by Apparel Resources
29-November-2018 | 8 mins read
Foreign investment in Bangladesh’s apparel and its supplementary industries are starting to draw up problems. Allegedly, the country’s promising accessory industry, the backward linkage of Bangladesh’s US $ 30 billion readymade garments industry, is facing problems with such investment, which can pose a threat in the days to come.
From what has been learned, several Chinese, Hong Kong and Korean companies have invested in accessories manufacturing outside the Export Processing Zones (EPZs). Several foreigners have also taken advantage of lax regulations and are reaping fat profits by barely opening up makeshift offices. Concerns are, such investments can grow into a threat by slowly steering the control away and into the grasp of foreigners.
It has been three decades since Bangladesh swerved away from being merely a sewing facility where garments were stitched up by cheap labour. Back then, all the raw materials were imported from abroad and assembled in the country. But near the 1990’s, a state-managed initiative was taken to add value to the production chain.
Hence started the journey of backward linkage industries like accessory and textiles. Now, manufacturers claim there are nearly 1,600 factories which are completely self-sufficient and can suffice about 95 per cent of the apparel industry’s accessories and packaging demand. The industry, which currently employs about 400,000 people, stood at US $ 6.7 billion in fiscal 2016-17 and aims to grow to US $ 12 billion by 2021.
“Apart from satisfying the local demand, we are also involved in direct export of accessory items. Our local industry buyers and foreign buyers are satisfied with the standard of accessory and packaging items we produce. They have never complained with the quality,” Md Abdus Sattar Riton, managing director of Ocean Accessories Ltd, told Apparel Resources.
The accessories now being manufactured in Bangladesh include carton, back board, neck board, hang tag, price tag, bar code, poly bag, collar insert, butterfly, collar bone, sewing thread, tape, elastic, printed and woven label, zipper, sticker, hanger, button, draw-cord, draw-string, interlining, tissue paper, padding, quilting, barcode, embroidery, gum tape, stopper, pp-band, and velcro tape.
Mohammad Abdul Kader Khan, president of Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA), told Apparel Resources, Bangladesh is now completely self-sufficient manufacturing in apparel accessories. “We have the capacity to provide 100 per cent demand of our apparel industry. But, we are at 95 per cent because of buyers’ preferences at times.”
Bangladesh’s accessory industry has come this far solely due to protective policies of the government. The government has always encouraged local entrepreneurs to conduct business in the accessories trade and discouraged foreign investment. However, on papers, there are no restrictions on foreign investment. Informally, foreign investment was kept inside the Export Processing Zones (EPZs). But now, FDI has spilled out of it.
Showkat Ali Khan, secretary to BGAPMEA, told Apparel Resources that there are at least 20 companies who have invested outside EPZs. Though he could not ascertain the amount of investment they poured in violation, he could say that it mainly included Chinese, Hong Kong, Italian and Korean companies.
Manufacturers are not seeing the situation as of specific threat yet, but admit that they have the potential to harm the industry. Outside manufacturing, there are foreign businessmen who opening makeshift offices in Bangladesh and are reaping fat profit by securing nomination from buyers and sourcing them at cheaper prices from Bangladesh. [Nomination is like securing a work order and has to be obtained from buyers].
BGAPMEA President Khan says: “We don’t need foreign investment in this business, we are completely self-sufficient. But there are some foreigners who secure nomination from buyers and open LCs (letter of credits) in their name. They do not have much investment as they just open an office in Bangladesh and source from here. These are new companies who don’t have much investment. In few cases they have manufacturing units as well.”
According to Investopedia, Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. The definition does not put a threshold on the sum of investment, but says the company typically has 10 per cent ownership. This provision rules such offices under FDIs.
According to what Khan says, foreign investment in the accessories and packaging business is very minimal and not much of a threat now. “We have big companies that have established themselves. There are several big names like Deko Group, Babylon Group, KDS Group and Epyllion Group who are no lesser than BDT 100-200 crore businesses. These groups are capable to source their own nominations very efficiently.”
Khandokar Golam Moazzem, research director (readymade garments) at independent think tank Centre for Policy Dialogue (CPD), told Apparel Resources that Bangladesh needs to draw more FDI for specialised products or segments of the apparel industry. “For our garments industry to grow the government needs to create scope for foreign investors.”
Ahsan Kabir, general manager (investment promotion) at Bangladesh Export Processing Zones Authority (BEPZA), told Apparel Resources that there is no restriction on foreign investment outside EPZs and that in such cases the foreign companies can have 100 per cent ownership. “We are responsible for policies inside EPZ areas. Investment outside the EPZs are under the jurisdiction of Bangladesh Investment Development Authority (BIDA).”
BGAPMEA Secretary Khan told Apparel Resources that there is no restriction on foreign investment in the industries law. “We always discouraged it. We have urged the government to discourage foreign investment in this sector. We have had unofficial talks with the industries ministry to this end. We might be placing a written recommendation soon.”
Entrepreneur Abdus Sattar Riton says: “It is definitely a problem for local entrepreneurs when foreign companies invest in the competition. It poses a bigger threat for smaller companies when the foreign capital is big.” He too, maintained that Bangladesh is better off without foreign investment in the accessories and packaging sector.
However, Bangladesh’s government is currently pursuing a policy that encourages foreign investment. Currently, the investors are being given ample opportunities and lucrative incentives to invest in Bangladesh; with an aim to drive up growth and development.
For the past year or so, Bangladesh has been campaigning everywhere, calling investors to invest in its 100 Economic Zones. A top priority in these economic zones have been given to the apparel industry which intends to grow to US $50 billion business by 2021 from what is over US $ 30 billion currently.