Bangladesh RMG 2021 - $50 billion on 50th Anniversary of

Bangladesh

Introduction
The year 2021 is very special for all the people of Bangladesh as it will mark the golden
jubilee of our independence that we achieved in 1971 through nine-month long War of
Liberation. The year is also important for us as we have envisioned Bangladesh becoming a
middle-income country by 2021, with the expectation that our people will be adequately fed,
clothed and housed, and have access to health care. However, our vision is not castles in
the air; the macroeconomic stability, 6 percent annual average GDP growth, robust
performance of remittance and export, strong foreign currency reserve, and remarkable
social and human development over the past decade have provided impetus to set the target
of transforming the socio-economic environment of Bangladesh from a low-income economy
to the first stages of a middle-income economy.

The sector that has been making crucial contribution to this abovementioned transformation
of our economy is none other than readymade garment (RMG) industry.

Economic Progress of Bangladesh over the years

Business, especially in the garment sector, has been an incredible driver of economic growth
and societal development in Bangladesh. As the World Banknotes, the country’s economy
has grown nearly six percent per year since the mid-1990s, coupled with significant gains
across human development measures. Since the arrival of the garment sector in the late
1970s, the country’s poverty rate has fallen from 70 percent to less than 40 percent,
accompanied by increases in life expectancy, literacy, and per capita food intake.

The garment sector has fostered significant economic growth, gains in human development,
and the empowerment of women in Bangladesh. The export garment sector was almost
nonexistent at the country’s founding in 1971, but in a few decades, Bangladesh has
become one of the world’s leading suppliers of apparel. According to the ILO, in 1990
Bangladesh accounted for only 0.6% of global apparel exports; by 2011, its share had risen
to almost 5%. Over the same period, garment exports grew from around 5% of Bangladesh’s
GDP to over 23% in 2011. And today garments represent more than 80% of the country’s
export economy.

Some major contributions of the RMG Industry to Bangladesh Economy

 81.16% of the country’s total export earnings

  Created employment for 4 million people, 80% of them are female
 The RMG sector contributes more than 10% to Bangladesh’s GDP
 Around 20 million people are directly and indirectly depending on this sector for their
immediate livelihood
 Backward and forward-linkage industries – provide employment for at least 20 million
 The apparel industry has created entrepreneurs, and desire to develop new
technology and processes
 Enhanced trade helping the country to reach its economic prosperity
 The sector contributes 38% industrial value addition.
 Generates huge cliental base for Banking, Insurance, Shipping,Transport, Hotel,
Cosmetics, Toiletries and related other economic activities.
 Provides indirect employment to 0.80 million workforces in accessories industries
related to garments.
 Provides 0.2 million job to waste recycle industry related to RMG sub- sector.
 Contributes 10.50% to GDP through RMG sub-sector.

The Growth of RMG Industry

The apparel industry of Bangladesh started its journey in the 1980s and has come to the
position it is in today. The late Nurool Quader Khan was the pioneer of the readymade
garment industry in Bangladesh. He had a vision of how to transform the country. In 1978,
he sent 130 trainees to South Korea where they learned how to produce readymade
garments.

With those trainees, he set up the first factory – Desh Garments – to produce garments for
export. At the same time, the late Akhter Mohammad Musa of Bond Garments, the late
Mohammad Reazuddin of Reaz Garments, Md Humayun of Paris Garments, Engineer
Mohammad Fazlul Azim of Azim Group, Major (Retd) Abdul Mannan of Sunman Group, M
Shamsur Rahman of Stylecraft Limited, the first President of BGMEA, AM Subid Ali of
Aristocrat Limited also came forward and established some of the first garment factories in
Bangladesh.

Following their footsteps, other prudent and hard-working entrepreneurs started RMG
factories in the country. Since then, Bangladeshi garment industry did not need to look
behind. Despite many difficulties faced by the sector over the past few years, it has carved a
niche in world market and kept continuing to show robust performance.
Since the early days, different sources of impetus have contributed to the development and
maturity of the industry at various stages. We learned about child-labour in 1994, and
successfully made the industry free from child labour in 1995.

