The curious case of cash incentive demand of Bangladesh garment makers

by Apparel Resources

17-June-2019  |  5 mins read

Bangladesh Garment Industry
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That Bangladesh garment industry is going through a critical juncture is common knowledge. Having spent enormous amounts towards achieving remediation to ensure a sustainable business, garment makers are now burdened with paying the workers increased wages from their pockets after the recent more than 50 per cent salary hike. Add to it the diminishing profit margins and, increased overheads and raw material prices, which have made being in the business of garment making even more difficult.

It was thus obvious that the industry would seek Government support at some point in time to keep the show going. Hence, when the garment makers called for 5 per cent cash incentives against their exports regardless of destinations, it did not surprise many.

Bangladesh’s garment industry has so far been enjoying the benefit of cash incentives for only non-traditional markets.

“The present context of the apparel sector is different from the previous one. In the last five years, production cost went up by 29.54 per cent and wages by 184 per cent, while the prices of goods fell by 5 per cent in US and in Europe by 4 per cent but the workers’ productivity remains at 40 per cent,” explained BGMEA President Rubana Huq the rationale behind the garment sector’s demand.

However, many experts are critical of this as they think financial support for the sector should be target-specific and not overall.

A case in this regard could be India’s newly-appointed Commerce Minister Piyush Goyal’s clarion call to the Indian industries, as part of which he urged the representatives of industry and exports bodies to stop depending on crutches of subsidies and grants from the Government, and strive to make industry more competitive and self-reliant. Goyal asserted that when subsidies have been done away with, businesses grew. He also urged the state governments, Export Promotion Councils and industrial bodies to make all efforts to engage with the world from a position of strength.

However, when it comes to Bangladesh, the case is somewhat different. First of all the garment industry is not demanding any subsidy rather incentives to promote the sector’s growth and, secondly, unlike India, garment sector in Bangladesh is its economic backbone. Hence this issue perhaps needs to be looked from a different perspective.

“As a single sector, the apparel sector is employing the highest number of people and adding more to the economy in many ways contributing over 83 per cent to national exports. So, considering the present critical situation, there is nothing wrong with the demand for a 5 per cent cash incentive for all export destinations,” argued Rubana.

But, not all experts or economists recommend such a move.

“BGMEA should come out of the traditional incentive structure and focus on target-specific issues for better future and transition to new era. However, incentives for exploring new markets should continue,” maintained Research Director of Centre for Policy Dialogue Khondaker Golam Moazzem speaking to the media, underlining that incentives can be given in new areas such as technological development, enhancing skills of women, developing managerial capacity of BGMEA and products diversification.

Khondaker further argued that if the Government gives more concentration and incentives to a single sector, it may discourage other sectors. His sentiment was echoed by the President of Exporters Association of Bangladesh (EAB) Abdus Salam Murshedy, who also thinks that incentives should be given to all the emerging and potential export sectors.

Murshedy at the same time justified BGMEA’s demand saying that the sector is facing price competitiveness in the global market due to rise in production cost.

On the contrary, Executive Director of Policy Research Institute (PRI) Ahsan H Mansur is in favour of giving tax rebate to the apparel exporters rather than cash incentives.

The Government should devalue Taka or change the exchange policy, which will help the sector, Ahsan observed.

Now if the demand for 5 per cent incentive is justified or not is open to speculation.

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