India’s RMG takes off. Should Bangladesh be worried?
During the July-September period this year, Bangladesh’s garment exports grew by only 5.34% while Vietnam and India recorded a growth of 15.57% and 13.45% increase, respectively. Industry insiders say orders are shifting due to labour unrest and political uncertainty
As Bangladesh, one of the world’s largest apparel exporters, grapples with political instability and labour unrest, India’s readymade garment (RMG) exports surged by 17.3% in September.
This development carries significant implications for both countries.
According to World Trade Organization (WTO) data, Bangladesh exported garments worth $38 billion last year, making it the second-largest garment exporter after China. In comparison, India’s garment exports reached $15 billion during the same period. However, due to the ongoing crisis, Bangladesh’s overall apparel exports are projected to decline by 10-20% this year, international media outlets report.
The crisis in Bangladesh’s garment sector, which began in May, was initially driven by a gas shortage caused by damage to an LNG terminal, forcing factories to operate below 30% capacity or shut down entirely.
The situation worsened in June and July when massive student protests erupted demanding public service reforms, leading to two months of widespread demonstrations, curfews, and internet shutdowns.
Even after the fall of the Sheikh Hasina government, the RMG sector continued to face deep-rooted labour grievances and political instability. By late August, factories in industrial zones began shutting down due to a mix of worker demands and vandalism, pushing the industry further into crisis.
The army patrolling the industrial zones helped restore some order, and several factories resumed operations. Yet, full recovery remains elusive.
India’s surge in garment exports, on the other hand, is directly related to the turmoil in Bangladesh, as there has been a noticeable shift in order placements towards Indian companies.
A senior executive at a prominent Indian garment exporter, who wished to remain anonymous, shared with The Indian Express, “We’ve seen at least a 15-20% increase in export orders, particularly since June and July, following the political uncertainties in Bangladesh.”
Notably, the Tiruppur knitwear hub has emerged as a major beneficiary, securing orders worth $54 million in just a short period in September. India benefits from Bangladesh’s lack of fabric production capacity, as the latter relies heavily on fabric imports from the former. Amid the crisis in Bangladesh, Indian manufacturers can provide integrated supply chains that deliver both fabric and finished garments, thereby saving valuable time.
India’s young and sizable workforce, estimated at about half a billion people in the 18-35 age range, provides another significant competitive advantage, according to Soumya Bhowmick, Fellow and Lead, of World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF). “This demographic edge enables India to meet the increased demand at competitive prices, making it an appealing destination for international brands seeking reliable production partners,” he told The Business Standard. “However, the sustainability of this advantage depends on India’s ability to balance immediate job creation with long-term goals of increasing labour productivity, ensuring fair wages, and investing in production efficiency,” Soumya added.
The US International Trade Commission (ITC) has underscored the importance of political stability in India for American consumers. In its recent report, the ITC noted, “Compared to less politically stable nations, brands are more inclined to source high-end or fashionable goods from India since they are sure they can manufacture and deliver their goods there.”
Supporting this assessment, data from January to August of this year reveals a 1.5% year-on-year increase in apparel imports to the US, while Bangladesh experienced a 3.8% decline in export volume. In contrast, India’s apparel exports to the US rose by 7.6% during the same period.
Additionally, the US sourcing from Vietnam increased by 5.2%, from Cambodia by 7.7%, and from China by 3.6%.
Between January and July, EU garment imports also rose by 3.3%, while Bangladesh’s exports grew by only 2.8%. In contrast, apparel exports to the EU from China increased by 6.4%, from India by 5.18%, from Cambodia by 18.35%, from Vietnam by 12.61%, and from Pakistan by 14.41% during the same period.
Overall, during the July-September period, Bangladesh’s garment exports grew by only 5.34%, while Vietnam recorded a growth of 15.57%, and India saw a 13.45% increase, according to data compiled by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
The data analysis revealed that garment exports from other countries outpaced Bangladesh’s growth in major markets, primarily due to political instability and labour unrest.
BGMEA also estimates that Bangladesh’s RMG sector suffered a production loss of around $400 million due to labour unrest, with approximately $2 billion in orders shifting to competitors like India, Pakistan, Sri Lanka, and Vietnam. This represents 5-6% of Bangladesh’s total garment exports.
