In the 1960s, a war-torn nation struggled to recover from the devastating effects of conflict, scaled-down to leftovers of its former self. It began its development journey focusing on labour-intensive manufacturing such as textiles, which eventually opened the door to more advanced industries. Fast forward to 2024 and this country is now one of the world鈥檚 top performers, particularly in high-tech and other complex industries. This nation is South Korea, a country with conspicuous similarities to Bangladesh. They both were freed from the devastation of war and they both embarked on a development journey primarily focused on labour-intensive industries such as textiles although South Korea pursued a different trajectory for growth in later period.
Bangladesh, one of the highly labour-intensive manufacturing countries, sadly failed to change the history from its early status. Like South Korea, after the experience of war, apparel came as a bounty for Bangladesh鈥檚 developing strides. It is no overstatement to say that Bangladesh鈥檚 story of becoming a global clothing powerhouse is, perhaps, more captivating than any other nations鈥�. The rise of the apparel sector rise began with a joint venture with a South Korean firm, one of the pioneers in the sector. Since then, Bangladesh has made significant strides and there has been no turning back, especially in this sector.
The apparel sector, which employs more than four million people, the majority of whom are women, accounts for nearly 10 per cent of the gross domestic product and fetched $54 billion alone in 2023, accounting for 80 per cent of the nation鈥檚 export earnings. In global garment exports, Bangladesh ranks second only to China, underscoring how deeply this sector is entrenched in the nation鈥檚 economy.
As the facts suggest, Bangladesh鈥檚 economic fortunes are heavily cemented with this sector. From the Covid outbreak to the Ukraine war and the recent unrest in July-August that extended into September, the apparel sector has faced significant challenges. The disruption has placed the sector in a precarious situation. This is particularly concerning for Bangladesh given the presence of large competitors such as India, Vietnam, Turkey, Pakistan and Indonesia, all of which could potentially overtake Bangladesh, especially considering that India is the world鈥檚 second-largest cotton producer and exports most of its cotton to Bangladesh.
Bangladesh is ranked second in garment exports, with exports amounting to four times India鈥檚 apparel exports. Vietnam, competing neck in neck with Bangladesh in the apparel sector, and Indonesia, which have common threads with China, the world鈥檚 leading apparel exporter and an unparalleled source of raw materials, could benefit from China鈥檚 relocation or sourcing strategies, potentially attracting more western orders.
Bangladesh is already grappling with an energy crunch, primarily the shortage of electricity and gas. According to the Economist, this could lead to a 10 to 20 per cent reduction in apparel exports this year. The power crisis has worsened after the fall of the Sheikh Hasina government. With the issues remaining prevalent, buyers and competing nations alike are likely to approach Bangladesh cautiously. Frequent turmoil has implications both for competitors and buyers as competitor countries could easily reap from loopholes of chaos whereas for buyers with delays in production, posing risks to fulfilling commitments in a timely manner.
Another pressing concern is that nearly all export-oriented industries work to meet buyer鈥檚 expectations and conditions. For instance, if large clothing brands require specific types of fabrics for their finished products, apparel makers are bound to follow the requirements, often necessitating pre-investment from buyers. Any disruption in this process may result to reassessment of their orders. The Economist says that a major Spanish fashion brand, Zara, redirected some of its orders to India, with another $54 million worth of apparel orders landing in southern India because of the ongoing unrest in Bangladesh.
Given the challenges posed by these recurrent disruptions, a critical question arises: How is Bangladesh still thriving in this sector despite the chaos? To answer this, one must examine the country鈥檚 internal dynamics, policies of its importers and competitors and Bangladesh鈥檚 comparative advantages, especially in labour.
Bangladesh, a country buoying with demographic dividend, has a population of 165 million, with 117 million of them being in the work force. However, there is limited capacity within sectors to absorb this substantial labour pool. Thus, surplus work force has become a significant advantage for the nation鈥檚 apparel sector.
In contrast, countries such as India have policies that obstruct the growth of their garment industries. Harish Ahuja, chair of Shashi Exports, India鈥檚 largest clothing exporter, explained to the Economist that Indian exporters face challenges because of restrictive labor laws and tariff barriers in importer countries. In 2019, the United States revoked India鈥檚 duty-free access, accusing India of having too protectionist policies. The European Union also imposes 10鈥�12 per cent tariff on Indian products. Additionally, Indian farmers are reluctant to join the garment sector as their earnings from farming do not make any substantial differences from those in manufacturing. Indian clothing exporters believe that labour issue is the determining factor for which India cannot justify its potential given this sector鈥檚 nature of being densely labour-oriented.
