The Contribution of Garment Industries in Bangladesh Economy

7/31/2019 The Contribution of Garment Industries in Bangladesh Economy

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THE CONTRIBUTION OF GARMENT

INDUSTRIES IN BANGLADESH ECONOMY

INTRODUCTION

The shift from a rural/agro based economy to an urban/industrial economy is an

essential part of the process of economic development. Although at various

times policymakers in the least developed countries (LDCs) have attempted to

make agriculture the primary engine of economic growth and employment

generation, this approach has not worked, not least because of the contributions

of the Green Revolution, which has had the dual effect of increasing agricultural

productivity in the LDCs and displacing the rural labor force at the same time.

Led by the example of the East Asian economies, most LDCs now accept the

need for greater industrialization as the fastest path to economic growth. In

particular, countries such as Japan, Taiwan and South Korea have demonstrated

that an export-oriented industrial strategy can not only raise per capita income

and living standards in a relatively short time; it can also play a vital role in

modernizing the economy and integrating it with the global economic system.

Bangladesh, one of the representatives of LDCs, has also been following the

same direction for the last 25 years. New rules had come to govern theinternational trade in textiles and apparel, allowing low-cost suppliers to gain a

grasp in American and European markets. Assisted by foreign partners, and

largely unaided by the government, entrepreneurs seized the opportunity and

exploited it to the fullest.



Over a period of 25 years, the garments export sector has grown into a $6 billion

industry that employs over a million people. In the process, it has boosted the

overall economic growth of the country and raised the viability of other export-

oriented sectors.

OUTLOOK OF GARMENT INDUSTRIES IN BANGLADESH

In Bangladesh several authors have analyzed aspects of the garment industry. Of

the various aspects of the industry, the problems and the working conditions of

female workers have received the greatest attention.

A study by Md. Salim Uddin and Mohammed Abu Jahed (2007) revealed that

how the RMG sector is contributing as prime mover of the socio economic

development of Bangladesh. According to them, the garments industry has been

leading the Bangladesh economy since the early 1990s. Garments are the

country’s biggest export making up about three quarters of total exports, and the

industry is a symbol of the country’s dynamism in the world economy. The

industry is also the main non-farm formal sector creating employment

opportunities for the poor. The greater part of the workforce is female, less

educated, and has migrated from rural areas. Thus, the garment industry is seen

as contributing to poverty reduction in Bangladesh by providing employment

opportunities with higher wages for the poor who would otherwise be engaged

in low-wage economic activities in rural areas. There was much discussion

about the survival of Bangladesh’s garment industry prior to the final phase out

of the Multi-Fiber Agreement (MFA) from 1 January 2005 which was expected

to greatly intensify competition in the international garment market. One of the

most influential forecasts was that only China and India would gain from the



MFA phase out and that Bangladesh and other smaller suppliers of garments

would lose out. Fortunately, there was no immediate major adverse effect in

Bangladesh. Garment exports to the United States grew over the whole of 2005,

while those to EU declined only slightly. However, the prospects for the

industry in Bangladesh are not certain and the future trend in garment exports

needs to be watched.

Dr. Greg gajewski & Alex Riley (2005) discussed about Bangladesh’s export

trade practices and their effect on the competitiveness of the garment industry.

They said, a wide body of evidence suggests that increased openness to trade

and greater export competitiveness contribute to higher rates of economic

growth. Export competitiveness depends, in part, on Customs and other

administrative export trade practices, as well as on the efficiency of port

operations and the transportation linkages between the ports and the main

centers of export production.

A study by Munir Quddus & Salim Rashid looks at the aspects of garments

exports from Bangladesh. They summarized that, the success of readymade

garment exports from Bangladesh over the past two decades has surpassed the

most optimistic expectations.

In this particular study we will be focusing on the contribution of garments

sector in the economy of Bangladesh, the involvement of women workforce in

this sector. We will also highlight the ways to improve the efficiency of thelabor force, the foreign earnings through the export of garments products. In the

last part, we will have some concluding remarks.



