Research On Bangladesh Readymade Garments

Master /
Garment Individual Study
A Research paper
On
Export Growth Sources of Bangladesh Readymade Garment Industry.
(Constant Market Share Model).
BY
Sk. Ashiquer Rahman
ID#4585974929
A Thesis Submitted In Partial Fulfillment of the Requirement for the Degree of Masters in Inter-
national Economics and Finance
TO,
Prof.Paitoon Wiboonchutikula,
Ph.D ,Associate professor and
Chairperson, Faculty of Economics,
CHULALONGKORN UNIVERSITY,
Supervisor: Sirima Bunnag, Assistant Professor,
Faculty of Economics, Chulalongkorn University, Thailand.
Masters in International Economics and Finance

Faculty of Economics,
Chulalongkorn University, Phayathai Road,
Bangkok-10330,Thailand.Tel: (662) 218 6295, (662) 218 6218,Fax:(662) 218 6295,
Phone: 555-555-5555
Fax: 555-555-5555
E-mail: ief@chula.ac.th, http://www.econ.chula.ac.th/programme/ma_inter.html
E-mail: someone@example.com
“Export Growth Sources of Bangladesh Readymade Garment Industry. (Constant Market Share Model)”
2002
Letter of Transmittal
June 1, 2003
To,
Sirima Bunnag, Supervisor,
Assistant Professor, Faculty of Economics,
Chulalongkorn University, Thailand.

Subject: Letter of Transmittal.

Dear Madam,
Here is my paper on “Export Growth Sources of Bangladesh Readymade Garment Industry.
(Constant Market Share Model)” that I was assigned. It was a great opportunity for me to
acquire practical knowledge of the master in economics and finance.

I have concentrated my best effort to achieve the objectives of the report and hope that my
endeavor will serve the purpose.

I believe that the knowledge and experience I have gathered during my paper preparation
will immensely help me in my professional life. I will be obliged if you kindly approve this
effort.

Sincerely yours,

Sk. Ashiquer Rahman
Id#4585974929
Bangkok, Thailand

ii
2002
Preface
Any institutional education would not be completed if it were confined within theoretical aspects.
Every branch of education has become more competed by their practical application and
accomplishment of full knowledge. We shall be benefited by our education if we can effectively
apply the institutional education in practical fields. Hence, we all need practical education to apply
theoretical knowledge in real world. By considering this importance “faculty of economics”
arranges the individual study for the students of Masters in International Economics and Finance.
As a part of this program my topic was selected as ““Export Growth Sources of Bangladesh
Readymade Garment Industry. (Constant Market Share Model)”

I tried my best to conduct an effective study by arrange and analysis data. There may be some
mistakes, which are truly unintentional. So, I would request to look at the matter with merciful
mind.
Sk. Ashiquer Rahman

Id#4585974929
Chulalongkorn University
Bangkok, Thailand
iii
2002
Acknowledgement
First, all praises go to almighty Allah, the most gracious, the most merciful to give me the ability for
all these I have done.
Then I would like to thank Ms. Wanwadee Wongmongkol. Now I would like to thank Sirima Bunnag,
paper Supervisor, Assistant Professor, Faculty of Economics, Chulalongkorn University,
Thailand to give me the opportunity to do this project.
I would also like to thank Professor. Paitoon Wiboonchutikula, Ph.D ,Associate professor and
Chairperson of Faculty of Economics, Chulalongkorn University & Professor Salinee. Secretatery
international economics and finance. My striking thanks go to honorable sir Dr. MN.Sirker who
has helped me in all aspect to prepare the report.
I would like to thank lab incharge Ms. Mink . Last but not the least I wish to thank my
friends, William Lloyed ,Nakarin and Athipat, for their very helpful discussions.
Sk. Ashiquer Rahman

Id#4585974929
Chulalongkorn University
Bangkok, Thailand
iv
2002
Table of Content
Title Page
Letter of Transmittal ii
Preface iii
Acknowledgement iv
Table Of Content v
Abstract 1-1
CHAPTER I 1-15
Introduction 1-15
CHAPTER II 15-18
2.1. Statement of the Problem and its Significance 15-16
2.2. The objective of the study 16-17
2.3. Scope of the study 17-17
2.4. Organization of the study 17-18
CHAPTER-III 18-34
3. 1. Market structure of Bangladeshi Garment Industry 18-25
3.2. Recent Performance of the Apparel Export Sector 25-34
CHAPTER IV 34-53
4.1. Literature Review 34-42
4.2. Conceptual Framework 42-52
4.3.Empirical result of Bangladeshi garment industry 52-53
CHAPTER V 53- 108
5.1.Sources Of International Competitiveness 53-53
5.2. Measure of Competitiveness 53-54
5.3. Macroeconomic Developments 54-54
5.3. Developments:Macroeconomic 54-54
5.3.1.Recent Growth Performance 54-60
5.3.2 Savings-Investment Performance 60-62
5.3.3. Readymade garment 62-65
5.3.4 Trends in External Sector 65-65
5.3.5 Bangladesh's Export Sector 65-68
5.3.6 Exchange Rate Policy and Export Performance 69-80
5.3.7. Export Performance 80-85
4.3.8. Primary And Manufactured Commodities 85-88
4.3.9. Export: Country Wise 88-97
5.3.10. Economic Trends 98-101
5.3.11. Future Growth Prospects 101-103
5.3.12 .Readymade garment and potential service 103-108
CHAPTER –VI 108-111
Conclusion 108-111
CHAPTER VII 111-117
Recommendation 111-117
References 118-119
Appendix 120-123
v
Export performance in the world market for Bangladeshi readymade Garment
2003
Abstract
Bangladesh’s recent export performance in the world market for readymade garment
has improved markedly. In this study, Constant Market Share Analysis is used in order to
determine the competitiveness of Bangladesh and its competitors, which are the main
readymade garment producers, in the USA, UK.CANADA AND ALL others markets
between 1989 and 1998 periods. Constant Market Share (CMS) analysis is a popular tool for
analyzing changes in exports of a country. Nevertheless, its theoretical foundations (and
policy relevance) have been questioned. In this paper, we provide such a foundation by
relating CMS analysis of export growth. An indication of the empirical relevance of this
relationship is given by comparing the CMS analysis. The analysis reveals this improvement to
be predominantly the result of competitive advantages of ready made garment industry .
Bangladesh is able to export s readymade garment of high and consistent quality at low costs,
under conditions which meet the world standards set by the world. In addition to competitive
advantages, Bangladesh has benefited from growth in the overall size of the world export
market for readymade garment, but has suffered from having only relatively small shares in
the important markets of some member States. Market research on consumers’ demand and
preferences could further improve Bangladesh’s recent export performance of readymade
garment.
Keywords: Bangladesh, Competitiveness, Constant Market Share Model. Ready made Garment.
CHAPTER I
Introduction
Bangladesh economy experienced a trend rate of growth of 4.8

per cent during 1990s as against 4.4 per cent during the previous
decade. The rate of growth of per capita GDP has also been
impressive during the 1990s. In addition to the higher growth
rate of overall GDP, this was facilitated by a sharp fall in the
rate of growth of population. During the 1980s, population grew
at an annual compound rate of 2.2 per cent, and the rate of
growth of per capita GDP was recorded at 1.7 per cent per annum.
In contrast, population growth rate came down to 1.7 per cent
during the 1990s.Per capita GDP grew at an annual compound rate
of 3.3 per cent during the 1990s.However, in terms of the
absolute level of per capita income, Bangladesh continues to
remain at the lower end of the income scale. Per capita income of
US$370 compares unfavorably against the low-income country
average of US$410.During 1990s, Bangladesh's total exports in
1
2003
current US$ value grew at an annual compound rate of 14.4 per
cent. In fact, Bangladesh experienced double digit export growth
in most of the years during the 1990s. Imports, on the other
hand, grew at an annual compound rate of 10.9 per cent during
1990s. The gap between export and import widened from -US$1792
million in 1990/91 to -$2814 million in 1999/00, although the
share of export earnings in import payments steadily rose from 31
per cent in 1980/81 to 67 per cent in 1999/00. The openness of
the economy as measured by total external trade as a proportion
of GDP went up from around 22 percent in 1990/91 to nearly 30 per
cent in 1999/00 with the share of export in GDP rising from 7 per
cent to 12 percent during the same period. The structure of
export has changed significantly over the past two decades.
Bangladesh seems to have made the transition from resource-based
to process-based exports. In 1980/81, primary commodity
constituted nearly 29 per cent of total exports. In 1990/91, this
share came down to 17.8 per cent and further down to 8.2 per cent
in 1999/00. There has been shift from jute-centric to garments-
centric export. In 1980-81, raw jute and jute goods together
constituted 68 percent of total exports. Between 1980/81 and
1999/00, export of both raw jute and jute products declined in
absolute terms and their total share came down to only 6 per cent
in 1999/00. In contrast, woven and knit garments together
accounted for less than 1 per cent of exports in 1980/81. Their
combined share in exports rose to nearly 76 percent in 1999/00.A
change in the composition of output and employment away from the
agricultural sector in the direction of manufacturing and service
sectors is often used as a measure of development. In Bangladesh,
the share of agriculture in GDP declined from 29.2 percent in
1990-91 to 25.5 percent in 1999-00 - a decline of 3.7 percent.
The fall was compensated by an increase in the share of
manufacturing and construction. Despite declining share of
agriculture in GDP, the increase in food production has been
quite satisfactory moving the country from a state of chronic
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2003
food deficit to near self-sufficiency level. Manufacturing
industry in Bangladesh achieved respectable growth during 1990s.
The contribution of manufacturing to GDP increased from 12.9 per
cent in 1990-91 to 15.4 per cent in 1999-00. However, the
sector's current share in GDP appears rather modest for it to
spearhead sustained high growth of the economy. Thus, for
example, in Thailand the share of manufacturing in overall GDP
was 22 per cent in 1980 and it rose to 32 per cent by 1998. The
growth of Bangladesh’s manufacturing sector has also been rather
narrowly based with readymade garments accounting for nearly a
quarter of the scrotal growth. Other important export industries
contributing to scrotal growth are Fish & seafood, and Leather
tanning. Major import substituting industries experiencing
significant growth during this period include Pharmaceutical,
Indigenous cigarettes (bidi), Job printing and Re-rolling mills.
Other success stories of Bangladesh include maintenance of low
level of inflation, rapid spread of micro credit program largely
at the initiative of NGOs, and significant improvements in the
social sector. However, in spite of such successes, the structure
of production and exports has remained extremely narrow in
Bangladesh. Bangladesh has also failed to attract adequate amount
of FDI into the country. While the opening up of gas, electricity
and telecommunication sub-sectors to private investment has
resulted in the inflow of considerable foreign direct investments
(FDI) in these sectors, the overall inflow of FDI has remained
sluggish. The narrow export base has rendered Bangladesh’s
external sector extremely dependent on global trading environment
and preferential treatment by its main trading partners. The
recent poor performance of exports in the face of global economic
slowdown has confirmed this vulnerability of the Bangladesh’s
external sector. Other weaknesses of Bangladesh economy include a
dysfunctional banking system overburdened with classified loans,
persistent loss of the state owned enterprises, poor
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2003
infrastructure, deficient tax efforts, political disturbances and
unsatisfactory law and order situation.
Now we are going to the Country Competitiveness Indicators

of Bangladesh. Because export growth performance depend on
competitiveness factors
Table-1. Overall Performance:
GNP per capita (US$) 1996 $260
Average Annual Growth of GNP per capita (%) 1965-96 1.00%
Standard Deviation of Income Distribution 11.31
Source- World Bank Group
Table 2. Macro and Market Dynamism:

Table 2(a) .Investment and Productivity Growth
Gross Domestic Investment (% of GDP) 1996 17%
Average annual growth of Gross Domestic 13.6%
Investment(%) 1990-1996
Private Investment (% of Gross Domestic Fixed 62.5%
Investment) 1996
Net Foreign Direct Investment FDI (% of GDP)1996 0%
Average annual difference in Net FDI (%) 1980-82 to 0%
1990-92
Average Annual Growth of Real GDP per worker(%) 2.4%
1980-90
Table-2(b). Overall Trade Dimensions Trade
Surplus/Deficit (% of GDP) 199500% -8%
Export Share of World Trade (%) 1994 0.1%
Average Annual Growth in Export Share (%) 1989-95 6.697%
Export Concentration Index 1992. 0.246
Percent Change in Export Concentration Index (%) -2.381%
4
2003
Bangladesh
Exports of goods and services (% of GDP) *
14.0
( total)
Total debt service (% of exports of goods and 9.2
services)** (total)
Figure-1
*
**
Source: World Development Indicators database, July 2000

Table-2 (c). Export Competitiveness
Average Annual Nominal Export Growth (%) 88- 16.4%
89 to 93-94
Export Growth from World Demand (%) 88-89 to 7%
93-94
5
2003
Export Growth from Market Share (%) 88-89 to 8.8%
93-94
Export Growth from Market Diversification (%) 0%
88-89 to 93-94

Table-2 (d) . Export Structure
Manufactured Exports (% of total exports) 83%
1995
Percent Change in Share of Manufactured 20.29%
Exports (%) 1980-93
High Tech. Exports (% of manufactured 0%
exports) 1995
Table-2 (e). Trade Policy
Mean Tariff (%) 1990-93 84.1%
Standard Deviation of Tariff Rates (%) 1990-93 26.1
Percent of Products covered by Non-Tariff N/A
Barriers (%) 1990-93
Table-2 (f). Government Involvement in the Economy
Government Consumption (% of GDP) 1996 14 %
Average Annual Growth of Government 3.4%
Consumption (%) 1990-95
Value Added of State Owned Enterprises SOE (% 3.4%
of GDP) 1990-95
SOE's Investment (% of Gross Domestic Fixed 23.5%
Investment) 1990-95
Government Surplus/Deficit (% of GDP) 1995 N/A
Table 3. Financial Dynamism
Net Present Value of External Debt (% GDP) 1996 30.0%
Growth in Total External Debt (%) 1980-94 89.82%
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2003
Average Outstanding Money M2 (% of GDP) 1996 36%
Average Annual Growth Rate of GDP Deflator (%) 4.9%
1990-96
Credit to Private Sector (% of GDP) 1996 20.6%
Stock Market Capitalization (% of GDP) 1996 14.3%
Real Interest Rate (%) 1996 8%
Actually, growth has accelerated in Bangladesh in the 1990s.

Much of this acceleration in growth took place in the context of
rapidly declining external aid. External aid has fallen from 12%
of GDP in the early 1980s to only about 2% of GDP now. There have
not been any compensating private flows during this time. This
enhanced growth performance occurred during a period of policy
reforms. However, it does not necessarily mean that policy
reforms were alone responsible for the acceleration. Some
increase in total factor productivity was responsible as was some
increase in the savings rate, due largely to an increase in
public sector savings. Much of the growth in large-scale industry
has been driven by ready-made garments (RMG). Growth in the non-
RMG large-scale industry has been slow about 4% in the 1990s.
This is less than that in the 1980s. Why is it that so few
industries have managed to duplicate the performance of the RMG
sector? One question worth exploring is whether the RMG sector,
by absorbing the domestic savings, crowded out the other
industries. The RMG sector has had phenomenal growth. Growth
rates of earnings, in real dollar terms, jumped from about 6%
during the 1980s to 15% during the 1990s. For the first time in
FY01-02, there was a 10% drop is export earnings. But, even in
this bad year, the volume of exports actually went up by 10%,
albeit not by enough to compensate for the 20% drop in average
prices. There are some fronts, however, where the industry has
not been very successful. One such area is marketing. The
industry has not yet developed good marketing skills of its own
7
2003
and continues to rely heavily on foreign buying houses, notably
those from India and Sri Lanka. These intermediaries capture a
large part of the margin. The scope for the industry to benefit
from devaluations is limited in such a situation. The industry
should have used the last 20 years to go deeper into the
marketing channel. The fact that foreign direct investment had
not been allowed in the industry is one possible reason for our
failure to do so. The Bangladesh Garments Manufacturers and
Exporters Association (BGMEA) is now thinking of setting up
marketing centers abroad. This is an area where public-private
sector collaboration may be required. The only import-
substituting industry that grew significantly, reflecting
somewhat the East Asian pattern, is pharmaceuticals. It first
grew under protection alongside imported pharmaceuticals. It then
out-competed the imported products and has now started exporting.
It is possible that some parts of the industry are not very
efficient but are surviving due to protection while other parts
are efficient and competing in world markets. The shrimp
processing industry is an interesting case. A few years ago, the
industry faced serious reputation problems due to the fraudulent
practices of a few producers. The malpractices of a few
jeopardized the entire industry indicating that reputation is a
public good. In other words, the industry as a whole needed to
take remedial actions. The industry is now finally realizing this
and has started taking steps at self-regulation. Having concluded
that the government’s standards institute is inefficient, it has
adopted measures to impose standards on their own and monitor
compliance. The capital goods industry has declined, e.g.,
textile machinery industry has virtually disappeared. It is
important to have a capital goods industry. Adaptation of
technology is important for industrial growth. For this to
happen, one needs a domestic capital goods industry. Small scale
industries have done quite well in recent years and have largely
benefited from liberalization. On the one hand, they are not much
8
2003
affected on the output side (do not compete with imports) but
benefit from the liberalization of imports of inputs. They
expanded at the expense of inefficient large-scale industries as
well as cottage industries. Poverty reduction will require
further growth in such small scale enterprises. The contribution
of export industries and large-scale industries to poverty
reduction will be less direct. Their main contribution will be
through generating capacity to import by earning foreign
exchange. This will help small-scale enterprises who need
imported inputs and this, in turn, will help reduce poverty. Cash
subsidies are currently given to various activities, such as
agro-processing, leather goods and light engineering. The
practice of providing cash subsidies started with Grameen
check(garment). It was meant to compensate for duties paid on
imports and amounted to 25% of total sales value, a high amount
by any standard. The rationale for providing cash subsidies,
especially at the current scale, is weak. Import duties have gone
down due to import liberalization. If compensation is to be
provided, the amount required for various products will have to
be re-calculated, taking into account the changes in duty rates.
Many people fear that the RMG industry will be hard hit after
2005 when quota privileges are withdrawn. However, the fears may
be exaggerated. The European market is already open and
Bangladeshi exporters are doing reasonably well there. The key is
to improve productivity and go deeper into the marketing chain.
Dispersed, non-farm growth in rural areas and in and around small
towns is probably the way to go. There is some potential in
micro-level enterprises but not much. Self-employment in low-
productivity activities does not hold much promise. Wage rates
will increase through small-scale activity, not much through
micro-enterprises. Industrial development will require
improvements in governance. Bangladeshi industry can do quite
well without much protection if there is better governance, e.g.,
if there is no toll collection and if utilities can be provided
9
2003
efficiently. A recent study has shown that the costs of giving
tolls, as percentage of turnover, is greatest for small-scale
industry, and lower for micro and large enterprises.
Consistent with the on-going trend of the free-

market economic system and globalization of world economy, a
liberal trade policy was pursuer in the financial year ended on
30th June, 2000 as in the preceding year with the objective of
providing protection to the domestic industries, trade
liberalization and expansion of export trade. So a small change
has occurred in Bangladeshi trade policy, especially garments
sector. Earning from the export of the readymade garments which
stood at 4352.0 million us dollar during 1999-2000 was 8.3%
higher than 4020.0 million us dollar during 1998-1999. The USA,
Canada, and EC countries were the principal buyers. Export
receipts from readymade garments were 1.2% higher than the target
of 4380.53 million us dollar for the year and accounted for 75.7%
of the total export receipts of the country.
Seventy-five per cent of Bangladesh's exports is

