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1 INDIVIDUAL STUDY ON EXPORT GROWTH SOURCES OF BANGLADESH READYMADE GARMENT INDUSTRY (A CONSTANT MARKET SHARE MODEL) By Sk. Ashiquer Rahman A Thesis Submitted In Partial Fulfillment of the Requirement for the Degree of Masters in International Economics and Finance CHULALONGKORN UNIVERSITY (CHULA) PUBLIC UNIVERSITY, BANGKOK, THAILAND
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Export Growth Sources of Bangladesh RMG

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Page 1: Export Growth Sources of Bangladesh RMG

1

INDIVIDUAL STUDY ON

EXPORT GROWTH SOURCES OF BANGLADESH READYMADE

GARMENT INDUSTRY (A CONSTANT MARKET SHARE MODEL)

By

Sk. Ashiquer Rahman 

A Thesis Submitted In Partial Fulfillment of the Requirement for the Degree of Masters in International Economics and Finance

CHULALONGKORN UNIVERSITY (CHULA) PUBLIC UNIVERSITY,

BANGKOK, THAILAND

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Main part (body)

INTRODUCTION

Bangladesh economy experienced a trend rate of growth of 4.8 per cent during 1990s as

against 4.4 per cent during the previous decade. The rate of growth of per capita GDP has also

been impressive during the 1990s. In addition to the higher growth rate of overall GDP, this was

facilitated by a sharp fall in the rate of growth of population. During the 1980s, population grew

at an annual compound rate of 2.2 per cent, and the rate of growth of per capita GDP was

recorded at 1.7 per cent per annum. In contrast, population growth rate came down to 1.7 per

cent during the 1990s.Per capita GDP grew at an annual compound rate of 3.3 per cent during

the 1990s.However, in terms of the absolute level of per capita income, Bangladesh continues to

remain at the lower end of the income scale. Per capita income of US$370 compares unfavorably

against the low-income country average of US$410.During 1990s, Bangladesh's total exports in

current US$ value grew at an annual compound rate of 14.4 per cent. In fact, Bangladesh

experienced double digit export growth in most of the years during the 1990s. Imports, on the

other hand, grew at an annual compound rate of 10.9 per cent during 1990s. The gap between

export and import widened from -US$1792 million in 1990/91 to -$2814 million in 1999/00,

although the share of export earnings in import payments steadily rose from 31 per cent in

1980/81 to 67 per cent in 1999/00. The openness of the economy as measured by total external

trade as a proportion of GDP went up from around 22 percent in 1990/91 to nearly 30 per cent in

1999/00 with the share of export in GDP rising from 7 per cent to 12 percent during the same

period. The structure of export has changed significantly over the past two decades. Bangladesh

seems to have made the transition from resource-based to process-based exports. In 1980/81,

primary commodity constituted nearly 29 per cent of total exports. In 1990/91, this share came

down to 17.8 per cent and further down to 8.2 per cent in 1999/00. There has been shift from

jute-centric to garments-centric export. In 1980-81, raw jute and jute goods together constituted

68 percent of total exports. Between 1980/81 and 1999/00, export of both raw jute and jute

products declined in absolute terms and their total share came down to only 6 per cent in

1999/00. In contrast, woven and knit garments together accounted for less than 1 per cent of

exports in 1980/81. Their combined share in exports rose to nearly 76 percent in 1999/00.A

change in the composition of output and employment away from the agricultural sector in the

direction of manufacturing and service sectors is often used as a measure of development. In

Bangladesh, the share of agriculture in GDP declined from 29.2 percent in 1990-91 to 25.5

percent in 1999-00 - a decline of 3.7 percent. The fall was compensated by an increase in the

share of manufacturing and construction. Despite declining share of agriculture in GDP, the

CHAPTER I

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increase in food production has been quite satisfactory moving the country from a state of chronic

food deficit to near self-sufficiency level. Manufacturing industry in Bangladesh achieved

respectable growth during 1990s. The contribution of manufacturing to GDP increased from 12.9

per cent in 1990-91 to 15.4 per cent in 1999-00. However, the sector's current share in GDP

appears rather modest for it to spearhead sustained high growth of the economy. Thus, for

example, in Thailand the share of manufacturing in overall GDP was 22 per cent in 1980 and it

rose to 32 per cent by 1998. The growth of Bangladesh’s manufacturing sector has also been

rather narrowly based with readymade garments accounting for nearly a quarter of the scrotal

growth. Other important export industries contributing to scrotal growth are Fish & seafood, and

Leather tanning. Major import substituting industries experiencing significant growth during this

period include Pharmaceutical, Indigenous cigarettes (bidi), Job printing and Re-rolling mills.

Other success stories of Bangladesh include maintenance of low level of inflation, rapid spread of

micro credit program largely at the initiative of NGOs, and significant improvements in the social

sector. However, in spite of such successes, the structure of production and exports has remained

extremely narrow in Bangladesh. Bangladesh has also failed to attract adequate amount of FDI

into the country. While the opening up of gas, electricity and telecommunication sub-sectors to

private investment has resulted in the inflow of considerable foreign direct investments (FDI) in

these sectors, the overall inflow of FDI has remained sluggish. The narrow export base has

rendered Bangladesh’s external sector extremely dependent on global trading environment and

preferential treatment by its main trading partners. The recent poor performance of exports in the

face of global economic slowdown has confirmed this vulnerability of the Bangladesh’s external

sector. Other weaknesses of Bangladesh economy include a dysfunctional banking system

overburdened with classified loans, persistent loss of the state owned enterprises, poor

infrastructure, deficient tax efforts, political disturbances and unsatisfactory law and order

situation.

Now we are going to the Country Competitiveness Indicators of Bangladesh. Because

export growth performance depend on competitiveness factors

Table-1. Overall Performance:

GNP per capita (US$) 1996 $260

Average Annual Growth of GNP per capita (%) 1965-96 1.00%

Standard Deviation of Income Distribution 11.31

Source- World Bank Group

Table-2. Macro and Market Dynamism:

Table-2(a) .Investment and Productivity Growth

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Gross Domestic Investment (% of GDP) 1996 17%

Average annual growth of Gross Domestic Investment (%) 1990-1996 13.6%

Private Investment (% of Gross Domestic Fixed Investment) 1996 62.5%

Net Foreign Direct Investment FDI (% of GDP) 1996 0%

Average annual difference in Net FDI (%) 1980-82 to 1990-92 0%

Average Annual Growth of Real GDP per worker (%) 1980-90 2.4%

Source- World Bank Group

Table-2(b). Overall Trade Dimensions Trade

Surplus/Deficit (% of GDP) 199500% -8%

Export Share of World Trade (%) 1994 0.1%

Average Annual Growth in Export Share (%) 1989-95 6.697%

Export Concentration Index 1992. 0.246

Percent Change in Export Concentration Index (%) -2.381%

Exports of goods and services (% of GDP) * (

total)

Developing

countries

29.9

Banglade- sh 14.0

Total debt service (% of exports of goods and services)** (total) 19.3 9.2

Source- World Bank Group

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Figure-1

* **

Source: World Development Indicators database, July 2000

Table-2 (c). Export Competitiveness

Average Annual Nominal Export Growth (%) 88-89 to 93-94 16.4%

Export Growth from World Demand (%) 88-89 to 93-94 7%

Export Growth from Market Share (%) 88-89 to 93-94 8.8%

Export Growth from Market Diversification (%) 88-89 to 93-94 0%

Source- World Bank Group

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Table-2 (d) . Export Structure

Manufactured Exports (% of total exports) 1995 83%

Percent Change in Share of Manufactured Exports (%) 1980-93 20.29%

High Tech. Exports (% of manufactured exports) 1995 0%

Source- World Bank Group

Table-2 (e). Trade Policy

Mean Tariff (%) 1990-93 84.1%

Standard Deviation of Tariff Rates (%) 1990-93 26.1

Percent of Products covered by Non-Tariff Barriers (%) 1990-93 N/A

Source- World Bank Group

Table-2 (f). Government Involvement in the Economy

Government Consumption (% of GDP) 1996 14 %

Average Annual Growth of Government Consumption (%) 1990-95 3.4%

Value Added of State Owned Enterprises SOE (% of GDP) 1990-95 3.4%

SOE's Investment (% of Gross Domestic Fixed Investment) 1990-95 23.5%

Government Surplus/Deficit (% of GDP) 1995 N/A

Source- World Bank Group

Table 3. Financial Dynamism

Net Present Value of External Debt (% GDP) 1996 30.0%

Growth in Total External Debt (%) 1980-94 89.82%

Average Outstanding Money M2 (% of GDP) 1996 36%

Average Annual Growth Rate of GDP Deflator (%) 1990-96 4.9%

Credit to Private Sector (% of GDP) 1996 20.6%

Stock Market Capitalization (% of GDP) 1996 14.3%

Real Interest Rate (%) 1996 8%

Source- World Bank Group

Actually, growth has accelerated in Bangladesh in the 1990s. Much of this acceleration in

growth took place in the context of rapidly declining external aid. External aid has fallen from

12% of GDP in the early 1980s to only about 2% of GDP now. There have not been any

compensating private flows during this time. This enhanced growth performance occurred during

a period of policy reforms. However, it does not necessarily mean that policy reforms were alone

responsible for the acceleration. Some increase in total factor productivity was responsible as was

some increase in the savings rate, due largely to an increase in public sector savings. Much of the

growth in large-scale industry has been driven by ready-made garments (RMG). Growth in the

non-RMG large-scale industry has been slow about 4% in the 1990s. This is less than that in the

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1980s. Why is it that so few industries have managed to duplicate the performance of the RMG

sector? One question worth exploring is whether the RMG sector, by absorbing the domestic

savings, crowded out the other industries. The RMG sector has had phenomenal growth. Growth

rates of earnings, in real dollar terms, jumped from about 6% during the 1980s to 15% during

the 1990s. For the first time in FY01-02, there was a 10% drop is export earnings. But, even in

this bad year, the volume of exports actually went up by 10%, albeit not by enough to

compensate for the 20% drop in average prices. There are some fronts, however, where the

industry has not been very successful. One such area is marketing. The industry has not yet

developed good marketing skills of its own and continues to rely heavily on foreign buying

houses, notably those from India and Sri Lanka. These intermediaries capture a large part of the

margin. The scope for the industry to benefit from devaluations is limited in such a situation. The

industry should have used the last 20 years to go deeper into the marketing channel. The fact

that foreign direct investment had not been allowed in the industry is one possible reason for our

failure to do so. The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) is

now thinking of setting up marketing centers abroad. This is an area where public-private sector

collaboration may be required. The only import-substituting industry that grew significantly,

reflecting somewhat the East Asian pattern, is pharmaceuticals. It first grew under protection

alongside imported pharmaceuticals. It then out-competed the imported products and has now

started exporting. It is possible that some parts of the industry are not very efficient but are

surviving due to protection while other parts are efficient and competing in world markets. The

shrimp processing industry is an interesting case. A few years ago, the industry faced serious

reputation problems due to the fraudulent practices of a few producers. The malpractices of a few

jeopardized the entire industry indicating that reputation is a public good. In other words, the

industry as a whole needed to take remedial actions. The industry is now finally realizing this and

has started taking steps at self-regulation. Having concluded that the government’s standards

institute is inefficient, it has adopted measures to impose standards on their own and monitor

compliance. The capital goods industry has declined, e.g., textile machinery industry has virtually

disappeared. It is important to have a capital goods industry. Adaptation of technology is

important for industrial growth. For this to happen, one needs a domestic capital goods industry.

Small scale industries have done quite well in recent years and have largely benefited from

liberalization. On the one hand, they are not much affected on the output side (do not compete

with imports) but benefit from the liberalization of imports of inputs. They expanded at the

expense of inefficient large-scale industries as well as cottage industries. Poverty reduction will

require further growth in such small scale enterprises. The contribution of export industries and

large-scale industries to poverty reduction will be less direct. Their main contribution will be

through generating capacity to import by earning foreign exchange. This will help small-scale

enterprises who need imported inputs and this, in turn, will help reduce poverty. Cash subsidies

are currently given to various activities, such as agro-processing, leather goods and light

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engineering. The practice of providing cash subsidies started with Grameen check(garment). It

was meant to compensate for duties paid on imports and amounted to 25% of total sales value, a

high amount by any standard. The rationale for providing cash subsidies, especially at the current

scale, is weak. Import duties have gone down due to import liberalization. If compensation is to

be provided, the amount required for various products will have to be re-calculated, taking into

account the changes in duty rates. Many people fear that the RMG industry will be hard hit after

2005 when quota privileges are withdrawn. However, the fears may be exaggerated. The

European market is already open and Bangladeshi exporters are doing reasonably well there. The

key is to improve productivity and go deeper into the marketing chain. Dispersed, non-farm

growth in rural areas and in and around small towns is probably the way to go. There is some

potential in micro-level enterprises but not much. Self-employment in low-productivity activities

does not hold much promise. Wage rates will increase through small-scale activity, not much

through micro-enterprises. Industrial development will require improvements in governance.

Bangladeshi industry can do quite well without much protection if there is better governance,

e.g., if there is no toll collection and if utilities can be provided efficiently. A recent study has

shown that the costs of giving tolls, as percentage of turnover, is greatest for small-scale industry,

and lower for micro and large enterprises.

Consistent with the on-going trend of the free-market economic system and globalization

of world economy, a liberal trade policy was pursuer in the financial year ended on 30th June,

2000 as in the preceding year with the objective of providing protection to the domestic

industries, trade liberalization and expansion of export trade. So a small change has occurred in

Bangladeshi trade policy, especially garments sector. Earning from the export of the readymade

garments which stood at 4352.0 million us dollar during 1999-2000 was 8.3% higher than 4020.0

million us dollar during 1998-1999. The USA, Canada, and EC countries were the principal buyers.

Export receipts from readymade garments were 1.2% higher than the target of 4380.53 million us

dollar for the year and accounted for 75.7% of the total export receipts of the country.

Seventy-five per cent of Bangladesh's exports is dominated by only one item-ready-made

garment (RMG) - and the bulk of the volumes of RMG exports goes to North America and Europe.

After RMG, the only other mentionable items are shrimp, jute and leather. Even the buyers of

these secondary export items are limited in number. The composition of the export trade to such

a small number of goods and their limited number of buyers mean that the country's external

trade is vulnerable to any downturn in the external environment in the form of price fluctuation or

reduced demand. Both prices and demand for Bangladeshi RMG products have recently much

declined in the Us market the biggest single market for Bangladesh's ready-made garment .

Similar is the condition of the other export items with the only exception of leather. But

notwithstanding the global recession and setbacks in certain markets, the country's export trade

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would not slump badly perhaps and could be maintained at a reasonable level if steps were taken

much earlier to achieve diversification of both exportable and their buyers. In that case, the

country would be hedged considerably against any drastic fall in export earnings as reduced

earnings of some items or from some countries could be offset by good or steady earnings from

other sources. Exporters of Bangladeshi garment industries must get used to being dynamic for a

change. They must shake off the habit of waiting for orders to come to them automatically. They

should be rather out in the field hunting for such orders. Experts in the RMG field say that good

markets are there for Bangladeshi products in some South American countries, in the CIS

countries and in Japan. RMG producers should lose no time in immediately exploring these

markets and Bangladeshi missions’ abroad need to work round the clock in support of such

market identification and development activities. Government's fiscal and other polices will have

to be quickly adjusted as the exporters search out new markets and attempt entering into them.

Apart from the conventional items, exporters need to be encouraged in every way to go all-out to

try and export unconventional items and in greater quantities. It was estimated that Bangladesh

produces about 4.2 million tons of fresh fruits and vegetables a year and a substantial quantity of

such produce gets wasted. But the same have good market demand abroad and can earn good

amounts in foreign currencies provided government makes the right move to reduce freight,

handling and other charges and provides other incentives to exporters of fruits and vegetables.

Government policies taken in support of the moves of exporters of agro-produces can probably

create quickly new items for export at a time when the country is in a rather desperate situation

to earn more foreign currency from its export trade.

So, There in the light of importance of garments industry in Bangladeshi economy, we

intend to evaluate its export growth and to analysis it’s structural change.

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CHAPTER II

2.1. Statement of the Problem and its Significance:

A total of 1,276 ready-made garment (RMG) factories had closed down in the aftermath

of the 11 September 2001 incident in the USA of which 1,178 were located in Dhaka and 98 in

Chittagong. As a result of the factory closure 350,000 workers were rendered jobless. Although,

some of the factories have gradually reopened since March 2002, 501 factories still remain closed

while some 2,25,000 workers - mostly women - remain jobless.

Needless to mention, the government, the factory owners and the BGMEA have a moral

and social responsibility towards these workers. The prospect resulting from the joblessness of

millions of unemployed women on the streets has the potential to create mass social and add to

the dismal economic situation resulting from the garment industry crisis.

The international and national trade bodies, policymakers and the media are primarily

focusing their attention on the economic causes and fall-out of the RMG sector crisis in

Bangladesh. Little attention is being paid to the impact of the crisis on livelihood security of the

workers. Since the majority of workers in the garment industry in Bangladesh are women, it is

these women who are bearing the brunt of the market decline. At present, there is not a single

industry where this volume of narrowly skilled workers call be reemployed. The crisis will

therefore have a devastating social effect, not only for the women who will lose their jobs, but

also for their families and communities.

With a modest beginning in the late seventies the RMG sector in Bangladesh rapidly grew.

Within a very short period of time, it attained prominence in terms of its contribution to

Bangladesh’s gross domestic product (GDP), foreign exchange earnings and employment. The

industry flourished due to the cheap and predominantly female labor market and the favored

international textiles and clothing regime under the Multi-Fibre Agreement (MFA).

2.2. The objective of the study:

The purpose of the present study has been to assess the direct and indirect contribution

made by RMG in the economy of a developing country like Bangladesh. With this aim in view, we

tried to estimate the direct and indirect linkages of growth in the economy of Bangladesh. Since,

the RMG industry presently earns Bangladesh the largest amount of foreign exchange and is

considered to be the leading 'growth industry' of Bangladesh, we made a particular attempt to

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assess the contribution o f growth of RMG manufacturing and exporting activity. These exercises,

together with an examination of the current international trade growth of Bangladesh, made it

possible to outline the future development and potential international trade of garment in

Bangladesh. Besides on, the main interest of this study is to analyze the sources of the observed

rapid increases of Bangladeshi readymade garments exports. This will also analyses the sources

of the growth of readymade garments exports. Then the barriers to readymade garment

exportation will be reviewed and its impact on exports growth sources will be evaluated.

2.3 . Scope of the study:

The period under the study will cover approximately ten years from 1989 to 1998 and

the historical development will be included to show this industry can become one the major

export earning sources. In employing the constant-market- share method, five market are

considered, namely(1) USA,UK.CANADA AND ALL OTHERS.

Export of garment products consist of 4 commodities, namely slandered trade classification (SITC)

code numbe-48119,48219,4851,48511,48512 and 48522.

2.4. Organization of the study:

My paper is consists of six chapter-

Chapter 1 gives the introduce the present condition of Bangladesh.

Chapter 2 gives the statement of the problem, scope of the study

Chapter 3 -gives the general view about Bangladeshi’s garment industry.

