RMG remains the single largest source of export earnings for Bangladesh

RMG remains the single largest source of export earnings for Bangladesh

Improvements in compliance and establishing a separate garment production zone are crucial steps if Bangladesh is to ensure sustainable growth of its garment sector, a new report suggests.

While Bangladesh has made good progress towards addressing long working hours and the elimination of child labour, the country's ready-made garment (RMG) sector has demonstrated compliance is still lacking in many areas of the country's apparel industry, according to research by the Copenhagen Consensus Centre.

In particular it highlights problems related to structural soundness and fire safety. Over the past ten years, more than 2,000 workers have died in fire incidents in the country's RMG sector.

"It is of paramount importance to address compliance related issues such as improving workplace safety for all, improving health facilities, regularity in payments for those in the RMG industry," the report says. "These initiatives are expected to have significant impact on increased productivity and maintaining competitiveness of the industry. Hence, the competitiveness of the industry now very much depends on ensuring compliance from the short to medium term perspective."

The ready-made garment sector remains the single largest source of export earnings for Bangladesh, accounting more than three-quarters (84.5%) of total earnings and employing around 4m people. Exports in Bangladesh's last full financial year, which ended in June 2016, hit a record $34.24bn, up 9.7% from the previous year, on the back of stronger garment sales. The country has set itself a target of target reaching $50bn in apparel exports by 2021.

In the first half of its current fiscal year, the country's RMG sector saw exports increase 4.4% to US$13.7bn.

Bangladesh garment exports up 4.4% in H1

According to the report, expected demand for garments, both locally and globally, will increase the sector's total global exports from $1.1 trillion in 2012 to $2.1 trillion by 2025.

"This legroom will bring opportunities for competing exporting nations like India, Bangladesh, Pakistan, and Vietnam," report authors explain. "For Bangladesh, realising these potentials and opportunities requires sustainable growth of the industry and addressing major problems such as a lack of compliance, competitiveness, capacity utilisation and extension, inadequate infrastructure and shortage of power. However, these requirements presumably need to be targeted and prioritised."

One of the proposals by the economists is to create an RMG Palli, a 'village' or special zone for garment production. This area would essentially be an industrial park, with ample infrastructure for factories and straightforward ways to monitor compliance, allowing firms to produce ready-made garments efficiently and safely.

A separate zone, the report says, would allow factories to cluster in a single geographic location, therefore reducing production costs, allowing for simple transfer of knowledge and technologies, and making pollution mitigation easier.  

An MoU signed by the BGMEA and Chinese Oriental International Holding (OIH) Limited has resulted in the publication of a feasibility and environmental study for a proposed Garment Palli for 250 factories, employing 300,000 people. Potential export earnings from the zone are estimated at around $3.94bn.

The report also warns that if Bangladesh is to keep up the sustainable growth of its garment industry then it has to maintain the series of compliance parameters set by the likes of the Alliance for Bangladesh Worker Safety and the Accord on Fire and Building Safety in Bangladesh.

Figures from the report show that better compliance results in an 86.32% higher turnover rate to initial investment. The difference in initial investment between compliant and non-compliant factories is about $0.16m, while, the average annual turnover of compliant factories is $0.2m higher than non-compliant factories.

"The RMG sector is the backbone of Bangladesh's manufacturing sector, and with smart investments the industry is poised to make even more future progress," says Dr Bjorn Lomborg, president of the Copenhagen Consensus Center.

Click here to access the full report.