DEVELOPMENT OF GARMENTS INDUSTRY IN BANGLADESH

In the field of industrialization, role of textile industry is found very prominent

in both developed and developing countries. Economic history of Britain revealsthat in the 18th Century the cotton mills of Lancashire in Britain ushered in the

first industrial revolution of the world. Moreover, during the last 200 years or

more many countries of the world have used textile and clothing industry as an

engine for growth and a basis for attaining economic development. Over the past

few years garment industry is found to have played such an important role in the

process of industrialization and economic growth. This industry is in fact trying

to put the wheel of her declining economic back to the track by giving essential

life blood to it. The growth of garment industry in Bangladesh is a

comparatively recent one.

In the British period there was no garment industry in this part of the Indo-Pak-

Sub-Continent. In 1960 the first garment industry in Bangladesh (Then East

Pakistan) was established at Dhaka and till 1971 the number rose to give. Butthese garments were of different type intended to serve home market only. From

1976 and 1977 some entrepreneurs came forward to setup 100% export oriented

garment industry. Both domestic and international environment favored the

rapid growth of this industry in Bangladesh. By mid seventies the established

developed suppliers of garments in the world markets i.e. Hong Kong, South

Korea, Singapore, Taiwan, Thailand, Malaysia, Indonesia, Sri Lanka and India

were severely constrained by the quota restrictions imposed by their major

buyers like USA, Canada and European Union. To maintain their business and

competitive edge in the world markets, they followed a strategy of relocation of

garment factories in those countries, which were free from quota restrictions and



at least same time had enough trainable cheap labor. They found Bangladesh as

one of the most suitable countries.

Available records show that the first consignment of garments was exported

from the country in 1977 by Reaz and Jewel Garment. Desh Garment was the

first biggest factory that started functioning at Chittagong in 1977. In fact that

was the humble beginning of new joint venture garment factory in Bangladesh.

Thereafter many entrepreneurs became interested and started to setup garment

factories following the Desh garment and realizing the future prospects globally

as well. Available records also show that one of the reasons of the growth of

garment industry in Bangladesh is the collaboration of a local private garment

industry, Desh garment with a Korean company, Daewoo. As part of its global

strategies, the Daewoo Corporation of South Korea became interested in

Bangladesh when the Chairman, Kim Woo-Choong, proposed an ambitions joint

venture to the Government of Bangladesh which involved the development and

operation of tyre, leather goods, cement and garment factories. South Korean

Company, Daewoo, a major exporter of garments, was looking for opportunities

in countries for using their quotas subsequent to the signing of MFA in 1974.

Because of the quota limitation for Korea after MFA, the export of Daewoo

became restricted. Bangladesh as a LDC got the opportunity to export without

any restriction and for this reason Daewoo interested to use Bangladesh for their

market. The reason behind this desire was that Bangladesh will depend on

Daewoo for importing raw materials and at the same time Daewoo will get themarket in Bangladesh.

For this desire Daewoo signed a five years collaboration agreement with Desh

Garment. It included collaboration in the areas of technical training, purchase of

machinery and fabric, plant setup and marketing in return for a specific



marketing commission on all exports by Desh. The outcome of the collaboration

of Desh-Daewoo was significant. In the first six years of its operation, Desh

export value grew at an annual average rate of 90 percent reaching more than $

5 million in 1986-87. Table-01 shows the trend of growth and development of

garment industry in Bangladesh.

Table-01: Growth of garments factories in Bangladesh

The Table-01 shows that the growth was very slow till 1977 and got momentum

from 1977 to 2005-06 in terms of number of industry. But the compound growth

rate was highest till 1981 and the rate was very good during 1989-90 to 1994-95

and thereafter i.e. 1994-95 to 2004-05, the industrial growth has been declined

though the numbers of industries have been increased.



SOME KEY FACTS AT THE GARMENT SECTOR,

TRADE, AND BANGLADESH’S ECONOMY

The garment sector is one of the most important components of Bangladesh’s

economy.

Garment exports were an estimated $5.8 billion USD out of total merchandise

exports $7.8 billion USD in 2004, making them the nation’s largest source of

exports.