Chapter 4- is devoted to the methodology and definition used to assess the export growth of

Bangladeshi garment industry. Then it shows the empirical results of the export growth of

Bangladeshi garment product. This chapter identifies the importance factors of the export growth

of Bangladeshi garment industry usining the “Constant Market Share Model”

chapter 5 -Is mostly devoted to explain the results obtained in chapter 3 concentrating on the

competitiveness factors and explains the market stricture of Bangladeshi garment export and

discusses the relationship between factor requirement of garment product and their export

market.

Chapter 6 gives the summary of the result and conclusions.

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CHAPTER-III

MARKET STRACTURE OF BANGLADESHI GARMENT INDUSTRY:

Textile Sector in Bangladesh is predominantly made of natural fibre using cotton. This

sector is broadly classified into the following stages/sectors based on the value addition.

• Yarn

• Fabric

• Apparel

Each of the above sector is analysed to generate an overall perspective on the industry.

Apparel is the high Growth Sector of garments sector. The liberalization of industrial

policy of Bangladesh along with development of export processing zones at Dhaka and

Chittagong, attracted investment in the Ready-Made Garment (RMG) industry in Bangladesh to

set up large plants working on higher economies of scale. This enabled Bangladesh to achieve a

phenomenal growth in export of RMG. The export of RMG from Bangladesh increased from a

meager US $ 7 million during 1981-82 to about US $ 1.95 billion during 1995-96. The RMG

Sector achieved a growth of 20% per annum over the past ten years. Such high growth was

catalysed by the low wages along with Multifibre Agreement (MFA) on textile quotas principally

with U.S.A., Canada and European countries. The Generalised System of Preferences (GSP)

provided import tax breaks worth about 15% of the import valuation, giving Bangladesh's RMG

export a considerable advantage in these markets.

In addition to the above, the financing arrangements created through a system of back- to-back

Letters of Credit (LOC) covering imported inputs and finished exports, greatly contributed to the

accelerated growth of RMG sector.

The above factors enabled Bangladesh to become the fifth largest exporter of RMG to the

European Union and Sixth largest to the USA. The apparel industry in Bangladesh is broadly

classified into Knitwear, RMG, speciality/linen including terry towels and others.

The total export of apparel was about Takas 105.87 billion during 1995-96. The share of RMG

export in this sector is above 75%. The composition of export of apparel by type is indicated in

the following chart:

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Composition of Apparel Export

Bangladesh (by Type)

Value of Textile Export : Taka 105865 million

The further break-up of main items of knitwear and RMG export is provided in the following

charts:

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BREAK-UP OF MAIN ITEMS OF EXPORT

IN APPAREL SECTOR OF BANGLADESH

Knitwear

RMG

Value of RMG Export : Taka 79.7 Billion

(Approx. US $ 2 billion)

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The quality of fabric produced domestically in Bangladesh is not upto the standard

required for the production of export quality garments. Therefore, exporters of garment, largely

have to depend upon import of quality fabric.

There are about 26 weaving mills in Bangladesh reported as in 1996, with a total of 7,179

looms. About half of these mills are government owned. There are also another 515 thousand

hand looms in the country apart from about 488 hosiery units. About 30 per cent of these hosiery

units produce export quality knit fabric. The local fabric production is reported to be about 915

million meters during 1995-96.

The total demand for fabrics against this production level is estimated to be about 3155

million meters (approximately 3.45 billion yards) during 1995-96. Hence apart from the quality

considerations mentioned earlier, domestic production is inadequate to meet the fabric demand.

The composition of demand of fabrics for garments for domestic market and garments for

export market is illustrated in the following chart:

Composition of Demand

for Fabric from Garment Sector

The above chart indicates the importance of export market for textile sector of

Bangladesh.

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The local demand for fabric, which is reported to be about 1325 million meters, is largely

met by the traditional hand looms, small power looms and textile mills in the government and

private sector. However as domestic production falls short to meet even the domestic demand for

fabric, about 410 million meters is imported during 1995-96 to meet the short fall.

The overall scenario of fabric sector in Bangladesh is indicated in the following table and chart:

Fabric Sector In Bangladesh

Fabric Sector in Bangladesh

during 1995-96

Million Meters Total Market Segment

Domestic Export

Demand 3155 1325 1830

Production 915 915

Import 2240 410 1830

The following chart illustrates the interpretation of above table in graphical form.

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Million Meters

The above chart indicates that about 82% of the fabric imported is consumed in the

production of garments for export, while the balance 18%, is consumed to meet the domestic

demand, which by itself is about 30% of the requirement of domestic market.

This emphasis’s the need for investment in textile/weaving segment in Bangladesh. After

assertazzining the need for setting-up a weaving unit, the following paras investigates the

prospects and key success factors for such weaving mill:

Yarn is the primary input to the weaving mill. Yarn is spun in a spinning mill using

spindles. Bangladesh has about 118 spinning mills. About 25% of these mills are owned and

managed by the government. It is reported that about 45% of these spinning mills are out dated

and run at a loss.

The production of yarn in Bangladesh is reported to be about 100,000 tonnes during

1995-96. The demand for yarn is, however, as high as 470,000 tonnes. Hence the domestic

production meets only about 21% of the domestic demand for yarn. The huge deficit in

production of yarn to meet its demand in Bangladesh, is met through imports.

Bangladesh sources its requirement of yarn mainly from countries like India. Pakistan

apart from China, Korea, Singapore, Thailand, USA, Canada, Egypt, etc.

It is estimated that about 116 additional spinning units with a capacity of 25,000 spindles

each are required to meet the demand-supply gap for yarn. The Bangladesh Government has

projected a need for an additional 125 spinning units by year 2005. This indicates the immediate

requirement for investment in spinning sector in Bangladesh for setting up a spinning mill for

producing high quality yarn that will feed the requirement of weaving mill for production of fabric

for garment exports as well as domestic market.

The above discussions reveal the immense potential for setting up a spinning and

weaving mill in Bangladesh apart from investment for modernization of the existing mills.

Realizing this Bangladesh government is encouraging private sector investment in textile sector by

local as well as foreign investors.

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India and Pakistan are the major suppliers of yarn and fabric to Bangladesh. In view of

the developed garment industry in Bangladesh and its liberalized policies for investment, India

and Pakistan can pool in their resources to set-up a world class large-scale composite textile mill.

The fabric output from such mill will readily find market in the garments sector as the fabric

output will be cheaper than imports. This will help the garment sector in Bangladesh to price their

products more competitively in the export market, resulting in the overall development of the

textile sector in Bangladesh.

The garment export industry registered a growth of about 20% over the past 10 years

upto 1995-96. However it took a down turn during the month long general strike in March 1996.

The strike took a toll of Bangladesh garment factories. Industry sources indicate that as many as

half of the 1,600 factories could have been severely affected due to the disruption of fabric

imports and garment exports. This affected the high growth of the garment exports. However,

the domestic market for garment is expected to maintain the growth of about 7% per annum.

In accordance with provisions of GATT, the textile quotas (MFA) and GSP benefits will be

phased out by the year 2005. At this time, the market reserved for Bangladesh will fall open to

competition. At this time, the traditional suppliers of fabric are likely to re-direct much of their

production to the OECD market which would fetch higher price realisation. As a result, garment

exporters in Bangladesh may face a severe crisis in obtaining fabric from traditional supplier

countries.

In anticipation of this problem, the government adopted a liberal textile policy in 1995.

This provides an opportunity to the textile companies in India and Pakistan which supply yarn and

fabric to Bangladesh, to invest in Bangladesh to set up a composite textile mill that will supply the

output to the developed garment industry in Bangladesh, at a competitive price and reduced lead

time. This will enhance the competitiveness of garment industry in the international market and

thereby result in the overall growth of Bangladeshi textile sector as a whole.

Prospects for the proposed world class composite textile mill in Bangladesh, largely

depend uponthe garment exports from the country. Port services plays a major role in influencing

the order turn around time for garment exports, which is crucial to execute an order. Delays at

port increases the order turn around time and hence the prospects for repeat order. Most of the

export of garments takes place in containers through Chittagong port.

The spinning and weaving machinery for the proposed mill can be sourced from India,

which is advanced in this field. Most of the mills exporting yarn/fabric to Bangladesh use Indian

made machineries. The Indian spinning and weaving machineries are competitive and can

produce the high quality output desired by the export oriented end-user sector in Bangladesh.

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The scale of operation for the proposed project are based on economies of scale and

average size as per the industry standard. A spinning capacity of 25,000 to 50,000 spindles is

recommended which will involve an approximate weaving capacity of 5-10 million meters.

Apart from setting up of new spinning and weaving capacity, India, Pakistan and

Bangladesh should join hands for the revamping and modernisation of the existing textile mills.

"Textile Revival Plan" could be taken up as the one of themes of the SAARC Chamber of

Commerce.

• Further, Bangladesh should expand the capacity of its garment sector and

target the markets in the SAARC country.

• Since in Bangladesh, the labour is cheap, Indian companies can set up the

garment unit there for marketing the products in India or for exports.

• India can provide the desired technical support for expansion of the processing

capacity in Bangladesh.

• India has also emerged as the major supplier of the man made fibers like PSF,

PFY, NFY, Acrylic fibre, as well as blended/mixed yarn.

Many people fear that the RMG industry will be hard hit after 2005 when quota privileges

are withdrawn. However, the fears may be exaggerated. The European market is already open

and Bangladeshi exporters are doing reasonably well there. The key is to improve productivity

and go deeper into the marketing chain.

Dispersed, non-farm growth in rural areas and in and around small towns is probably the

way to go. There is some potential in micro-level enterprises but not much. Self-employment in

low-productivity activities does not hold much promise. Wage rates will increase through small-

scale activity, not much through micro-enterprises.

Industrial development will require improvements in governance. Bangladeshi industry

can do quite well without much protection if there is better governance, e.g., if there is no toll

collection and if utilities can be provided efficiently. A recent study has shown that the costs of

giving tolls, as percentage of turnover, is greatest for small-scale industry, and lower for micro

and large enterprises Weaving Plant • Captive Production of Yarn and Cloth • Expansion of the

Local Garment Industry for Exports to the SAARC and Non SAARC Countries • Strategic

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Revamping and Modernisation of Textile Sector in SAARC Countries • Textile Revival Plan for

Bangladesh, Pakistan and India

The garments industry of Bangladesh represents one of the recent success stories of

industrial development in a poor, developing country. Starting from scratch in the late 1970s, the

industry is now Bangladesh's most important source of foreign exchange earnings. It currently

exports about $5 billion worth of products each year; this is a little over three-fourths of our

annual export earnings. How did this industry take off? The answer to this question has important

lessons for designing approaches to promote industrialization and private sector development. In

particular, it would inform the debate on the relative efficacy of focusing on improvements in the

overall policy environment vs. micro-level interventions, such as subsidized credit or business

advisory services. This note describes what happened in the early years of the industry. The story

of the early growth of the garments industry in Bangladesh is a story of the diffusion of good

practices, from foreign to local enterprises and then from one local enterprise to many others. It

is also a story of how a few, but strategic, improvements in policy and institutions opened up

opportunities even within a generally unconducive environment. One entrepreneur seized these

opportunities after another, each learning from the success of those who had entered the arena

earlier. Direct, subsidized support to individual firms from government had very little role in all

this. The catalyst for the birth of the industry was the South Korean company, Daewoo, whose

collaboration with the Bangladeshi enterprise, Desh Garments, led to the growth of the industry.

Daewoo, itself a major exporters of garments, was hitting quota restrictions and was looking for

opportunities in countries which had barely used their quotas. Sri Lanka attracted them first, but

when the civil war erupted there the Koreans switched attention to neighboring Bangladesh.

When the Chairman of Daewoo showed interest in Bangladesh, the country's President put him in

touch with a dynamic young ex-civil servant who, having got bored with working in the

bureaucracy, was looking for more entrepreneurial pursuits. So was born the collaboration

between Daewoo and the pioneer of Bangladesh's garments industry, Desh Garments.The role of

good practice diffusion Daewoo did not make any capital investment in Desh but it signed a five-

year collaboration agreement with it. Under this agreement, Daewoo helped Desh purchase

machinery and fabrics, some of it on credit from it, set up the plant and market the products.

Most importantly, it provided training to Desh employees. This included both formal training in

Daiwoo's plant in Pusan, Korea and learning-by-doing at Desh's facilities in Bangladesh. 130 Desh

employees, including four future managers of Desh, stayed at Pusan for seven months. There

they received very intensive on-the-job training covering not only technical production skills but

various aspects of management and marketing. Much of the training was practical where trainees

worked on actual production lines. By the time they returned to Bangladesh, this cohort of Desh

employees has had in-depth exposure to how a highly successful multi-national company

operated in competitive export markets. They brought back with them not simply a set of

valuable technical knowledge related to production and marketing but an appreciation of the

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corporate culture required for success in export markets. In addition, Daewoo sent technicians to

Desh to help set up the machines, oversee quality assurance in production and train Desh

workers who had not been to Korea. Daewoo also handled the marketing of products. But, even

here, there was transfer of knowledge--Desh managers and employees learned by observing

Daewoo's marketing practices. A year and a half after factory operations, and with several years

remaining to the agreement, Desh felt that it had learned enough. It was ready to operate on its

own and, on June 30, 1981,terminated its contract with Daewoo. Desh's confidence was

vindicated by the rapid growth in its business in the following years. In the first six years of its

operations, i.e., 1980/81-86/87, Desh's export value grew at an annual average rate of 90%,

reaching more than $5 million in 1986/87. During the same time, unit export value rose about

75% from $1.30 to $2.30, suggesting significant improvement in product quality. Desh expanded,

from 450 machines to 750, and workforce almost trebled, from 500 (in 1979) to 1400 (in 1987).

By 1987, Desh was handling all its export marketing and was procuring all its raw material from

non-Daewoo sources. It had virtually snapped all ties to Daewoo and was completely self-

reliant. All this happened despite that fact that not only had the Koreans left but many of the

pioneering Desh employees had also left Desh to set up or join other garments factories that were

springing up, inspired by Desh's success. It is clear that good practices had been diffused quite

rapidly within Desh, enabling it to maintain high growth despite this exodus. Desh's success was

thus facilitated significantly by two rounds of good-practice diffusion: first from the Koreans to the

pioneering cohort of Desh workers and then from the latter to other Desh workers. A third round

of diffusion helped replicate Desh's success in other factories, leading to the phenomenal growth

of the industry. By 1985, i.e., just five years after it all started, there were 700 garment export-

manufacturing factories in Bangladesh.While many factors contributed to the rapid growth of the

industry, an important catalyst in the early years were employees and managers of Desh who

went to set up or join other garments factories. The migration was swift: by mid-1981, i.e., barely

18 months after Desh started its operations, 115 of the 130 Daewoo-trained workers had left

Desh. Desh employees transmitted production, marketing and management know-how to

hundreds of other factories. And they did it fast, resulting in the phenomenal growth of the

industry within a few years of starting form scratch. The way in which migration of workers from

one enterprise to another helped diffusion is illustrated by the case of one company, Mohammadi

Apparels Ltd. Established in January 1985, Mohammadi has developed into one of the leading

garments manufacturers of Bangladesh. Its early growth was also fast, like Desh's. A significant

part of the credit goes to a dozen former Desh employees who joined Mohammadi and provided

training to its initial cohort of over 200 workers. Ex-senior managers of Desh held some of the key

managerial positions in Mohammadi, including that of a production manager, a marketing

manager and an administrative manager. The role of policy changes Diffusion of good practices

was a key factor in the early growth of Bangladesh's garments industry. However, it can't explain

all. There is another important part of the puzzle that helps explain why the industry could

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develop so far despite a generally inhospitable policy environment. Bangladesh's policy

environment was not conducive to entrepreneurship in the early eighties. Even now, twenty years

later and after many reforms, there are serious problems. But it was worse then. There was a

very restrictive trade regime with import bans, quotas and high import duties. A duty exemption

system existed but was ineffective. Investment licensing was a nightmare. Access to import

financing was limited and rarely at competitive markets rates. This was clearly not a policy

environment that would have allowed enterprising Bangladeshis to put their ideas into practice,

set up garment factories on the scale they did, and compete effectively with foreign competitors

who enjoyed a freer business environment. The pioneers of Bangladesh's garments industry,

Daewoo and Desh, realized early on the critical need for speedy access to inputs at world market

prices as well as access to import financing at competitive market rates, and ease of entry into

the industry. They, and others, lobbied the government and successfully persuaded it to make

some vital policy changes and adopt innovative administrative procedures that proved critical to

the garment industry's subsequent growth. In 1980, the garment export industry was declared a

free sector, i.e., licenses were not required to set up capacity. Efficient administrative

arrangements for assuring free trade status for 100% export-oriented garment factories were

introduced. The government introduced a Special Bonded Warehouse system for such factories.

This measure was critical to the initiation of garment export production in Bangladesh. The

system has been very effective in administering duty-free and restriction-free imports of

intermediate inputs for garments exporters. The government did not provide any import financing

facility. However, it allowed local banks to open back-to-back import letters of credit (L/Cs) based

on garment exporters' export L/Cs, under the system of strict foreign exchange controls. Desh

Garments had the added advantage of having access to short-term supplier credits from Daewoo

for its fabric and other supplies. This allowed Desh to import inputs without government-

supported import financing or access to foreign exchange. Finally, the government maintained

realistic exchange rates with substantial devaluations in the early eighties. The diffusion of

knowledge from Daewoo was not restricted to the nuts and bolts of production, management and

marketing. Daewoo transmitted to the Government of Bangladesh, through its Desh partners,

some of its own knowledge on good practice administrative arrangements for basic export

incentives, such as the successful bonded warehouse system in Korea.The remarkable story of

how the garments industry took off from scratch in Bangladesh has important lessons for anyone

interested in the dynamics of industrialization in a developing country. This is not the case of an

industry that developed because there was a committee of wise men who identified this as a

potential industry and then drew up an elaborate blueprint to develop it. It is not a case where

there was a special fund or an agency dedicated to providing direct support to enterprises,

whether in the form of cheap credit or business advisory services. Instead, this is a case of a

large number of decentralized entrepreneurs who saw what others were doing and then followed

them, who saw opportunities and grabbed them, who had ideas, which they boldly put in

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practice. Often they acquired their skills as someone else's employee and then had the boldness

and enterprise to go and try it on their own. As good practices and knowledge got diffused and

enterprise developed, the government responded by coming up with policy and administrative

reforms that facilitated the growth of the industry. Thus, even though the environment was

broadly not favorable to industry and enterprise, and in many ways remains so even now, enough

changes were made to give entrepreneurs adequate space to show their dynamism. This, then, is

the lesson we learn. Industries will develop in Bangladesh not when we have committees of wise

men picking winners or special agencies providing subsidized credit to enterprises. It will develop

when the policy and institutional environment is conducive and barriers to entrepreneurship are

removed. The rest can be left to the entrepreneurs themselves.Since the early 1980s, the

readymade garment export industry has been the proverbial goose that lays the golden eggs for

the economy of Bangladesh. Presently, the industry occupies the enviable position of being the

largest manufacturing and export business in the country, employing over 1.5 million workers, 90

percent of whom are women who have migrated from rural Bangladesh in search of a better

economic future. The large participation in the recently held elections of the Bangladesh Garment

Exporters and Manufacturers Association (BGMEA) indicates that the membership is concerned

that the coming years, culminating in the year 2004 when the Multi-Fiber Agreement (MFA) based

quotas will no longer exist, pose significant challenges for the industry. The 1998 Floods that

affected Bangladesh between July and September 1998 were among the worst natural disasters

impacting the people and the economy of Bangladesh in recent history. As the year closed, there

were hopeful signs that the damage to the manufacturing base and to the infrastructure was not

as severe as was estimated just after the aftermath of the crisis. Once again the remarkable spirit

of survival and entrepreneurship of the ordinary people of Bangladesh resulted in a remarkably

quick rebound in the economic and commercial lives of the citizens. This was also true for the

apparel-for-export sector that once again demonstrated its resilience. The 1998 floods directly

impacted thirty million people for three long months, caused 1,100 deaths, partially destroyed

15,000 kilometers of roads, 14,000 schools, hundreds of bridges, and as many as 500,000 homes.

