Reasons of growth of RMG industry in Bangladesh

 

Reasons of growth of RMG industry in Bangladesh 

Both external and internal factors contributed to the phenomenon growth of RMG sector. One external factor was the application of the GATT-approved Multi Fibre Agreement (MFA), which accelerated international relocation of garment production. Under MFA, large importers like USA and Canada imposed quota restrictions, which limited exports of apparels from countries like Hong Kong, South Korea, Singapore, Taiwan, Thailand, Malaysia, Indonesia, Sri Lanka and India to USA and Canada. On the other hand, Application of MFA worked as blessing for Bangladesh. As a least developed county, LDC, Bangladesh received preferential treatment from the USA and European Union (EU). Initially Bangladesh was granted quota-free status. To maintain competitive edge in the world markets, the traditionally large suppliers/producers of apparels followed a strategy of relocating RMG factories in countries, which were free from quota restrictions and at the same time had enough trainable cheap labour. They found Bangladesh as a promising country. So RMG industry grew in Bangladesh in a short span of time.   

By 1985, Bangladesh emerged as a strong apparel supplier and became a powerful competitor for traditional suppliers in the US, Canadian and European markets. Since 1986, Bangladesh had been increasingly subjected to quota restrictions by the USA and Canada. RMG industry suffered setback in a number of countries in the 1980s, for examples Sri Lanka: and some other countries of Southeast Asia experienced rapid increase in labour cost. Buyers looked for alternative sources. Bangladesh was an ideal one as it had both cheap labour and large export quotas. The EU continued to grant Bangladesh quota-free status and GSP privilege. In addition, USA and Canada allocated substantially large quotas to Bangladesh. These privileges guaranteed Bangladesh assured market for its garments in the USA, Canada and EU. The domestic factor that contributed to the growth of RMG industry was comparative advantage Bangladesh enjoyed in garment production because of low labour cost and availability of almost unlimited number of cheap labour. The domestic policies of the government contributed to the rapid growth of this sector as well. The government provided various kinds of incentives, such as;

            • 5% cash incentive for apparel export, initially it was 25%.

            • No import duty for export oriented apparel industry

            • Duty-free import of fabrics and accessories under back-to-back L/C

            • Concessionary rates of interest

• Foreign investors can set up ventures either wholly owned or in joint venture with local partner

• Concessionary duty on imported capital machinery

• Export Processing Zone (EPZ) facilities, etc.