After China, Bangladesh exports the second-highest volume of readymade clothing (RMG). RMG contributes to over 81% of the company’s export revenue. The textile and apparel sector accounts for Bangladesh’s GDP of 20%.
The industry directly employs about 20 million people. This industry is the main engine of the nation’s economy. Bangladesh aspires to become a middle-income nation by 2021, and RMG will undoubtedly be essential to making that ambition a reality.
Let’s learn more about 10 Reasons to Invest in Bangladesh Apparel Industry through this article.
Extensive market possibilities
Recent export data indicate that Bangladesh has an excellent opportunity to expand its RMG industry. Bangladesh holds a 6.4% market share, while China—our primary rival—holds a 36.4% share. RMG export is growing annually, and over the past three years, our market share has increased by 5.1%, 5.9%, and 6.4%. (Source; BGMEA).
Due to high production costs and a lack of skilled labor, our primary rival China, the world’s largest clothing exporter, is losing market share. Its market share dropped from 39.3% in 2015 to 36.4% in 2016. (2015).
There is a significant export value discrepancy between China ($161 billion) and Bangladesh ($28.67 billion). Bangladesh has a fantastic opportunity to increase its market share.
The Bangladeshi government is permitting clothing firms inside Export Processing Zones (EPZs), where foreign investment is promoted, to sell their products to the domestic market. This presents a lucrative opportunity for businesses to benefit from the rising domestic demand and raise their net income from this region of the world.
Fast return and safety
Bangladesh, particularly in the Economic Zones, provides up to 100% foreign equity (EZs). Additionally, an investor has the right to withdraw their entire investment, which is further transferable along with their entire profit, following government regulation.
Additionally, the nation offers investors a 100% tax break for up to 10 years. Local governments frequently use tax holidays to lower sales taxes and are now constantly given as an incentive for international investment.
What motivates you to invest in the garment industry in light of these advantages? Given that it delivers a speedier return – ranging from 4 to 6 years – based on your company tactics, the garment sector in Bangladesh is currently regarded as one of the top investment sectors.
The return on investment ratio is high compared to other businesses or sectors. According to Mohammed Nasir, Vice President (Finance), It typically takes a business six years to turn a profit, based on the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
He highlighted that if system flows like gas and electricity are improved, According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), a business usually takes six years to profit.
With improvements being made to infrastructure resources like gas and electricity, he highlighted, “We might give even better returns.” Moreover, according to the Bangladesh Economic Zone Authority (BEZA), the nation does not place a cap on foreign direct investment and permits the complete repatriation of capital and dividends (FDI).
The nation will also provide a resident visa to investors who invest US $75,000. Those who invest US $ 500,000 or more will be eligible for “citizenship.” That is something, indeed!
Extensive and productive labor force: A garments manufacturing hub
The labor pool is this company’s key asset. Compared to its rivals, Bangladesh has the cheapest labor costs. Bangladesh’s minimum salary is $68 compared to China’s $155, Cambodia’s $140, India’s $137, and Vietnam’s $107. (Source: University of Delaware, USA).
The number of skilled and knowledgeable workers is growing in this sector. Over 37 public and private universities and schools provide textile-related degrees. To produce diploma engineers for this business, there are different governmental textile institutes (under the Bangladesh Technical Education Board). Additionally, a sizable number of private institutions and polytechnics provide trained labor each year for this industry.
Labor Is cheap and plentiful
Bangladesh has some of the lowest labor costs in the entire globe. How can we state that precisely? According to recent reports, the prime minister of Cambodia, a favored destination for apparel sourcing, predicted that by 2023, the country’s minimum salary might reach USD 250 per month.
Vietnam has also seen a boost in the basic wage, which is at USD 170.
Heading to Bangladesh, where there are 3.6 million workers, the minimum salary is BDT 5,300, or around US $ 65, making it the most lucrative hub compared to other locations.
People are the core of the country, and the sector that employs the most of them is helping it to hit its US $ 50 billion export goal over the following years.