The property damage, both private and public, was estimated to be in the $3.4 billion range. In

addition, the negative shock to the economy reduced the GDP growth by a couple of percentage

points according to early estimates by the economists. The manufacturing sector was also

adversely impacted as many urban areas were inundated by floodwaters for several months in

late summer. The floods affected many areas in Dhaka, Narayangang, Savar, Tongi, Rupganj,

Narsindi and other cities where manufacturing is concentrated. According to one estimate, eighty

percent of the 500,000 handlooms in the country sustained damage from the floods. The damage

to assets and raw materials in 50 percent of these units was serious. Manufacturing is expected to

grow only at three percent during this fiscal year compared to 6.7 percent in the previous year.

Fueled by higher food prices, the inflation rate shot up compared to the same period last year.

Preliminary data and informal evidence indicates that in current production and exports the

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garment exports may have weathered the devastating floods of 1998 relatively well. The floods

did create a crisis for the tightly scheduled export industry, but the industry and the individual

firms responded creatively to the unexpected dislocation and transportation disruptions. The

readymade garment industry is 100 percent export-oriented and therefore insulated from

domestic demand shocks; however, it remains vulnerable to supply shocks such as disruptions in

the functioning of the banking system and dislocation of transportation and other forward and

backward linkage sectors in the economy.

Recent Performance of the Apparel Export Sector

Besides the floods, there were several other crises that impacted the garment industry in

1998. The disruption of the normal functioning of the Chittagong port due to labor unrest was

certainly one of them. The BGMEA has repeatedly requested the government to ban labor strikes

in the Chittagong port on grounds of national interests. Another source of disruption was the

perennial problem of hartals (nationwide general strikes) called upon and enforced by the

opposition political parties to protest government policies. Although, in a major concession to the

apparel exporters, the leader of the main opposition party had declared that the garment industry

would be exempt from such hartals, in practice the situation is more complex. On the ground, the

firms cannot take chances to send their products on the road for fear that these will be attacked.

The psychological impact of these events on the existing and potential buyers cannot be

overstated. Buyers in the global garment markets remain highly sensitive to the risks of unfulfilled

orders. The image of Bangladesh as a somewhat unpredictable supply source may have been

strengthened due to the floods, as the floods received considerable world media attention and by

the violent political unrest that spills over in the streets of urban areas. In the early months of

1999, it has gradually become apparent that there may have been a substantial reduction in new

orders received by Bangladeshi manufacturers as a result of these problems and also due to

increased competition from the East Asian manufacturers whose currencies have been severely

devalued.Historically, apparel exports from Bangladesh have grown at an annual rate of more

than twenty percent, roughly doubling every three years. In 1996-1997 the exports in gross terms

equaled three billion dollars. At this rate, these exports could potentially reach six billion dollars by

the year 2000 and possibly exceed ten billion dollars in the not too distant future. However, in the

year 2004, the Multi-Fiber Arrangement (MFA) quotas will end, ushering in a globally competitive

market for clothing products. One of the most important factors responsible for the success of this

industry has been dynamic entrepreneurship. In fact, we believe the garment entrepreneurs

should receive a national award for their creative initiatives in overcoming the crises during this

period. The industry presents a model that entrepreneurs in other sectors could emulate with

benefit. The many hurdles the industry overcame in 1998 include the floods, the shocks from the

most severe economic collapse and currency devaluation in East Asia economies in recent history,

and other domestic crises. Strategies pursued by the industry in 1998 include the following: the

decision to hold monthly meetings between BGMEA officials and leaders of the labor unions in the

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industry; efforts to implement the child labor agreement of 1995; hiring a high-profile American

politician to lobby for the industry in Washington D.C.; and asking the U.S. government to

increase quotas for apparel made in Bangladesh by thirty percent to reward the progress made in

reducing the use of child labor in the garment factories.

Manufacturers and Exporters Association (BGMEA); Author's calculations of monthly

averages and growth factors. What implications does the success of the apparel exports have for

the economy of Bangladesh? The positive impacts are considerable and widespread. For several

years now, apparel exports have been the largest manufacturing industry, and also the biggest

source of foreign exchange earnings. It may be a "soft goods" industry but nevertheless it has

created positive changes in the economy and society by creating employment and income for

poor women workers and by bringing in foreign exchange for the country. In terms of gross

foreign exchange receipts, in the most recent period for which we have data (July 1997- May

1998) export of readymade garments earned $3392.45 billion or 73.18 percent of the total export

earnings of Bangladesh. The share of apparel products in total exports has steadily risen for

several years. In both absolute and relative terms, the industry dominates the modern economy

of Bangladesh. In addition, the positive sociological, demographic, political and economic impact

of 1.5 million workers employed in the manufacturing sector is huge. This is especially true since

ninety percent of these workers are women, many of whom have migrated from the countryside

in search of a life free of poverty. The forward and backward linkage industries and services such

as textiles, accessories, transportation, and packaging and the private sector in general have also

been significant beneficiaries. The government has gained tax revenues, and the foreign investors

to a large extent have been exposed to Bangladesh as a result of the success of garment exports.

However, the biggest winner has been the private entrepreneur in Bangladesh. Entrepreneurship

is alive and well in Bangladesh. The sustained success of apparel exports underscores this point.

The Future of Garment Exports and the Economy of Bangladesh The growth rate in overall

exports from Bangladesh peaked in 1994-1995 at 40 percent a year. However, export growth has

remained strong. Currently, the garment exports alone bring in close to four billion dollars in

gross terms. The imports of fabrics and related intermediate goods account for $2.3 billion

resulting in net earnings of approximately $1.7 billion. The garment and knitwear exports

accounted for the bulk of these exports. The knitwear sector has been especially dynamic in

recent years. Given the fact that the market for knitwear exports is unprotected by quotas, this

bodes well for the post MFA future of the industry. Bangladesh apparel exports can now point to a

proven track record of successfully competing in the global competitive environment.

Unfortunately, other potentially promising exports from Bangladesh- leather, jute goods, frozen

foods - have not fared as well over this period. This has accentuated the already narrow export

base of the country and is a matter of concern for policymakers. The excessive dependence of the

economy on the garment sector for foreign exchange earnings and export growth demands

policies that would diversify the export base of the economy. What can be said about the future

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performance of the apparel export industry in Bangladesh? What are the risks for exports of

Bangladeshi apparel? First, supply shocks such as the debilitating floods of 1998 that shaved off

several percentage points from the expected GDP growth this year and caused widespread

disruption in production and transportation can never be accurately anticipated. The other major

crisis the industry had to deal with in 1998 was external and once again hardly anticipated. We

refer to the East Asian economic debacle of 1997-1998. The financial panic and the subsequent

economic meltdown that afflicted several economies in the East Asia - Malaysia, Indonesia,

Thailand, Philippines and South Korea- certainly have been a restraining element in the economic

performance of the regional economies.

What are the links between the East Asian economies and garment exports from

Bangladesh? There are several avenues by which negative economic shocks from these emerging

economies can impact this export industry in Bangladesh. First, several of these nations are also

big apparel exporters in same markets to which Bangladesh exports apparel. A steep depreciation

in their currency makes their products more competitive in both the open and the quota-protected

apparel markets. In the markets protected by quotas, such a development would be a

deflationary force pulling down the unit prices and the profit margins for Bangladesh apparel

exporters. Second, given the crunch, these economies would try to export themselves out of their

severe recession. In the recent crisis, these regional and international forces have greatly

increased competition for Bangladesh exports. Third, to help them recover from their downturn,

the U.S. government and others have already relaxed quota restrictions on exports from the worst

affected economies, making the playing field more difficult for Bangladeshi exporters. Fourth,

prior to this crisis, some of these nations were potentially big investors in Bangladesh in the

textile and infrastructure projects. Their economic troubles have meant a dramatic scaling back in

their direct investments in Bangladesh.

On the other hand, partly as a result of the East Asian economic debacle, there was a

massive return of Bangladeshi workers from this region that has swelled the urban labor force

pool from which garment factories recruit their workers. Second, when some of these economies

weakened, their ability to compete was impaired from the economic or political collapse. This

could mean new opportunities for those competitors who were unaffected by the economic crisis.

Finally, Bangladesh has tried to take advantage of the crises by demanding from the U.S. equal

quota concessions, pointing to its efforts in reducing the underage worker problem in the apparel

factories. In our view, the biggest threat to apparel exports in Bangladesh comes from the

financial sector. Although we do not anticipate a financial panic similar to the Asian crisis since the

influx of short-term foreign investment (hot money) and borrowing by the private and public

sector has been rather limited in Bangladesh, there are some similarities. One common element

that we share with these affected economies is a weak banking sector with little transparency or

central bank control. Elements of crony capitalism and moral hazard are certainly present in

Bangladesh, especially in the nationalized banking sector and in credit markets. According to the

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World Bank-Asian Development Bank report, the financial sector in Bangladesh remains fragile

with 33 percent of the portfolios of the NCB's and domestic private banks in the non-performing

category. Notwithstanding the fifty billion taka of taxpayer money that was used to re-capitalize

the nationalized commercial banks (NCBs) in the early 1990s, the system-wide capital inadequacy

today is estimated to be taka 133 billion. This situation could cause the entire banking system to

collapse as a result of a large external shock or even from a domestic shock such as a run on a

major financial institution. One important lesson from the East Asian crisis is that moral hazard

and the resulting financial panic can be very costly for an economy, even when the fundamentals

are sound. Without fundamental reforms in the banking sector, the financial sector in Bangladesh

remains susceptible to a financial panic where a speculative price bubble crashing in the real

estate sector or elsewhere in the economy could start a systemic self-fulfilling crisis. Such a

collapse could seriously impact apparel exports, which are critically dependent on a healthy

banking system for the institutional support in exports and for short-term financing.

Other potential hazards include an overvaluation of the taka compared to the currency of its

competitors. Despite the repeated devaluation in the recent past, according to the World Bank,

the taka remains overvalued in real terms. This could undermine the long- term competitiveness

of the industry. Finally, in the year 2004, under the Uruguay Round Agreement on Textiles and

Clothing, MFA quotas will be phased out. Bangladesh will lose its preferential access to its most

important markets and will have to compete with India, China and other apparel exporters in a

truly global competitive environment. Many apparel firms in Bangladesh are not ready for this

change, although the more efficient larger firms that have diversified their products and markets

are expected to do well in the post MFA world.

Finally, we anticipate that the biggest source of problems for the apparel export industry is likely

to be domestic, not external. The politicians could seriously damage this sector by creating

instability and attempting to achieve their goals by violent means in the streets instead of the

parliament. The bankers, the bureaucrats, and the politicians remain a source of threat. In their

attempt to further extract rent from this sector, they could undermine the long-term viability of

this industry. The failure of the law enforcement forces to control the menace of mastans and toll

collectors may create a climate that debilitates commerce and production in the economy. Labor

disturbances and frequent disruptions in the Chittagong port also remain a source of concern to

exporters in general. Increased contacts between factory owners and the union leadership would

help the industry. Garment workers remain one of the hardest-working segments of the labor

force in Bangladesh. The working conditions and benefits for workers should improve as the

industry matures and human capital increases. In the long run, this is the best defense against

labor union agitation. Investing in worker training and in improved working conditions would

certainly enhance productivity. The apparel factory owners must be proactive instead of reactive

on this important issue.

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CHAPTER IV

Conceptual Framework and Method

4.1. Literature Review:

Several authors have analyzed aspects of the garment industry in Bangladesh. Of the

various aspects of the industry, the problems and the working conditions of female workers have

received the greatest attention. There are several studies including the Bangladesh Institute of

Development Studies (BIDS) study by Salma Chowdhury and Protima Mazumdari (1991) and the

Bangladesh Unnayan Parisad ii(1990) study on this topic. Both of these studies use accepted

survey and research methodology to analyze a wealth of data on the social and economic

background, problems and prospects of female workers in the RMG sector. Professor Muzaffar

Ahmad looks at the industrial organization of the sector and discusses robustness and long-term

viability of apparel manufacturing in Bangladesh.iii Wiig (1990) provides a good overview of this

industry, especially the developments in the early years.iv One of the few studies on the

Bangladesh apparel industry to be published in a reputed journal in the U.S. is that of Yung Whee

Rhee (1990) who presents what he calls a “catalyst model” of development. The Bangladesh

Planning Commission under the Trade and Industrial Policy (TIP) project also commissioned

several studies on the industry. v Hossain and Brar (1992) consider some labor-related issues in

the garment industry.vi Quddus (1993) presents a profile of the apparel sector in Bangladesh and

discusses some other aspects of the industry.vii Quddus (1996) presents results from a survey of

apparel entrepreneurs and evaluates the performance of entrepreneurs and their contribution to

the success of this industry.viii Islam and Quddus (1996) present an overall analysis of the

industry to evaluate its potential as a catalyst for the development of the rest of the Bangladesh

economy.ix

Many economist have wrote about garment sector but I have observed three presentation

papers ( Dr.Khaled Nadvi, Dr.Salma Chaudhuri Zohir and Dr.Naila Kabeer.) and one seminar

paper (Ms Simeen Mahmud).Dr. Nadvi’s paper deals with the nature of current challenges for

Bangladesh in the global garment industry and discusses some of the salient observations from

the trade data analysis illuminating how Bangladesh’s position in the global garment trade has

changed over time. Dr. Salma Chaudhuri Zohir provided details on findings from Bangladesh

garment sector firm surveys and Dr. Kabir presented some preliminary evidences from the

garment and non-garment workers surveys conducted in Dhaka.

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Dr. Nadvi identifies four sets of global challenges that are especially key for a low- income

garment exporting country like Bangladesh. These challenges are : a) The phasing out of Multi

Fiber Agreement by January 2005 b)Increased competition from China which at present controls

18 percent of the global trade in garments and severely quota constrained in leading markets.

c) Growing concerns around meeting global standards. These include standards that address

labor conditions, environmental impacts and quality assurance as well as wider social and ethical

concerns in production. d) Changes in the retail structure of the global industry and the new

competitive pressures from the global buyers. Buyers are increasingly seeking to not only

outsource production to local suppliers, but also shift more functions and risks associated with

such task further down the value chain. More over one of the key demands that is emerging in

the increasingly more fashion driven global industry is the need to reduce the lead times and to

bring about quick changes in products in keeping with changing market demands.

Dr.Nadvi then tries to map Bangladesh’s position in the global garment industry by

comparing the changes in Bangladesh’s unit price of exports and market access with those of her

major actual and potential competitors in the EU market. A mixed story emerged form his

analysis. Bangladesh has significantly increased its market share during the last decade. But the

discomforting feature is that in most items studied Bangladesh has seen its unit values decline

more or as rapidly over time as those of its competitors. In this context he cited the example of

Vietnam whose share in the cotton shirt sector in the EU market has gone up from less than 0.5%

in 1990 to 3.7% in 1999 and at the same time it’s unit value has risen by an average of 6.8% a

year during the 1990s. This suggests significant improvements for Vietnam which is indicative of

some productivity gains. The decline in Unit value in Bangladesh can be an indicative of the

lowering labor cost and even with large reserve army of labor there are limits to which labor cost

can be reduced. Thus the challenge at the firm level for Bangladesh to upgrade is critical if it is to

sustain its market share in the long run.

Dr. Salma Chaudhuri Zohir’s paper provided some important insights from an enterprise

survey covering 30 firms of different size. Initial finding suggests the following overall

performance indicators: Export volume has increased for all but one firm. Number of buyers has

mostly declined to 3 to5. Average unit price of garment has declined due to local and international

competition. Average product quality has improved Net profit has declined mostly. Costs are

increasing as firms have to set up own building with facilities .Employment has increased in all but

one firm . On average lead time in woven has declined to 80 to 90 days from 120 days .

Average lead time for imported yearn is 90 days and for local yearn is 60 to 70 days for

sweater . Average lead time for knitwear is around 45 days.

She suggested that the firms in Bangladesh are constantly adapting themselves to the

changing demands of the market. They are responding to the buyers demand in terms of

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upgrading products, upgrading plants and compliance with standards. She then discussed some

of the major future challenges for the industry and summarized her presentation with the

following observations: Medium and large firm will survive and the small firm will die. MFA phase

out will affect woven garments in both USA and EU. Women are mainly employed in woven and

hence are more at risk of being unemployed than men. Knitwear and sweater will survive if GSP

continues. Duty free access to USA and EU is essential for the survival of woven RMG. Rules of

Origin should be carefully considered. Firms need to seek direct orders from the retailers. We

should go for lower and medium price products. To survive in future the garment industry has to

maintain price competitiveness and reduce the lead-time. Measures must be taken to avoid

balance of payment crisis and mass unemployment of women. FDI in the garment industry should

be welcomed

Dr. Naila Kabeer undertakes a comparison of the condition of the female workers of

RMG sector and that of a non-RMG sector in Bangladesh. The research was conducted among

both types of female workers living in the same place. Some of the initial findings are as follows:

Although both the RMG and non- RMG female workers come from the similar social background,

the RMG workers are financially better off than the non-RMG workers. RMG workers mainly come

from moderately poor families while majority of the non- RMG female workers are coming from

extremely poor families .RMG workers migrate with their friends not with their close relatives,

whereas the non-RMG female workers migrate with their close relatives and they stay with their

families. Compared to the non RMG female workers the RMG workers have better education and

better access to health care facilities. The RMG workers perceive themselves to be temporary

migrants to the city and therefore they have higher savings and they send remittance to their

family members in the villages to a large extent. Female RMG workers face greater problems on

their way to the work place. Most of the RMG workers think the working hours are increasing

day by day. Involvement in trade union among the female RMG workers is very limited RMG

workers cope with bad situation by cutting their expenses while the non- RMG workers cope by

borrowing.

Dr. Kabeer opined that through the wider participation of female workers in RMG the

inner capacity of the female work force has been exposed and recognized in a male dominated

society. The female themselves have also found out that they can be involved in the industrial

production, even with low-level of education. This discovery will prevail even if the RMG sector

does not exist. By sending the remittances to the rural area to the poor family members the

female RMG workers are helping the alleviation of rural poverty.

