatively lower base of the previous fiscal year. A developmentimportant of some concern to for Bangladesh 56.0% of in FY2000 was theRMG deceleration in the growth of woven-RMG sector, the single-mostsector accounting total exports. registered a growth of only 5% inFY2000. This, in effect pulled down the exports earnings in FY2000 tothe level of $5.7 billion, resulting in the relatively low growth of8.3%. A positive development though was the continued robustperformance of the knit-RMG exports, which having registered a growthof 10.4% in

66




2003Â

FY1999, was able to grow by22.6% in FY2000. The share of the sector in

total export has doubled over the last five years, form 12.0% to22.0%. This is clearly demonstrated by Table-1 Table 1: Structure ofExports, Incremental Exports and Net Export (in percent) CommoditiesStructure of Export Structure of Incremental Export Structure of NetExport Growth of Net export in FY 2000 over FY 1999 -0.2 -54.2 25.311.1 -12.5 15.9 3.3 22.6 18.8 9.8 9.9

Raw jute Tea Foreign food Primary commodities Jute goods Leather WovenRMG Knit RMG Chemical product All Mfg. commodities TOTAL (million US$)

FY 1999 FY2000 1.3 1.2 .7 5.2 7.9 5.7 3.2 56.2 19.5 1.5 92.1 100 (5312.9) .3 6.1 8.2 4.6 3.4 53.6 22.1 1.6 91.8 100 (575 2.2)

FY 1999 FY2000 0.0 23.8 -5.8 -4.8 12.6 52.5 14.8 14.5 93.3 62.. 7 3.2152. 4 100 (151 .7) 15.8 10.7 -8.6 6.1 22.2 53.6 3.3 89.3 100 (439. 3)

FY1999 FY2000 2.4 2.2 1.3 9.2 14.2 10.2 5.7 33.4 23.2 2.7 85.8 100(267 9.5) .5 10.5 14.3 8.1 6.0 31.4 25.9 2.9 85.7 100 (294 6.5)

Source: Compiled from EPB Annual and Monthly Data An interestingdevelopment of recent years is that since the local value addition ofknit-RMG is relatively high (50% as against 25% for woven-RMG) itsshare in net exports is gradually catching up with that of the woven-RMG. If the structure of

67




2003Â

incremental export is analyzed, this growing importance is even more

clearly manifested. For every dollar of incremental export earned byBangladesh in FY2000 53 cents was contributed by knitRMG. In FY2000other important exportable such as jute goods (4.6%), frozen food(6.0%) and leather(3.4%) performed below the levels achieved duringrecent years. As is evidence by Figure-1, in recent years anincreasing share in the incremental growth is originating from changesin the volume index as compared to that of the price index. This trendis a cause for major concern which was first pointed out inIRBD1998/99 and has continued to persist in FY2000 as well. In FY2000the increase in unit price value contributed only 0.5% to the growthin total exports, which was 8.3%; compared to this the increase inexport volume contributed 7.8%. This would imply that the weak growth

rate of prices of our principal exports in the for international by anmarkets has to be of increasingly compensated ever-increasing volume

exports. The underlying dynamics of the changes in price, volume andvalue indexes is easily discernible from Figure 1. The price trendperhaps also reflects deterioration in Bangladesh's terms of trade inrecent years. If FY1980 is taken to be the base year, the terms oftrade has come down to the level of 89.2 in FY2000. Figure 1

68




2003Â

5.3.6 Exchange Rate Policy and Export Performance In the recent past

Bangladesh has resorted to frequent

depreciation of the taka. Through this flexibility in the nominalexchange rate was maintained in line with movements in the realeffective exchange rate. In all, the taka has been devalued 18 timesover the tenure of the current government, which led to a cumulativedepreciation of the currency to the extent of 19.1%. Maintainingexternal competitiveness of Bangladeshi exports and minimizingposition of adverse the developments were in often the balance as ofthe payments principal country cited

rationale for pursuing such a policy. Exchange rate policy was also

mentioned in the budget speech of the Finance Minister on 8 June, 2000as one of the major policies to stimulate export sector of thecountry. Such a policy of creeping devaluation is consistent with theneed to maintain exchange rate flexibility in order to sustainBangladesh's export competitiveness. However, if we track the movementof the real effective exchange rate (REER) over the 1990s, it will beseen that the taka actually appreciated for most of the 1990s despitethe frequent nominal devaluations. It was only subsequent to December,1997 that the taka actually started to depreciate in real terms. It isalso of interest to note here that no discernible correlation isvisible between the movements in the REER and the growth rates ofeither Bangladesh's exports or imports.Figure-2 brings out thismismatch very clearly. It appears that other structural factors,specially supply side constraints and global market dynamics play amore important role in stimulating exports and improving the balanceof payments position compared to movements in the nominal and realexchange rates.

69




2003Â

Figure 2

In

recent by

years the

the

relatively growth of

slow the

growth

performance sent by

registered by Bangladesh's commodity export sector was somewhatcompensated robust remittances Bangladeshis working abroad. As waspointed out earlier, in the recent past this increased inflow had apositive impact on the current account transfer and the balance incurrent account of the country. Table-3 shows the dynamics ofremittance in recent years.

70




2003Â

Table 3: Dynamics of Growth of Remittance: FY1995 - FY2000 Indicators

2000 Remittances (in million US$) 1198 1525 1709 1953 Growth ofRemittance (%) 2 3.4 12.1 14.2 37.1 8.3 11.8 10.0 1 .6 21. 1217 14751995 1996 1997 1998 1999

Growth of Exports (%) 14.0 16.8 2.9

Source: Compiled from Bangladesh Bank data. As can be seen from Table-3, remittances have registered a robust growth of 14.2% inFY2000compared to FY1999. This was almost double the growth of exportsduring the corresponding period. The growth rate of remittances inFY1999, at 12.1%, was also substantially higher than the growth ofexports in FY1999, which was only 2.9%. The increasing flow of

remittance reflects, at least in part, the incentives for inwardremittances through legal channels under the current market determinedexchange rate system. Increased flow of remittances have played animportant role in replenishing the fore reserves of the country inrecent years. Given the potential for exchange earning capacity ofthis sector, there is need to design a comprehensive plan for skill upgradation of her immigrant laborers. Towards this a comprehensivelabor market survey and a study to determine domestic skills upgradation capacity need to be undertaken on an urgent basis. Foreignaid commitment for FY2000 was equivalent to $1480.9 million, which wassignificantly lower than the corresponding

71




2003Â$2648.5

commitments

for

the

same

period

in

FY1999,which

was

million. Thus, commitments came down by about 44.0% in FY2000. Thisdecrease was mainly due to drastic fall in commitments for food andcommodity aid. However, it is to be noted that project aid commitmentsalso came down significantly over This period, from $2017.2 million to$1254.5 million- a fall of 37.8%. Throughout the 1990s disbursement ofproject aid as a percentage of commitment had experienced a sharpdecline. In spite of the robust growth of the remittances, thesubstantial deficit in the trade account (equivalent to about $1.1billion in FY2000) and low aid disbursed during FY2000 meant a growingpressure on the reserves which came down to about 1.6 billion by theend of FY2000. Evidently, with imports picking up, it was around 20%during the first is quarter of FY2000, from the low growth of 1.6%registered in FY2000, the pressure on the reserves expected to go upin the coming months. The foreign exchange in FY1995 when reservesreached reserve in the 1990s peaked

$3.07 billion, which was equivalent to 6.3 months of imports. Sincethen reserves have declined steadily to reach about $1.3 billion inrecent months, is expected to lead to major changes in the area ofcompetitiveness in global apparels market. Once the quotas behaviorare removed, the and MFA preferential regime will be margins are

gradually to radical eroded, comparative advantage scenarios whichinformed the market under subjected change. New entrants such asCambodia, Laos and Vietnam will also bring more competitive pressureinto the market. Bangladesh will need to make a comprehensive study onthe implications of these developments, and design an adequatestrategy to address the attendant issues. Over the past yearsBangladesh's policies have tended to focus on exchange rate managementand export promotional incentives as two important instruments toboost the country's



