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Abstract
CHAPTER I
Introduction
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remain at the lower end of the income scale. Per capita income of
US$370 compares unfavorably against the low-income country
average of US$410.During 1990s, Bangladesh's total exports in
current US$ value grew at an annual compound rate of 14.4 per
cent. In fact, Bangladesh experienced double digit export growth
in most of the years during the 1990s. Imports, on the other
hand, grew at an annual compound rate of 10.9 per cent during
1990s. The gap between export and import widened from -US$1792
million in 1990/91 to -$2814 million in 1999/00, although the
share of export earnings in import payments steadily 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 a proportion
of GDP went up from around 22 percent in 1990/91 to nearly 30 per
cent in 1999/00 with the share of export in GDP rising from 7 per
cent to 12 percent during the same period. The structure of
export has changed significantly over the past two decades.
Bangladesh seems to have made the transition from resource-based
to process-based exports. In 1980/81, primary commodity
constituted nearly 29 per cent of total exports. In 1990/91, this
share came down to 17.8 per cent and further down to 8.2 per cent
in 1999/00. There has been shift from jute-centric to garments-
centric export. In 1980-81, raw jute and jute goods together
constituted 68 percent of total exports. Between 1980/81 and
1999/00, export of both raw jute and jute products declined in
absolute terms and their total share came down to only 6 per cent
in 1999/00. In contrast, woven and knit garments together
accounted for less than 1 per cent of exports in 1980/81. Their
combined share in exports rose to nearly 76 percent in 1999/00.A
change in the composition of output and employment away from the
agricultural sector in the direction of manufacturing and service
sectors is often used as a measure of development. In Bangladesh,
the share of agriculture in GDP declined from 29.2 percent in
1990-91 to 25.5 percent in 1999-00 - a decline of 3.7 percent.
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The fall was compensated by an increase in the share of
manufacturing and construction. Despite declining share of
agriculture in GDP, the increase in food production has been
quite satisfactory moving the country from a state of chronic
food deficit to near self-sufficiency level. Manufacturing
industry in Bangladesh achieved respectable growth during 1990s.
The contribution of manufacturing to GDP increased from 12.9 per
cent in 1990-91 to 15.4 per cent in 1999-00. However, the
sector's current share in GDP appears rather modest for it to
spearhead sustained high growth of the economy. Thus, for
example, in Thailand the share of manufacturing in overall GDP
was 22 per cent in 1980 and it rose to 32 per cent by 1998. The
growth of Bangladesh’s manufacturing sector has also been rather
narrowly based with readymade garments accounting for nearly a
quarter of the scrotal growth. Other important export industries
contributing to scrotal growth are Fish & seafood, and Leather
tanning. Major import substituting industries experiencing
significant growth during this period include Pharmaceutical,
Indigenous cigarettes (bidi), Job printing and Re-rolling mills.
Other success stories of Bangladesh include maintenance of low
level of inflation, rapid spread of micro credit program largely
at the initiative of NGOs, and significant improvements in the
social sector. However, in spite of such successes, the structure
of production and exports has remained extremely narrow in
Bangladesh. Bangladesh has also failed to attract adequate amount
of FDI into the country. While the opening up of gas, electricity
and telecommunication sub-sectors to private investment has
resulted in the inflow of considerable foreign direct investments
(FDI) in these sectors, the overall inflow of FDI has remained
sluggish. The narrow export base has rendered Bangladesh’s
external sector extremely dependent on global trading environment
and preferential treatment by its main trading partners. The
recent poor performance of exports in the face of global economic
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slowdown has confirmed this vulnerability of the Bangladesh’s
external sector. Other weaknesses of Bangladesh economy include a
dysfunctional banking system overburdened with classified loans,
persistent loss of the state owned enterprises, poor
infrastructure, deficient tax efforts, political disturbances and
unsatisfactory law and order situation.
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Bangladesh
Exports of goods and services (% of GDP) *
14.0
( total)
Total debt service (% of exports of goods and 9.2
services)** (total)
Source- World Bank Group
Figure-1
*
**
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Export Growth from Market Share (%) 88-89 to 8.8%
93-94
Export Growth from Market Diversification (%) 0%
88-89 to 93-94
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Source- World Bank Group
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marketing channel. The fact that foreign direct investment had
not been allowed in the industry is one possible reason for our
failure to do so. The Bangladesh Garments Manufacturers and
Exporters Association (BGMEA) is now thinking of setting up
marketing centers abroad. This is an area where public-private
sector collaboration may be required. The only import-
substituting industry that grew significantly, reflecting
somewhat the East Asian pattern, is pharmaceuticals. It first
grew under protection alongside imported pharmaceuticals. It then
out-competed the imported products and has now started exporting.
It is possible that some parts of the industry are not very
efficient but are surviving due to protection while other parts
are efficient and competing in world markets. The shrimp
processing industry is an interesting case. A few years ago, the
industry faced serious reputation problems due to the fraudulent
practices of a few producers. The malpractices of a few
jeopardized the entire industry indicating that reputation is a
public good. In other words, the industry as a whole needed to
take remedial actions. The industry is now finally realizing this
and has started taking steps at self-regulation. Having concluded
that the government’s standards institute is inefficient, it has
adopted measures to impose standards on their own and monitor
compliance. The capital goods industry has declined, e.g.,
textile machinery industry has virtually disappeared. It is
important to have a capital goods industry. Adaptation of
technology is important for industrial growth. For this to
happen, one needs a domestic capital goods industry. Small scale
industries have done quite well in recent years and have largely
benefited from liberalization. On the one hand, they are not much
affected on the output side (do not compete with imports) but
benefit from the liberalization of imports of inputs. They
expanded at the expense of inefficient large-scale industries as
well as cottage industries. Poverty reduction will require
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further growth in such small scale enterprises. The contribution
of export industries and large-scale industries to poverty
reduction will be less direct. Their main contribution will be
through generating capacity to import by earning foreign
exchange. This will help small-scale enterprises who need
imported inputs and this, in turn, will help reduce poverty. Cash
subsidies are currently given to various activities, such as
agro-processing, leather goods and light engineering. The
practice of providing cash subsidies started with Grameen
check(garment). It was meant to compensate for duties paid on
imports and amounted to 25% of total sales value, a high amount
by any standard. The rationale for providing cash subsidies,
especially at the current scale, is weak. Import duties have gone
down due to import liberalization. If compensation is to be
provided, the amount required for various products will have to
be re-calculated, taking into account the changes in duty rates.
Many people fear that the RMG industry will be hard hit after
2005 when quota privileges are withdrawn. However, the fears may
be exaggerated. The European market is already open and
Bangladeshi exporters are doing reasonably well there. The key is
to improve productivity and go deeper into the marketing chain.
Dispersed, non-farm growth in rural areas and in and around small
towns is probably the way to go. There is some potential in
micro-level enterprises but not much. Self-employment in low-
productivity activities does not hold much promise. Wage rates
will increase through small-scale activity, not much through
micro-enterprises. Industrial development will require
improvements in governance. Bangladeshi industry can do quite
well without much protection if there is better governance, e.g.,
if there is no toll collection and if utilities can be provided
efficiently. A recent study has shown that the costs of giving
tolls, as percentage of turnover, is greatest for small-scale
industry, and lower for micro and large enterprises.
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reasonable level if steps were taken much earlier to achieve
diversification of both exportable and their buyers. In that
case, the country would be hedged considerably against any
drastic fall in export earnings as reduced earnings of some items
or from some countries could be offset by good or steady earnings
from other sources. Exporters of Bangladeshi garment industries
must get used to being dynamic for a change. They must shake off
the habit of waiting for orders to come to them automatically.
They should be rather out in the field hunting for such orders.
Experts in the RMG field say that good markets are there for
Bangladeshi products in some South American countries, in the CIS
countries and in Japan. RMG producers should lose no time in
immediately exploring these markets and Bangladeshi missions’
abroad need to work round the clock in support of such market
identification and development activities. Government's fiscal
and other polices will have to be quickly adjusted as the
exporters search out new markets and attempt entering into them.
Apart from the conventional items, exporters need to be
encouraged in every way to go all-out to try and export
unconventional items and in greater quantities. It was estimated
that Bangladesh produces about 4.2 million tons of fresh fruits
and vegetables a year and a substantial quantity of such produce
gets wasted. But the same have good market demand abroad and can
earn good amounts in foreign currencies provided government makes
the right move to reduce freight, handling and other charges and
provides other incentives to exporters of fruits and vegetables.
Government policies taken in support of the moves of exporters of
agro-produces can probably create quickly new items for export at
a time when the country is in a rather desperate situation to
earn more foreign currency from its export trade.
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lower for micro and large enterprises. Consistent with the on-
going trend of the free-market economic system and globalization
of world economy, a liberal trade policy was pursuer in the
financial year ended on 30th June, 2000 as in the preceding year
with the objective of providing protection to the domestic
industries, trade liberalization and expansion of export trade.
So a small change has occurred in Bangladeshi trade policy,
especially garments sector. Earning from the export of the
readymade garments which stood at 4352.0 million us dollar during
1999-2000 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 the target of 4380.53 million us dollar for the year and
accounted for 75.7% of the total export receipts of the country.