According to a recent poll by the Bangladesh Bureau of Statistics, out of Bangladesh’s 160 million plus people, 59.5 million are employed in some capacity, with 13.8% in formal employment and the rest, 86.2% working informally.
The number of unemployed persons was 2.6 million when measured by those who are jobless and in need of employment. The number of unemployed people in the rural area, which provides the majority of garment workers, is 1.8 million.
If the government quickly realizes how important it is to utilize the available human resources, it suggests plenty of prospects for expanding the garment sector. The industry has been under strain due to the push to raise worker pay and the government’s readiness to support the initiative. Even yet, it’s expanding quickly, and a remuneration board has been established to resolve the problems within.
Powerful forward and reverse connection
The advantages of this business include beneficial government policy and collecting revenue for purchasing raw materials. There are numerous established backward connections supporting enterprises in the nation.
The majority of raw resources are now offered in local markets. There are currently 1430 textile mills in operation. The annual yarn manufacturing capacity is 2100 million kg. The capacity for producing fabrics is 2800 million meters.
Local producers meet 85% of the demand for knitted fabrics. (Source: Second World Textile Conference, Mumbai, September 2016, Readymade Garment & Textile Industry in Bangladesh. Bangladesh has been substantially more substantial in recent years at producing cotton-based yarn and cloth. Numerous plants are now being constructed.
Chinese and other nations are interested in investing in Bangladesh’s textile, clothing, and related industries. According to Atiqul Islam, president of the Centre of Excellence for Bangladesh Apparel Industry (CEBAI), Bangladesh is strong in backward linkage.
Forward linkage is where it falls short, though. His institution, which has been operating for almost a year, is working on expanding product diversity, industrial skills, and research into creating value-added items. The country promotes investment inflow into the industry, given the improvements currently underway.
Reducing income taxes
Since readymade clothes account for more than 83% of exports, owners of RMG manufacturers stand to gain the most considerable benefit from this new directive. Up to June of this year, owners of regular RMG manufacturers will be required to pay a corporate tax rate of 10%, compared to 12% for owners of green factories.
The owners argue that this new tax benefit will improve profits for the sector of exports, encouraging an expansion in exports.
The government lowers source taxes
Following the recent increase in the wages of garment workers, the government has once more reduced tax at source for exporting goods from 0.60% to 0.25% to provide some assistance, primarily to RMG exporters.
The tax on profits of knitwear and woven garments, terry towels, cartons and accessories for the apparel industry, frozen food, vegetables, leather products, packed food, and any other items will be deducted by banks following NBR order at the time the proceeds are credited to the accounts of exporters.
Demographic and regional advantage
Bangladesh is geographically well-located, which is another benefit of doing business internationally. Access to international airports, seaports, and other transportation hubs is relatively easy for our nation. It has 22 land ports, three international airports (Dhaka, Chittagong, and Sylhet), and three marine ports (Chittagong, Mongla, and Payra).
In Bangladesh, over 2 lac young people enter the labor force annually. Bangladesh’s 70% under-40 population means a sizable labor pool is available. These kids are mostly educated.
Duty Benefits for Export
Bangladesh benefits from duty-free market access or lower tariff rates for garment exports, including to its top export market, the European Union, as an LDC club member. Additionally, Bangladesh benefits from the Generalized System of Preference (GSP) facility, which is available to 38 nations, including the 28 EU member states that import 90% of Bangladesh’s clothing.
Bangladesh is optimistic that it will keep duty-free access in most significant export destinations even though it anticipates leaving the LDC group soon.
A 5% financial incentive is also in place to encourage Bangladeshi exporters to go after established markets such as the US, Germany, and Canada.
The Bangladeshi government is convinced that its graduation from the LDC status will not impact its ability to enjoy duty-free shopping overseas. According to Tofail Ahmed, the minister of commerce, Bangladesh will continue to enjoy duty advantages in its export destinations through 2027, which will boost operating profit margins.