They are mention that already around 40% of the fabric for woven garments is produced

domestically. They argued that textile sector should be provided some support so that RMG does

not become totally dependent on imported fabric. In this regard some initiatives were suggested:

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(a) Our textile producers should be given credit as per the global rate of interest, which is far

lower than the rate prevailing in Bangladesh, (b) Utilities like electricity, gas etc. should be

provided at a confessional rate to the textile sector as the prices of these things are lower in

countries from where imported textile is brought, (c) Port facilities should be improved, (d) duties

on import of textile machinery should be reduced, (e) a green fund on an interest free basis

should be provided to comply with the environmental norms. At this point some discussant

commented that RMG export can be sustained even without backward linkage industries and cited

the example of Vietnam where despite the presence of large textile sector, the export of RMG is

totally dependent upon imported textile. The textile secretary informed the participants that the

government is in the process of setting up a training institute where workers and managers of

both RMG and textile sector will be trained. He called for the active participation of BGMEA and

BTMA in this regard.

.

Ms Simeen Mahmud have focused on policy issues regarding the RMG sector of Bangladesh in the

context of the changed global scenario after 2005. In the one hand, the policy makers got to

know the research findings and recommendations made by different stakeholders and on the

other hand they informed the participants about the approach and the initiative of the Govt.

regarding the challenges that lies ahead of the growth and sustainability of the RMG sector in

Bangladesh.

Improving the market access

Participants strongly demanded greater attention of the government on improving the market

access of Bangladeshi RMG products. They gave stress on creating facilities so that the producers

can have direct relationship with the buyers, mainly with retailers. This attempt will reduce the

amount of surplus captured by the buying houses and other middlemen. The need for exploring

the Japanese and other Asian market also received attention. The secretary for commerce

informed the participants that government is very much concerned about the market access

issue. He gave example of the Canadian market case where Bangladesh has recently received not

only duty free entry but also soft rules of origin condition. The effort is going on to get similar

facilities from Australia.

Workers’ welfare considerations

The discussion concerning the workers’ welfare covered the following issues— workers should be

given prior notice before closing any factory .Employers should give attention to improve the skills

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of existing workers, otherwise when the RMG sector moves to higher value products the low

skilled workers will lose job as higher value products require higher skill. At this point Dr. Salma C.

Zohir mentioned that during the survey of factories she found that even with the present level of

skill, workers are capable of producing quality products and thus moving to high quality products

is very much feasible. trade union should be permitted in the RMG sector. However unholy

alliance of trade unions with the non- trade union people has to be stopped. Democratic trade

union laws have to be implemented. Dr. Rehman Sobhan suggested that workers might be given

equity share in their companies to ensure that they benefit properly from the value chain. At this

point some discussants also mentioned that too much of emphasize on the distribution may

indeed harm the interest of the industry. They argued that if competition is ensured by say,

allowing FDI, the condition of the workers will improve automatically as the market will drive their

wages up.

Foreign Direct Investment in the RMG sector

Most of the participants welcomed FDI in the RMG sector of Bangladesh. They gave example of

Sri Lanka where welcoming FDI lessened the worry about developing the backward linkages. It

was argued that FDI would not only ensure higher investment in this sector, but also transfer

technology and ensure bigger market access by providing direct linkages with the retailers at the

export market. The minister informed the participants that decision on whether or not FDI will be

allowed in the RMG sector will be taken soon. He told that FDI will be welcomed if interest is

shown to develop at least one backward linkage by each investor. But some discussants also

pointed out that putting a stringent condition for FDI will indeed be self defeating as foreign

investors will switch to other countries where the investment regime is more liberal.

Increase in Efficiency in RMG production

Discussants unanimously agreed that production of quality product is a must in the post MFA

period. Therefore increasing labour productivity is required. It was argued that low skilled labour

is not really cheap if we consider the low level of productivity of those workers. Dr.Zaidi Satar of

World Bank argued that we have to ensure that the producers get the inputs at the world price

during the free trade environment of post MFA era. He decries the tendency of linking RMG with

textile at the excuse of promoting backward linkage and called for independent formulation of

policies for the RMG sector. He gave the example of Sri Lanka in this respect where the degree of

backward linkage is almost as it is in Bangladesh but the RMG producers get textile at zero

percent duty. Improvement of the infrastructure and the need for better shipment facilities also

drew considerable attention. These steps were considered necessary for Bangladeshi exporters to

move at FoB level instead of the existing CM/CMT level.

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33

Mr. Suhel Ahmed Chowdhury, Secretary, Ministry of Commerce raised the issue of viability of

many of the small RMG units during the globally competitive environment of post MFA period. He

stressed the need of merger and acquisition among the existing RMG units so that they can

benefit from the economies of scale. Some of the discussants also argued for technological up

gradation. But the suggestions faced objection from Dr.Naila kabir as she thought that

disappearance of small factories and introduction of capital intensive technology might lead to

loss of employment by the women workers. At this point some of the discussants emphasized the

need for skill up gradation so that the existing workers can be assimilated in the newly formed

improved technology based and relatively large RMG units.

Some discussants argued for discontinuation of cash incentives for RMG exporters after 2005 as

they need to become competitive to survive at that stage. Concern was also raised that after

2005 cheap import from China may pose a threatening challenge to the industry. But some

discussants argued that China couldn’t continue with her present policy of veiled subsidy after

2005, as they have to come under strict scrutiny on the basis of the Agreement on Textile and

Clothing (ATC). ATC does not allow for subsidization of primary textile, which China is currently

practicing. It was also mentioned that the US has reserved some safeguard against Chinese

flooding of market after 2005. This may provide a certain level of protection to our export also.

4.2. CONCEPTUAL FRAMEWORK:

THE EXPORT GROWTH FACTOR OF BANGLADESHI GARMENT PRODUCT:

(CONSTANT-MARKET-SHARE MODEL)

In discussion and explaining the export growth of Bangladeshi garment products an

analytical device as the constant market share model is employed. To examine a country’s export

growth, this model basically ascribes favorable or unfavorable export growth either to a country’s

export structure or to it’s “competitiveness”. The basic assumption of constant market share

model is that a country’s export share in world market should remain unchanged over time. The

difference between the export growth implied by this constant share norm and the actual export

performance is attributed to the effect of competitiveness, and actual growth in exports in divided

into competitiveness, commodity composition and market distribution effect. Demand for exports

in a given market from two competing sources of supply may be described by the following

relationship:

q1 / q2 = f ( p1 / p2 ) --------------------------------------------------------------------------(1)

where q1 and p1 are quantity sold and price of the commodity from the ith supply source.

Relation (1) may be altered by multiplying by p1 / p2 to obtain-

p1 q1 / p2 q2 = ( p1 / p2 ) f ( p1 / p2 )---------------------------------------------------------(2)

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this implies-

p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -1 ) -1 )

= g ( p1 / p2 ) ------------------------------------------------------------(3)

which indicates that country 1’s share of the market in question will remain constant except as

p1/p2 varies. This establishes the validity of the constant-share norm and suggests that the

difference between export growths may be attributed to price changes. The discrepancy between

the constant-share norm and actual performance has been labeled the competitiveness effect.

To make several interesting calculation under the CMS model we need following

definitions:

ijV = value of A’s exports of commodity to country j in period 1

ijV ′ = value of A’s exportsn.3 EMBED Equation.3 EMBED Equation.3 ------

---------------------------------- ( 4)

and similarly forperiod 2. in additionthe value of A’s exports in period 1 is given by

EMBED Equation.3 ---------------------------------------------- (5) EMBED Equation.3

EMBED Equation.3 The application of CMS model will depend on the nature of the

market that we have in mind when writing (1). At first level of analysis, n.3 .ij

ij VV =∑

ji

ij VV .=∑ ---------------------------------------- ( 4)

and similarly for period 2. in addition the value of A’s exports in period 1 is given by

.... VVVVj

ji

ii j

ij === ∑∑∑∑ ---------------------------------------------- (5)

The application of CMS model will depend on the nature of the market that we have in mind when

writing (1). At first level of analysis, we may view exports as being completely undifferentiated as

to commodity and region of destination. That is to say, exports may be viewed as a single

destination for a single market. If A maintained its market share in this market, then exports

would increase by rV and may be written in the following identity

V .. – V .. = rV .. + (V .. – V .. –rV .. ) -------------------------------------------------(6)

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Equation (6) nay be referred as a one-level analysis. It divides the growth in A’s exports into a

part associated with the central increase in world demand and an unexplained residual, the

competitiveness effect.

Exports are in fact diversified into many markets, and what we have in mind is the diversified

markets for a particular commodity class. We may write an expression analogous to (6)

V • j ′ - V • j = r j V. j + ( V. j - V. j - rj V.

j) -------------------------------------------(7)

Which may be summed over j?

V′ • • - V • • = ∑j

jr V. j + ∑j

( V.j- V. j - r j V. j )

=r V)(a

r V ..+ ∑j

( rj-

)(b

r) V. j + ∑j

(V. j - V. j)(c

- r j V. j ) -------------(8)

exports is broken into parts attributed to : (a) the general rule in world demand; (b) the market

distribution of A’s exports in period 1 ; and (c) an unexplained residual indication the difference

between A’s actual exports increase and the constant-share norm increase. The market

distribution effect in identity (8) is defined by (r j -r) V. j ---------------------------(9)

And is meant ti indicate the extent to which A’s exports are concentrated in markets with growth

rates more favorable than the world average.

Thus if world import in market j increased by more than the world average ( )rr j − will

be positive. Accordingly the term (b) would be positive if A had concentrated on the markets

where the demand were growing relatively fast and would be negative if A had concentrated on

slowly growing markets.

Finally we may observe that exports are differentiated by destination as well as by

commodity type. The appropriate norm in this case is a constant share of exports of a particular

commodity class to a particular region. The identity analogous to (6) and (7) is

ijij VV − ijr≡ )( ijijijijij VrVVV −−+ ---------------------------------------------- (10)

Which when aggregated yields-

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36

iji

i jiji

ii

a

ijiji j

ijijiji j

ij

VrrVrrrV

VrVVVrVV

cb

)_()(..

)(....

)()(

.

)(

∑∑∑

∑∑∑∑

+−+≡

−−+≡−

+ ))(

( ijijijdi j

ij VrVV −−∑∑ --------------------------------------------------------(11)

Identity (11) re[presents a “three-level” analysis in which the increase in A’s exports is broken

into parts attributed (a) the general rise in world demand; (b) the commodity composition of A’s

exports; (c) the market distribution of A’s exports; and (d) a residual reflecting the difference

between the actual export growth and the growth that would have occurred if A had maintained

its share of the exports of each commodity to each company.

The commodity composition term in identity(11) may be interpreted in the same manner as

the market distribution effect. It would be positive if A had concentrated on the exports of

commodities whose markets were growing commodity markets.

Problems of constant market share model: The CMC model provides a useful tool for analyzing

export growth performance by allowing achieved export growth to be separated in to commodity ,

market distribution , and competitiveness effects. However, the initial appeal of the CMS identity

as a simple analytic and policy tools is considerable blurred by fundamental problems which arise

in the basic equation (1) and (3).

Firstly, what is the appropriate measure of relative competitiveness?

Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -1 ) -1 )

= g ( p1 / p2 )

Assume that the change in export share be the function of relative prices. In practice, relative

price are generally used as a measure of competitiveness. Since the competitiveness residual

results from the complex interaction of demand and supply, it neglects such factor as: quantity

improvement, improving in servicing, shortening of waiting lines, improvement financial

arguments, and change in discriminatory non- price policy.

Secondly, what is the appropriate measure of export shares?

Obviously quantity share are required in order to satisfy the requirement that share very directly

with relative competitiveness could lead to a decreases in export shares, given a elasticity of

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substitution less than one in absolute value. Also in the case a positive commodity(market)

effect, we usually presume that’s the country commodity exports are relatively more skewed

towards goods which are growing in the world demand. But these cases could be equally well

explained by a country’s exports being relatively more skewed towards goods those prices are

rising relatively rapidly.

At more fundamental level, the elasticity of substitution relation implicit in equation

q1 / q2 = f ( p1 / p2 ) and equation

p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -1 ) -1 )

= g ( p1 / p2 )

is the subject to the number of theoretical reservations having to do with commodity

homogeneity. When commodities are very homogenous, relative price are locked into very small

rang of variation. Geographical market share may be much more sensitive to demand factors in

the market of buyers who are relatively indifferent to the nationality of the supplier. Commodity

market share may be much more sensitive to the supply factors. On the other hand, when

commodity are not homogeneous, relative prices are likely to be only one of the arguments which

enter the function for export share.

Finally, the CMS model assumes that a country’s export share in the world should remain

unchanged overtime. The interpretation of the CMS analysis of a country’s export change depends

on the validity of this assumption. However, the structure of the world trade very over time,

especially for the rapidly expending the economy the export market structure and export

commodity composition very with wide fluctuation.

Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -1 ) -1 )

= g ( p1 / p2 )

Assume that the change in export share be the function of relative prices. In practice, relative

price are generally used as a measure of competitiveness. Since the competitiveness residual

results from the complex interaction of demand and supply, it neglects such factor as: quantity

Page 38: Export Growth Sources of Bangladesh RMG

38

improvement, improving in servicing, shortening of waiting lines, improvement financial

arguments, and change in discriminatory non- price policy.

Secondly, what is the appropriate measure of export shares?

Obviously quantity share are required in order to satisfy the requirement that share very directly

with relative competitiveness could lead to a decreases in export shares, given a elasticity of

substitution less than one in absolute value. Also in the case a positive commodity(market)

effect, we usually presume that’s the country commodity exports are relatively more skewed

towards goods which are growing in the world demand. But these cases could be equally well

explained by a country’s exports being relatively more skewed towards goods those prices are

rising relatively rapidly.

At more fundamental level, the elasticity of substitution relation implicit in equation

q1 / q2 = f ( p1 / p2 ) and equation

p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1) -1

= ( 1 + ( p1 f (p1 / p2) /p2) -1 ) -1 )

= g ( p1 / p2 )

1is the subject to the number of theoretical reservations having to do with commodity

homogeneity. When commodities are very homogenous, relative price are locked into very small

rang of variation. Geographical market share may be much more sensitive to demand factors in

the market of buyers who are relatively indifferent to the nationality of the supplier. Commodity

market share may be much more sensitive to the supply factors. On the other hand, when

commodity are not homogeneous, relative prices are likely to be only one of the arguments which

enter the function for export share.

Finally, the CMS model assumes that a country’s export share in the world should remain

unchanged overtime. The interpretation of the CMS analysis of a country’s export change depends

on the validity of this assumption. However, the structure of the world trade very over time,

especially for the rapidly expending the economy the export market structure and export

commodity composition very with wide fluctuation. Thus, when the CMS analysis is applied to the

case of drastic changes in trade structures , the validity of the interpretation will be blurred. 1

1 Rchardson,j.David “Constant- Market-Share analysis of export growth” Journal of The

International Economic, voll1 1971.pp.190-207.

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4.3.Empirical result of Bangladeshi garment industry:

Appendix 1 and 2 shows result of the computation of the export growth factors of Bangladeshi

readymade garment products during 1989-1998. the result present that the international

competitiveness factors had leads the readymade garment export growth during the period of

1989-1998 (82.94%),while the role of the world factors – world demand increase, the favorable

structural change in the commodity composition and the market distribution are negligible

respectively (3.24% and 3.22% ).so the world demand factors has increase. However we can

assert that Bangladeshi readymade garment products was initiated by the competitiveness factors

during 1989-1998 according to the result .for the sources of the competitiveness I will explain in

the next chapter.

To see the structural change in readymade garment export growth in detail, I computed the

export growth factors of each commodity group by using the constant market share model. Three

growth factors are calculated for each commodity group instead of four factors, namely (1) the

factors of world demand increase. (2) The factors of market distribution and (3) the factors of

international competitiveness. The results are shown in appendix 1 and 2.

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5..1.SOURCES OF INTERNATIONAL COMPETITIVENESS: see-appendix (table-1)

5.2.Measure of Competitiveness:

Revealed Comparative Advantage (RCA):

Revealed Comparative Advantage (RCA) measures the change in the comparative advantage of

a country’s exports. Two major indicators are used to capture the changes in the comparative

advantage of textile and apparel product exports; these are: export performance ratios and net

export/total trade ratio(Balassa, 1965, UNIDO 1982., Ariff and Hill 1985).These two indicators are

interrelated and highlight different facts of the same phenomenon.

Export Performance Ratio (EPR): Export

Performance Ratio (EPR) is used to measure Revealed Comparative Advantage of a country.

Export performance ratio (epij) measure expresses the share of country i’s export of commodity j

in total world export of commodity j, as a ratio of the share of country i’s total export in the world

total exports. If the export performance ratio is one, this indicates a normal export performance

of commodity j relative to the size of country i’s of commodity j exporter. If the export

performance ratio is two, this suggests that the commodity j’s share in country i’s export is twice

the corresponding world share and so forth. A ratio of more than one is taken as an indication of

revealed comparative advantage. A rise in the ratio suggests a Strengthening in terms of revealed

comparative advantage (Balassa 1965, UNIDO 1982., Ariff and Hill 1985). The measure yields a

ratio ranging from zero to infinity but for certain reasons large numbers Will be unusual. An

export performance ratio of more than unity is regarded as a revealed comparative advantage,

while a rise in the ratio suggests a strengthening on the basis of Revealed

5.3. Macroeconomic Developments:

The macroeconomic developments in the 1990s, characterized by varying and often contrasting

trends in major indicators, reveal Bangladesh's continued susceptibility to economic vulnerability.

Despite the government's successful mitigation of the short-term losses ensuring a much better

macroeconomic performance than apprehended after the 1998 floods, several weaknesses persist

in the macroeconomic balances. These are reflected in three major macro-indicators in the

CHAPTER V

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current fiscal year: (i) slow growth in manufacturing output; (ii) deceleration in the rate of

investment; and (iii) slow growth in exports.

5.3.1.Recent Growth Performance

While the average GDP growth rate was 4.4 per cent per year during the first half of the 1990s,

the growth rate has accelerated to over 5 per cent in recent years. The growth rate is projected

at 5.47 per cent in 1999/00. A notable feature of the growth process during the 1990s is the

fluctuating role of both agriculture and industrial sectors. The average growth rate of crop and

horticulture was -0.43 per cent per annum until mid-1990s which increased to 6.13 per cent in

1999/00. The growth in manufacturing sharply decelerated from an average of 8.20 per cent

during the first half of the 1990s to 4.25 per cent in 1999/00. The deceleration started in 1998/99

as an aftermath of the 1998 floods. The growth rate of construction sector has also declined since

1997/98: from 9.48 per cent in 1997/98 to 8.92 per cent in 1998/99 and further to 8.00 per cent

in 1999/00.