Seventy-five per cent of Bangladesh's exports are dominated by
only one item-ready-made garment (RMG) - and the bulk of the
volumes of RMG exports go to North America and Europe. After RMG,
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 goods and their limited number of buyers mean that the
country's external trade is vulnerable to any downturn in the
external environment in the form of price fluctuation or reduced
demand. Both prices and demand for Bangladeshi RMG products have
recently much declined in the Us market the biggest single market
for Bangladesh's ready-made garment. Similar is the condition of
the other export items with the only exception of leather. But
notwithstanding the global recession and setbacks in certain
markets, the country's export trade would not slump badly perhaps
and could be maintained at a reasonable level if steps were taken
much earlier to achieve diversification of both exportable and
their buyers. In that case, the country would be hedged
considerably against any drastic fall in export earnings as
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reduced earnings of some items or from some countries could be
offset by good or steady earnings from other sources. Exporters
of Bangladeshi garment industries must get used to being dynamic
for a change. They must shake off the habit of waiting for orders
to come to them automatically. They should be rather out in the
field hunting for such orders. Experts in the RMG field say that
good markets are there for Bangladeshi products in some South
American countries, in the CIS countries and in Japan. RMG
producers should lose no time in immediately exploring these
markets and Bangladeshi missions’ abroad need to work round the
clock in support of such market identification and development
activities. Government's fiscal and other polices will have to be
quickly adjusted as the exporters search out new markets and
attempt entering into them. Apart from the conventional items,
exporters need to be encouraged in every way to go all-out to try
and export unconventional items and in greater quantities. It was
estimated that Bangladesh produces about 4.2 million tons of
fresh fruits and vegetables a year and a substantial quantity of
such produce gets wasted. But the same have good market demand
abroad and can earn good amounts in foreign currencies provided
government makes the right move to reduce freight, handling and
other charges and provides other incentives to exporters of
fruits and vegetables. Government policies taken in support of
the moves of exporters of agro-produces can probably create
quickly new items for export at a time when the country is in a
rather desperate situation to earn more foreign currency from its
export trade.RMG business started in the late 70s as a negligible
non-traditional sector with a narrow export base and by the year
1983 it emerged as a promising export earning sector; presently
it contributes around 75 percent of the total export earnings.
Over the past one and half decade, RMG export earnings have
increased by more than 8 times with an exceptional growth rate of
16.5 percent per annum. In FY06, earnings reached about 8 billion
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USD, which was only less than a billion USD in FY91. Excepting
FY02, the industry registered significant positive growth
throughout this period
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and indirect economic activities, which eventually helps the
country’s social development, woman empowerment and poverty
alleviation So, There in the light of importance of garments
industry in Bangladeshi economy, we intend to evaluate its export
growth and to analysis it’s structural change.
CHAPTER II
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Bangladesh. Little attention is being paid to the impact of the
crisis on livelihood security of the workers. Since the majority
of workers in the garment industry in Bangladesh are women, it is
these women who are bearing the brunt of the market decline. At
present, there is not a single industry where this volume of
narrowly skilled workers call be reemployed. The crisis will
therefore have a devastating social effect, not only for the
women who will lose their jobs, but also for their families and
communities. With a modest beginning in the late seventies the
RMG sector in Bangladesh rapidly grew. Within a very short period
of time, it attained prominence in terms of its contribution to
Bangladesh’s gross domestic product (GDP), foreign exchange
earnings and employment. The industry flourished due to the cheap
and predominantly female labor market and the favored
international textiles and clothing regime under the Multi-Fibre
Agreement (MFA).
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analyze the sources of the observed rapid increases of
Bangladeshi readymade garments exports. This will also analyses
the sources of the growth of readymade garments exports. Then the
barriers to readymade garment exportation will be reviewed and
its impact on exports growth sources will be evaluated.
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Chapter 5 -Is mostly devoted to explain the results obtained in
chapter 3 concentrating on the competitiveness factors and
explains the market stricture of Bangladeshi garment export and
discusses the relationship between factor requirement of garment
product and their export market.
CHAPTER-III
• Yarn
• Fabric
• Apparel
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the import valuation, giving Bangladesh's RMG export 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 finished exports, greatly contributed to the accelerated
growth of RMG sector. The above factors enabled Bangladesh to
become the fifth largest exporter of RMG to the European Union
and Sixth largest to the USA. The apparel industry in Bangladesh
is broadly classified into Knitwear, RMG, speciality/linen
including terry towels and others. The total export of apparel
was about Takas 105.87 billion during 1995-96. The share of RMG
export in this sector is above 75%. The composition of export of
apparel by type is indicated in the following chart:
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There are also another 515 thousand hand looms in the country
apart from about 488 hosiery units. About 30 per cent of these
hosiery units produce export quality knit fabric. The local
fabric production is reported to be about 915 million meters
during 1995-96. The total demand for fabrics against this
production level is estimated to be about 3155 million meters
(approximately 3.45 billion yards) during 1995-96. Hence apart
from the quality considerations mentioned earlier, domestic
production is inadequate to meet the fabric demand. The
composition of demand of fabrics for garments for domestic market
and garments for export market is illustrated in the following
chart:
Domestic Export
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Gro Growth in
wth
Mont
in
Mon hly
thl Totals
y
Tot
als
WOVEN KNIT TOTAL WOVEN KNIT TOTAL
M To Mon Tot Mon M
Tot ont ta thl al thl Tot Mon Tot Mo Tota ont
al hly l y y al thl al nt l hly
y hl
y
19 1,2 103 20 17. 1,4 120 36, 3,0 10, 88 46,7 3,8
92- 40. .37 4. 05 45. .42 053 04. 663 8. 17.4 93.
93 48 54 02 .88 49 .56 63 4 12
19 1,2 107 26 22. 1,5 129 7.6 34, 2,8 10, 90 45,1 3,7 -3.32%
93- 91. .64 4. 01 55. .65 7% 351 62. 815 1. 66.0 63.
94 65 14 79 .00 58 .00 25 0 83
19 1,8 152 39 32. 2,2 185 43. 47, 3,9 15, 1, 62,5 5,2 38.40%
94- 35. .92 3. 77 28. .7 23% 210 34. 301 27 11.9 09.
95 09 26 35 .00 17 .90 5. 0 33
16
19 1,9 162 59 49. 2,5 212 14. 48, 4,0 23, 1, 72,0 6,0 15.19%
95- 48. .4 8. 86 47. .26 31% 820 68. 185 93 05.4 00.
96 81 32 13 .04 34 .45 2. 9 46
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12
19 2,2 186 76 63. 3,0 250 17. 53, 4,4 27, 2, 80,9 6,7 12.47%
96- 37. .5 3. 61 01. .1 83% 450 54. 536 29 86.4 48.
97 95 3 25 .33 19 .07 4. 0 87
67
19 2,8 237 93 78. 3,7 315 26. 65, 5,4 32, 2, 98,1 8,1 21.25%
97- 44. .04 7. 13 81. .16 01% 590 65. 604 71 94.3 82.
98 43 51 94 .00 83 .37 7. 7 86
03
19
98- 561 280 17 88. 738 369 17. 12, 6,0 6,4 3, 18,6 9,3 13.96%
99( .54 .77 7. 61 .75 .38 20% 186 93. 64. 23 50.0 25.
JUL 21 .00 00 00 2. 0 00
Y- 00
AUG
UST
)
Source: Bangladesh
Exports Promotion
Bureau (EPB)
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YEAR SHIRT T-SHIRT TROUSERS JACKET SWEATER
Mont Mont Mont Mont Mont
hly hly hly hly hly
Tota Aver Tota Aver Tota Aver Tota Aver Tota Aver
l age l age l age l age l age
1993- 805. 67.1 225. 18.8 80.5 6.71 126. 10.5 0 0
94 34 1 9 3 6 85 7
1994- 791. 65.9 232. 19.3 101. 8.44 146. 12.2 0 0
95 2 3 24 5 23 83 4
1995- 807. 67.3 366. 30.5 112. 9.34 171. 14.3 70.4 5.87
96 66 1 36 3 02 73 1 1
1996- 759. 63.3 391. 32.6 230. 19.2 309. 25.7 196. 16.3
97 57 21 98 5 21 7 6 8
1997- 961. 80.0 388. 32.3 333. 27.7 467. 38.9 296. 24.6
98 13 9 5 8 28 7 19 3 29 9
1998- 201. 100. 49.0 24.5 60.5 30.2 105. 52.6 81.6 40.8
99 12 56 5 3 1 6 25 3 1 1
(JUL-
AUG)
U.S. CANADA
EXPORTS EUROPEAN
MARKET AND
TO THE UNION
SHARE OTHERS
U.S. SHARE
(%) (%)
YEAR (%)
(millions
, $)
1991- 581.1 49.14 46.62 4.23
1992
1992- 703.96 48.71 46.46 4.82
1993
1993- 592.46 38.08 55.96 5.95
1994
1994- 1006.08 45.07 49.67 5.08
1995
1995- 1001.68 39.33 54.12 6.56
1996
1996- 1245.14 41.49 54.11 2.1
1997
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1997- 1494.02 43.6 51.26 5.14
1998
COUNTRY
USA 1,443. 228.69 1,671. 44.21%
21 90
CANADA 66.89 27.88 94.77 2.51%
AUSTRIA 12.13 5.84 17.97 0.48%
BELGIUM 78.91 60.37 139.28 3.68%
DENMARK 16.69 23.81 40.50 1.07%
FINLAND 9.55 4.23 13.78 0.36%
FRANCE 206.78 137.43 344.21 9.10%
GERMANY 352.78 130.09 482.87 12.77%
GREECE 2.40 1.41 3.81 0.10%
IRELAND 5.17 3.30 8.47 0.22%
ITALY 171.42 46.11 217.53 5.75%
NETHERLANDS 127.94 75.47 203.41 5.38%
PORTUGAL 1.97 0.83 2.80 0.07%
SPAIN 32.26 10.75 43.01 1.14%
SWEDEN 31.34 14.63 45.97 1.22%
UK 226.33 144.78 371.11 9.81%
OTHERS 58.66 21.89 80.55 2.13%
TOTAL 2,844. 937.51 3,781. 100.00
43 94 %
Source: Export Promotion Bureaus (EPB)
Table 5: Top Five European Destinations for Bangladesh Apparel (July
1997- May 1998)
VALUE
RANK COUNTRIES
(Millio
ns, $)
1 Germany 434.77
2 United Kingdom 343.89
3 France 305.72
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4 Netherlands 183.63
5 Italy 195.82
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22.19
1995 – 96 1555.79
7.67
1996 – 97 2228.35
43.47
1997 – 98 2547.13
14.11
1998 – 99 3001.25
17.83
1999 – 00 3781.94
26.01
2000 – 01 4019.98
6.29
2001 - 02 4349.41
8.19
2002 – 03 4859.83
11.74
2003 – 04 4583.75
5.68
2004 – 05 4912.12
7.21
2005 – 06 5686.09
15.83
Year Export by the garments industries (in US $ million)
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Table: Exports of Knit and Woven Garments to the United State
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been strengthened due to the floods, as the floods received
considerable world media attention and by the violent political
unrest that spills over in the streets of urban areas. In the
early months of 1999, it has gradually become apparent that there
may have been a substantial reduction in new orders received by
Bangladeshi manufacturers as a result of these problems and also
due to increased competition from the East Asian manufacturers
whose currencies have been severely devalued.Historically,
apparel exports from Bangladesh have grown at an annual rate of
more than twenty percent, roughly doubling every three years. In
1996-1997 the exports in gross terms equaled three billion
dollars. At this rate, these exports could potentially reach six
billion dollars by the year 2000 and possibly exceed ten billion
dollars in the not too distant future. However, in the year 2004,
the Multi-Fiber Arrangement (MFA) quotas will end, ushering in a
globally competitive market for clothing products. One of the
most important factors responsible for the success of this
industry has been dynamic entrepreneurship. In fact, we believe
the garment entrepreneurs should receive a national award for
their creative initiatives in overcoming the crises during this
period. The industry presents a model that entrepreneurs in other
sectors could emulate with benefit. The many hurdles the industry
overcame in 1998 include the floods, the shocks from the most
severe economic collapse and currency devaluation in East Asia
economies in recent history, and other domestic crises.
