Today, the textile industry of Bangladesh can be divided into the three main categories: the public sector, handloom sector, and the organized private sector. Each of these sectors has its advantages and disadvantages. Currently, the organized private sector dominates, and is also expanding at the fastest rate.
|RMG Industry in Bangladesh|
The public sector is that portion of the industry controlled by organizations that are part of the government. The factories in the public sector enjoy certain privileges such as government funding.
However, in Bangladesh, factories in the public sector are not well supervised. There are frequent changes in officers, and many of these officials do not have a personal interest in the factory for which they are responsible. In addition, the equipment in this sector is not well maintained, as much of the money allocated for this purpose is not spent as planned, but is wasted through corruption and poor accounting.
The rural group of textile producers includes operators of handlooms and a number of organizations which employ rural women, such as BRAC, or the Bangladesh Rural Advancement Committee. The Handloom industry provides employment for a large segment of the population of Bangladesh. The industry also supplies a large portion of the fabric required by the local market. Factories in this sector are usually well looked after by the owners and are quite productive, considering the equipment available. However, the inferiority of their machinery, mostly due to their narrow width, means that the fabric production is slow, and usually falls short of the quality needed for export.
The most productive of the three categories is the private sector. This, as the term suggests, is made up of those factories owned by companies or entrepreneurs. Since the owners of such factories are directly affected by their performance, they take an active part in planning, decision making, and management. Most of these factories also have machinery that is superior to those in the two other sectors because the owners are well aware of the connection between their equipment and their profits.
Demand Supply Gap
The phenomenal expansion of the RMG industry in Bangladesh and the dramatic increase in the population in addition to an increased standard of living in the country has led to a large demand-supply gap as shown by the following table. Only 21% of the total demand for yarn is met locally in Bangladesh. The figures for grey are not much better as only 28% of the total demand is met locally. The finishing sub-sector currently is able to process all of the locally produced grey, but will need to expand at as with the weaving and knitting sub-sectors.
All sectors of the textile industry face many of the same challenges. These problems include lack of power, obsolete technology, low capacity utilization, lack of machinery maintenance, a workforce that is not adequately trained, problems with labor unrest and militancy, political unrest causing disruption such as hartals, and a lack of working capital. The problems with electricity was evident to me on my visit to the Rahim Textile Mills; I was told that it is more efficient to power the factory continuously by a generator, instead of letting production be hampered by power failures. In addition, each of the sub-sectors face various other problems.
The Spinning Sub-Sector
Problems related to spinning have an extremely negative impact on the textile industry. The production capacity of the spinning sub-sector is estimated at approximately 183 million kg per year. However, only 125.16 kg, or 67.3% was produced in 1997-98.
One of the main causes of this under production in the spinning sub-sector is the fact that approximately 38% of the spinning mills in the country are more than twenty-five years old and therefore are not able to produce as much yarn as their initial capacity. The principal reason behind the machinery being so outdated and poorly maintained is the high import duty on textile machinery and their spare parts. Many have not been maintained or repaired as they should have been because in addition to the high cost of the spare parts, there is a shortage of technicians in this field, resulting in both very expensive and sub-standard repairs. Other reasons for the low production figures include frequent power failures, a shortage of raw materials, a high import duty on raw materials used for local consumption, and a high percentage of wastage.
The labor productivity in the spinning sub-sector is also lower than that in competing countries. The output of labor in the industry is about 0.65 kg per man-hour. A recent World Bank survey indicated that the number of spindles installed in Bangladeshi spinning mills could produce twice as much yarn while using only 10% of the labor force. Obviously, obsolete machinery is having an extremely negative impact on Bangladesh's textile industry.
The Weaving Sub-Sector
The shortage in supply from the spinning sub-sector also has a negative impact on the amount of grey produced. The unmet demand for yarn is filled by importing 3.15 billion meters of grey annually. In order to import grey, the subsequent sectors have to invest more in transportation, import taxes, etc., resulting in a more expensive end product.
The weaving sub-sector is plagued by a lack of organization and coordination. There are many small-scale manufacturers dispersed all over the country, which results in replication and a lack of specialization. Instead of working in organized groups, many of the small producers try to do everything on their own, leading to an end product of inferior quality.
The Handloom Sub-Sector
The handloom industry, traditionally an important part of the textile industry in Bangladesh, is still responsible for a very high percentage of the nation's economy. It is the second largest source of rural employment after agriculture. Even without being dependent on electricity, there are numerous problems faced by the handloom industry.
Many of the weavers cannot work steadily due to the irregular supply of the yarn, dyes, and chemicals they require. The primary reason for this is that many of these producers are located in places with poor access to transportation. Most of these weavers obtain their raw materials from brokers at their local levels. These brokers gather money from many small scale manufacturers and travel to the urban centers to purchase the required materials, which they then take back to the weavers. Unfortunately, not all of these brokers are very experienced and some are dishonest. Those in the handloom industry are very vulnerable; even a minor problem such as a heavy rainfall might prevent them from obtaining their raw materials or selling their finished product.
Most export oriented garment factories reject a large quantity of the grey produced by the rural handlooms in Bangladesh. When I examined fabrics of similar type and patterns, one of which was produced using handlooms, and the other on powerlooms, the superiority in uniformity and quality of the cloth produced using the powerlooms was obvious. In addition, handlooms also have a narrower width than powerlooms, and usually cannot produce fast enough to meet the deadlines set by export oriented customers.