The unrest led to around 15 days of production losses in 400 factories.
A CareRatings report further warns that if Bangladesh’s socio-political disturbances persist for another quarter, exporters may struggle to ensure timely deliveries, allowing India to potentially capture $200-250 million in additional monthly orders.
The report suggests that with operational efficiencies and backward integration, Indian exporters could permanently claim a portion of the market currently held by Bangladesh. And so, does the whole scenario pose a threat to Bangladesh’s future in the RMG sector?
Experts are divided. While some see India’s rising exports as a significant threat, others argue that Bangladesh still holds key advantages over its competitors.
Mehdi Mahbub, an apparel business analyst who had previously expressed optimism in an Economist article last month, suggesting that the unrest was short-term and that factories were already operating again, has taken a more cautious stance while speaking to The Business Standard recently.
“Frankly, I am becoming alarmed. The unrest in Bangladesh has persisted for several months, and India is taking full advantage of this situation. It’s not just India; Vietnam has also been performing quite well lately, and Cambodia and Pakistan are emerging as strong competitors,” he explained.
He added that confidence and trust are crucial factors in business decision-making. Bangladesh has built a strong reputation over the years, but if European and American buyers lose faith in the country, it will be challenging to regain their trust.
“If you closely observe the recent plans and incentives from the Indian government, they are actively working to bolster their private sector. They are steadily positioning themselves to capture business opportunities. If the unrest continues for another quarter and opportunities keep shifting, they could certainly take over,” Mehdi Mahbub warned.
Soumya also noted that India is well-positioned to capitalise on the current window of opportunity. However, he emphasised that despite the present challenges, Bangladesh’s RMG sector, historically resilient and a major force in global apparel exports, still has the potential to recover.
“Bangladesh must pursue financial reforms, stabilise its political landscape, and diversify its economic base beyond RMG exports to avoid prolonged macroeconomic instability,” Soumya remarked.
Meanwhile, other industry insiders in Bangladesh say normalcy is returning and work orders are beginning to pick up again as the labour unrest subsides.
Shams Mahmud, managing director of Shasha Denims and former president of the Dhaka Chamber of Commerce and Industry (DCCI), argues that while Bangladesh missed some orders due to port congestion and internet blackouts during the “back-to-school” season in June, July, and August, the situation is not as dire as some portray. “We have already recovered quite well, and we are expecting to deliver in time for the orders scheduled for December and January,” he said. He believes there is unlikely to be any long-term impact on Bangladesh’s RMG sector, as the country has built a strong brand name through its well-established supply chain, backward linkages, quality products at competitive rates, and commitment to green transitions.
Shams Mahmud, however, noted that the biggest problem Bangladesh has been facing is the power crisis and gas shortage, which has been hampering production. “The main issue we face is the ongoing power and gas shortages, which have hindered production. If we can resolve these problems, I believe we’ll regain our pre-COVID-19 strength,” he added.
Abdullah Hil Rakib, senior vice president of the BGMEA, echoed similar sentiments. According to him, reports in the Indian media about surpassing Bangladesh’s RMG sector are exaggerated. “The recent unrest is not a major issue,” he remarked. “Our strength lies in our skilled workforce, high-quality products, and strong branding. These factors ensure that even amid short-term disruptions, we retain the loyalty of our long-time buyers,” he noted.
Rakib, however, acknowledged that the most pressing challenge is the unstable power supply and gas shortages, which are delaying production and raising costs. “To maintain our competitive edge, we must address these issues urgently. We recently met with the energy advisor to request consistent pricing, and we hope the current government will take our concerns seriously,” he said.
Mehdi Mahbub also called for greater government involvement in stabilising the RMG sector. He criticised the lack of coordination within the sector, noting that it operates without a central governing body. “There needs to be a dedicated RMG Commission or a specialised cell within the Chief Adviser’s Office to oversee this vital industry,” Mahbub suggested.
He further stressed that the government, not just business owners, must take responsibility for ensuring the sector’s stability and future growth. “Our chief adviser is a globally recognised figure, and it’s crucial to leverage his stature to reassure the world of Bangladesh’s RMG sector’s resilience,” Mahbub concluded.