Strategies pursued by the industry in 1998 include the following:
the decision to hold monthly meetings between BGMEA officials and
leaders of the labor unions in the industry; efforts to implement
the child labor agreement of 1995; hiring a high-profile American
politician to lobby for the industry in Washington D.C.; and
asking the U.S. government to increase quotas for apparel made in
Bangladesh by thirty percent to reward the progress made in
reducing the use of child labor in the garment factories.
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Manufacturers and Exporters Association (BGMEA); Author's
calculations of monthly averages and growth factors. What
implications does the success of the apparel exports have for the
economy of Bangladesh? The positive impacts are considerable and
widespread. For several years now, apparel exports have been the
largest manufacturing industry, and also the biggest source of
foreign exchange earnings. It may be a "soft goods" industry but
nevertheless it has created positive changes in the economy and
society by creating employment and income for poor women workers
and by bringing in foreign exchange for the country. In terms of
gross foreign exchange receipts, in the most recent period for
which we have data (July 1997- May 1998) export of readymade
garments earned $3392.45 billion or 73.18 percent of the total
export earnings of Bangladesh. The share of apparel products in
total exports has steadily risen for several years. In both
absolute and relative terms, the industry dominates the modern
economy of Bangladesh. In addition, the positive sociological,
demographic, political and economic impact of 1.5 million workers
employed in the manufacturing sector is huge. This is especially
true since ninety percent of these workers are women, many of
whom have migrated from the countryside in search of a life free
of poverty. The forward and backward linkage industries and
services such as textiles, accessories, transportation, and
packaging and the private sector in general have also been
significant beneficiaries. The government has gained tax
revenues, and the foreign investors to a large extent have been
exposed to Bangladesh as a result of the success of garment
exports. However, the biggest winner has been the private
entrepreneur in Bangladesh. Entrepreneurship is alive and well in
Bangladesh. The sustained success of apparel exports underscores
this point. The Future of Garment Exports and the Economy of
Bangladesh The growth rate in overall exports from Bangladesh
peaked in 1994-1995 at 40 percent a year. However, export growth
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has remained strong. Currently, the garment exports alone bring
in close to four billion dollars in gross terms. The imports of
fabrics and related intermediate goods account for $2.3 billion
resulting in net earnings of approximately $1.7 billion. The
garment and knitwear exports accounted for the bulk of these
exports. The knitwear sector has been especially dynamic in
recent years. Given the fact that the market for knitwear exports
is unprotected by quotas, this bodes well for the post MFA future
of the industry. Bangladesh apparel exports can now point to a
proven track record of successfully competing in the global
competitive environment. Unfortunately, other potentially
promising exports from Bangladesh- leather, jute goods, frozen
foods - have not fared as well over this period. This has
accentuated the already narrow export base of the country and is
a matter of concern for policymakers. The excessive dependence of
the economy on the garment sector for foreign exchange earnings
and export growth demands policies that would diversify the
export base of the economy. What can be said about the future
performance of the apparel export industry in Bangladesh? What
are the risks for exports of Bangladeshi apparel? First, supply
shocks such as the debilitating floods of 1998 that shaved off
several percentage points from the expected GDP growth this year
and caused widespread disruption in production and transportation
can never be accurately anticipated. The other major crisis the
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 that afflicted several economies in the East Asia -
Malaysia, Indonesia, Thailand, Philippines and South Korea-
certainly have been a restraining element in the economic
performance of the regional economies. What are the links between
the East Asian economies and garment exports from Bangladesh?
There are several avenues by which negative economic shocks from
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these emerging economies can impact this export industry in
Bangladesh. First, several of these nations are also big apparel
exporters in same markets to which Bangladesh exports apparel. A
steep depreciation in their currency makes their products more
competitive in both the open and the quota-protected apparel
markets. In the markets protected by quotas, such a development
would be a deflationary force pulling down the unit prices and
the profit margins for Bangladesh apparel exporters. Second,
given the crunch, these economies would try to export themselves
out of their severe recession. In the recent crisis, these
regional and international forces have greatly increased
competition for Bangladesh exports. Third, to help them recover
from their downturn, the U.S. government and others have already
relaxed quota restrictions on exports from the worst affected
economies, making the playing field more difficult for
Bangladeshi exporters. Fourth, prior to this crisis, some of
these nations were potentially big investors in Bangladesh in the
textile and infrastructure projects. Their economic troubles have
meant a dramatic scaling back in their direct investments in
Bangladesh. On the other hand, partly as a result of the East
Asian economic debacle, there was a massive return of Bangladeshi
workers from this region that has swelled the urban labor force
pool from which garment factories recruit their workers. Second,
when some of these economies weakened, their ability to compete
was impaired from the economic or political collapse. This could
mean new opportunities for those competitors who were unaffected
by the economic crisis. Finally, Bangladesh has tried to take
advantage of the crises by demanding from the U.S. equal quota
concessions, pointing to its efforts in reducing the underage
worker problem in the apparel factories. In our view, the biggest
threat to apparel exports in Bangladesh comes from the financial
sector. Although we do not anticipate a financial panic similar
to the Asian crisis since the influx of short-term foreign
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investment (hot money) and borrowing by the private and public
sector has been rather limited in Bangladesh, there are some
similarities. One common element that we share with these
affected economies is a weak banking sector with little
transparency or central bank control. Elements of crony
capitalism and moral hazard are certainly present in Bangladesh,
especially in the nationalized banking sector and in credit
markets. According to the World Bank-Asian Development Bank
report, the financial sector in Bangladesh remains fragile with
33 percent of the portfolios of the NCB's and domestic private
banks in the non-performing category. Notwithstanding the fifty
billion taka of taxpayer money that was used to re-capitalize the
nationalized commercial banks (NCBs) in the early 1990s, the
system-wide capital inadequacy today is estimated to be taka 133
billion. This situation could cause the entire banking system to
collapse as a result of a large external shock or even from a
domestic shock such as a run on a major financial institution.
One important lesson from the East Asian crisis is that moral
hazard and the resulting financial panic can be very costly for
an economy, even when the fundamentals are sound. Without
fundamental reforms in the banking sector, the financial sector
in Bangladesh remains susceptible to a financial panic where a
speculative price bubble crashing in the real estate sector or
elsewhere in the economy could start a systemic self-fulfilling
crisis. Such a collapse could seriously impact apparel exports,
which are critically dependent on a healthy banking system for
the institutional support in exports and for short-term
financing.Other potential hazards include an overvaluation of the
taka compared to the currency of its competitors. Despite the
repeated devaluation in the recent past, according to the World
Bank, the taka remains overvalued in real terms. This could
undermine the long- term competitiveness of the industry.
Finally, in the year 2004, under the Uruguay Round Agreement on
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Textiles and Clothing, MFA quotas will be phased out. Bangladesh
will lose its preferential access to its most important markets
and will have to compete with India, China and other apparel
exporters in a truly global competitive environment. Many apparel
firms in Bangladesh are not ready for this change, although the
more efficient larger firms that have diversified their products
and markets are expected to do well in the post MFA world.
Finally, we anticipate that the biggest source of problems for
the apparel export industry is likely to be domestic, not
external. The politicians could seriously damage this sector by
creating instability and attempting to achieve their goals by
violent means in the streets instead of the parliament. The
bankers, the bureaucrats, and the politicians remain a source of
threat. In their attempt to further extract rent from this
sector, they could undermine the long-term viability of this
industry. The failure of the law enforcement forces to control
the menace of mastans and toll collectors may create a climate
that debilitates commerce and production in the economy. Labor
disturbances and frequent disruptions in the Chittagong port also
remain a source of concern to exporters in general. Increased
contacts between factory owners and the union leadership would
help the industry. Garment workers remain one of the hardest-
working segments of the labor force in Bangladesh. The working
conditions and benefits for workers should improve 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
certainly enhance productivity. The apparel factory owners must
be proactive instead of reactive on this important issue.