The MFA-quota was a blessing to our industry to take root, gradually develop and mature.
While the quota was approaching to an end in 2004, it was predicted by many that the
phase-out would incur a massive upset in our export.

However, the post-MFA era is another story of success. Proving all the predictions wrong,
we conquered the post-MFA challenges. Now the apparel industry is Bangladesh’s biggest
export earner with value of over $24.49bn of exports in the last financial year (from July 2013
to June 2014).

Despite the epic growth of our RMG industry, and its bright prospects, challenges are still
there. One of the biggest challenge currently faced by our RMG industry is to ensure
workplace safety and better working conditions for the millions of garment workers.

Two major accidents, the Tazreen fire and the Rana Plaza collapse, have brought the issue
of workplace safety to the fore and led all stakeholders to act accordingly. Following the
unfortunate incidents, various platforms such as the Bangladesh Accord on Fire and Building
Safety, the Alliance for Bangladesh Worker Safety and National Plan of Action have been
formed to improve building and fire safety of Bangladesh’s garment industry.

Figure: Nation-wide Employment in the Garment Industry

As shown in the Figure, the Bangladeshi garment industry has experienced explosive growth
in the past 30 years. In 1983 there were 40,000 people employed in the industry; since then
an average yearly growth rate of 17 percent has resulted in a current employment of about 4
million (BGMEA 2013). In fiscal year 2008-09, it accounted for 79% of exports and
14% of Bangladeshi GDP (Bangladesh Bureau of Statistics 2010). Moreover, according
to expert projections, this growth is expected to continue in the near future. Based on
surveys of a large number of chief purchasing officers (CPOs) of European and US
apparel buyers, McKinsey & Company (2011) report that CPOs plan to shift apparel
sourcing away from China in the coming years due to increasing wage bills and labor
shortages, and Bangladesh is cited as the next biggest sourcing hot-spot.

Factory owners have taken some steps. Owners have become more cautious in awarding
subcontracting to smaller non-compliant firms. They are either avoiding sub-contractors or
opting only for the compliant ones. Some manufacturers are trying to relocate their
manufacturing units to more compliant buildings to avoid work place safety issues. Many
exporters have started to invest in making their buildings more compliant by installing
necessary fire safety equipment like sprinkler systems, fire resistant doors, emergency
lights etc. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA)
has started training mid-level managers on work place safety and compliance with a target of
14,000 mid-level managers.

Progress in improving workplace compliance is on track but more needs to be done in order
to fulfill the commitment of raising it to international standard. Safety compliance is
improving. Only 2.2 percent of total buildings assessed thus far have been referred to a
government review panel for structural issues and only 1.3 percent was partially or
fully closed. The US Trade Representative (USTR) expressed satisfaction over the
improvement in worker safety situation and the execution of its action plan. However,
there is no place for complacency. Sustainable compliant industry warrants constant
monitoring and continued action by the stakeholders.

BGMEA University of Fashion and Technology (BUFT) is offering graduate and post-
graduate degrees to students on fashion design, knitwear technology and apparel
merchandising related subjects. Nonetheless, to meet the current shortfall of competent
professionals in the mid-level of our garment factories, fashion, textile and industrial
merchandising related departments need to be established at all of our major public and
private universities.
Manufacturers introduced green factories reducing harmful emissions, improving energy
efficiency, recycling byproducts and bettering waste management. Among others, water and
energy savings through the increased uses of solar power and the daylight are the main
features of eco-friendly factories. The renowned brands place high importance on the
factory environment and working condition. The Western consumers would also prefer
buying products manufactured in factories sensitive to the environment.

Government’s recent achievements which helped this industry

to flourish

 Government has been investing heavily in infrastructure developments,

especially in the field of power generation. Government has tackled the demand-
supply gap by directly involving the private sector. Entrepreneurs have
established quick rental power generation plants which have been regularly
supplying to the national grid, contributing to lower electricity shortage.
Additionally, government has reached an agreement with India to import
electricity, starting with 500 MW per day. The existing the installed capacity is
10,213 MW.

 Government has been working to improve efficiency of the Chittagong Port

which has the potential of doubling their capacity. There also are long term plans
of establishing a deep sea port in Sonadia.