Garment sector exports accounted for 9.5% of GDP in FY 2003/4.

The garment sector is an important source of employment generation and

currently provides employment for over 2 million people or approximately 3%

of the labor force.

As 90% of the workforce in the garment manufacturing sector is female, the

garment s ector is particularly important for women’s employment.

The garment sector is a key provider of employment and income to the urban

poor.

The sector is concentrated in Dhaka and Chittagong, where approximately 90%

of the factories are located.



CONTRIBUTION OF GARMENTS INDUSTRY TO THE

ECONOMY

Garments Industry occupies a unique position in the Bangladesh economy. It is

the largest exporting industry in Bangladesh, which experienced phenomenal

growth during last two decades. The industry plays a key role in employment

generation and in the provision of income to the poor. Nearly two million

workers one directly and more than ten million inhabitants are indirectly

associated with the industry. The sector has also played a significant role in the

socio-economic development of the country. In such a context, the trend andgrowth of garments export and its contribution to total exports and GDP has

been examined the following table shows the position.

Table-02: Growth and trend of garments exports, and contribution to GDP

It is revealed from the Table-02 that the value of garment exports, share of

garments export to total exports and contribution to GDP have been increased

significantly during the period from 1984-85 to 2005-06. The total garments

export in 2005-06 is more than 68 times compared to garments exports in 1984-

85 whereas total country’s export for the same period has increased by 11 times.

In terms of GDP, contribution of garments export is significant; it reaches 12.64

percent of GDP in 2005-06 which was only 5.87 percent in 1989-90. It is a clear



indication of the contribution to the overall economy. It also plays a pivotal role

to promote the development of linkage small scale industries. For instance,

manufacturing of intermediate product such as dyeing, printing, zippers, labels

has began to take a foothold on limited scale and is expected to grow

significantly. Moreover it has helped the business of basling, insurance,

shipping, hotel, tourism and transportation. The sector also has created jobs for

about two million people of which 70 percent are women who mostly come

from rural areas. The sector opened up employment opportunities for many

more individuals through direct and indirect economic activities, which

eventually helps the country’s socia l development, woman empowerment andpoverty alleviation. In such a way the economy of Bangladesh is getting

favorably contribution from this industry.

THE COMPETITION

From the many corners it was predicted that China would expand its exports and

India would follow, and that the other relatively small exporters would suffered

seriously from the competition of these two giants. However, it turned out that

some garment-exporting Least Developed Countries (LDCs), such as

Bangladesh, Cambodia and Haiti, faired very well throughout the year 2005. In

this context, an attempt has been made to examine the export data of selected

countries during MFA and post MFA to US and EU markets in order to assess

the indicative impact of post MFA scenario in Bangladesh as well as other

largest garments exporters. The following Tables show the picture in this regard.



Table-03: Exports of knit and woven garments to the United States

Tables 03 and 04 show the trends in garment exports to the United States andEU from the five largest garment exporters and the two leading exporters among

the LDCs, Bangladesh and Cambodia. It was revealed that China and India

expanded garment exports to the US and EU, the world’s two largest markets.

Along with China and India, Bangladesh and Cambodia have also increased

their exports to the United States during 2005 by more than 20 percent. Though

their garment exports to the EU declined between 2004 and 2005, the drops

were not significant; and the growth in the same figures by more than 30 percent

between 2003 and 2004 surpassed the decline in 2005 (Table 04). As a whole,

the sum of garment exports to the two largest markets grew by 2.54 percent for

Bangladesh and by 11.06 percent for Cambodia in 2005. Since the US and EU

are going to be imposing new restrictions on textile and garment imports from



However, the women workers are facing many problems. Most women come

from low income families. Low wage of women workers and their compliancy

have enabled the industry to compete with the world market. Women are paid

far less than men mainly due to their lack education. Women are reluctant to

unionize because factory owners threaten to fire them. Even though trade

unionization is banned inside the Export Processing Zones (EPZ), the working

environment is better than that of the majority of garment factories that operate

outside the EPZs. But, pressure from buyers to abide by labor codes has enabled

factories to maintain satisfactory working conditions. In recent times, garment

workers have protested against their low wages. The first protests broke out in2006, and since then, there have been periodic protests by the workers. This has

forced the government to increase minimum wages of workers.