CHAPTER IV
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4.1. Literature Review:
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Chaudhuri Zohir and Dr.Naila Kabeer.) and one seminar paper (Ms
Simeen Mahmud).Dr. Nadvi’s paper deals with the nature of current
challenges for Bangladesh in the global garment industry and
discusses some of the salient observations from the trade data
analysis illuminating how Bangladesh’s position in the global
garment trade has changed over time. Dr. Salma Chaudhuri Zohir
provided details on findings from Bangladesh garment sector firm
surveys and Dr. Kabir presented some preliminary evidences from
the garment and non-garment workers surveys conducted in Dhaka.
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its market share during the last decade. But the discomforting
feature is that in most items studied Bangladesh has seen its
unit values decline more or as rapidly over time as those of its
competitors. In this context he cited the example of Vietnam
whose share in the cotton shirt sector in the EU market has gone
up from less than 0.5% in 1990 to 3.7% in 1999 and at the same
time it’s unit value has risen by an average of 6.8% a year
during the 1990s. This suggests significant improvements for
Vietnam which is indicative of some productivity gains. The
decline in Unit value in Bangladesh can be an indicative of the
lowering labor cost and even with large reserve army of labor
there are limits to which labor cost can be reduced. Thus the
challenge at the firm level for Bangladesh to upgrade is critical
if it is to sustain its market share in the long run.
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industry and summarized her presentation with the following
observations: Medium and large firm will survive and the small
firm will 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 being unemployed than men. Knitwear and sweater will
survive if GSP continues. Duty free access to USA and EU is
essential for the survival of woven RMG. Rules of Origin should
be carefully considered. Firms need to seek direct orders from
the retailers. We should go for lower and medium price products.
To survive in future the garment industry has to maintain price
competitiveness and reduce the lead-time. Measures must be taken
to avoid balance of payment crisis and mass unemployment of
women. FDI in the garment industry should be welcomed Dr. Naila
Kabeer undertakes a comparison of the condition of the female
workers of RMG sector and that of a non-RMG sector in Bangladesh.
The research was conducted among both types of female workers
living in the same place. Some of the initial findings are as
follows: Although both the RMG and non- RMG female workers come
from the similar social background, the RMG workers are
financially better off than the non-RMG workers. RMG workers
mainly come from moderately poor families while majority of the
non- RMG female workers are coming from extremely poor
families .RMG workers migrate with their friends not with their
close relatives, whereas the non-RMG female workers migrate with
their close relatives and they stay with their families.
Compared 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 and therefore they have higher savings and they send
remittance to their family members in the villages to a large
extent. Female RMG workers face greater problems on their way to
the work place. Most of the RMG workers think the working hours
are increasing day by day. Involvement in trade union among the
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female RMG workers is very limited RMG workers cope with bad
situation by cutting their expenses while the non- RMG workers
cope by borrowing.
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trained. He called for the active participation of BGMEA and BTMA
in this regard. Ms Simeen Mahmud have focused on policy issues
regarding the RMG sector of Bangladesh in the context of the
changed global scenario after 2005. In the one hand, the policy
makers got to know the research findings and recommendations made
by different stakeholders and on the other hand they informed the
participants about the approach and the initiative of the Govt.
regarding the challenges that lies ahead of the growth and
sustainability of the RMG sector in Bangladesh.
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she found that even with the present level of skill, workers are
capable of producing quality products and thus moving to high
quality products is very much feasible. trade union should be
permitted in the RMG sector. However unholy alliance of trade
unions with the non- trade union people has to be stopped.
Democratic trade union laws have to be implemented. Dr. Rehman
Sobhan suggested that workers might be given equity share in
their companies to ensure that they benefit properly from the
value chain. At this point some discussants also mentioned that
too much of emphasize on the distribution may indeed harm the
interest of the industry. They argued that if competition is
ensured by say, allowing FDI, the condition of the workers will
improve automatically as the market will drive their wages up.
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level of productivity of those workers. Dr.Zaidi Satar of World
Bank argued that we have to ensure that the producers get the
inputs at the world price during the free trade environment of
post MFA era. He decries the tendency of linking RMG with textile
at the excuse of promoting backward linkage and called for
independent formulation of policies for the RMG sector. He gave
the example of Sri Lanka in this respect where the degree of
backward linkage is almost as it is in Bangladesh but the RMG
producers get textile at zero percent duty. Improvement of the
infrastructure and the need for better shipment facilities also
drew considerable attention. These steps were considered
necessary for Bangladeshi exporters to move at FoB level instead
of the existing CM/CMT level.
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they have to come under strict scrutiny on the basis of the
Agreement on Textile and Clothing (ATC). ATC does not allow for
subsidization of primary textile, which China is currently
practicing. It was also mentioned that the US has reserved some
safeguard against Chinese flooding of market after 2005. This may
provide a certain level of protection to our export also.
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p1 q1 / p2 q2 = ( p1 / p2 ) f ( p1 / p2
)---------------------------------------------------------(2)
this implies-
-1
p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-1
= ( 1 + ( p1 f (p1 / p2) /p2)
-1
) )
= g ( p 1 / p2 )
------------------------------------------------------------(3)
which indicates that country 1’s share of the market in question
will remain constant except as p1/p2 varies. This establishes the
validity of the constant-share norm and suggests that the
difference between export growths may be attributed to price
changes. The discrepancy between the constant-share norm and
actual performance has been labeled the competitiveness effect.
given by
EMBED Equation.3 µ
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first leve ∑V ij =V i .
j
∑V i
ij =V . j
---------------------------------------- ( 4)
and similarly for period 2. in addition the value of A’s
exports in period 1 is given by
∑∑V
i j
ij = ∑V i . = ∑V . j =V .. -------------------
i j
V .. – V .. = rV .. + (V .. – V .. –rV .. )
-------------------------------------------------(6)
V • j ′ - V• j = r j V. j + ( V. j - V. j - r j V. j )
-------------------------------------------(7)
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V′ • • - V•• = ∑r
j
j V. j + ∑
j
( V. j - V. j - r j V. j )
=r V ( a ) r V ..+ ∑j
( r j - ( b ) r) V. j + ∑j
(V. j
- V. j
(c )
- r j V. j ) -------------(8)
-------------------------- (10)
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V .. − V .. ≡ ∑∑r ij V ij + ∑∑(V ij − V ij − r ij V ij )
i j i j
≡ rV .. + ∑(r i
− r )V i . + ∑∑(r ij
_ r i )V ij
(a ) i (b )
i j (c )
+ ∑∑
i j
(V ij − V ij − r ijV ij ) -------------------------
(d )
-------------------------------(11)
Identity (11) re[presents a “three-level” analysis in which the
increase in A’s exports is broken into parts attributed (a)
the general rise in world demand; (b) the commodity composition
of A’s exports; (c) the market distribution of A’s exports; and
(d) a residual reflecting the difference between the actual
export growth and the growth that would have occurred if A had
maintained its share of the exports of each commodity to each
company.The commodity composition term in identity(11) may be
interpreted in the same manner as the market distribution effect.
It would be positive if A had concentrated on the exports of
commodities whose markets were growing commodity markets.
Problems of constant market share model: The CMC model provides a
useful tool for analyzing export growth performance by allowing
achieved export growth to be separated in to commodity , market
distribution , and competitiveness effects. However, the initial
appeal of the CMS identity as a simple analytic and policy tools
is considerable blurred by fundamental problems which arise in
the basic equation (1) and (3).
-1
Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-1
= ( 1 + ( p1 f (p1 / p2) /p2)
-1
) )
= g ( p 1 / p2 )
Assume that the change in export share be the function of
relative prices. In practice, relative price are generally used
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as a measure of competitiveness. Since the competitiveness
residual results from the complex interaction of demand and
supply, it neglects such factor as: quantity improvement,
improving in servicing, shortening of waiting lines, improvement
financial arguments, and change in discriminatory non- price
policy. Secondly, what is the appropriate measure of export
shares? Obviously quantity share are required in order to satisfy
the requirement that share very directly with relative
competitiveness could lead to a decreases in export shares, given
a elasticity of substitution less than one in absolute value.
Also in the case a positive commodity(market) effect, we usually
presume that’s the country commodity exports are relatively more
skewed towards goods which are growing in the world demand. But
these cases could be equally well explained by a country’s
exports being relatively more skewed towards goods those prices
are rising relatively rapidly.
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are likely to be only one of the arguments which enter the
function for export share.
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1
Rchardson,j.David “Constant- Market-Share analysis of export growth” Journal of The
International Economic, voll1 1971.pp.190-207.
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CHAPTER V
see-appendix (table-1)
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5.3. Developments:Macroeconomic
While the average GDP growth rate was 4.4 per cent per year
during the first half of the 1990s, the growth rate has
accelerated to over 5 per cent in recent years. The growth rate
is projected at 5.47 per cent in 1999/00. A notable feature of
the growth process during the 1990s is the fluctuating role of
both agriculture and industrial sectors. The average growth rate
of crop and horticulture was -0.43 per cent per annum until mid-
1990s which increased to 6.13 per cent in 1999/00. The growth in
manufacturing sharply decelerated from an average of 8.20 per
cent during the first half of the 1990s to 4.25 per cent in
1999/00. The deceleration started in 1998/99 as an aftermath of
the 1998 floods. The growth rate of construction sector has also
declined since 1997/98: from 9.48 per cent in 1997/98 to 8.92 per
cent in 1998/99 and further to 8.00 per cent in 1999/00.