News Source: The Business Standard
Export target fixed at $110 billion for Bangladesh by 2027
The advisory council of Bangladesh’s interim governance has accepted the draft of the 2024-27 export strategy, which aims to ship $110 billion by the policy’s last year. This is consistent with the country’s economic growth objectives and the global trade landscape.
During a press conference on October 3rd, Chief Adviser’s news Secretary Shafiqul Alam stated that the policy’s key goals are to increase employment through export growth, balance trade between imports and exports, and significantly contribute to the economy by earning foreign money. He stated the policy’s critical significance in increasing Bangladesh’s export capacity, boosting the country’s worldwide market position, and promoting overall economic growth.
The draft policy’s key characteristics include a $110 billion export target for 2024-27, as well as suggestions for alternatives to financial incentives for exporters that conform with WTO standards. Specific initiatives are also planned to assist women and small business owners to engage in exporting.
The policy outlines priority sectors, such as emerging items like vegetables and handicrafts, as well as special development sectors like spinning, fabric production, and dyeing-printing finishing. Pharmaceuticals, medical equipment, and handicrafts are among the newly included sectors, with a focus on export expansion via sector-specific support. A chapter on improving service sector exports has also been introduced. Additionally, the “Export Prohibited List” and “Conditional Export List” have been updated with the appropriate HS codes. The export committees’ roles have been stated.
News Source: The Daily Star
Indian brands adapting to meet Gen Z preferences
As more of them enter the workforce and increase their percentage of overall spending, brands are vying for India’s 377 million Gen Zs, which is more than the entire US population.
As per a BCG and Snap Inc. analysis, Gen Zers already account for a sizable amount of a household’s consumption basket, accounting for 43 per cent or US $ 860 billion of all consumer expenditures. About US $ 200 billion of this comes from their own income, with the remaining US $ 660 billion coming from influenced expenditures.
According to estimates, over 36 per cent of Gen Z will be employed by 2030, generating US $ 730 billion in direct spending and US $ 1.4 trillion overall. This is reason enough for companies to pay attention and plan.
In an effort to attract young members of Generation Z, e-commerce majors Amazon and Flipkart have also been acting quickly, opening distinct stores on their platforms specifically for this demographic. Flipkart has developed an app-in-app fashion platform called Spoyl for younger consumers, while Amazon Fashion offers a Next Gen store for Gen Zers. Myntra, a division of the Flipkart Group, also offers Fwd to Gen Z.
As digital natives, Gen Z is actually the e-commerce segment with the quickest rate of growth. For example, according to a company spokeswoman, one in three Meesho users is under 25. Zeba Khan, director of fashion and beauty at Amazon India, asserted that since the store’s opening, the company’s Gen Z consumer base had increased thrice.
“For fashion firms targeting Gen Z, India’s different demographics present a problem. Price sensitivity is a major consideration, as a substantial percentage of the population looks for economical and value-for-money solutions,” Khan said.
News Source: Apparel Resources
Unemployment fears rise as 80% of RMG owners adopt automation
Eighty per cent of garment factory owners in Bangladesh plan to invest in automated machinery within the next two years. Automation in the sector is expected to grow by over 13% during this period.
Despite the increase in efficiency and projected production increases of up to 22%, concerns about rising unemployment persist. Out of an average of 2,250 workers per factory, only 500 are expected to be directly involved with automation processes, leaving many jobs at risk, according to data from a research.
The research was presented by LightCastle Partners at a dialogue held at a hotel in Dhaka. The event was organised by LightCastle Partners, an international business consultancy firm, in partnership with Policy Exchange Bangladesh.
Dr M Masrur Reaz, chairman of Policy Exchange Bangladesh, moderated the dialogue, where industry leaders and experts addressed the challenges of automation.
In his opening remarks, Kazi Faisal Bin Seraj, country representative of The Asia Foundation, stressed the need for collective action to future-proof the ready-made garments (RMG) industry.
Zahedul Amin, co-founder and director of LightCastle Partners, delivered a keynote presentation titled “Future-Proofing RMG: Tackling Automation for Sustainable Growth and Worker Wellbeing.”