72




2003Â

export and in order to stimulate export sector diversification in the

country. The taka was devalued eighteen times during the tenure of thepresent government - twice during FY2000. Export sector has alsoreceived substantial amount of financial help in the form of subsidiesand other forms of assistance. Such assistance amounted to Tk. 635.0Core ($131.3 million) in FY2000 alone. Budget FY2001 also makes anallocation of another $126.4 million towards this. The budget alsoprovides for general reduction in the duties on basic raw materials(5% on average) and intermediates and semi-finished goods (15% onaverage) with a view to stimulate export-oriented investment in theeconomy. Duties on various raw materials used in the textiles,leather, footwear and some other export-oriented industries have alsobeen brought down in the budget for FY2001. The budget provides for a

number of incentives to stimulate non-traditional processing exports.To promote duty rates export-oriented on machinery, agrospareindustrialization

parts, raw materials and packaging materials of agro-processingindustries have been substantially reduced. To encourageexportoriented activities in the jeweler industries, the import quotaof gold has been doubled and duty rate reduced. A lump allocationequivalent emerging to Tk. 150 It million is has been kept with a viewto encourage training of programmers and for promoting Bangladesh's ITsector. becoming increasingly in the evident that technology in theRMG sector is becoming a key determinant of Bangladesh's continuedcompetitiveness global apparels market. Bangladesh's low wage basedcomparative advantage needs to be translated into productivity basedcompetitive advantage and it is here that technology comes to play acrucial role. Although vigorous zero-tariff efforts and access ofcapital machineries are and other An incentives are welcomeinitiatives of GOB in this respect, more comprehensive approachrequired. important initiative of budget FY2001 is the decision toallocate Tk. 1.0 billion for establishing an Equity Development Fundin

73




2003Â

the Bangladesh Bank with the objective of promoting investment in

software export and agro-processing industries. The fund will beinvested in financially viable software, food processing from this andfund agro-processing activities; maximum investment

will be limited to 25% of the equity. It is hoped that this dedicatedfund will give a boost to two sectors which appear to have high exportpotentials. It needs to be appreciated and given due recognition inthat the to fiscal, export the in financial sector recent andinstitutional played an incentives activities provided the and pastexport-oriented have

Bangladesh

important role in ensuring the 12% average real growth rate of thesector in the 1990s. However, lack of adequate infrastructurefacilities, absence of infusion of technology in export-orientedsectors severely constrain and weakness in the of the management ofthe sector its have move constrained realization sectorâ¼s many ofperformance the potential and

towards a diversified base. Major concerns continue to severelyopportunities which globalization offers to Bangladesh. If Bangladeshfails to address these concerns, needless to say, the attendant riskswill became originating from globalization even more acute. Narrowexport base and lack of diversification of exports has led to a hassituation come to where the Bangladesh's hinge export sector on theperformance predominantly dependent

performance of the RMG sector. Global market of textiles and apparelsis around $300 billion and there is a wide intra-market diversity.Thus, perse dependence on exports of RMG should not by itself be amajor concern. What is of more concern are the followings: (a) exportshave continued to remain concentrated in the lower segment of thedemand curve; (b) local value addition has been delimited to 25-30%;(c) product and process modification cpacities have not improvedsignificantly because of constraints in the areas of technology andskills; (d) limited backward and forward linkages. There is also lack

of product

74




2003Ânow any

diversification discernible

within

the

RMG

sector

itself.

Till

shift

favouring

higher

value-added

fashionable

product categories in the RMG market is not visible. As a resultpotential market opportunities continue to remain unaccessed. In viewof the growing RMG-centric export base in Bangladesh, the growthdynamics of the sector needs to be put under close scrutiny. Anydeceleration in the performance of this particular sector severelytests the efficacy of Bangladesh's export-led growth strategy. Asquotas increase across countries in the run up to the year 2005 (MFAquota will increase at the rate of 16%, 25% and 27% over the firstthree stages of MFA phase out), a process of restructuring of theglobal RMG market is expected to gradually evolve where pricecompetitiveness and quality aspects will predominantly dictate themarket behaviour. The slow-down in the growth of woven-RMG in FY2000should serve as a wake up call specially on in view and of (a) the in

upcoming WTO (ATC) third and phase its of the integration of Multi-Fibre Arrangement (MFA) into the Agreement Textiles Clothing potentialconsequences for Bangladesh's apparels sector; (b) China's entry intothe WTO; (c) structural shifts in sourcing of apparels by USAfollowing establishment of NAFTA; (d) the recently enacted Trade andDevelopment Act of 2000 in USA which provides zero tariff and quota-free access to US markets to 72 African and Caribbean Basin countriesand (e) heightened competition in the EU market in view of granting ofquota-free access to Bangladesh's major competitors in 2005.



Development Act of 2000 (US TDA2000) provides duty and quota freeaccess for textiles

76




2003Â

products to US markets from 72 countries under the Africa Growth and

Opportunity Act and the US Caribbean Basin Trade Partnership Act. Thebenefits under the Act is to be offered from October 1, 2000 and willcontinue till September 30, 2008. The bill, subject to fulfillment ofthe of certain conditional countries, ties, provides some of the theaforementioned countries, in effect, a NAFTA - parity. Since a numberbeneficiary specially Caribbean countries are major textile exportersto the US market and compete with Bangladesh in some of the importantproduct categories, Bangladesh will need to carefully study andmonitor the implications of this Act in terms of the future exportperformance of the country's RMG sector in the US market. TillBangladesh's debt-servicing record had been one of the best amongstthe LDCs - at less than 10% of her forex earnings from exports of

commodities and remittances. The pressure on reserves is also expectedto go up on account of gas purchase and sales agreement (GPSA) withIOCs. As of now these payments are equivalent to about $100.0 millionbut is expected to go up to about $500 million over the immediatefuture. Bangladesh will need to ensure in increased to export earningsclaims from export and remittance order service these without adverse

impact on imports and forex reserves of the country. Energetic stepswill need to be taken to maintain this good record. Emerging marketaccess problems, phase out of the MFA,

commitments under the WTO pertaining to gradual withdrawal ofsubsidies, the need to conform with standards such as ISO-9000 andISO-1400 and persistence of protectionist trends in developed countrymarkets have confronted LDCs such as Bangladesh with new challenges inthe era of globalisation. As the spokesman of the LDCs Bangladesh alsohas an added responsibility to articulate the voice of the LDCs in thevarious global trade platforms.

77




2003Â

Voices are being raised in many LDCs as to the justification of any

new round of trade negotiations under the WTO at a time when most ofthe promises favouring the LDCs during the Uruguay Round (Special andof Differential the status, nexus, technical greater assistance,access, strengthening the LDCs Bangladesh should also feel an addedresponsibility to aid-trade market

technology transfer etc.) are yet to be implemented. As leader of

ensure that the objectives of the Integrated Framework Initiative ofthe six agencies which is designed to address the technical assistancedeveloping needs of the also LDCs need are to achieved. the The LDCsand of countries explore possibility

designing common approaches in future WTO negotiations. GATT URprovisions stipulates that, under the WTO provisions countries get notwhat they deserve, but what they negotiate. It is, thus, importantthat the LDCs raise their bargaining strength by pooling theirresources in any future negotiations. This is more so because futuretrade battles will be mainly waged in such WTO forums as the disputesettlement body (DSB) which are becoming increasingly important interms of enforcement of the global trade regime. Low domesticcapacities of LDCs to put forward their cases is being manifested inthe form of constrained market access, imposition of anti-dumping andcountervailing duties, as also in terms of interpretation of theUruguay Round provisions in ways which tend to go against theinterests of the developing countries on the on one the hand, otherand the Thus, spirit whilst of multilateral locally negotiations,hand. acting

Bangladesh will need to coordinate her policies globally as an LDC.The task of monitoring the impact and implications of the WTOprovisions and decisions is an on-going continuous process. Thus, theSpecial and Differential Status given to the LDCs in the WTO andDecisions on Measures in Favour of Least Developed Countries annexedto the Final Act of the Uruguay Round needs to

78




2003Â

be carefully studied and monitored by Bangladesh in order to guarantee

maximum advantage for the LDCs. It is perhaps of some interest to notethat Bangladesh's export sector has demonstrated a good recoveryduring the first quarter of FY2001 (July-September, 2000). Exportaccruals during the first quarter for FY2001 was about 25.4% highercompared to the corresponding period of FY2000. In terms of growthrate, export earning performance of some of the major sectorsincluding woven-RMG (20.5%) and knit-RMG (31.2%), frozen foods (54.6%)and leather (5.4%) was significantly of FY2000. better the comparedexport The to base growth to the has in the corresponding performancethan that period the However, is

continued to remain narrow and no mentionable breakthrough in the of

of thrust The sectors visible. of price With export was mainlyachieved thanks to increase in volumes rather price. of contributionwas index MFA incremental export over the first quarter of FY2001 was12.9%, whilst that volume index 87.1%. phase-out programmed graduallynearing its completion, Bangladesh will also be required to increaseher vigilance in terms of monitoring the global dynamics in apparelsand textile markets in the coming months and years. This is speciallyso since price levels of most of the apparel categories is expected toexperience a sharp decline once the MFA phase-out is completed. TheGOB needs to recognize the enormity of the challenges confrontingBangladesh under a the new global order and will in have place to theequip itself to adequately to meet these challenges. The GOB will needto design dynamic export strategy and put capacity realize such astrategy rather than just talk about it. To carry through such anexercise in intelligent policy design and its implementation, GOB willneed both strong political commitment as well as good governance, andwill also be required to pursue a proactive external policyunderwritten by coalition-building and skillful negotiatingstrategies. To this end, it will need to

79




2003Âin the

draw

upon

the

best

available

professional

resources

country as well as draw in external expertise in selected areas.Priority should be given to preparing a joint action agenda with otherLDCs which need to be pursued in any future round of tradenegotiations. This task is of immediate importance also in view of theforthcoming Third LDCs Conference which is to be held in Brussels inMay, 2001.