dominated by only one item-ready-made garment (RMG) - and the
bulk of the volumes of RMG exports goes to North America and
Europe. After RMG, the only other mentionable items are shrimp,
jute and leather. Even the buyers of these secondary export items
are limited in number. The composition of the export trade to
such a small number of goods and their limited number of buyers
mean that the country's external trade is vulnerable to any
downturn in the external environment in the form of price
fluctuation or reduced demand. Both prices and demand for
Bangladeshi RMG products have recently much declined in the Us
market the biggest single market for Bangladesh's ready-made
garment . Similar is the condition of the other export items with
the only exception of leather. But notwithstanding the global
10
2003
recession and setbacks in certain markets, the country's export
trade would not slump badly perhaps and could be maintained at a
reasonable level if steps were taken much earlier to achieve
diversification of both exportable and their buyers. In that
case, the country would be hedged considerably against any
drastic fall in export earnings as reduced earnings of some items
or from some countries could be offset by good or steady earnings
from other sources. Exporters of Bangladeshi garment industries
must get used to being dynamic for a change. They must shake off
the habit of waiting for orders to come to them automatically.
They should be rather out in the field hunting for such orders.
Experts in the RMG field say that good markets are there for
Bangladeshi products in some South American countries, in the CIS
countries and in Japan. RMG producers should lose no time in
immediately exploring these markets and Bangladeshi missions’
abroad need to work round the clock in support of such market
identification and development activities. Government's fiscal
and other polices will have to be quickly adjusted as the
exporters search out new markets and attempt entering into them.
Apart from the conventional items, exporters need to be
encouraged in every way to go all-out to try and export
unconventional items and in greater quantities. It was estimated
that Bangladesh produces about 4.2 million tons of fresh fruits
and vegetables a year and a substantial quantity of such produce
gets wasted. But the same have good market demand abroad and can
earn good amounts in foreign currencies provided government makes
the right move to reduce freight, handling and other charges and
provides other incentives to exporters of fruits and vegetables.
Government policies taken in support of the moves of exporters of
agro-produces can probably create quickly new items for export at
a time when the country is in a rather desperate situation to
earn more foreign currency from its export trade.
11
2003
A recent study has shown that the costs of giving tolls, as
percentage of turnover, is greatest for small-scale industry, and
lower for micro and large enterprises. Consistent with the on-
going trend of the free-market economic system and globalization
of world economy, a liberal trade policy was pursuer in the
th
financial year ended on 30 June, 2000 as in the preceding year
with the objective of providing protection to the domestic
industries, trade liberalization and expansion of export trade.
So a small change has occurred in Bangladeshi trade policy,
especially garments sector. Earning from the export of the
readymade garments which stood at 4352.0 million us dollar during
1999-2000 was 8.3% higher than 4020.0 million us dollar during
1998-1999. The USA, Canada, and EC countries were the principal
buyers. Export receipts from readymade garments were 1.2% higher
than the target of 4380.53 million us dollar for the year and
accounted for 75.7% of the total export receipts of the country.
Seventy-five per cent of Bangladesh's exports are dominated by
only one item-ready-made garment (RMG) - and the bulk of the
volumes of RMG exports go to North America and Europe. After RMG,
the only other mentionable items are shrimp, jute and leather.
Even the buyers of these secondary export items are limited in
number. The composition of the export trade to such a small
number of goods and their limited number of buyers mean that the
country's external trade is vulnerable to any downturn in the
external environment in the form of price fluctuation or reduced
demand. Both prices and demand for Bangladeshi RMG products have
recently much declined in the Us market the biggest single market
for Bangladesh's ready-made garment. Similar is the condition of
the other export items with the only exception of leather. But
notwithstanding the global recession and setbacks in certain
markets, the country's export trade would not slump badly perhaps
and could be maintained at a reasonable level if steps were taken
much earlier to achieve diversification of both exportable and
their buyers. In that case, the country would be hedged
12
2003
considerably against any drastic fall in export earnings as
reduced earnings of some items or from some countries could be
offset by good or steady earnings from other sources. Exporters
of Bangladeshi garment industries must get used to being dynamic
for a change. They must shake off the habit of waiting for orders
to come to them automatically. They should be rather out in the
field hunting for such orders. Experts in the RMG field say that
good markets are there for Bangladeshi products in some South
American countries, in the CIS countries and in Japan. RMG
producers should lose no time in immediately exploring these
markets and Bangladeshi missions’ abroad need to work round the
clock in support of such market identification and development
activities. Government's fiscal and other polices will have to be
quickly adjusted as the exporters search out new markets and
attempt entering into them. Apart from the conventional items,
exporters need to be encouraged in every way to go all-out to try
and export unconventional items and in greater quantities. It was
estimated that Bangladesh produces about 4.2 million tons of
fresh fruits and vegetables a year and a substantial quantity of
such produce gets wasted. But the same have good market demand
abroad and can earn good amounts in foreign currencies provided
government makes the right move to reduce freight, handling and
other charges and provides other incentives to exporters of
fruits and vegetables. Government policies taken in support of
the moves of exporters of agro-produces can probably create
quickly new items for export at a time when the country is in a
rather desperate situation to earn more foreign currency from its
export trade.RMG business started in the late 70s as a negligible
non-traditional sector with a narrow export base and by the year
1983 it emerged as a promising export earning sector; presently
it contributes around 75 percent of the total export earnings.
Over the past one and half decade, RMG export earnings have
increased by more than 8 times with an exceptional growth rate of
16.5 percent per annum. In FY06, earnings reached about 8 billion
13
2003
USD, which was only less than a billion USD in FY91. Excepting
FY02, the industry registered significant positive growth
throughout this period
In terms of GDP, RMG’s contribution is highly remarkable; it

reaches 13 percent of GDP which was only about 3 percent in FY91.
This is a clear indication of the industry’s contribution to the
overall economy. It also plays a pivotal role to promote the
development of other key sectors of the economy like banking,
insurance, shipping, hotel, tourism, road transportation, railway
container services, etc. A 1999 study found the industry
supporting approximately USD 2.0 billion worth of economic
activities (Bhattacharya and Rahman), when the value of exports
stood at a little over USD 4.0 billion. One of the key
advantages of the RMG industry is its cheap labor force, which
provides a competitive edge over its competitors. The sector has
created jobs for about two million people of which 70 percent are
women who mostly come from rural areas. The sector opened up
employment opportunities for many more individuals through direct
and indirect economic activities, which eventually helps the
14
2003
country’s social development, woman empowerment and poverty
alleviation So, There in the light of importance of garments
industry in Bangladeshi economy, we intend to evaluate its export
growth and to analysis it’s structural change.
So, There in the light of importance of garments industry

in Bangladeshi economy, we intend to evaluate its export growth
and to analysis it’s structural change.
CHAPTER II
2.1. Statement of the Problem and its Significance:
A total of 1,276 ready-made garment (RMG) factories

had closed down in the aftermath of the 11 September 2001
incident in the USA of which 1,178 were located in Dhaka and 98
in Chittagong. As a result of the factory closure 350,000 workers
were rendered jobless. Although, some of the factories have
gradually reopened since March 2002, 501 factories still remain
closed while some 2,25,000 workers - mostly women - remain
jobless.
Needless to mention, the government, the factory owners and

the BGMEA have a moral and social responsibility towards these
workers. The prospect resulting from the joblessness of millions
of unemployed women on the streets has the potential to create
mass social and add to the dismal economic situation resulting
from the garment industry crisis.
The international and national trade bodies, policymakers

and the media are primarily focusing their attention on the
economic causes and fall-out of the RMG sector crisis in
Bangladesh. Little attention is being paid to the impact of the
crisis on livelihood security of the workers. Since the majority
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2003
of workers in the garment industry in Bangladesh are women, it is
these women who are bearing the brunt of the market decline. At
present, there is not a single industry where this volume of
narrowly skilled workers call be reemployed. The crisis will
therefore have a devastating social effect, not only for the
women who will lose their jobs, but also for their families and
communities. With a modest beginning in the late seventies the
RMG sector in Bangladesh rapidly grew. Within a very short period
of time, it attained prominence in terms of its contribution to
Bangladesh’s gross domestic product (GDP), foreign exchange
earnings and employment. The industry flourished due to the cheap
and predominantly female labor market and the favored
international textiles and clothing regime under the Multi-Fibre
Agreement (MFA).
2.2. The objective of the study:
The purpose of the present study has been to assess

the direct and indirect contribution made by RMG in the economy
of a developing country like Bangladesh. With this aim in view,
we tried to estimate the direct and indirect linkages of growth
in the economy of Bangladesh. Since, the RMG industry presently
earns Bangladesh the largest amount of foreign exchange and is
considered to be the leading 'growth industry' of Bangladesh, we
made a particular attempt to assess the contribution o f growth
of RMG manufacturing and exporting activity. These exercises,
together with an examination of the current international trade
growth of Bangladesh, made it possible to outline the future
development and potential international trade of garment in
Bangladesh. Besides on, the main interest of this study is to
analyze the sources of the observed rapid increases of
Bangladeshi readymade garments exports. This will also analyses
the sources of the growth of readymade garments exports. Then the
16
2003
barriers to readymade garment exportation will be reviewed and
its impact on exports growth sources will be evaluated.
2.3. Scope of the study:
The period under the study will cover approximately

ten years from 1989 to 1998 and the historical development will
be included to show this industry can become one the major export
earning sources. In employing the constant-market- share method,
five market are considered, namely(1) USA,UK.CANADA AND ALL
OTHERS.Export of garment products consist of 4 commodities,
namely slandered trade classification (SITC) code numbe-
48119,48219,4851,48511,48512 and 48522.
2.4. Organization of the study:
My paper is consists of six chapter-
Chapter 1 gives the introduce the present condition of

Bangladesh.
Chapter 2 gives the statement of the problem, scope of the study
Chapter 3 -gives the general view about Bangladeshi’s garment

industry.
Chapter 4- is devoted to the methodology and definition used to

assess the export growth of Bangladeshi garment industry. Then it
shows the empirical results of the export growth of Bangladeshi
garment product. This chapter identifies the importance factors
of the export growth of Bangladeshi garment industry usining the
“Constant Market Share Model”
Chapter 5 -Is mostly devoted to explain the results obtained in

chapter 3 concentrating on the competitiveness factors and
explains the market stricture of Bangladeshi garment export and
discusses the relationship between factor requirement of garment
product and their export market.
17
2003
Chapter 6 gives the summary of the result and conclusions.
CHAPTER-III
3.1. Market structure of Bangladeshi Garment Industry:
Textile Sector in Bangladesh is predominantly made of

natural fiber using cotton. This sector is broadly classified
into the following stages/sectors based on the value addition.
• Yarn
• Fabric
• Apparel
Each of the above sectors is analyzed to generate an overall

perspective on the industry. Apparel is the high Growth Sector
of garments sector. The liberalization of industrial policy of
Bangladesh along with development of export processing zones at
Dhaka and Chittagong, attracted investment in the Ready-Made
Garment (RMG) industry in Bangladesh to set up large plants
working on higher economies of scale. This enabled Bangladesh to
achieve a phenomenal growth in export of RMG. The export of RMG
from Bangladesh increased from a meager US $ 7 million during
1981-82 to about US $ 1.95 billion during 1995-96. The RMG
Sector achieved a growth of 20% per annum over the past ten
years. Such high growth was catalysed by the low wages along with
Multifibre Agreement (MFA) on textile quotas principally with
U.S.A., Canada and European countries. The Generalised System of
Preferences (GSP) provided import tax breaks worth about 15% of
the import valuation, giving Bangladesh's RMG export a
considerable advantage in these markets. In addition to the
above, the financing arrangements created through a system of
back- to-back Letters of Credit (LOC) covering imported inputs
and finished exports, greatly contributed to the accelerated
growth of RMG sector. The above factors enabled Bangladesh to
18
2003
become the fifth largest exporter of RMG to the European Union
and Sixth largest to the USA. The apparel industry in Bangladesh
is broadly classified into Knitwear, RMG, speciality/linen
including terry towels and others. The total export of apparel
was about Takas 105.87 billion during 1995-96. The share of RMG
export in this sector is above 75%. The composition of export of
apparel by type is indicated in the following chart:
The further break-up of main items of knitwear and RMG export

is provided in the following charts:
Value of RMG Export: Taka 79.7 Billion

Break-up of main items of export KNITWEAR
in apparel sector of Bangladesh (Approx. US $ 2 billion)
The quality of fabric produced domestically in Bangladesh is

not upto the standard required for the production of export
quality garments. Therefore, exporters of garment, largely have
to depend upon import of quality fabric. There are about 26
weaving mills in Bangladesh reported as in 1996, with a total of
7,179 looms. About half of these mills are government owned.
There are also another 515 thousand hand looms in the country
apart from about 488 hosiery units. About 30 per cent of these
hosiery units produce export quality knit fabric. The local
fabric production is reported to be about 915 million meters
during 1995-96. The total demand for fabrics against this
production level is estimated to be about 3155 million meters
(approximately 3.45 billion yards) during 1995-96. Hence apart
19
2003
from the quality considerations mentioned earlier, domestic
production is inadequate to meet the fabric demand. The
composition of demand of fabrics for garments for domestic market
and garments for export market is illustrated in the following
chart:
Composition of Demand for Fabric from Garment Sector
Fabric Sector in Bangladesh during 1995-96
Million Meters Total Market

Segment
Domestic Export
Demand 3155 1325 1830
Production 915 915
Import 2240 410 1830
The above chart indicates the importance of export market

for textile sector of Bangladesh. The local demand for fabric,
which is reported to be about 1325 million meters, is largely met
by the traditional hand looms, small power looms and textile
mills in the government and private sector. However as domestic
production falls short to meet even the domestic demand for
fabric, about 410 million meters is imported during 1995-96 to
meet the short fall. The overall scenario of fabric sector in
Bangladesh is indicated in the following table and chart: The
following chart illustrates the interpretation of above table in
graphical form.
Million Meters 20
2003
The above chart indicates that about 82% of the fabric
imported is consumed in the production of garments for export,
while the balance 18%, is consumed to meet the domestic demand,
which by itself is about 30% of the requirement of domestic
market. This emphasis’s the need for investment in
textile/weaving segment in Bangladesh. After assertazzining the
need for setting-up a weaving unit, the following paras
investigate the prospects and key success factors for such
weaving mill: Yarn is the primary input to the weaving mill.
Yarn is spun in a spinning mill using spindles. Bangladesh has
about 118 spinning mills. About 25% of these mills are owned and
managed by the government. It is reported that about 45% of these
spinning mills are out dated and run at a loss. The production
of yarn in Bangladesh is reported to be about 100,000 tonnes
during 1995-96. The demand for yarn is, however, as high as
470,000 tonnes. Hence the domestic production meets only about
21% of the domestic demand for yarn. The huge deficit in
production of yarn to meet its demand in Bangladesh, is met
through imports. Bangladesh sources its requirement of yarn
mainly from countries like India. Pakistan apart from China,
Korea, Singapore, Thailand, USA, Canada, Egypt, etc. It is
estimated that about 116 additional spinning units with a
capacity of 25,000 spindles each are required to meet the demand-
supply gap for yarn
21
2003
Table 1: Apparel Exports from Bangladesh in Value and Volume
TOTAL APPAREL TOTAL APPAREL EXPORT

YEA EXPORT (Millions (Thousands of dozens)
R of $)
Gro Growth in
wth
in Monthly
Mon Totals
thl
y
Tot
als
WOVEN KNIT TOTAL WOVEN KNIT TOTAL
To Mon Tot Mon
Tot Mon ta thl al thl Tot Mon Tot Mo Tota Mon
al thl l y y al thl al nt l thl
y y hl y
y
1,2 103 20 17. 1,4 120 36, 3,0 10, 88 46,7 3,8
199 40. .37 4. 05 45. .42 053 04. 663 8. 17.4 93.
2- 48 54 02 .88 49 .56 63 4 12
93
1,2 107 26 22. 1,5 129 7.6 34, 2,8 10, 90 45,1 3,7 -3.32%
199 91. .64 4. 01 55. .65 7% 351 62. 815 1. 66.0 63.
3- 65 14 79 .00 58 .00 25 0 83
94
1,8 152 39 32. 2,2 185 43. 47, 3,9 15, 1, 62,5 5,2 38.40%
199 35. .92 3. 77 28. .7 23% 210 34. 301 27 11.9 09.
4- 09 26 35 .00 17 .90 5. 0 33
95 16
1,9 162 59 49. 2,5 212 14. 48, 4,0 23, 1, 72,0 6,0 15.19%
199 48. .4 8. 86 47. .26 31% 820 68. 185 93 05.4 00.
5- 81 32 13 .04 34 .45 2. 9 46
96 12
2,2 186 76 63. 3,0 250 17. 53, 4,4 27, 2, 80,9 6,7 12.47%
199 37. .5 3. 61 01. .1 83% 450 54. 536 29 86.4 48.
6- 95 3 25 .33 19 .07 4. 0 87
97 67
2,8 237 93 78. 3,7 315 26. 65, 5,4 32, 2, 98,1 8,1 21.25%
199 44. .04 7. 13 81. .16 01% 590 65. 604 71 94.3 82.
7- 43 51 94 .00 83 .37 7. 7 86
98 03
22
2003
199 561 280 17 88. 738 369 17. 12, 6,0 6,4 3, 18,6 9,3 13.96%
8- .54 .77 7. 61 .75 .38 20% 186 93. 64. 23 50.0 25.
99( 21 .00 00 00 2. 0 00
JUL 00
Y-
AUG
UST
)
Source: Bangladesh
Exports Promotion
Bureau (EPB)
Table 2: Major Items of Apparel Exported from Bangladesh
YEAR SHIRT T-SHIRT TROUSERS JACKET SWEATER

Mont Mont Mont Mont Mont
hly hly hly hly hly
Tota Aver Tota Aver Tota Aver Tota Aver Tota Aver
l age l age l age l age l age
1993- 805. 67.1 225. 18.8 80.5 6.71 126. 10.5 0 0
94 34 1 9 3 6 85 7
1994- 791. 65.9 232. 19.3 101. 8.44 146. 12.2 0 0
95 2 3 24 5 23 83 4
1995- 807. 67.3 366. 30.5 112. 9.34 171. 14.3 70.4 5.87
96 66 1 36 3 02 73 1 1
1996- 759. 63.3 391. 32.6 230. 19.2 309. 25.7 196. 16.3
97 57 21 98 5 21 7 6 8
1997- 961. 80.0 388. 32.3 333. 27.7 467. 38.9 296. 24.6
98 13 9 5 8 28 7 19 3 29 9
1998- 201. 100. 49.0 24.5 60.5 30.2 105. 52.6 81.6 40.8
99 12 56 5 3 1 6 25 3 1 1
(JUL-
AUG)
Source: Bangladesh Exports

Promotion Bureau (EPB)
RDTI Cell of Bangladesh Garment Manufacturers
and Exporters Association (BGMEA)
Our own calculations of monthly averages and
growth factors
(Millions of $)
Table 3: Export Markets for Bangladesh Apparels
23
2003
EXPORTS U.S. EUROPEAN CANADA

MARKET AND
TO THE UNION
U.S. SHARE SHARE OTHERS
(%) (%)
YEAR (%)
(millions
, $)
1991- 581.1 49.14 46.62 4.23
1992
1992- 703.96 48.71 46.46 4.82
1993
1993- 592.46 38.08 55.96 5.95
1994
1994- 1006.08 45.07 49.67 5.08
1995
1995- 1001.68 39.33 54.12 6.56
1996
1996- 1245.14 41.49 54.11 2.1
1997
1997- 1494.02 43.6 51.26 5.14
1998
Source: Bangladesh Exports Promotion Bureau (EPB)