The hosiery industry produces different types of products such as undergarments, socks, stockings, and other soft apparel. These factories were originally designed for the local market, but recent improvements in quality have propelled them to enter the export market and knitting has become another rapidly growing textile sub-sector. The Knitting and Hosiery sub-sector is faced with the lack of modern facilities needed for producing quality fabric. There is also a shortage of raw materials in the sub-sector. However, the factor that has the most negative impact on the industry is the lack of working capital.
Even though the sub-sector has to overcome some obstacles, it has been extremely successful recently. Currently the demand for knit grey can be met locally. The quality of the local knit grey is also competitive as most of the knitting units have been installed recently and the machinery is not obsolete.
Dyeing, Printing, and Finishing
Dyeing, printing, and finishing, the final steps in the textile industry, are also the most complicated processes. It is the quality of this work that determines the appearance of the fabric and thus its marketability. In order to be competitive in the future, this sub-sector of the textile industry will need to expand at the same rate as the weaving sub-sector, in order to make the country self-sufficient in grey production.
The dyeing, printing, and finishing sub-sector has improved dramatically over the last five years. However, due to a lack of modern equipment and facilities, the majority of dyeing, printing, and finishing units are still unable to meet the standard of quality demanded by the export-oriented RMG industries, or the export market. Those that are producing fabric suitable for export are heavily dependent on imported grey. As is the case with most imported goods, they face a number of restrictions, such as import taxes, transportation, and various others. However, the successful expansion of the knitting sub-sector has made the country self-sufficient in all knit grey.
The 2005 Challenge
In the year 2005, some of the international policies regarding the export of textiles and garments will change, which may present the Bangladeshi textile industry the greatest challenges it has had to face so far. There is much speculation at present about the situation of the RMG exporters in the post-MFA period, when the World Trade Organization, or WTO, instead of GATT will control the sector. Under the WTO all quotas will be removed, resulting in a free market worldwide.
Bangladesh's garment and textile manufacturers will have to face steep competition from countries such as India, Pakistan, China, and Thailand, from whom the country now imports fabric to meet the demands of its RMG sector. When the WTO free market is established, all these countries will be able to expand their RMG exports, now limited by quotas. As a result, these countries will be able to utilize more of their locally produced yarn and fabrics internally, resulting in the rise of prices for these in the export market, putting pressure on the industries of countries such as Bangladesh.
To aid the expansion of the textile industry in Bangladesh, the government is currently providing numerous incentives.
1) Bonded warehouse facilities
These facilities allow export-oriented factories to import their raw materials duty free. However, the bonded warehouses privileges have not been monitored closely enough, which has resulted in them being abused. The materials imported duty free to be used for producing garments intended for export are sometimes released into the local market. The leakage of these inexpensive items into the local market cause unfair competition for local producers.
2) Duty Exemption Drawback Organization, or DEDO
Factories which do not take advantage of the bonded warehouse facilities and import their raw materials independently can claim the duty they paid under the Duty Exemption Drawback Organization, or DEDO. Provided that the finished goods are being exported. This system is mostly applicable for the dyeing sub-sector of the textile industry.
3) 25% export cash incentive
For producers who do not use their DEDO or the bonded warehouse privilege, and utilize local materials. These producers obtain a 25% cash compensation from the government for the items they export.
4) Tax holiday - Five to nine years of tax exemption for new factories.
5) Duty free importation of raw materials of export in the RMG.
6) Avoidance of double taxation for joint venture projects.
7) Income tax exemption for up to three years for foreign technicians.
8) Duty free import of capital machinery.
Other steps are also being taken. The Government of Bangladesh has devised a Textile Policy designed to make the country competitive in the WTO free market by 2005. Its main objective is for the country to achieve self-sufficiency in yarn and fabrics to meet the needs of the RMG industry through backward linkages and by encouraging investments by private investors.
The Textile Policy makes some of the following suggestions in order to develop the sub-sectors of the industry in a harmonious manner.
- Closer monitoring of leakage in the market
- Appoint an advisory committee to represent the industry to the government
- Zmprovement of research and computer technology
- All sectors of the industry will be Modernized
- Rehabilitated as much as possible
- Tariffs will be rationalized
- 116 new spinning mills each having the capacity of 25,000 spindles will be established immediately
- 223 modern weaving units each with an annual capacity of producing ten million meters will be set up
- Supervised credit system for long term loans will be established
- Necessary training will be provided
- Various means of encouragement and exposure will be established such as exhibitions and competitions
- Dyeing, Printing, and Finishing - new units will be set up with appropriate technology
- Bonded warehouse will be provided until local grey production can meet the quality and quantity required by the sub-sector
- Duty on dyes and chemicals will be withdrawn
However, from my analysis of the Textile Policy, it appeared to be very theoretical and failed to address a number of issues.
1. The policy calls for the establishment of many new factories and projects, but does not provide a scheme for financing them.
1. The policy calls for the establishment of many new factories and projects, but does not provide a scheme for financing them.
2. The lack of training and technology is mentioned, but no steps are suggested for enhancing the skills of the workforce and engineers.
3. No suggestions are made for setting up institutions to conduct the technical and marketing research needed to upgrade the quality of Bangladeshi products to make them more appealing in the international market.
4. The need for the expansion of the Bangladesh's infrastructure such as road, port, and railway capacities to accommodate increased imports and exports is not mentioned.
5. The great problems arising from the shortage of land on which to build the necessary factories is also not considered.
6. The policy states that environmental pollution is negligible, but does not go further into the matter. However, it was very obvious to me on one of my factory visits that affluent treatment and disposal in the industry is a very serious problem.
7. The need for more power is mentioned, but no plans have been devised on how the expansion will be undertaken.