5.3.7. Export Performance The most significant recent development inthe external

sector is the deceleration of export growth in 1998/99. While exportgrowth is expected to increase to about 9 per cent in 1999/00, it isyet to reach its trend growth path. The trends in exports during thefirst nine months of the current fiscal year (July 1999 - March 2000)suggest that total exports during the period grew by 8.4 per cent overthe same period of the previous fiscal year. Readymade garments, whichaccounted for 56 per cent of total exports in 1998/99, registered agrowth of 6 per cent. The growth of readymade garments exports was 15per cent in 1996/97, 27 per cent in 1997/98 and only 5 per cent in1998/99 in dollar terms. In view of the importance of the sector, thecauses of deceleration In require recent With in-depth analysis todevise have future strategies. last three years, knitwear exportsincreased has the from

rapidly with an average growth of more than 20 per cent over theyears. value supportive and policies, knitwear potential to emerge asa thrust export sector with significant domestic additionslinkages.Total export Bangladesh during 1997-98 amounted to US Dollar5161.20 million (Taka 234163.75 million) as against US$ 4418.28million (Taka 188130.42 million) during 1996-97 showing an increase ofUS dollar 742.92.86 million i.e 16.81%.A statement of comparativeyear-wise export earning for nine years is given below.



80




2003Â

Million Dolla ( Corer Taka) FY Export Earnings (+) Increase (-)

Decrease Increase Decrease in % 1988-89 ( 1291.56) 40968.40 1989-90 (1523.70) 49764.21 1990-91 ( 1717.55) 60560.88 1991-92 (1993.92)75908.56 1992-93 (2382.89) 92575.40 1993-94 ( 2533.90) 100975.94 1994-95 (3472.56) 139284.58 1995-96 (3882.42) 158790.87 1996-97 ( 4418.28)188130.42 1997-98 (5161.20) 234163.75 (+ 60.36) (+) 2887.34 (+ 232.14)(+) 8795.81 (+ 193.85) (+) 10796.67 (+ 276.37) (+) 15347.68 (+ 388.97)(+) 16666.84 (+ 151.01) (+) 8400.54 (+ 938.66) (+) 38308.64 (+ 409.86)(+) 19506.29 (+ 535.86) (+) 29339.55 (+ 742.92) (+) 46033.33 (+ 4.90%)(+) 7.58% (+ 17.97%) (+) 21.47% (+ 12.72%) (+) 21.70% (+ 16.09%) (+)25.34% (+ 19.51%) (+) 21.96% (+ 6.34%) (+) 9.07% (+ 37.04%) (+) 37.94%(+ 11.80%) (+) 14.00% (+ 13.80%) (+) 18.8% (+ 16.81%) (+) 24.47%

Source-Bangladesh bankAmong the principal commodities there has beenincrease in the export earnings during the year under review inrespect of tea (24.46%), product agricultural 3.19%), (21.84%), andproducts readymade other (36.61%), garments handicrafts (27.05%),(5.83%), knitwear

engineering

commodities

(21.23%). These commodities which registered decrease in export

81




2003Âfood

earning

are

leather

(2.67%),

Jute

goods

(11.46%)

frozen

(8.38), raw jute (7.35%), chemical products (31.58), petroleum byproducts (33.56%). Export From Bangladesh During 1997-98

A comparative statement showing export earning in during the FY isgiven below. million Source-Bangladesh bank terms of U.S. dollar andBangladesh Taka 1997-98 & 1996-97 (Value in

Commodities

199798

1996-97

Increase (+) Decrease ()

% Increase (+) % Decrease (-) (-) 8.38% (-) 2.38%

Frozen food

(29384) 13331.3 2

(320.73) 13656.50

(-26.89) (-) 325.18

Agricultural products

(39.14) 1775.98

(28.65) 1219.97



(+ 10.49) (+) 556.01

(+) 36.61% (+) 45.58%

Tea (Incl.packet tea)

(47.47) 2153.56

(38.14) 1623.86

(+ 9.33) (+) 529.70

(+) 24.46% (+) 32.62%

82




2003Â

Petroleum by products

(10.93) 495.96

(16.45) 700.44

(- 5.52) (-) 204.68

(-) 33.56% (-) 29.22%

Chemical products

(74.22) 3367.30

(108.48) 4618.91

(- 34.26) (-) 1251.61

(-) 31.58% (-) 27.10%

Leather

(190.26 ) 8632.09

(195.48) 8323.50

(- 5.22) (+) 308.59

(-) 2.67% (+) 3.71%

Raw Jute

(107.77 ) 4889.39

(116.32) 4952.92

(- 8.55) (-) 63.53

(-) 7.35% (-) 1.28%

Jute goods

(281.42 ) 12768.2 4

(317.86) 13534.55

(- 36.44) (-) 766.31



(-) 11.46% (-) 5.66%

Handicrafts

(5.99) 271.98

(5.66) 241.11 (763.30) 32501.13

(+ 0.33) (+) 30.87 (+ 177.01) (+) 10160.62

(+) 5.83% (+) 12.80% (+) 23.19% (+) 31.26%

Knitwear

(940.31 ) 42661.7 5

Readymade garments

(2843.3 3) 129001. 77

(2237.95) (+ 605.38) (+) 95291.80 33709.97

(+) 27.05% (+) 35.36%

Engg. Products

(19.64)

(16.12) 686.33

(+ 3.52) (+) 204.87

(+) 21.84% (+) 29.85%

83




2003Â

891.20 Other (306.88 ) 13923.4 1 Total (5161.2 0) 234163. 75 #Export

as a percentage to imports Export earnings FY 1997-98 was 5161.20million and import payment for the same year was million which showsthat export earnings covered % of our import bill During 1995-96 and1996-97 export earnings covered 56.86% and 61.79% of import billsrespectively. A statement of export as a percentage to import for theperiod 1982-83 to 1997-98 is given below. (4418.28) (+ 742.92) (+)188130.42 46033.33 (+) 16.81% (+) 24.47% (253.14) 10779.40 (+ 53.74)(+) 3144.01 (+) 21.23% (+) 29.17%

Value in million US$) FY Exports Imports Export as a Percentage toimports 1 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 2687 811 934 819 1074 1231 1292 3 1923 2073 2641 2120 2260 2961 2997 4

35.73% 39.12% 35.37% 38.63% 47.52% 41.57% 43.11%

84




2003Â

1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-

98

1524 1718 1994 2383 2534 3473 3882 4418 5161

3759 3511 3466 3986 4191 5834 6827 7150 N.A

40.54% 48.93% 57.53% 59.78% 60.46% 59.53% 56.86% 61.79% N.A

Source-Bangladesh bank 4.3.8. PRIMARY AND MANUFACTURED COMMODITIES:Out of the total export earning of US dollar 5161.20 million duringthe FY 1997-98 the share of primary commodities 501.93 million andthat of manufactured 4659.27 million i.e. 9.73% and 90.27% dollar

526.43.84 million and US and 88.09% respectively stood at US dollarproducts at US dollar

respectively as against US

dollar 3891.85 million i.e. 11.91%

during the FY 1996-97. A Statement of total export earning and

85




2003Â

share of primary and is given below.

manufactured commodities from FY 1982-93

to 1997-98 showing values both in US dollar and Bangladesh Taka

PRIMARY & MANUFACTURED COMMODITIES Value in million Dollar) Value inmillion Taka Fiscal Year Total Export Commodities Value 1982-83(686.60) 16162.46 (243.17) 5724.08 % Share 35.42 Value (443.43)10438.38 % Share 64.58 Primary Commodities Manufactured

1983-84

(811.00) 19901.90

(281.54) 6908.89

24.71

(529.46) 12993.01

65.29

1984-85

(934.43) 24154.92

(316.62) 8184.58

33.88

(617.81) 15970.34

66.12

1985-86

(819.21) 24314.02

(299.33) 8884.13

36.54

(519.88) 15429.89

63.46



1986-87

(1076.61 ) 32631.99

(298.37) 9043.67

27.71

(778.24) 23588.32

72.29

1987-88

(1231.20

(286.69)