 Minimum wage for the garment workers working in the lowest grade
(Grade 7) has been raised to Tk 5300 (US$68) from Tk. 3000 (US$38).

 To strengthen the labor inspection system, Office of the Chief Inspector of

Factories and Establishments has been upgraded to a Department of
Inspection of Factories and Establishment (DIFE). It has an authorized total of
575 inspectors: 392 new positions, 107 upgraded and 76 existing positions.

 Duty free import of fire safety equipment was allowed in the FY15 budget.

 The government also adopted the National Occupational Safety and Health
(OSH) Policy. Under the National Tripartite Plan of Action on Fire Safety
and Structural Integrity (NTPA), signed by the National Tripartite Committee
(NTC) comprising the government and representatives of employers and
workers, Bangladesh University of Engineering and Technology (BUET)
examined buildings of 282 factories based on the common standards agreed
with the Accord and the Alliance. Two factories out of these 282 were shut down.

 The Government of Bangladesh (GoB) has responded to the populist backlash (if
anything more rapidly than we might have expected) with a 10 member cabinet
 committee specifically for RMG and set up under the auspices of the Labour
Minister.

 The GoB, Bangladesh Garment Manufacturers and Exporters Association

(BGMEA) and International Labour Organisation (ILO) reached a tripartite
agreement which, among other things stated that the ILO and its partners will
“assess by the end of 2013 the structural building safety and fire safety of all
active export-oriented ready-made garment factories in Bangladesh, and initiate
remedial actions, including relocation of unsafe factories”.

 There have been a number of inspection teams under joint-secretaries deployed

to review factories that are at risk, where a significant number have been closed.
The BGMEA has announced an immediate compliance audit of all factories. The
number of inspectors has been increased to 200 with immediate effect, with a
goal to further increase this to 800 by the end of this year.

 The Bangladeshi Cabinet approved the draft “Bangladesh Export Processing

Zone (EPZ) Labor Act, 2014” allowing EPZ workers the right to form trade
unions. According to this proposed law, to form a union in a factory, at least 30
percent of the workers have to submit application for registering an
association with the Bangladesh Export Processing Zone Authority (BEPZA).
After registration, union’s executive committee will be elected for one year.
Effective and swift implementation of this law will be crucial.

 There have been several other policy reforms with respect to the ready-
made garment (RMG) sector. The government has increased cash incentives
for RMG exporters by 0.25 percent. In addition, RMG exporters exporting new
products or exporting to markets other than the European Union, the United
States, and Canada will receive cash incentives of 3 percent, up from the
existing 2 percent. These will be effective for the products exported from January
1, 2014 until June 30, 2015. Tax at source on cash incentives has also been
reduced from 5 percent to 3 percent. A special tax rate of 10 percent that the
RMG exporters enjoyed on their export earnings since FY06 has been
withdrawn.

Strengths including the opportunities in this sector

Strengths

 30 years of experience & reputation in garment manufacturing

 Competitive Price
  International quality standard
 Vibrant population, 70% below 40 years age, quick learning & dedicated
 Irresistible & resilient entrepreneurial spirit
 Enjoys zero duty access in the European Union, Canada, Australia, Japan, Norway
and Switzerland through GSP scheme & PTA in India, China, Korea, Malaysia
 Rapid adoption of environment friendly, energy efficient and green concepts
 Rapidly developing backward linkage/Washing/Dying/Finishing/Embroidery, etc
 Versatility of factories to produce different type of products
 Increasing trend of direct sourcing through local liaison offices at Dhaka
 State-of-the-art factories with good housekeeping and social standards.
 Superiority in lower end niche as well as plenty of suppliers doing brand items.
 Increasing trend of direct sourcing through local offices at Dhaka.

Opportunities

• China moving to high-end and secondary industries.

• Rising production costs in China.

• Labor shortages causing wage increase.

• Revaluation of Yuan.

• Largest impact on labor intensive industries.

• Increasing demand in Domestic market- less interest in Import.

• Bangladesh represents a clear alternative to China in some particular product and

market segment.

• Two major exporting countries, in close proximity, Japan and Australia already have
shifted a large amount of their sourcing to Bangladesh.