Table 1 Sectoral GDP growth

FY 99 FY 00 FY 01 FY 02

I. Agriculture 25.3 25.6 25.0 24.6

a) Agriculture and Forestry 19.3 19.5 19.5 19.2

i) Crop and Horticulture 14.3 14.6 14.7 14.4

ii) Animal Farming 3.1 3.0 2.9 2.9

iii) Forest and Related Services 1.9 1.9 1.9 1.9

b) Fishing 5.9 6.1 5.5 5.4

2. Industry 25.7 25.7 26.2 26.5

a) Mining and Quarrying 1.0 1.0 1.1 1.1

b) Manufacturing 15.6 15.4 15.6 15.6

i) Large and Medium Scale 11.2 11.0 11.1 11.0

ii) Small Scale 4.4 4.4 4.5 4.6

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c) Power, Gas, Water Supply 1.4 1.4 1.5 1.5

d) Construction 7.7 7.8 8.1 8.3

3. Services 49.0 48.7 48.8 48.9

a) Wholesale and Retail Trade 13.2 13.4 13.5 13.6

b) Hotel and Restaurant 0.6 0.6 0.6 0.7

c) Transport, Storage and Communication 9.2 9.2 9.4 9.5

d) Financial Intermediation 1.6 1.6 1.6 1.6

i) Banks 1.2 1.2 1.2 1.2

ii) Insurance 0.3 0.3 0.3 0.3

iii) Other 0.1 0.1 0.1 0.1

e) Real Estate, Renting and Other Business Activities 9.1 8.9 8.7 8.6

f) Public Administration and Defence 2.6 2.5 2.6 2.6

g) Education 2.2 2.2 2.2 2.3

h) Health and Social Work 2.2 2.2 2.2 2.2

i) Community, Social and Personal Services 8.4 8.1 8.0 7.8

GDP (at FY 96 constant factor cost) 100.0 100.0 100.0 100.0

Table -2 Sectoral growth rates of GDP (Per cent, constant 1995/96 prices)

Source: Bangladesh Bureau of Statistics

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Sector Average

1990/91-

1994/95

1995/96 1996/97 1997/98 1998/99 1999/00a

Agriculture 1.55 3.10 6.00 3.19 4.77 6.43

Crops & horticulture -0.43 1.74 6.44 1.05 3.16 6.13

Animal farming 2.38 2.51 2.58 2.64 2.69 2.74

Forest & related services 2.82 3.46 4.03 4.51 5.16 5.16

Fishing 7.86 7.39 7.60 8.98 9.96 9.50

Industry 7.47 6.98 5.80 8.32 4.92 5.55

Manufacturing 8.20 6.41 5.05 8.54 3.19 4.25

Construction 6.27 8.50 8.64 9.48 8.92 8.00

Services 4.63 4.29 4.91 4.77 4.90 4.97

GDP 4.39 4.62 5.39 5.23 4.88 5.47

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Table 3. Sectoral GDP shares

(at FY96 constant factor costs: percent)

FY 99 FY 00 FY 01 FY 02

I. Agriculture 25.3 25.6 25.0 24.6

a) Agriculture and Forestry 19.3 19.5 19.5 19.2

i) Crop and Horticulture 14.3 14.6 14.7 14.4

ii) Animal Farming 3.1 3.0 2.9 2.9

iii) Forest and Related Services 1.9 1.9 1.9 1.9

b) Fishing 5.9 6.1 5.5 5.4

2. Industry 25.7 25.7 26.2 26.5

a) Mining and Quarrying 1.0 1.0 1.1 1.1

b) Manufacturing 15.6 15.4 15.6 15.6

i) Large and Medium Scale 11.2 11.0 11.1 11.0

ii) Small Scale 4.4 4.4 4.5 4.6

c) Power, Gas, Water Supply 1.4 1.4 1.5 1.5

d) Construction 7.7 7.8 8.1 8.3

3. Services 49.0 48.7 48.8 48.9

a) Wholesale and Retail Trade 13.2 13.4 13.5 13.6

b) Hotel and Restaurant 0.6 0.6 0.6 0.7

c) Transport, Storage and Communication 9.2 9.2 9.4 9.5

d) Financial Intermediation 1.6 1.6 1.6 1.6

i) Banks 1.2 1.2 1.2 1.2

ii) Insurance 0.3 0.3 0.3 0.3

iii) Other 0.1 0.1 0.1 0.1

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Source: SAARC information net work, Country Profile-Bangladesh.

The recent growth performance of the economy is largely driven by the agriculture sector which

has a potential source of vulnerability due to its dependence on the nature. An emerging concern

in promoting steady growth in the country is the slow growth and continued failure over the last

two years of the manufacturing sector to regain its momentum. While agricultural production,

particularly rice output, has increased steadily over the last three years creating favourable

macroeconomic conditions and increased growth, sustaining the gains in the future would largely

depend on success in bringing quick recovery and ensuring momentum of the manufacturing

sector.

5.3.2 Savings-Investment Performance

Table 4. Domestic savings and investment

(As percent of GDP )

FY98 FY99 FY00 FY01 FY02

Investment 21.6 22.2 23.0 23.1 23.2

Private 15.3 15.5 15.5 15.9 16.1

Public 6.4 6.7 7.4 7.3 7.1

Domestic savings 17.4 17.7 17.9 18.0 18.0

Private 16.4 16.7 16.9 17.0 17.0

Public 1.0 1.0 1.0 1.0 1.0

Savings-investment gap 4.2 4.5 5.1 5.1 5.2

Source: SAARC information net work, Country Profile-Bangladesh.

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47

According to the new national income accounts, gross domestic savings increased from 13 per

cent of GDP in 1989/90 to about 18 per cent in 1999/00. During the same period, gross national

savings increased from 18 per cent to 23 per cent of GDP. The investment - GDP ratio, on the

other hand, increased from 17 per cent in 1989/90 to 22 per cent in 1999/00.

An important macroeconomic concern in sustaining higher growth is to ensure increased level

and quality of investment. The deceleration in recent growth of investment is a major cause of

concern: the growth rate declined from 12 per cent in 1997/98 to 10 per cent in 1998/99 and

further to 8 per cent in 1999/00 at constant 1995/96 prices.

Annual changes in savings and investment

(Per cent, constant 1995/96 prices) Table-5

1990/

91

1991/

92

1992/93 1993/94 1994/

95

1995/

96

1996/97 1887/98 1998/99 1999/

00a

Investment 1.42 4.44 9.52 9.35 9.11 10.60 11.08 12.06 9.85 8.19

Private 6.07 2.57 16.69 8.87 11.21 16.17 7.70 19.73 8.46 8.52

Public -5.06 7.35 -1.13 10.19 5.46 0.40 18.25 -2.72 13.13 7.45

Gross domestic

savings

22.21 28.03 -6.95 22.02 -

10.64

3.62 34.50 26.00 11.46 11.60

Gross national

savings

43.54 13.43 11.21 6.99 14.47 25.59 7.20 16.82 14.95 11.72

Provisional

Source: Bangladesh Bureau of Statistics.

Despite liberal and attractive policies, foreign investment is yet to make a significant

contribution to the country. The net direct and portfolio investment was US $ 252 million in

1997/98 which declined by 24 per cent to US $ 192 million in 1998/99. The projection for 1999/00

is US $ 155 million recording a further fall of 19 per cent over the previous year. The net inflow of

foreign investment in the EPZs is also relatively low: US $ 54 million in 1996/97, US $ 69 million in

1997/98, and US $ 71 million in 1998/99.

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48

Since 1998/99, savings and investment performance reveals a downward trend. It is

important to identify the causes as to why the momentum in the growth of savings and

investment could not be maintained despite acceleration in the growth rate of the economy and

implement effective measures to ensure sustained growth and economic stability. So Growth has

accelerated in Bangladesh in the 1990s. Much of this acceleration in growth took place in the

context of rapidly declining external aid. External aid has fallen from 12% of GDP in the early

1980s to only about 2% of GDP now. There have not been any compensating private flows during

this time. This enhanced growth performance occurred during a period of policy reforms.

However, it does not necessarily mean that policy reforms were alone responsible for the

acceleration. Some increase in total factor productivity was responsible as was some increase in

the savings rate, due largely to an increase in public sector savings.

5.3.3. Readymade garment:

Much of the growth in large-scale industry has been driven by ready-made garments

(RMG). Growth in the non-RMG large-scale industry has been slow – about 4% in the 1990s. This

is less than that in the 1980s. Why is it that so few industries have managed to duplicate the

performance of the RMG sector? One question worth exploring is whether the RMG sector, by

absorbing the domestic savings, crowded out the other industries.

The RMG sector has had phenomenal growth. Growth rates of earnings, in real dollar

terms, jumped from about 6% during the 1980s to 15% during the 1990s. For the first time in

FY01-02, there was a 10% drop is export earnings. But, even in this bad year, the volume of

exports actually went up by 10%, albeit not by enough to compensate for the 20% drop in

average prices.

There are some fronts, however, where the industry has not been very successful. One

such area is marketing. The industry has not yet developed good marketing skills of its own and

continues to rely heavily on foreign buying houses, notably those from India and Sri Lanka. These

intermediaries capture a large part of the margin. The scope for the industry to benefit from

devaluations is limited in such a situation. The industry should have used the last 20 years to go

deeper into the marketing channel. The fact that foreign direct investment had not been allowed

in the industry is one possible reason for our failure to do so. The Bangladesh Garments

Manufacturers and Exporters Association (BGMEA) is now thinking of setting up marketing centers

abroad. This is an area where public-private sector collaboration may be required.

The only import-substituting industry that grew significantly, reflecting somewhat the East

Asian pattern, is pharmaceuticals. It first grew under protection alongside imported

pharmaceuticals. It then out-competed the imported products and has now started exporting. It is

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49

possible that some parts of the industry are not very efficient but are surviving due to protection

while other parts are efficient and competing in world markets.

The shrimp processing industry is an interesting case. A few years ago, the industry faced

serious reputational problems due to the fraudulent practices of a few producers. The

malpractices of a few jeopardized the entire industry indicating that reputation is a public good. In

other words, the industry as a whole needed to take remedial actions. The industry is now finally

realizing this and has started taking steps at self-regulation. Having concluded that the

government’s standards institute is inefficient, it has adopted measures to impose standards on

their own and monitor compliance.

The capital goods industry has declined, e.g., textile machinery industry has virtually

disappeared. It is important to have a capital goods industry. Adaptation of technology is

important for industrial growth. For this to happen, one needs a domestic capital goods industry.

Small scale industries have done quite well in recent years and have largely benefited

from liberalization. On the one hand, they are not much affected on the output side (do not

compete with imports) but benefit from the liberalization of imports of inputs. They expanded at

the expense of inefficient large-scale industries as well as cottage industries. Poverty reduction

will require further growth in such small scale enterprises. The contribution of export industries

and large-scale industries to poverty reduction will be less direct. Their main contribution will be

through generating capacity to import by earning foreign exchange. This will help small-scale

enterprises who need imported inputs and this, in turn, will help reduce poverty.

Cash subsidies are currently given to various activities, such as agro-processing, leather

goods and light engineering. The practice of providing cash subsidies started with Grameen

check. It was meant to compensate for duties paid on imports and amounted to 25% of total

sales value, a high amount by any standard. The rationale for providing cash subsidies, especially

at the current scale, is weak. Import duties have gone down due to import liberalization. If

compensation is to be provided, the amount required for various products will have to be re-

calculated, taking into account the changes in duty rates.

4.3.4 Trends in External Sector

The share of foreign trade (exports and imports) in GDP increased from 17 per cent in 1989/90 to

over 29 per cent in 1998/99.(See-appendix-table-2)

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50

5.3.5 Bangladesh's Export Sector:

In the recent past Bangladesh's macroeconomic performance has come to be increasingly

dependent on the performance of her external sector. This is manifestly demonstrated by the shift

in the relative importance of aid and trade in the economy of the country. In 1990 total disbursed

aid was equivalent to 8.1% of Bangladesh's GDP; in 2000 the share had come down to 4.0%;

exports as a percentage of GDP, on the other hand, has gone up from 6.8% to14.5% over the

same period. In 1990 the country's earnings of the foreign exchange from export and remittance

was 1.3 times that of the aid disbursed; by the year 2000 it was almost 5 times as high.

Bangladesh's graduation from a predominantly aid recipient country to a predominantly trading

country is one of the major achievements of the 1990s. The structural shift from primary to

manufacturing exports, from resource-based to process based exportable and from the traditional

jute-centric to the emergent RMG-centric export is remarkable by any standard. Over the same

period the country had also to import an increasing amount of production and non-production

related commodities. Increasing exports have allowed the country to service a large part of this

growing import demand without seriously undermining the balance of payments position of the

country and the country's debt servicing record. Consequently, in view of the increasing degree of

openness of the Bangladesh economy, factors such as competitiveness of the external sector,

market access capacity and ability for strengthened global integration are becoming key

determinants in terms of not only the performance of the external sector but also the overall

growth and development of the country. The present paper traces the growth dynamics of

Bangladesh's export sector interims of a number of major correlates and looks at some of the

major challenges which are expected to impact on export sector performance in the short and

medium terms.

Bangladesh's external sector has experienced fluctuating fortunes in recent years. Export

growth rate in FY1997 and FY1998 were a robust 13.8% and 16.8%, only to subsequently came

down to 2.9% in FY1999, in part as a consequence of the 1998 flood. In FY2000 export sector

was able to make some rebound and posted a growth of 8.3% compared to FY1999.This growth

rate was, however, below the trend growth rate of about 12.0% for the 1990s and was built on

the relatively lower base of the previous fiscal year. A development of some concern to

Bangladesh in FY2000 was the deceleration in the growth of woven-RMG sector, the single-most

important sector accounting for 56.0% of total exports. RMG registered a growth of only 5% in

FY2000. This, in effect pulled down the exports earnings in FY2000 to the level of $5.7 billion,

resulting in the relatively low growth of 8.3%. A positive development though was the continued

robust performance of the knit-RMG exports, which having registered a growth of 10.4% in

FY1999, was able to grow by22.6% in FY2000. The share of the sector in total export has

doubled over the last five years, form 12.0% to 22.0%. This is clearly demonstrated by Table-1

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51

Table 1: Structure of Exports, Incremental Exports and Net Export (in percent) Commodities Structure of

Export Structure of Incremental Export

Structure of Net Export

Growth of Net export in FY 2000 over FY 1999

FY 1999 FY2000 FY 1999 FY2000 FY1999 FY2000

Raw jute 1.3

1.2 -23.8 0.0 2.4 2.2 -0.2

Tea .7 .3 -5.8 -4.8 1.3 .5 -54.2

Foreign food 5.2 6.1 -12.6 15.8 9.2 10.5 25.3

Primary commodities 7.9 8.2 -52.5 10.7 14.2 14.3 11.1

Jute goods 5.7 4.6 14.8 -8.6 10.2 8.1 -12.5

Leather 3.2 3.4 -14.5 6.1 5.7 6.0 15.9

Woven RMG 56.2 53.6 93.3 22.2 33.4 31.4 3.3

Knit RMG 19.5 22.1 62..7 53.6 23.2 25.9 22.6

Chemical product 1.5 1.6 3.2 3.3 2.7 2.9 18.8

All Mfg. commodities 92.1 91.8 152.4 89.3 85.8 85.7 9.8

TOTAL (million US$)

100 (5312.9)

100 (5752.2)

100 (151.7)

100 (439.3)

100 (2679.5)

100 (2946.5)

9.9

Source: Compiled from EPB Annual and Monthly Data

An interesting development of recent years is that since the local value addition of knit-

RMG is relatively high (50% as against 25% for woven-RMG) its share in net exports is gradually

catching up with that of the woven-RMG. If the structure of incremental export is analyzed, this

growing importance is even more clearly manifested. For every dollar of incremental export

earned by Bangladesh in FY2000 53 cents was contributed by knit-RMG. In FY2000

other important exportable such as jute goods (4.6%), frozen food (6.0%) and

leather(3.4%) performed below the levels achieved during recent years. As is evidence by Figure-

1, in recent years an increasing share in the incremental growth is originating from changes in the

volume index as compared to that of the price index. This trend is a cause for major concern

which was first pointed out in IRBD1998/99 and has continued to persist in FY2000 as well. In

FY2000 the increase in unit price value contributed only 0.5% to the growth in total exports,

which was 8.3%; compared to this the increase in

Page 52: Export Growth Sources of Bangladesh RMG

52

export volume contributed 7.8%. This would imply that the weak growth rate of prices of our

principal exports in the international markets has to be increasingly compensated for by an ever-

increasing volume of exports. The underlying dynamics of the changes in price, volume and value

indexes is easily discernible from Figure 1. The price trend perhaps also reflects deterioration in

Bangladesh's terms of trade in recent years. If FY1980 is taken to be the base year, the terms of

trade has come down to the level of 89.2 in FY2000.

Figure 1

5.3.6 Exchange Rate Policy and Export Performance

In the recent past Bangladesh has resorted to frequent depreciation of the taka. Through

this flexibility in the nominal exchange rate was maintained in line with movements in the real

effective exchange rate. In all, the taka has been devalued 18 times over the tenure of the

current government, which led to a cumulative depreciation of the currency to the extent of

19.1%. Maintaining external competitiveness of Bangladeshi exports and minimizing adverse

developments in the balance of payments position of the country were often cited as the principal

rationale for pursuing such a policy. Exchange rate policy was also mentioned in the budget

speech of the Finance Minister on 8 June, 2000 as one of the major policies to stimulate export

sector of the country. Such a policy of creeping devaluation is consistent with the need to

maintain exchange rate flexibility in order to sustain Bangladesh's export competitiveness.

However, if we track the movement of the real effective exchange rate (REER) over the 1990s, it

will be seen that the taka actually appreciated for most of the 1990s despite the frequent

nominal devaluations. It was only subsequent to December, 1997 that the taka actually started to

depreciate in real terms. It is also of interest to note here that no discernible correlation is visible

between the movements in the REER and the growth rates of either Bangladesh's exports or

Page 53: Export Growth Sources of Bangladesh RMG

53

imports.Figure-2 brings out this mismatch very clearly. It appears that other structural factors,

specially supply side constraints and global market dynamics play a more important role in

stimulating exports and improving the balance of payments position compared to movements in

the nominal and real exchange rates.

Figure 2

In recent years the relatively slow growth performance registered by Bangladesh's

commodity export sector was somewhat compensated by the robust growth of the remittances

sent by Bangladeshis working abroad. As was pointed out earlier, in the recent past this increased

inflow had a positive impact on the current account transfer and the balance in current account of

the country. Table-3 shows the dynamics of remittance in recent years.

Table 3: Dynamics of Growth of Remittance: FY1995 - FY2000

Indicators 1995 1996 1997 1998 1999 2000

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54

Remittances (in million US$) 1198 1217 1475 1525 1709 1953

Growth of Remittance (%) 10.0 1 .6 21. 2 3.4 12.1 14.2

Growth of Exports (%) 37.1 11.8 14.0 16.8 2.9 8.3

Source: Compiled from Bangladesh Bank data.

As can be seen from Table-3, remittances have registered a robust growth of 14.2%

inFY2000 compared to FY1999. This was almost double the growth of exports during the

corresponding period. The growth rate of remittances in FY1999, at 12.1%, was also substantially

higher than the growth of exports in FY1999, which was only 2.9%.

The increasing flow of remittance reflects, at least in part, the incentives for inward

remittances through legal channels under the current market determined exchange rate system.