RDTI Cell of Bangladesh Garment Manufacturers and
Exporters Association (BGMEA)
Our own calculations of monthly averages and growth
factors
Table 4: Apparel Exports to Major Markets (1997 - 1998)
TOTAL APPAREL EXPORT IN MILLION US$

WOVEN KNIT TOTAL % OF TOTAL
COUNTRY
USA 1,443. 228.69 1,671. 44.21%

21 90
CANADA 66.89 27.88 94.77 2.51%
AUSTRIA 12.13 5.84 17.97 0.48%
BELGIUM 78.91 60.37 139.28 3.68%
DENMARK 16.69 23.81 40.50 1.07%
FINLAND 9.55 4.23 13.78 0.36%
FRANCE 206.78 137.43 344.21 9.10%
GERMANY 352.78 130.09 482.87 12.77%
GREECE 2.40 1.41 3.81 0.10%
IRELAND 5.17 3.30 8.47 0.22%
ITALY 171.42 46.11 217.53 5.75%
NETHERLANDS 127.94 75.47 203.41 5.38%
PORTUGAL 1.97 0.83 2.80 0.07%
24
2003
SPAIN 32.26 10.75 43.01 1.14%
SWEDEN 31.34 14.63 45.97 1.22%
UK 226.33 144.78 371.11 9.81%
OTHERS 58.66 21.89 80.55 2.13%
TOTAL 2,844. 937.51 3,781. 100.00
43 94 %
Source: Export Promotion Bureaus (EPB)
Table 5: Top Five European Destinations for Bangladesh Apparel (July
1997- May 1998)
VALUE
RANK COUNTRIES
(Millio
ns, $)
1 Germany 434.77
2 United Kingdom 343.89
3 France 305.72
4 Netherlands 183.63
5 Italy 195.82
Source: Bangladesh Exports Promotion Bureau (EPB)

RDTI Cell of Bangladesh Garment Manufacturers and Exporters
Association (BGMEA)
Our own calculations of monthly averages and growth factors
3.2. Recent Performance of the Apparel Export Sector
In a liberalized trade regime, competition among textiles

and clothing exporting countries is likely to become intense. The
objective of this paper is to identify the prospects of RMG
industry after the MFA phase out by analyzing the current
scenario along with different policy measures and the available
options in order to be more competitive in the new regime.The
export made by Garments Industries of Bangladesh is improving
25
2003
year after year except some of the year. Strike, layout, shutdown
of company, political problem, economic problem, inflation etc.
are the prime cause of decreasing export in this important
sector. But above it, Readymade Garments Industries is the
leading sector in export sector.
Year Export (in US $ million)
Percentage change
1991 – 92 624.16
32.49
1992 – 93 866.82
38.88
1993 – 94 1182.57
36.43
1994 – 95 1445.02
22.19
1995 – 96 1555.79
7.67
1996 – 97 2228.35
43.47
1997 – 98 2547.13
14.11
1998 – 99 3001.25
17.83
1999 – 00 3781.94
26.01
2000 – 01 4019.98
6.29
2001 - 02 4349.41
8.19
2002 – 03 4859.83
11.74
2003 – 04 4583.75
5.68
2004 – 05 4912.12
7.21
2005 – 06 5686.09
15.83
Year Export by the garments industries (in US $ million)
Average Quota Prices of Selected Garments Items Exported by

Bangladesh, 2006
26
2003
Table: Quota Prices of Selected Garments Items Exported Position

of Bangladesh is exporting product in USA is not very satisfactory
but this situation is better than any other condition of the
previous time. But if our Government take some essential law and
break out the wall of biasness then the position of Bangladesh in
Garments sector would be hope to better.
Table: Exports of Knit and Woven Garments to the United State
(Source: Export Promotion Bureau of Bangladesh)

Besides the floods, there were several other crises that
impacted the garment industry in 1998. The disruption of the
normal functioning of the Chittagong port due to labor unrest was
certainly one of them. The BGMEA has repeatedly requested the
government to ban labor strikes in the Chittagong port on grounds
of national interests. Another source of disruption was the
27
2003
perennial problem of hartals (nationwide general strikes) called
upon and enforced by the opposition political parties to protest
government policies. Although, in a major concession to the
apparel exporters, the leader of the main opposition party had
declared that the garment industry would be exempt from such
hartals, in practice the situation is more complex. On the
ground, the firms cannot take chances to send their products on
the road for fear that these will be attacked. The psychological
impact of these events on the existing and potential buyers
cannot be overstated. Buyers in the global garment markets remain
highly sensitive to the risks of unfulfilled orders. The image of
Bangladesh as a somewhat unpredictable supply source may have
been strengthened due to the floods, as the floods received
considerable world media attention and by the violent political
unrest that spills over in the streets of urban areas. In the
early months of 1999, it has gradually become apparent that there
may have been a substantial reduction in new orders received by
Bangladeshi manufacturers as a result of these problems and also
due to increased competition from the East Asian manufacturers
whose currencies have been severely devalued.Historically,
apparel exports from Bangladesh have grown at an annual rate of
more than twenty percent, roughly doubling every three years. In
1996-1997 the exports in gross terms equaled three billion
dollars. At this rate, these exports could potentially reach six
billion dollars by the year 2000 and possibly exceed ten billion
dollars in the not too distant future. However, in the year 2004,
the Multi-Fiber Arrangement (MFA) quotas will end, ushering in a
globally competitive market for clothing products. One of the
most important factors responsible for the success of this
industry has been dynamic entrepreneurship. In fact, we believe
the garment entrepreneurs should receive a national award for
their creative initiatives in overcoming the crises during this
period. The industry presents a model that entrepreneurs in other
sectors could emulate with benefit. The many hurdles the industry
28
2003
overcame in 1998 include the floods, the shocks from the most
severe economic collapse and currency devaluation in East Asia
economies in recent history, and other domestic crises.
Strategies pursued by the industry in 1998 include the following:
the decision to hold monthly meetings between BGMEA officials and
leaders of the labor unions in the industry; efforts to implement
the child labor agreement of 1995; hiring a high-profile American
politician to lobby for the industry in Washington D.C.; and
asking the U.S. government to increase quotas for apparel made in
Bangladesh by thirty percent to reward the progress made in
reducing the use of child labor in the garment factories.
Manufacturers and Exporters Association (BGMEA); Author's
calculations of monthly averages and growth factors. What
implications does the success of the apparel exports have for the
economy of Bangladesh? The positive impacts are considerable and
widespread. For several years now, apparel exports have been the
largest manufacturing industry, and also the biggest source of
foreign exchange earnings. It may be a "soft goods" industry but
nevertheless it has created positive changes in the economy and
society by creating employment and income for poor women workers
and by bringing in foreign exchange for the country. In terms of
gross foreign exchange receipts, in the most recent period for
which we have data (July 1997- May 1998) export of readymade
garments earned $3392.45 billion or 73.18 percent of the total
export earnings of Bangladesh. The share of apparel products in
total exports has steadily risen for several years. In both
absolute and relative terms, the industry dominates the modern
economy of Bangladesh. In addition, the positive sociological,
demographic, political and economic impact of 1.5 million workers
employed in the manufacturing sector is huge. This is especially
true since ninety percent of these workers are women, many of
whom have migrated from the countryside in search of a life free
of poverty. The forward and backward linkage industries and
services such as textiles, accessories, transportation, and
29
2003
packaging and the private sector in general have also been
significant beneficiaries. The government has gained tax
revenues, and the foreign investors to a large extent have been
exposed to Bangladesh as a result of the success of garment
exports. However, the biggest winner has been the private
entrepreneur in Bangladesh. Entrepreneurship is alive and well in
Bangladesh. The sustained success of apparel exports underscores
this point. The Future of Garment Exports and the Economy of
Bangladesh The growth rate in overall exports from Bangladesh
peaked in 1994-1995 at 40 percent a year. However, export growth
has remained strong. Currently, the garment exports alone bring
in close to four billion dollars in gross terms. The imports of
fabrics and related intermediate goods account for $2.3 billion
resulting in net earnings of approximately $1.7 billion. The
garment and knitwear exports accounted for the bulk of these
exports. The knitwear sector has been especially dynamic in
recent years. Given the fact that the market for knitwear exports
is unprotected by quotas, this bodes well for the post MFA future
of the industry. Bangladesh apparel exports can now point to a
proven track record of successfully competing in the global
competitive environment. Unfortunately, other potentially
promising exports from Bangladesh- leather, jute goods, frozen
foods - have not fared as well over this period. This has
accentuated the already narrow export base of the country and is
a matter of concern for policymakers. The excessive dependence of
the economy on the garment sector for foreign exchange earnings
and export growth demands policies that would diversify the
export base of the economy. What can be said about the future
performance of the apparel export industry in Bangladesh? What
are the risks for exports of Bangladeshi apparel? First, supply
shocks such as the debilitating floods of 1998 that shaved off
several percentage points from the expected GDP growth this year
and caused widespread disruption in production and transportation
can never be accurately anticipated. The other major crisis the
30
2003
industry had to deal with in 1998 was external and once again
hardly anticipated. We refer to the East Asian economic debacle
of 1997-1998. The financial panic and the subsequent economic
meltdown that afflicted several economies in the East Asia -
Malaysia, Indonesia, Thailand, Philippines and South Korea-
certainly have been a restraining element in the economic
performance of the regional economies. What are the links between
the East Asian economies and garment exports from Bangladesh?
There are several avenues by which negative economic shocks from
these emerging economies can impact this export industry in
Bangladesh. First, several of these nations are also big apparel
exporters in same markets to which Bangladesh exports apparel. A
steep depreciation in their currency makes their products more
competitive in both the open and the quota-protected apparel
markets. In the markets protected by quotas, such a development
would be a deflationary force pulling down the unit prices and
the profit margins for Bangladesh apparel exporters. Second,
given the crunch, these economies would try to export themselves
out of their severe recession. In the recent crisis, these
regional and international forces have greatly increased
competition for Bangladesh exports. Third, to help them recover
from their downturn, the U.S. government and others have already
relaxed quota restrictions on exports from the worst affected
economies, making the playing field more difficult for
Bangladeshi exporters. Fourth, prior to this crisis, some of
these nations were potentially big investors in Bangladesh in the
textile and infrastructure projects. Their economic troubles have
meant a dramatic scaling back in their direct investments in
Bangladesh. On the other hand, partly as a result of the East
Asian economic debacle, there was a massive return of Bangladeshi
workers from this region that has swelled the urban labor force
pool from which garment factories recruit their workers. Second,
when some of these economies weakened, their ability to compete
was impaired from the economic or political collapse. This could
31
2003
mean new opportunities for those competitors who were unaffected
by the economic crisis. Finally, Bangladesh has tried to take
advantage of the crises by demanding from the U.S. equal quota
concessions, pointing to its efforts in reducing the underage
worker problem in the apparel factories. In our view, the biggest
threat to apparel exports in Bangladesh comes from the financial
sector. Although we do not anticipate a financial panic similar
to the Asian crisis since the influx of short-term foreign
investment (hot money) and borrowing by the private and public
sector has been rather limited in Bangladesh, there are some
similarities. One common element that we share with these
affected economies is a weak banking sector with little
transparency or central bank control. Elements of crony
capitalism and moral hazard are certainly present in Bangladesh,
especially in the nationalized banking sector and in credit
markets. According to the World Bank-Asian Development Bank
report, the financial sector in Bangladesh remains fragile with
33 percent of the portfolios of the NCB's and domestic private
banks in the non-performing category. Notwithstanding the fifty
billion taka of taxpayer money that was used to re-capitalize the
nationalized commercial banks (NCBs) in the early 1990s, the
system-wide capital inadequacy today is estimated to be taka 133
billion. This situation could cause the entire banking system to
collapse as a result of a large external shock or even from a
domestic shock such as a run on a major financial institution.
One important lesson from the East Asian crisis is that moral
hazard and the resulting financial panic can be very costly for
an economy, even when the fundamentals are sound. Without
fundamental reforms in the banking sector, the financial sector
in Bangladesh remains susceptible to a financial panic where a
speculative price bubble crashing in the real estate sector or
elsewhere in the economy could start a systemic self-fulfilling
crisis. Such a collapse could seriously impact apparel exports,
which are critically dependent on a healthy banking system for
32
2003
the institutional support in exports and for short-term
financing.Other potential hazards include an overvaluation of the
taka compared to the currency of its competitors. Despite the
repeated devaluation in the recent past, according to the World
Bank, the taka remains overvalued in real terms. This could
undermine the long- term competitiveness of the industry.
Finally, in the year 2004, under the Uruguay Round Agreement on
Textiles and Clothing, MFA quotas will be phased out. Bangladesh
will lose its preferential access to its most important markets
and will have to compete with India, China and other apparel
exporters in a truly global competitive environment. Many apparel
firms in Bangladesh are not ready for this change, although the
more efficient larger firms that have diversified their products
and markets are expected to do well in the post MFA world.
Finally, we anticipate that the biggest source of problems for
the apparel export industry is likely to be domestic, not
external. The politicians could seriously damage this sector by
creating instability and attempting to achieve their goals by
violent means in the streets instead of the parliament. The
bankers, the bureaucrats, and the politicians remain a source of
threat. In their attempt to further extract rent from this
sector, they could undermine the long-term viability of this
industry. The failure of the law enforcement forces to control
the menace of mastans and toll collectors may create a climate
that debilitates commerce and production in the economy. Labor
disturbances and frequent disruptions in the Chittagong port also
remain a source of concern to exporters in general. Increased
contacts between factory owners and the union leadership would
help the industry. Garment workers remain one of the hardest-
working segments of the labor force in Bangladesh. The working
conditions and benefits for workers should improve as the
industry matures and human capital increases. In the long run,
this is the best defense against labor union agitation. Investing
in worker training and in improved working conditions would
33
2003
certainly enhance productivity. The apparel factory owners must
be proactive instead of reactive on this important issue.
CHAPTER IV
4.1. Literature Review:
Several authors have analyzed aspects of the garment

industry in Bangladesh. Of the various aspects of the industry,
the problems and the working conditions of female workers have
received the greatest attention. There are several studies
including the Bangladesh Institute of Development Studies (BIDS)
study by Salma Chowdhury and Protima Mazumdari (1991) and the
ii
Bangladesh Unnayan Parisad (1990) study on this topic. Both of
these studies use accepted survey and research methodology to
analyze a wealth of data on the social and economic background,
problems and prospects of female workers in the RMG sector.
Professor Muzaffar Ahmad looks at the industrial organization of
the sector and discusses robustness and long-term viability of
apparel manufacturing in Bangladesh.iii Wiig (1990) provides a
good overview of this industry, especially the developments in
the early years.iv One of the few studies on the Bangladesh
apparel industry to be published in a reputed journal in the U.S.
is that of Yung Whee Rhee (1990) who presents what he calls a
“catalyst model” of development. The Bangladesh Planning
Commission under the Trade and Industrial Policy (TIP) project
v
also commissioned several studies on the industry. Hossain and
Brar (1992) consider some labor-related issues in the garment
industry.vi Quddus (1993) presents a profile of the apparel sector
in Bangladesh and discusses some other aspects of the industry.vii
Quddus (1996) presents results from a survey of apparel
entrepreneurs and evaluates the performance of entrepreneurs and
their contribution to the success of this industry.viii Islam and
34
2003
Quddus (1996) present an overall analysis of the industry to
evaluate its potential as a catalyst for the development of the
rest of the Bangladesh economy.ix
Many economist have wrote about garment sector but I have
observed three presentation papers ( Dr.Khaled Nadvi, Dr.Salma
Chaudhuri Zohir and Dr.Naila Kabeer.) and one seminar paper (Ms
Simeen Mahmud).Dr. Nadvi’s paper deals with the nature of current
challenges for Bangladesh in the global garment industry and
discusses some of the salient observations from the trade data
analysis illuminating how Bangladesh’s position in the global
garment trade has changed over time. Dr. Salma Chaudhuri Zohir
provided details on findings from Bangladesh garment sector firm
surveys and Dr. Kabir presented some preliminary evidences from
the garment and non-garment workers surveys conducted in Dhaka.
Dr. Nadvi identifies four sets of global challenges that are

especially key for a low- income garment exporting country like
Bangladesh. These challenges are : a) The phasing out of Multi
Fiber Agreement by January 2005 b)Increased competition from
China which at present controls 18 percent of the global trade in
garments and severely quota constrained in leading markets. c)
Growing concerns around meeting global standards. These include
standards that address labor conditions, environmental impacts
and quality assurance as well as wider social and ethical
concerns in production. d) Changes in the retail structure of the
global industry and the new competitive pressures from the global
buyers. Buyers are increasingly seeking to not only outsource
production to local suppliers, but also shift more functions and
risks associated with such task further down the value chain.
More over one of the key demands that is emerging in the
increasingly more fashion driven global industry is the need to
reduce the lead times and to bring about quick changes in
products in keeping with changing market demands.
35
2003
Dr.Nadvi then tries to map Bangladesh’s position in the
global garment industry by comparing the changes in Bangladesh’s
unit price of exports and market access with those of her major
actual and potential competitors in the EU market. A mixed story
emerged form his analysis. Bangladesh has significantly increased
its market share during the last decade. But the discomforting
feature is that in most items studied Bangladesh has seen its
unit values decline more or as rapidly over time as those of its
competitors. In this context he cited the example of Vietnam
whose share in the cotton shirt sector in the EU market has gone
up from less than 0.5% in 1990 to 3.7% in 1999 and at the same
time it’s unit value has risen by an average of 6.8% a year
during the 1990s. This suggests significant improvements for
Vietnam which is indicative of some productivity gains. The
decline in Unit value in Bangladesh can be an indicative of the
lowering labor cost and even with large reserve army of labor
there are limits to which labor cost can be reduced. Thus the
challenge at the firm level for Bangladesh to upgrade is critical
if it is to sustain its market share in the long run.
Dr. Salma Chaudhuri Zohir’s paper provided some important

insights from an enterprise survey covering 30 firms of different
size. Initial finding suggests the following overall performance
indicators: Export volume has increased for all but one firm.
Number of buyers has mostly declined to 3 to5. Average unit price
of garment has declined due to local and international
competition. Average product quality has improved Net profit has
declined mostly. Costs are increasing as firms have to set up own
building with facilities .Employment has increased in all but one
firm . On average lead time in woven has declined to 80 to 90
days from 120 days . Average lead time for imported yearn is
90 days and for local yearn is 60 to 70 days for sweater .
Average lead time for knitwear is around 45 days.
36
2003
She suggested that the firms in Bangladesh are constantly
adapting themselves to the changing demands of the market. They
are responding to the buyers demand in terms of upgrading
products, upgrading plants and compliance with standards. She
then discussed some of the major future challenges for the
industry and summarized her presentation with the following
observations: Medium and large firm will survive and the small
firm will die. MFA phase out will affect woven garments in both
USA and EU. Women are mainly employed in woven and hence are more
at risk of being unemployed than men. Knitwear and sweater will
survive if GSP continues. Duty free access to USA and EU is
essential for the survival of woven RMG. Rules of Origin should
be carefully considered. Firms need to seek direct orders from
the retailers. We should go for lower and medium price products.
To survive in future the garment industry has to maintain price
competitiveness and reduce the lead-time. Measures must be taken
to avoid balance of payment crisis and mass unemployment of
women. FDI in the garment industry should be welcomed Dr. Naila
Kabeer undertakes a comparison of the condition of the female
workers of RMG sector and that of a non-RMG sector in Bangladesh.
The research was conducted among both types of female workers
living in the same place. Some of the initial findings are as
follows: Although both the RMG and non- RMG female workers come
from the similar social background, the RMG workers are
financially better off than the non-RMG workers. RMG workers
mainly come from moderately poor families while majority of the
non- RMG female workers are coming from extremely poor
families .RMG workers migrate with their friends not with their
close relatives, whereas the non-RMG female workers migrate with
their close relatives and they stay with their families.
Compared to the non RMG female workers the RMG workers have
better education and better access to health care facilities. The
RMG workers perceive themselves to be temporary migrants to the
city and therefore they have higher savings and they send
37
2003
remittance to their family members in the villages to a large
extent. Female RMG workers face greater problems on their way to
the work place. Most of the RMG workers think the working hours
are increasing day by day. Involvement in trade union among the
female RMG workers is very limited RMG workers cope with bad
situation by cutting their expenses while the non- RMG workers
cope by borrowing.
Dr. Kabeer opined that through the wider

