Sustaining the growth of RMG sector

For a few months we have been receiving hardly any good news. Amidst the prevailing dread, our garment sector continues to enliven our hopes. Despite the political turmoil, the baggage of tragic Rana Plaza and Tazreen incidents, followed by prolonged workers' strike, garments exports performed significantly well with about 21 per cent increase in July-November this year over the performance in the same period last year. It was even 5.0 per cent higher than the target. This undeniably deserves a big applause! The cost of transportation to Chittagong port through roadways has mounted 600 to 700 times during the current political crisis, and therefore the reliance on air cargo has gone up sharply.

Bangladesh had excellence in textile industry for thousands of years. The country used to produce the finest fabric of the world called muslin. The present textile and garment making in the country, though not a continuation of the past legacy because of dynamic technological changes in manufacturing, product development and marketing, has placed the country at the forefront of the global industry. Currently, Bangladesh is the second largest exporter of readymade garments. Figures below present a view of the performance of the RMG sector in recent times as well as that of other important products:

Total exports have also gone up during this period, averaging 18 per cent change compared to that of the previous year. It also exceeded the overall export growth target by about three percentage points. The change in November 2013 over November 2012 was even higher, more than 25 per cent. Knitwear topped in terms of export volume ($4.9 billion) followed by woven garments ($4.75 billion). The other notable drivers of export growth were frozen food (mainly shrimp), vegetables, pharmaceuticals, leather, footwear and engineering equipment. On the other hand, some major products like petroleum bi-products, jute & jute goods, iron & steel, copper wire and electronic products witnessed big decline.

While this five-month statistics reveals cheerfulness in the external sector, a relevant and perhaps the most crucial question is whether this performance is sustainable for the rest of this fiscal. The World Bank has already cautioned with a lower predicted growth rate due to political chaos in the election period. However, this performance was achieved in the period of low implementation of Annual Development Programme compared to the previous year and low imports that helped boost forex reserve exceed $18 billion.

Recent news reports reveal that some buyers have shifted their purchase orders to India in December, one amounting to half a billion dollars given the prevalent circumstances. It gives a worrisome indication to the RMG exports that may decline in the coming months. The Bangladesh Garment Manufacturers and Exporters Association (BJMEA) has also forecast that the sector may experience a decline in the early months of the coming year.

Now we are indeed in a paradoxical situation: impressive achievement despite institutional, governance, infrastructural and democratic deficit. The country has come a long way overcoming many hurdles that could have turned the economy otherwise. What mystery underlies this spirit? A tentative answer could be the so-called 'intrinsic strength' of the economy. This would also lead to develop a theory of 'camel economy' that can store water to walk miles in the desert.

Nevertheless, no matter what would happen in the coming days, all we can do is offer best wishes for the manufacturing sector that contributed more than 95 per cent to total exports in the first five months of this fiscal. The factory owners have been showing their highest tolerance by continuing operation despite manifold uncertainties.

Now, the onus is on the public sector, especially the public exchequer, to relax the fiscal regulations so that the economic activities can get some respite. The NBR (National Board of Revenue) data show that nearly half of the anticipated income taxpayers have not yet submitted returns. Experts already predicted that the revenue would fall much short of the target. Given this awkward situation, the government must understand that this is not the time to provide cash incentive that would run the risk of opening a black hole. Rather, it can design a macro-prudent policy package to fuel the economy, especially the manufacturing sector keeping in mind its importance in exports and employment.

 At the moment it is the external sector, especially exports and workers' remittance, which seems to be the only ray of hope.

Inflation has not yet triggered despite large disruption in the supply chain. With uncertainty hovering threateningly over the economy, it is high time the scenario shifted to normalcy.

Published in: The Finacial Express
Writer: Mahfuj Kabir

               The writer is senior research                          

               Fellow, BIIS, Dhaka. mahfuzkabir@yahoo.com