Despite a wave of garment factory closures in Bangladesh, export earnings from the sector continue to rise, raising questions about how this is possible.
The readymade garment (RMG) sector, the main source of export earnings for the country, has been struggling with a deep crisis due to worker unrest and several other reasons.
After the change of government in August, the sector experienced nearly four months of instability, leading to a crisis of confidence among foreign buyers.
Despite efforts from both the interim government and the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) to restore trust, many factories have shut down.
Data show that over 100 garment factories have closed in the last six months, with 83 companies shutting down completely and at least 10 others suspending operations.
Businesses in the sector attribute these closures to the political transition.
Meanwhile, data from the Export Promotion Bureau (EPB) indicate that despite factory closures, export earnings have not declined. In fact, garment exports have shown steady growth over the past few months.
Entrepreneurs confirmed the figures, saying although some factories had closed due to labour unrest and banking difficulties, export income had paradoxically increased.
They also noted that the crisis of confidence among garment sector businessmen was gradually diminishing.
Economic analysts said this export growth had provided some relief to the country's economy, which had been facing challenges, such as a dollar shortage.
Export growth amid unrest
Despite remarkable growth in garment exports, the industry has faced significant instability.
Labour unrest in the country's primary export sector, readymade garments, began shortly after the change in government. Protests continued in industrial zones such as Ashulia, Gazipur and Savar until December, and signs of instability persisted even in January.
Reports indicate that at least 3% to 5% of garment factories still face labour unrest, while wage increment (annual salary hike) disputes persist in at least 9% of factories.
Amid these challenges, export earnings have shown consistent growth over the past five months.
While some question how export revenue continues to rise under these circumstances, factory owners cite at least six key reasons behind the increase.
Former BGMEA director Mohiuddin Rubel told this correspondent that export earnings had increased due to several factors, pointing out that workers had become more skilled, leading to higher productivity in most operational factories.
He added that although many small and medium-sized factories had shut down due to issues like lack of banking support, larger and more efficient factories had expanded production. “As a result, overall export earnings have not declined; in some cases, they have even increased.”
Six reasons
- As the value of the US dollar rises against the Bangladeshi taka, exporters receive higher local currency earnings, contributing to overall export growth.
- Many small and medium-sized factories have shut down, but larger, more efficient factories have scaled up production. As a result, overall export earnings have not declined; in some cases, they have increased.
- Bangladesh now produces more value-added and premium-quality garments, which sell at higher prices per unit.
- Major brands and buyers prefer to work with reliable and sustainable factories, leading to a concentration of bulk orders in fewer but larger factories. This has offset the impact of smaller factories closing.
- Due to domestic and global supply chain disruptions, some older orders were shipped late, and these are now reflected in current export statistics.
- Bangladesh was once highly dependent on specific countries for cotton and raw materials. By diversifying sources, manufacturers have maintained production without major disruptions.
Growth statistics
According to the EPB, over 80% of Bangladesh's export earnings come from the garment sector.
As of December, export revenue for the first six months of the current fiscal year increased by approximately 13% compared to the same period in the previous year. December alone saw an 18% rise in exports, while November recorded a growth rate of over 16%. Specifically, woven garment exports increased by 20%.
In November, apparel exports totalled $3.306 billion, up from $2.844 billion in the same period last year, while October saw earnings of $3.3 billion, marking a 22.8% increase compared to the previous year.
Challenges
Despite higher export revenue, businesses remain concerned. While exports have increased, profit margins have not, with rising costs, including higher wages and production expenses squeezing factory owners.
Some manufacturers have had to cover the cost of air freight to meet buyer lead times, adding to financial strain. Additionally, rising interest rates have made loan repayments difficult, leading to an increase in non-performing loans.
The closure of factories linked to the Awami League regime has further weakened the industry.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said although exports had increased, the pressure on businesses in the sector had not eased.
"The price of yarn has increased. Workers’ wages have gone up. In other words, production costs have risen by 50% compared to before," he added.
Reports indicate that at least 51 factories have closed in Gazipur, while 17 more have shut down in Savar, Ashulia and Dhamrai. These factories collectively employed over 50,000 workers.
A BGMEA member, speaking on condition of anonymity, said most workers from the closed factories had already found jobs in operational ones.
They mentioned that while more small factories were shutting down, larger factories were increasing production. “If 20 small factories employing 20,000 workers shut down, their workers are getting absorbed into 10 large operational factories.”
Another source claimed that while many small and medium-sized factories had shut down, the number of environmentally friendly and green factories had increased in recent years.
This source also said that in the past six months, the production in green factories had grown more than the number of factories that have closed.
Notably, while many small factories were established 15-20 years ago, Bangladeshi businesses are now focusing on large-scale factories.
In the Jarun area of Gazipur, Keya Group, which has been in business for nearly 20 years, announced in a notice on January 2 that it would permanently close four factories on May 1.
Keya Group cited market instability, discrepancies in bank accounts, raw material shortages and insufficient production activities as reasons for permanently shutting down its garment and textile factories.
It assured its workers, officers and employees that they would receive all dues within 30 working days of the factory closures, in accordance with labour laws.
Among the permanently and temporarily closed garment factories are 16 factories in Beximco Industrial Park in Savar, as well as TMS Apparels in Tongi’s Sataish area, Niagara Textile, Mahmud Jeans and Hardy 2XL in Chandra, and Polycon Limited, Apparel Plus, TRZ and The Delta Composite Knitting Ind in Konabari.
Reports indicate that following the fall of the Awami League government, political instability, rising interest rates and labour unrest have led to the closure of many factories.
This has also impacted investment, as entrepreneurs are hesitant to make new investments. Additionally, due to rising interest rates, capital machinery imports have declined, as new industrial factories are not being set up.