participation of female workers in RMG the inner capacity of the
female work force has been exposed and recognized in a male
dominated society. The female themselves have also found out that
they can be involved in the industrial production, even with low-
level of education. This discovery will prevail even if the RMG
sector does not exist. By sending the remittances to the rural
area to the poor family members the female RMG workers are
helping the alleviation of rural poverty.They are mention that
already around 40% of the fabric for woven garments is produced
domestically. They argued that textile sector should be provided
some support so that RMG does not become totally dependent on
imported fabric. In this regard some initiatives were suggested:
(a) Our textile producers should be given credit as per the
global rate of interest, which is far lower than the rate
prevailing in Bangladesh, (b) Utilities like electricity, gas
etc. should be provided at a confessional rate to the textile
sector as the prices of these things are lower in countries from
where imported textile is brought, (c) Port facilities should be
improved, (d) duties on import of textile machinery should be
reduced, (e) a green fund on an interest free basis should be
provided to comply with the environmental norms. At this point
some discussant commented that RMG export can be sustained even
without backward linkage industries and cited the example of
Vietnam where despite the presence of large textile sector, the
export of RMG is totally dependent upon imported textile. The
38
2003
textile secretary informed the participants that the government
is in the process of setting up a training institute where
workers and managers of both RMG and textile sector will be
trained. He called for the active participation of BGMEA and BTMA
in this regard. Ms Simeen Mahmud have focused on policy issues
regarding the RMG sector of Bangladesh in the context of the
changed global scenario after 2005. In the one hand, the policy
makers got to know the research findings and recommendations made
by different stakeholders and on the other hand they informed the
participants about the approach and the initiative of the Govt.
regarding the challenges that lies ahead of the growth and
sustainability of the RMG sector in Bangladesh.
Improving the market access
Participants strongly demanded greater attention of the

government on improving the market access of Bangladeshi RMG
products. They gave stress on creating facilities so that the
producers can have direct relationship with the buyers, mainly
with retailers. This attempt will reduce the amount of surplus
captured by the buying houses and other middlemen. The need for
exploring the Japanese and other Asian market also received
attention. The secretary for commerce informed the participants
that government is very much concerned about the market access
issue. He gave example of the Canadian market case where
Bangladesh has recently received not only duty free entry but
also soft rules of origin condition. The effort is going on to
get similar facilities from Australia.
Workers’ welfare considerations
The discussion concerning the workers’ welfare covered the

following issues— workers should be given prior notice before
closing any factory .Employers should give attention to improve
the skills of existing workers, otherwise when the RMG sector
moves to higher value products the low skilled workers will lose
39
2003
job as higher value products require higher skill. At this point
Dr. Salma C. Zohir mentioned that during the survey of factories
she found that even with the present level of skill, workers are
capable of producing quality products and thus moving to high
quality products is very much feasible. trade union should be
permitted in the RMG sector. However unholy alliance of trade
unions with the non- trade union people has to be stopped.
Democratic trade union laws have to be implemented. Dr. Rehman
Sobhan suggested that workers might be given equity share in
their companies to ensure that they benefit properly from the
value chain. At this point some discussants also mentioned that
too much of emphasize on the distribution may indeed harm the
interest of the industry. They argued that if competition is
ensured by say, allowing FDI, the condition of the workers will
improve automatically as the market will drive their wages up.
Foreign Direct Investment in the RMG sector
Most of the participants welcomed FDI in the RMG sector of

Bangladesh. They gave example of Sri Lanka where welcoming FDI
lessened the worry about developing the backward linkages. It was
argued that FDI would not only ensure higher investment in this
sector, but also transfer technology and ensure bigger market
access by providing direct linkages with the retailers at the
export market. The minister informed the participants that
decision on whether or not FDI will be allowed in the RMG sector
will be taken soon. He told that FDI will be welcomed if interest
is shown to develop at least one backward linkage by each
investor. But some discussants also pointed out that putting a
stringent condition for FDI will indeed be self defeating as
foreign investors will switch to other countries where the
investment regime is more liberal. Increase in Efficiency in RMG
production Discussants unanimously agreed that production of
quality product is a must in the post MFA period. Therefore
increasing labour productivity is required. It was argued that
40
2003
low skilled labour is not really cheap if we consider the low
level of productivity of those workers. Dr.Zaidi Satar of World
Bank argued that we have to ensure that the producers get the
inputs at the world price during the free trade environment of
post MFA era. He decries the tendency of linking RMG with textile
at the excuse of promoting backward linkage and called for
independent formulation of policies for the RMG sector. He gave
the example of Sri Lanka in this respect where the degree of
backward linkage is almost as it is in Bangladesh but the RMG
producers get textile at zero percent duty. Improvement of the
infrastructure and the need for better shipment facilities also
drew considerable attention. These steps were considered
necessary for Bangladeshi exporters to move at FoB level instead
of the existing CM/CMT level.
Mr. Suhel Ahmed Chowdhury, Secretary, Ministry of Commerce

raised the issue of viability of many of the small RMG units
during the globally competitive environment of post MFA period.
He stressed the need of merger and acquisition among the existing
RMG units so that they can benefit from the economies of scale.
Some of the discussants also argued for technological up
gradation. But the suggestions faced objection from Dr.Naila
kabir as she thought that disappearance of small factories and
introduction of capital intensive technology might lead to loss
of employment by the women workers. At this point some of the
discussants emphasized the need for skill up gradation so that
the existing workers can be assimilated in the newly formed
improved technology based and relatively large RMG units. Some
discussants argued for discontinuation of cash incentives for RMG
exporters after 2005 as they need to become competitive to
survive at that stage. Concern was also raised that after 2005
cheap import from China may pose a threatening challenge to the
industry. But some discussants argued that China couldn’t
continue with her present policy of veiled subsidy after 2005, as
41
2003
they have to come under strict scrutiny on the basis of the
Agreement on Textile and Clothing (ATC). ATC does not allow for
subsidization of primary textile, which China is currently
practicing. It was also mentioned that the US has reserved some
safeguard against Chinese flooding of market after 2005. This may
provide a certain level of protection to our export also.
4.2. Conceptual Framework:
THE EXPORT GROWTH FACTOR OF BANGLADESHI GARMENT PRODUCT:

(CONSTANT-MARKET-SHARE MODEL)
In discussion and explaining the export growth of
Bangladeshi garment products an analytical device as the constant
market share model is employed. To examine a country’s export
growth, this model basically ascribes favorable or unfavorable
export growth either to a country’s export structure or to it’s
“competitiveness”. The basic assumption of constant market share
model is that a country’s export share in world market should
remain unchanged over time. The difference between the export
growth implied by this constant share norm and the actual export
performance is attributed to the effect of competitiveness, and
actual growth in exports in divided into competitiveness,
commodity composition and market distribution effect. Demand for
exports in a given market from two competing sources of supply
may be described by the following relationship:
q1 / q2 = f ( p1 / p2 ) ----------------------------
----------------------------------------------(1)
where q1 and p1 are quantity sold and price of the commodity from
the ith supply source.
Relation (1) may be altered by multiplying by p1 / p2 to
obtain-
p1 q1 / p 2 q2 = ( p1 / p2 ) f ( p1 / p2 )--------------------
-------------------------------------(2)
this implies-
42
2003
-1
p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-
= ( 1 + ( p1 f (p1 / p2) /p2)
1 -1
) )
= g ( p 1 / p2 ) ---------------
---------------------------------------------(3)
which indicates that country 1’s share of the market in question
will remain constant except as p1/p2 varies. This establishes the
validity of the constant-share norm and suggests that the
difference between export growths may be attributed to price
changes. The discrepancy between the constant-share norm and
actual performance has been labeled the competitiveness effect.
To make several interesting calculation under the CMS

model we need following definitions:
V ij = value of A’s exports of commodity to country j in

period 1
V ij ′ = value of A’s exportsn.3

EMBED Equation.3 EMBED Equation.3 --------------------
-------------------- ( 4)
and similarly for??period 2. in addition??the value of A’s
exports in period 1 is given by

EMBED Equation.3 -------------------
----------------- --------- (5) EMBED Equation.3 EMBED
-
Equation.3 ?? The application of CMS
model will depend on the nature of the market that we have in

mind when writing (1). At first level of analysis, n.3 ∑j V ij =Vi.
∑i V ij = V . j ---------------------------------------- ( 4)
n.3 EMBED Equation.3 ---------------------------------

------- ( 4)
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2003

EMBED Equation.3 -------------------
-

∑i V ij = V . j ---------------------------------------- ( 4)
.3 EMBED Equation.3 ----------------------------------

------ ( 4)

EMBED Equation.3 -------------------
-

∑i V ij = V . j ---------------------------------------- ( 4)
similarly for??period 2. in addition??the value of A’s exports in
period 1 is given by
EMBED Equation.3 -------------------
-

∑i V ij = V . j ---------------------------------------- ( 4)
44
2003
imilarly for??period 2. in addition??the value of A’s exports in
period 1 is given by
EMBED Equation.3 -------------------
-

∑i V ij = V . j ---------------------------------------- ( 4)
EMBED Equation.3 -----------------------------------

- --------- (5) EMBED Equation.3 EMBED Equation.3
-
?? The application of CMS model will depend on the
nature of the market that we have in mind when writing (1). At

first level of analysis, n.3 ∑j V ij =Vi.
∑i V ij = V . j ---------------------------------------- ( 4)
---------------------------------- --------- (5) EMBED

-
Equation.3 EMBED Equation.3 ?? The
application of CMS model will depend on the nature of the market
that we have in mind when writing (1). At first level of

analysis, n.3 ∑j V ij =Vi. ∑i V ij = V . j --------------
-------------------------- ( 4)
--------------------------------- --------- (5) EMBED Equation.3
-
EMBED Equation.3 ?? The application
of CMS model will depend on the nature of the market that we have
in mind when writing (1). At first level of analysis, n.3
∑j V ij =Vi. ∑i V ij = V . j -----------------------------
----------- ( 4)
45
2003
ation of CMS model will depend on the nature of the market that
we have in mind when writing (1). At first level of analysis, n.3
∑j V ij =Vi. ∑i V ij = V . j -----------------------------
----------- ( 4)
of the market that we have in mind when writing (1). At first
level of analysis, n.3 ∑j V ij =Vi. ∑i V ij = V . j -----
----------------------------------- ( 4)
f the market that we have in mind when writing (1). At first
level of analysis, n.3 ∑j V ij =Vi. ∑i V ij = V . j -----
----------------------------------- ( 4)
iting (1). At first level of analysis, n.3 ∑j V ij =Vi.
∑i V ij = V . j ---------------------------------------- ( 4)
ting (1). At first level of analysis, n.3 ∑j V ij =Vi.
∑i V ij = V . j ---------------------------------------- ( 4)
and similarly for period 2. in addition the value of A’s

∑i ∑j V ij = ∑i V i . = ∑j V . j = V .. --------------------
-------------------------- (5) The

application of CMS model will depend on the nature of the market
that we have in mind when writing (1). At first level of
analysis, we may view exports as being completely
undifferentiated as to commodity and region of destination. That
is to say, exports may be viewed as a single destination for a
single market. If A maintained its market share in this market,
then exports would increase by rV and may be written in the
following identity
46
2003
V .. – V .. = rV .. + (V .. – V .. –rV .. ) ----
---------------------------------------------(6)
Equation (6) nay be referred as a one-level analysis. It

divides the growth in A’s exports into a part associated with the
central increase in world demand and an unexplained residual, the
competitiveness effect.
Exports are in fact diversified into many markets, and what

we have in mind is the diversified markets for a particular
commodity class. We may write an expression analogous to (6)
V •j ′ - V• j = r j V. j + ( V. j - V. j - rj V. j ) -----------
--------------------------------(7)
Which may be summed over j?
V′ • • - V• • = ∑j r j V. j + ∑j ( V. - V. j - r j V. j )
j
=r V r V ..+ ∑j ( r j- r) V. j + ∑j (V. j -
(a ) (b )
V. j - r j V. j ) -------------(8)
(c )
exports is broken into parts attributed to : (a) the general rule

in world demand; (b) the market distribution of A’s exports in
period 1 ; and (c) an unexplained residual indication the
difference between A’s actual exports increase and the constant-
share norm increase. The market distribution effect in identity
(8) is defined by (r j -r) V. j ---------------------------(9)
And is meant ti indicate the extent to which A’s exports are

concentrated in markets with growth rates more favorable than the
world average.
47
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Thus if world import in market j increased by more than
the world average ( r j − r ) will be positive. Accordingly the term
(b) would be positive if A had concentrated on the markets where

the demand were growing relatively fast and would be negative if
A had concentrated on slowly growing markets.
Finally we may observe that exports are differentiated

by destination as well as by commodity type. The appropriate norm
in this case is a constant share of exports of a particular
commodity class to a particular region. The identity analogous to
(6) and (7) is
V ij −V ij ≡ r ij V ij + (V ij − V ij − r ijV ij ) ---------------------
------------------------- (10)
Which when aggregated yields-
V .. − V .. ≡ ∑ ∑ r ij V ij + ∑ ∑ (V ij − V ij − r ij V ij )
i j i j
≡ rV .. + ∑ (r i − r )V i . + ∑ ∑ (r ij _ r i )V ij
(a ) i (b )
i j (c )
+ ∑ ∑ (V ij − V ij − r ijV ij ) -------------------------
i j (d )
-------------------------------(11)
Identity (11) re[presents a “three-level” analysis in which the
increase in A’s exports is broken into parts attributed (a)
the general rise in world demand; (b) the commodity composition
of A’s exports; (c) the market distribution of A’s exports; and
(d) a residual reflecting the difference between the actual
export growth and the growth that would have occurred if A had
maintained its share of the exports of each commodity to each
company.The commodity composition term in identity(11) may be
interpreted in the same manner as the market distribution effect.
It would be positive if A had concentrated on the exports of
commodities whose markets were growing commodity markets.
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Problems of constant market share model: The CMC model provides a
useful tool for analyzing export growth performance by allowing
achieved export growth to be separated in to commodity , market
distribution , and competitiveness effects. However, the initial
appeal of the CMS identity as a simple analytic and policy tools
is considerable blurred by fundamental problems which arise in
the basic equation (1) and (3).
Firstly, what is the appropriate measure of relative

competitiveness?
-1
Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-
= ( 1 + ( p1 f (p1 / p2) /p2)
1 -1
) )
= g ( p 1 / p2 )
Assume that the change in export share be the function of
relative prices. In practice, relative price are generally used
as a measure of competitiveness. Since the competitiveness
residual results from the complex interaction of demand and
supply, it neglects such factor as: quantity improvement,
improving in servicing, shortening of waiting lines, improvement
financial arguments, and change in discriminatory non- price
policy. Secondly, what is the appropriate measure of export
shares? Obviously quantity share are required in order to satisfy
the requirement that share very directly with relative
competitiveness could lead to a decreases in export shares, given
a elasticity of substitution less than one in absolute value.
Also in the case a positive commodity(market) effect, we usually
presume that’s the country commodity exports are relatively more
skewed towards goods which are growing in the world demand. But
these cases could be equally well explained by a country’s
exports being relatively more skewed towards goods those prices
are rising relatively rapidly.
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At more fundamental level, the elasticity of substitution
relation implicit in equation
q1 / q2 = f ( p1 / p2 ) and equation
-1
p1 q 1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-
= ( 1 + ( p1 f (p1 / p2) /p2)
1 -1
) )
= g ( p 1 / p2 )
is the subject to the number of theoretical reservations having

to do with commodity homogeneity. When commodities are very
homogenous, relative price are locked into very small rang of
variation. Geographical market share may be much more sensitive
to demand factors in the market of buyers who are relatively
indifferent to the nationality of the supplier. Commodity market
share may be much more sensitive to the supply factors. On the
other hand, when commodity are not homogeneous, relative prices
are likely to be only one of the arguments which enter the
function for export share.
Finally, the CMS model assumes that a country’s export

share in the world should remain unchanged overtime. The
interpretation of the CMS analysis of a country’s export change
depends on the validity of this assumption. However, the
structure of the world trade very over time, especially for the
rapidly expending the economy the export market structure and
export commodity composition very with wide fluctuation.
-1
Equation (3) p1 q1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-
= ( 1 + ( p1 f (p1 / p2) /p2)
1 -1
) )
= g ( p 1 / p2 )
Assume that the change in export share be the function of
relative prices. In practice, relative price are generally used
as a measure of competitiveness. Since the competitiveness
50
2003
residual results from the complex interaction of demand and
supply, it neglects such factor as: quantity improvement,
improving in servicing, shortening of waiting lines, improvement
financial arguments, and change in discriminatory non- price
policy. Secondly, what is the appropriate measure of export
shares? Obviously quantity share are required in order to satisfy
the requirement that share very directly with relative
competitiveness could lead to a decreases in export shares, given
a elasticity of substitution less than one in absolute value.
Also in the case a positive commodity(market) effect, we usually
presume that’s the country commodity exports are relatively more
skewed towards goods which are growing in the world demand. But
these cases could be equally well explained by a country’s
exports being relatively more skewed towards goods those prices
are rising relatively rapidly.
At more fundamental level, the elasticity of substitution

relation implicit in equation
q1 / q2 = f ( p1 / p2 ) and equation
-1
p1 q 1 / (p1 q1 + p2 q2) = (1 + p2 q2 / p1 q1)
-
= ( 1 + ( p1 f (p1 / p2) /p2)
1 -1
) )
= g ( p 1 / p2 )
is the subject to the number of theoretical reservations having

to do with commodity homogeneity. When commodities are very
homogenous, relative price are locked into very small rang of
variation. Geographical market share may be much more sensitive
to demand factors in the market of buyers who are relatively
indifferent to the nationality of the supplier. Commodity market
share may be much more sensitive to the supply factors. On the
other hand, when commodity are not homogeneous, relative prices
are likely to be only one of the arguments which enter the
function for export share.
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Finally, the CMS model assumes that a country’s export

share in the world should remain unchanged overtime. The
interpretation of the CMS analysis of a country’s export change
depends on the validity of this assumption. However, the
structure of the world trade very over time, especially for the
rapidly expending the economy the export market structure and
export commodity composition very with wide fluctuation. Thus,
when the CMS analysis is applied to the case of drastic changes
in trade structures , the validity of the interpretation will be
1
blurred.
4.3.Empirical result of Bangladeshi garment industry:
Appendix 1 and 2 shows result of the computation of the export

growth factors of Bangladeshi readymade garment products during
1989-1998. the result present that the international
competitiveness factors had leads the readymade garment export
growth during the period of 1989-1998 (82.94%),while the role of
the world factors – world demand increase, the favorable
structural change in the commodity composition and the market
distribution are negligible respectively (3.24% and 3.22% ).so
the world demand factors has increase. However we can assert
that Bangladeshi readymade garment products was initiated by the
competitiveness factors during 1989-1998 according to the result
.for the sources of the competitiveness I will explain in the
next chapter.To see the structural change in readymade garment
export growth in detail, I computed the export growth factors of
each commodity group by using the constant market share model.
1
Rchardson,j.David “Constant- Market-Share analysis of export growth” Journal of The International
Economic, voll1 1971.pp.190-207.
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Three growth factors are calculated for each commodity group
instead of four factors, namely (1) the factors of world demand
increase. (2) The factors of market distribution and (3) the
factors of international competitiveness. The results are shown
in appendix 1 and 2.
CHAPTER V
5...1.SOURCES OF INTERNATIONAL COMPETITIVENESS:
see-appendix (table-1)
5.2. Measure of Competitiveness:
Revealed Comparative Advantage (RCA):

