Submission Date: 10-December-2015

The Role of Private Finance for Development in Ready-made Garment (RMG) Sector

of Bangladesh

MOOC : Finance for Development (Fin4Dev),World Bank Group

Final Project: Digital Artifact

Lessons Learnt• Massive opportunity for developing countries to access more

resources by improving Tax-GDP ratio for development finance.

• Billions to trillions concept from domestic resource mobilization

• Official Development Assistance (ODA) can be used as a means of mitigating risk in certain environments.

• Sustainable Development Goals (SDGs): Goal 1, 3, 5, 8, 9, 12, and 15 will be fostered simultaneously by industrial development.

• Sources of private sector finance

Summary and Target Audience Bangladesh is a developing nation. It is a country with few large

and some moderate size industries of different kinds. Among these, the industry that has been making stringent contribution to develop the country and its economy is none other than the Ready-made Garment (RMG) industry which is now the single biggest export earner for Bangladesh. The sector contributes significantly to the GDP. Bangladesh RMG Industry has played important role by creating employment opportunities for the poor mainly women from low income families and uneducated people who were previously engaged with the traditional agriculture sector. So target audiences are policy makers, government agencies, and donor agencies related to this sector.

Role of Private Sector in Development

Growth engine of the economyAdvancing innovationRevenue generation source for governmentCreating wealth, incomeJobs creationMobilizing domestic resources Contributing to poverty reductionWomen empowerment and reducing inequality etc.

Contribution of RMG Sector 39.31% in the overall export of Bangladesh at last 10 Fiscal Year (FY 2005-

06 to FY 2014-15) where currently 81.71 percentage of national export (FY 2014-15)

14.06% of Gross Domestic Product (GDP) (FY13-14) Provide 4.02 million direct jobs Structural adjustment policies of the factories according to the demand of

ILO*, ACCORD**, and ALLIANCE*** & Other related international bodies.

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

2010-11

2012-13

2014-150

102030405060708090

05000100001500020000250003000035000

Exports (from FY73-FY15) Scenario of Bangladesh Share of RMG (%) Exports (FOB)

Fiscal Year (July-June)

Shar

e of

RM

G (%

)

Expo

rts (

Free

on

Boar

d va

lue)

Contribution of Development Partners International Finance Corporation (IFC) used a blended finance structure to

actually help & rebuild some of buildings of the garment industry in Bangladesh

United Nations Development Programme (UNDP)* enhanced cooperation among the stakeholders in three major areas:

• Resilient business which includes disaster safe investments, establishment, production and markets.

• Business Opportunities in disaster risk reduction (DRR) through innovation.• Enabling environment for business to adopt disaster safe approaches,

including incentives, private sector leadership in DRR and strong partnership.

United Nations Industrial Development Organization (UNIDO) is about to complete Better Work in Textile and Garments (BWTG) which is Better Quality Infrastructure (BQI) component of Better Work and Standards Programme (BEST).

Financing Scenario in RMG Sector

Domestic Source : Private investment 95 percent.

International Source: 5 Percent investment though Foreign Direct Investment (FDI)

Contribution into Sustainable PillarsSocial

• Employment generation.• The urban garment industry has created more than one million formal sector jobs for women,

contributing to the high femal labour participation about 80% in RMG sector in Bangladesh.• Improving standard of living.• Substantially decreasing social cost in terms of crime, violence, moral decadents, wastage of

potential labor force.• In the corporate world in Bangladesh the social responsibilities are not yet so

widespread but companies are emphasizing on the social responsibilities in the local market as well.

• Companies are realizing that social responsibilities are an investment, not a cost, much like quality management.

• Business organizations are trying to have an inclusive financial, commercial and social approach to minimize the risks linked to uncertainty.

• Health Hazardous Chemical Usages

To be continued

Contribution into Sustainable PillarsEconomy

• Moved from lower income to lower middle income country and expecting to be a developed economy by 2041.

• Between 2007 and 2014, Bangladesh averaged a Real GDP growth rate of 6.05% and projected to be 6.7% in 2020 (World Economic Outlook 2015, IMF).

• The economy is increasingly led by export-oriented industrialization. The Bangladesh textile industry is the second-largest in the world behind China.

• The inflation rate in Bangladesh was reported at 6.24 percent in September of 2015.

• The economy has grown at the rate of 6-7% over the past few years.• Total Export: 31.20 billion US dollar in FY 2014-15 (July-June).• Total Import Payments : 40.45 billion US dollar in FY 2014-15 (July-June).• Stable exchange rate against Taka/Dollar.

To be continued

Contribution into Sustainable PillarsEnvironment

• Green financing by central Bank of Bangladesh (Bangladesh Bank).• Effluent Treatment Plant (ETP) use to water sanitation• Water Pollution• In Bangladesh, the Companies are facing the challenges of adapting the

changing environment in the context of globalization particularly in the export sector.

Development Investment Fields Public resources should be mobilized to finance large infrastructure

e.g. electric power, gas, ports, railways, roads, and urban services. Set up ‘Industrial Park’. Increase the competition in ground handling of cargo. Strengthen the capacity of the airports and sea-ports. Adopt a coordinated strategy to improve performance of Dhaka-

Chittagong corridor. Establish a number of institutions which will produce skilled

manpower. Develop technology to mitigate environment pollution by eco-

friendly technology used such as ETP, high technology with least energy consumption, economizer etc.

Financial Assistance Solution• Specialized bank for RMG sector• Foreign Direct Investment (FDA)• Projects finance• Remittance• Pension funds• Capital market• Insurance communities• Civil society organizations• Foundations and non-governmental organizations• Incentives (cash, policy, duty-drawback etc.) by government• Grants or Concessional loans• Commercial bank by prioritizing, etc.

Recommendations• Initiate necessary programme for Branding• Development of research, design and fashion for

manufacturing high value added products• Investment for Energy sustainability• FDI and protect illicit money flows• Green industrialization• Resilient business which includes disaster safe

investments• Establish institution for Fashion & Textile and testing

lab facilities

Reference• MOOC, Fin4Dev, World Bank Group, Week 3 Video Talks :The Role of Private Finance in

Financing for Development.• Central Intelligence Agency (CIF), Factbook, GDP (official exchange rate) 2014 est:

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html• Bangladesh Bureau of Statistics (BBS), 2014:

http://203.112.218.66/WebTestApplication/userfiles/Image/SY2010/Chapter-05.pdf• Apparel Export Statistics of Bangladesh FY 2014-15, annual publication of Bangladesh Knitwear

Manufacturers & Exporters Association (BKMEA): http://www.bkmea.com/iART_Market_Brief.html (accessed: 09-December-2015)

• World Economic Outlook 2015, International Monetary Fund (IMF): http://www.imf.org/external/pubs/ft/weo/2015/01/

• Bangladesh Bank: https://www.bb.org.bd/• Export Promotion Bureau: http://www.epb.gov.bd/index.php/home/exportdata • World Bank: http://data.worldbank.org/country/bangladesh• United Nations Development Programme (UNDP):

http://www.bd.undp.org/content/bangladesh/en/home.html• United nations Industrial Development Organization (UNIDO):

http://www.unido.org/factsheets.html

Thank You Very Much