Increased flow of remittances have played an important role in replenishing the fore reserves of

the country in recent years. Given the potential for exchange earning capacity of this sector, there

is need to design a comprehensive plan for skill up gradation of her immigrant laborers. Towards

this a comprehensive labor market survey and a study to determine domestic skills up gradation

capacity need to be undertaken on an urgent basis. Foreign aid commitment for FY2000 was

equivalent to $1480.9 million, which was significantly lower than the corresponding commitments

for the same period in FY1999,which was $2648.5 million. Thus, commitments came down by

about 44.0% in FY2000. This decrease was mainly due to drastic fall in commitments for food and

commodity aid. However, it is to be noted that project aid commitments also came down

significantly over

This period, from $2017.2 million to $1254.5 million- a fall of 37.8%. Throughout the

1990s disbursement of project aid as a percentage of commitment had experienced a sharp

decline. In spite of the robust growth of the remittances, the substantial deficit in the trade

account (equivalent to about $1.1 billion in FY2000) and low aid disbursed during FY2000 meant

a growing pressure on the reserves which came down to about 1.6 billion by the end of FY2000.

Evidently, with imports picking up, it was around 20% during the first quarter of FY2000, from the

low growth of 1.6% registered in FY2000, the pressure on the reserves is expected to go up in

the coming months. The foreign exchange reserve in the 1990s peaked in FY1995 when reserves

reached $3.07 billion, which was equivalent to 6.3 months of imports. Since then reserves have

declined steadily to reach about $1.3 billion in recent months, is expected to lead to major

changes in the area of competitiveness in global apparels market. Once the quotas are removed,

and preferential margins are gradually eroded, comparative advantage scenarios which informed

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55

the market behavior under the MFA regime will be subjected to radical change. New entrants

such as Cambodia, Laos and Vietnam will also bring more competitive pressure into the market.

Bangladesh will need to make a comprehensive study on the implications of these developments,

and design an

adequate strategy to address the attendant issues.

Over the past years Bangladesh's policies have tended to focus on exchange rate

management and export promotional incentives as two important instruments to boost the

country's export and in order to stimulate export sector diversification in the country. The taka

was devalued eighteen times during the tenure of the present government - twice during FY2000.

Export sector has also received substantial amount of financial help in the form of subsidies and

other forms of assistance. Such assistance amounted to Tk. 635.0 Core ($131.3 million) in FY2000

alone. Budget FY2001 also makes an allocation of another $126.4 million towards this. The

budget also provides for general reduction in the duties on basic raw materials (5% on average)

and intermediates and semi-finished goods (15% on average) with a view to stimulate export-

oriented investment in the economy. Duties on various raw materials used in the textiles, leather,

footwear and some other export-oriented industries have also been brought down in the budget

for FY2001.

The budget provides for a number of incentives to stimulate non-traditional exports. To

promote export-oriented agro-processing industrialization duty rates on machinery, spare parts,

raw materials and packaging materials of agro-processing industries have been substantially

reduced. To encourage export-oriented activities in the jeweler industries, the import quota of

gold has been doubled and duty rate reduced. A lump allocation equivalent to Tk. 150 million has

been kept with a view to encourage training of programmers and for promoting Bangladesh's

emerging IT sector. It is becoming increasingly evident that technology in the RMG sector is

becoming a key determinant of Bangladesh's continued competitiveness in the global apparels

market. Bangladesh's low wage based comparative advantage needs to be translated into

productivity based competitive advantage and it is here that technology comes to play a crucial

role. Although zero-tariff access of capital machineries and other incentives are welcome

initiatives of GOB in this respect, more vigorous efforts and comprehensive approach are required.

An important initiative of budget FY2001 is the decision to allocate Tk. 1.0 billion for establishing

an Equity Development Fund in the Bangladesh Bank with the objective of promoting investment

in software export and agro-processing industries. The fund will be invested in financially viable

software, food processing and agro-processing activities; maximum investment from this fund will

be limited to 25% of the equity. It is hoped that this dedicated fund will give a boost to two

sectors which appear to have high export potentials. It needs to be appreciated and given due

recognition that the fiscal, financial and institutional incentives provided to the export sector and

export-oriented activities in Bangladesh in the recent past have played an important role in

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56

ensuring the 12% average real growth rate of the sector in the 1990s. However, lack of adequate

infrastructure facilities, absence of infusion of technology in export-oriented sectors and weakness

in the management of the sector have severely constrained the sector’s performance and its

move towards a diversified base. Major concerns continue to severely constrain realization of

many of the potential opportunities which globalization offers to Bangladesh. If Bangladesh fails

to address these concerns, needless to say, the attendant risks will became originating from

globalization even more acute.

Narrow export base and lack of diversification of exports has led to a situation where the

Bangladesh's export sector performance has come to predominantly hinge dependent on the

performance of the RMG sector. Global market of textiles and apparels is around $300 billion and

there is a wide intra-market diversity. Thus, perse dependence on exports of RMG should not by

itself be a major concern. What is of more concern are the followings: (a) exports have continued

to remain concentrated in the lower segment of the demand curve; (b) local value addition has

been delimited to 25-30%; (c) product and process modification cpacities have not improved

significantly because of constraints in the areas of technology and skills; (d) limited backward and

forward linkages. There is also lack of product diversification within the RMG sector itself. Till

now any discernible shift favouring higher value-added fashionable product categories in the RMG

market is not visible. As a result potential market opportunities continue to remain unaccessed. In

view of the growing RMG-centric export base in Bangladesh, the growth dynamics of the sector

needs to be put under close scrutiny. Any deceleration in the performance of this particular sector

severely tests the efficacy of Bangladesh's export-led growth strategy. As quotas increase across

countries in the run up to the year 2005 (MFA quota will increase at the rate of 16%, 25% and

27% over the first three stages of MFA phase out), a process of restructuring of the global RMG

market is expected to gradually evolve where price competitiveness and quality aspects will

predominantly dictate the market behaviour. The slow-down in the growth of woven-RMG in

FY2000 should serve as a wake up call specially in view of (a) the upcoming third phase of the

integration of Multi-Fibre Arrangement (MFA) into the Agreement on Textiles and Clothing in WTO

(ATC) and its potential consequences for Bangladesh's apparels sector; (b) China's entry into the

WTO; (c) structural shifts in sourcing of apparels by USA following establishment of NAFTA; (d)

the recently enacted Trade and Development Act of 2000 in USA which provides zero tariff and

quota-free access to US markets to 72 African and Caribbean Basin countries and (e) heightened

competition in the EU market in view of granting of quota-free access to Bangladesh's major

competitors in 2005.

Bangladesh will need to carefully study why in recent years Bangladesh's quota-fill

performance in some of the traditionally important categories of apparels export has registered a

significant decline. Careful analysis should be carried out as to why Bangladesh's performance in a

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57

number of categories has not matched those of the corresponding period of the last year. In this

context Bangladesh should also monitor the quota fill performance of some of the competitors

including Sri Lanka, China, India and Pakistan. The rising importance of knit-RMG, contributing an

increasing share in both net exports and incremental exports, needs to be given special attention.

The local value addition in the knit- RMG sector varies from 50% to 60%, which is double the

current level in the woven-RMG sector. It is of importance to note that Bangladesh's knit-RMG

sector was able to demonstrate a quite robust performance in recent years within the quota-free

environment in the EU. However, one of the underlying factors contributing to this success is the

fact that, major competitors of Bangladesh in the EU market such as India and Pakistan are

compelled to operate under quota restrictions. Such quotas will be eliminated as of January 1,

2005. In view of the promise of this particular sector, specially in the context of possible

deceleration in the growth of woven-RMG exports, it is of critical importance that a

comprehensive policy package be developed in order to stimulate the competitive strength of the

export-oriented knit-RMG sector of the country. Over the recent years, imports of capital

machineries for textile industries have registered significant growth, testifying to some degree of

backward linkage activity taking place in the export-oriented apparels sector. A comprehensive

strategy to stimulate such backward linkage activities ought to be designed and implemented on

an urgent basis. This is essential on four counts: (a) to face the challenges of post-MFA regime;

(b) to comply with stringent rules of origin requirement for accessing GSP; (c) to increase local

value addition and (d) to create employment opportunities within the country. Of course a

strategy for developing the backward linkage industries must of necessity take into cognizance

the dynamic comparative advantage of Bangladesh in a fast changing global market.

The recently introduced US Trade and Development Act of 2000 (US TDA2000) provides

duty and quota free access for textiles products to US markets from 72 countries under the Africa

Growth and Opportunity Act and the US Caribbean Basin Trade Partnership Act. The benefits

under the Act is to be offered from October 1, 2000 and will continue till September 30, 2008.

The bill, subject to fulfillment of certain conditional ties, provides the aforementioned countries, in

effect, a NAFTA - parity. Since a number of the beneficiary countries, specially some of the

Caribbean countries are major textile exporters to the US market and compete with Bangladesh in

some of the important product categories, Bangladesh will need to carefully study and monitor

the implications of this Act in terms of the future export performance of the country's RMG sector

in the US market.

Till Bangladesh's debt-servicing record had been one of the best amongst the LDCs - at

less than 10% of her forex earnings from exports of commodities and remittances. The pressure

on reserves is also expected to go up on account of gas purchase and sales agreement (GPSA)

with IOCs. As of now these payments are equivalent to about $100.0 million but is expected to go

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58

up to about $500 million over the immediate future. Bangladesh will need to ensure increased

export earnings from export and remittance in order to service these claims without adverse

impact on imports and forex reserves of the country. Energetic steps will need to be

taken to maintain this good record.

Emerging market access problems, phase out of the MFA, commitments under the WTO

pertaining to gradual withdrawal of subsidies, the need to conform with standards such as ISO-

9000 and ISO-1400 and persistence of protectionist trends in developed country markets have

confronted LDCs such as Bangladesh with new challenges in the era of globalisation. As the

spokesman of the LDCs Bangladesh also has an added responsibility to articulate the voice of the

LDCs in the various global trade platforms. Voices are being raised in many LDCs as to the

justification of any new round of trade negotiations under the WTO at a time when most of the

promises favouring the LDCs during the Uruguay Round (Special and Differential status, technical

assistance, strengthening of the aid-trade nexus, greater market access, technology transfer etc.)

are yet to be implemented. As leader of the LDCs

Bangladesh should also feel an added responsibility to ensure that the objectives of the

Integrated Framework Initiative of the six agencies which is designed to address the technical

assistance needs of the LDCs are achieved. The LDCs and developing countries also need to

explore the possibility of designing common approaches in future WTO negotiations. GATT UR

provisions stipulates that, under the WTO provisions countries get not what they deserve, but

what they negotiate. It is, thus, important that the LDCs raise their bargaining strength by pooling

their resources in any future negotiations. This is more so because future trade battles will be

mainly waged in such WTO forums as the dispute settlement body (DSB) which are becoming

increasingly important in terms of enforcement of the global trade regime. Low domestic

capacities of LDCs to put forward their cases is being manifested in the form of constrained

market access, imposition of anti-dumping and countervailing duties, as also in terms of

interpretation of the Uruguay Round provisions in ways which tend to go against the interests of

the developing countries on the one hand, and the spirit of multilateral negotiations, on the other

hand. Thus, whilst acting locally Bangladesh will need to coordinate her policies globally as an

LDC. The task of monitoring the impact and implications of the WTO provisions and decisions is

an on-going continuous process. Thus, the Special and Differential Status given to the LDCs in the

WTO and Decisions on Measures in Favour of Least Developed Countries annexed to the Final Act

of the Uruguay Round needs to be carefully studied and monitored by Bangladesh in order to

guarantee maximum advantage for the LDCs.

It is perhaps of some interest to note that Bangladesh's export sector has demonstrated a

good recovery during the first quarter of FY2001 (July-September, 2000). Export accruals during

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59

the first quarter for FY2001 was about 25.4% higher compared to the corresponding period of

FY2000. In terms of growth rate, export earning performance of some of the major sectors

including woven-RMG (20.5%) and knit-RMG (31.2%), frozen foods (54.6%) and leather (5.4%)

was significantly better compared to the corresponding period of FY2000. However, the export

base has continued to remain narrow and no mentionable breakthrough in the performance of the

thrust sectors is visible. The growth in export was mainly achieved thanks to increase in volumes

rather than that of price. The contribution of price index to the incremental export over the first

quarter of FY2001 was 12.9%, whilst that of volume index was 87.1%. With MFA phase-out

programmed gradually nearing its completion, Bangladesh will also be required to increase her

vigilance in terms of monitoring the global dynamics in apparels and textile markets in the coming

months and years. This is specially so since price levels of most of the apparel categories is

expected to experience a sharp decline once the MFA phase-out is completed. The GOB needs to

recognize the enormity of the challenges confronting Bangladesh under the new global order and

will have to equip itself adequately to meet these challenges. The GOB will need to design a

dynamic export strategy and put in place the capacity to realize such a strategy rather than just

talk about it. To carry through such an exercise in intelligent policy design and its implementation,

GOB will need both strong political commitment as well as good governance, and will also be

required to pursue a proactive external policy underwritten by coalition-building and skillful

negotiating strategies. To this end, it will need to draw upon the best available professional

resources in the country as well as draw in external expertise in selected areas. Priority should be

given to preparing a joint action agenda with other LDCs which need to be pursued in any future

round of trade negotiations. This task is of immediate importance also in view of the forthcoming

Third LDCs Conference which is to be held in Brussels in May, 2001.

5.3.7. Export Performance

The most significant recent development in the external sector is the deceleration of export

growth in 1998/99. While export growth is expected to increase to about 9 per cent in 1999/00, it

is yet to reach its trend growth path. The trends in exports during the first nine months of the

current fiscal year (July 1999 - March 2000) suggest that total exports during the period grew by

8.4 per cent over the same period of the previous fiscal year. Readymade garments, which

accounted for 56 per cent of total exports in 1998/99, registered a growth of 6 per cent. The

growth of readymade garments exports was 15 per cent in 1996/97, 27 per cent in 1997/98 and

only 5 per cent in 1998/99 in dollar terms. In view of the importance of the sector, the causes of

deceleration require in-depth analysis to devise future strategies. In recent years, knitwear

exports have increased rapidly with an average growth of more than 20 per cent over the last

Page 60: Export Growth Sources of Bangladesh RMG

60

three years. With supportive policies, knitwear has the potential to emerge as a thrust export

sector with significant domestic value additions and linkages.

Total export from Bangladesh during 1997-98 amounted to US Dollar 5161.20 million (Taka

234163.75 million) as against US$ 4418.28 million (Taka 188130.42 million) during 1996-97

showing an increase of US dollar 742.92.86 million i.e 16.81%.A statement of comparative year-

wise export earning for nine years is given below.

Million Dolla ( Corer Taka)

FY Export Earnings (+) Increase

(-) Decrease

Increase

Decrease in %

1988-89 ( 1291.56)

40968.40

(+ 60.36)

(+) 2887.34

(+ 4.90%)

(+) 7.58%

1989-90 ( 1523.70)

49764.21

(+ 232.14)

(+) 8795.81

(+ 17.97%)

(+) 21.47%

1990-91 ( 1717.55)

60560.88

(+ 193.85)

(+) 10796.67

(+ 12.72%)

(+) 21.70%

1991-92 (1993.92)

75908.56

(+ 276.37)

(+) 15347.68

(+ 16.09%)

(+) 25.34%

1992-93 (2382.89)

92575.40

(+ 388.97)

(+) 16666.84

(+ 19.51%)

(+) 21.96%

1993-94 ( 2533.90)

100975.94

(+ 151.01)

(+) 8400.54

(+ 6.34%)

(+) 9.07%

1994-95 (3472.56)

139284.58

(+ 938.66)

(+) 38308.64

(+ 37.04%)

(+) 37.94%

1995-96 (3882.42)

158790.87

(+ 409.86)

(+) 19506.29

(+ 11.80%)

(+) 14.00%

1996-97 ( 4418.28)

188130.42

(+ 535.86)

(+) 29339.55

(+ 13.80%)

(+) 18.8%

Page 61: Export Growth Sources of Bangladesh RMG

61

1997-98 (5161.20)

234163.75

(+ 742.92)

(+) 46033.33

(+ 16.81%)

(+) 24.47%

Source-Bangladesh bankAmong the principal commodities there has been increase in the export

earnings during the year under review in respect of tea (24.46%), agricultural products (36.61%),

handicrafts (5.83%), knitwear 3.19%), readymade garments (27.05%), engineering product

(21.84%), and other commodities (21.23%). These commodities which registered decrease in

export earning are leather (2.67%), Jute goods (11.46%) frozen food (8.38), raw jute (7.35%),

chemical products (31.58), petroleum by products (33.56%).

Export From Bangladesh

During 1997-98

A comparative statement showing export earning in

terms of U.S. dollar and Bangladesh Taka during the FY

1997-98 & 1996-97 is given below. (Value in million

Source-Bangladesh bank

Commodities 1997-98 1996-97 Increase (+)

Decrease (-)

% Increase (+)

% Decrease (-)

Frozen food (293-84)

13331.32

(320.73)

13656.50

(-26.89)

(-) 325.18

(-) 8.38%

(-) 2.38%

Agricultural products (39.14)

1775.98

(28.65)

1219.97

(+ 10.49)

(+) 556.01

(+) 36.61%

(+) 45.58%

Tea (Incl.packet tea) (47.47)

2153.56

(38.14)

1623.86

(+ 9.33)

(+) 529.70

(+) 24.46%

(+) 32.62%

Page 62: Export Growth Sources of Bangladesh RMG

62

Petroleum by

products

(10.93)

495.96

(16.45)

700.44

(- 5.52)

(-) 204.68

(-) 33.56%

(-) 29.22%

Chemical products (74.22)

3367.30

(108.48)

4618.91

(- 34.26)

(-) 1251.61

(-) 31.58%

(-) 27.10%

Leather (190.26)

8632.09

(195.48)

8323.50

(- 5.22)

(+) 308.59

(-) 2.67%

(+) 3.71%

Raw Jute (107.77)

4889.39

(116.32)

4952.92

(- 8.55)

(-) 63.53

(-) 7.35%

(-) 1.28%

Jute goods (281.42)

12768.24

(317.86)

13534.55

(- 36.44)

(-) 766.31

(-) 11.46%

(-) 5.66%

Handicrafts (5.99)

271.98

(5.66)

241.11

(+ 0.33)

(+) 30.87

(+) 5.83%

(+) 12.80%

Knitwear (940.31)

42661.75

(763.30)

32501.13

(+ 177.01)

(+) 10160.62

(+) 23.19%

(+) 31.26%

Readymade garments (2843.33)

129001.77

(2237.95)

95291.80

(+ 605.38)

(+) 33709.97

(+) 27.05%

(+) 35.36%

Engg. Products (19.64)

891.20

(16.12)

686.33

(+ 3.52)

(+) 204.87

(+) 21.84%

(+) 29.85%

Other (306.88)

13923.41

(253.14)

10779.40

(+ 53.74)

(+) 3144.01

(+) 21.23%

(+) 29.17%

Total (5161.20)

234163.75

(4418.28)

188130.42

(+ 742.92)

(+) 46033.33

(+) 16.81%

(+) 24.47%

#Export as a percentage to imports

Export earnings FY 1997-98 was 5161.20 million and import payment for the same

year was million which shows that export earnings covered % of our import bill During

1995-96 and 1996-97 export earnings covered 56.86% and 61.79% of import bills

respectively. A statement of export as a percentage to import for the period 1982-83 to

1997-98 is given below.