Revealed Comparative Advantage (RCA) measures the change in
the comparative advantage of a country’s exports. Two major
indicators are used to capture the changes in the comparative
advantage of textile and apparel product exports; these are:
export performance ratios and net export/total trade
ratio(Balassa, 1965, UNIDO 1982., Ariff and Hill 1985).These two
indicators are interrelated and highlight different facts of the
same phenomenon.
Export Performance Ratio (EPR): Export

Performance Ratio (EPR) is used to measure Revealed Comparative
Advantage of a country. Export performance ratio (epij) measure
expresses the share of country i’s export of commodity j in total
world export of commodity j, as a ratio of the share of country
i’s total export in the world total exports. If the export
performance ratio is one, this indicates a normal export
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performance of commodity j relative to the size of country i’s of
commodity j exporter. If the export performance ratio is two,
this suggests that the commodity j’s share in country i’s export
is twice the corresponding world share and so forth. A ratio of
more than one is taken as an indication of revealed comparative
advantage. A rise in the ratio suggests a Strengthening in terms
of revealed comparative advantage (Balassa 1965, UNIDO 1982.,
Ariff and Hill 1985). The measure yields a ratio ranging from
zero to infinity but for certain reasons large numbers Will be
unusual. An export performance ratio of more than unity is
regarded as a revealed comparative advantage, while a rise in the
ratio suggests a strengthening on the basis of Revealed
5.3. Developments:Macroeconomic
The macroeconomic developments in the 1990s, characterized by

varying and often contrasting trends in major indicators, reveal
Bangladesh's continued susceptibility to economic vulnerability.
Despite the government's successful mitigation of the short-term
losses ensuring a much better macroeconomic performance than
apprehended after the 1998 floods, several weaknesses persist in
the macroeconomic balances. These are reflected in three major
macro-indicators in the current fiscal year: (i) slow growth in
manufacturing output; (ii) deceleration in the rate of
investment; and (iii) slow growth in exports.
5.3.1.Recent Growth Performance
While the average GDP growth rate was 4.4 per cent per year
during the first half of the 1990s, the growth rate has
accelerated to over 5 per cent in recent years. The growth rate
is projected at 5.47 per cent in 1999/00. A notable feature of
the growth process during the 1990s is the fluctuating role of
both agriculture and industrial sectors. The average growth rate
54
2003
of crop and horticulture was -0.43 per cent per annum until mid-
1990s which increased to 6.13 per cent in 1999/00. The growth in
manufacturing sharply decelerated from an average of 8.20 per
cent during the first half of the 1990s to 4.25 per cent in
1999/00. The deceleration started in 1998/99 as an aftermath of
the 1998 floods. The growth rate of construction sector has also
declined since 1997/98: from 9.48 per cent in 1997/98 to 8.92 per
cent in 1998/99 and further to 8.00 per cent in 1999/00.
Table 1 Sectoral GDP growth
FY 99 FY 00 FY 01 FY 02
I. Agriculture 25.3 25.6 25.0 24.6
a) Agriculture and
19.3 19.5 19.5 19.2
Forestry
i) Crop and
14.3 14.6 14.7 14.4
Horticulture
ii) Animal Farming 3.1 3.0 2.9 2.9
iii) Forest and

1.9 1.9 1.9 1.9
Related Services
b) Fishing 5.9 6.1 5.5 5.4
2. Industry 25.7 25.7 26.2 26.5
a) Mining and Quarrying 1.0 1.0 1.1 1.1
b) Manufacturing 15.6 15.4 15.6 15.6
i) Large and Medium

11.2 11.0 11.1 11.0
Scale
ii) Small Scale 4.4 4.4 4.5 4.6
c) Power, Gas, Water

1.4 1.4 1.5 1.5
Supply
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2003
d) Construction 7.7 7.8 8.1 8.3
3. Services 49.0 48.7 48.8 48.9
a) Wholesale and Retail

13.2 13.4 13.5 13.6
Trade
b) Hotel and Restaurant 0.6 0.6 0.6 0.7
c) Transport, Storage and

9.2 9.2 9.4 9.5
Communication
d) Financial
1.6 1.6 1.6 1.6
Intermediation
i) Banks 1.2 1.2 1.2 1.2
ii) Insurance 0.3 0.3 0.3 0.3
iii) Other 0.1 0.1 0.1 0.1
e) Real Estate, Renting

and Other Business 9.1 8.9 8.7 8.6
Activities
f) Public Administration
2.6 2.5 2.6 2.6
and Defence
g) Education 2.2 2.2 2.2 2.3
h) Health and Social

2.2 2.2 2.2 2.2
Work
i) Community, Social and

8.4 8.1 8.0 7.8
Personal Services
GDP (at FY 96 constant factor

100.0 100.0 100.0 100.0
cost)
Table -2 Sectoral growth rates of GDP (Per

cent, constant 1995/96 prices)
Source: Bangladesh Bureau of Statistics
56
2003
Sector Average 1995/ 1996/ 1997/ 1998/ 1999/0

96 97 98 99 0a
1990/91
-
1994/95
Agriculture 1.55 3.10 6.00 3.19 4.77 6.43
Crops & horticulture -0.43 1.74 6.44 1.05 3.16 6.13
Animal farming 2.38 2.51 2.58 2.64 2.69 2.74
Forest & related services 2.82 3.46 4.03 4.51 5.16 5.16
Fishing 7.86 7.39 7.60 8.98 9.96 9.50
Industry 7.47 6.98 5.80 8.32 4.92 5.55
Manufacturing 8.20 6.41 5.05 8.54 3.19 4.25
Construction 6.27 8.50 8.64 9.48 8.92 8.00
Services 4.63 4.29 4.91 4.77 4.90 4.97
GDP 4.39 4.62 5.39 5.23 4.88 5.47
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2003
58
2003
Table 3. Sectoral GDP shares

(at FY96 constant factor costs: percent)
FY 99 FY 00 FY 01 FY 02
I. Agriculture 25.3 25.6 25.0 24.6
a) Agriculture and
19.3 19.5 19.5 19.2
Forestry
i) Crop and
14.3 14.6 14.7 14.4
Horticulture
ii) Animal
3.1 3.0 2.9 2.9
Farming
iii) Forest and

1.9 1.9 1.9 1.9
Related Services
b) Fishing 5.9 6.1 5.5 5.4
2. Industry 25.7 25.7 26.2 26.5
a) Mining and
1.0 1.0 1.1 1.1
Quarrying
b) Manufacturing 15.6 15.4 15.6 15.6
i) Large and
11.2 11.0 11.1 11.0
Medium Scale
ii) Small Scale 4.4 4.4 4.5 4.6
c) Power, Gas, Water

1.4 1.4 1.5 1.5
Supply
d) Construction 7.7 7.8 8.1 8.3
3. Services 49.0 48.7 48.8 48.9
a) Wholesale and
13.2 13.4 13.5 13.6
Retail Trade
b) Hotel and
0.6 0.6 0.6 0.7
Restaurant
c) Transport, Storage 9.2 9.2 9.4 9.5
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2003
and Communication
d) Financial
1.6 1.6 1.6 1.6
Intermediation
i) Banks 1.2 1.2 1.2 1.2
ii) Insurance 0.3 0.3 0.3 0.3
iii) Other 0.1 0.1 0.1 0.1
Source: SAARC information net work, Country Profile-Bangladesh.
The recent growth performance of the economy is largely driven by

the agriculture sector which has a potential source of
vulnerability due to its dependence on the nature. An emerging
concern in promoting steady growth in the country is the slow
growth and continued failure over the last two years of the
manufacturing sector to regain its momentum. While agricultural
production, particularly rice output, has increased steadily over
the last three years creating favourable macroeconomic conditions
and increased growth, sustaining the gains in the future would
largely depend on success in bringing quick recovery and ensuring
momentum of the manufacturing sector.
5.3.2 Savings-Investment Performance
Table 4. Domestic savings and investment
(As percent of GDP )
FY98 FY99 FY00 FY01 FY02
Investment 21.6 22.2 23.0 23.1 23.2
Private 15.3 15.5 15.5 15.9 16.1
Public 6.4 6.7 7.4 7.3 7.1
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2003
Domestic savings 17.4 17.7 17.9 18.0 18.0
Private 16.4 16.7 16.9 17.0 17.0
Public 1.0 1.0 1.0 1.0 1.0
Savings-investment 4.2 4.5 5.1 5.1 5.2

gap
Source: SAARC information net work, Country Profile-Bangladesh.
According to the new national income accounts, gross

domestic savings increased from 13 per cent of GDP in 1989/90 to
about 18 per cent in 1999/00. During the same period, gross
national savings increased from 18 per cent to 23 per cent of
GDP. The investment - GDP ratio, on the other hand, increased
from 17 per cent in 1989/90 to 22 per cent in 1999/00.

1990/ 1991/ 1992/93 1993/94 1994/ 1995/ 1996/97 1887/98 1998/99 1999/
91 92 95 96 00a
Investment 1.42 4.44 9.52 9.35 9.11 10.60 11.08 12.06 9.85 8.19

Private 6.07 2.57 16.69 8.87 11.21 16.17 7.70 19.73 8.46 8.52

Public ‐5.06 7.35 ‐1.13 10.19 5.46 0.40 18.25 ‐2.72 13.13 7.45
Gross domestic savings 22.21 28.03 ‐6.95 22.02 ‐10.64 3.62 34.50 26.00 11.46 11.60
Gross national savings 43.54 13.43 11.21 6.99 14.47 25.59 7.20 16.82 14.95 11.72
(Per cent, constant 1995/96 prices) Table-5
Source: Bangladesh Bureau of Statistics.
An important macroeconomic concern in sustaining higher growth is

to ensure increased level and quality of investment. The
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2003
deceleration in recent growth of investment is a major cause of
concern: the growth rate declined from 12 per cent in 1997/98 to
10 per cent in 1998/99 and further to 8 per cent in 1999/00 at
constant 1995/96 prices.
Annual changes in savings and investment Provisional
Despite liberal and attractive policies, foreign investment

is yet to make a significant contribution to the country. The net
direct and portfolio investment was US $ 252 million in 1997/98
which declined by 24 per cent to US $ 192 million in 1998/99. The
projection for 1999/00 is US $ 155 million recording a further
fall of 19 per cent over the previous year. The net inflow of
foreign investment in the EPZs is also relatively low: US $ 54
million in 1996/97, US $ 69 million in 1997/98, and US $ 71
million in 1998/99.
Since 1998/99, savings and investment performance reveals a

downward trend. It is important to identify the causes as to why
the momentum in the growth of savings and investment could not be
maintained despite acceleration in the growth rate of the economy
and implement effective measures to ensure sustained growth and
economic stability. So Growth has accelerated in Bangladesh in
the 1990s. Much of this acceleration in growth took place in the
context of rapidly declining external aid. External aid has
fallen from 12% of GDP in the early 1980s to only about 2% of GDP
now. There have not been any compensating private flows during
this time. This enhanced growth performance occurred during a
period of policy reforms. However, it does not necessarily mean
that policy reforms were alone responsible for the acceleration.
Some increase in total factor productivity was responsible as was
some increase in the savings rate, due largely to an increase in
public sector savings.
5.3.3. Readymade garment:
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2003
Much of the growth in large-scale industry has been driven
by ready-made garments (RMG). Growth in the non-RMG large-scale
industry has been slow – about 4% in the 1990s. This is less than
that in the 1980s. Why is it that so few industries have managed
to duplicate the performance of the RMG sector? One question
worth exploring is whether the RMG sector, by absorbing the
domestic savings, crowded out the other industries.
The RMG sector has had phenomenal growth. Growth rates of

earnings, in real dollar terms, jumped from about 6% during the
1980s to 15% during the 1990s. For the first time in FY01-02,
there was a 10% drop is export earnings. But, even in this bad
year, the volume of exports actually went up by 10%, albeit not
by enough to compensate for the 20% drop in average prices.
There are some fronts, however, where the industry has not
been very successful. One such area is marketing. The industry
has not yet developed good marketing skills of its own and
continues to rely heavily on foreign buying houses, notably those
from India and Sri Lanka. These intermediaries capture a large
part of the margin. The scope for the industry to benefit from
devaluations is limited in such a situation. The industry should
have used the last 20 years to go deeper into the marketing
channel. The fact that foreign direct investment had not been
allowed in the industry is one possible reason for our failure to
do so. The Bangladesh Garments Manufacturers and Exporters
Association (BGMEA) is now thinking of setting up marketing
centers abroad. This is an area where public-private sector
collaboration may be required.
The only import-substituting industry that grew

significantly, reflecting somewhat the East Asian pattern, is
pharmaceuticals. It first grew under protection alongside
imported pharmaceuticals. It then out-competed the imported
products and has now started exporting. It is possible that some
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2003
parts of the industry are not very efficient but are surviving
due to protection while other parts are efficient and competing
in world markets.
The shrimp processing industry is an interesting case. A few

years ago, the industry faced serious reputational problems due
to the fraudulent practices of a few producers. The malpractices
of a few jeopardized the entire industry indicating that
reputation is a public good. In other words, the industry as a
whole needed to take remedial actions. The industry is now
finally realizing this and has started taking steps at self-
regulation. Having concluded that the government’s standards
institute is inefficient, it has adopted measures to impose
standards on their own and monitor compliance.The capital goods
industry has declined, e.g., textile machinery industry has
virtually disappeared. It is important to have a capital goods
industry. Adaptation of technology is important for industrial
growth. For this to happen, one needs a domestic capital goods
industry.
Small scale industries have done quite well in recent years

and have largely benefited from liberalization. On the one hand,
they are not much affected on the output side (do not compete
with imports) but benefit from the liberalization of imports of
inputs. They expanded at the expense of inefficient large-scale
industries as well as cottage industries. Poverty reduction will
require further growth in such small scale enterprises. The
contribution of export industries and large-scale industries to
poverty reduction will be less direct. Their main contribution
will be through generating capacity to import by earning foreign
exchange. This will help small-scale enterprises who need
imported inputs and this, in turn, will help reduce poverty.Cash
subsidies are currently given to various activities, such as
agro-processing, leather goods and light engineering. The
practice of providing cash subsidies started with Grameen check.
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2003
It was meant to compensate for duties paid on imports and
amounted to 25% of total sales value, a high amount by any
standard. The rationale for providing cash subsidies, especially
at the current scale, is weak. Import duties have gone down due
to import liberalization. If compensation is to be provided, the
amount required for various products will have to be re-
calculated, taking into account the changes in duty rates.
5.3.4 Trends in External Sector
The share of foreign trade (exports and imports) in GDP increased

from 17 per cent in 1989/90 to over 29 per cent in 1998/99.(See-
appendix-table-2)
5.3.5 Bangladesh's Export Sector:
In the recent past Bangladesh's macroeconomic performance

has come to be increasingly dependent on the performance of her
external sector. This is manifestly demonstrated by the shift in
the relative importance of aid and trade in the economy of the
country. In 1990 total disbursed aid was equivalent to 8.1% of
Bangladesh's GDP; in 2000 the share had come down to 4.0%;
exports as a percentage of GDP, on the other hand, has gone up
from 6.8% to14.5% over the same period. In 1990 the country's
earnings of the foreign exchange from export and remittance was
1.3 times that of the aid disbursed; by the year 2000 it was
almost 5 times as high. Bangladesh's graduation from a
predominantly aid recipient country to a predominantly trading
country is one of the major achievements of the 1990s. The
structural shift from primary to manufacturing exports, from
resource-based to process based exportable and from the
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2003
traditional jute-centric to the emergent RMG-centric export is
remarkable by any standard. Over the same period the country had
also to import an increasing amount of production and non-
production related commodities. Increasing exports have allowed
the country to service a large part of this growing import demand
without seriously undermining the balance of payments position of
the country and the country's debt servicing record.
Consequently, in view of the increasing degree of openness of the
Bangladesh economy, factors such as competitiveness of the
external sector, market access capacity and ability for
strengthened global integration are becoming key determinants in
terms of not only the performance of the external sector but also
the overall growth and development of the country. The present
paper traces the growth dynamics of Bangladesh's export sector
interims of a number of major correlates and looks at some of the
major challenges which are expected to impact on export sector
performance in the short and medium terms.
Bangladesh's external sector has experienced fluctuating

fortunes in recent years. Export growth rate in FY1997 and FY1998
were a robust 13.8% and 16.8%, only to subsequently came down to
2.9% in FY1999, in part as a consequence of the 1998 flood. In
FY2000 export sector was able to make some rebound and posted a
growth of 8.3% compared to FY1999.This growth rate was, however,
below the trend growth rate of about 12.0% for the 1990s and was
built on the relatively lower base of the previous fiscal year. A
development of some concern to Bangladesh in FY2000 was the
deceleration in the growth of woven-RMG sector, the single-most
important sector accounting for 56.0% of total exports. RMG
registered a growth of only 5% in FY2000. This, in effect pulled
down the exports earnings in FY2000 to the level of $5.7 billion,
resulting in the relatively low growth of 8.3%. A positive
development though was the continued robust performance of the
knit-RMG exports, which having registered a growth of 10.4% in
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2003
FY1999, was able to grow by22.6% in FY2000. The share of the
sector in total export has doubled over the last five years, form
12.0% to 22.0%. This is clearly demonstrated by Table-1
Table 1: Structure of Exports, Incremental Exports and Net Export

(in percent)
Commodities Structure Structure of Structure Growth

of Export Incremental of Net of Net
Export Export export
in FY
2000
over
FY
1999
FY 1999 FY 1999 FY1999
FY2000 FY2000 FY2000
Raw jute 1.3 1.2 - 0.0 2.4 2.2 -0.2
23.8
Tea .7 .3 -5.8 -4.8 1.3 .5 -54.2
Foreign food 5.2 6.1 - 15.8 9.2 10.5 25.3
12.6
Primary 7.9 8.2 - 10.7 14.2 14.3 11.1
commodities 52.5
Jute goods 5.7 4.6 14.8 -8.6 10.2 8.1 -12.5
Leather 3.2 3.4 - 6.1 5.7 6.0 15.9

14.5
Woven RMG 56.2 53.6 93.3 22.2 33.4 31.4 3.3
Knit RMG 19.5 22.1 62.. 53.6 23.2 25.9 22.6

7
Chemical 1.5 1.6 3.2 3.3 2.7 2.9 18.8
product
All Mfg. 92.1 91.8 152. 89.3 85.8 85.7 9.8
commodities 4
TOTAL 100 100 100 100 100 100 9.9
(million (531 (575 (151 (439. (267 (294
US$) 2.9) 2.2) .7) 3) 9.5) 6.5)
Source: Compiled from EPB Annual and Monthly Data
An interesting development of recent years is that since the

local value addition of knit-RMG is relatively high (50% as
against 25% for woven-RMG) its share in net exports is gradually
catching up with that of the woven-RMG. If the structure of
67
2003
incremental export is analyzed, this growing importance is even
more clearly manifested. For every dollar of incremental export
earned by Bangladesh in FY2000 53 cents was contributed by knit-
RMG. In FY2000 other important exportable such as jute goods
(4.6%), frozen food (6.0%) and leather(3.4%) performed below the
levels achieved during recent years. As is evidence by Figure-1,
in recent years an increasing share in the incremental growth is
originating from changes in the volume index as compared to that
of the price index. This trend is a cause for major concern which
was first pointed out in IRBD1998/99 and has continued to persist
in FY2000 as well. In FY2000 the increase in unit price value
contributed only 0.5% to the growth in total exports, which was
8.3%; compared to this the increase in export volume contributed
7.8%. This would imply that the weak growth rate of prices of our
principal exports in the international markets has to be
increasingly compensated for by an ever-increasing volume of
exports. The underlying dynamics of the changes in price, volume
and value indexes is easily discernible from Figure 1. The price
trend perhaps also reflects deterioration in Bangladesh's terms
of trade in recent years. If FY1980 is taken to be the base year,
the terms of trade has come down to the level of 89.2 in FY2000.
Figure 1
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2003
5.3.6 Exchange Rate Policy and Export Performance
In the recent past Bangladesh has resorted to frequent

depreciation of the taka. Through this flexibility in the nominal
exchange rate was maintained in line with movements in the real
effective exchange rate. In all, the taka has been devalued 18
times over the tenure of the current government, which led to a
cumulative depreciation of the currency to the extent of 19.1%.
Maintaining external competitiveness of Bangladeshi exports and
minimizing adverse developments in the balance of payments
position of the country were often cited as the principal
rationale for pursuing such a policy. Exchange rate policy was
also mentioned in the budget speech of the Finance Minister on 8
June, 2000 as one of the major policies to stimulate export
sector of the country. Such a policy of creeping devaluation is
consistent with the need to maintain exchange rate flexibility in
order to sustain Bangladesh's export competitiveness. However, if
we track the movement of the real effective exchange rate (REER)
over the 1990s, it will be seen that the taka actually
appreciated for most of the 1990s despite the frequent nominal
devaluations. It was only subsequent to December, 1997 that the
taka actually started to depreciate in real terms. It is also of
interest to note here that no discernible correlation is visible
between the movements in the REER and the growth rates of either
Bangladesh's exports or imports.Figure-2 brings out this mismatch
very clearly. It appears that other structural factors, specially
supply side constraints and global market dynamics play a more
important role in stimulating exports and improving the balance
of payments position compared to movements in the nominal and
real exchange rates.
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2003
Figure 2
In recent years the relatively slow growth performance

registered by Bangladesh's commodity export sector was somewhat
compensated by the robust growth of the remittances sent by
Bangladeshis working abroad. As was pointed out earlier, in the
recent past this increased inflow had a positive impact on the
current account transfer and the balance in current account of
the country. Table-3 shows the dynamics of remittance in recent
years.
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2003
Table 3: Dynamics of Growth of Remittance: FY1995 - FY2000
Indicators 1995 1996 1997 1998 1999

2000
Remittances (in million US$) 1198 1217 1475

1525 1709 1953
Growth of Remittance (%) 10.0 1 .6 21.

