RMG sector: Deep draft seaport ease out from looming challenges

Bangladeshi textile and clothing industry known as Ready-Made Garments (RMG) still holds its second position in the world’s share of RMG export. At present, the sector’s contribution to the total export of the country has claimed the lion’s share. At the very beginning, this sector’s share was only 3% and within a decade the share had increased as much as 20 times. The value of export from clothing stood at US$ 1445 million in FY1992-93 from US$ 32 million in FY1983-84. Following a decade, RMG sector earned about 75% share of the total export of the country. The share picked up to more than 84% in the last fiscal year. Evidently, it is very alarming that the reliance on the single sector for export is not a good signal for the emerging economy like Bangladesh.

Chinese textile and apparel industry (still the world's largest clothing exporters) has been going through a sectoral restructuring, its market share in the global textile and clothing industry dropped by 5.3% points from 2010 to 2018. Due to the higher wage rate, moving from low-end to high products, and burgeoning global protectionism, Chinese clothing makers are losing the cost-efficiency. While the opportunity for gripping a left-out pie of China may not be a big issue for the 2^nd ranked player. Global market share of the asserted industry posits that Bangladesh could grasp the major portion of the left-out pie but indeed Vietnam took more than 62% of them.

Matarbari Seaport under development

The question lingers why Bangladesh is not successful enough to acquire the market share as expected though it has the full potential to do so. Covert answers can possibly be delineated if we look into the matter by analyzing backward and forward linkages of the said industry, international requirements, geographical position, and geopolitical aspects.

The textile and clothing industry depends on the sophisticated backward and forward linkages. Overall exports of goods and services are only 16% of its GDP size in 2018 and the concerned industry’s share of export in the local economy as pointed out earlier is more than a four-fifth. This means that there should be a better backward linkage as expected, but in reality, the net value added to each product of the industry is not more than 64%. So, raw material raw cotton, cotton yarn, synthetic/viscose fiber, textile fabrics, and accessories sourced from the foreign economies such as India and China. Necessarily, this industry’s production depends on the foreign supply chain. While sourcing from foreign sources largely relies on physical connectivity issues and logistical support. As per the indicators of ease of doing business, on average 216 hours require to border compliance (from origin country’s warehouse to destination country’s warehouse) during the time of import while the time required for other South Asian countries (less than 86 hours) is well below compared to Bangladesh and for documentation compliance it takes 144 hours during imports, and export time from Bangladeshi warehouse to destination country's warehouse is 168 hours which is clearly 3 times higher than that of its close competitors. In case of Vietnam the border compliance requires only 56 hours and export takes only less than 1 hours of its import. On the other hand, vital local level services like supply of electricity, gas and transportation facilities make some noises in the industry to rightly reach the target in time. In case of forward linkages, the sea port infrastructure improvement with slow speed and high congestion and single seaport priority make the process more stringent. Hence, maintaining the commitment of buyers within the stipulated time becomes a matter of concern for the industry to consume the additional targets. Conversely, in case of Vietnam they have big opportunity to consume the additional targets since they can easily source their raw materials within their economy and relatively closed economy, in terms of distances, like China and Cambodia. Trade openness index for Vietnam is more than 200% while for Bangladesh it is around 28% which is well below the world average.

Though, Bangladesh has slightly improved in the ease of doing business index by 8 notches (as per the World Bank Report), it is far behind the peers. And so, apparel industry continuously loses its foreign buyers for higher lead time compared to close competitors like Vietnam, India, Myanmar, and Pakistan. European market's fashion is continuously changing on a monthly or even weekly basis. So, the buyers love to furnish its show room with new products with the line of new trends. On the other way, Bangladeshi exporters have to source the raw materials from foreign sources or the buyers' chosen suppliers. However, the poor ease of doing business marks compared to the peers proves that buyers not only lose the time but also incur additional cost for it. These problems lead to the reluctance of buyers for providing additional orders. Moreover, Bangladesh is under serious monitoring regarding compliance issues after the collapse of ‘Rana Plaza' in April 2013 and since then, about 1800 factories that produce garments came to an inspection regarding fire, electric and structural safety hazards and adjustment on compliance and auditing issues. Again, most of the garments factories did not have the own land or buildings, as a result they cannot renovate or restructure their factories due to the ownership related issues. While, most the foreign buyers' obligation to comply with the commitment made the garments factories unfit for receiving new orders. Hence, international new requirements coupled with new technologic adaptability came to be the looming challenges for the local industry and international trade diversion is evident.

Location is favorable for Bangladesh in the point of connectivity with South-East and South Asian countries. However, in case of export of apparel products and linking with supporting industries, Bangladesh is lagging behind compared to Vietnam. Because, Bangladesh's major trading partners for apparel products are European Union, USA and Japan. Distances with the relevant trading partners are a naturally big factor but those who have seaport they are in a benefited condition with respect to distance. Bangladesh has owned three seaports (one of them called Payra port is under development) but none of them are not able to facilitate larger mother vessels due to lack of minimum drafting (Chittagong and Mongla port can handle vessels with a draft of just 8.5 meters). And so, it has to depend on the deep seaport of Singapore or Columbo for connecting with mother vessels necessitating the use of tiny feeder vessels. In this particular issue, Vietnam and Myanmar have advantages to anchor their lighter vessels up to Singapore deep seaport with cruising less distance. Hence, not only border compliance maintenance consumes the time but also transshipment via Colombo or Singapore makes the process more time consuming and that’s why buyers in economic point of view will search for best alternative. Now, it is a matter of concern why Bangladesh is not investing earlier to build its own deep seaport.

Importantly, no alternative option is present to build a deep-draft-seaport to berth the mother vessels into Bangladeshi territory that will save 30 days and that will again reduce the per unit cost of production both time during import and export. GoB has opted to build a deep sea port on Payra with draft of 16 meters revising their initial plan. Besides that, Government is planning to build Moheshkhali seaport with draft of 16.5 meters and the final report of the feasibility study has already been submitted by the technical consultant. It is expected that construction work of Payra deep seaport will be completed by 2023 and this work is part of Bangladesh-China-India-Myanmar (BCIM) Economic Corridor. India is financially supported the project and Chinese companies awarded for two components (among 19 separate components). There are some geopolitical constraint to build the deep seaports in marine line of the Bay of Bengal. Because, China, Japan and India are the major economic power in this Bay of Bengal regions. They have some interests in developing the infrastructure or financing the project like Payra or Moheshkhali deep sea port for future benefit of it.  Hence, the progress of the construction of mega-project like Payra deep seaport and Moheshkhali deep-draft-port within the time frame not only depend on the political government but also it is more relies on the geopolitical balance gaming. 

However, the moot point is that Bangladesh should proceed the physical development of the deep seaport as timely as possible putting on the most priority. This will certainly give big push for the overall progress of the economy. It is expected that Bangladeshi apparel exporters will be the most beneficial because they will able to cut the lead time, buyers will get confidence on placing more orders, and also shippers do not wait for weeks to connect feeder vessels to the mega-ships that sail the major east-west trades. Thus, deep-draft-port will be the game changer for textile and apparel industry to grow beyond the targets.

 

Robart Shuvro Guda, working as a Economist and Project Manager at Unnayan Shamannay. Email: rsguda.du@gmail.com