Page 63: Export Growth Sources of Bangladesh RMG

63

Value in million US$)

FY Exports Imports Export as a

Percentage to

imports

1 2 3 4

1982-83 687 1923 35.73%

1983-84 811 2073 39.12%

1984-85 934 2641 35.37%

1985-86 819 2120 38.63%

1986-87 1074 2260 47.52%

1987-88 1231 2961 41.57%

1988-89 1292 2997 43.11%

1989-90 1524 3759 40.54%

1990-91 1718 3511 48.93%

1991-92 1994 3466 57.53%

1992-93 2383 3986 59.78%

1993-94 2534 4191 60.46%

1994-95 3473 5834 59.53%

1995-96 3882 6827 56.86%

1996-97 4418 7150 61.79%

1997-98 5161 N.A N.A

Page 64: Export Growth Sources of Bangladesh RMG

64

Source-Bangladesh bank

4.3.8. PRIMARY AND MANUFACTURED COMMODITIES:

Out of the total export earning of US dollar 5161.20 million during the FY 1997-98 the

share of primary commodities stood at US dollar 501.93 million and that of manufactured

products at US dollar 4659.27 million i.e. 9.73% and 90.27% respectively as against US dollar

526.43.84 million and US dollar 3891.85 million i.e. 11.91% and 88.09% respectively during the

FY 1996-97. A Statement of total export earning and share of primary and manufactured

commodities from FY 1982-93 to 1997-98 showing values both in US dollar and Bangladesh Taka

is given below.

PRIMARY & MANUFACTURED COMMODITIES

Value in million Dollar) Value in million Taka

Fiscal Year Total Export Primary Commodities Manufactured

Commodities

Value % Share Value % Share

1982-83 (686.60)

16162.46

(243.17)

5724.08

35.42 (443.43)

10438.38

64.58

1983-84 (811.00) (281.54) 24.71 (529.46) 65.29

Page 65: Export Growth Sources of Bangladesh RMG

65

19901.90 6908.89 12993.01

1984-85 (934.43)

24154.92

(316.62)

8184.58

33.88 (617.81)

15970.34

66.12

1985-86 (819.21)

24314.02

(299.33)

8884.13

36.54 (519.88)

15429.89

63.46

1986-87 (1076.61)

32631.99

(298.37)

9043.67

27.71 (778.24)

23588.32

72.29

1987-88 (1231.20)

38081.06

(286.69)

8867.33

23.29 (944.51)

29213.73

76.71

1988-89 (1291.56)

40968.40

(300.72)

9538.82

23.28 (990.84)

31429.58

76.72

1989-90 (1523.70)

49764.21

(322.96)

10547.85

21.20 (1200.74)

39216.36

78.80

1990-91 (1717.55)

60560.88

(306.13)

10794.21

17.82 (1411.42)

49766.59

82.18

1991-92 (1993.92)

75908.56

(267.26)

10174.69

13.40 (1726.66)

65733.87

86.60

1992-93 (2382.89)

92575.40

(313.91)

12195.47

13.17 (2068.98)

80379.93

86.83

1993-94 (2533.90)

100975.94

(346.80)

13820.11

13.69 (2187.10)

87155.83

86.31

1994-95 (3472.56)

139284

452.20

18137.81

13.02 (3020.36)

121146.76

86.98

1995-96 (3882.42)

158790.87

(475.84)

19461.6

12.26 (3406.58)

139329.22

87.74

1996-97 (4418.28)

188130.42

(526.43)

22415.58

11.91 (3891.85)

165714.84

88.09

Page 66: Export Growth Sources of Bangladesh RMG

66

1997-98 (5161.20)

234163.75

(501.93)

22772.55

9.73 (4659.27)

211391.20

90.27

Source-Bangladesh bank

4.3.9. EXPORT: COUNTRY WISE

The destination wise export pattern during FY 1996-97 was that U.S.A with an intake of

goods worth US dollar 1432.15 continued to be most prominent buyer of Bangladesh products,

U.K. & Germany occupied the second & third position respectively. The other principal importing

countries of Bangladesh products in descending orders were France, Belgium, Netherlands,

Belgium, Japan, Canada, Hong Kong, India, Spain, China, Sweden, Pakistan, Denmark, Australia,

Iran, UAE & Singapore.

Export earning of Bangladesh during 1992-93 to 1996-97 from 20 major

importing countries was as follows:

(Value in million dollar) value in million taka )

Page 67: Export Growth Sources of Bangladesh RMG

67

COUNTRIES 1992-

93

1993-94 1994-95 1995-96 1996-97 1997-98

U.S.A (822.51)

31954.41

(734.82)

29282.45

(1184.28)

47501.44

(1197.54)

48979.36

(1432.15)

60980.79

(1929.47)

87540.05

U.K. (183.42)

7125.84

(259.26)

10331.67

(318.31)

12767.89

(417.70)

17083.91

(437.69)

18636.95

(440.19)

19971.42

Germany (216.21)

8399.82

(275.21)

10967.24

(300.26)

12043.40

(369.18)

15099.64

(428.29)

18236.51

(510.79)

23174.54

France (127.36)

4947.73

(157.72)

6285.08

(192.93)

7738.32

(272.88)

11160.73

(312.65)

13312.44

(368.54)

16720.66

Belgium (83.14)

3229.85

(98.41)

3921.55

(128.58)

5157.50

(186.93)

7645.56

(210.57)

8966.20

(210.87)

9567.17

Netherlands (85.80)

3333.12

(104.90)

4180.19

(136.66)

5481.26

(183.22)

7493.86

(208.59)

8881.88

(235.83)

10699.61

Italy (137.40)

5337.86

(170.61)

6798.63

(211.26)

8473.70

(207.10)

8470.38

(203.62)

8670.14

(270.24)

12260.79

Japan (53.31)

2071.09

(61.02)

2431.79

(99.65)

3997.14

(120.80)

4940.65

(114.05)

4856.44

(112.31)

5095.50

Hongkong (51.45)

1998.82

(72.10)

2873.07

(107.07)

4294.53

(104.46)

4272.50

(109.18)

4648.72

(87.25)

3958.53

Canada (44.38) (57.23) (69.38) (69.09) (69.12) (106.88)

Page 68: Export Growth Sources of Bangladesh RMG

68

1724.23

2280.42 2782.91 2825.72 2943.04

4849.15

China

(8.54)

331.64

(13.22)

526.82

(45.29)

1816.38

(26.38)

1078.81

(55.59)

2366.79

(48.63)

2206.34

Spain (25.10)

975.22

(29.56)

1177.90

(53.16)

2132.06

(58.74)

2402.52

(55.01)

2342.28

(60.63)

2750.78

Iran (36.26)

1408.55

(34.26)

1365.20

(30.98)

1242.40

(33.88)

1385.52

(53.00)

2256.73

(35.47)

1609.27

Denmark (12.29)

477.36

(34.68)

1381.97

(39.24)

1573.87

(53.00)

2167.79

(51.24)

2181.61

(43.59)

1977.68

India (9.85)

382.59

(16.81)

669.72

(45.17)

1811.60

(72.48)

2964.23

(46.25)

1969.43

(65.58)

2975.36

Pakistan (28.78)

1118.12

(21.06)

439.40

(26.74)

1072.52

(43.08)

1762.02

(38.97)

1659.20

(44.77)

2031.21

Sweden (15.87)

616.62

(14.63)

582.84

(24.89)

998.37

(35.96)

1470.75

(38.13)

1623.55

(48.22)

2187.74

UAE (7.48)

290.73

(13.32)

530.93

(16.17)

648.50

(14.37)

587.58

(11.55)

491.75

(28.44)

1290.32

Singapore (79.93)

3105.26

(52.90)

2107.99

(38.02)

1524.96

(22.87)

935.25

(30.00)

1277.21

(26.07)

1182.80

Australia (16.45) (21.35) (16.50) (23.40) (28.48) (35.72)

Page 69: Export Growth Sources of Bangladesh RMG

69

639.08

850.68 661.93 956.89 1212.76

1620.62

Others ( 337.

36)

13106.44

(290.83)

11589.58

(388.83)

15563.48

(363.36)

14861.42

(484.15)

20615.11

(451.71)

20494.08

Total (2382.89)

92575.40

(2533.90)

100975.94

(3472.56)

139284.58

(3882.42)

158790.87

(4418.28)

188130.42

(5161.20)

234163.75

Exports From Bangladesh by region,1997-1998

IMPORETS, EXPORTS & BALANCE OF TRADE OF BANGLADESH

Value in million dollar)

Value in million Taka

Year

(July-June)

Exports Imports Balance of

Trade

% of annual Change

Exports Imports

Page 70: Export Growth Sources of Bangladesh RMG

70

1978-79 (618381)

9282.2

(1471.56)

22073.4

(-852.75)

(-)12791.2

(+25.33)

(+)25.33

(+21.17)

(+)21.17

1979-80 (749.44)

11241.6

(2034.99)

30524.9

(-1285.55)

(-)19283.3

(+21.11)

(+)21.11

(+38.29)

(+)38.29

1980-81 (709.85)

11599.0

(2281.97)

37287.5

(-1572.12)

(-)25688.5

(-5.28)

(+)3.18

(+12.14)

(+)22.15

1981-82 (625.89)

12555.4

(1930.68)

38729.4

(-1304.79)

(-)26174.0

(-11.82)

(+)8.25

(-15.39)

(+)3.87

1982-83 (686.59)

16162.4

(1922.89)

45264.9

(-1236.30)

(-)29102.5

(+9.70)

(+)28.73

(-0.40)

(+)16.87

1983-84 (811.00)

19901.9

(2073.08)

50873.5

(-1262.08)

(-)30971.6

(+18.12)

(+)23.14

(+7.81)

(+)12.39

1984-85 (934.42)

24154.9

(2640.73)

68262.9

(-1706.31)

(-)44108.0

(+15.22

(+)21.37

(+27.38)

(+)34.18

1985-86 (819.20)

24314.0

(2120.27)

62929.6

(-1301.07)

(-)38615.6

(-12.33)

(+)0.66

(-25.75)

(-)7.81

1986-87 (1076.61)

32632.0

(2259.85)

68496.1

(-)1183.24

(-)358541.1

(+)31.42

(+)34.21

(+)6.58

(+)8.85

1987-88 (1231.20)

38081.1

(2961.14)

91588.2

(-)1729.94

(-)53507.1

(+)14.36

(+)16.70

(+)31.03

(+)33.71

1988-89 (1291.56)

40968.4

(2997.32)

95075.0

(-)1705.76

(-)54106.6

(+)4.98

(+)7.56

(+)1.22

(+)3.81

1989-90 (1523.70)

49764.2

(3758.70)

122759.1

(-)2233.00

(-)72994.9

(+)17.97

(+)21.47

(+)25.40

(+)29.12

1990-91 (1717.55)

60560.9

(3510.55)

123782.0

(-)1793.00

(-)63221.1

(+)12.72

(+)21.70

(-)6.60

(+)0.83

1991-92 (1993.92)

75908.6

(3465.64)

131937.0

(-)1471.72

(-)56028.4

(+)16.09

(+)25.34

(-)1.28

(+)6.59

Page 71: Export Growth Sources of Bangladesh RMG

71

1992-93 (2382.89)

92575.40

(3986.00)

156012.04

(-)1603.11

(-)63436.64

(+)19.51

(+)21.96

(+)15.01

(+)18.25

1993-94 (2533.90)

100975.94

(4191.00)

167643.77

(-)1657.10

(-)66667.83

(+)6.34

(+)9.07

(+)5.14

(+)7.46

1994-95 (3472.56)

139284.58

(5834.00)

234526.80

(-)2361.44

(-)95242.22

(+)37.04

(+)37.94

(+)39.20

(+)39.90

1995-96 (3882.42)

158790.87

(6827.00)

278790.79

(-)2944.58

(-

)119999.92

(+)11.80

(+)14.00

(+)17.02

(+)18.87

1996-97 (4418.28)

188130.42

(7150.00)

305305.00

(-)2731.72

(-

)117174.58

(+)13.80

(+)1848

(+)4.73

(+)9.51

1997-98 (5161.20)

234163.75

Source- United Nations, 2003

Page 72: Export Growth Sources of Bangladesh RMG

72

5.3.10. Economic Trends

GROSS DOMESTIC PRODUCTS OF BANGLADESH AT CURRENT MARKET (SEE APPENDIX-TABLE-3)

# AVERAGE PRICES SELECTED COMMODITIES (Recent trends in exports ((million US $))

Export receipt

In million US$

Items 2000/2001 2001/2002 Change

July-June July-June Absolute Percentage

1. Raw jute 67 61 -6 -8.96

2. Jute Goods (Excluding Carpet) 229 242 13 5.68

3. Tea 22 17 -4 -18.18

4. Leather 254 207 -47 -18.50

5. Frozen Shrimps and Fish 363 276 -87 -23.97

6. Readymade Garments 3364 3125 -239 -7.10

Top Export Partners

Partner Title Trade Value

USA $353,632,624

France $24,957,243

Germany $24,067,603

United Kingdom $23,327,238

Canada $18,552,346

Recent Exports Years

Period Trade Value

1998 $99,299,440

1997 $42,713,248

1996 $53,284,848

1995 $93,922,400

1994 $53,812,220

Page 73: Export Growth Sources of Bangladesh RMG

73

7. Hosiery Products 1496 1459 -37 -2.47

8. Naphtha and Furnace Oil 10 10 0 0

9. Fertilizer 68 48 -20 -29.41

10. Others 594 541 -53 -8.92

Total Export 6467 5986 -481 -7.44

of which export from EPZ 883 867 -17 -1.93

Note:Compiled by Statistics Department of Bangladesh Bank( using the data of EPB)

Page 74: Export Growth Sources of Bangladesh RMG

74

Source: Export Promotion Bureau.

One important concern in the country's export sector is the trend of increasing contribution of

the volume index in incremental exports vis-a-vis the price index. During the July - March period

of 1999/00, the price index of exports increased by 0.38 per cent while the volume index

increased by 8.03 per cent over the same period in 1998/99. This indicates that export volume

has to increasingly compensate for slow growth in prices of the country's exports in increasing

export earnings. The recent deterioration of the country's terms of trade is also noteworthy:

compared to 1997/98, the terms of trade declined by 4.6 per cent in 1998/99 and further 8.2 per

cent in 1999/00.

Import Performance

July - March Percent change

(July-March)

1998/99 1998/99 1999/00 1999/00-1998/99

Primary products 422.6 317.16 318.74 0.5

Raw jute 71.6 47.77 52.18 9.2

Tea 38.6 36.36 15.21 -58.2

Frozen food 274.7 202.07 225.52 11.6

Others 37.7 30.96 25.83 -16.6

Manufactured goods 4889.6 3487.71 3805.95 9.1

Jute goods 303.4 211.66 208.32 -1.6

Leather 168.7 124.03 143.91 16.0

Readymade garments 2985.0 2125.63 2251.29 5.9

Knitwear 1035.0 735.84 884.08 20.2

Others 397.5 290.55 318.35 9.5

Total exports 5312.2 3804.87 4124.69 8.4

Page 75: Export Growth Sources of Bangladesh RMG

75

In 1998/99, the growth in imports was 6.6 per cent in US dollars compared to 5.1 per cent in

1997/98 and 4.1 per cent in 1996/97. A major aspect of structural change of imports is the

decline in the share of capital goods in total imports from 27.5 per cent in 1997/98 to 24.6 per

cent in 1998/99. The absolute value of capital goods import also declined by about 5 per cent in

1998/99.

As for recent trends, a comparison of the LCs opened during the period of July-January

1999/00 with the corresponding period of 1998/99 indicates that the total value declined by 0.6

per cent.

The LCs settled during the period suggest 0.8 per cent increase in the value of imports. The

total value of outstanding LCs at the end of January 2000 is US $ 2380 million. The above trends

indicate that import demand is likely to pick up during the rest of the period of the current fiscal

year.

Workers Remittances

In US dollar terms, the growth in workers remittances was 8.3 per cent in 1998/99 compared

to 6.8 per cent in 1997/98 and 21.2 per cent in 1996/97. During July - January 1999/00, total

remittances was US $ 1125 million compared to US $ 964 million during the same period of the

previous fiscal year -- a growth of nearly 17 per cent.

Major Concerns:

The real exchange rate appreciation is basically a short-term problem affecting Bangladesh's

export competitiveness. While nominal depreciation of Taka is necessary to ensure

competitiveness vis-a-vis the major trade competitors in the export market, it also affects the

relative profitability of the country's import dependent capital goods sector. Hence the pursuit of

an import neutral depreciation could be considered e.g. currency depreciation accompanied by

tariff reductions so as to leave import prices of capital goods unchanged. From a long term

perspective, Bangladesh's export competitiveness needs to be rooted in micro-level

competitiveness e.g. through productivity growth and technological upgradation. This requires

improvement in the efficacy of the financial sector to enable the export industries to invest and

strive for productivity improvements and build competitive strengths. The efforts also need to

address the problems of key infrastructure sectors to improve the delivery capacity of the

country's exportables.

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In view of increasing globalization, success in export promotion of Bangladesh will largely be

conditioned by its ability to integrate into the global economy. A significant mechanism of

ensuring entry into global markets is through incorporation into international networks of trade

and production which can be facilitated by inflow of foreign direct investment (FDI). The inflow of

FDI is, however, dismally low at present.

5.3.11. Future Growth Prospects

The present macroeconomic situation of the country demonstrates two broad concerns: first,

fragility and low performance of several macroeconomic indicators as reflected in slow growth of

investment, manufacturing output and exports; and second, underlying constraints that relate to

longer run issues of efficient resource allocation, accelerated growth, and sustainability of the

growth process. The success of macroeconomic management is ultimately judged by its impact on

the growth process and its capability to promote social goals. There seems to exist a broad

consensus that a growth rate of 5-6 per cent is not an indicator of satisfactory performance of the

economy. At present, the Bangladesh economy has reached a stage that could very well yield a

growth rate of 7 per cent and above on a sustained basis, provided `right' policies are in place.

One key question is whether the required resources are available to support such a path of

growth. The gross domestic savings rate is around 18 per cent of GDP but could go up further by

2-3 per cent with sustained domestic savings mobilization efforts, fiscal reforms, and measures to

improve the performance of public sector enterprises. The current investment rate is 22 per cent

of GDP. With reforms to put the economy in a strong position to attract foreign investment and

measures for foreign direct investment in infrastructure and other key areas, Bangladesh could

target net foreign investment flows of about US $ 2-3 billion per year which could contribute to

raising our investment rate by about 4 per cent of GDP. Achieving investment rates of 28-30 per

cent of GDP could support a growth rate of 7 per cent or more even at the current level of

efficiency in capital utilization.

The sustainability of the higher growth path, however, would require actions on several fronts

e.g. macroeconomic management that ensures stable internal and external balances, removal of

infrastructural bottlenecks, and ensuring socio-political stability to provide right and consistent

signals to the economic agents. For the purpose, the pursuit of the reform process and ensuring

credibility to the reform measures are necessary to consolidate the gains achieved during the

1990s. With the revolution in information technology in transforming the global economic

structure, Bangladesh needs to contemplate a `second generation' of reforms in the context of

problems and opportunities for growth in the coming decade. These reforms should aim to

acquire technological knowledge and innovations in selected areas and encourage the

entrepreneurs to exploit full opportunities of the knowledge-based global economy.