2 3.4 12.1 14.2
Growth of Exports (%) 37.1 11.8

14.0 16.8 2.9 8.3
Source: Compiled from Bangladesh Bank data.
As can be seen from Table-3, remittances have registered a

robust growth of 14.2% inFY2000 compared to FY1999. This was
almost double the growth of exports during the corresponding
period. The growth rate of remittances in FY1999, at 12.1%, was
also substantially higher than the growth of exports in FY1999,
which was only 2.9%. The increasing flow of remittance reflects,
at least in part, the incentives for inward remittances through
legal channels under the current market determined exchange rate
system. Increased flow of remittances have played an important
role in replenishing the fore reserves of the country in recent
years. Given the potential for exchange earning capacity of this
sector, there is need to design a comprehensive plan for skill up
gradation of her immigrant laborers. Towards this a comprehensive
labor market survey and a study to determine domestic skills up
gradation capacity need to be undertaken on an urgent basis.
Foreign aid commitment for FY2000 was equivalent to $1480.9
million, which was significantly lower than the corresponding
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2003
commitments for the same period in FY1999,which was $2648.5
million. Thus, commitments came down by about 44.0% in FY2000.
This decrease was mainly due to drastic fall in commitments for
food and commodity aid. However, it is to be noted that project
aid commitments also came down significantly over
This period, from $2017.2 million to $1254.5 million- a fall

of 37.8%. Throughout the 1990s disbursement of project aid as a
percentage of commitment had experienced a sharp decline. In
spite of the robust growth of the remittances, the substantial
deficit in the trade account (equivalent to about $1.1 billion in
FY2000) and low aid disbursed during FY2000 meant a growing
pressure on the reserves which came down to about 1.6 billion by
the end of FY2000. Evidently, with imports picking up, it was
around 20% during the first quarter of FY2000, from the low
growth of 1.6% registered in FY2000, the pressure on the reserves
is expected to go up in the coming months. The foreign exchange
reserve in the 1990s peaked in FY1995 when reserves reached
$3.07 billion, which was equivalent to 6.3 months of imports.
Since then reserves have declined steadily to reach about $1.3
billion in recent months, is expected to lead to major changes in
the area of competitiveness in global apparels market. Once the
quotas are removed, and preferential margins are gradually
eroded, comparative advantage scenarios which informed the market
behavior under the MFA regime will be subjected to radical
change. New entrants such as Cambodia, Laos and Vietnam will also
bring more competitive pressure into the market. Bangladesh will
need to make a comprehensive study on the implications of these
developments, and design an
adequate strategy to address the attendant issues.
Over the past years Bangladesh's policies have tended to

focus on exchange rate management and export promotional
incentives as two important instruments to boost the country's
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2003
export and in order to stimulate export sector diversification in
the country. The taka was devalued eighteen times during the
tenure of the present government - twice during FY2000. Export
sector has also received substantial amount of financial help in
the form of subsidies and other forms of assistance. Such
assistance amounted to Tk. 635.0 Core ($131.3 million) in FY2000
alone. Budget FY2001 also makes an allocation of another $126.4
million towards this. The budget also provides for general
reduction in the duties on basic raw materials (5% on average)
and intermediates and semi-finished goods (15% on average) with a
view to stimulate export-oriented investment in the economy.
Duties on various raw materials used in the textiles, leather,
footwear and some other export-oriented industries have also been
brought down in the budget for FY2001.
The budget provides for a number of incentives to stimulate
non-traditional exports. To promote export-oriented agro-
processing industrialization duty rates on machinery, spare
parts, raw materials and packaging materials of agro-processing
industries have been substantially reduced. To encourage export-
oriented activities in the jeweler industries, the import quota
of gold has been doubled and duty rate reduced. A lump allocation
equivalent to Tk. 150 million has been kept with a view to
encourage training of programmers and for promoting Bangladesh's
emerging IT sector. It is becoming increasingly evident that
technology in the RMG sector is becoming a key determinant of
Bangladesh's continued competitiveness in the global apparels
market. Bangladesh's low wage based comparative advantage needs
to be translated into productivity based competitive advantage
and it is here that technology comes to play a crucial role.
Although zero-tariff access of capital machineries and other
incentives are welcome initiatives of GOB in this respect, more
vigorous efforts and comprehensive approach are required. An
important initiative of budget FY2001 is the decision to allocate
Tk. 1.0 billion for establishing an Equity Development Fund in
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2003
the Bangladesh Bank with the objective of promoting investment in
software export and agro-processing industries. The fund will be
invested in financially viable software, food processing and
agro-processing activities; maximum investment from this fund
will be limited to 25% of the equity. It is hoped that this
dedicated fund will give a boost to two sectors which appear to
have high export potentials. It needs to be appreciated and given
due recognition that the fiscal, financial and institutional
incentives provided to the export sector and export-oriented
activities in Bangladesh in the recent past have played an
important role in ensuring the 12% average real growth rate of
the sector in the 1990s. However, lack of adequate infrastructure
facilities, absence of infusion of technology in export-oriented
sectors and weakness in the management of the sector have
severely constrained the sector’s performance and its move
towards a diversified base. Major concerns continue to severely
constrain realization of many of the potential opportunities
which globalization offers to Bangladesh. If Bangladesh fails to
address these concerns, needless to say, the attendant risks will
became originating from globalization even more acute.
Narrow export base and lack of diversification of exports

has led to a situation where the Bangladesh's export sector
performance has come to predominantly hinge dependent on the
performance of the RMG sector. Global market of textiles and
apparels is around $300 billion and there is a wide intra-market
diversity. Thus, perse dependence on exports of RMG should not by
itself be a major concern. What is of more concern are the
followings: (a) exports have continued to remain concentrated in
the lower segment of the demand curve; (b) local value addition
has been delimited to 25-30%; (c) product and process
modification cpacities have not improved significantly because of
constraints in the areas of technology and skills; (d) limited
backward and forward linkages. There is also lack of product
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2003
diversification within the RMG sector itself. Till now any
discernible shift favouring higher value-added fashionable
product categories in the RMG market is not visible. As a result
potential market opportunities continue to remain unaccessed. In
view of the growing RMG-centric export base in Bangladesh, the
growth dynamics of the sector needs to be put under close
scrutiny. Any deceleration in the performance of this particular
sector severely tests the efficacy of Bangladesh's export-led
growth strategy. As quotas increase across countries in the run
up to the year 2005 (MFA quota will increase at the rate of 16%,
25% and 27% over the first three stages of MFA phase out), a
process of restructuring of the global RMG market is expected to
gradually evolve where price competitiveness and quality aspects
will predominantly dictate the market behaviour. The slow-down in
the growth of woven-RMG in FY2000 should serve as a wake up call
specially in view of (a) the upcoming third phase of the
integration of Multi-Fibre Arrangement (MFA) into the Agreement
on Textiles and Clothing in WTO (ATC) and its potential
consequences for Bangladesh's apparels sector; (b) China's entry
into the WTO; (c) structural shifts in sourcing of apparels by
USA following establishment of NAFTA; (d) the recently enacted
Trade and Development Act of 2000 in USA which provides zero
tariff and quota-free access to US markets to 72 African and
Caribbean Basin countries and (e) heightened competition in the
EU market in view of granting of quota-free access to
Bangladesh's major competitors in 2005.
Bangladesh will need to carefully study why in recent years

Bangladesh's quota-fill performance in some of the traditionally
important categories of apparels export has registered a
significant decline. Careful analysis should be carried out as to
why Bangladesh's performance in a number of categories has not
matched those of the corresponding period of the last year. In
this context Bangladesh should also monitor the quota fill
75
2003
performance of some of the competitors including Sri Lanka,
China, India and Pakistan. The rising importance of knit-RMG,
contributing an increasing share in both net exports and
incremental exports, needs to be given special attention. The
local value addition in the knit- RMG sector varies from 50% to
60%, which is double the current level in the woven-RMG sector.
It is of importance to note that Bangladesh's knit-RMG sector was
able to demonstrate a quite robust performance in recent years
within the quota-free environment in the EU. However, one of the
underlying factors contributing to this success is the fact that,
major competitors of Bangladesh in the EU market such as India
and Pakistan are compelled to operate under quota restrictions.
Such quotas will be eliminated as of January 1, 2005. In view of
the promise of this particular sector, specially in the context
of possible deceleration in the growth of woven-RMG exports, it
is of critical importance that a comprehensive policy package be
developed in order to stimulate the competitive strength of the
export-oriented knit-RMG sector of the country. Over the recent
years, imports of capital machineries for textile industries have
registered significant growth, testifying to some degree of
backward linkage activity taking place in the export-oriented
apparels sector. A comprehensive strategy to stimulate such
backward linkage activities ought to be designed and implemented
on an urgent basis. This is essential on four counts: (a) to face
the challenges of post-MFA regime; (b) to comply with stringent
rules of origin requirement for accessing GSP; (c) to increase
local value addition and (d) to create employment opportunities
within the country. Of course a strategy for developing the
backward linkage industries must of necessity take into
cognizance the dynamic comparative advantage of Bangladesh in a
fast changing global market.
The recently introduced US Trade and Development Act of 2000

(US TDA2000) provides duty and quota free access for textiles
76
2003
products to US markets from 72 countries under the Africa Growth
and Opportunity Act and the US Caribbean Basin Trade Partnership
Act. The benefits under the Act is to be offered from October 1,
2000 and will continue till September 30, 2008. The bill, subject
to fulfillment of certain conditional ties, provides the
aforementioned countries, in effect, a NAFTA - parity. Since a
number of the beneficiary countries, specially some of the
Caribbean countries are major textile exporters to the US market
and compete with Bangladesh in some of the important product
categories, Bangladesh will need to carefully study and monitor
the implications of this Act in terms of the future export
performance of the country's RMG sector in the US market.
Till Bangladesh's debt-servicing record had been one of the

best amongst the LDCs - at less than 10% of her forex earnings
from exports of commodities and remittances. The pressure on
reserves is also expected to go up on account of gas purchase and
sales agreement (GPSA) with IOCs. As of now these payments are
equivalent to about $100.0 million but is expected to go up to
about $500 million over the immediate future. Bangladesh will
need to ensure increased export earnings from export and
remittance in order to service these claims without adverse
impact on imports and forex reserves of the country. Energetic
steps will need to be
taken to maintain this good record.
Emerging market access problems, phase out of the MFA,

commitments under the WTO pertaining to gradual withdrawal of
subsidies, the need to conform with standards such as ISO-9000
and ISO-1400 and persistence of protectionist trends in developed
country markets have confronted LDCs such as Bangladesh with new
challenges in the era of globalisation. As the spokesman of the
LDCs Bangladesh also has an added responsibility to articulate
the voice of the LDCs in the various global trade platforms.
77
2003
Voices are being raised in many LDCs as to the justification of
any new round of trade negotiations under the WTO at a time when
most of the promises favouring the LDCs during the Uruguay Round
(Special and Differential status, technical assistance,
strengthening of the aid-trade nexus, greater market access,
technology transfer etc.) are yet to be implemented. As leader of
the LDCs
Bangladesh should also feel an added responsibility to

ensure that the objectives of the Integrated Framework Initiative
of the six agencies which is designed to address the technical
assistance needs of the LDCs are achieved. The LDCs and
developing countries also need to explore the possibility of
designing common approaches in future WTO negotiations. GATT UR
provisions stipulates that, under the WTO provisions countries
get not what they deserve, but what they negotiate. It is, thus,
important that the LDCs raise their bargaining strength by
pooling their resources in any future negotiations. This is more
so because future trade battles will be mainly waged in such WTO
forums as the dispute settlement body (DSB) which are becoming
increasingly important in terms of enforcement of the global
trade regime. Low domestic capacities of LDCs to put forward
their cases is being manifested in the form of constrained market
access, imposition of anti-dumping and countervailing duties, as
also in terms of interpretation of the Uruguay Round provisions
in ways which tend to go against the interests of the developing
countries on the one hand, and the spirit of multilateral
negotiations, on the other hand. Thus, whilst acting locally
Bangladesh will need to coordinate her policies globally as an
LDC. The task of monitoring the impact and implications of the
WTO provisions and decisions is an on-going continuous process.
Thus, the Special and Differential Status given to the LDCs in
the WTO and Decisions on Measures in Favour of Least Developed
Countries annexed to the Final Act of the Uruguay Round needs to
78
2003
be carefully studied and monitored by Bangladesh in order to
guarantee maximum advantage for the LDCs.
It is perhaps of some interest to note that Bangladesh's

export sector has demonstrated a good recovery during the first
quarter of FY2001 (July-September, 2000). Export accruals during
the first quarter for FY2001 was about 25.4% higher compared to
the corresponding period of FY2000. In terms of growth rate,
export earning performance of some of the major sectors including
woven-RMG (20.5%) and knit-RMG (31.2%), frozen foods (54.6%) and
leather (5.4%) was significantly better compared to the
corresponding period of FY2000. However, the export base has
continued to remain narrow and no mentionable breakthrough in the
performance of the thrust sectors is visible. The growth in
export was mainly achieved thanks to increase in volumes rather
than that of price. The contribution of price index to the
incremental export over the first quarter of FY2001 was 12.9%,
whilst that of volume index was 87.1%. With MFA phase-out
programmed gradually nearing its completion, Bangladesh will also
be required to increase her vigilance in terms of monitoring the
global dynamics in apparels and textile markets in the coming
months and years. This is specially so since price levels of most
of the apparel categories is expected to experience a sharp
decline once the MFA phase-out is completed. The GOB needs to
recognize the enormity of the challenges confronting Bangladesh
under the new global order and will have to equip itself
adequately to meet these challenges. The GOB will need to design
a dynamic export strategy and put in place the capacity to
realize such a strategy rather than just talk about it. To carry
through such an exercise in intelligent policy design and its
implementation, GOB will need both strong political commitment as
well as good governance, and will also be required to pursue a
proactive external policy underwritten by coalition-building and
skillful negotiating strategies. To this end, it will need to
79
2003
draw upon the best available professional resources in the
country as well as draw in external expertise in selected areas.
Priority should be given to preparing a joint action agenda with
other LDCs which need to be pursued in any future round of trade
negotiations. This task is of immediate importance also in view
of the forthcoming Third LDCs Conference which is to be held in
Brussels in May, 2001.
5.3.7. Export Performance
The most significant recent development in the external

sector is the deceleration of export growth in 1998/99. While
export growth is expected to increase to about 9 per cent in
1999/00, it is yet to reach its trend growth path. The trends in
exports during the first nine months of the current fiscal year
(July 1999 - March 2000) suggest that total exports during the
period grew by 8.4 per cent over the same period of the previous
fiscal year. Readymade garments, which accounted for 56 per cent
of total exports in 1998/99, registered a growth of 6 per cent.
The growth of readymade garments exports was 15 per cent in
1996/97, 27 per cent in 1997/98 and only 5 per cent in 1998/99 in
dollar terms. In view of the importance of the sector, the causes
of deceleration require in-depth analysis to devise future
strategies. In recent years, knitwear exports have increased
rapidly with an average growth of more than 20 per cent over the
last three years. With supportive policies, knitwear has the
potential to emerge as a thrust export sector with significant
domestic value additions and linkages.Total export from
Bangladesh during 1997-98 amounted to US Dollar 5161.20 million
(Taka 234163.75 million) as against US$ 4418.28 million (Taka
188130.42 million) during 1996-97 showing an increase of US
dollar 742.92.86 million i.e 16.81%.A statement of comparative
year-wise export earning for nine years is given below.
80
2003
Million Dolla ( Corer
Taka)
FY Export Earnings (+) Increase Increase

(-) Decrease Decrease in
%
1988-89 ( 1291.56) (+ 60.36) (+ 4.90%)
40968.40 (+) 2887.34 (+) 7.58%
1989-90 ( 1523.70) (+ 232.14) (+ 17.97%)
49764.21 (+) 8795.81 (+) 21.47%
1990-91 ( 1717.55) (+ 193.85) (+ 12.72%)
60560.88 (+) 10796.67 (+) 21.70%
1991-92 (1993.92) (+ 276.37) (+ 16.09%)
75908.56 (+) 15347.68 (+) 25.34%
1992-93 (2382.89) (+ 388.97) (+ 19.51%)
92575.40 (+) 16666.84 (+) 21.96%
1993-94 ( 2533.90) (+ 151.01) (+ 6.34%)
100975.94 (+) 8400.54 (+) 9.07%
1994-95 (3472.56) (+ 938.66) (+ 37.04%)
139284.58 (+) 38308.64 (+) 37.94%
1995-96 (3882.42) (+ 409.86) (+ 11.80%)
158790.87 (+) 19506.29 (+) 14.00%
1996-97 ( 4418.28) (+ 535.86) (+ 13.80%)
188130.42 (+) 29339.55 (+) 18.8%
1997-98 (5161.20) (+ 742.92) (+ 16.81%)
234163.75 (+) 46033.33 (+) 24.47%
Source-Bangladesh bankAmong the principal commodities there has

been increase in the export earnings during the year under review
in respect of tea (24.46%), agricultural products (36.61%),
handicrafts (5.83%), knitwear 3.19%), readymade garments
(27.05%), engineering product (21.84%), and other commodities
(21.23%). These commodities which registered decrease in export
81
2003
earning are leather (2.67%), Jute goods (11.46%) frozen food
(8.38), raw jute (7.35%), chemical products (31.58), petroleum by
products (33.56%).
Export From Bangladesh