He emphasised the need for a balanced approach, combining industry competitiveness through automation with the safeguarding of workers via upskilling and reskilling programmes. The event emphasised the need for urgent action to address the potential impacts of automation on the workforce, calling for recommendations that ensure sustainable growth while protecting the livelihoods of garment workers.
Zahedul Amin shared findings from recent research showing that 93% of garment operators in Bangladesh are willing to work with automated machines, with 70% of female workers expressing interest in gaining new skills for operating modern machinery.
Panelists discussed strategies for maintaining the RMG sector’s resilience in the face of technological change, such as prioritising the adoption of new technologies, improving occupational safety, and implementing upskilling and reskilling programmes to transition workers into new roles.
They also underscored the importance of integrating circular economy principles to reduce carbon emissions and implementing strategies to ensure long-term job security for those affected by automation.
These initiatives are essential in protecting workers and helping Bangladesh continue its growth as a leading global exporter of ready-made garments.
Bangladesh is the second-largest exporter of ready-made garments globally, with $47 billion in exports in the 2023 fiscal year, according to data from the Export Promotion Bureau. The RMG sector contributed 10.35% to the country’s GDP in 2023, employing 4.1 million workers, 60% of whom are women.
News Source: The Business Standard
RMG Sector Nears Full Recovery with 99% of Factories Operational
A restoration to normalcy in the ready-made garment (RMG) industry is indicated by the fact that 99.26% of the factories located in Savar, Ashulia, and Gazipur are currently in operation.
There’s no disruptions were observed in the garment factories situated in Savar, Ashulia, Narayanganj, and Gazipur, as per a situation update provided by the Chief Adviser’s Press Wing.
Only three of the 407 industries in the Savar and Ashulia regions are still closed, two of which are in violation of rule 13/1. All the factories in Narayanganj are open. In the meantime, just two of the 871 factories in Gazipur are currently closed.
USDA forecasts increased cotton imports by Bangladesh
Bangladesh is projected to import 80 lakh bales of raw cotton in marketing year (MY) 2024-25, as per the US Department of Agriculture (USDA). This is a 6.7 per cent increase from that of MY 2023-24.
The report by USDA’s Foreign Agricultural Service said Bangladesh’s garment industry is expecting exports to increase by 7 to 10 per cent in 2024. Despite encountering various economic hurdles, Bangladesh is poised to increase its cotton imports in the marketing year (MY) 2024-25, fuelled by escalating global demand for garments.
The country, a key player in garment exports trailing only China, is anticipated to import 8 million bales of raw cotton, as projected by the US Department of Agriculture (USDA).
This forecast reflects a notable 6.7 per cent increase compared to MY 2023-24, commencing in August for cotton imports, as outlined in the USDA’s comprehensive report on cotton production, import, and utilisation in Bangladesh.
The USDA’s Foreign Agricultural Service underscored Bangladesh garment sector’s optimistic outlook, foreseeing a potential export growth of 7 to 10 per cent in 2024, rebounding from a prior decline amidst global economic sluggishness.
Exports of readymade garments (RMG) during the initial months of 2024 already showcased robust growth, reaching $9.47 billion with a year-on-year increase of 13.2 per cent, a trend expected to persist into MY25, thus boosting raw cotton imports.
Furthermore, the report emphasised the influence of dwindling foreign exchange reserves, potentially prompting increased cotton consumption and a shift away from pricier fabric purchases.
Notably, many garment factories in Bangladesh possess their spinning mills, opting to import raw cotton over yarn. These vertically integrated companies, buoyed by garment export earnings, possess the capacity to initiate letters of credit (LCs) due to their direct access to US dollar.
Conversely, entities solely reliant on yarn and fabric imports face forex challenges, often encountering difficulty in initiating LCs, thereby diminishing their import capacity.
Industry insiders meanwhile anticipate a post-April 2024 surge in global RMG demand, likely further driving cotton consumption in Bangladesh.
