Bangladesh Studies

Lecture- 11

Economy- Readymade Garments

Industry & Foreign Remittance
Sector of Bangladesh
 Readymade Garments Industry of Bangladesh
• Garments sector (RMG) sector of Bangladesh has raised as the biggest earner of foreign currency.
• This sector creates about 4.2 million employment opportunities and contributes significantly to the GDP.
• Readymade garments (RMG) of Bangladesh is powered by young, urbanizing, workers, where most of them are
women.

History of RMG Sector in Bangladesh:

• First established in the 60th decade of the 19th century. The industry exported shirts (Mercury shirts) to the
European market in 1965-66, which was produced from Karachi.
• 9 exporting industries were available in 1977-78. The three largest industries at that time were Riaz Garments,
Jewel Garments, and Paris Garments.

By following the beginners of the RMG sector, some other discreet and hard-working entrepreneurs started their
RMG business in the country. From there, the RMG sector of Bangladesh was developing day by day and not needed
to look back. Though this sector had passed various critical stages through the path. In that time, we learned about
child labor in 1994, and in 1995 we made our garments industry free from child labor very successfully.
Regulatory bodies:

1. BGMEA:
BGMEA (Bangladesh garment manufactures and exporters association) is the
main organization for the Bangladesh garment industry. BGMEA was founded
in 1977 in order to protect garment rights in Bangladesh along with increasing
production and export.

2. BKMEA:
BKMEA (Bangladesh knitwear manufacturers & exporters association) is an
another important and powerful organization after BGMEA in Bangladesh. It
was formed in 1996 in order to expand the ready made garment industry and
assisting government and garment manufacturers according with guidelines.
Present Situation of RMG Sector in Bangladesh:

• In the RMG sector of Bangladesh, there are more than 5000

garment factories (private statistics) at the current time,
employing more than 12 lack laborers, where 85% of the
labor force is women.
• But, according to BGMEA the number of garment factories in
Bangladesh around 4000.
• All the ready-made garments are classified into two broad
categories-
• One is woven products (Shirts, Pants, and Trousers)
• Another one is knitted products (T-Shirts, Polo Shirts,
Undergarments, Socks, Stockings, and Sweaters)
• Woven garments still dominate the export earnings of the
country.
• Day by day knitted items production is increasing at a
considerable rate and now about 40% export earnings have
been achieved from knitted products.
Contribution of RMG Sector to the National Economy:

• About 76% of the total export earnings come from the RMG sector.
• Bangladesh garment industry is the 2nd largest apparel manufacturer in the world, after China. Its worth of $20
billion and accounted for 80 percent of exports of South Asian countries. Its main export destination is USA and
EU.
Destination of RMG Exports:

• The main destinations of Bangladesh’s RMG exports are the USA, Germany, UK, Spain, France, Italy, Netherlands,
Canada, and Belgium.
• During the quarter under report, RMG export earnings from these nine countries increased by 5.85 percent as
compared to that of the previous quarter and this was 50.41 percent higher than that of the corresponding
quarter of the preceding fiscal year.
Reasons Behind The Growth:

1. Low Labor Cost:

As Bangladesh is a developing country, labor costs are lower in any manufacturing or industrial industry. Bangladesh
has a large workforce of unskilled workers in particular. Due to low production costs, you can get the Bangladeshi
garments product at a competitive price. As a result, despite having a big garment production capacity, Bangladesh
has developed a competitive market with nations such as India, Vietnam, and China.
2. Low Investment Cost:
International buyers helped the country’s RMG industry in a variety of ways, including technological and marketing
assistance. Exporters can also build up factories in the country with a low capital investment in this way. On the other
hand, Bangladeshi entrepreneurs are also interested since international buyers are responsible for marketing, and
garments is a low-investment and low-tech industry.
3. Government Initiatives:
For the development of the RMG industry in Bangladesh, the government of Bangladesh adopted an import policy in
the 1980s and offered bonded warehouse facilities instead of a duty drawback system for 100% export-oriented
garment factories. The duty drawback system was basically to refund the duty fees and taxes that had to be paid on
the imported goods, which would later be re-exported as unused or finished goods. 100% export-oriented garment
factories, on the other hand, can easily import the essential fabrics and accessories in the duty-free system using the
bonded storage facility system.
Reasons Behind The Growth:

4. Diversified Export Destinations

One of the causes for the RMG sector’s success in Bangladesh over the last decade has been diversification in export
destinations. However, 62% of Bangladesh’s RMG exports are still going to European countries, and 18% to the US
market. As a result, Bangladesh’s dependence on the American market is declining along with the increase in exports
of non-traditional markets. If Bangladesh’s apparel products can continue to export to these new markets, it is
possible to maintain the country’s RMG industry growth.
5. Free Trade Agreement
From 1974 to 2004, the World Trade Organization’s Global Trade Agreement or Multi-Fiber Agreement (MFA) boosted
the growth of the RMG industry in Bangladesh. According to the MFA agreement, the number of garments that
developing countries can export to western developed countries is determined by quota.
Challenges in The RMG Industry:

1. Lack of Product Diversification

Lack of Product Diversification is one of the biggest challenges in this industry. Although Bangladesh has been
exporting garments products for almost four decades, the items in the low-priced segment are more. In addition,
only five low-price items occupy more than 80% of the total production capacity of Bangladesh. Items like T-shirts,
trousers, and sweaters dominate the list of total export items.
2. Backward Linkage
Bangladesh’s RMG sector continues to lack adequate support for backward linkage. As a result, in most cases, we
have to import raw materials from external sources such as foreign countries. For example, Bangladesh is still
dependent on China for accessories like woven fabrics, laces, etc. On the other hand, competing countries like
Cambodia, Vietnam, China, and India have strong backward linkage. Apart from circular knits, Bangladesh is still
lagging in terms of backward linking.
3. Lack of Efficiency & R&D Section
Bangladesh’s biggest drawback in the RMG industry is the lack of efficiency and infrastructural development. Because
one has to face bureaucratic complications in setting up a new factory in the country and seeking permission for
utility connections like gas, electricity, etc. Moreover, efficient workforce development is also a big challenge. In
addition, most of the factories in Bangladesh do not have an R&D section. In Bangladesh, factories take 3 to 4 months
from product development design and sample making, whereas China can complete the same process in just 15 to
30 days.
Achievement:

Bangladesh is recognized and praised globally as one of the safest and greenest apparel sourcing destinations in the
world.

1. Bangladesh has the highest number of green factories certified by USGBC.

2. A front-runner in terms of transparency, which adds unique ethical values to our products.
3. The readymade garment (RMG) sector of Bangladesh now has 171 US Green Building Council’s (USGBC)
Leadership in Energy and Environmental Design (Leed) certified green factories, the highest in the world.
4. According to BGMEA, green factories are said to help cut down energy use by 40% and water consumption by
more than 30% and also emit less carbon dioxide which further ensures environmental safety.
5. Moreover, 42 industrial units out of the world’s top 100 Leed-certified industrial units are in Bangladesh.
What is Remittance?

A remittance is a transfer of money by a foreign worker to his

or her home country. Remittance can also refer to the
accounting concept of a monetary payment transferred by a
customer to a business.

Three components:

1. Workers “current transfers” in any current account

2. Compensation of employees which includes wages,

salaries, and other benefits of border, seasonal, and other
non-resident workers ( such as local staff of embassies)
and other sub categories.
3. Migrant transfers which are reported under “ capital
transfers” in the capital account of the IMF’s Balance of
Payments Yearbook .
• The position of Bangladesh is seventh in the world remittance income.
• Bangladesh obtains the position in the world remittance income to the next of India, China, Philippine, Mexico,
Nigeria and Egypt.
• There are approximately 90 lakh Bangladeshi workers working in 155 countries in the world.
• The remittance which has sent by the migrant workers is the 11 percent of the total GDP in Bangladesh. There are
approximately 90 lakh Bangladeshi workers working in 155 countries in the world.
A large portion of remittance income is spent for
consumption purposes, acquisition of assets, investment in
trade and business and to finance import of capital goods in
Bangladesh. It has been positively affecting the socio-
economic condition of migrant families.