During 1997-98
A comparative statement showing

export earning in terms of
U.S. dollar and Bangladesh Taka
during the FY 1997-98 & 1996-97
is given below. (Value in
million
Source-Bangladesh bank
Commodities 1997- 1996-97 Increase % Increase

98 (+) (+)
Decrease (- % Decrease
) (-)
Frozen food (293- (320.73) (-26.89) (-) 8.38%
84) 13656.50 (-) 325.18 (-) 2.38%
13331.3
2
Agricultural (39.14) (28.65) (+ 10.49) (+) 36.61%
products 1219.97 (+) 556.01 (+) 45.58%
1775.98
Tea (47.47) (38.14) (+ 9.33) (+) 24.46%

(Incl.packet 1623.86 (+) 529.70 (+) 32.62%
tea) 2153.56
82
2003
Petroleum by (10.93) (16.45) (- 5.52) (-) 33.56%

products 700.44 (-) 204.68 (-) 29.22%
495.96
Chemical (74.22) (108.48) (- 34.26) (-) 31.58%
products 4618.91 (-) 1251.61 (-) 27.10%
3367.30
Leather (190.26 (195.48) (- 5.22) (-) 2.67%

) 8323.50 (+) 308.59 (+) 3.71%
8632.09
Raw Jute (107.77 (116.32) (- 8.55) (-) 7.35%

) 4952.92 (-) 63.53 (-) 1.28%
4889.39
Jute goods (281.42 (317.86) (- 36.44) (-) 11.46%

) 13534.55 (-) 766.31 (-) 5.66%
12768.2
4
Handicrafts (5.99) (5.66) (+ 0.33) (+) 5.83%
271.98 241.11 (+) 30.87 (+) 12.80%
Knitwear (940.31 (763.30) (+ 177.01) (+) 23.19%
) 32501.13 (+) (+) 31.26%
42661.7 10160.62
5
Readymade (2843.3 (2237.95) (+ 605.38) (+) 27.05%
garments 3) (+) (+) 35.36%
129001. 95291.80 33709.97
77
Engg. (19.64) (16.12) (+ 3.52) (+) 21.84%
Products 686.33 (+) 204.87 (+) 29.85%
83
2003
891.20
Other (306.88 (253.14) (+ 53.74) (+) 21.23%

) 10779.40 (+) 3144.01 (+) 29.17%
13923.4
1
Total (5161.2 (4418.28) (+ 742.92) (+) 16.81%
0) (+) (+) 24.47%
234163. 188130.42 46033.33
75
#Export as a percentage to imports
Export earnings FY 1997-98 was 5161.20 million and import payment

for the same year was million which shows that export earnings
covered % of our import bill During 1995-96 and 1996-97 export
earnings covered 56.86% and 61.79% of import bills respectively.
A statement of export as a percentage to import for the period
1982-83 to 1997-98 is given below.
Value in million US$)
FY Exports Imports Export as a

Percentage
to imports
1 2 3 4
1982-83 687 1923 35.73%
1983-84 811 2073 39.12%
1984-85 934 2641 35.37%
1985-86 819 2120 38.63%
1986-87 1074 2260 47.52%
1987-88 1231 2961 41.57%
1988-89 1292 2997 43.11%
84
2003
1989-90 1524 3759 40.54%

1990-91 1718 3511 48.93%
1991-92 1994 3466 57.53%
1992-93 2383 3986 59.78%
1993-94 2534 4191 60.46%
1994-95 3473 5834 59.53%
1995-96 3882 6827 56.86%
1996-97 4418 7150 61.79%
1997-98 5161 N.A N.A
4.3.8. PRIMARY AND MANUFACTURED COMMODITIES:
Out of the total export earning of US dollar 5161.20

million during the FY 1997-98 the share of primary commodities
stood at US dollar 501.93 million and that of manufactured
products at US dollar 4659.27 million i.e. 9.73% and 90.27%
respectively as against US dollar 526.43.84 million and US
dollar 3891.85 million i.e. 11.91% and 88.09% respectively
during the FY 1996-97. A Statement of total export earning and
85
2003
share of primary and manufactured commodities from FY 1982-93
to 1997-98 showing values both in US dollar and Bangladesh Taka
is given below.
PRIMARY & MANUFACTURED

COMMODITIES
Value in million Dollar) Value
in million Taka
Fiscal Total Primary Commodities Manufactured
Year Export
Commodities
Value % Share Value % Share
1982-83 (686.60) (243.17) 35.42 (443.43) 64.58
16162.46 5724.08 10438.38
1983-84 (811.00) (281.54) 24.71 (529.46) 65.29
19901.90 6908.89 12993.01
1984-85 (934.43) (316.62) 33.88 (617.81) 66.12
24154.92 8184.58 15970.34
1985-86 (819.21) (299.33) 36.54 (519.88) 63.46
24314.02 8884.13 15429.89
1986-87 (1076.61 (298.37) 27.71 (778.24) 72.29

)
32631.99 9043.67 23588.32
1987-88 (1231.20 (286.69) 23.29 (944.51) 76.71
86
2003
)
38081.06 8867.33 29213.73
1988-89 (1291.56 (300.72) 23.28 (990.84) 76.72

)
40968.40 9538.82 31429.58
1989-90 (1523.70 (322.96) 21.20 (1200.74 78.80

) )
49764.21 10547.85 39216.36
1990-91 (1717.55 (306.13) 17.82 (1411.42 82.18

) )
60560.88 10794.21 49766.59
1991-92 (1993.92 (267.26) 13.40 (1726.66 86.60

) )
75908.56 10174.69 65733.87
1992-93 (2382.89 (313.91) 13.17 (2068.98 86.83

) )
92575.40 12195.47 80379.93
1993-94 (2533.90 (346.80) 13.69 (2187.10 86.31

) )
100975.9 13820.11 87155.83
4
1994-95 (3472.56 452.20 13.02 (3020.36 86.98
) 18137.81 )
139284 121146.7
6
1995-96 (3882.42 (475.84) 12.26 (3406.58 87.74
87
2003
) )
158790.8 19461.6 139329.2
7 2
1996-97 (4418.28 (526.43) 11.91 (3891.85 88.09
) )
188130.4 22415.58 165714.8
2 4
1997-98 (5161.20 (501.93) 9.73 (4659.27 90.27
) )
234163.7 22772.55 211391.2
5 0
4.3.9. EXPORT: COUNTRY WISE
The destination wise export pattern during FY 1996-97 was

that U.S.A with an intake of goods worth US dollar 1432.15
continued to be most prominent buyer of Bangladesh products,
U.K. & Germany occupied the second & third position respectively.
The other principal importing countries of Bangladesh products in
descending orders were France, Belgium, Netherlands, Belgium,
88
2003
Japan, Canada, Hong Kong, India, Spain, China, Sweden, Pakistan,
Denmark, Australia, Iran, UAE & Singapore.
Export earning of Bangladesh during 1992-93 to 1996-97 from 20

major importing countries was as follows:
(Value in million dollar) value in million taka )
COUNTRIES 1993- 1994- 1995- 1996- 1997-

1992-93 94 95 96 97 98
U.S.A (822.5 (734.82 (1184.2 (1197.5 (1432.1 (1929.47)
1) ) 8) 4) 5)
87540.05
31954. 29282.4 47501.4 48979.3 60980.7
41 5 4 6 9
U.K. (183.4 (259.26 (318.31 (417.70 (437.69 (440.19)
2) ) ) ) )
19971.42
7125.8 10331.6 12767.8 17083.9 18636.9
4 7 9 1 5
Germany (216.2 (275.21 (300.26 (369.18 (428.29 (510.79)
1) ) ) ) )
23174.54
8399.8 10967.2 12043.4 15099.6 18236.5
2 4 0 4 1
France (127.3 (157.72 (192.93 (272.88 (312.65 (368.54)
6) ) ) ) )
16720.66
4947.7 6285.08 7738.32 11160.7 13312.4
3 3 4
Belgium (83.14 (98.41) (128.58 (186.93 (210.57 (210.87)
) ) ) )
9567.17
3229.8 3921.55 5157.50 7645.56 8966.20
89
2003
5
Netherlands (85.80 (104.90 (136.66 (183.22 (208.59 (235.83)
) ) ) ) )
10699.61
3333.1 4180.19 5481.26 7493.86 8881.88
2
Italy (137.4 (170.61 (211.26 (207.10 (203.62 (270.24)
0) ) ) ) )
12260.79
5337.8 6798.63 8473.70 8470.38 8670.14
6
Japan (53.31 (61.02) (99.65) (120.80 (114.05 (112.31)
) ) )
5095.50
2071.0 2431.79 3997.14 4940.65 4856.44
9
Hongkong (51.45 (72.10) (107.07 (104.46 (109.18 (87.25)
) ) ) )
3958.53
1998.8 2873.07 4294.53 4272.50 4648.72
2
Canada (44.38 (57.23) (69.38) (69.09) (69.12) (106.88)
)
4849.15
1724.2 2280.42 2782.91 2825.72 2943.04
3
(8.54) (13.22) (45.29) (26.38) (55.59) (48.63)
China 2206.34
331.64 526.82 1816.38 1078.81 2366.79
Spain (25.10 (29.56) (53.16) (58.74) (55.01) (60.63)
90
2003
)
2750.78
975.22 1177.90 2132.06 2402.52 2342.28
Iran (36.26 (34.26) (30.98) (33.88) (53.00) (35.47)

)
1609.27
1408.5 1365.20 1242.40 1385.52 2256.73
5
Denmark (12.29 (34.68) (39.24) (53.00) (51.24) (43.59)
)
1977.68
477.36 1381.97 1573.87 2167.79 2181.61
India (9.85) (16.81) (45.17) (72.48) (46.25) (65.58)
2975.36
382.59 669.72 1811.60 2964.23 1969.43
Pakistan (28.78 (21.06) (26.74) (43.08) (38.97) (44.77)

)
2031.21
1118.1 439.40 1072.52 1762.02 1659.20
2
Sweden (15.87 (14.63) (24.89) (35.96) (38.13) (48.22)
)
2187.74
616.62 582.84 998.37 1470.75 1623.55
UAE (7.48) (13.32) (16.17) (14.37) (11.55) (28.44)
1290.32
91
2003
290.73 530.93 648.50 587.58 491.75
Singapore (79.93 (52.90) (38.02) (22.87) (30.00) (26.07)

)
1182.80
3105.2 2107.99 1524.96 935.25 1277.21
6
Australia (16.45 (21.35) (16.50) (23.40) (28.48) (35.72)
)
1620.62
639.08 850.68 661.93 956.89 1212.76
Others ( 337. (290.83 (388.83 (363.36 (484.15 (451.71)

36) ) ) ) )
20494.08
13106. 11589.5 15563.4 14861.4 20615.1
44 8 8 2 1
Total (2382. (2533.9 (3472.5 (3882.4 (4418.2 (5161.20)
89) 0) 6) 2) 8)
234163.75
92575. 100975. 139284. 158790. 188130.
40 94 58 87 42
Exports From Bangladesh by region,1997-1998
92
2003
IMPORETS, EXPORTS & BALANCE OF TRADE OF BANGLADESH
Value in million dollar)

Value in million Taka
Year Exports Imports Balance % of Change

(July- of annual
June) Trade
Exports Imports
1978-79 (618381) (1471.56 (- (+25.33) (+21.17)
) 852.75) (+)21.17
9282.2 22073.4 (- (+)25.33
)12791.2
1979-80 (749.44) (2034.99 (- (+21.11) (+38.29)

) 1285.55) (+)38.29
11241.6 30524.9 (+)21.11
(-
)19283.3
93
2003
1980-81 (709.85) (2281.97 (- (-5.28) (+12.14)

) 1572.12) (+)3.18 (+)22.15
11599.0 37287.5
(-
)25688.5
1981-82 (625.89) (1930.68 (- (- (-15.39)

) 1304.79) 11.82) (+)3.87
12555.4 38729.4 (+)8.25
(-
)26174.0
1982-83 (686.59) (1922.89 (- (+9.70) (-0.40)

) 1236.30) (+)28.73 (+)16.87
16162.4 45264.9
(-
)29102.5
1983-84 (811.00) (2073.08 (- (+18.12) (+7.81)

) 1262.08) (+)12.39
19901.9 50873.5 (+)23.14
(-
)30971.6
1984-85 (934.42) (2640.73 (- (+15.22 (+27.38)

) 1706.31) (+)21.37 (+)34.18
24154.9 68262.9
(-
)44108.0
1985-86 (819.20) (2120.27 (- (- (-25.75)

) 1301.07) 12.33) (-)7.81
94
2003
24314.0 62929.6 (+)0.66

(-
)38615.6
1986-87 (1076.61 (2259.85 (- (+)31.42 (+)6.58

) ) )1183.24 (+)8.85
32632.0 68496.1 (+)34.21
(-
)358541.
1
1987-88 (1231.20 (2961.14 (- (+)14.36 (+)31.03
) ) )1729.94 (+)33.71
38081.1 91588.2 (+)16.70
(-
)53507.1
1988-89 (1291.56 (2997.32 (- (+)4.98 (+)1.22

) ) )1705.76 (+)7.56 (+)3.81
40968.4 95075.0
(-
)54106.6
1989-90 (1523.70 (3758.70 (- (+)17.97 (+)25.40

) ) )2233.00 (+)29.12
49764.2 122759.1 (+)21.47
(-
)72994.9
1990-91 (1717.55 (3510.55 (- (+)12.72 (-)6.60

) ) )1793.00 (+)0.83
60560.9 123782.0 (+)21.70
(-
95
2003
)63221.1
1991-92 (1993.92 (3465.64 (- (+)16.09 (-)1.28

) ) )1471.72 (+)6.59
75908.6 131937.0 (+)25.34
(-
)56028.4
1992-93 (2382.89 (3986.00 (- (+)19.51 (+)15.01

) ) )1603.11 (+)18.25
92575.40 156012.0 (+)21.96
4 (-
)63436.6
4
1993-94 (2533.90 (4191.00 (- (+)6.34 (+)5.14
) ) )1657.10 (+)9.07 (+)7.46
100975.9 167643.7
4 7 (-
)66667.8
3
1994-95 (3472.56 (5834.00 (- (+)37.04 (+)39.20
) ) )2361.44 (+)39.90
139284.5 234526.8 (+)37.94
8 0 (-
)95242.2
2
1995-96 (3882.42 (6827.00 (- (+)11.80 (+)17.02
) ) )2944.58 (+)18.87
158790.8 278790.7 (+)14.00
7 9 (-
)119999.
92
96
2003
1996-97 (4418.28 (7150.00 (- (+)13.80 (+)4.73

) ) )2731.72 (+)9.51
188130.4 305305.0 (+)1848
2 0 (-
)117174.
58
1997-98 (5161.20
)
234163.7
5
Source- United Nations, 2003
97
2003
5.3.10. Economic Trends
GROSS DOMESTIC PRODUCTS OF BANGLADESH AT CURRENT MARKET (SEE

APPENDIX-TABLE-3)
ACCORDING to recent media reports, Bangladesh stood tall with 11.88 per cent export growth
until May 2009 amid tumbling shipments from major Asian countries because of the lingering
global financial recession. As recorded in official data, goods worth US$14.14 billion were
exported by the country between July 2008 and May 2009, compared to US$12.63 billion during
the same period of last year. India, China, Pakistan, Malaysia, Vietnam and Thailand were
struggling to stop the free fall in export shipments as the global recession cut demand of goods in
both sides of the Atlantic. China’s export fell by a record margin in May. Exports tumbled 26.4
per cent from a year earlier, exceeding previous record drop in February of 25.7 per cent. The
growth in India’s merchandise exports dipped to 12.9 per cent for May 2009. Pakistan’s exports
also came down by 5.14 per cent during the same period.
Exporters and trade experts attribute Bangladesh’s export success to the ‘competitiveness’ of the
country’s readymade garment sector and availability of cheap labour, although exports of frozen
food, leather and jute fell. Garment manufacturers produced lower-end products whose demand
did not fall significantly in global markets. Remaining competitive in these days of difficulties
since the quota system was withdrawn and the ongoing lingering economic slide worldwide is
rewarding for Bangladesh. There are other factors for Bangladesh remaining tall, Better delivery,
lower price and sewing quality kept Bangladesh still high and attractive when its rival countries
had to pump in billions of dollars in stimulus packages to halt the export slide. Bangladesh would
have to keep up the trend in the coming days for continuing its hold on the garment export
markets to regain the accelerated export growth rate.
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July - March Percent

change
(July-
March)
1998/9 1998/99 1999/00 1999/00-

9 1998/99
Primary products 422.6 317.16 318.74 0.5
Raw jute 71.6 47.77 52.18 9.2
Tea 38.6 36.36 15.21 -58.2
Frozen food 274.7 202.07 225.52 11.6
Others 37.7 30.96 25.83 -16.6
Manufactured goods 4889.6 3487.71 3805.95 9.1
Jute goods 303.4 211.66 208.32 -1.6
Leather 168.7 124.03 143.91 16.0
Readymade garments 2985.0 2125.63 2251.29 5.9
Knitwear 1035.0 735.84 884.08 20.2
Others 397.5 290.55 318.35 9.5
Total exports 5312.2 3804.87 4124.69 8.4
Source: Export Promotion Bureau.
One important concern in the country's export sector is the

trend of increasing contribution of the volume index in
incremental exports vis-a-vis the price index. During the July -
March period of 1999/00, the price index of exports increased by
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0.38 per cent while the volume index increased by 8.03 per cent
over the same period in 1998/99. This indicates that export
volume has to increasingly compensate for slow growth in prices
of the country's exports in increasing export earnings. The
recent deterioration of the country's terms of trade is also
noteworthy: compared to 1997/98, the terms of trade declined by
4.6 per cent in 1998/99 and further 8.2 per cent in 1999/00.
Import Performance
In 1998/99, the growth in imports was 6.6 per cent in US

dollars compared to 5.1 per cent in 1997/98 and 4.1 per cent in
1996/97. A major aspect of structural change of imports is the
decline in the share of capital goods in total imports from 27.5
per cent in 1997/98 to 24.6 per cent in 1998/99. The absolute
value of capital goods import also declined by about 5 per cent
in 1998/99.
As for recent trends, a comparison of the LCs opened during

the period of July-January 1999/00 with the corresponding period
of 1998/99 indicates that the total value declined by 0.6 per
cent.
The LCs settled during the period suggest 0.8 per cent
increase in the value of imports. The total value of outstanding
LCs at the end of January 2000 is US $ 2380 million. The above
trends indicate that import demand is likely to pick up during
the rest of the period of the current fiscal year.
Workers Remittances
In US dollar terms, the growth in workers remittances was