Bangladesh, despite having lost its generalized system of preferences status with the United States after the 2013 Rana Plaza disaster, still enjoys tariff-free access to the EU and UK markets. While Bangladesh has labour laws in place, their enforcement is questionable, with issues such as child labour and poor working conditions still persisting. Nevertheless, Bangladesh鈥檚 most significant advantage lies in the abundant cheap labour, which single-handedly put the apparel on top. The average garment worker in Bangladesh earns around Tk 15,000鈥�16,000, this may fluctuate considering grade, work type, over-time and other issues, which is one of the lowest wages in the global apparel sector.
Herein lies the dilemma: right now, Bangladesh cannot, on the one hand, afford to lose its grip on this very dollar-mining sector as alternative potential export sectors are yet to be found and, on the other hand, the cheering demographic dividend will not stay forever as it is crystal clear that the first one will be exposed to threat greatly in the absence of the second one. On the top of that, this country is set to graduate to a developing nation status in 2026, which will bring about higher tariff and is likely to end its preferential access to the European Union and the United Kingdom. In the light of the dilemma and if this continuously remain unaddressed, the countries which are lagging behind because of comparative advantage that Bangladesh is getting will give a tight race and potentially may disrupt the luxury that Bangladesh enjoys.
Notwithstanding, in the light of comprehensive scenarios across the world, Bangladesh鈥檚 golden days with apparel may be stretched out in the future. The World Trade Organisation reported that in 2023 China鈥檚 share in global apparel exports is a mammoth total of 31.6 per cent. This is where potential chances for countries such as Bangladesh exist. Additionally, China鈥檚 shifts towards heavy industries could open the floodgate of chances for more apparel order in Bangladesh and other peer countries although China鈥檚 textile sector still shows weathering different adverse condition. However, particularly two factors can end this dominance of China in the textile sector: rising wages in coastal regions and a stronger yuan in respect to other currencies.
Talking about rising wage or cost, western nations are usually gravitating around China as it offers cheap labour and better working conditions. Sadly, for China, this situation is fast changing. The apparels sector is highly labour-intensive and the wages are higher in coastal areas of China, where most of the China鈥檚 textile industries are located. This is gradually creating a striking contrast with wage structure of Bangladesh, India, Pakistan or even Indonesia. Additionally, a report from a global B2B platform of textile suppliers suggests that in four years the wages in China soared up to 20 per cent higher and this trend is anticipated to make labour wages/costs higher even in coming years. This is further reinforced by the 鈥楥hina plus one鈥� strategy where western companies want to set up bulk of the manufacturing units to other countries, which will benefit nations such as Bangladesh with its cheap labour.
Moreover, yuan is gradually appreciating. Yuan become at least 8 per cent stronger against peer currencies in a couple of years. It means that Chinese apparels products are more expensive on the international market. This will certainly provoke western buyers and consumers to reassess as the west is also witnessing dollar becoming weak to gold, which means consumers products turning dearer, let alone apparel products. Based on the economics theory of 鈥榣aw of demand鈥�, higher prices lead to less demand from consumers as they may substitute for cheaper alternatives or reduce consumption and if this happens, one can assume that Bangladesh is going to be the gainer.
Once more, going back to South Korea, if it was South Korea鈥檚 development trajectory thoroughly for Bangladesh, then apparel could be the bedrock for its wider economic journey. As it did not happen, relevant works should be in progress to follow into the footsteps of South Korea. But for the time being and in the light of critical discussions, it is wise to take necessary measures so that a stable business environment prevails at any cost given the fact that apparel is the main pillar of the nation鈥檚 economy while derailment could make it Achilles鈥� heel of its economy as well. Besides, the backbone of the apparel sector, cheap and abundant work force and related issues with labour, needs to be addressed with much care. The issues being settled down and maintaining a competitive edge defying internal or external odds will allow Bangladesh鈥檚 apparel sector to weather challenges and continue to exist as a key player on the global apparel market.
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Shahjahan Ali is an estate officer at the BSCIC.