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FY 99 FY 00 FY 01 FY 02
a) Agriculture and
19.3 19.5 19.5 19.2
Forestry
i) Crop and
14.3 14.6 14.7 14.4
Horticulture
d) Financial
1.6 1.6 1.6 1.6
Intermediation
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f) Public Administration
2.6 2.5 2.6 2.6
and Defence
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Forest & related services 2.82 3.46 4.03 4.51 5.16 5.16
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a) Agriculture and
19.3 19.5 19.5 19.2
Forestry
i) Crop and
14.3 14.6 14.7 14.4
Horticulture
ii) Animal
3.1 3.0 2.9 2.9
Farming
a) Mining and
1.0 1.0 1.1 1.1
Quarrying
i) Large and
11.2 11.0 11.1 11.0
Medium Scale
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c) Transport, Storage
9.2 9.2 9.4 9.5
and Communication
d) Financial
1.6 1.6 1.6 1.6
Intermediation
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1990/ 1991/ 1992/93 1993/94 1994/ 1995/ 1996/97 1887/98 1998/99 1999/
91 92 95 96 00a
Investment 1.42 4.44 9.52 9.35 9.11 10.60 11.08 12.06 9.85 8.19
Private 6.07 2.57 16.69 8.87 11.21 16.17 7.70 19.73 8.46 8.52
Public -5.06 7.35 -1.13 10.19 5.46 0.40 18.25 -2.72 13.13 7.45
Gross domestic savings 22.21 28.03 -6.95 22.02 -10.64 3.62 34.50 26.00 11.46 11.60
Gross national savings 43.54 13.43 11.21 6.99 14.47 25.59 7.20 16.82 14.95 11.72
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deceleration in recent growth of investment is a major cause of
concern: the growth rate declined from 12 per cent in 1997/98 to
10 per cent in 1998/99 and further to 8 per cent in 1999/00 at
constant 1995/96 prices.
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5.3.3. Readymade garment:
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 marketing skills of its own and
continues to rely heavily on foreign buying houses, notably those
from India and Sri Lanka. These intermediaries capture a large
part of the margin. The scope for the industry to benefit from
devaluations is limited in such a situation. The industry should
have used the last 20 years to go deeper into the marketing
channel. The fact that foreign direct investment had not been
allowed in the industry is one possible reason for our failure to
do so. The Bangladesh Garments Manufacturers and Exporters
Association (BGMEA) is now thinking of setting up marketing
centers abroad. This is an area where public-private sector
collaboration may be required.
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pharmaceuticals. It first grew under protection alongside
imported pharmaceuticals. It then out-competed the imported
products and has now started exporting. It is possible that some
parts of the industry are not very efficient but are surviving
due to protection while other parts are efficient and competing
in world markets.
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imported inputs and this, in turn, will help reduce poverty.Cash
subsidies are currently given to various activities, such as
agro-processing, leather goods and light engineering. The
practice of providing cash subsidies started with Grameen check.
It was meant to compensate for duties paid on imports and
amounted to 25% of total sales value, a high amount by any
standard. The rationale for providing cash subsidies, especially
at the current scale, is weak. Import duties have gone down due
to import liberalization. If compensation is to be provided, the
amount required for various products will have to be re-
calculated, taking into account the changes in duty rates.
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almost 5 times as high. Bangladesh's graduation from a
predominantly aid recipient country to a predominantly trading
country is one of the major achievements of the 1990s. The
structural shift from primary to manufacturing exports, from
resource-based to process based exportable and from the
traditional jute-centric to the emergent RMG-centric export is
remarkable by any standard. Over the same period the country had
also to import an increasing amount of production and non-
production related commodities. Increasing exports have allowed
the country to service a large part of this growing import demand
without seriously undermining the balance of payments position of
the country and the country's debt servicing record.
Consequently, in view of the increasing degree of openness of the
Bangladesh economy, factors such as competitiveness of the
external sector, market access capacity and ability for
strengthened global integration are becoming key determinants in
terms of not only the performance of the external sector but also
the overall growth and development of the country. The present
paper traces the growth dynamics of Bangladesh's export sector
interims of a number of major correlates and looks at some of the
major challenges which are expected to impact on export sector
performance in the short and medium terms.
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important sector accounting for 56.0% of total exports. RMG
registered a growth of only 5% in FY2000. This, in effect pulled
down the exports earnings in FY2000 to the level of $5.7 billion,
resulting in the relatively low growth of 8.3%. A positive
development though was the continued robust performance of the
knit-RMG exports, which having registered a growth of 10.4% in
FY1999, was able to grow by22.6% in FY2000. The share of the
sector in total export has doubled over the last five years, form
12.0% to 22.0%. This is clearly demonstrated by Table-1
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TOTAL 100 100 100 100 100 100 9.9
(million (531 (575 (151 (439. (267 (294
US$) 2.9) 2.2) .7) 3) 9.5) 6.5)
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taka actually started to depreciate in real terms. It is also of
interest to note here that no discernible correlation is visible
between the movements in the REER and the growth rates of either
Bangladesh's exports or imports.Figure-2 brings out this mismatch
very clearly. It appears that other structural factors, specially
supply side constraints and global market dynamics play a more
important role in stimulating exports and improving the balance
of payments position compared to movements in the nominal and
real exchange rates.
Figure 2
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recent past this increased inflow had a positive impact on the
current account transfer and the balance in current account of
the country. Table-3 shows the dynamics of remittance in recent
years.
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at least in part, the incentives for inward remittances through
legal channels under the current market determined exchange rate
system. Increased flow of remittances have played an important
role in replenishing the fore reserves of the country in recent
years. Given the potential for exchange earning capacity of this
sector, there is need to design a comprehensive plan for skill up
gradation of her immigrant laborers. Towards this a comprehensive
labor market survey and a study to determine domestic skills up
gradation capacity need to be undertaken on an urgent basis.
Foreign aid commitment for FY2000 was equivalent to $1480.9
million, which was significantly lower than the corresponding
commitments for the same period in FY1999,which was $2648.5
million. Thus, commitments came down by about 44.0% in FY2000.
This decrease was mainly due to drastic fall in commitments for
food and commodity aid. However, it is to be noted that project
aid commitments also came down significantly over
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quotas are removed, and preferential margins are gradually
eroded, comparative advantage scenarios which informed the market
behavior under the MFA regime will be subjected to radical
change. New entrants such as Cambodia, Laos and Vietnam will also
bring more competitive pressure into the market. Bangladesh will
need to make a comprehensive study on the implications of these
developments, and design an
adequate strategy to address the attendant issues.
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equivalent to Tk. 150 million has been kept with a view to
encourage training of programmers and for promoting Bangladesh's
emerging IT sector. It is becoming increasingly evident that
technology in the RMG sector is becoming a key determinant of
Bangladesh's continued competitiveness in the global apparels
market. Bangladesh's low wage based comparative advantage needs
to be translated into productivity based competitive advantage
and it is here that technology comes to play a crucial role.
Although zero-tariff access of capital machineries and other
incentives are welcome initiatives of GOB in this respect, more
vigorous efforts and comprehensive approach are required. An
important initiative of budget FY2001 is the decision to allocate
Tk. 1.0 billion for establishing an Equity Development Fund in
the Bangladesh Bank with the objective of promoting investment in
software export and agro-processing industries. The fund will be
invested in financially viable software, food processing and
agro-processing activities; maximum investment from this fund
will be limited to 25% of the equity. It is hoped that this
dedicated fund will give a boost to two sectors which appear to
have high export potentials. It needs to be appreciated and given
due recognition that the fiscal, financial and institutional
incentives provided to the export sector and export-oriented
activities in Bangladesh in the recent past have played an
important role in ensuring the 12% average real growth rate of
the sector in the 1990s. However, lack of adequate infrastructure
facilities, absence of infusion of technology in export-oriented
sectors and weakness in the management of the sector have
severely constrained the sector’s performance and its move
towards a diversified base. Major concerns continue to severely
constrain realization of many of the potential opportunities
which globalization offers to Bangladesh. If Bangladesh fails to
address these concerns, needless to say, the attendant risks will
became originating from globalization even more acute.
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into the WTO; (c) structural shifts in sourcing of apparels by
USA following establishment of NAFTA; (d) the recently enacted
Trade and Development Act of 2000 in USA which provides zero
tariff and quota-free access to US markets to 72 African and
Caribbean Basin countries and (e) heightened competition in the
EU market in view of granting of quota-free access to
Bangladesh's major competitors in 2005.
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years, imports of capital machineries for textile industries have
registered significant growth, testifying to some degree of
backward linkage activity taking place in the export-oriented
apparels sector. A comprehensive strategy to stimulate such
backward linkage activities ought to be designed and implemented
on an urgent basis. This is essential on four counts: (a) to face
the challenges of post-MFA regime; (b) to comply with stringent
rules of origin requirement for accessing GSP; (c) to increase
local value addition and (d) to create employment opportunities
within the country. Of course a strategy for developing the
backward linkage industries must of necessity take into
cognizance the dynamic comparative advantage of Bangladesh in a
fast changing global market.
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200
3
sales agreement (GPSA) with IOCs. As of now these payments are
equivalent to about $100.0 million but is expected to go up to
about $500 million over the immediate future. Bangladesh will
need to ensure increased export earnings from export and
remittance in order to service these claims without adverse
impact on imports and forex reserves of the country. Energetic
steps will need to be
taken to maintain this good record.