Forecasts
Bangladesh Development Update - The World Bank (October 2014) : Bangladesh is
still considered the leading apparel sourcing destination alternative to China. Despite
the ongoing debate on worker safety issues, buyers plan to increase their sourcing share
from Bangladesh through 2020. The advantage of low wage and abundance of labor is still
the most important factor in sourcing from Bangladesh. Although the government raised the
minimum wage by 77 percent in the aftermath of the Rana Plaza tragedy, Bangladesh
still has the lowest wage rate among its competitors, except for Myanmar. Though
some buyers are considering Myanmar as an option for sourcing apparel in the future, it is at
an early stage of development requiring a lot of investment. Apart from costs, Bangladesh
still holds the advantage of capacity and ability to handle large volumes of orders in a timely
manner. With India not being favored by the western retailers as a replacement of
Bangladesh even after the Rana Plaza tragedy because of cumbersome regulations and
the uncertain political situations in Pakistan, Bangladesh remains the best possible
option for the buyers’ alternative to China.

Table : Minimum Wages in Selected Countries

2014 U.S. Fashion Industry Benchmarking Study: Companies aren’t leaving Bangladesh,
and are committed to compliance there and elsewhere.

 Currently, 76.9 percent of respondents source from Bangladesh.

 Despite last year’s tragedies in several of its garment factories, Bangladesh is still
regarded as a popular sourcing destination with growth potential. 60 percent of
respondents say they expect to somewhat increase sourcing from Bangladesh in
the next two years, and 5 percent say they expect to strongly increase sourcing
from Bangladesh in the next two years. Another 15 percent expect no change in
their current scale of sourcing in Bangladesh. We surmise this reflects
companies’ commitments to improving factory safety and compliance in
Bangladesh, and building a long-term relationship with local suppliers.
  Related, companies are committed to compliance in general, with the vast
majority of respondents (86 percent) supporting the inclusion of environmental
and labor clauses in future free trade agreements or preference programs
between the United States and its trading partners.

Challenges & Recommendations

1) Factory Classification: The National Action Plan (NAP) Team must urgently classify
factory buildings and adopt an easily recognizable and acceptable classification such as
Tier 1, Tier 2 and Tier 3. A database of factories cataloguing compliance could be
established in order to better keep track of issues in the RMG sector and to list factories,
which are compliant in terms of structure, practice and documentation.

2) Factory Health & Safety standards/ Ongoing Compliance Monitoring: Compliance

covers a broad range of issues but these can be largely broken down into building safety;
other factory safety (fire exit, electrical); and work space health issues (ventilation and toilet
quality). The factory tiers that we propose for compliance could encompass the following:
Tier 3 factories should be thought of as having ‘high risk’ or ‘imminent risk’ which need
immediate remedial action.

3) BGMEA Responsibilities/Reforms: We also believe that the BGMEA itself should

seriously consider incorporating internal reforms:

 Factories, which are (allegedly) essentially paper-based or ghost factories, must be

eliminated if verified as such through inspection.
 No new factories must be allowed to come into existence, be given BGMEA
membership (and hence an ability to export), without rigorously checking their full
compliance. Indeed, we would strongly recommend that BGMEA should ensure that
all new factories (exporters or sub-contractors) must be of Tier 1 category.
 Also only voters with minimum USD 500,000 and above in exports should be allowed
to make policy decisions in BGMEA committees.

4) New RMG Economic Zones/Unsafe Factory Relocation: We believe that relocation will
likely pose the next big issue that requires a medium and long-term solution. Out of the
factories that we have, almost 33% have 100% compliance problems or can be identified as
Tier 3 factories.

5) Strategy for Financing RMG Reforms: We would also recommend consideration of a

modest export tax of perhaps 1% -2% of the FOB (freight on board) value. We would also
recommend that the GoB requests the multilateral (World Bank, IFC, Asian Development
Bank, Islamic Development Bank) and bilateral development partners (EU, DFID, JICA,
USAID, SIDA, CIDA, NORAID etc) to fund a $ 1 billion RMG Sector Transformation Fund at
concessional interest rates that can be accessed by BGMEA members to finance either
relocations or other necessary compliance/safety measures.