23.29

(944.51)

76.71

86



86.60

1992-93

(2382.89 ) 92575.40

(313.91) 12195.47

13.17

(2068.98 ) 80379.93

86.83

1993-94

(2533.90 ) 100975.9 4

(346.80) 13820.11

13.69

(2187.10 ) 87155.83

86.31

1994-95

(3472.56 ) 139284

452.20 18137.81

13.02

(3020.36 ) 121146.7 6

86.98

1995-96

(3882.42

(475.84)

12.26

(3406.58

87.74

87




2003Â

) 158790.8 7 1996-97 (4418.28 ) 188130.4 2 1997-98 (5161.20 ) 234163.7

5 22772.55 (501.93) 9.73 22415.58 (526.43) 11.91 19461.6

) 139329.2 2 (3891.85 ) 165714.8 4 (4659.27 ) 211391.2 0 90.27 88.09

Source-Bangladesh bank 4.3.9. EXPORT: COUNTRY WISE The destinationwise export pattern during FY 1996-97 was that U.S.A with an intake ofgoods worth US dollar 1432.15 prominent buyer of Bangladesh products,continued to be most

U.K. & Germany occupied the second & third position respectively. Theother principal importing countries of Bangladesh products indescending orders were France, Belgium, Netherlands, Belgium,

88




2003Â

Japan, Canada, Hong Kong, India,

Spain, China, Sweden, Pakistan,

Denmark, Australia, Iran, UAE & Singapore. Export earning ofBangladesh during 1992-93 to 1996-97 from 20 major importing countrieswas as follows: (Value in million dollar) value in million taka )COUNTRIES 1992-93 U.S.A 199394 (822.5 1) 31954. 41 U.K. (183.4 2)7125.8 4 Germany (216.2 1) 8399.8 2 France (127.3 6) 4947.7 3 Belgium(83.14 ) 3229.8 3921.55 (98.41) (128.58 ) 5157.50 199495 (734.82 )29282.4 5 (259.26 ) 10331.6 7 (275.21 ) 10967.2 4 (157.72 ) 6285.08199596 (1184.2 8) 47501.4 4 (318.31 ) 12767.8 9 (300.26 ) 12043.4 0(192.93 ) 7738.32 199697 (1197.5 4) 48979.3 6 (417.70 ) 17083.9 1

(369.18 ) 15099.6 4 (272.88 ) 11160.7 3 (186.93 ) 7645.56 199798(1432.1 5) 87540.05 60980.7 9 (437.69 ) 19971.42 18636.9 5 (428.29 )23174.54 18236.5 1 (312.65 ) 16720.66 13312.4 4 (210.57 ) 9567.178966.20 (210.87) (368.54) (510.79) (440.19) (1929.47)

89




2003Â

5 Netherlands (85.80 ) 3333.1 2 Italy (137.4 0) 5337.8 6 Japan (53.31

) 2071.0 9 Hongkong (51.45 ) 1998.8 2 Canada (44.38 ) 4849.15 1724.2 3(8.54) China 331.64 526.82 1816.38 1078.81 2366.79 (13.22) (45.29)(26.38) (55.59) (48.63) 2206.34 2280.42 2782.91 2825.72 2943.04(57.23) (69.38) (69.09) (69.12) (106.88) 2873.07 (72.10) (107.07 )4294.53 (104.46 ) 4272.50 (109.18 ) 3958.53 4648.72 (87.25) 2431.793997.14 (61.02) (99.65) (120.80 ) 4940.65 (114.05 ) 5095.50 4856.44(112.31) (170.61 ) 6798.63 (211.26 ) 8473.70 (207.10 ) 8470.38 (203.62) 12260.79 8670.14 (270.24) (104.90 ) 4180.19 (136.66 ) 5481.26(183.22 ) 7493.86 (208.59 ) 10699.61 8881.88 (235.83)

Spain

(25.10

(29.56)

(53.16)

(58.74)

(55.01)

(60.63)

90




2003Â

) 2750.78 975.22 1177.90 2132.06 2402.52 2342.28

Iran

(36.26 )

(34.26)

(30.98)

(33.88)

(53.00)

(35.47) 1609.27

1408.5 5 Denmark (12.29 )

1365.20

1242.40

1385.52

2256.73

(34.68)

(39.24)

(53.00)

(51.24)

(43.59) 1977.68

477.36

1381.97

1573.87

2167.79

2181.61

India



(9.85)

(16.81)

(45.17)

(72.48)

(46.25)

(65.58) 2975.36

382.59

669.72

1811.60

2964.23

1969.43

Pakistan

(28.78 )

(21.06)

(26.74)

(43.08)

(38.97)

(44.77) 2031.21

1118.1 2 Sweden (15.87 )

439.40

1072.52

1762.02

1659.20

(14.63)

(24.89)

(35.96)



(38.13)

(48.22) 2187.74

616.62

582.84

998.37

1470.75

1623.55

UAE

(7.48)

(13.32)

(16.17)

(14.37)

(11.55)

(28.44) 1290.32

91




2003Â

290.73

530.93

648.50

587.58

491.75

Singapore

(79.93 )

(52.90)

(38.02)

(22.87)

(30.00)

(26.07) 1182.80

3105.2 6 Australia (16.45 )

2107.99

1524.96

935.25

1277.21

(21.35)

(16.50)

(23.40)

(28.48)

(35.72) 1620.62

639.08

850.68



661.93

956.89

1212.76

Others

( 337. 36) 13106. 44

(290.83 ) 11589.5 8 (2533.9 0) 100975. 94

(388.83 ) 15563.4 8 (3472.5 6) 139284. 58 by

(363.36 ) 14861.4 2 (3882.4 2) 158790. 87

(484.15 )

(451.71) 20494.08

20615.1 1 (4418.2 8) 234163.75 188130. 42 (5161.20)

Total

(2382. 89) 92575. 40

Exports From

Bangladesh

region,1997-1998

92




2003Â

IMPORETS, EXPORTS & BALANCE OF TRADE OF BANGLADESH Value in million

dollar) Value in million Taka Year (JulyJune) Exports Imports Balanceof Trade Exports 1978-79 (618381) 9282.2 (1471.56 ) 22073.4 (852.75)()12791.2 (+)25.33 (+25.33) Imports (+21.17) (+)21.17 % of annualChange

1979-80

(749.44) 11241.6

(2034.99 ) 30524.9

(1285.55)

(+21.11) (+)21.11

(+38.29) (+)38.29

()19283.3

93




2003Â

1980-81

(709.85) 11599.0

(2281.97 ) 37287.5

(1572.12) ()25688.5

(-5.28) (+)3.18

(+12.14) (+)22.15

1981-82

(625.89) 12555.4

(1930.68 ) 38729.4

(1304.79) ()26174.0

(11.82) (+)8.25

(-15.39) (+)3.87

1982-83

(686.59) 16162.4

(1922.89 ) 45264.9

(1236.30) ()29102.5

(+9.70) (+)28.73

(-0.40) (+)16.87

1983-84

(811.00) 19901.9

(2073.08 ) 50873.5

(1262.08)

(+18.12) (+)23.14

(+7.81) (+)12.39



()30971.6

1984-85

(934.42) 24154.9

(2640.73 ) 68262.9

(1706.31) ()44108.0

(+15.22 (+)21.37

(+27.38) (+)34.18

1985-86

(819.20)

(2120.27 )

(1301.07)

(12.33)

(-25.75) (-)7.81

94




2003Â

24314.0

62929.6 ()38615.6

(+)0.66

1986-87

(1076.61 ) 32632.0

(2259.85 ) 68496.1

()1183.24

(+)31.42 (+)34.21

(+)6.58 (+)8.85

()358541. 1 1987-88 (1231.20 ) 38081.1 (2961.14 ) 91588.2 ()53507.1()1729.94 (+)16.70 (+)14.36 (+)31.03 (+)33.71