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important that the LDCs raise their bargaining strength by
pooling their resources in any future negotiations. This is more
so because future trade battles will be mainly waged in such WTO
forums as the dispute settlement body (DSB) which are becoming
increasingly important in terms of enforcement of the global
trade regime. Low domestic capacities of LDCs to put forward
their cases is being manifested in the form of constrained market
access, imposition of anti-dumping and countervailing duties, as
also in terms of interpretation of the Uruguay Round provisions
in ways which tend to go against the interests of the developing
countries on the one hand, and the spirit of multilateral
negotiations, on the other hand. Thus, whilst acting locally
Bangladesh will need to coordinate her policies globally as an
LDC. The task of monitoring the impact and implications of the
WTO provisions and decisions is an on-going continuous process.
Thus, the Special and Differential Status given to the LDCs in
the WTO and Decisions on Measures in Favour of Least Developed
Countries annexed to the Final Act of the Uruguay Round needs to
be carefully studied and monitored by Bangladesh in order to
guarantee maximum advantage for the LDCs.
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than that of price. The contribution of price index to the
incremental export over the first quarter of FY2001 was 12.9%,
whilst that of volume index was 87.1%. With MFA phase-out
programmed gradually nearing its completion, Bangladesh will also
be required to increase her vigilance in terms of monitoring the
global dynamics in apparels and textile markets in the coming
months and years. This is specially so since price levels of most
of the apparel categories is expected to experience a sharp
decline once the MFA phase-out is completed. The GOB needs to
recognize the enormity of the challenges confronting Bangladesh
under the new global order and will have to equip itself
adequately to meet these challenges. The GOB will need to design
a dynamic export strategy and put in place the capacity to
realize such a strategy rather than just talk about it. To carry
through such an exercise in intelligent policy design and its
implementation, GOB will need both strong political commitment as
well as good governance, and will also be required to pursue a
proactive external policy underwritten by coalition-building and
skillful negotiating strategies. To this end, it will need to
draw upon the best available professional resources in the
country as well as draw in external expertise in selected areas.
Priority should be given to preparing a joint action agenda with
other LDCs which need to be pursued in any future round of trade
negotiations. This task is of immediate importance also in view
of the forthcoming Third LDCs Conference which is to be held in
Brussels in May, 2001.
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1999/00, it is yet to reach its trend growth path. The trends in
exports during the first nine months of the current fiscal year
(July 1999 - March 2000) suggest that total exports during the
period grew by 8.4 per cent over the same period of the previous
fiscal year. Readymade garments, which accounted for 56 per cent
of total exports in 1998/99, registered a growth of 6 per cent.
The growth of readymade garments exports was 15 per cent in
1996/97, 27 per cent in 1997/98 and only 5 per cent in 1998/99 in
dollar terms. In view of the importance of the sector, the causes
of deceleration require in-depth analysis to devise future
strategies. In recent years, knitwear exports have increased
rapidly with an average growth of more than 20 per cent over the
last three years. With supportive policies, knitwear has the
potential to emerge as a thrust export sector with significant
domestic value additions and linkages.Total export from
Bangladesh during 1997-98 amounted to US Dollar 5161.20 million
(Taka 234163.75 million) as against US$ 4418.28 million (Taka
188130.42 million) during 1996-97 showing an increase of US
dollar 742.92.86 million i.e 16.81%.A statement of comparative
year-wise export earning for nine years is given below.
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1992-93 (2382.89) (+ 388.97) (+ 19.51%)
92575.40 (+) 16666.84 (+) 21.96%
1993-94 ( 2533.90) (+ 151.01) (+ 6.34%)
100975.94 (+) 8400.54 (+) 9.07%
1994-95 (3472.56) (+ 938.66) (+ 37.04%)
139284.58 (+) 38308.64 (+) 37.94%
1995-96 (3882.42) (+ 409.86) (+ 11.80%)
158790.87 (+) 19506.29 (+) 14.00%
1996-97 ( 4418.28) (+ 535.86) (+ 13.80%)
188130.42 (+) 29339.55 (+) 18.8%
1997-98 (5161.20) (+ 742.92) (+ 16.81%)
234163.75 (+) 46033.33 (+) 24.47%
Source-Bangladesh bank
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121
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3
12768.2 13534.55
4
Handicrafts (5.99) (5.66) (+ 0.33) (+) 5.83%
241.11 (+) 30.87 (+) 12.80%
271.98
Knitwear (940.31 (763.30) (+ 177.01) (+) 23.19%
) (+) (+) 31.26%
42661.7 32501.13 10160.62
5
Readymade (2843.3 (2237.95) (+ 605.38) (+) 27.05%
garments 3) (+) (+) 35.36%
129001. 95291.80 33709.97
77
Engg. (19.64) (16.12) (+ 3.52) (+) 21.84%
Products 686.33 (+) 204.87 (+) 29.85%
891.20
Other (306.88 (253.14) (+ 53.74) (+) 21.23%
) (+) 3144.01 (+) 29.17%
13923.4 10779.40
1
Total (5161.2 (4418.28) (+ 742.92) (+) 16.81%
0) (+) (+) 24.47%
234163. 188130.42 46033.33
75
#Export as a percentage to imports
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FY Exports Imports Export as a
Percentage to
imports
1 2 3 4
1982-83 687 1923 35.73%
1983-84 811 2073 39.12%
1984-85 934 2641 35.37%
1985-86 819 2120 38.63%
1986-87 1074 2260 47.52%
1987-88 1231 2961 41.57%
1988-89 1292 2997 43.11%
1989-90 1524 3759 40.54%
1990-91 1718 3511 48.93%
1991-92 1994 3466 57.53%
1992-93 2383 3986 59.78%
1993-94 2534 4191 60.46%
1994-95 3473 5834 59.53%
1995-96 3882 6827 56.86%
1996-97 4418 7150 61.79%
1997-98 5161 N.A N.A
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Source-Bangladesh bank
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PRIMARY & MANUFACTURED
COMMODITIES
Value in million Dollar) Value
in million Taka
Fiscal Total Primary Commodities Manufactured
Year Export
Commodities
Value % Share Value % Share
1982-83 (686.60) (243.17) 35.42 (443.43) 64.58
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40968.40 9538.82 31429.58
121
Export performance in the world market for Bangladeshi
readymade Garment
200
3
1997-98 (5161.20 (501.93) 9.73 (4659.27 90.27
) )
234163.7 22772.55 211391.2
5 0
So
urce-Bangladesh bank
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3
COUNTRIES 1993- 1994-95 1995-96 1996-97 1997-98
1992-93 94
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200
3
U.S.A (822.5 (734.82 (1184.2 (1197.5 (1432.1 (1929.47)
1) ) 8) 4) 5)
87540.05
31954. 29282.4 47501.4 48979.3 60980.7
41 5 4 6 9
U.K. (183.4 (259.26 (318.31 (417.70 (437.69 (440.19)
2) ) ) ) )
19971.42
7125.8 10331.6 12767.8 17083.9 18636.9
4 7 9 1 5
Germany (216.2 (275.21 (300.26 (369.18 (428.29 (510.79)
1) ) ) ) )
23174.54
8399.8 10967.2 12043.4 15099.6 18236.5
2 4 0 4 1
France (127.3 (157.72 (192.93 (272.88 (312.65 (368.54)
6) ) ) ) )
16720.66
4947.7 6285.08 7738.32 11160.7 13312.4
3 3 4
Belgium (83.14 (98.41) (128.58 (186.93 (210.57 (210.87)
) ) ) )
9567.17
3229.8 3921.55 5157.50 7645.56 8966.20
5
Netherlands (85.80 (104.90 (136.66 (183.22 (208.59 (235.83)
) ) ) ) )
10699.61
3333.1 4180.19 5481.26 7493.86 8881.88
2
Italy (137.4 (170.61 (211.26 (207.10 (203.62 (270.24)
0) ) ) ) )
12260.79
5337.8 6798.63 8473.70 8470.38 8670.14
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6
Japan (53.31 (61.02) (99.65) (120.80 (114.05 (112.31)
) ) )
5095.50
2071.0 2431.79 3997.14 4940.65 4856.44
9
Hongkong (51.45 (72.10) (107.07 (104.46 (109.18 (87.25)
) ) ) )
3958.53
1998.8 2873.07 4294.53 4272.50 4648.72
2
Canada (44.38 (57.23) (69.38) (69.09) (69.12) (106.88)
)
4849.15
1724.2 2280.42 2782.91 2825.72 2943.04
3
(8.54) (13.22) (45.29) (26.38) (55.59) (48.63)
China 2206.34
331.64 526.82 1816.38 1078.81 2366.79
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477.36 1381.97 1573.87 2167.79 2181.61
2975.36
382.59 669.72 1811.60 2964.23 1969.43
1290.32
290.73 530.93 648.50 587.58 491.75
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20494.08
13106. 11589.5 15563.4 14861.4 20615.1
44 8 8 2 1
Total (2382. (2533.9 (3472.5 (3882.4 (4418.2 (5161.20)
89) 0) 6) 2) 8)
234163.75
92575. 100975. 139284. 158790. 188130.