In the world, one of the safest garments industry
The Tajreen and Rana Plaza incidents served as a wake-up call for business owners and other stakeholders. Even though it resulted in thousands of deaths, it brought about awareness among the business’s owners, employees, and other stakeholders, and now factories are built with safety in mind.
Today, Bangladeshi factories set global standards for worker safety and social compliance. Our clothing sector is now more robust and employee-friendly thanks to this awareness.
Bangladesh has seen several initiatives in response to the Tajreen and Rana Plaza catastrophes, including Accord & Alliance. Bangladesh could benefit from the lessons learned.
Apart from the above-discussed factors, all the other reasons behind investing in Bangladesh Apparel Industry are discussed below:
Use of technology
Bangladesh has drawn several significant international retail brands, and the technology and quality compliance standards have also permeated Bangladesh’s processes for producing clothing.
Additionally, Bangladeshi exporters and manufacturers have developed first-rate vertical capacities that, until recently, were only available from China, which aids multinational brands in ensuring greater coordination and transparency in their supply chains.
The nation has embraced the most advanced management and garment production technologies to serve its foreign consumers. The RMG sector in Bangladesh has seen a very high percentage of quality attainment and technical compliance.
Bangladesh apparel industry
The biggest significant problem facing the global fashion business is sustainability. The topic of great discussion is favoring global sustainability in the fashion industry.
Still, Bangladesh’s Numerous groups and fashion-forward individuals have supported the fight for a suitable environment for tomorrow’s garment and textile sectors need to catch up in this awareness. As a result, there is a danger of losing out on the global market.
On the other hand, fashion, as it relates to morality or ethical dilemmas, is one of the fundamental ideas from the perspectives of humanity and sustainability. Unique approaches and plans for sustainability must be put into place.
Social sustainability advancements benefit neglected workers, assist suppliers in forging more lasting connections with multinational corporations and promote economic progress.
The working conditions in Bangladesh’s clothing manufacturers currently need to improve. Garment factories frequently experience fire incidents, and recent building collapses severely threaten their continued existence.
Additionally, the workers earn the lowest salaries in the entire globe, which dissatisfies them and frequently leads to conflicts and violence during protests against poor wages. This report makes concrete recommendations for improving the environment and promoting sustainability while considering Bangladesh’s textile industry’s working conditions, fire, and safety concerns.
Garments sourcing hub
As a source of clothes, Bangladesh has grown to be one of the most lucrative countries in the world. Strong competitors are no longer interested in making simple apparel and running expensive enterprises.
Bangladesh is a member of the Least Developed Country (LDC) category, which guarantees it benefits from international agreements like the Everything But Arms (EBA) agreement, the Duty-Free-Quota-Free Market Access (DFQFMA) initiative, and the Generalized System of Preferences (GSP) and GSP Plus facilities when conducting international business in the clothing sector.
As a source of clothes, Bangladesh has grown to be one of the most lucrative countries in the world. Strong competitors are no longer interested in making simple apparel and running expensive enterprises.
Bangladesh is a member of the Least Developed Country (LDC) category, which guarantees it benefits from international agreements like the Everything But Arms (EBA) agreement, the Duty-Free-Quota-Free Market Access (DFQFMA) initiative, and the Generalized System of Preferences (GSP) and GSP Plus facilities when conducting international business in the clothing sector.
Bangladesh has both short- and long-term plans to increase its industrial production. We are working to fully capitalize on its current comparative advantages in the area of RMG exportables in the immediate term.
Bangladesh needs help with various issues that have a long-term impact on export diversification to diversify its export base and become an important manufacturing destination.
According to us, Bangladesh is prepared to meet the requirements of global importers.
Bangladesh cloth market
Since its inception, Bangladesh’s textile sector has witnessed numerous transformations. Bangladesh was historically a province of Bengal but was originally a part of India.