1988-89

(1291.56 ) 40968.4

(2997.32 ) 95075.0

()1705.76 ()54106.6

(+)4.98 (+)7.56

(+)1.22 (+)3.81

1989-90

(1523.70 ) 49764.2

(3758.70 ) 122759.1

()2233.00

(+)17.97 (+)21.47

(+)25.40 (+)29.12

()72994.9



1990-91

(1717.55 ) 60560.9

(3510.55 ) 123782.0

()1793.00

(+)12.72 (+)21.70

(-)6.60 (+)0.83

(-

95




2003Â

)63221.1

1991-92

(1993.92 ) 75908.6

(3465.64 ) 131937.0

()1471.72

(+)16.09 (+)25.34

(-)1.28 (+)6.59

()56028.4

1992-93

(2382.89 ) 92575.40

(3986.00 ) 156012.0 4

()1603.11

(+)19.51 (+)21.96

(+)15.01 (+)18.25

()63436.6 4

1993-94

(2533.90 ) 100975.9 4

(4191.00 ) 167643.7 7

()1657.10 ()66667.8 3

(+)6.34 (+)9.07

(+)5.14 (+)7.46

1994-95

(3472.56 ) 139284.5 8

(5834.00 ) 234526.8 0



()2361.44

(+)37.04 (+)37.94

(+)39.20 (+)39.90

()95242.2 2

1995-96

(3882.42 ) 158790.8 7

(6827.00 ) 278790.7 9

()2944.58

(+)11.80 (+)14.00

(+)17.02 (+)18.87

()119999. 92

96




2003Â

1996-97

(4418.28 ) 188130.4 2

(7150.00 ) 305305.0 0

()2731.72

(+)13.80 (+)1848

(+)4.73 (+)9.51

()117174. 58

1997-98

(5161.20 ) 234163.7 5

Source- United Nations, 2003

97




2003Â

5.3.10. Economic Trends GROSS DOMESTIC PRODUCTS OF BANGLADESH AT

CURRENT MARKET (SEE APPENDIX-TABLE-3) ACCORDING to recent mediareports, Bangladesh stood tall with 11.88 per cent export growth untilMay 2009 amid tumbling shipments from major Asian countries because ofthe lingering global financial recession. As recorded in officialdata, goods worth US$14.14 billion were exported by the countrybetween July 2008 and May 2009, compared to US$12.63 billion duringthe same period of last year. India, China, Pakistan, Malaysia,Vietnam and Thailand were struggling to stop the free fall in exportshipments as the global recession cut demand of goods in both sides ofthe Atlantic. Chinaâ¼s export fell by a record margin in May. Exportstumbled 26.4 per cent from a year earlier, exceeding previous recorddrop in February of 25.7 per cent. The growth in Indiaâ¼s merchandise

exports dipped to 12.9 per cent for May 2009. Pakistanâ¼s exportsalso came down by 5.14 per cent during the same period. Exporters andtrade experts attribute Bangladeshâ¼s export success to theâ¼×competitivenessâ¼ of the countryâ¼s readymade garment sector andavailability of cheap labour, although exports of frozen food, leatherand jute fell. Garment manufacturers produced lower-end products whosedemand did not fall significantly in global markets. Remainingcompetitive in these days of difficulties since the quota system waswithdrawn and the ongoing lingering economic slide worldwide isrewarding for Bangladesh. There are other factors for Bangladeshremaining tall, Better delivery, lower price and sewing quality keptBangladesh still high and attractive when its rival countries had topump in billions of dollars in stimulus packages to halt the exportslide. Bangladesh would have to keep up the trend in the coming daysfor continuing its hold on the garment export markets to regain theaccelerated export growth rate.Â

98




2003ÂPercent change (JulyMarch)

July - March

1998/9 1998/99 9 Primary products Raw jute Tea Frozen food OthersManufactured goods Jute goods Leather Readymade garments KnitwearOthers Total exports Source: Export Promotion Bureau. 422.6 71.6 38.6274.7 37.7 317.16 47.77 36.36 202.07 30.96

1999/00

1999/001998/99

318.74 52.18 15.21 225.52 25.83 3805.95 208.32 143.91 2251.29 884.08

318.35 4124.69

0.5 9.2 -58.2 11.6 -16.6 9.1 -1.6 16.0 5.9 20.2 9.5 8.4

4889.6 3487.71 303.4 168.7 211.66 124.03

2985.0 2125.63 1035.0 735.84 397.5 290.55

5312.2 3804.87

One important concern in the country's export sector is the trend ofincreasing contribution of the volume index in incremental exportsvis-a-vis the price index. During the July March period of 1999/00,the price index of exports increased by

99




2003Âexport The

0.38 per cent while the volume index increased by 8.03 per cent overof the same period in 1998/99. in This indicates export that volumehas to increasingly compensate for slow growth in prices the country'sexports increasing earnings. recent deterioration of the country'sterms of trade is also noteworthy: compared to 1997/98, the terms oftrade declined by 4.6 per cent in 1998/99 and further 8.2 per cent in1999/00. Import Performance In 1998/99, the growth in imports was 6.6per cent in US dollars compared to 5.1 per cent in 1997/98 and 4.1 percent in 1996/97. A major aspect of structural change of imports is thedecline in the share of capital goods in total imports from 27.5 percent in 1997/98 to 24.6 per cent in 1998/99. The absolute value ofcapital goods import also declined by about 5 per cent in 1998/99. As

for recent trends, a comparison of the LCs opened during the period ofJuly-January 1999/00 with the corresponding period of 1998/99indicates that the total value declined by 0.6 per cent. The LCssettled during the period suggest 0.8 per cent

increase in the value of imports. The total value of outstanding LCsat the end of January 2000 is US $ 2380 million. The above trendsindicate that import demand is likely to pick up during the rest ofthe period of the current fiscal year. Workers Remittances In USdollar terms, the growth in workers remittances was 8.3 per cent in1998/99 compared to 6.8 per cent in 1997/98 and 21.2 per cent in1996/97. During July - January 1999/00, total remittances was US $1125 million compared to US $ 964 million during the same period ofthe previous fiscal year -- a growth of nearly 17 per cent.

100




2003Â

Major Concerns: The real exchange rate appreciation is basically a

shortterm problem affecting Bangladesh's export competitiveness. Whilenominal depreciation of Taka the is necessary to ensure in the thecompetitiveness country's vis-a-vis major trade goods competitorssector.

export market, it also affects the relative profitability of theimport dependent capital Hence pursuit of an import neutraldepreciation could be considered e.g. currency depreciationaccompanied by tariff reductions so as to leave import prices ofcapital goods unchanged. From a long term perspective, Bangladesh'sexport competitiveness needs to be rooted in micro-levelcompetitiveness e.g. through productivity growth and technological

upgradation. This requires improvement in the efficacy of thefinancial sector to enable the export industries to invest and strivefor productivity improvements and build competitive strengths. Theefforts also need to address the problems of key infrastructuresectors to improve the delivery capacity of the country's exportables.In view of increasing globalization, success in export promotionability to mechanism of of Bangladesh ensuring will the largely globalinto be conditioned A markets is by its integrate into economy.significant through

entry

global

incorporation into international networks of trade and productionwhich can be facilitated by inflow of foreign direct investment (FDI).The inflow of FDI is, however, dismally low at present. 5.3.11. FutureGrowth Prospects The present two macroeconomic broad concerns:situation first, of the country and low

demonstrates

fragility

performance of several macroeconomic indicators as reflected in slow

growth of investment, manufacturing output and exports; and second,underlying constraints that relate to longer run issues of efficientresource allocation, accelerated growth, and

101




2003Âof

sustainability

of

the

growth

process.

The

success

macroeconomic management is ultimately judged by its impact on thegrowth process and its capability to promote social goals. There seemsto exist a broad consensus that a growth rate of 5-6 per cent is notan indicator of satisfactory performance of the economy. At present,the Bangladesh economy has reached a stage that could very well yielda growth rate of 7 per cent and above on a sustained basis, provided`right' policies are in place. One key question is whether therequired resources are

available to support such a path of growth. The gross domestic savingsrate is around 18 per cent of GDP but could go up further by 2-3 percent with sustained domestic savings mobilization efforts, fiscalreforms, and measures to improve the performance of public sectorenterprises. The current investment rate is 22 per cent of GDP. Withreforms to put the economy in a strong position to attract foreigninvestment and measures for foreign direct investment ininfrastructure and other key areas, Bangladesh could target netforeign investment flows of about US $ 2-3 billion per year whichcould contribute to raising our investment rate by about 4 per cent ofGDP. Achieving investment rates of 28-30 per cent of GDP could supporta growth rate of 7 per cent or more even at the current level ofefficiency in capital utilization. The would removal sustainabilityactions of on the higher growth e.g. path, however,

require of

several

fronts

macroeconomic socio-




2003Âreforms

`second generation' of reforms in the context of problems andopportunities for growth in the coming decade. These should aim toacquire technological knowledge and innovations in selected areas andencourage the entrepreneurs to exploit full opportunities of theknowledge-based global economy. 5.3.12 .Readymade garment andpotential service: Gone are the days of Adam Smith, David Ricardo andKarl Marx when services were viewed as unproductive and the mention oftrade in services was hardly found in economics literature. ï¼ no bothHowever, things have changed since then. Nowadays, services arerecognized to constitute an important sector of the economy less thanthe agriculture or industry. GDP Not only do contribute significantlytowards and employment in services

developed and developing countries, the use of new technologies hasmade many services tradable. Lately, a storable, transportable andconsequently, large proportion of the world economic

