CAPITAL BUDGETING

Section: A

Group: 01

Case Investment (RMG)

GROUP MEMBER’S NAME ID

MD. ISHTIAQUE AHMED 19-39401-1

TANVIR AHMED CHOWDHURY 19-39749-1
MONIKA FARJANA 17-35569-1
SAMIA BINTE NASIR TUPTUP 19-39851-1
SHAFAYET SHAFIN(leader) 19-40324-1

Submitted to:

Bohi Shajahan

Summary on Investment in RMG Sector

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 Bangladesh’s export shipments in nine months of the current fiscal year have risen by
12.57% to $30.90 billion, riding on the apparel sector bolstered by improved safety
standards and political stability. According to the Export Promotion Bureau (EPB) data
released yesterday, during the July-March period of FY2018-19, Bangladesh earned
$30.90 billion — up from $27.45 billion during the same period in the previous fiscal
year (FY2017-18). The export earnings are 7.20% higher than the target of $28.82 billion
set for the period.

Meanwhile, in March of this year alone, export earnings rose by 9.35% to $3.34 billion
— up from $3.05 billion in March 2018. “It is a good sign that double digit growth in
export earnings continues, which is also higher than the export target set for the time,”
Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem has
told. 

Moreover, the double digit growth in the apparel sector means stability in the sector;
apparel makers are taking the advantage of work orders shifting from China over the
tariff tension with the USA, says Moazzem. Also, it is a good omen for the Bangladesh
economy that the non-RMG sectors such as agriculture, frozen foods and pharmaceuticals
are doing better, observes the trade analyst. Bangladesh, however, needs to focus on
infrastructural development and improving ease of doing business to attract the foreign
direct investment relocating from China, Moazzem finds. He stresses that the government
and the export-oriented manufacturers must come up with measures in identifying the
goods not handled by the Chinese manufacturers or relocating due to the trade war. 

The apparel sector, the $30 billion industry employing 4.4 million workers, contributed
$25.95 billion to Bangladesh’s total export earnings, up by 12.57% from $22.83 billion
during the same period of the previous fiscal year. Of the total export earnings by the
apparel sector, knitwear products earned $12.80 billion, which is 13.65% higher than the
$11.32 billion earned during the same period of FY2017-18. Woven products earned
$13.15 billion, up by 13.07% from $11.51 billion during the same period of the previous
fiscal year. The specialized textile sector saw a 36.63% growth to $112.5 million from

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 $82.34, while home textile products saw a negative growth of 3.36% to $647.34 million,
down from $669.87 million. Thus, Bangladeshi garments accessories and packaging
makers have made a massive new investment year-on-year of around Tk. 1,000 crore to
push up export earnings and meet the demand of the apparel sector.

 Accessibility of the workforce at reasonable wages, duty-free market access in major

export destinations, preferential location in the heart of the Asia-Pacific region acted as a
pivotal player to lure foreign investment in the textile and apparel industry, said an
industry insider. Political stability and uninterrupted services and safety improvement
enhance buyers’ confidence. With boosted confidence, the buyers are placing more
orders here pushing up the export earnings. In addition, China-US trade war is another
reasons for sharp rise in export earnings as the buyers hunt alternative sourcing
destination.  

Last year, investments worth Tk. 1,200-1,500 crore were made in this sector, and more
projects are waiting in the pipeline. Talking about the reason behind the investment
Bangladesh is the second largest exporter of apparel products in the world after China,
there is a huge investment opportunity in the textile and garment industry. So far, Tk.
35,000 crore have been invested since the inception of this sector. The government has
reduced the corporate tax rate from 15 per cent to 12 per cent in the RMG sector, which
eventually led the local investors to make the decision for investment, said Khan.               

Since the demand of accessory products is growing at a faster rate at home and abroad,
around 100 new factories started their operations this year. Presently, around 1,200
factories are producing accessory items in the country. Most of them are compliant
factories. When asked about the items, Khan replied that Bangladesh produced and
exported accessories like woven labels, leather badges, stone and metal motifs, rubber
patches, gum tapes, satin and cotton ribbon hangers, price tags, buttons and zippers.

The indirect contribution has always been 15 to 20 per cent of the net export earnings of
the RMG sector. Export earnings for the RMG sector in 2017–18 FY totaled USD 30.61

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 billion, of which approximately USD 7.10 billion came from accessory items used in the
RMG, leather, pharmaceutical and other export-oriented sectors. Currently, the export
contribution of accessory items is USD 7.10 billion, of which USD 1.42 billion are direct
exports to the Middle-East, South Africa, Sri Lanka, Malaysia, Europe, Vietnam,
Cambodia, and Laos. Giving an example, suppose a T-shirt is sold at USD 20, the
contribution of accessory items is USD 3-4. So, the capacity is increasing. Therefore,
accessory items can be another major export earner for the country.     

  

Do you think the expansion of investment in RMG is a wise decision? Justify.

