How RMG manufacturers can help backward linkage industries revive?
The role of apparel industry leaders is very crucial for the sector as the growth of
RMG accessory business depends on the success of the whole industry.
They should help us for their own interests as we supply products to them at reasonable prices. They should take steps to stop the price fall of garment products at any cost. Also, they have to mull over reducing production costs and keeping prices of raw materials at a reasonable level.
The raw materials are sold at $3.03 a kg, but the rate was $2.63, just a few months ago. On the other hand, the unit price of finished products came down to $0.58 from $0.60.
The leaders have to negotiate with buyers’ representatives regarding the pricing and reach a win-win agreement in this regard.
Some 1,600 people are members of Bangladesh Germents Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA). About 900 of them are actively running their businesses, while the rest are facing numerous challenges because of the declining number of orders from buyers and lack of necessary support.
Does the new tax policy impede the backward linkage industries’ growth?
On what basis the government has set a 35% corporate tax rate is still unclear. The tax rate for all other export-oriented RMG industries is 15%. It is an injustice to our sector, while we are providing about 90% of raw materials to apparel manufacturing factories right away after receiving their orders.
The apparel sector has been undergoing a challenging period due to the pressure on ensuring safety. The government has to provide cash incentive against export of garment accessories products to overcome the challenge successfully
Tell us something about the export of RMG accessories
Currently, local raw material manufacturers meet about 95% of demand, and only 5% of the materials are imported according to the recommendations set by buyers.
We are exporting the domestically-manufactured accessories after meeting our local demand. As of the last fiscal year, the sector earned $6.7bn, of which over 20%, or $1.12bn, came from direct exports.
If the sector gets necessary policy support and cooperation from the government, it will further flourish and help the government in diversification of its export basket.
Despite our huge contributions to the RMG sector, we are not provided with cash incentives for the export of accessories. I think the government should seriously think about it for the sake of the whole apparel industry, since we are closely working with RMG factories, contributing to its growth.
What are the challenges facing industry insiders in securing loans for its expansion?
Businessmen can secure bank loans at interest rates of 10% to 12%. However, the grave concern for small entrepreneurs is that they do not easily get loans even though the recovery rate is higher compared with loans taken by big enterprises.
On top of that there are no proper guidelines, which favour the small and medium entrepreneurs. The government should direct the banks to provide loans at a single digit interest rate to RMG accessory businesses.
What challenges does the sector face?
Ensuring the uninterrupted supply of gas and electricity is a big challenge for us. The whole apparel industry is facing it. Another challenge we will be facing is a possible hike in gas prices as the government is going to increase them for industries.
Meeting the demand of foreign buyers in terms of safety compliance is also a major challenge as the safety measures cost too much.
Buyers are strict about safety issues? What is needed to ensure safety in the factories?
Ensuring safety is a prerequisite for being eligible to supply raw materials to foreign buyers and retailers. Sourcing accessories and packaging materials from a non-compliant factory is not allowed.
Installing safety equipment and ensuring a safe workplace cost at least Tk1.5 to Tk2 crore, which is not always affordable by a small entrepreneur. Therefore, the government should provide low-cost and long-term financial support to factory owners so they can comply with the safety standards.
What is needed to boost export growth?
If the price fall cannot be checked, both the RMG factories and raw material manufacturers will face a serious blow.
Prices of RMG products continue to fall, while those of raw materials are on the rise. The government should take immediate actions to ensure a balance between prices of raw materials and finished products and to check price hike of the raw materials.
Increasing productivity may be a solution, but it is not an easy task. RMG manufacturers have already introduced advanced technologies to enhance their production capacity. But, it is too difficult for raw material producers to modernise factories with advanced equipment.
How can the challenging period be overcome?
The apparel sector has been undergoing a challenging period due to the pressure on ensuring safety. The government ought to increase incentive rates and provide incentives to the raw material manufacturers so they can successfully overcome the challenge. Low-cost and long-term loan facilities for remediation and compliance are also needed.
How can raw material producers help the country reach the $50bn export target by 2021?
As I said earlier, both accessory makers and RMG manufacturers are closely connected with each other. If the RMG sector really wants to materialise its export target, it has to concentrate on raw material producers as they provide a lot of support to the apparel industry.
If conducive business atmosphere can be ensured for the accessory suppliers, the sector would be able to contribute 10% to 15% of the target.
The sudden fall in export growth in the last fiscal year is not a positive sign for the industry. In the year, Bangladesh’s export earnings from the RMG sector registered a modest 0.20% growth to $28.14bn.
What is your future plan for the sector?
As a sub-sector of the apparel industry, we have an investment of about $30bn, and the value addition is nearly 40%. If we get adequate policy support from the government like the RMG sector, we would be able to earn $12bn by the end of 2018, and $18bn by the end of 2025.
The sector’s growth will nip in the bud if the present challenges are not addressed.