The Future of the Textile Industry in Bangladesh

Future of the Textile Industry in Bangladesh:
The textile industry in Bangladesh has grown in an unplanned manner and a critical demand-supply gap has arisen for both yarn and fabric. The crisis will naturally deepen unless appropriate backward linkages, the incorporation of the fundamental steps in the textile industry all through to the RMG industry, can be built to meet the rapidly approaching challenges in the global textile market. As the population is growing and the standard of living is increasing in Bangladesh, the demand for textiles is increasing rapidly. This presents an urgent need to dramatically increase capacities in spinning, weaving, knitting, and dyeing, printing, and finishing sub-sectors. This will require the adoption of the most modern and appropriate technology to ensure quality products at competitive prices.
Garment Industry in Bangladesh
The possibility of increased yarn production in Bangladesh is an issue that has been looked into extensively by many researchers. These investigations have revealed the country actually has a comparative advantage over all competitors in terms of the expense of yarn production. However, in regards to the total yarn cost, Bangladesh's advantage over India and Pakistan disappears, even though it remains competitive with other producers. This is essentially a result of the higher cost of raw materials in Bangladesh, as most need to be imported.

As can be seen in chart 2, Bangladesh has a lower waste percentage than all its competitors. Power along with Korea is the cheapest in Bangladesh amongst all the yarn producers. The country also has a very low depreciation rate and a fairly low interest rate as well, aided by a low conversion cost as well. However, the price of auxiliary materials in Bangladesh is the highest among all the yarn producers, as is the price of raw materials. Due to these two factors Bangladesh loses its comparative advantage over India and Pakistan.

Most of the raw cotton imported by Bangladesh comes from overseas. The country is not only handicapped by the import tariffs and shipping expenses, but India and Pakistan subsidize the raw cotton, which is sold locally, resulting in countries like Bangladesh paying more for the same cotton.

The outcome for the Bangladeshi spinning mills of such price differentials is that they obtain raw cotton of the same quality at prices, which are approximately 30% higher than the Indian mills, and Pakistani mills. In addition, Bangladesh's spinning mills have to pay another 6 to 7% for handling, freight, and commission charges which put them in a disadvantageous situation. The new infrastructure development surcharge, or IDS, on all imports, which was stipulated in the 1997/98 fiscal year, added another 2.5% to the price of imported raw cotton.

The weaving and knitting sub-sectors will also need to expand at a rapid rate, as there is a large demand-supply gap in the country. With increased investment in the sub-sectors and modernized machinery, Bangladesh could profit greatly from larger and more competitive weaving and knitting sectors.

As the current dyeing facilities are mostly dependent on imported fabrics, they are expanding at a rate which is not dependent on any of the other sectors. However, as local grey becomes more competitive, and its production is increased, the dyeing, printing, and finishing sub-sector will also need to expand to accommodate for the increased supply.

The leakage from bonded warehouse facilities and smuggling of materials across borders also need to be monitored closely in order to assure the competitiveness of the local industry. The reduction of such problems will automatically improve the market position resulting in improved opportunities for the expansion of the Bangladeshi textile industry.

Conclusions
The importance of the textile industry in the economy of Bangladesh is very high. Furthermore, the industry is expected to be the catalyst in the industrialization of Bangladesh, and has been declared as a thrust sector by the government. However, the largest sub-sector of the industry, spinning, faces numerous problems, coupled with faulty government policies and a lack of fairness in competition from neighboring countries.

The explosive growth of the RMG industry in the country, however, has not been supported by the growth of backward linkage facilities. Because of the inferior quality and supply of local fabrics, which are also non-competitively priced, the RMG industry is almost completely dependent on imported fabric. As a result, the foreign exchange earning from the RMG industry is extremely low. This value addition could obviously be boosted if appropriate backward linkages were established in the textile industry.

Therefore, it is extremely important that some remedial measures are taken for the effective development of the industry and to achieve the targets set by the government for 2005 to meet the post-MFA challenges. When I began my research I was quite negative about the future of the industry seeing little opportunity for it being competitive in the post GATT period. However, over the course of my Senior Project investigations, I have realized that Bangladesh's low labor cost, skill development potential, a presently expanding market, and favorable conversion cost can be used to turn the challenges of the quota-free market into a window of opportunity. In addition, most developed countries are turning away from industries like the textile industry and investing in other sectors, thus creating a vacuum in the market.

If the appropriate steps are taken to prepare the country for 2005, Bangladesh will not only maintain the current market, but also expand her global market share, increase the value added to its exports, and widen the range of products it produces. The main steps that must be taken to realize these goals are as follows:
  1. To attain self-sufficiency in fabrics by ensuring that the RMG industry's fabric needs can be met locally.
  2. Ensure that the sub-sectors of the industry are better articulated resulting in a more synchronized development in the industry.
  3. To modify governmental policies to benefit the textile industry, for example-to reduced the import duty on raw cotton and dyes and chemicals.
  4. To create better facilities for training the workforce in the industry.
I have also developed some idea of the types of solutions necessary to overcome the problems faced by Bangladesh's textile industry. In fact, many of these problems would be minimized if some of the government policies regarding textiles were modified. The bank charges and interests interest rates for loans are extremely high; as a result it is very difficult to gather the capital to set up and maintain any type of factory especially textile units which require much expensive equipment. A reduction of the interest rate would not only encourage entrepreneurs to expand their current facilities but should also attract new investors. The handling charges for shipping are also extremely high, which adds to the cost of the materials that are imported and exported.

There is currently a serious lack of coordination among the various government agencies that are connected in some way with the textile industry. As a result of this lack of specialization, duplication of work, and waste of time and resources, policies are often found to work against each other. Industries, which require immediate attention, are not given the necessary regard and fail to obtain speedy solutions to their problems.

In my opinion, the governmental institutions dealing with the textile industry is becoming increasingly disorganized as the industry in expanding. It is therefore necessary to enhance the institutional capabilities and the skills of these officers through proper training and more permanent office positions, as well as greater accountability.

The Bangladesh Tariff Commission, or BTC should place greater emphasis on textiles and should develop more of its policies around the industry. In order to do so, the BTC would benefit by making the following changes:
  1. Hire more professionals to conduct extensive research on Bangladesh's trade requirements
  2. Impose stricter controls on import incentives such as bonded warehouse facilities to protect the market from leakage
  3. Enhance the government's representation with major trade organizations such as the WTO
  4. Formulate policies and programs to enable local industries to become more efficient and competitive in the international market
Another area that needs to be examined is that of the government's incentives. Currently, the numerous incentives provided by the government are modified on a yearly basis. As a result, a number of industrialists do not feel secure about them and at times are hesitant to expand their businesses in fear of policy changes exposing them to greater financial risks. Any required modifications should be made to these incentives after a careful study then they should then be made permanent or at least guaranteed for a longer and specified period. This would provide investors with a sense of security and encourage expansion.

1 comments:

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