6) Minimum wage increase/increased efficiency/productivity gains: Minimum wages in

the RMG sector need addressing. The government has already announced an immediate
review of the minimum wage applicable in the garment sector and has formed a wage board
committee under the Labor Ministry, which will fix the minimum wage to be applicable from
May 1. The wage board raised the minimum monthly pay for garment workers to Tk. 3,000
from Tk. 1662.50.

Even if costs in BD remain lower than in competing RMG countries (after minimum wage
hikes, supply disruptions, and reputational risks from compliance post-Rana), we suggest
our costing will need to stay at a discount to remain competitive. Above all, the proposal of
minimum wage should be linked to productivity because that is the only sustainable way to
increase wages in real terms in any industry and country.

7) Trade Unions/Better Worker Representation, BRIDGE and Affiliation: BRIDGE, an

owners’-workers’ platform could be formed, which could act as a supplementary entity to
trade union/workers’ participatory committee. Good practices should eventually encourage
factories to affiliate with bodies like the United Nations Global Compact (UNGC). This could
be an opportunity to be endorsed by international organizations.

8) Formation of new fund for Worker Welfare: We think appealing to the consumers
through the retailers to pay a few cents more to build a fund for the Workers Welfare Trust is
an idea that can be floated with all stakeholders. We can alternatively, of course, ask the
buyers to contribute a certain percentage (perhaps 0.25%) of FOB and at the same time, the
suppliers matching the amount to build a trust fund for the workers. The resources generated
in this way may also be used for setting up contributory provident/pension fund which will
help tie workers more to the RMG firms they are currently working and reduce the extremely
high turnover of workers in this sector.

9) Moving up the value chain/worker productivity: The long-term growth in the industry
and sustainably higher worker wages requires moving up the value chain in terms of
increasing the design/fashion component in RMG garments, improving the technology and
also developing Bangladesh brands that will be marketed internationally and capture a
greater proportion of the value chain. To that end we recommend a revamped Bangladesh
Fashion Institute of Technology with technical assistance from both leading Fashion
Institutes overseas and international buyers. We would like to suggest establishment of a
Business Development Studies Team that could monitor the Fashion Institute, the quality
development, and optimize manpower.

10) Branding and International PR management strategy: We need to develop an

independent certification process for products to earn the “Made in Bangladesh with Pride”
label much like Fair Trade. But the objective is to reward compliant manufacturers and
encourage global buyers to select them over lower cost options.

BGMEA should appoint lobbyists and launch a PR campaign for this branding. This would
lead to an effective engagement not only in the immediate term to tackle the Post-Rana
damage to the industry’s reputation but also to maintain an ongoing lobbying and PR
engagement. We need to make sure a positive message is conveyed in the global and
domestic media about the positive reforms and changes in the aftermath of the unfortunate
RanaPlaza event as well as the contribution of the sector in areas such as poverty alleviation
and women’s empowerment.

The post-Rana steps, remedies and the corrective action plan undertaken by factories in
Bangladesh could be portrayed in a half-minute ad to be telecasted in international media,
cost of which to be borne by the funds generated from above-mentioned sources

Conclusion
Bangladesh apparel industry has come across a long way. As mentioned, it was not only for
`cheap labour' or even `China plus one'. Entrepreneurship, work ethics, diversity, capacity
and policy support also played a major role here. Buyers look for several types of garments
from here in Bangladesh. It is one of the few countries among the peers who are producing
for so many brands like- Target. Wal-Mart, Sears, K-Mart, TESCO, Sainsbury's, American
Eagle, Abercrombie & Fitch, H& M, GAP, NEXT, Marks& Spenser, Aeropostale, Wrangler,
Lee, Nike, PUMA, Adidas, PVH, Tommy Hilfiger, CK, Timberland, ZARA, ESPIRIT, Polo
Ralph Lauren and may be what not. Despite lot of bottlenecks, Bangladesh has come up
with the branding tag line of `yet, we deliver'. This is what will keep Bangladesh going. But
we have to behave, we all have to behave including bit of more hand holding from the large
buyers in order to pass on few extra bucks to the workers, who ultimately `call the shot'. I
think, our future is good, provided we have a clear visibility about the destination.