= Yes, I believe the enlargement of investment in RMG may be a wise call.

Bangladesh is that the second largest businessperson of readymade clothes within the
world when China. Concerning eighty one of its export earnings return from RMG. The
textile and garment sector contributes concerning 2 hundredth to the gross domestic
product of Asian country. Concerning 2 large integer individuals square measure directly
related to this trade. It’s clear that this trade is that the main actuation of the country’s
economy. Currently that Asian country is dreaming of changing into a middle-income
country by 2021, RMG needs to play a key role in realizing that dream.

It’s an excellent chance for Asian country to grab additional market shares. In keeping
with recent export information, Asian country features a vital chance to expand its RMG
sector. Asian country features a 6.4 p.c market share, whereas China features a 36.4 p.c
market share. Every year, RMG exports increase, and our market share has enlarged by
5.1 percent, 5.9 percent, and 6.4 p.c within the last 3 years (Source; BGMEA). Our
primary contender, China, the world's largest garment businessperson, is presently losing
market share because of high production prices and a shortage of masterful labor. Its
market share fell to 36.4 p.c in 2016 from 39.3 p.c the year before (2015). Between China
($161 billion) and Asian country ($28.67 billion), there's a giant distinction in export
worth. Asian country features a fantastic chance to expand its market share.

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 By 2020, the worldwide apparels market is anticipated to be price $650 billion. This
market price is $444 billion (2016). (Source: The monetary Express). Bangladesh’s
continued RMG export growth portends tremendous prospects to become a world leader
in garment exports.

Each year, the magnitude relation of exports to rising markets like Australia, Korea,
Japan, and Russia rises. It was 14.79 p.c of total export worth in 2014, 15.29 p.c in 2015,
and 15.30 p.c in 2016. It encourages RMG exporters to enter new markets and expand
their business. Special incentives for non-traditional markets were additionally
proclaimed by the govt.

Bangladesh edges from exempt market access or lower tariff rate facilities for RMG
export to many developed and developing nations across the globe as a Least Developed
Country (LDC). For RMG exporters, having an untaxed facility within the importation
country may be a immense profit. Asian country is eligible for GSP (Generalized System
of Preferences) in thirty eight nations, together with the EU (28 countries) and a couple of
alternative (10 countries). Asian country is that the supply of ninetieth of the covering
foreign into the EU. Consumers will supply additional of their target commodities from
Asian country within the future.

There is a decent likelihood for Asian country to earn additional foreign currency from
manufacturing the high worth things. Presently we have a tendency to square measure
manufacturing principally low worth things, for instance T-shirts, polo Shirts, basic
pants, shorts etc. Still there's shortage of skilled girls beneath clothes, suits, sports clothes
and work wear manufacturing plant. This sort of item’s worth is high and competition is
low.

RMG bourgeois ought to pay their main attention on Sales Strategy, procurance Policy,
Quality & Productivity, and FICO and income management. Besides these, client
Relationship, coaching & Grooming and Analyze Investment opportunities additionally
necessary to accelerate business so as to achieve structure goals and objectives. Dialogue

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 and negotiation is requirement for value setting. Consumer’s square measure inserting
order with competitive value. Bourgeois must rent individuals with sensible negotiation
and dialogue skills.

In Bangladesh’s economy, the RMG business holds a singular role. To stay competitive
within the international RMG market, the Govt should adopt an additional strategic
approach to investment within the RMG sector. Despite all of the issues that exist in
Bangladesh’s RMG sector, the country’s prospects square measure endless, and it will
forestall to increasing its a part of the worldwide RMG market.

That’s why I believe the enlargement of investment in RMG may be a wise call…

What parameters are mentioned in the case regarding a huge success in investing in
RMG sector?

= From the terribly starting of civilization, Bangladesh has being advancing squad of
perfection through investment RMG. It appears that conjointly the Bangladesh economy
that the non-RMG sectors like agriculture, frozen foods and prescribed drugs do better_

 The attire sector, within the business $30 billion attained wherever using 4.4 million
operating & they contributed $25.95 billion to Bangladesh’s total export earnings, up
by 12.57% from $22.83 billion throughout identical amount of the previous financial
year.
 Not solely this however conjointly of the entire export earnings by the attire sector,
article of clothing merchandise attained $12.80 billion, that is 13.65% on top of the
$11.32 billion attained throughout identical amount of FY2017-18.
 Woven merchandise attained $13.15 billion, up by 13.07% from $11.51 billion
throughout identical amount of the previous financial year.
 The specialized textile sector saw a 36.63% growth to $112.5 million from $82.34,

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  The new factories started their operations this year & around 1,200 factories square
measure manufacturing accent things within the country that is enough to realize
access for growth.

Bangladesh’s export shipments in 9 months of this financial year have

up by 12.57% to $30.90 billion, riding on the attire sector bolstered by improved safety
standards and political stability…. The export earnings square measure 7.20% on top of
the target of $28.82 billion set for the amount. Export earnings rose by 9.35% to $3.34
billion — up from $3.05 billion in March 2018.