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5.3.12 .Readymade garment and potential service:

Gone are the days of Adam Smith, David Ricardo and Karl Marx when services were

viewed as unproductive and the mention of trade in services was hardly found in economics

literature. However, things have changed since then. Nowadays, services are recognized to

constitute an important sector of the economy �no less than the agriculture or industry. Not only

do services contribute significantly towards GDP and employment in both developed and

developing countries, the use of new technologies has made many services storable,

transportable and consequently, tradable. Lately, a large proportion of the world economic

Transactions are taking place in service trade. Again, services may be classified as those

consumed directly and those used as intermediate inputs. These intermediate services, also

known as 'producer services' play a much more complex and important role in the development

process than is suggested by their direct contribution to gross domestic product (GDP) and

employment-creation. This is reflected in the inter-linkages between services and the rest of the

economy. Production and export in agriculture, industry and the service sectors require many

services

Starting in late 1970s as a small non-traditional sector of export, the Ready-made

Garment (RMG) industry has emerged as the largest foreign exchange-earner for Bangladesh. In

1997-98, Bangladesh's total exports were 5161.2 million U.S. dollars. The RMG share was 55% of

total exports and 61% of total manufacturing exports from Bangladesh. Out of this total RMG-

exports, 43% went to countries belonging to the European Union (EU) and 40% went to the

United States and Canada10. Currently, Bangladesh enjoys preferential access in these markets.

The removal of Multi-Fiber Agreement (MFA) quotas in the year 2004 under the Uruguay Round

Agreement on Textiles and Clothing (ATC) will result in Bangladesh’s losing its preferential access

in the EU and American markets11. Consequently, Bangladesh will be compelled to compete with

other low-cost RMG-exporting countries of Asia and elsewhere. So the continuation of

Bangladesh's present success in RMG exports will depend on her ability to reduce costs and

improve the quality of output. In the preceding sections, we have seen the crucial role of services

in manufacturing production. In this section we examine the role of services in the RMG industry,

particularly. The RMG manufacturers are scattered all over Bangladesh. But those who

manufacture RMG for exports only are mainly located in Dhaka and Chittagong. There are about

2,600 RMG manufacturers registered with the Bangladesh Garment Manufacturers' and Exporters'

Association (BGMEA). Time and other constraints did not permit us to contact more than 100 RMG

manufacturers. But because of general aversion to disclose business information to outsiders, we

were able to collect information only from 83 RMG manufacturers. Again, information from some

RMG manufacturers was not comprehensive. So we finally settled for 74 RMG manufacturing units

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78

to carry out our analysis. Out of these 74 RMG manufacturing firms,36 are located in Dhaka and

38 in Chittagong. Of the 38 RMG manufacturing units selected from Chittagong, 8 are located in

the Chittagong Export Processing Zone (CEPZ) and the rest are situated in the city and its

surrounding areas. Of the 74 firms under study, 50 belong to an 'average group' employing up to

300 people,15 belong to a 'medium group' employing more than 300 but less than 1,000 people

and 9 belong to a 'large group' employing more than 1,000 people. We now proceed to

investigate the type of services used by RMG manufacturing firms and their level of adoption,

sources of supply and method of securing these services and, finally, estimate the extent of

service use in RMG manufacturing and exporting activity.

After receiving orders from the customers, the RMG manufacturing firms carry out

production planning. All firms (100%) perform production planning without any formal outside

help. On the other hand, input procurement is carried out in almost 87% of the cases (64 out of

74) by the firms themselves if and when they are the direct suppliers to the foreign buyers. In

13% of the cases foreign buyers supply inputs to the RMG manufacturing firms. But RMG

manufacturing firms that supply to the domestic RMG firms (for export) receive inputs from the

latter in 100% of the cases. That is, in such cases, input procurement is done 100% outside the

firm. Management control and accounting are performed by almost all of the firms, and these are

carried out internally except in the case of a few large and joint-venture firms where the services

of external audit firms are used. Quality control is performed by all the firms, and it is done

mostly internally (82%). Banking and Insurance Service Almost all firms (98%) turn to banks for

working capital against their sales orders from abroad and about 57% (42 out of 74) borrowed

from banks to purchase their machines and equipment as well. Bank loans are used invariably by

all firms to buy inputs and to meet a certain percentage of running expenditure, except for a

couple of partially (joint- venture) and fully foreign-owned firms. All firms use banking services in

varying degree. All firms have their machines and plants insured and, additionally, all input-

importers (87%) and 15% of the exporters get their imports/exports also insured. Shipping

Service and Shipping Agent & Port-use Shipping service is widely used by RMG manufacturers.

Shipping service is required for procuring inputs and exporting outputs. Sometimes air-freight

service is also used. RMG manufacturers have to hire services of Clearing & Forwarding Agents for

clearing inputs from the port/custom and loading the finished goods onto ships for export. Port-

charge is a normal expenditure by all RMG manufacturers for using the port-facilities for the

purpose of import and export.

Within the country, to get the imported inputs from the ports to the plant-premise and to

carry the finished goods to the ports, wheel transportation and rail transportation are the chief

transport modes. Services are also widely used by RMG manufacturing and exporting firms for

moving cargo. Wheel transport service is procured by almost all firms (about 98%) from

independent transport companies and, only in a few cases, from sister companies (belonging to

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79

the same parent organization). Railway service is used by 68% (50 out of 74) of the firms. Of

course, when a particular firm operates as a subcontractor to the exporting firm, the service-

charges for wheel transport/railway transport are paid by the latter. All RMG manufacturing firms

use telephone, telex, fax and courier service extensively. All firms own telephones, and about

62% (45 out of 74) firms own telex/fax machines. Several firms (about 10%) use the Internet

also. Of course, for maintenance of their communication equipment, all firms use external service.

Electricity All firms use electricity supplied by the Government-owned Power Development Board

(PDB).Disruption in power supply hampers production in the RMG manufacturing firms. To

overcome such disruptions, about 70% firms (50 out of 74) own and use small power generators.

About 85% of the firms (61 out of 74) use legal service from professional legal

consultants. Most medium and large firms have one or more legal consultants employed on a

permanent basis and hire others (both local and foreign as per requirement) to look after the

legal matters concerning the firms. The firms themselves except for those who work as

subcontractors to the exporting firm perform sales and Distribution Marketing services, in the

form of securing orders for output.

In Bangladesh, RMG manufacturers who export to foreign countries do not normally take

the service of electronic or print media to advertise their products. They do, however, organize

and participate in trade fairs to display their products to and secure orders from foreign

distributors. Almost all firms (99% per cent)get their products distributed in foreign markets by

foreign distributors. Only one joint-venture firm in the sample was found to secure distribution of

its product by its foreign-owner. All firms have their own security and cleaning staffs to maintain

security and tidiness of their plant premises. The plant-premises are secured on a rental basis in

95% cases (62 out of 66 firms located outside Export processing zone).About 25% of the firms

(18 out of 74) own one or more than one computer. Data processing is carried out internally in

all the firms with computers or without computers. Maintenance service for computers is, of

course, secured from outside, normally, the computer- supplier. About 30% of the firms (23 out

of 74) own a photocopy machine, although all firms use photocopy service in variable amount.

RMG manufacturing firms use some special services that they get by dint of their

membership in some association or location in a certain area of the country. For example, the

BGMEA lobbies on behalf of all members, with national and foreign governments and international

organizations to facilitate and promote RMG trade.It organizes trade fairs for display of wares

produced by the members, arranges for participation of members in international trade fairs,

provides the members with various relevant information, gives them legal and other

aid/assistance and so on. Again,the RMG manufacturing firms located in export processing zones

enjoy certain privileges and facilities which are not available to firms located in other areas. For

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80

example,RMG manufacturing firms located in the Chittagong Export Processing zone enjoy the

privilege of getting their cargo containers cleared (by the custom) right at their own plant-premise

instead of at port-sheds. This enables the firms to avoid losses incurred through pilferage of their

wares (imported/intended for export) during clearance at the port sheds.

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CHAPTER -VI

Conclusion: From the above discussion, we can see that readymade garment is the main export product

of Bangladesh and for the Bangladesh, the readymade garment export industry has been the

proverbial goose that lays the golden eggs for over fifteen years now. The sector now dominates

the modern economy in both export earnings, secondary impact and employment generated. The

events in 1998 serve to highlight the vulnerability of this industry to both internal and external

shocks on the demand and supply side. Given the dominance of the sector in the overall modern

economy of Bangladesh, this vulnerability should be a matter of some concern to the

policymakers in Bangladesh. Although in gross terms the sector’s contributions to the country’s

export earnings is around 74 percent, in net terms the share would be much less partially because

the backward linkages in textile have been slow to develop. The dependence on a single sector,

no matter how resilient or sturdy that sector is, is a matter of policy concern. We believe the

policymakers in Bangladesh should work to reduce this dependence by moving quickly to develop

the other export industries using the lessons learned from the success of apparel exports.

Support for the apparel sector should not be reduced. In fact, another way to reduce the

vulnerability is to diversify the product and the market mix. It is heartening to observe that the

knit products are rapidly gaining share in overall garment exports as these products are sold in

quota-free markets and reflect the strength of Bangladeshi producers in the fully competitive

global apparel markets. Preliminary data and informal evidence indicate that this sector seems to

have weathered the devastating floods relatively well. The floods did create a crisis for the tightly

scheduled export industry, but to its credit the firms responded swiftly and creatively to the

unexpected dislocation and transportation disruptions. The industry is one hundred percent

export-oriented and therefore insulated from domestic demand shocks; however, it remains

vulnerable to domestic supply shocks and the smooth functioning of the banking, transportation

and other forward and backward linkage sectors of the economy. The Dhaka-Chittagong road

remains the main transportation link connecting the production units, mostly situated in and

around Dhaka and the port in Chittagong, where the raw material and the finished products are

shipped in and out. Despite increased this road. Eventually, this road link was completely

severed for several days when large sections of the road went under water for a few weeks

during the latter phase of the floods. This delinking of the road connection between Dhaka and

the port in Chittagong was as serious a threat as one can imagine for the garment exporters. The

industry responded by calling upon the Bangladesh navy to help with trawlers and renting a plane

from Thai Air that was used to directly fly garment consignments from the Dhaka airport to the

Chittagong airport several times a day.

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According to industry sources, the list of flood-related damage to the garment industry is

extensive.x According to the September 1998 BGMEA newsletter, garments worth taka 1,000

crore ($208 million) could not be exported on time due to the disruption of the Dhaka-Chittagong

road. Finished products worth $231 million were stockpiled and twenty percent of these may end

up in a “stock-lot” situation.xi The estimated production loss was put at $120 million. As many as

250 apparel factories were partly or completely submerged during the floods. Attendance and

worker productivity in factories was down as much as 35 percent during the worst period of the

floods. As many as 300,000 workers were unable to work as their homes and families were

stricken by the flood conditions. Many more workers fell sick from waterborne diseases. Besides

natural disasters, there were several other crises that impacted the garment industry in 1998.

The disruption of the Chittagong port due to labor disputes was certainly one of them. BGMEA,

the industry association, has repeatedly requested the government to ban labor strikes in the

Chittagong port for national security reasons. Another source of disruption for the industry was

the perennial problem of hartals or general strikes called for and enforced by the political

opposition. Although the leader of the main opposition party has declared, in a major concession

to this industry, that the garment industry would be exempt from such hartals, in practice the

situation is more difficult. Lastly, the psychological impact of these events on the existing and

potential buyers cannot be overstated. Buyers in the global garment dependence on air

transportation, trucks remain the main vehicles for transporting raw materials and finished

products for Bangladesh garment exports. The floods disrupted the normal flow of traffic on

markets remain highly sensitive to the risks of unfulfilled orders. As a result of the floods, the

image of Bangladesh as a somewhat unpredictable supply source may have been strengthened

since the floods received considerable world media attention.

So garment sectors is a important sector of Bangladesh. We should improve in this sectors

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APPENDIX

Table 1. Constant-Market-Share Analysis of Bangladeshi jute Exports (1889-1998)

(Market Analysis) (US $ )

(1) (2) (3) (4) (5) (6) (7) (8)

Actual world Exports . Actual Bangladeshi

Export. V • j V • j ′ ( r j ) ( r j V. j ) ( r V. j ) ∑( ijr ijV )

MARKET (1989) (1998) (1989) (1998)

USA 1969772520 5138652112 58968394 174833007 1.609 94880145.95 90457516.0 94865644.85

UK 446553680 1114081728 6714191 16798352 1.495 10037715.55 10299568.9 10036667.51

CANADA 187133954 319349281 1271937 11202227 0.707 899259.46 1951151.35 898658.78

FRANCE 657507600 1459470576 4797424 29597385 1.202 5852857.28 7359248.42 5851425.03

ALL OHTERS 127854666 556298409 205278 457065 3.351 687886.

58

314896.45 6

127854666 556298409 205278 457065 3.351 687886. 58

314896.45 687891.01

TOTAL 3388822420 85877852106 71957224 232888036 1.532

( r )

112357864.80 110382381.

60

110394614.20

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84

Table 2 Constant-Market-Share Analysis of Bangladeshi jute Exports (1889-1998)

(COMMODITY ANALYSIS)

(US $)

(1) (2) (3)

(4)

(5) (6) (7) (8)

Actual world Exports. Actual Bangladeshi

Export. V • j V • j ′

(

r j )

( r j V. j ) ( r V. j ) ∑( ijr ijV )

COMODITY- SITC-

3

(1989) (1998) (1989)

(1998)

4811 1055859416 2401808544 52268129 100881717 1.422 74325279.44 33922015.72 66628665.64

48522. 642057664 1317517176 16885777 76326212 0.863 14572425.55 10958869.27 17764227.94

4851 760276580 2017400484 1033324 274109290 1.617 1670804.91 67057.23 1708610.18

48219 3100113890 639948597 990736 26321986 0.759 751968.62 642987.67 1054398.53

4851 45026240 1631260968 162530 1251723 2.208 358866.24 105481.97 426301.42

48512 170352124 579916337 616728 695469 1.421 876370.49 4002530.97 1482750.62

Total 3388822420 8587852106 171957224 232888036 0.649

( r)

111600238.40 111600238.4 263811614

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Analysis-

Bangladeshi Exports in 1998-------------------------------------$232888036

Bangladeshi Exports in 1969-------------------------------------$171957224

Change in Exports

$60930812 100%

1. Due to increase in world trade:-------------$ 110382381.60 18.12

2. Due to commodity composition:--------------$1975483.20 3.24

3. Due to market distribution ----------- $ -1963250.60 -3.22

4. Due to increase competitiveness-------------$ 50536197.80 82.94

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86

Notation- ijV = value of A’s exports of commodity to country j in period 1, ijV ′= value of A’s exports of commodity I to country j in

period 2, r= percentage increase in total world exports from period 1 to period 2, ir = percentage increase in world experts of

commodity i from period 1 to period 2, ijr = percentage increase in world exports of commodity i to country j from period 1 to

period 2.

* ijr was first computed from the cross classification of actual world exports by market destination and commodity groups and

multiplied by ijV , the cross classification of change in actual Bangladeshi exports by market destination and commodity groups

from 1989.

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References: 1 .Chaudhuri, Salma and Pratima Paul-Majumdar, The Conditions of Garment Workers in Bangladesh - An Appraisal, Report, Bangladesh Institute of Development Studies, October 1991. 2. Bangladesh Unnayan Parisad, A Study On Female Garment Workers in Bangladesh, draft report, Dhaka, May 1990. 3 Ahmad, Muzaffar, "Readymade Garments Industry in Bangladesh," Bangladesh Journal of Political Economy, Vol. 9, No. 2, 1988, 94-122. 4. Wiig, Arne, "Non-tariff Barriers to Trade and Development--the case of garment industry in Bangladesh," in Norbye (edited) Bangladesh Faces the Future, University Press Limited, Dhaka, 1990. Ather, S. A., "The Readymade Garments Industry: Current Status, Problems and Prospects," Doc-TIP-MPU-B-11, June 1987. 5. Hossain, Najmul and Jagjit Brar, "The Garment Workers of Bangladesh: Earnings and Perceptions Towards Unionism," Journal of Business Administration, Vol. 14, No. 4, 1988. 6. Quddus, Munir., Entrepreneurship in the Apparel Export Industry of Bangladesh," Journal of Asian Business, Vol. 9, No. 4, Fall 1993, 24-46 7. Quddus, Munir, “Apparel Exports From Bangladesh: Brilliant Entrepreneurship or Spurious Success? Journal of Asian Business, Vol. 12, No. 4, Winter 1996, 51-70. 8. Islam, Anisul M, and Quddus, Munir, “The Export Garment Industry in Bangladesh: A Potential Catalyst for Breakthrough,” in Wahid and Weis (edited) 9.The Economy of Bangladesh: Problems and Prospects, Praeger, Westport, 1996. BGMEA Newsletter, September 1998 issue. 10.The world bank group

11.Bangladesh statically bureau.

12.Book of Bangladesh bank.

13. Rchardson,j.David “Constant- Market-Share analysis of export growth” Journal of

The International Economic, voll1 1971.pp.190-207.

Page 88: Export Growth Sources of Bangladesh RMG

88

1 Chaudhuri, Salma and Pratima Paul-Majumdar, The Conditions of Garment Workers in Bangladesh - An Appraisal, Report, Bangladesh Institute of Development Studies, October 1991. 2 Bangladesh Unnayan Parisad, A Study On Female Garment Workers in Bangladesh, draft report, Dhaka, May 1990. 3 Ahmad, Muzaffar, "Readymade Garments Industry in Bangladesh," Bangladesh Journal of Political Economy, Vol. 9, No. 2, 1988, 94-122. 4

Wiig, Arne, "Non-tariff Barriers to Trade and Development--the case of garment industry in Bangladesh," in Norbye (edited) Bangladesh Faces the Future, University Press Limited, Dhaka, 1990. 5

Ather, S. A., "The Readymade Garments Industry: Current Status, Problems and Prospects," Doc-TIP-MPU-B-11, June 1987. 6 Hossain, Najmul and Jagjit Brar, "The Garment Workers of Bangladesh: Earnings and Perceptions Towards Unionism," Journal of Business Administration, Vol. 14, No. 4, 1988. 7

Quddus, Munir., Entrepreneurship in the Apparel Export Industry of Bangladesh," Journal of Asian Business, Vol. 9, No. 4, Fall 1993, 24-46 8

Quddus, Munir, “Apparel Exports From Bangladesh: Brilliant Entrepreneurship or Spurious Success? Journal of Asian Business, Vol. 12, No. 4, Winter 1996, 51-70. 9 Islam, Anisul M, and Quddus, Munir, “The Export Garment Industry in Bangladesh: A Potential Catalyst for Breakthrough,” in Wahid and Weis (edited) The Economy of Bangladesh: Problems and Prospects, Praeger, Westport, 1996. 12

BGMEA Newsletter, September 1998 issue. 13

This loss would be less than 5 percent of the total production that is in the $3.7 billion range.