• Bangladesh Association of International Recruiting

Agencies (BAIRA)

• Bangladesh Overseas Employment Services Limited

(BOESL)
Contribution of Remittance

1. Increasing foreign exchange reserve, per capita income and employment opportunities and upgraded socio-economic
condition of poorer people.

2. Continuously lifting-up the GDP (Gross Domestic Product) of Bangladesh.

3. Alleviate the poverty of Bangladesh through micro-enterprise development and generating substantial employment .

4.Government has been paid various bills and installments of different foreign debt & donation from the remittance
income.

5. Reduced dependency on foreign aid.

6.Expansion of financial market activities and the development of payment systems through enhancing direct capital
flows and distributing those funds for investment or finance consumption purposes.
.
7.infrastructure development like schools, colleges, universities hospitals, roads, & highways, bridges, culverts, etc.
become faster and effective.

8. Taka is more strong as local currency (Bangladesh) against the US dollar.

Facts of Remittance

1. Each additional migrant worker brings in $ 816 in remittances

annually.

2.Every dollar increase in oil price increases annual remittance

by nearly $ 15 million

3.Depreciation of exchange rate by one taka increases annual

remittance by $ 18 million

4. Remittances are higher during periods of low economic

growth.

5.November, 2012 the earning from remittance is net USD 12.87

billion.
Among the informal channels, the most used channel is The government has announced 2% cash incentive for
Hundi system. The sender and remitter are avoiding tax foreign currency to be remitted through banking channel
and violating foreign exchange rules & regulations that into the country. The objective of providing
may facilitate money laundering. cash incentivesis to
stimulate wage earners and remittersto continue
sending foreign remittance in larger volume for the
ongoing economic development of the country. The cash
incentive was effective from 1 July 2019. Foreign
remittance worth of USD 1,500 or equivalent currency
will not require any documents to receive incentive.
Challenges and Problems

1. The people who want to go to abroad for job are suffering from
information problem because most of these people are illiterate and they
don’t know from where they can collect more authentic information in this
regard.
2. Financial problem is major drift. Most of these people are poor and they
don’t have ample resources. However, the non- government cost of
migration is very high in Bangladesh, and it is almost impossible to bear
by these poor people.
3. The people who want to go to abroad for doing job are suffering from
efficiency problem because most of the migrant workers of Bangladesh
are unskilled and low-skilled. That is why, they can’t perform their
assigned task & duties with effectively & efficiently like the migrant
workers of other countries in the world.
4. Bangladeshi migrants don’t get any training from the private and
government recruiting agencies before pre departure.
5. The migrant people of Bangladesh are regularly facing passport collection
problem because with the introduction of machine readable and E-
passport. compelled to travel all the way from their village and wait a
week to get their passport.
6. Migrant workers of Bangladesh often face emergency
problems like cheating, frauds and so on within and outside
the country.
7. Migrant workers of Bangladesh are regularly encountering
various problems in sending remittances, especially to the
remote areas of the country, through formal channels
because the process of sending remittance through banks is
slow and complicated.
8. Bangladeshi migrants are regularly harassed and sometime
physically oppressed in the various airports of the world.
9. Migrant workers of Bangladesh are regularly facing
investment problem because of chaotic political
environment.
10. The present legislation of Bangladesh is quite vague and
complicated, and it creates tremendous problems for
migrants.
Skilled or Unskilled!
Middle East: construction work in Heat and Death of Workers
Women workers are in most inferior situation!
Trapped in Vanuatu & Mediterranean Sea

Money comes with Blood, or even highest cost!

Thank you