Local mills are able to meet around 90 per cent of fabric demand for the knitwear segment but when it comes to woven, only 35 per cent of the demand for the woven fabrics can be fulfilled locally. This lack of self-sufficiency in terms of raw material production had hit hard the industry during the recent supply chain disruption on account of the COVID-19 pandemic.
On the other hand, with LDC graduation also round the corner, the country needs to get equipped to face the double transformation rules of origin in the post-LDC era as it may be mentioned here that in 2011, the European Union introduced preferential rules of origin in its GSP scheme. In many sectors, up to 70 per cent of the value added of exports from LDCs can be produced abroad, while the share for non-LDCs is only 50 per cent even as for the clothing sector, the EU rules of origin allow for single transformation for LDC exports (e.g., fabric to clothing), whereas exports from non-LDCs require double transformation (e.g., yarn to fabric to clothing).
The investment in woven production in Bangladesh is nevertheless still very low and there are a host of reasons for the same, says industry insiders. Let’s find out what are the major challenges towards attaining self-sufficiency in woven production, in want of which the woven segment, many feels, is severely handicapped.
The issue of raw materials is a much-talked about one in the Bangladesh garment manufacturing sector! Growing over the years, the industry has made significant development in terms of backward integration so much so that around 90 per cent of fabric demand for the knitwear segment is fulfilled domestically today.
However, the same cannot be maintained about the woven sector, as local fabric manufacturers can reportedly meet only around 35 per cent of the demand for the woven fabrics.
It goes without saying that being able to source domestically or from overseas destinations have their very own advantages and disadvantages, the biggest of which is perhaps being able to improve upon the all-important lead time criteria when sourcing locally even as scouting overseas gives one the opportunity to leverage the option of pick and choose the best from a wide array of vendors.
However, the recent disruption in the supply chain due to the COVID-19 pandemic has exposed the disadvantages of not being able to source locally, and rather starkly, even as Bangladesh’s (Bangladesh is still burdened with its high dependency on the woven fabrics from other countries) exports of woven products reduced by around 20 per cent to US $ 13.2 billion in 2020.
According to reports with Coronavirus-related supply chain disorder, prices of raw materials soared manifold over last year. As materials from China failed to arrive on time, prices of local stocks of items reportedly went up by nearly 50 per cent in some cases even as some factory owners were forced to bring raw materials by air to meet manufacturing deadlines.
As per an assessment report of the Bangladesh Trade and Tariff Commission (BTTC), Bangladesh imports some 60 per cent of its woven fabrics from China and it goes without saying the supply chain disruption has telling effects on the Bangladesh apparel industry.
The self-sufficiency in terms of fabric production also has implications in another aspect as well- that of LDC graduation!
“Vertical integration of the garment units or standalone manufacturing facilities in the primary textile industry, especially in the woven sector, is a need of the time, not only to be cost and time competitive but also to be equipped to face the double transformation rules of origin in the post-LDC era,” said the President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Dr Rubana Huq.
It may be mentioned here that in 2011, the European Union — some 61 per cent of Bangladesh’s exports are destined for the EU; garment export, which accounts for about 85 per cent of the national sales abroad, rose from US $ 12.49 billion in fiscal 2009-10 to US $ 27.95 billion in 2019-20, according to a recent study by the BGMEA — introduced preferential rules of origin in its GSP scheme.
Considering that Bangladesh is expected to join the big league of developing nation soon, locally sourced raw materials (fabrics) thus undoubtedly play to the garment exporters’ advantage.
Notwithstanding this, Bangladesh is still a long, long way to go towards attaining self-sufficiency in terms of fabric production for the woven segment. Let’s find out the reasons WHY?
Investment is increasing in the woven sector with the knitwear fabric segment being saturated for more than seven years, said Sayeed Ahmad Chowdhury, Director of Square Denim while interacting with the media as several other industry experts on their part maintained that the money flowing into the sector was not enough to meet the growing demand.
Local availability of cotton and yarn seems to be an issue as well as Bangladesh has to import both cotton and yarn for woven fabrics, which also discourages the manufacturers, shared many within the industry.
Many are shying away from investing in the sector because the return is very slow and the profit margin small, stated the President of the Bangladesh Textile Mills Association (BTMA) Mohammad Ali Khokon, who went on to add that it costs around Taka 500-1,000 crore to set up a textile mill for woven fabrics, to add to which one also has to add dyeing facilities to make the investment viable.
Additionally, investors have to invest in Special Economic Zones while many owners who have already invested in lands are not getting the necessary permissions, underlines the BTMA President.
These are not all; there are many other bottlenecks too.
Gas connection is another constraint that needs to be addressed, explained the Managing Director of Envoy Textile, Abdus Salam Murshedy even as the BTMA President underlined uninterrupted power is required for the technology-driven (computerized) manufacturing unit for woven fabrics and such quality power supply is still not readily available with captive power and special economic zones not yet fully ready.
Then there are reportedly issues related to skilled workforce and technicians as well as that of innovation and research.
Bangladesh is competing with China and Pakistan, which have better access to raw materials, told the Manager (Marketing) of Ha-Meem Denim, Saiful Islam, adding, it was thus very important for Bangladesh to invest in research and innovation to develop fabrics while also train up the manpower accordingly.
Given the number of challenges that exist currently, many are of the opinion that attracting FDI could be a feasible solution to not only increase the capacity in terms of fabric production but also for transferring the required knowledge within the industry.
It may be mentioned here that of late clamour has grown strong for FDI in RMG and textile sector, albeit conditionally, even as the Bangladesh Investment Development Authority (BIDA) has underlined that foreign direct investment proposals plunged by 92.61 per cent or Taka 16,115 crore in the first quarter of FY ’21 compared to that in the same period a year ago.
Meanwhile, speaking to the media, Senior Vice-President of BGMEA, Md Faisal Samad, on his part stated that foreign investment in the sector should be allowed conditionally and it should be given only for manufacturing high-value product and woven fabrics even as, according to the BTMA, as of 2019, there are 430 yarn manufacturing mills, 802 fabrics manufacturing mills, and 244 dyeing-printing finishing mills in Bangladesh, along with 32 denim fabrics manufacturing mills and 22 home textile manufacturing mills.
So, given the current situation, especially keeping in mind the imminent LDC graduation while also not losing view of the fact that any supply chain disruption akin to the latest one (on account of the pandemic) would not augur well for the industry, one would advise that Bangladesh would do well to address the existing challenges and bottlenecks to encourage investments in fabric production (woven) while also try and attract FDI into the sector so as to mitigate the existing bottlenecks.