Transactions are taking place in service trade. Again, services may beclassified as those consumed directly and those used as intermediateinputs. These intermediate services, also known as 'producer services'play a much more complex and important role in the development processthan is suggested by their direct contribution creation. to gross isdomestic product in the (GDP) and employmentbetween many Thisreflected and the inter-linkages sectors

services and the rest of the economy. Production and export inagriculture, services Starting in late 1970s as a small non-traditional sector of export, the Ready-made Garment (RMG) industryhas emerged as the largest foreign exchange-earner for Bangladesh. In1997-98, Bangladesh's total exports were 5161.2 million U.S. dollars.The RMG share was 55% of total exports and 61% of total manufacturingexports from Bangladesh. Out of this total RMG-exports, 43% wentindustry service require

103




2003Âenjoys

to countries belonging to the European Union (EU) and 40% went to theUnited States and Canada10. Currently, Bangladesh preferential accessin these markets. The removal of Multi-Fiber Agreement (MFA) quotas inthe year 2004 under the Uruguay Round Agreement on Textiles losing itsand Clothing (ATC) access will in result the EU in and Bangladeshâ¼spreferential

American markets11. Consequently, Bangladesh will be compelled tocompete with other low-cost RMG-exporting countries of Asia andelsewhere. So the continuation of Bangladesh's present success in RMGexports will depend on her ability to reduce costs and improve thequality of output. In the preceding sections, we have seen the crucial

role of services in manufacturing production. In this section weexamine the role of services in the RMG industry, particularly. TheRMG manufacturers are scattered all over Bangladesh. But those whomanufacture RMG for exports only are mainly located in Dhaka andChittagong. There are about 2,600 RMG manufacturers constraintsbusiness did registered not But permit because to with us of to thecontact we Bangladesh more than to to Garment 100 RMG Manufacturers'and Exporters' Association (BGMEA). Time and other manufacturers.general aversion were able disclose collect

information

outsiders,

information only from 83 RMG manufacturers. Again, information fromsome RMG manufacturers was not comprehensive. So we finally settledfor 74 RMG manufacturing units to carry out our analysis. Out of these74 RMG manufacturing firms,36 are located in Dhaka and 38 inChittagong. Of the 38 RMG manufacturing units selected fromChittagong, 8 are located in the Chittagong Export Processing Zone(CEPZ) and the rest are situated in the city and its surroundingareas. Of the 74 firms under study, 50 belong to an 'average group'employing up to 300 people,15 belong to a 'medium group' employingmore than 300 but less than 1,000 people and 9 belong to a 'largegroup' employing more than 1,000 people. We now proceed to investigate

the type of services used by RMG manufacturing firms and their levelof adoption, sources of

104




2003Âfinally, and RMG

supply

and the

method extent

of of

securing service orders out

these use from in

services RMG

and,

estimate

manufacturing the

exporting activity. After manufacturing receiving carry the customers,planning. firms production All firms

(100%) perform production planning without any formal outside help. Onthe other hand, input procurement is carried out in almost 87% of thecases (64 out of 74) by the firms themselves if and when they are thedirect suppliers to the foreign buyers. In 13% the of the cases RMG offoreign firms the buyers supply inputs to the from RMG themanufacturing firms. But RMG manufacturing firms that supply todomestic in (for cases. export) That receive is, in inputs latter 100%such cases, input

procurement is done 100% outside the firm. Management control andaccounting are performed by almost all of the firms, and these arecarried out internally except in the case of a few large and joint-venture firms where the services of external audit firms are used.Quality control is performed by all the firms, and it is done mostly

internally (82%). Banking and Insurance Service Almost all firms (98%)turn to banks for working capital against their sales orders fromabroad and about 57% (42 out of 74) borrowed from banks to purchasetheir machines and equipment as well. Bank loans are used invariablyby all firms to buy inputs and to meet a certain percentage of runningexpenditure, except for a couple of partially (joint- venture) andfully foreignowned firms. All firms use banking services in varyingdegree. All get firms their have their machines also and plantsShipping insured Service and, and additionally, all input-importers



(87%) and 15% of the exporters imports/exports insured. Shipping Agent& Port-use Shipping service is widely used by RMG manufacturers.Shipping service is required for procuring inputs and exporting RMGoutputs. Sometimes have to air-freight hire service of is also & used.manufacturers services Clearing

Forwarding Agents for clearing inputs from the port/custom and

105




2003Â

loading the finished goods onto ships for export. Port-charge is a

normal expenditure by all RMG manufacturers for using theportfacilities for the purpose of import and export. Within thecountry, to get the imported inputs from the ports to the plant-premise and to carry the finished goods to the ports, wheeltransportation and rail transportation are the chief transport modes.and Services exporting are also for widely moving used by RMG Wheelmanufacturing firms cargo.

transport service is procured by almost all firms (about 98%) fromindependent transport companies and, only in a few cases, from thesister firms. Of companies course, to the (belonging a to the firmsame operates parent as a organization). Railway service is used by

68% (50 out of 74) of when particular firm, the subcontractorexporting service-charges for

wheel transport/railway transport are paid by the latter. All RMGmanufacturing firms use telephone, telex, fax and courier serviceextensively. All firms own telephones, and about 62% (45 out of 74)firms own telex/fax machines. Several firms (about 10%) use theInternet also. Of course, for maintenance of their communicationequipment, all firms use external service. Electricity All firms useelectricity supplied by the Governmentowned Power Development Board(PDB).Disruption in power supply hampers production in the RMGmanufacturing firms. To overcome such disruptions, about 70% firms (50out of 74) own and use small power generators. About 85% of the firms(61 out of 74) use legal service from professional legal consultants.Most medium and large firms have one or more legal consultantsemployed on a permanent basis and hire others (both local and foreignas per requirement) to look after the legal matters concerning thefirms. The firms themselves except for those who work assubcontractors to the exporting firm perform sales and DistributionMarketing services,

106




2003Â

in the form of securing orders for output. In Bangladesh, RMG

manufacturers who export to foreign

countries do not normally take the service of electronic or printmedia to advertise their products. They do, however, organize andparticipate in trade fairs to display their products to and secureorders from foreign distributors. Almost all firms (99% per cent)gettheir products distributed in foreign markets by foreign distributors.Only one joint-venture firm in the sample was found to securedistribution of its product by its foreignowner. All firms have theirown security and cleaning staffs to maintain security and tidiness oftheir plant premises. The plant-premises are secured on a rental basisin 95% cases (62 out of 66 firms located outside Export processing

zone).About 25% of the firms (18 out of 74) own one or more than onecomputer. Data processing is is, of course, carried out internally inall the secured from outside, normally, the firms withcomputercomputers or without computers. Maintenance service forcomputers supplier. About 30% of the firms (23 out of 74) own aphotocopy machine, although all firms use photocopy service invariable amount. RMG manufacturing firms use some special servicesthat they get by dint of their membership in some association orlocation in a certain area of the country. For example, the BGMEAlobbies on behalf of all members, with national and foreigngovernments and international organizations to facilitate and promoteRMG trade.It organizes trade fairs for display of wares produced bythe members, arranges trade for participation the of members with ininternational fairs, provides members various

relevant information, gives them legal and other aid/assistance and soon. Again,the RMG manufacturing firms located in export processingzones enjoy certain privileges and facilities which are not availableto firms located in other areas. For

107




2003Âcargo

example,RMG manufacturing firms located in the Chittagong ExportProcessing zone enjoy the privilege of getting their containerscleared (by the custom) right at their own plantpremise instead of atport-sheds. This enables the firms to avoid losses sheds. CHAPTER -VIConclusion From the above discussion, we can see that readymadegarment is the main export product of Bangladesh and for theBangladesh, the readymade garment export industry has been theproverbial goose that lays the golden eggs for over fifteen years now.The sector now dominates the modern economy in both export The eventsearnings, secondary impact and employment generated. incurred throughfor export) pilferage during of their at the wares port(imported/intended clearance

in 1998 serve to highlight the vulnerability of this industry to bothinternal and external shocks on the demand and supply side. Given thedominance of the sector in the overall modern economy of Bangladesh,this vulnerability should be a matter of some concern to thepolicymakers in Bangladesh. Although in gross terms the sectorâ¼scontributions to the countryâ¼s export earnings is around 74 percent,in net terms the share would be much less partially because thebackward linkages in textile have been slow to develop. resilientconcern. or The dependence on a single sector, no matter how sturdythat sector is, is a matter of policy

We believe the policymakers in Bangladesh should work

to reduce this dependence by moving quickly to develop the otherexport industries using the lessons learned from the success ofapparel exports. reduced. observe Support for the apparel sectorshould not be It is heartening to gaining share In fact, another wayto reduce the vulnerability is to that the knit products are rapidlyin

diversify the product and the market mix.