When East Bangladesh was split into two pieces in 1905, it was then known as East Bangladesh. Due to the climate’s high rainfall, jute and tea were the main crops produced. Bangladesh was the largest jute producer and exporter in the world. However, its production finally declined due to ongoing flooding and falling jute fiber prices.
It was still determined what would happen next once the jute business collapsed. What would be the source of trade after 1971, when the nation was founded, was a contentious issue. Bangladesh emerged as the world’s top exporter of readymade clothing in the 1990s.
Bangladesh served as the primary supplier of RMG to the world’s two largest markets, the US and the EU. As readymade clothing accounted for about 80% of the country’s overall economy and trade, it dominated Bangladesh’s textile market.
The production of readymade clothing for the US market and a sizable portion of the EU countries is another important source of revenue for Bangladesh’s textile industry.
The British merchants who once controlled the textile industry in Bangladesh prohibited the import of Bangladeshi cotton to England, where they bought the raw material in enormous quantities, processed it there, and then sold it off throughout the country at exorbitant prices.
Following that, local investors took control of the textile market, with foreign investors holding only a 5% interest.
Invest Bangladesh
According to Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association, Bangladesh has a “greenfield” for investment in the expanding garment sector (BGMEA).
On Monday’s second day of the International Investment Summit 2021 in Bangladesh, he gave the keynote address at “Readymade Garments and Textiles; Weaving the Way.”
According to Hassan, today’s apparel industry employs 4 million people, has 3,500 operational clothing factories, $20 million in investment, and exports to 167 different nations.
“The clothing sector generates 83% of Bangladesh’s export revenue and contributes 11% to the GDP,” he continued.
Atiqul Islam, a former president of the BGMEA and the mayor of Dhaka North City, claimed that there was no electricity ten years ago and that today there is more than is required.
According to the session, Bangladesh is the third-largest garment industry in the world, exporting to more than 150 nations and making about 16% of the country’s GDP.
Bangladesh’s world-class safety regulations in the garment sector made it the second-best country for ethical manufacturing.
RMG exports increased more than three times between 2008 and 2018 at a 9.8% annual growth rate.
6.30 percent of the $435 billion global markets in December 2020 were accounted for by exports worth $27.4 billion.
Made in Bangladesh clothing
Four decades have passed since clothing from Bangladesh entered the international market. In today’s global fashion market, the phrase “Made in Bangladesh” carries a reputation for reliability.
Leading international brands prioritize buying clothing created in Bangladesh. Thanks to their global network, you may find these items on the shelves of dress shops in cities worldwide.
As the garment sourcing formula by fashion giants accelerates dependence on manufacturing strength, capacity, and efficiency, “Made in Bangladesh” labels have become recognizable in almost all places.
Why do major global fashion brands choose to buy their clothing from Bangladesh? The answer can be found in Bangladesh apparel’s adoption of contemporary technologies, competitive prices, producers’ accountability, concrete confidence, and the sector’s persistent efforts to meet environmental and occupational safety regulations.
Bangladesh is being held back by what
Following multiple events like the one at Rana Plaza, Bangladesh’s labor policies and safety requirements gained attention on a global scale. Since then, Bangladesh has made great strides toward building green factories and closely adhering to safety and compliance regulations.
Worryingly, one of the lowest minimum wage laws in the world continues to be paid to garment workers in the nation, which disturbs industry experts. The fashion business is thriving in the west, but it is supported by workers from Bangladesh and other third-world nations who struggle daily to make ends meet.
Only 2% of the price of each garment sold in Australia, according to an Oxfam study, flows to the factory worker who manufactured it. When it comes to luring major retail brands, cheap labor is the primary factor in Bangladesh’s apparel sector thriving.
As a result, the demand for a significant increase in the minimum wage cannot be met, at least not anytime soon.
Final Thought
The RMG sector holds a unique place in the Bangladeshi economy. Government investment in the RMG industry needs to be more strategically planned to keep up with global RMG market competition. Despite all the obstacles, Bangladesh’s RMG industry still has many opportunities and can anticipate growing its market share internationally.