Recent Situation of RMG Sector in Bangladesh

Bangladesh is the second largest exporter of ready-made garment products trailing China according to the McKinsey report (2011). Bangladesh’s garment exports during July-June 2012-13 period climbed by about 12.7 percent to US$ 21.515 billion over exports of US$ 19.089 billion made during the corresponding period of 2011-12. In 2012-13, the top three export destinations for Bangladesh garments were Europe, which accounted for US$ 12.56 billion, followed by the US and Canada, which accounted for US$ 4.99 billion and US$ 980 million, respectively. But now it has received bad news.

Recent incidents like fire in the Tazreen Fashions factory in November last year that killed more than 110 and the collapse of the Rana Plaza garment factory building in April that killed over 1,100 people and more than 2,500 were injured in the disaster. It may be the second biggest industrial accident in recent history.

As a result, The President Barack Obama-led US government in June suspended Bangladesh from the Generalised System of Preferences (GSP), which allows duty-free entry of over 5000 goods to the US market from least developed countries.

Now, RMG products (which make up most of the US import from Bangladesh) are not included in the list of duty-free products in GSP, there will an export fall of about $40 million .At present, Bangladesh exports about $5 billion worth of goods (mostly RMG products) to the USA every year and hence, the suspension from US GSP will account for a fall in export of about 0.8 %.

Losing the GSP facility will cost Bangladesh millions of dollars in taxes. It is also influence the European Union to take similar action, which would have a much bigger impact on Bangladesh and its garment sector.

In August, Garment factory workers clashed demanding a Tk 8,000 minimum monthly wage. Many factories closed for clashing. The owners finally agreed to pay Tk 5,300 as prescribed by a government-endorsed wage board on Nov 4, 2013.

In November, 18,800 people lost their work for fire in Standard Group. The factory was among the ten biggest in the country and it was the biggest supplier of Gap in Bangladesh. The loss to the firm could run into more than US$100-million.

In December, The European Parliament has threatened to withdraw GSP, the duty and quota-free access to EU market that Bangladesh enjoys. The European Union buys more than $12 billion in Bangladeshi garments each year, or roughly three-fifths of the country’s production. If the EU were to withdraw or suspend the facility, the price per unit of garment will rise and this may lead to many European buyers turning their backs on our products. So, Bangladesh would suffer a huge setback.

Due to the recent political unrest, Bangladesh RMG sector losses in billions of taka every day. The blockades have put the garment sector in a tight corner as exporters are counting losses from order cancellation and rising transport costs.

Buyers are cancelling orders as exporters fail to meet the lead time due to transport crisis. Some buyers are also imposing penalties in case of delayed shipment, cutting prices of garment products and transport costs have surged by around 30 percent due to expensive air shipment. Many factories have halted production as they can’t bring imported raw materials from ports.

The BGMEA’s research and development team has collected three-day data (December 1-3) from 10 exporters to assess the overall losses caused by the blockade.

Orders worth $3.96 lakh were cancelled during the period, while the exporters spent $3.08 lakh on air shipment. Many small factory owners may go bankrupt due to failing shipment on time. So that’s the trap: the golden goose is caught between a rock and a hard.

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