HOW TEXTILE INDUSTRY OF BANGLADESH HELPED IT TO BECOME A SUPERPOWER

 After its independence in 1971, Bangladesh was one of the poorest countries in the world with a GDP of just $8.75bn and a poverty rate of 80%. Today it stands as one of the most rapidly growing countries in terms of growth and development and is reported to e the 24th largest economy by 2030, with a GDP of $350bn with a poverty rate of less than 12%. Furthermore, the nominal GDP of Bangladesh is projected to touch a trillion dollars by the 2030s. So what is the reason behind the country's robust growth? Let's crack the code!

The Dark Horse of Bangladesh:

The credit for the growth of this country goes to its RMG (Ready-made garments) sector which is responsible for approximately 84% of the country’s exports. The textile industry in Bangladesh earns around $35bn in exports and employs 4 million people. In the early years, a man named Nurul Kader predicted that in the foreseeable future, Bangladesh can experience a heavy job crisis. Being a patriot, he decided that something needed to be done for the nation. So in 1978, he sent around 130 trainees to South Korea to learn about the production of textiles so that Bangladesh could become the hub of the textile industry that it is today. In 1982, he established ‘Desh Garments’ an enterprise that would export ready-made garments. This sparked the birth of the nation's textile industry. In 1980, the value of textiles exported from Bangladesh was $3.5mn which took a leap of $10.7bn in 2007. The biggest reason behind this industry’s success was the collaborative contribution of the citizens in the country. As previously discussed, the country was incredibly poor in its initial years which lead to the fewer costs of labour which in turn facilitated high-quality garments at cheap and affordable prices.  

Government Policies and Interventions:

In addition to the contribution of the people, the government policies and interventions of Bangladesh also played a significant part in the industry's development. As the saying goes, the economic progress of a country is the result yielded by the collaborative effort of the citizens and the government. The country’s government recognized 4 key problems faced by the industry and made an attempt to address them:

1. Inadequate credit for the acquisition of machinery and heft import duties:

 The banking system of Bangladesh was extremely tight when it came to extending loans to the business and this hindered many entrepreneurs from starting a textile business. Even if the businessman paid for the machinery, the duty acted as an entry barrier. To address this issue, the government of Bangladesh imposed the Back to Back Credit Policy. A back-to-back letter of credit consists of two letters of credit (LoC) used together to support an exchange. A back-to-back letter of credit is commonly used in a transaction involving an intermediary between a  buyer and a seller, such as a broker, or when a seller needs to purchase products that he will deliver to a supplier. This made it exorbitantly simple for the businessmen to establish their textile production operations. Another policy that the government of Bangladesh launched was the Policy of duty drawback facilities through bonded warehouses. If a manufacturer desires to import his machinery raw materials without worrying about import duty, then all the finished products produced by him/her using these raw materials should be kept in bonded warehouses where the product must be mandatorily utilized for only exports. This paved a way for the Bangladeshi businessmen to easily export their products and at the same time the government does not miss out on the import duty revenue for all domestic items.

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2. Infrastructural issue: 

Lack of infrastructure posed a major problem in the textile sector as there were regular power outages, and a lack of an efficient system of roadways, resulting in loss of productivity in outputs. A series of industrial disasters ensued leading to the fatality of hundreds of workers. The 2012Tazreen factory fire and the 2013 Rana Plaza factory collapse highlighted enormous concerns in working standards of labour discouraging many MNCs from setting up their production units in Bangladesh. Considering all these issues, Bangladesh stepped up and focused on the improvement of the Infrastructural development of the country, through transportation and logistics improvement, building high-quality roads and enhancing city inter-connectivity. Bangladesh also launched multiple initiatives for the safety of the workers like the RMG sustainability council and the Alliance for Bangladesh Worker Safety. Moreover, projects like the Padma bridge and the country’s first deep-sea port the Matabari development will also provide an impetus to its expansion. 

                                                                        

3. Product and Market Diversification:

A crucial tactic to combat the stagnation of the textile industry was to expand its service offering to a broader variety of nations and transition to more complex goods. The two biggest client markets of the industry are Europe (accounting for 65% of the export value) and the United States (accounting for 18 of the export value). The industry has now started exporting its products to many other countries in India which pose a large market. Though T-shirts, trousers, and sweaters tend to take up the major proportion of the product share the industry has been able to diversify its product offerings like garments made of synthetic fibres. These steps have decreased the dependency of the RMG sector from the two major locations. 

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International Rivalry:

China and Vietnam are Bangladesh's main rivals in the textile sector. In the early 1980s, China was the ideal destination for manufacturing units due to its exceptionally low labour costs. From the 2000s China started encountering labour challenges as the cost of labour in China substantially rose. While the monthly salary per worker in China was $400-500, on the hand the average monthly salary of a worker was Bangladesh was only $70-100. This gave Bangladesh the upper hand in the textile industry battle.

Vietnam just had 2000 factories and fell short of infrastructure to Bangladesh which was well equipped with roughly 5000 factories. During the COVID-19 Pandemic, Bangladesh’s RMG exports plummeted by 17% leading to revenue losses up to $5.6bn. Despite Vietnam signing a new preferential trade agreement with the EU and offering stiff competition to Bangladesh, the RMG sector of Bangladesh still projects the prospect of remaining one of the biggest players in the textile export industry. 

This is how a small nation separated from East Pakistan paved its way to becoming one of the fastest developing countries on the planet.