108




2003Â

overall garment exports as these products are sold in quota-free

markets and reflect the strength of Bangladeshi producers in the fullycompetitive global apparel markets. Preliminary data and informalevidence indicate that this sector seems to have weathered thedevastating floods relatively well. The floods did

create a crisis for the tightly scheduled export industry, but to itscredit the firms responded swiftly and creatively to the unexpectedinsulated dislocation from domestic and transportation shocks;disruptions. however, it The remains industry is one hundred percentexport-oriented and therefore demand vulnerable to domestic supplyshocks and the smooth functioning of the banking, transportation andother forward and backward linkage units, sectors mostly of the

economy. in and The Dhaka-Chittagong and the road in remains the maintransportation link connecting the production situated around Dhakaport Chittagong, where the raw material and the finished products areshipped in and out. Despite increased this road. Eventually, this roadlink was completely severed for several days when large sections ofthe road went under water for a few weeks during the latter phase ofthe floods. and the This port delinking in of the road as connectionbetween Dhaka Chittagong was

serious a threat as one can imagine for the garment exporters. Theindustry responded by calling upon the Bangladesh navy to help withtrawlers and renting a plane from Thai Air that was used to directlyfly garment consignments from the Dhaka airport to the Chittagongairport several times a day. industry is extensive.x According toindustry sources, the list of flood-related damage to the garmentAccording to the September 1998 BGMEA newsletter, garments worth taka1,000 crore ($208 million) could not be exported on time due to thedisruption of the DhakaChittagong road Attendance and workerproductivity in factories was down as much as 35 percent during theworst period of the floods. As many as 300,000 workers were unable towork as their Many homes and families were stricken by the floodconditions.

109




2003Âthe

more workers fell sick from waterborne diseases. Besides naturaldisasters, there were several other crises that impacted garmentindustry in 1998. The disruption of the Chittagong port BGMEA, the

due to labor disputes was certainly one of them.

industry association, has repeatedly requested the government to banlabor strikes in the Chittagong port for national security reasons.Another source of disruption for the industry was the Although theleader of perennial problem of hartals or general strikes called forand enforced by the political opposition. the main opposition partyhas declared, in a major concession to this industry, that the garment

industry would be exempt from such hartals, in practice the situationis more difficult. Lastly, the psychological impact of these events onthe existing and potential buyers cannot be overstated. Buyers in theglobal garment dependence on air transportation, trucks remain themain vehicles for transporting raw materials and finished products forBangladesh garment exports. unfulfilled orders. The floods disruptedthe normal flow of traffic on markets remain highly sensitive to therisks of As a result of the floods, the image of Bangladesh as asomewhat unpredictable supply source may have been strengthened sincethe floods received considerable world media attention. exportinginsulated exchange But The Ready-Made in Garments (RMG) industryoccupies a unique position in the Bangladesh economy. It is thelargest of an industry market Bangladesh, the which of experiencedMulti Fibre and phenomenal growth during the last 25 years. By takingadvantage under provision Agreement (MFA) of GATT, it attained a highprofile in terms of foreign earnings, exports, industrializationcontribution to GDP within a short span of time. The industry plays akey role in employment generation and in the provision of income tothe poor. To remain competitive in the post-MFA phase, Bangladeshneeds to remove all the structural impediments in the transportationfacilities, telecommunication network, and power supply, management ofseaport, utility services and in the law

110




2003Âin the

and order situation. The government and the RMG sector would have tojointly work together to maintain competitiveness global RMG market

RECOMMODUCATIONS Bangladesh economy at present is more globallyintegrated than at any time in the past. The MFA phase-out will leadto more efficient global realignments of the Garments and Clothingindustry. The phase out was expected to have negative impact on theeconomy of Bangladesh. Recent data reveals that Bangladesh absorbedthe shock successfully and indeed RMG exports grew significantly bothin FY06 and (especially) in FY07. Due to a number of steps taken bythe industry, Bangladesh still remains competitive in RMG exports evenin this post phase-out period. Our Garments Industries can improve

their position in the world map by reducing the overall problems. Suchas management labor conflict, proper management policy, efficiency ofthe manager, maintainable time schedule for the product, properstrategic plan etc.Government also have some responsibility to improvethe situation by providing- proper policy to protect the garmentsindustries, solve the license problem, quickly loading facility in theport, providing proper environment for the work, keep the industrybiasness. free from all be kind of political when the problem industryand fall the in Credit must provided

need.To be an upper position holder in the world Garments Sector thereis no way except follow the above recommendations. We hope bymaintaining will to proper the its management apex and policy instrategies our many country take show position future.Despite and

difficulties faced by the RMG industry over the past years, itcontinued robust performance competitive strength. The resilience andbold trend in this MFA phase-out period partly reflects the impositionof â¼×safeguard quotasâ¼ by US and similar restrictions by EUadministration on China up to

111




2003Â

2008, which has been the largest supplier of textiles and apparel to

USA. Other factors like price competitiveness, enhanced GSP facility,market and product diversification, cheap labor, increased backwardintegration, high level of investment, and government support areamong the key factors that helped the country to continue the momentumin export earnings in the apparel sector. Some of these elements arereviewed below. Market Diversification Bangladeshi RMG products aremainly destined to the US and EU. Back in 1996-97, Bangladesh was the7th and 5th largest apparel exporter to the USA and European Unionrespectively. The industry was successful in exploring theopportunities in markets away from EU and US. In FY07, a successfulturnaround was observed in exports to third countries, which having anegative growth in FY06 rose three-fold in FY07, which helped to

record 23.1 percent overall export growth in the RMG anticipated thatthe trend of market sector. It is will diversification

continue and this will help to maintain the growth momentum of exportearnings. At the same time a recent WTO review points out thatBangladesh has not been able to exploit fully the duty free access toEU that it enjoys. While this is pointed out to be due to stringentrules of origin (ROO) criteria, the relative stagnation in exports toEU requires further analysis. Product Diversification The growthpattern of RMG exports can be categorized into two distinct phases.During the initial phase it was the woven category, which contributedthe most. Second phase is the emergence of knitwear products thatpowered the recent double digit (year-on-year) growth starting inFY04. In the globalized economy and ever-changing fashion world,product diversification is the key to continuous business success.Starting with a few

112




2003ÂT-

items, the entrepreneurs of the RMG sector have also been able todiversify the product base ranging from ordinary shirts, shirts,trousers, shorts, pajamas, ladies and childrenâ¼s wear tosophisticated high value items like quality suits, branded jeans,jackets, sweaters, embroidered wear etc. It is clear that valueaddition accrues mostly in the designer items, and the sooner localentrepreneurs can catch on to this trend the brighter be the RMGfuture. Backward Integration RMG industry in Bangladesh has alreadyproved itself to be a resilient still industry and can on be acatalyst fabrics. for further the industrialization in the country.However, this vital industry depends heavily imported Afterliberalization of the quota regime some of the major textile suppliers

Thailand, India, China, Hong Kong, Indonesia and Taiwan increasedtheir own RMG exports.

Figure: Trend to back-to-back linkage If Bangladesh wants to enjoyincreased market access created by the global open market economy ithas no alternative but to

113




2003Âthe

produce

textile

items

competitively

at

home

through

establishment of backward linkage with the RMG industry. To someextent the industry has foreseen the need and has embarked on its owncapacity building.

Flow of Investment It is plausible that domestic entrepreneurs alonemay not be able to develop the textile industry by establishing modernmills with adequate capacity to meet the growing RMG demand. It isimportant to have significant flow of investment both in terms offinance and technology. Figure 3 indicates that the investment outlookin this sector is encouraging, although the uncertainties before theMFA phase-out period caused a sluggish investment scenario. In partthe momentum in the post-MFA phase-out period is indicative of theefforts underway towards capacity building through backwardintegration. This is evident in the pace of lending to the RMG sectorand in the rising import share of RMG related machinery. Howeverfurther progress would be necessary to improve and sustaincompetitiveness on a global scale. Policy Regime of Government:Government of Bangladesh has played an active role in designing policysupport to the RMG sector that includes back-to-back L/C, bondedwarehouse, cash incentives, related export credit At guarantee scheme,tax holiday a and cash facilities. present government operates

compensation scheme through which domestic suppliers to exportoriented

RMG units receive a cash payment equivalent to 5 percent of the netFOB value of exported garments. At the same time, income tax rate fortextile manufacturers were reduced to 15 percent from its earlierlevel for the period up to June 30, 2008. The reduced tax rates andother facilities are likely to have a positive impact on the RMGsector.

