I am happy to see the opportunities ahead for my country and that all the hard work has paid off to graduate out of the LDCs. I am thankful to the government of Bangladesh for having directed the nation towards its newly acquired status.
On that note, there are also challenges involved for developing countries that have an impact on the global community. The hurdles for poverty reduction and climate issues being some reoccurring factors, next to financial stability and the lack of a holistic approach to sustainable energy development, clean water, and access to food, which amongst other challenges create security risks.
On a more positive note, due to the sheer population, middle-income countries represent about one third of global GDP and are driving economic factors contributing to the global GDP growth -- so we need to ask ourselves: How do we accelerate social, environmental, and business opportunities in Bangladesh, with the challenges which lie ahead?
Our golden goose
Bangladesh is among the top 12 developing countries with a population of over 20 million, with oversix percent growth over the last couple of years. By any standards, our economy has done well.
Today, Bangladesh is the world’s second-largest apparel exporter of Western fast fashion brands, rivalled only by China. In 2017, the RMG industry contributed $28.14 billion to exports, which was 80.7% of the total export earnings
The key driver behind the success of graduating out of LDC status is the textile and apparel sector. The exports of textiles and garments are the principal source of foreign exchange earnings, and our textile and clothing industry alone provides the single source of growth.
Productivity, which measures efficiency of resources used to produce goods and services, is by far the long-term driver of competitiveness. The new investments in education and skills, machinery, and equipment, physical and technological infrastructure, and innovation (including commercialization) will all contribute to improvement in productivity, competitiveness, and prosperity.
A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not by far sufficient. Movements in exchange rates also will impact the cost structure and relative output price in the short to medium-term. New strategies for the textile and apparel sector and other industries need to be drafted in order to keep the momentum.
Bangladesh does not hold any natural resources that we can export. We do not have world famous brands that we can globally promote. The textile and apparel sector, and thereby the entire nation of Bangladesh, is heavily dependent on the competitiveness of affordable and less skilled labour to keep driving the exports of Bangladesh.
Today Bangladesh is the world’s second-largest apparel exporter of Western fast fashion brands, rivalled only by China. In 2017, the RMG industry contributed $28.14 billion to exports, which was 80.7% of the total export earnings for Bangladesh.
So, what challenges does the textile and apparel industry in Bangladesh envision over the next years that will have a significant impact on the growth of the industry, and more importantly, the growth of the nation?
Increasing cost of business and production is one of the most potent threats to the continued growth scenarios. In recent years, the cost of production has increased by 18%. This alone is a factor to be reckoned with.
If a pair of jeans produced in Bangladesh for a global high street brand was to increase its retail value by 18%, the high street brand would rapidly find new production alternatives in Vietnam, China, Pakistan, and India.
The increase of the minimum wage -- which is currently being discussed -- will see another rise in the labour cost. This specifically has a negative impact on the textile and apparel sector, where higher salaries are paid compared to a few years back. As a result, the profitability on the product prices has decreased by 40% over the last few years.
When the cost of production is increased by 18%, companies are getting 40% less for the same products they were producing before, which results in a very low profit margin and consequently, textile and apparel companies are losing their profitability on a daily basis.
The concluding part of this op-ed will be published tomorrow.
Mostafiz Uddin is the Managing Director of Denim Expert Limited, and Founder and CEO of Bangladesh Apparel Exchange (BAE).