The indirect contribution has continually been V-day to twenty of Infobahn export
earnings of the RMG sector. Export earnings for the RMG sector in 2017–18 FY
destroyed USD 30.61 billion, of that about USD 7.10 billion

Currently, the export contribution of accent things is USD 7.10 billion, of that USD 1.42
billion square measure direct exports to the Middle-East, Republic of South Africa, Sri
Lanka, Malaysia, Europe, Vietnam, Cambodia, and Laos. Giving associate example,
suppose a shirt is oversubscribed at USD twenty, the contribution of accent things is USD
3-4.

Asia-Pacific region acted as an important player to lure foreign investment within the
textile and fashion business, aforesaid associate business corporate executive. Political
stability and uninterrupted services and safety improvement enhance buyers’ confidence.
With boosted confidence, the patron’s square measure inserting a lot of orders here
pushing up the export earnings.

Also appears that, taking the advantage of labor orders shifting from China over the tariff
tension with the USA that play a hit role for our country…

So, these parameters square measure the nice pillars that usher in Bangladesh for
fulfillment...

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 Do you think the current pace of growth will continue? Justify why or why not.

=Yes, I think the current pace of growth will continue. Bangladesh has an impressive
track record of growth and poverty reduction. It has been among the fastest growing
economies in the world over the past decade, supported by a demographic dividend,
strong ready-made garment (RMG) exports, and stable macroeconomic conditions.
Continued recovery in exports and consumption will help growth rates pick up to 6.4
percent in fiscal year 2021-22. Bangladesh tells the world a remarkable story of poverty
reduction and development. From being one of the poorest nations at birth in 1971 with
per capita GDP tenth lowest in the world,

Bangladesh reached lower-middle-income status in 2015. It is on track to graduate from

the UN’s Least Developed Countries (LDC) list in 2026. Poverty declined from 43.5
percent in 1991 to 14.3 percent in 2016, based on the international poverty line of $1.90 a
day (using 2011 Purchasing Power Parity exchange rate).

Moreover, human development outcomes improved along many dimensions. Economic

activities and reversed some of the gains achieved in the last decade. The COVID-19
pandemic decelerated economic growth in 2020. The pace of poverty reduction slowed
down, exports declined, inequality increased across several dimensions and the poverty
rate in 2020 increased to 18.1 percent from 14.4 percent. Nevertheless, strong remittance
inflows and a rebound in export market has helped the economy to start recovering
gradually.

Development priorities include diversifying exports beyond the RMG sector; deepening
the financial sector; making urbanization more sustainable and strengthening public
institutions. Addressing infrastructure gaps would accelerate growth and reduce spatial
disparities in opportunities across regions and within cities. Addressing vulnerability to
climate change and natural disasters will help Bangladesh to continue to build resilience
to future shocks. Pivoting towards green growth would support the sustainability of
development outcomes for the next generation………

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 In shortly, Bangladesh, like other countries, faces the daunting challenge of fully
recovering from the COVID-19 pandemic which has constrained. That’s why. I think the
current pace of growth will continue...

What could be the prime challenges that could be faced from such type of investment
for stakeholder?

Why do you think this case is significant for your course? Explain its contribution.

= I think this case of RMG sector is very much significant for my course because RMG
means Ready Made Garments sector which is very popular and contributing our growth
of economy in our country. This industry is single vast export earner for this country. In
the RMG sector of Bangladesh, there are more than 5000 garment factories at the current
time, employing more than 1 million laborers, where 85% of the labor force is women.
Cost reduction strategy should begin with assigning the highest priority for establishing
backward linkages.

The establishment of backward linkages will reduce our dependence on foreign sources
which will reduce the total and average production cost of garments. This Strategy will
make our products more competitive in the world’s ready-made garments market.

In Capital Budgeting course we have learned various techniques or methods are available
for evaluating these investments or projects. Long-term capital investments have emerged
as a critical issue in today's competitive business environment. Organizations are
attempting to determine which capital budgeting techniques are appropriate for their
survival. Capital budgeting is more important because the decisions made
affect the Organization's direction and opportunity, as well as its future growth. Capital
budgeting is the process in a business makes a decision whether or not to make long-term

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 investments. Capital Budgeting project, or prospective long-term investments, is accepted
to produce cash flows over time. The decision to accept or reject the Capital budgeting
project is based on an analysis of the project's cash flows and costs. Plan on raise huge
and long-term sum for long-term asset in plant and equipment more than the longer point
of time. The time is then measured in the context of an operating budget.

Capital budgets are created using procedure such as Internal Rate of Return (IRR), Net
Present Value (NPV), and Pay Back Period (PBP). The capital budget is a set of steps
taken to justify the decision to purchase an asset, which typically includes an analysis of
the costs, associated benefits, and impact on capacity levels of the prospective purchase.

THANK YOU

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