News Source: Fibre2Fashion
Bangladesh’s joining RCEP: Expecting Expanded Trade Ties
Bangladesh has decided in principle to join emerging vast trade-bloc styled Regional Comprehensive Economic Partnership (RCEP) on hope of boosting exports to the member-countries, sources said.
The Ministry of Commerce (MoC) has already completed necessary scrutiny and review in this regard based on commitments fulfilled by Vietnam, a member of the trade bloc.
A study conducted last year by Bangladesh Trade and Tariff Commission (BTTC) showed Bangladesh’s trade with RCEP- member countries mostly concentrated on trade in goods.
Bangladesh’s export may grow 17 per cent and gross domestic product (GDP) 0.26 per cent if free-trade agreement is signed with the bloc members, it mentioned.
The RCEP deal, which came into force in January 2022, is considered a high-quality, modern and comprehensive FTA beholding 10 member-states of the Association of Southeast Asian Nations (ASEAN) and its five FTA partners.
The ASEAN members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, while its FTA partners are Australia, China, Japan, New Zealand and Korea.
An outstanding feature of the RCEP is that it represents the world’s largest FTA, comprising about 30 per cent of global GDP and about a third of the world population.
The economic-cooperation forum, spanning Asia-Pacific realm that covers 2.3 billion people, accounts for US$ 25.8 trillion or about 30 per cent of global GDP.
Also, it accounts for $12.7 trillion or over a quarter of global trade in goods and services, and 31 per cent of global foreign direct investment (FDI) inflows.
In the fiscal year (FY) 2020-21, Bangladesh exported goods worth $3.9 billion and imported goods worth $24.5 billion. On the other hand, at the same time, the services export was $1.8 billion and import was worth $2.6 billion.
Bangladesh enjoys preferential market access to many of the RCEP countries, either through preferential trade agreement (PTA) or through GSP facilities.
After graduating from the least-developed country (LDC) status in 2026, the duty-free access will no longer be available except for reciprocal general preference under the Asia-Pacific Trade Agreement (APTA). In such a situation, sustaining the consistent progress achieved by Bangladesh in bilateral export trade with some of the RCEP countries as well as availing the opportunity to some potential destinations in RCEP will be a real challenge.
The study says RCEP includes some of the major export destinations as well as major import sources of Bangladesh. “Considering the bilateral-trade scenario, RCEP remains more as an important partner from the Bangladesh perspective.”
Import from RCEP contributes around 43.92 per cent of the total global imports by Bangladesh, 55.33 per cent of the total tax- revenue and 58.56 per cent of total revenue from customs duty collected under home consumption, as of FY 2020-21.
Thus, the probable accession of Bangladesh to RCEP may, however, have a negative impact on revenue generation from customs duty.
Since some major import sources of Bangladesh like China, Japan, Thailand, South Korea, Indonesia, Malaysia and Australia are involved with RCEP, there is a threat of losing a certain amount of revenue from these countries.
More than 68 per cent of total merchandise exports to RCEP are under apparel-product category. Top twenty export items to RCEP mostly consist of apparel products and these twenty products constitute 64 per cent of total exportable.
The study found that the average most-favoured nation (MFN) tariffs for Bangladesh have been comparatively higher than that of the RCEP members.
Contacted for an analytical view, Distinguished Fellow of the Centre for Policy Dialogue (CPD) Prof Mustafizur Rahman said obviously it would be a great opportunity for Bangladesh if it joins the RCEP bloc. After availing membership, Bangladesh will get preferential market facility from the member-states. “Bangladesh will have to be prepared for opening its market to the RCEP-member countries in return for getting such preferential market facility from them,” he says.
The economist believes capacity building is very important. “Different necessary moves have to be taken for strengthening supply side and product quality in domestic entrepreneurs/institutions and foreign-investor levels.”
News Source: The Financial Express
Bangladeshi Government dissolves BGMEA board, Appoints Administrator to Oversee Fresh Elections
Bangladesh’s interim government has disbanded the board of directors of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and appointed an administrator from the Export Promotion Bureau (EPB).
Acting under Section 17 of the Trade Organisation Act 2022, the government dissolved the BGMEA board and appointed EPB vice-chairman Md Anwar Hossain to oversee operations and arranging new elections.
News Source: The Apparel Insider
