Background of the Textile industry in Bangladesh The Textile Sector of Bangladesh is playing an important role in the Economic Development

of the country by supporting export oriented RMG units through the provision of raw earning huge foreign exchange which is next to Wage Earners Remittance. Besides creation of huge employment opportunities and supporting Government Policy of Poverty Alleviation, textile has now become the Prime mover of the economy of the country. The garment industry in Bangladesh became the main export sector and a major source of foreign exchange starting in 1980. The phenomenal growth in textile was experienced in the last decade. In 1984-85, no of Garment factories was 800 RMG jointly with knitwear accounted for more than 70% of total investments in the manufacturing sector during the first half of the 1990 s. At present with about 4000 factories and a workforce of two million, 80% of which are women, employing over 50% of the industrial workforce and having 75% of the total exports earning of the country. Multi-Fiber Agreement (MFA) and Generalized System of Preferences (GSP) of the EU are the main actors behind acquainting Bangladesh RMG products to global market ensuring assured market access. Bangladesh is now a significant RMG supplier to North America and Europe. Due to phasing out of MFA, many are doubtful about Bangladesh s ability to maintain the fast growth of the recent years in this sector but Bangladesh has taken a better position in the U.S.A market through competition. However, on a more positive note, Bangladesh is expected to maintain its tariff-free access to EU under the European GSP, since the GSP is not covered by the Uruguay Round Agreement. Recently, Canada has also provided tariff-free access of all the items from Bangladesh. Meantime, Bangladesh RMG industry has earned strong competitiveness as a global standard RMG source. Marketing network has been spread over the economies of the continents. End users could well recognize and differentiate the products confidently. Till today, Bangladesh RMG industry largely depends on the imported yarns and fabrics. Bangladesh produces only 10% of export-quality cloth used by the garments industry. The need for establishment of backward-linkage industry has become an immediate concern to the government and the exporters. There are enormous opportunities in setting up composite textiles industry

combining textile, yarn and garments. Bangladesh is best placed in the region for textiles and garments because of low cost labor, preferential trade status and advantageous global market access especially with EU. Textile exports from Bangladesh to the United States did increase by 10% in 2009. In general, the state of the textile industry depends on well-being of 10-12 million people in Bangladesh. By IMF estimates, as a result of the abolition of quota exports of Bangladesh will be reduced by 25%.

Industry Structure & Nature 2.1. Backward & Forward Integration 2.2. Labor Vs Capital Intensive: Textile is a Capital Intensive and at the same time, Labour Oriented industry. I believe, creation of huge employment opportunity in the country would be possible only through Textile Industry. As such I urged the Government to give higher priority for power generation, otherwise no new investment can be expected in this sector, rather the existing industries of the sector will collapse, aggravating the existing unemployment situation & negating poverty alleviation programme. 2.3. Contribution to export Earnings & GDP: Bangladesh has become the world's second largest knitwear exporter after China, replacing India from where the country imports most raw materials, mainly yarn, at a higher cost. Knitwear exports rose 46.25% to $9.48 billion in fiscal year (FY) 2010-11, when the total apparel exports rose 43.35% to nearly $18 billion, a data of Export Promotion Bureau (EPB) said. The export target for the apparel sector has been set at $20.29 billion for the current FY 2011-12 with the country's annual aggregate export target being projected at $26.3 billion for the year against $18.5 billion in the last fiscal.

The exports surged the target by 41.5% to reach $22.92 billion in 2010-11. The overall exports of woven and knitwear already started showing an upward trend as India recently has given access for Bangladesh's 46 garments products. China with its annual exports worth $53.8 billion continued as the biggest knitwear exporter meeting some 33.5% of the global needs. Both India and Bangladesh had a share of 2.5% in the global knitwear market in 2005. Bangladesh, however, enjoyed an edge over India in exports of t-shirts, pullovers, cardigans and baby garments. Government incentives for the spinning and weaving industries include a 15% cash subsidy of the fabric cost to exporters sourcing fabrics

locally. There is a huge fabric demand supply gap in the RMG industry which is being me by imports. Thus the potential for backward linkage industry is enormous. Over 81% of the export earnings come from textiles & textile related products. And this textile industry Contributes 13% to GDP.

