RMG orders and exports have gone up. So have challenges
If export growth continues, export earnings could reach or exceed the pre-pandemic levels in 2022. However, this growth comes with significant challenges
![To expand the RMG sector to a more than $50-billion industry, Bangladesh needs to secure uninterrupted access to electricity and gas for the factories, among many other things. Photo: Mumit M](https://www.tbsnews.net/sites/default/files/styles/big_2/public/images/2021/09/27/242770367_626134665215903_643911604887857968_n.jpg)
The Bangladesh RMG sector is experiencing a sharp rise in orders and exports due to increased global demand and lockdown in certain countries such as Vietnam and Indonesia, which supply garments to the same global retail destinations.
Bangladesh's export has had steady growth since January 2021 with export earnings in FY21 increasing by $5.08 billion, compared to that of FY20. Moreover, the volume of export has been growing more rapidly since May of this year.
The number of orders placed in Bangladesh for autumn/winter is high, with even higher confirmed orders for spring-summer 2021-22. Many of the factories are booked to full capacity till March 2022. If export growth continues, export earnings will reach or exceed the pre-pandemic level in 2022. But this growth comes with tremendous challenges.
Although the demand for RMG grew, the average RMG unit price did not increase as one would expect with the rising demand. This is due to excess capacity for generic products available from the Bangladesh RMG market and a lack of product diversification. So, too many vendors are competing for the same orders in the woven and basic knitwear categories.
In that regard, the BGMEA can also play a role in increasing capacity in each of the categories such as denim, casual shirts, chino pants, cargo pants, basic t-shirts, polo shirts, etc. and make proper capacity suggestions on categories among its members. This way, the unhealthy price war could be resolved.
The challenges, limitations and pressures
With increased demand from the RMG industry, the global cotton stocks fell to a three-year low.
According to a recent report by the World Bank, the average price for raw cotton in the first quarter of 2021 was $1.64 per kg, which is 3 percent higher than the average price in 2020.
In the fourth quarter of 2021, the prices are projected to rise to $1.72 per kg or higher. Also, the global fashion industry has banned the use of cotton produced in China's Xinjiang province due to human rights concerns, which caused a steeper rise in price.
Although the retail clothing price increase is an encouraging sign, much of that increase is being gobbled up by the increased raw material prices and the sharp increase in transportation and shipping costs.
Rising ocean freight rates, limited carrying space in the ships as well as the lack of availability of containers have remained a major challenge since February 2021. Drewry's composite World Container index increased sharply to $10,083.84 per 40-foot container for the week that ended on 9 September.
In fact, the average composite index is now 309 percent higher than that of a year ago. This is an astronomical rise, indicating a sharp rise in supply chain costs worldwide.
Since the retailers and buyers are trying to maintain or increase their profit margin after Covid-19 with a vibrant retail environment, some of the pressures are being passed down to the manufacturer. Thus, even though the demand and orders have increased, manufacturers are still facing tremendous financial and other challenges.
On top of the global supply chain challenges, local export-related infrastructure also poses a huge challenge. In today's retail environment where demand and fashion are changing fast, the demand for samples and small marketing promotional shipments, as well as shipment by air, is on the rise.
Unfortunately, the Bangladesh RMG manufacturers are faced with extremely poor and inadequate infrastructure for air cargo shipment. There are only two security scanners that remain broken most of the time.
Hence sometimes manufacturers have to ship the air cargo or packages via Kolkata, India, where the packages can be scanned and sent. Why the second largest garments manufacturing nation in the world would face such a shipping issue remains a mystery but the manufacturers' woes remain endless.
Yet the perseverance of the entrepreneurs in the RMG sector remains high as they work hard to take the sector to new heights no matter what the challenges are. Still, the government and aviation authorities should fix this very simple but very important issue as quickly as possible.
Similarly, access to electricity and gas remains a major issue for RMG manufacturers. Although by the book Bangladesh is supposed to have no electricity shortage, the reality on the ground is different.
Even on a 33 KVA Industrial Line where there should be no failure of electricity or at least only announced and scheduled electricity outages, the availability of quality electricity is elusive. In Gazipur and Mymensingh, the 33KVA line only provides 26 to 27 KVA most of the day or about 16 out of 24 hours a day, for the last 24 months. The voltage of 26 to 27 KVA is not enough for operating any of the modern machines which are very voltage sensitive.
So, most of the time factories have to operate on generators that are powered by diesel that cost a huge amount of money. Similarly, the gas pressure on the gas line in the same Gazipur, Bhaluka and Mymensingh region remains far below than required. According to the agreement with Titas gas authority, the gas pressure should remain about 8-10 PSI on an Industrial Gas line, but most of the time the pressure falls below 5 PSI and sometimes even below 2 PSI.
Hence all the boilers of the factories have to be operated on diesel, which increases the operational cost of the factory beyond what is budgeted. These hidden infrastructure failure costs reduce the profit margins of the RMG manufacturers beyond what they project in their business plans.
A serious and planned effort needs to be undertaken by the respective electricity authorities and Titas Gas. These organisations have to work to provide better services for their customers, and the BGMEA and Commerce Ministry should pressure these organisations to be more accountable. The local media can also play a major role by exposing the truth and demanding accountability.
The Bangladesh RMG industry is mature and professionally run with some of the large factories producing millions of pieces of garments. Lots of these industries operate with ERP systems integrated with planning software, for planning the production lines.
Lots of complicated styles of garments get manufactured here with garments floors being operated by trained industrial engineers, CAD technicians and IT savvy trained professionals. But the industry still lacks sufficient trained professionals to handle and operate such large-scale manufacturing, for the second largest garment producing county in the world.
Our universities, engineering and trade colleges and other educational institutions have struggled to meet the needs of and work in harmony with the RMG sector, which is the largest employment sector of the country. As a result, a large number of foreign staff have to be employed, in effect, limiting Bangladesh's ability to produce diversified and much more fashion-oriented high-priced garments.
Bangladesh could follow in the footsteps of some states in the US, such as California, where universities have created their degrees to cater to the high-tech industries in the Silicon Valley of California. Similarly, Bangladesh's education system needs to be modernised and revamped to cater to the needs of the manufacturing industry.
The single university that operates under the BGMEA umbrella is not enough, although it is a noble initiative. The Education Ministry should work with the BGMEA and the industry leaders as well as look at the models of other countries to come up with a much more industry-friendly education curriculum.
To take the Bangladesh RMG sector to the next level and expand the sector to a more than $50-billion industry, Bangladesh needs to overcome many of the challenges outlined in this article. The increased demand at the moment may increase our exports for a few quarters or even a few financial years, but for long-term sustainable growth, we have to overcome the infrastructural issues and focus on an industry-friendly and ambitious education system.
There needs to be a five-year comprehensive plan for the RMG sector where different ministries of the government, including the Commerce, Finance and Education Ministry, can work hand in hand with the BGMEA to remove the barriers the RMG industry is facing every day. The time for coordinated action is now.
![Shovon Islam. Sketch: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2021/07/29/shovon_islam.png)
Shovon Islam (Shawn) is the CEO and Managing Director, Sparrow Group of Industries. He was Ex Functional Architect of Hewlett-Packard and Vice President of Microsoft and a regular contributor of TBS, and can be reached at [email protected].