Bangladesh’s Ready-Made Garments and Apparels, has been a consistently high-performing, export-led sector that has contributed immensely to the economy in terms of economic growth and employment generation.
The industry holds a strong foothold internationally, reflected by its holding of 6.8% of the global apparel market as of 2019. Besides this, the sector constitutes an approximate 84% of total National Exports. 
The sector faced what could be described as a state of emergency in the wake of the coronavirus threat, as it brought with it a plethora of difficult challenges for Factory Owners and workers alike. Besides burgeoning infection rates across the country, slowing productivity and hindering capacity utilization in RMG factories, the sector was also hit with a multitude of cancelled orders.
The list of brands that cancelled orders included, but were not limited to reputed Brands from the US and UK such as Debenhams, H&M, GAP, JCPenney, Primark, Arcadia Group, Peacock, Topshop, Dorothy Perkins, Miss Selfridge, and Transform Holdco LLC.
Given the fact that the US and UK are some of the prime export destinations of the Bangladesh RMG Sector, this became especially worrisome concurrently for the sector as well as the economy.
The industry recorded a 14% decline in growth overall in the first ten months of FY19-20, which was the largest negative growth figure in the last 5 years. Some percentage of this degrowth is attributed to factors besides the COVID-19 pandemic, such as an overvalued exchange rate, and inability to capitalize on the US-China Trade War sufficiently. 5.71% downturn in RMG exports were recorded for July-January of FY 2019-2020–months before the lockdown was put into place.
However, the slowing of business activity that came with the virus and the string of order cancellations that followed, exacerbated the problem greatly. As of June 2020, only BDT 0.82 Billion (26%) of BDT 3.15 Billion worth of pending work orders to the sector had been recouped.
Despite being faced with this grim outlook, the sector has recently shown signs of recovery and may soon be coming back to its usual competitive best and thrusting forward economic growth.
Order Revivals-A Welcome Relief
Bangladesh’s ready-made garments (RMG) exports in August 2020 were USD 3.36 Billion, which was a robust 44.63% Y-o-Y growth according to the data prepared by BGMEA from the National Board of Revenue(NBR).
However, there is a significant discrepancy of this data with the data prepared by the Export Promotion Bureau (EPB), which reports an export figure USD 900 million lower than the NBR. If this is the case, the export growth for August would be 7.89% Y-o-Y.
While it yet remains unclear what could be the cause of such a large differential in the two datasets, the case either way is that the worst situation for the sector may be over– with orders being deftly revived and demand perking up once more.
Brands such as H&M, Primark and Walmart have been key in driving back the export earnings through the restoration of their previously cancelled orders. Primark in particular, who previously had cancelled orders estimated in the region of USD 273 Million, have restored all such orders and have begun placing new orders on top of this.
Industry experts at Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) have stated that the ratio of revived orders now stands at 80-90% and demand for new orders have reached up to 60% of monthly averages.
A total of 324,684 readymade garment (RMG) workers were laid-off or quit as a result of the COVID-19 pandemic, according to a study by the Bangladesh Institute of Labour Studies (BILS). The reinstatement of orders is an especially encouraging sign as it may prevent any further job losses in the sector that employs an excess of 3.5 million people (with approximately 60% being women). In fact, the inflow of orders has now driven RMG factories to begin hiring extensively to meet the requirements of buyers.
Looking Beyond Recovery and Towards Competitiveness
However, despite this fortunate chain of events driving earnings back to previous levels, there are still a number of pressing issues for the sector to handle.
For one, there is the issue of the sector having an undiversified basket of goods which are mostly low-value. As Vietnam, Turkey and other competitors move into higher value products, Bangladesh RMG may potentially be left behind unless it diversifies both its export markets and its basket of goods. A recent study by QIMA showed that Bangladesh remains one of the top sourcing locations for clothing in the global market. However, the same study showed the increased preference of US brands in near-shoring from Turkey and diversifying their sources in general.
Bangladesh’s revocation of Generalized System of Preferences (GSP) Facilities in a post-LDC graduation state may be a tough challenge ahead for which Free Trade Agreements and Bilateral Agreements must be pursued. Bangladesh’s High Commissioner to the UK, has recently expressed interest in pursuing an extension of UK’s GSP Facilities to Bangladesh until 2030 to help SDG achievement and progress.
Besides mounting competition from other countries, there is also the issue of the EU’s previously proposed EUR117 million incentive plan for jobless and laid-off garments’ workers. The terms and conditions of the Incentive plan have yet to be formally finalized due to a lack of information about laid-off workers, and indecision in how much benefit to allocate to whom. The solution of these complexities will be a big boost to the sector in its road to recovery.
The way forward for Bangladesh RMG in the short term will be to address a proper recovery plan for the workers and factory owners that have suffered as a result of the coronavirus crisis. Successful containment of the infection rate will also be vital in regaining international confidence and orders. For the long term, a plan of diversification of both export destinations and product basket, as well as the establishment of Trade Agreements will be essential in holding on to its competitive edge.
What Order Cancellation Means for the Bangladesh RMG Sector 
The Fashion War that Matters: Assessing Bangladesh RMG’s International Competitiveness 
Sartaz Zahir, Content Writer and Sanjir Ali, Senior Business Consultant and Project Manager at LightCastle Partners, have prepared the write-up. For further clarifications, contact here: [email protected]
- 1. WTO | Trade Statistics – World Trade Statistical Review 2020– World Trade Organization
- 2. EPB Trade Data – Export Promotion Bureau
- 3. Buyers tend to undo existing contracts with RMG producers – The Financial Express
- 4. Apparel sector to see massive job cut this month, BGMEA warns – The Business Standard
- 5. Bangladesh RMG export posts 45pc growth in August – New Age BD
- 6. Primark restores cancelled orders, places fresh ones too – RMGBD.net
- 7. RMG exports fetch $1.57b in 18 days as buyers reviving orders – New Age BD
- 8. Study: 325,000 RMG workers lost jobs due to pandemic – The Dhaka Tribune
- 9. Press reports on Ongoing Upgradation in RMG Enterprises | CPD -Center for Policy Dialogue
- 10. Bangladesh still among top sourcing destinations – The Daily Star
- 11. Bangladesh seeks UK’s GSP facility until 2030 – The Business Standard
- 12. EU incentives for jobless Bangladesh RMG workers in limbo – The Financial Express
- 13. What Order Cancellation Means for the Bangladesh RMG Sector – DATABD.CO
- 14. The Fashion War that Matters: Assessing Bangladesh RMG’s International Competitiveness – LightCastle Partners