GARMENTS PRODUCT PORTFOLIO AND ITS

DIVERSIFICATION

The specific character of products and level of industrial development indeed

determines its variance of product diversification. In such a context, the product

mix, product line as well as product diversification are very important strategies

for any industry to develop its market by meeting the present market

requirements. For the garments industry it is also very important becauseproduct diversification will call for developing capability for product

development and product design especially in response to fast changes in

fashion. The growth pattern of garments export can be categorized into two

distinct phases. During the initial phase it was the woven category. Second

phase is the emergence of knitwear products. On the other hand, an analysis of



the product mix of the garments industry revealed that so far Bangladesh has

been able to export very limited categories of products. In such a context, an

attempt has been made to examine the growth and trend of product portfolio or

categories of products exported from Bangladesh.

The position can be better explained if we look into the more details of the

product mix in the various categories of garments. The garment sector has been

able to diversify the product base ranging from ordinary shirts, T-shirts,

trousers, shorts, pajama, ladies and children’s wear to sophisticated high value

items like quality shirts, branded jeans, jackets, sweater, embroidered wear etc.

In such a context, an attempt has been made to classify the garments export into

different products in order to understand product diversification strategy and its

relative importance and performance as well. The following Table shows the

picture in this regard.

Table-05: Pattern of export performance of different garments products

From Table-05, it is evident that the highest compound growth rate has been

found in Trousers 32.13 percent, followed by T-shirts 20.36 percent, Jackets

9.28 percent, and T-Shirt 2.67 percent respectively during the period of 1994-95

to 2005-06. The rate of Sweater is also significant during the period of 1999-

2000 to 2005-06. It is observed that the share of Trousers and T-Shirt in the total



garment export is increasing. On the other hand, the share of shirts and Jackets

is declining trend. The Figures indicate that Bangladesh has concentrated in the

production and export of Trousers, T-Shirts and Sweater. This means that there

is a scope and actually need for structural change in product mix.

CONCLUSION

Bangladesh’s exports are heavily concentrated in the RMG sector, whi ch has

been a main driver of growth and poverty reduction. The challenge is therefore

to improve competitiveness, both in the RMG sector and economy wide, and

diversify exports. Garment industry in Bangladesh has been facing

multidimensional problems since its establishment. Acute power crisis followed

by non tariff restriction, chronic labor unrest, lack of infrastructural facilities,

inadequate supply of material and accessories, inability or lack of efforts to

diversify the products and markets, irregularities relating to customs, bond, and

the cost of production significantly. Due to power shortage shipments are sent

through air, thereby increasing its cost. Unfortunately the government has not

taken any step to improve the situation. On the other hand, people have been

shot dead for demanding regular supply of electricity. In this context, it is still

right time to devote all out efforts by the relevant agencies and authority as to

expansion and solutions of numerous problems that it faces now. In fact a well

designed plan with diversified product manufacture still provides opportunities

to use this sector for socio economic development of Bangladesh. In such a

context, it is suggested that appropriate and relevant government and

nongovernmental authorities/agencies can take some strategic and effective

measures which includes liberal bank loan facilities for reviving sick garment



units; development of primary textile subsectors for fulfilling the raw materials

needs; arrangement for captive power supply for utilization of production and its

continuation; adequate fiscal incentive for growing the sector; strategic

arrangement or mechanism for quick resolution of labor dispute; creation of

separate ministry for garment industry, establishment of cost reduction strategy

and labor productivity cell to conduct various study in this field and other

supportive policies relevant for the growth, development and survival of

garment industry in Bangladesh. These may be helpful to overcome the

problems and the contribution of garment industry towards socio economic

development of Bangladesh will be improved and sustained through valueaddition.

The Contribution of Garment Industries in Bangladesh Economy

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