2.4. Location of the Industry

Size & Composition of the Industry

3.1. Contribution to GDP:

Bangladesh primary textile sector (PTS) meets around 100 percent of domestic yarn and fabric requirements, 85-90 percent yarn requirements for export oriented knitwear and 34-40 percent yarn requirement for woven ready-made garments (RMG). Additionally, a portion of domestic yarn production is supplied to home-textile, terry towel, and denim producers. The growth of the Bangladesh primary textile sector (PTS) is given below. They are 350 spinning mills, 400 weaving mills, 310 dyeing and finishing mills, 800 knitting and knit dyeing mills and 4,500 garment factories in Bangladesh. Despite a remarkable growth in backward linkage industries, the country s current demand-supply gap of fabric is about 50 percent in terms of cotton-based uses and around 25 percent in terms of non-cotton based uses in RMG sector.

3.2. Dependency on Sub-Sector:

Country s sole public sector agency Cotton Development Board (CDB) is responsible for motivating farmers to grow cotton, upgrade technology through research, disseminate technology to the farmers through extension services and ensure production and supply of quality seeds. The institutional capacity of CDB is very weak relative to its missions. The spinning sub-sector of the primary textile sector (PTS) has been witnessing robust growth over the past decade due to growing demand for yarn from both the domestic textile market and the export-oriented ready-made garment (RMG) sector.

Yarn production in MY 2009/10 is estimated at 731,000 tons and fabric production is estimated at 3.45 billion meters, up by 14 percent and about 6 percent respectively from MY2008/09 productions. In addition, about 800 million meters of fabric are estimated to be produced by the small-scale handloom industry in MY 2009/10, which meets 40 percent of its domestic demand. MY 2010/11 yarn production is forecast to grow further to

774,000 tons and fabric production to 3.7 billion meters. The Bangladesh textile industry, the largest manufacturing sub-sector of the industrial sector, provides employment to about 5.5 million people (including over 2.5 million of the country s GDP, 40 percent of manufacturing value addition, and 77 percent of export earnings. Textile sector in Bangladesh is the second largest sector for absorbing working force after agriculture and attracted highest investment (around 3.5 billion Euros) during the last three decade

3.3. Demand Condition: As per BTMA 90% of the domestic fabrics and 100% yarn requirements of knit garments are met by PTS. Around 40% of the total demand of woven fabrics for export oriented RMG is supplied by the local weaving mills. Raw cotton consumption in MY 2010/11 is forecast at 4.1 million bales (900,000 tons) benefiting from the new spinning mills coming into operation and forecast higher imports. Consumption in MY 2009/10 is estimated to reach 3.9 million bales (850,000 tons), nearly 14 percent higher than last year, on increasing demand from the rapidly growing spinning sub-sector and steady growth in domestic demand and strong growth in export demand for cotton textiles and readymade garments. Yarn consumption in MY 2010/11 is forecast higher at 940,000 tons. In MY 2009/10 consumption of yarn is estimated at 880,000 tons up by 7 percent from MY 2008/09 consumption on strong demand from weaving and knitting sub-sectors in the country. MY 2010/11 fabric consumption is forecast at 6.2 billion meters. Fabric consumption in MY2009/10 is estimated at 6 billion meters up by around 3 percent from MY 2008/09 consumption, comprising of 2.4 billion meters for the domestic sector and 3.6 billion meters for the export oriented RMG sector.

Spinning and weaving mills commissioned in recent years are capable to supply quality yarns and fabrics required for the export oriented RMG sector but typically at 10-12 percent higher price compared to those sourced from China and India. [1] Several spinning mills were forced to sell their yarn at lower than cost prices to clear their inventory. Consequently, 35 spinning mills stopped operation and a large number of other mills cut down their production by around 35 percent. Moreover, locally produced fabrics are at a

disadvantage due to large scale leakage of fabrics imported under a duty drawback provision provided to the export oriented RMG sector of the country. 3.4 Value Addition: RMG and textile sectors have enormous investment opportunities. Government provides highly favorable policy framework for investment in these sectors. Investors have the following choices:
y y y y

Establishment of new textile / RMG mill in the private sector. Joint ventures with the existing textile / RMG mill. Acquisition of public sector textile mills that are being privatized. Indirect investment through financial services and / or leasing.

As per BTMA, 40% industrial value addition come from textile. The value addition in woven RMG is now around 35 to 40% and knit RMG is around 80 %. Provides 5.0 million job of which 80% are women. Provides 0.2 million jobs in waste recycle industry related to RMG. The industry Generates huge cliental base for banking, insurance, shipping transport, hotel, cosmetics, toiletries & related economic activities.