114




2003Â

Infrastructural Impediments The existence of sound infrastructural

facilities is a

prerequisite for economic development. In Bangladesh, continuinggrowth of the RMG sector is dependent on the development of a strongbackward other RMG linkage factors exports in order to reduce the leadof time. of However, constraining included the competitiveness absence

Bangladeshâ¼s

adequate

physical infrastructure and utilities. Labor Productivity The

productive efficiency of labor is more important determinant forgaining comparative advantage than the physical abundance of labor. InBangladesh, the garment workers are mostly women with little educationand training. The employment of an uneven results it number in low ofunskilled labors and by the garment more and factories expensive Kong.productivity of Sri comparatively South Korea

apparels. Bangladesh labor productivity is known to be lower whencompared with Lanka, Hong Bangladesh must look for ways to improve theproductivity of its labor force if it wants to compete regionally ifnot globally. Because of cheap labor if our country makes the laborproductivity in the apex position, then we think the future of thissector is highly optimistic. Research and Training The country has nodedicated research institute related to the apparel sector. RMG ishighly fashion oriented and constant market research is necessary tobecome successful in the business. BGMEA has already established aninstitute which offers bachelorâ¼s degree in fashion designing andBKMEA is planning on setting up a research and training institute.These and related initiatives need encouragement possiblyintermediated by donor-

115




2003Â

assisted technology and knowledge transfer. A facilitating public

sector role can be very relevant here. Supportive Government Policy Inafter contrast to the the public sector-led import-substitutingphilosophy of the

industrialization strategy pursued during the first few yearsindependence, industrialization government changed rather dramaticallyfrom the late 1970s when the emphasis was on export-oriented growth tobe spearheaded by the private sector. Towards this end, various policyreforms were implemented policies in the 1980s and 1990s. to Some theof these of reformed the RMG contributed considerably growth

industry in Bangladesh.

During the 1980s, a number of incentives

were introduced to encourage export activities. Some of them were newlike the Bonded Warehouse Facility (BWF), while others like the ExportPerformance License (XPL) Scheme 37 were already in operation and wereimproved upon. Also, rebates were given on import duties and indirecttaxes, there were tax reductions on export income, and exportfinancing was arranged. scheme, licenses exporters for of non-traditional products over products and specific above Under the XPLimport normal their received

percentage allotment based on the f.o.b. value of their exports. Underthe Duty Drawback System, exporters of manufactured goods wereentitled to get refund of duties and taxes paid on imported inputsused in export production, and also all excise duties paid on exportedfinished goods. For certain fast-moving items such as RMG, a notionalsystem of duty payments was adopted in 1982-83. Under this system,exporters were exempted from paying duties and taxes on imports butused were in export to production keep at the of time raw of andimportation, required records

21packaging materials imported. The duties and taxes payable on theimports were kept in a suspense account. Liabilities to pay theamounts in suspense were removed on proof of exports. The

116




2003Âpositive the SBW

discussion industry reduction in

in

this

section In

clearly

points two

to

the

contribution made by policy reforms to the growth of the RMGBangladesh. in cost of particular, producing policiesâ¼³ and facilityand the back-to-back L/C systemled to significant enhanced

garments

competitiveness of Bangladeshâ¼s garments exports. It also allowedgarment manufacturers to earn more profit which, when necessary, couldbe used to overcome poor difficulties governance, arising from in weakthe governance. Furthermore, reflected

leakage of duty-free imported fabrics in the domestic market,paradoxically enough also helped the garment manufacturers to earnextra â¼×profitâ¼ and thereby enabled them to absorb the â¼×high costof doing businesses â¼³ a fall out of bad governance.

117




2003Â

References: 1 .Chaudhuri, Salma and Pratima Paul-Majumdar, The

Conditions of Garment Workers in Bangladesh - An Appraisal, Report,Bangladesh Institute of Development Studies, October 1991. 2.Bangladesh Unnayan Parisad, A Study On Female Garment Workers in 3Bangladesh, draft report, Dhaka, May 1990. Ahmad, Muzaffar, "ReadymadeGarments Industry in Bangladesh,"

Bangladesh Journal of Political Economy, Vol. 9, No. 2, 1988, 94122.4. Wiig, Arne, "Non-tariff Barriers to Trade and Development--the caseof garment industry in Bangladesh," in Norbye (edited) BangladeshFaces the Future, University Press Limited, Dhaka, 1990. Ather, S. A.,"The Readymade Garments Industry: Current Status, Problems andProspects," Doc-TIP-MPU-B-11, June 1987. 5. Hossain, Najmul and Jagjit

Brar, "The Garment Workers of

Bangladesh: Earnings and Perceptions Towards Unionism," Journal ofBusiness Administration, Vol. 14, No. 4, 1988. 6. Quddus, Munir.,Entrepreneurship in the Apparel Export

Industry of Bangladesh," Journal of Asian Business, Vol. 9, No. 4,Fall 1993, 24-46 7. Quddus, Munir, â¼Apparel Exports From Bangladesh:Vol. 12, No. 4, Winter 1996, 51-70. 8. Islam, Anisul M, and Quddus,Munir, â¼The Export Garment Brilliant

Entrepreneurship or Spurious Success? Journal of Asian Business,

Industry in Bangladesh: A Potential Catalyst for Breakthrough,â¼ inWahid and Weis (edited)

118



1.202 5852857. 28 3.351 687886. 58

7359248 .42 314896. 45

5851425 .03 687891. 01

TOTAL

33888224 20

8587785 2106

71957 224

232888 036

1.532 11235786 ( r ) 4.80

1103823 81.60

1103946 14.20

120




2003Â

COMMODITY ANALYSIS (US $) Constant-Market-Share Analysis of

Bangladeshi Garment Exports (1889-1998)Â Â COMODITYÂ SITCâ¼3Â OtherÂ OuterÂ Garment.(menâ¼sÂ orÂ girls)Â OtherÂ OuterÂ Garment(womenâ¼sÂ orÂ girls)Â BabiesÂ GarmentsÂ

andÂ ClothsÂ Â BabiesÂ GarmentÂ &Â ClothingÂ Accessories(notÂ knitted)Â BabiesÂ GarmentÂ &Â ClothingÂ AccessoriesÂ (knitted)Â BoysÂ &Â GirlsÂ GarmentÂ madeÂ upÂ ofÂ FabricÂ TotalÂ Â (1)Â Â Â Â Â ÂÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (2)Â Â Â Â Â Â Â (3)Â Â Â Â Â Â Â Â

Â Â Â Â Â Â Â Â (4)ActualÂ worldÂ ExportsÂ .Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â ActualÂ BangladeshiÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Export.Â V â¼¢ j Â Â Â Â Â Â Â Â Â Â V â¼¢ jâ¼²Â (1989)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1998)Â 1055859416Â 2401

808544Â (1989)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (1998)Â 52268129Â 100881717Â Â 1.422Â (5)Â (6) (7) (Â rÂ V. j)Â Â 33922015.72Â Â 66628665.64Â (8) âÖµ( r ij V ij )Â

(Â Â Â r j Â (Â Â Â r j Â V. j )Â ) Â 74325279.44Â

642057664Â

1317517176Â

16885777Â

76326212Â

0.863Â

14572425.55Â

10958869.27Â

17764227.94Â

760276580Â 3100113890Â

2017400484 639948597Â

1033324 990736Â

274109290 26321986Â

1.617Â 0.759Â

1670804.91 751968.62Â



67057.23 642987.67Â

1708610.18Â 1054398.53Â

45026240Â

1631260968Â

162530Â

1251723Â

2.208Â

358866.24Â

105481.97Â

426301.42Â

170352124Â

579916337

616728

695469

1.421Â

876370.49

4002530.97

1482750.62Â

3388822420Â

8587852106Â

171957224Â

232888036Â

0.649Â (Â r)Â

111600238.40Â

111600238.4Â

263811614Â



121




2003Â

Analysis

Bangladeshi Exports in 1998----------------------$232888036Bangladeshi Exports in 1969----------------------$171957224 Change inExports $60930812 100% 1. Due to increase in world trade: $110382381.60 2. Due to commodity composition: $1975483.20 18.12 3.24 -3.22 82.94

3. Due to market distribution: $ -1963250.60 4. Due to increasecompetitiveness: $ 50536197.80

Notation- V ij = value of Aâ¼s exports of commodity to country j inperiod 1, V ij â¼²= value of Aâ¼s exports of commodity I to country j

in period 2, r= percentage increase in total world exports from period1 to period 2, r i = percentage increase in world experts of commodityi from period 1 to period 2, r ij = percentage increase in worldexports of commodity i to country j from period 1 to period 2. * r ijwas first computed from the cross classification of actual worldexports by market destination and commodity V ij , the crossclassification of groups and multiplied by change in actualBangladeshi exports by market destination and commodity groups from1989.

122




2003Â

123

bd garments

Documents