RMG in peril amid turmoil

Special Report :

Bangladesh’s ultra-low margin garment sector, comprising of 80% of the nation’s exports, is currently navigating a complex web of challenges, ranging from worker protests and political instability to economic discrepancies and shifting global demand.

As the nation’s largest export sector, generating over $47 billion in annual exports, the ready-made garment (RMG) industry is facing headwinds that threaten its global competitiveness.

The recent worker protests in Bangladesh have brought the garment sector to a critical juncture. Since the beginning of the month, nearly 130 factories across major industrial hubs such as Gazipur and Narayanganj were forced to halt operations as workers protested for better wages and back pay.

The unrest followed a political transition after former Prime Minister Sheikh Hasina’s kleptocratic government was toppled by a popular student-led uprising, leaving an interim administration struggling to maintain stability. The protests have been fueled by dissatisfaction over low wages, which are often well below the national minimum, leading workers to resort to loans to meet basic needs.

Factory owners and industry leaders, including the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), have pointed fingers at “outsiders” for exacerbating the unrest. These groups are accused of disrupting operations and stoking violence to gain control of lucrative side businesses, such as the “jhute” market, which deals in rejected export garments that are sold domestically. This has added another layer of complexity to the already volatile situation, further straining relations between workers and factory owners.

Competition from Vietnam
“Higher Product Value: Vietnam specializes in complex and higher-value garments such as technical textiles, sportswear, and performance wear while Bangladesh has remained focused on mass-market, lower-value items.

“Superior Infrastructure: Vietnam’s robust infrastructure, including better roads, ports, and a reliable energy supply, gives it a competitive edge in logistics and production efficiency.

Bangladesh, on the other hand, faces infrastructure challenges such as power shortages and transportation bottlenecks “Trade Agreements: Vietnam has leveraged its multiple free trade agreements (FTAs), including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA).

These agreements allow Vietnamese garments to enter key markets like Europe and the U.S. at lower tariffs, giving it a pricing advantage over Bangladesh.

” Rising Ethical and Sustainability Concerns: International buyers are increasingly prioritizing ethical sourcing and environmental sustainability.

Vietnam, with its relatively stronger labor and environmental standards, is seen as a more compliant partner.

Adding to the woes of the garment industry is the revelation of a significant mismatch in Bangladesh’s export data.

A recent correction by the central bank revealed a $14 billion discrepancy between export figures reported by the Export Promotion Bureau (EPB) and Bangladesh Bank.

The misreporting, which had persisted for over a decade, was attributed to double-counting and procedural errors.

This has caused a sharp 6.8% downward revision in the country’s export earnings, prompting concerns about the reliability of macroeconomic data.

The correction not only casts doubt on Bangladesh’s economic performance but also poses a reputational risk for the country.

Bangladesh’s position as a global garment powerhouse, responsible for about 10% of the economy, could be weakened as international buyers begin to question the accuracy of its trade data.

The revision also highlights the need for more transparent and robust data governance to avoid future discrepancies that could further damage investor confidence.

Bangladesh’s garment industry is also feeling the pinch from increased global competition. While it has long been a dominant player in fast fashion, supplying major Western brands like H&M and Zara, recent disruptions have led many of these companies to explore alternatives.

Countries like Vietnam, Cambodia, and Indonesia have been emerging as competitive rivals, offering lower production costs and greater political stability.

Mohiuddin Rubel, a director at the BGMEA, expressed concerns that the ongoing unrest could lead to a 10-20% drop in garment exports this year, a significant blow considering that fast fashion accounts for 80% of Bangladesh’s export earnings.

This shift in sourcing preferences is further compounded by ethical concerns over labor practices in Bangladesh, with buyers increasingly scrutinizing the country’s record on worker rights and safety.

India, one of Bangladesh’s major suppliers of raw materials, has also been affected. The slowdown in garment orders from Bangladesh has led to a decline in cotton exports from India, with Western buyers pausing new orders until the political situation stabilizes.

While India is positioning itself as an alternative production hub, industry insiders acknowledge that there are still qualitative and quantitative mismatches between Indian and Bangladeshi garment offerings.

Even before the current unrest, Bangladesh’s garment industry was grappling with declining profit margins due to rising input costs and weakening global demand.

The Russia-Ukraine war, coupled with the economic slowdown in key markets, has driven up the cost of raw materials such as cotton and yarn. At the same time, fast fashion brands are under pressure to keep prices low, leaving Bangladeshi manufacturers with shrinking margins.

The protests and subsequent factory closures have only worsened the situation, as buyers like Walmart and Disney look for more stable sourcing options. Additionally, the temporary internet blackout during the protests caused significant operational disruptions, leading some factories to work overtime to clear backlogged orders.

This has created an unsustainable production environment, where higher costs and lower revenues are placing immense financial strain on manufacturers.

Bangladesh’s garment sector is at a crossroads. While the industry has played a crucial role in lifting millions of people out of poverty, its future is uncertain in light of the current challenges.

Economists like Dr. Fahmida Khatun from the Centre for Policy Dialogue argue that Bangladesh must diversify its economy beyond the garment sector to ensure long-term stability.

“No country can survive for a long time based on only one sector,”she notes, pointing out that the garment industry can only take the country so far.

The interim government, led by Nobel laureate Muhammad Yunus, has vowed to implement comprehensive economic reforms and address the structural issues that have plagued the sector. However, the challenges are immense.

Bangladesh is facing not only a political crisis but also a range of economic issues, including a weakening electricity infrastructure, rising input costs, and a depleted foreign currency reserve.