Market Players 4.1. Market Players:

Number of Member Mills Yarn Manufacturing: Ring Spinning Ring Spinning with Open-end Capacity Rotor/Open-end Synthetic Yarn Mills Fabric Manufacturing Woven Denim Home Textiles Knit Fabrics Dyeing-Printing-Finishing Spindle Capacity Rotor / Open-end Yarn Manufacturing Capacity (Subject to 100% Capacity Utilization) Number of Looms of BTMA Shuttle-less Shuttle Fabric Manufacturing Capacity Fabric Processing Capacity Raw Material Requirements 17,000 13,000 Mtr. Mtr. 2000,000,000 2000,000,000 Bales 7,600,000 561 21 18 103 230 8,700,000 230,000 1700,000,000 Kgs 97 195 51 30 703 1306 373

Raw Cotton Rae-Cotton Import / Consumed Raw Cotton Source

7.5 Ml. Bales 4.0 Ml. Bales USA, Australia, CIS, Russia, America, East & West Africa

(if 100% capacity is utilized) (if 100% capacity is utilized) India, Pakistan, China, Central etc.

Type of Raw Cotton Imports

1-1/8", 1-1/6", 1-32", 1-5/32" etc. Polyester, Viscose and Acrylic Staple Fiber, Cheif and PetChips, Cotton Waste and Waste Cotton Yarn 5-10 counts (both for Knit and Woven) Synthetic and Filment Yarn All kinds of Cotton & Knit Fabrics

Other Raw Material Used

4.2. Major Associations: Bangladesh Textile Mills Corporation (BTMC) Bangladesh Textile Mills Corporation was brought into existence on March 26, 1972 with the promulgation of the Bangladesh Industrial Enterprises (Nationalization) Order, 1972 (President s Order No.27 of 1972 ) and started its formal function from July, 1972. It s function is to control Corporation, supervise and co-ordinate, subject to any regulation made in this behalf, the activities, business and affairs of the scheduled industrial enterprises placed. Bangladesh Textile Mills Association (BTMA) Bangladesh Textile Mills Association (BTMA) is the national trade organization of Primary Textile Industry i.e. Yarn Manufacturing, Fabric Manufacturing and Dyeing-Printing-Finishing mills of the country under private sector. BTMA is registered in 1983, among others the following are the main objectives is to promote and protect the trade, commerce and manufacturers of Bangladesh in general and of the textile related trade in particular.

4.3. Potentials for a Dominant Player: Direct investment would be made in order to establish a private limited textile firm. This mood of internationalization process is necessary in order to get benefits of low cost of production. Initially plants to produce finish fabrics will be installed and in later years investment in different textile units will be made. The firm will have three textile units.
y y y

Weaving unit Knitting unit Dyeing and printing of woven and knitted fabrics

These three plants will be used to produce finish cotton and knitted fabrics. Raw material will be purchased locally or imported depending on the production need. In order to ensure high profits focus will be made on different market segments. Product differentiation strategy will be adopted. Focus will be made on the quality and variety of fabrics. The pricing of the products will be competitive set by considering the following objectives.
y y y

Maximization of profit To achieve the target return and targeted sales. To increase the market share.

Price of the products will be set by accounting for fixed and variable costs and profit margin. Pricing method for the export products will differ from the local pricing method. In the export, all the expenditure related to the export such as the custom clearance charges, port clearance charges, shipping line freight and other foreign agent commission will be added. Also the charges related to the transportation and bank handling expenditure will also be considered while calculating the price of the export items. Cotton fabrics will be sold in domestic market and to RMG manufacturers. Similarly knitted fabrics will also be sold to readymade garments (RMG) manufacturer. The fabrics will also be exported to EU and other countries to get the trade benefits. Products would be sold through direct contacts, wholesalers and local and foreign agents.

In order to promote the goods Promotional tools will be used. The major tools of promotion would be
y y y y

Advertisements in fashion and business magazines Textile exhibitions Internet website Incentives to customers and local and foreign sale agents

The balance of equity and debt financing will be used to finance the firm financial needs. Initially equity financing will be used to establish the firm setup in Bangladesh. Long term borrowings will be made for additional capital expenditure when required whereas short tern borrowings will be used for working capital requirement. Profits will mainly used in expansion of the business in Bangladesh and will be repatriated for business requirement as well. Future plan is to make further investment in textile sector in Bangladesh to achieve backward and forward integration. Backward integration will be in spinning and fiber manufacturing businesses. Whereas forward integration will be in the business of apparels i.e. readymade garments (RMG). In Bangladesh RMG sector is growing and this segment would be the next target of investment.