40 94 58 87 42
Exports From Bangladesh by region,1997-1998
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Year Exports Imports Balance % of Change
(July- of annual
June) Trade
Exports Imports
1978-79 (618381) (1471.56 (- (+25.33) (+21.17)
) 852.75) (+)21.17
9282.2 22073.4 (+)25.33
(-)12791
.2
1979-80 (749.44) (2034.99 (- (+21.11) (+38.29)
) 1285.55) (+)38.29
11241.6 30524.9 (+)21.11
(-)19283
.3
1980-81 (709.85) (2281.97 (- (-5.28) (+12.14)
) 1572.12) (+)22.15
11599.0 37287.5 (+)3.18
(-)25688
.5
1981-82 (625.89) (1930.68 (- (-11.82) (-15.39)
) 1304.79) (+)3.87
12555.4 38729.4 (+)8.25
(-)26174
.0
1982-83 (686.59) (1922.89 (- (+9.70) (-0.40)
) 1236.30) (+)16.87
16162.4 45264.9 (+)28.73
(-)29102
.5
1983-84 (811.00) (2073.08 (- (+18.12) (+7.81)
) 1262.08) (+)12.39
19901.9 50873.5 (+)23.14
(-)30971
.6
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1984-85 (934.42) (2640.73 (- (+15.22 (+27.38)
) 1706.31) (+)34.18
24154.9 68262.9 (+)21.37
(-)44108
.0
1985-86 (819.20) (2120.27 (- (-12.33) (-25.75)
) 1301.07) (-)7.81
24314.0 62929.6 (+)0.66
(-)38615
.6
1986-87 (1076.61 (2259.85 (-)1183. (+)31.42 (+)6.58
) ) 24 (+)8.85
32632.0 68496.1 (-)35854 (+)34.21
1.1
1987-88 (1231.20 (2961.14 (-)1729. (+)14.36 (+)31.03
) ) 94 (+)33.71
38081.1 91588.2 (-)53507 (+)16.70
.1
1988-89 (1291.56 (2997.32 (-)1705. (+)4.98 (+)1.22
) ) 76 (+)3.81
40968.4 95075.0 (-)54106 (+)7.56
.6
1989-90 (1523.70 (3758.70 (-)2233. (+)17.97 (+)25.40
) ) 00 (+)29.12
49764.2 122759.1 (-)72994 (+)21.47
.9
1990-91 (1717.55 (3510.55 (-)1793. (+)12.72 (-)6.60
) ) 00 (+)0.83
60560.9 123782.0 (-)63221 (+)21.70
.1
1991-92 (1993.92 (3465.64 (-)1471. (+)16.09 (-)1.28
) ) 72 (+)6.59
75908.6 131937.0 (-)56028 (+)25.34
.4
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1992-93 (2382.89 (3986.00 (-)1603. (+)19.51 (+)15.01
) ) 11 (+)18.25
92575.40 156012.0 (-)63436 (+)21.96
4 .64
1993-94 (2533.90 (4191.00 (-)1657. (+)6.34 (+)5.14
) ) 10 (+)7.46
100975.9 167643.7 (-)66667 (+)9.07
4 7 .83
1994-95 (3472.56 (5834.00 (-)2361. (+)37.04 (+)39.20
) ) 44 (+)39.90
139284.5 234526.8 (-)95242 (+)37.94
8 0 .22
1995-96 (3882.42 (6827.00 (-)2944. (+)11.80 (+)17.02
) ) 58 (+)18.87
158790.8 278790.7 (-)11999 (+)14.00
7 9 9.92
1996-97 (4418.28 (7150.00 (-)2731. (+)13.80 (+)4.73
) ) 72 (+)9.51
188130.4 305305.0 (-)11717 (+)1848
2 0 4.58
1997-98 (5161.20
)
234163.7
5
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GROSS DOMESTIC PRODUCTS OF BANGLADESH AT CURRENT MARKET (SEE
APPENDIX-TABLE-3)
ACCORDING to recent media reports, Bangladesh stood tall with 11.88 per cent export growth
until May 2009 amid tumbling shipments from major Asian countries because of the lingering
global financial recession. As recorded in official data, goods worth US$14.14 billion were
exported by the country between July 2008 and May 2009, compared to US$12.63 billion during
the same period of last year. India, China, Pakistan, Malaysia, Vietnam and Thailand were
struggling to stop the free fall in export shipments as the global recession cut demand of goods in
both sides of the Atlantic. China’s export fell by a record margin in May. Exports tumbled 26.4
per cent from a year earlier, exceeding previous record drop in February of 25.7 per cent. The
growth in India’s merchandise exports dipped to 12.9 per cent for May 2009. Pakistan’s exports
also came down by 5.14 per cent during the same period.
Exporters and trade experts attribute Bangladesh’s export success to the ‘competitiveness’ of the
country’s readymade garment sector and availability of cheap labour, although exports of frozen
food, leather and jute fell. Garment manufacturers produced lower-end products whose demand
did not fall significantly in global markets. Remaining competitive in these days of difficulties
since the quota system was withdrawn and the ongoing lingering economic slide worldwide is
rewarding for Bangladesh. There are other factors for Bangladesh remaining tall, Better delivery,
lower price and sewing quality kept Bangladesh still high and attractive when its rival countries
had to pump in billions of dollars in stimulus packages to halt the export slide. Bangladesh would
have to keep up the trend in the coming days for continuing its hold on the garment export
markets to regain the accelerated export growth rate.
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Source: Export Promotion Bureau.
July - March Percent
change
(July-
March)
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noteworthy: compared to 1997/98, the terms of trade declined by
4.6 per cent in 1998/99 and further 8.2 per cent in 1999/00.
Import Performance
The LCs settled during the period suggest 0.8 per cent
increase in the value of imports. The total value of outstanding
LCs at the end of January 2000 is US $ 2380 million. The above
trends indicate that import demand is likely to pick up during
the rest of the period of the current fiscal year.
Workers Remittances
Major Concerns:
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nominal depreciation of Taka is necessary to ensure
competitiveness vis-a-vis the major trade competitors in the
export market, it also affects the relative profitability of the
country's import dependent capital goods sector. Hence the
pursuit of an import neutral depreciation could be considered
e.g. currency depreciation accompanied by tariff reductions so as
to leave import prices of capital goods unchanged. From a long
term perspective, Bangladesh's export competitiveness needs to be
rooted in micro-level competitiveness e.g. through productivity
growth and technological upgradation. This requires improvement
in the efficacy of the financial sector to enable the export
industries to invest and strive for productivity improvements and
build competitive strengths. The efforts also need to address the
problems of key infrastructure sectors to improve the delivery
capacity of the country's exportables.
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the growth process and its capability to promote social goals.
There seems to exist a broad consensus that a growth rate of 5-6
per cent is not an indicator of satisfactory performance of the
economy. At present, the Bangladesh economy has reached a stage
that could very well yield a growth rate of 7 per cent and above
on a sustained basis, provided `right' policies are in place.
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opportunities for growth in the coming decade. These reforms
should aim to acquire technological knowledge and innovations in
selected areas and encourage the entrepreneurs to exploit full
opportunities of the knowledge-based global economy.
Gone are the days of Adam Smith, David Ricardo and Karl Marx
when services were viewed as unproductive and the mention of
trade in services was hardly found in economics literature.
However, things have changed since then. Nowadays, services are
recognized to constitute an important sector of the economy
no
less than the agriculture or industry. Not only do services
contribute significantly towards GDP and employment in both
developed and developing countries, the use of new technologies
has made many services storable, transportable and consequently,
tradable. Lately, a large proportion of the world economic
Transactions are taking place in service trade. Again, services
may be classified as those consumed directly and those used as
intermediate inputs. These intermediate services, also known as
'producer services' play a much more complex and important role
in the development process than is suggested by their direct
contribution to gross domestic product (GDP) and employment-
creation. This is reflected in the inter-linkages between
services and the rest of the economy. Production and export in
agriculture, industry and the service sectors require many
services
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to countries belonging to the European Union (EU) and 40% went to
the United States and Canada10. Currently, Bangladesh enjoys
preferential access in these markets. The removal of Multi-Fiber
Agreement (MFA) quotas in the year 2004 under the Uruguay Round
Agreement on Textiles and Clothing (ATC) will result in
Bangladesh’s losing its preferential access in the EU and
American markets11. Consequently, Bangladesh will be compelled to
compete with other low-cost RMG-exporting countries of Asia and
elsewhere. So the continuation of Bangladesh's present success in
RMG exports will depend on her ability to reduce costs and
improve the quality of output. In the preceding sections, we have
seen the crucial role of services in manufacturing production. In
this section we examine the role of services in the RMG industry,
particularly. The RMG manufacturers are scattered all over
Bangladesh. But those who manufacture RMG for exports only are
mainly located in Dhaka and Chittagong. There are about 2,600 RMG
manufacturers registered with the Bangladesh Garment
Manufacturers' and Exporters' Association (BGMEA). Time and other
constraints did not permit us to contact more than 100 RMG
manufacturers. But because of general aversion to disclose
business information to outsiders, we were able to collect
information only from 83 RMG manufacturers. Again, information
from some RMG manufacturers was not comprehensive. So we finally
settled for 74 RMG manufacturing units to carry out our analysis.
Out of these 74 RMG manufacturing firms,36 are located in Dhaka
and 38 in Chittagong. Of the 38 RMG manufacturing units selected
from Chittagong, 8 are located in the Chittagong Export
Processing Zone (CEPZ) and the rest are situated in the city and
its surrounding areas. Of the 74 firms under study, 50 belong to
an 'average group' employing up to 300 people,15 belong to a
'medium group' employing more than 300 but less than 1,000 people
and 9 belong to a 'large group' employing more than 1,000 people.
We now proceed to investigate the type of services used by RMG
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3
manufacturing firms and their level of adoption, sources of
supply and method of securing these services and, finally,
estimate the extent of service use in RMG manufacturing and
exporting activity.
After receiving orders from the customers, the RMG
manufacturing firms carry out production planning. All firms
(100%) perform production planning without any formal outside
help. On the other hand, input procurement is carried out in
almost 87% of the cases (64 out of 74) by the firms themselves if
and when they are the direct suppliers to the foreign buyers. In
13% of the cases foreign buyers supply inputs to the RMG
manufacturing firms. But RMG manufacturing firms that supply to
the domestic RMG firms (for export) receive inputs from the
latter in 100% of the cases. That is, in such cases, input
procurement is done 100% outside the firm. Management control and
accounting are performed by almost all of the firms, and these
are carried 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 from abroad and about 57% (42 out of 74)
borrowed from banks to purchase their machines and equipment as
well. Bank loans are used invariably by all firms to buy inputs
and to meet a certain percentage of running expenditure, except
for a couple of partially (joint- venture) and fully foreign-
owned firms. All firms use banking services in varying degree.