Regulatory Environment 7.1. Govt. Crafts Textiles Policy in a Month 17/10/2011 The government has drafted a textiles policy to adapt it to the quota-free regime while also giving the sector a further boost. The policy has suggested that new industrial units enjoy 100% tax holiday for the first two years and the subsequent reduction of the facility in phases. The main objective of this policy is to adapt our textile sector to the changing reality of the global textile industry and reshape the sector in that light. The policy has emphasized on research and development of existing technologies, production of value-added multiple items, domestic production of cotton, human resources development, technical support and fiscal incentives for the textiles sector for its sustained growth. The policy said the backward linkage industries that supply 80% of their production to the export-oriented industries will be treated as export-oriented sector and thereby enjoys the same facilities. The customs procedures should be simplified and waivers be given on the imports of dyes and chemicals and continue waiver of import of textile machineries, the draft policy said. According to the policy, 10% production of the industrial units at export processing zones and 20% production of outside units would be allowed to export in the local market subject to payment of government's taxes and duties as applicable. This new policy will help to grab the vast opportunity in the international market. Minimum Wage Issue : The Government has been actively considering to include textile in the fold of Minimum Wages. According to our assessment, fixation of Minimum Wages for the workers of Textile industry especially Spinning, Weaving and Dyeing-Printing-Finishing mills will definitely create a complex situation as most of the Mills in the PTS provide more than what was planned. As such minimum was below the existing one would surely create a complex situation. Therefore, the congenial environment between the workers & the management that exists at present may be des-stabilized creating unwanted situation. In such a situation BTMA, therefore, feels that fixation of minimum wage for Textile Industry by an out

authority will not be a wise decision and it should be left out to the sub-sector concerned. More so, in a market-economy Wages are to be fixed by the market mechanism. The above view of BTMA was duly communicated to the concerned Ministry for necessary action at appropriate level. Apparel &Textile Board Act: Ministry of Textiles & Jute was planning to formulate an Apparel & Textile Board Act to bring Textile & Apparel trade under one authority, namely MOTJ. Accordingly they had Drafted Apparel & Textile Board Act and that was sent to BTMA with a request to forward BTMA s comments on the Act. BTMA went through the Act very carefully and raised the basic question of the necessity of having such an Act, as the existing laws in conducting Textiles & Apparel trade both domestically & Internationally are well in operation. The Draft Act contained a good number of clauses that would empower to Control, Regulate and Monitor all activities pertaining to Textiles and Apparel trade. The Draft was more of regulatory in nature, rather than facilitator. In view of that, BTMA submitted its view to Ministry of Textiles & Jute with a request to drop all regulatory & controlling provisions of the Act to have better acceptability of the Act. The Act is yet to be finalized. 2. EDF (Export Development Fund) For BTMA mills making bulk import of raw cotton or other fibers against deemed exports (local deliveries of yarn to manufacturer-exporters against inland back to back LCs in foreign exchange), an EDF loan to an AD shall not exceed i) the amount in foreign exchange realized against inland back to back LCs over the past twelve months, or ii) USD 10 million, whichever is lower. Government should take the following measures for sustainable development of Textile Sector :
The scheme of Tax Holiday be continued.
Debt-equity ratio should be fixed at 80:20 or any favorable rate.


Weaving & Dyeing- Finishing sub-sector should be given extra thrust and priority while considering bank loan for investment.
Interest on investment in the textile sector be fixed to 7% or 8% both by nationalized and private sector banks.
All importable Textile Capital Machinery, Spares & Dyes-chemicals used in the textile sector be made duty & tax free.
High-tech Park, Garment Villages, & EPZ with necessary infrastructural facilities be established for textile industries on priority basis.
Encourage setting-up of ETP. In this regard machines, equipments and spare-parts should be duty free and to make provision for bank loan at lower rate of interest. 7.2. Industrial Policy Current Duty Structure of Textile Sector

Industry Growth Potential Current Growth Potential: Growth in Primary Textile Sector (Spinning)