All firms have their machines and plants insured and,
additionally, all input-importers (87%) and 15% of the exporters
get their imports/exports also insured. Shipping Service and
Shipping Agent & Port-use Shipping service is widely used by RMG
manufacturers. Shipping service is required for procuring inputs
and exporting outputs. Sometimes air-freight service is also
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3
used. RMG manufacturers have to hire services of Clearing &
Forwarding Agents for clearing inputs from the port/custom and
loading the finished goods onto ships for export. Port-charge is
a normal expenditure by all RMG manufacturers for using the port-
facilities for the purpose of import and export.
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 consultants employed on a permanent basis and
hire others (both local and foreign as per requirement) to look
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3
after the legal matters concerning the firms. The firms
themselves except for those who work as subcontractors to the
exporting firm perform sales and Distribution Marketing services,
in the form of securing orders for output.
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relevant information, gives them legal and other aid/assistance
and so on. Again,the RMG manufacturing firms located in export
processing zones enjoy certain privileges and facilities which
are not available to firms located in other areas. For
example,RMG manufacturing firms located in the Chittagong Export
Processing zone enjoy the privilege of getting their cargo
containers cleared (by the custom) right at their own plant-
premise instead of at port-sheds. This enables the firms to avoid
losses incurred through pilferage of their wares
(imported/intended for export) during clearance at the port
sheds.
CHAPTER -VI
Conclusion
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export industries using the lessons learned from the success of
apparel exports. Support for the apparel sector should not be
reduced. In fact, another way to reduce the vulnerability is to
diversify the product and the market mix. It is heartening to
observe that the knit products are rapidly gaining share in
overall garment exports as these products are sold in quota-free
markets and reflect the strength of Bangladeshi producers in the
fully competitive global apparel markets. Preliminary data and
informal evidence indicate that this sector seems to have
weathered the devastating floods relatively well. The floods did
create a crisis for the tightly scheduled export industry, but to
its credit the firms responded swiftly and creatively to the
unexpected dislocation and transportation disruptions. The
industry is one hundred percent export-oriented and therefore
insulated from domestic demand shocks; however, it remains
vulnerable to domestic supply shocks and the smooth functioning
of the banking, transportation and other forward and backward
linkage sectors of the economy. The Dhaka-Chittagong road
remains the main transportation link connecting the production
units, mostly situated in and around Dhaka and the port in
Chittagong, where the raw material and the finished products are
shipped in and out. Despite increased this road. Eventually,
this road link was completely severed for several days when large
sections of the road went under water for a few weeks during the
latter phase of the floods. This delinking of the road
connection between Dhaka and the port in Chittagong was as
serious a threat as one can imagine for the garment exporters.
The industry responded by calling upon the Bangladesh navy to
help with trawlers and renting a plane from Thai Air that was
used to directly fly garment consignments from the Dhaka airport
to the Chittagong airport several times a day. According to
industry sources, the list of flood-related damage to the garment
industry is extensive.x According to the September 1998 BGMEA
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newsletter, garments worth taka 1,000 crore ($208 million) could
not be exported on time due to the disruption of the Dhaka-
Chittagong road Attendance and worker productivity in factories
was down as much as 35 percent during the worst period of the
floods. As many as 300,000 workers were unable to work as their
homes and families were stricken by the flood conditions. Many
more workers fell sick from waterborne diseases. Besides natural
disasters, there were several other crises that impacted the
garment industry in 1998. The disruption of the Chittagong port
due to labor disputes was certainly one of them. BGMEA, the
industry association, has repeatedly requested the government to
ban labor strikes in the Chittagong port for national security
reasons. Another source of disruption for the industry was the
perennial problem of hartals or general strikes called for and
enforced by the political opposition. Although the leader of
the main opposition party has declared, in a major concession to
this industry, that the garment industry would be exempt from
such hartals, in practice the situation is more difficult.
Lastly, the psychological impact of these events on the existing
and potential buyers cannot be overstated. Buyers in the global
garment dependence on air transportation, trucks remain the main
vehicles for transporting raw materials and finished products for
Bangladesh garment exports. The floods disrupted the normal flow
of traffic on markets remain highly sensitive to the risks of
unfulfilled orders. As a result of the floods, the image of
Bangladesh as a somewhat unpredictable supply source may have
been strengthened since the floods received considerable world
media attention. But The Ready-Made Garments (RMG) industry
occupies a unique position in the Bangladesh economy. It is the
largest exporting industry in Bangladesh, which experienced
phenomenal growth during the last 25 years. By taking advantage
of an insulated market under the provision of Multi Fibre
Agreement (MFA) of GATT, it attained a high profile in terms of
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foreign exchange earnings, exports, industrialization and
contribution to GDP within a short span of time. The industry
plays a key role in employment generation and in the provision of
income to the poor. To remain competitive in the post-MFA phase,
Bangladesh needs to remove all the structural impediments in the
transportation facilities, telecommunication network, and power
supply, management of seaport, utility services and in the law
and order situation. The government and the RMG sector would have
to jointly work together to maintain competitiveness in the
global RMG market
RECOMMODUCATIONS
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there is no way except follow the above recommendations. We hope
by maintaining proper management and policy strategies our
country will take the apex position in future.Despite many
difficulties faced by the RMG industry over the past years, it
continued to show its robust performance and competitive
strength. The resilience and bold trend in this MFA phase-out
period partly reflects the imposition of ‘safeguard quotas’ by US
and similar restrictions by EU administration on China up to
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 backward integration, high level of investment, and
government support are among the key factors that helped the
country to continue the momentum in export earnings in the
apparel sector. Some of these elements are reviewed below.
Market Diversification
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Product Diversification
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Flow of Investment
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lending to the RMG sector and in the rising import share of RMG
related machinery. However further progress would be necessary to
improve and sustain competitiveness on a global scale.
Policy Regime of Government: Government of Bangladesh has
played an active role in designing policy support to the RMG
sector that includes back-to-back L/C, bonded warehouse, cash
incentives, export credit guarantee scheme, tax holiday and
related facilities. At present government operates a cash
compensation scheme through which domestic suppliers to export-
oriented RMG units receive a cash payment equivalent to 5 percent
of the net FOB value of exported garments. At the same time,
income tax rate for textile manufacturers were reduced to 15
percent from its earlier level for the period up to June 30,
2008. The reduced tax rates and other facilities are likely to
have a positive impact on the RMG sector.
Infrastructural Impediments
Labor Productivity
The productive efficiency of labor is more important
determinant for gaining comparative advantage than the physical
abundance of labor. In Bangladesh, the garment workers are mostly
women with little education and training. The employment of an
uneven number of unskilled labors by the garment factories
results in low productivity and comparatively more expensive
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apparels. Bangladesh labor productivity is known to be lower when
it compared with of Sri Lanka, South Korea and Hong Kong.
Bangladesh must look for ways to improve the productivity of its
labor force if it wants to compete regionally if not globally.
Because of cheap labor if our country makes the labor
productivity in the apex position, then we think the future of
this sector is highly optimistic.
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the Export Performance License (XPL) Scheme 37 were already in
operation and were improved upon. Also, rebates were given on
import duties and indirect taxes, there were tax reductions on
export income, and export financing was arranged. Under the XPL
scheme, exporters of non-traditional products received import
licenses for specific products over and above their normal
percentage allotment based on the f.o.b. value of their exports.
Under the Duty Drawback System, exporters of manufactured goods
were entitled to get refund of duties and taxes paid on imported
inputs used in export production, and also all excise duties paid
on exported finished goods. For certain fast-moving items such as
RMG, a notional system of duty payments was adopted in 1982-83.
Under this system, exporters were exempted from paying duties and
taxes on imports used in export production at the time of
importation, but were required to keep records of raw and
21packaging materials imported. The duties and taxes payable on
the imports were kept in a suspense account. Liabilities to pay
the amounts in suspense were removed on proof of exports. The
discussion in this section clearly points to the positive
contribution made by policy reforms to the growth of the RMG
industry in Bangladesh. In particular, two policies– the SBW
facility and the back-to-back L/C system- led to significant
reduction in cost of producing garments and enhanced
competitiveness of Bangladesh’s garments exports. It also allowed
garment manufacturers to earn more profit which, when necessary,
could be used to overcome difficulties arising from weak
governance. Furthermore, poor governance, reflected in the
leakage of duty-free imported fabrics in the domestic market,
paradoxically enough also helped the garment manufacturers to
earn extra ‘profit’ and thereby enabled them to absorb the ‘high
cost of doing businesses – a fall out of bad governance.
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References:
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Bangladesh Faces the Future, University Press Limited, Dhaka,
1990. Ather, S. A., "The Readymade Garments Industry: Current
Status, Problems and Prospects," Doc-TIP-MPU-B-11, June 1987.
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Appendix
Market Analysis
(US $)
Constant-Market-Share Analysis of Bangladeshi Garment Exports
(1889- 1998)
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(1) (3) (5)
3 (6) (7) (8)
(2) (4)
Actual world Actual ( r ( rj ( r ∑( r ij V ij )
Exports Bangladeshi V. j )
j ) V. j )
Export. V • j
V • j′
MARKETS (1989) (1989)
(1998) (1998)
USA 19697725 5138652 58968 174833 1.609 94880145 9045751 9486564
20 112 394 007 .95 6.40 4.85
100%
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i
ii
iii
iv
v
vi
vii
viii
ix
x