Social Desirability & National Importance In the export market, Bangladesh RMG becomes a global player. We are the number three knitwear exporter in the world. In case of woven garments our position is 7. Keeping this growth rate constant with favourable Government Policy and financial support, it will not be difficult for us to achieve the top slot in the world within 2019. Several dimensional changes in clothing export of the world have opened enormous opportunities for us. But the recent global recession, financial crisis and abnormal increase of price of raw cotton not only put a break on our journey towards advancement but it has also made it difficult for us to compete with the competitors. The USA and the EU import more than 90% of our total export. Japan is another country that will be the next largest destination of our export. Bangladesh is sustaining its export for the last 1 years by selling products without covering the fixed costs and hence resulting in overdue term payments and losses. The developed countries such as Europe, USA and Japan have announced trillions of dollars in subsidies/bail out plans to face the recent recession. Developing countries also to protect their economies have taken various economy stimulus strategies. We are grateful to our Government for providing different policy support and incentives for the sector. But that support has been reduced subsequently. The cash assistance has been reduced in June, 2002 from 25% to 5% in 2005. In spite of that Bangladesh Textile industry has adjusted and continued to grow. However, with the additional extra benefits/bail out packages given by the competing countries, our level playing field has been distorted which needs to be leveled with compensatory measures/benefits not only to keep the current employment and export growth but also to prepare us to take positive step for expansion, development and invite new investment.

SWOC SWOC Analysis of Bangladesh Textile and RMG industry Strengths  Adequate supply of labor force of both sexes, attributed with less attitudes problem (less absenteeism and, aptitude for learning, and loyal) and high morale  Cheaper labor cost  Low cost of captive power generation using gas as fuel  GSP facility up to 2015  Easily accessible infrastructure like sea road, railroad, river and air communication  FDI is legally permitted and incentives are provided to them.  Moderately open Economy, particularly in the Export Promotion Zones  Looking forward to Duty Free Excess to US, talks are on, and appear to be on hopeful track  Investment assured under Foreign Private Investment (Promotion and Protection) Act, 1980 which secures all foreign investments in Bangladesh  Low Bank interest for financing exports  Growth prospects of textile industry on the basis of increasing demand. Weaknesses  Bangladesh produce mostly basic products- which are low cost items; the share of fashion products i.e., high value added product is very low.  Bangladesh does not produce the basic raw materials (only a negligible quantity of cotton but no manufactured fiber) and as such has to depend totally on sensitive global market.  Because of inadequate backward linkage, lead-time happens to be long, nearly 3 months.  Public power supply is erratic.

 Bank interest rate is still high enough, particularly of private sector bank, for investment of export oriented high value project.  HRD facility, productivity and quality support, testing and accreditation support, design support and compliances are yet to be enhanced.  Cost of doing business is high because of under table money  Lack of marketing tactics  Absence of easily on-hand middle management  A small number of manufacturing methods  Lack of training organizations for industrial workers, supervisors and managers.  Fewer process units for textiles and garments  Sluggish backward or forward blending procedure  Incompetent ports, entry/exit complicated and loading/unloading takes much time

Opportunities  Bangladesh has now a scope to go for more fashion oriented products deserving high price in the global market.  With the help of further increase of productivity & quality and design support, Bangladesh can minimize cost and maximize profit and export value.  Bangladesh, as a proven experienced RMG & Textile manufacturer, can expand share in the existing market (USA, EU, Australia, Canada, etc.) and can also explore opportunity in Japan & CIS countries.  In the long run, Bangladesh has a scope to target huge populated country like China and India- where demand as well as cost of manufacturing will be wider.  EU is willing to establish industry in a big way as an option to china particularly for knits, including sweaters  If skilled technicians are available to instruct, prearranged garment is an option because labor and energy cost are inexpensive.

Challenges  Unless new strong market is explored in home or abroad, any non-cooperation from USA & EU may jeopardize the whole Bangladesh RMG export business and consequently the textile manufacturing.  Sudden price hike of cotton and yarn in the global market may push Bangladesh to a very awkward situation to devastate the business.  The type of labor and political anarchies of the recent days if prevails in the future, Bangladesh may lose the business in the way Sri Lanka has lost.  Commercial banks have restricted credit flow to the spinning mills as the once booming industry is now struggling to stay above water due to volatile cotton prices and an acute energy crisis. Spinners who turn cotton into yarn bought the crop when the global market was at its peak. They built up a big inventory of yarn worth Tk120 billion as garment makers prefer cheap Indian yarn over costly local production.

Conclusion: The role of Textile Sector in nation building cannot be over exaggerated. Textile Sector being one of the prime provider of job and a role model for poverty alleviation and economic emancipation of the teeming millions can be considered to be the engine of growth. BTMA being the largest part of this sector has relentlessly endeavoring to build a strong industrial base, where from the country can take off to be recognized to be a middle income country within the shortest possible time frame.