8.3 per cent in 1998/99 compared to 6.8 per cent in 1997/98 and
21.2 per cent in 1996/97. During July - January 1999/00, total
remittances was US $ 1125 million compared to US $ 964 million
during the same period of the previous fiscal year -- a growth of
nearly 17 per cent.
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Major Concerns:
The real exchange rate appreciation is basically a short-

term problem affecting Bangladesh's export competitiveness. While
nominal depreciation of Taka is necessary to ensure
competitiveness vis-a-vis the major trade competitors in the
export market, it also affects the relative profitability of the
country's import dependent capital goods sector. Hence the
pursuit of an import neutral depreciation could be considered
e.g. currency depreciation accompanied by tariff reductions so as
to leave import prices of capital goods unchanged. From a long
term perspective, Bangladesh's export competitiveness needs to be
rooted in micro-level competitiveness e.g. through productivity
growth and technological upgradation. This requires improvement
in the efficacy of the financial sector to enable the export
industries to invest and strive for productivity improvements and
build competitive strengths. The efforts also need to address the
problems of key infrastructure sectors to improve the delivery
capacity of the country's exportables.
In view of increasing globalization, success in export

promotion of Bangladesh will largely be conditioned by its
ability to integrate into the global economy. A significant
mechanism of ensuring entry into global markets is through
incorporation into international networks of trade and production
which can be facilitated by inflow of foreign direct investment
(FDI). The inflow of FDI is, however, dismally low at present.
5.3.11. Future Growth Prospects
The present macroeconomic situation of the country

demonstrates two broad concerns: first, fragility and low
performance of several macroeconomic indicators as reflected in
slow growth of investment, manufacturing output and exports; and
second, underlying constraints that relate to longer run issues
of efficient resource allocation, accelerated growth, and
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sustainability of the growth process. The success of
macroeconomic management is ultimately judged by its impact on
the growth process and its capability to promote social goals.
There seems to exist a broad consensus that a growth rate of 5-6
per cent is not an indicator of satisfactory performance of the
economy. At present, the Bangladesh economy has reached a stage
that could very well yield a growth rate of 7 per cent and above
on a sustained basis, provided `right' policies are in place.
One key question is whether the required resources are

available to support such a path of growth. The gross domestic
savings rate is around 18 per cent of GDP but could go up further
by 2-3 per cent with sustained domestic savings mobilization
efforts, fiscal reforms, and measures to improve the performance
of public sector enterprises. The current investment rate is 22
per cent of GDP. With reforms to put the economy in a strong
position to attract foreign investment and measures for foreign
direct investment in infrastructure and other key areas,
Bangladesh could target net foreign investment flows of about US
$ 2-3 billion per year which could contribute to raising our
investment rate by about 4 per cent of GDP. Achieving investment
rates of 28-30 per cent of GDP could support a growth rate of 7
per cent or more even at the current level of efficiency in
capital utilization.
The sustainability of the higher growth path, however,

would require actions on several fronts e.g. macroeconomic
management that ensures stable internal and external balances,
removal of infrastructural bottlenecks, and ensuring socio-
political stability to provide right and consistent signals to
the economic agents. For the purpose, the pursuit of the reform
process and ensuring credibility to the reform measures are
necessary to consolidate the gains achieved during the 1990s.
With the revolution in information technology in transforming the
global economic structure, Bangladesh needs to contemplate a
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2003
`second generation' of reforms in the context of problems and
opportunities for growth in the coming decade. These reforms
should aim to acquire technological knowledge and innovations in
selected areas and encourage the entrepreneurs to exploit full
opportunities of the knowledge-based global economy.
5.3.12 .Readymade garment and potential service:
Gone are the days of Adam Smith, David Ricardo and Karl Marx
when services were viewed as unproductive and the mention of
trade in services was hardly found in economics literature.
However, things have changed since then. Nowadays, services are
recognized to constitute an important sector of the economy no
less than the agriculture or industry. Not only do services
contribute significantly towards GDP and employment in both
developed and developing countries, the use of new technologies
has made many services storable, transportable and consequently,
tradable. Lately, a large proportion of the world economic
Transactions are taking place in service trade. Again, services
may be classified as those consumed directly and those used as
intermediate inputs. These intermediate services, also known as
'producer services' play a much more complex and important role
in the development process than is suggested by their direct
contribution to gross domestic product (GDP) and employment-
creation. This is reflected in the inter-linkages between
services and the rest of the economy. Production and export in
agriculture, industry and the service sectors require many
services
Starting in late 1970s as a small non-traditional sector of

export, the Ready-made Garment (RMG) industry has emerged as the
largest foreign exchange-earner for Bangladesh. In 1997-98,
Bangladesh's total exports were 5161.2 million U.S. dollars. The
RMG share was 55% of total exports and 61% of total manufacturing
exports from Bangladesh. Out of this total RMG-exports, 43% went
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to countries belonging to the European Union (EU) and 40% went to
the United States and Canada10. Currently, Bangladesh enjoys
preferential access in these markets. The removal of Multi-Fiber
Agreement (MFA) quotas in the year 2004 under the Uruguay Round
Agreement on Textiles and Clothing (ATC) will result in
Bangladesh’s losing its preferential access in the EU and
American markets11. Consequently, Bangladesh will be compelled to
compete with other low-cost RMG-exporting countries of Asia and
elsewhere. So the continuation of Bangladesh's present success in
RMG exports will depend on her ability to reduce costs and
improve the quality of output. In the preceding sections, we have
seen the crucial role of services in manufacturing production. In
this section we examine the role of services in the RMG industry,
particularly. The RMG manufacturers are scattered all over
Bangladesh. But those who manufacture RMG for exports only are
mainly located in Dhaka and Chittagong. There are about 2,600 RMG
manufacturers registered with the Bangladesh Garment
Manufacturers' and Exporters' Association (BGMEA). Time and other
constraints did not permit us to contact more than 100 RMG
manufacturers. But because of general aversion to disclose
business information to outsiders, we were able to collect
information only from 83 RMG manufacturers. Again, information
from some RMG manufacturers was not comprehensive. So we finally
settled for 74 RMG manufacturing units to carry out our analysis.
Out of these 74 RMG manufacturing firms,36 are located in Dhaka
and 38 in Chittagong. Of the 38 RMG manufacturing units selected
from Chittagong, 8 are located in the Chittagong Export
Processing Zone (CEPZ) and the rest are situated in the city and
its surrounding areas. Of the 74 firms under study, 50 belong to
an 'average group' employing up to 300 people,15 belong to a
'medium group' employing more than 300 but less than 1,000 people
and 9 belong to a 'large group' employing more than 1,000 people.
We now proceed to investigate the type of services used by RMG
manufacturing firms and their level of adoption, sources of
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supply and method of securing these services and, finally,
estimate the extent of service use in RMG manufacturing and
exporting activity.
After receiving orders from the customers, the RMG
manufacturing firms carry out production planning. All firms
(100%) perform production planning without any formal outside
help. On the other hand, input procurement is carried out in
almost 87% of the cases (64 out of 74) by the firms themselves if
and when they are the direct suppliers to the foreign buyers. In
13% of the cases foreign buyers supply inputs to the RMG
manufacturing firms. But RMG manufacturing firms that supply to
the domestic RMG firms (for export) receive inputs from the
latter in 100% of the cases. That is, in such cases, input
procurement is done 100% outside the firm. Management control and
accounting are performed by almost all of the firms, and these
are carried out internally except in the case of a few large and
joint-venture firms where the services of external audit firms
are used. Quality control is performed by all the firms, and it
is done mostly internally (82%). Banking and Insurance Service
Almost all firms (98%) turn to banks for working capital against
their sales orders from abroad and about 57% (42 out of 74)
borrowed from banks to purchase their machines and equipment as
well. Bank loans are used invariably by all firms to buy inputs
and to meet a certain percentage of running expenditure, except
for a couple of partially (joint- venture) and fully foreign-
owned firms. All firms use banking services in varying degree.
All firms have their machines and plants insured and,
additionally, all input-importers (87%) and 15% of the exporters
get their imports/exports also insured. Shipping Service and
Shipping Agent & Port-use Shipping service is widely used by RMG
manufacturers. Shipping service is required for procuring inputs
and exporting outputs. Sometimes air-freight service is also
used. RMG manufacturers have to hire services of Clearing &
Forwarding Agents for clearing inputs from the port/custom and
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loading the finished goods onto ships for export. Port-charge is
a normal expenditure by all RMG manufacturers for using the port-
facilities for the purpose of import and export.
Within the country, to get the imported inputs from the

ports to the plant-premise and to carry the finished goods to the
ports, wheel transportation and rail transportation are the chief
transport modes. Services are also widely used by RMG
manufacturing and exporting firms for moving cargo. Wheel
transport service is procured by almost all firms (about 98%)
from independent transport companies and, only in a few cases,
from sister companies (belonging to the same parent
organization). Railway service is used by 68% (50 out of 74) of
the firms. Of course, when a particular firm operates as a
subcontractor to the exporting firm, the service-charges for
wheel transport/railway transport are paid by the latter. All RMG
manufacturing firms use telephone, telex, fax and courier service
extensively. All firms own telephones, and about 62% (45 out of
74) firms own telex/fax machines. Several firms (about 10%) use
the Internet also. Of course, for maintenance of their
communication equipment, all firms use external service.
Electricity All firms use electricity supplied by the Government-
owned Power Development Board (PDB).Disruption in power supply
hampers production in the RMG manufacturing firms. To overcome
such disruptions, about 70% firms (50 out of 74) own and use
small power generators.
About 85% of the firms (61 out of 74) use legal service from
professional legal consultants. Most medium and large firms have
one or more legal consultants employed on a permanent basis and
hire others (both local and foreign as per requirement) to look
after the legal matters concerning the firms. The firms
themselves except for those who work as subcontractors to the
exporting firm perform sales and Distribution Marketing services,
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in the form of securing orders for output.
In Bangladesh, RMG manufacturers who export to foreign

countries do not normally take the service of electronic or print
media to advertise their products. They do, however, organize and
participate in trade fairs to display their products to and
secure orders from foreign distributors. Almost all firms (99%
per cent)get their products distributed in foreign markets by
foreign distributors. Only one joint-venture firm in the sample
was found to secure distribution of its product by its foreign-
owner. All firms have their own security and cleaning staffs to
maintain security and tidiness of their plant premises. The
plant-premises are secured on a rental basis in 95% cases (62 out
of 66 firms located outside Export processing zone).About 25% of
the firms (18 out of 74) own one or more than one computer. Data
processing is carried out internally in all the firms with
computers or without computers. Maintenance service for computers
is, of course, secured from outside, normally, the computer-
supplier. About 30% of the firms (23 out of 74) own a photocopy
machine, although all firms use photocopy service in variable
amount.
RMG manufacturing firms use some special services that they

get by dint of their membership in some association or location
in a certain area of the country. For example, the BGMEA lobbies
on behalf of all members, with national and foreign governments
and international organizations to facilitate and promote RMG
trade.It organizes trade fairs for display of wares produced by
the members, arranges for participation of members in
international trade fairs, provides the members with various
relevant information, gives them legal and other aid/assistance
and so on. Again,the RMG manufacturing firms located in export
processing zones enjoy certain privileges and facilities which
are not available to firms located in other areas. For
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example,RMG manufacturing firms located in the Chittagong Export
Processing zone enjoy the privilege of getting their cargo
containers cleared (by the custom) right at their own plant-
premise instead of at port-sheds. This enables the firms to avoid
losses incurred through pilferage of their wares
(imported/intended for export) during clearance at the port
sheds.
CHAPTER -VI
Conclusion
From the above discussion, we can see that readymade garment

is the main export product of Bangladesh and for the
Bangladesh, the readymade garment export industry has been the
proverbial goose that lays the golden eggs for over fifteen years
now. The sector now dominates the modern economy in both export
earnings, secondary impact and employment generated. The events
in 1998 serve to highlight the vulnerability of this industry to
both internal and external shocks on the demand and supply side.
Given the dominance of the sector in the overall modern economy
of Bangladesh, this vulnerability should be a matter of some
concern to the policymakers in Bangladesh. Although in gross
terms the sector’s contributions to the country’s export earnings
is around 74 percent, in net terms the share would be much less
partially because the backward linkages in textile have been slow
to develop. The dependence on a single sector, no matter how
resilient or sturdy that sector is, is a matter of policy
concern. We believe the policymakers in Bangladesh should work
to reduce this dependence by moving quickly to develop the other
export industries using the lessons learned from the success of
apparel exports. Support for the apparel sector should not be
reduced. In fact, another way to reduce the vulnerability is to
diversify the product and the market mix. It is heartening to
observe that the knit products are rapidly gaining share in
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overall garment exports as these products are sold in quota-free
markets and reflect the strength of Bangladeshi producers in the
fully competitive global apparel markets. Preliminary data and
informal evidence indicate that this sector seems to have
weathered the devastating floods relatively well. The floods did
create a crisis for the tightly scheduled export industry, but to
its credit the firms responded swiftly and creatively to the
unexpected dislocation and transportation disruptions. The
industry is one hundred percent export-oriented and therefore
insulated from domestic demand shocks; however, it remains
vulnerable to domestic supply shocks and the smooth functioning
of the banking, transportation and other forward and backward
linkage sectors of the economy. The Dhaka-Chittagong road
remains the main transportation link connecting the production
units, mostly situated in and around Dhaka and the port in
Chittagong, where the raw material and the finished products are
shipped in and out. Despite increased this road. Eventually,
this road link was completely severed for several days when large
sections of the road went under water for a few weeks during the
latter phase of the floods. This delinking of the road
connection between Dhaka and the port in Chittagong was as
serious a threat as one can imagine for the garment exporters.
The industry responded by calling upon the Bangladesh navy to
help with trawlers and renting a plane from Thai Air that was
used to directly fly garment consignments from the Dhaka airport
to the Chittagong airport several times a day. According to
industry sources, the list of flood-related damage to the garment
industry is extensive.x According to the September 1998 BGMEA
newsletter, garments worth taka 1,000 crore ($208 million) could
not be exported on time due to the disruption of the Dhaka-
Chittagong road Attendance and worker productivity in factories
was down as much as 35 percent during the worst period of the
floods. As many as 300,000 workers were unable to work as their
homes and families were stricken by the flood conditions. Many
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more workers fell sick from waterborne diseases. Besides natural
disasters, there were several other crises that impacted the
garment industry in 1998. The disruption of the Chittagong port
due to labor disputes was certainly one of them. BGMEA, the
industry association, has repeatedly requested the government to
ban labor strikes in the Chittagong port for national security
reasons. Another source of disruption for the industry was the
perennial problem of hartals or general strikes called for and
enforced by the political opposition. Although the leader of
the main opposition party has declared, in a major concession to
this industry, that the garment industry would be exempt from
such hartals, in practice the situation is more difficult.
Lastly, the psychological impact of these events on the existing
and potential buyers cannot be overstated. Buyers in the global
garment dependence on air transportation, trucks remain the main
vehicles for transporting raw materials and finished products for
Bangladesh garment exports. The floods disrupted the normal flow
of traffic on markets remain highly sensitive to the risks of
unfulfilled orders. As a result of the floods, the image of
Bangladesh as a somewhat unpredictable supply source may have
been strengthened since the floods received considerable world
media attention. But The Ready-Made Garments (RMG) industry
occupies a unique position in the Bangladesh economy. It is the
largest exporting industry in Bangladesh, which experienced
phenomenal growth during the last 25 years. By taking advantage
of an insulated market under the provision of Multi Fibre
Agreement (MFA) of GATT, it attained a high profile in terms of
foreign exchange earnings, exports, industrialization and
contribution to GDP within a short span of time. The industry
plays a key role in employment generation and in the provision of
income to the poor. To remain competitive in the post-MFA phase,
Bangladesh needs to remove all the structural impediments in the
transportation facilities, telecommunication network, and power
supply, management of seaport, utility services and in the law
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and order situation. The government and the RMG sector would have
to jointly work together to maintain competitiveness in the
global RMG market
RECOMMODUCATIONS
Bangladesh economy at present is more globally integrated

than at any time in the past. The MFA phase-out will lead to more
efficient global realignments of the Garments and Clothing
industry. The phase out was expected to have negative impact on
the economy of Bangladesh. Recent data reveals that Bangladesh
absorbed the shock successfully and indeed RMG exports grew
significantly both in FY06 and (especially) in FY07. Due to a
number of steps taken by the industry, Bangladesh still remains
competitive in RMG exports even in this post phase-out period.
Our Garments Industries can improve their position in the world
map by reducing the overall problems. Such as management labor
conflict, proper management policy, efficiency of the manager,
maintainable time schedule for the product, proper strategic plan
etc.Government also have some responsibility to improve the
situation by providing- proper policy to protect the garments
industries, solve the license problem, quickly loading facility
in the port, providing proper environment for the work, keep the
industry free from all kind of political problem and the
biasness. Credit must be provided when the industry fall in
need.To be an upper position holder in the world Garments Sector
there is no way except follow the above recommendations. We hope
by maintaining proper management and policy strategies our
country will take the apex position in future.Despite many
difficulties faced by the RMG industry over the past years, it
continued to show its robust performance and competitive
strength. The resilience and bold trend in this MFA phase-out
period partly reflects the imposition of ‘safeguard quotas’ by US
and similar restrictions by EU administration on China up to
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2008, which has been the largest supplier of textiles and apparel
to USA. Other factors like price competitiveness, enhanced GSP
facility, market and product diversification, cheap labor,
increased backward integration, high level of investment, and
government support are among the key factors that helped the
country to continue the momentum in export earnings in the
apparel sector. Some of these elements are reviewed below.
Market Diversification
Bangladeshi RMG products are mainly destined to the US and

EU. Back in 1996-97, Bangladesh was the 7th and 5th largest
apparel exporter to the USA and European Union respectively. The
industry was successful in exploring the opportunities in markets
away from EU and US. In FY07, a successful turnaround was
observed in exports to third countries, which having a negative
growth in FY06 rose three-fold in FY07, which helped to record
23.1 percent overall export growth in the RMG sector. It is
anticipated that the trend of market diversification will
continue and this will help to maintain the growth momentum of
export earnings. At the same time a recent WTO review points out
that Bangladesh has not been able to exploit fully the duty free
access to EU that it enjoys. While this is pointed out to be due
to stringent rules of origin (ROO) criteria, the relative
stagnation in exports to EU requires further analysis.
Product Diversification
The growth pattern of RMG exports can be categorized into

two distinct phases. During the initial phase it was the woven
category, which contributed the most. Second phase is the
emergence of knitwear products that powered the recent double
digit (year-on-year) growth starting in FY04. In the globalized
economy and ever-changing fashion world, product diversification
is the key to continuous business success. Starting with a few
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items, the entrepreneurs of the RMG sector have also been able to
diversify the product base ranging from ordinary shirts, T-
shirts, trousers, shorts, pajamas, ladies and children’s wear to
sophisticated high value items like quality suits, branded jeans,
jackets, sweaters, embroidered wear etc. It is clear that value
addition accrues mostly in the designer items, and the sooner
local entrepreneurs can catch on to this trend the brighter be
the RMG future.
Backward Integration
RMG industry in Bangladesh has already proved itself to be a

resilient industry and can be a catalyst for further
industrialization in the country. However, this vital industry
still depends heavily on imported fabrics. After the
liberalization of the quota regime some of the major textile
suppliers Thailand, India, China, Hong Kong, Indonesia and Taiwan
increased their own RMG exports.
Figure: Trend to back-to-back linkage
If Bangladesh wants to enjoy increased market access created by

the global open market economy it has no alternative but to
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produce textile items competitively at home through the
establishment of backward linkage with the RMG industry. To some
extent the industry has foreseen the need and has embarked on its
own capacity building.
Flow of Investment
It is plausible that domestic entrepreneurs alone may not be

able to develop the textile industry by establishing modern mills
with adequate capacity to meet the growing RMG demand. It is
important to have significant flow of investment both in terms of
finance and technology. Figure 3 indicates that the investment
outlook in this sector is encouraging, although the uncertainties
before the MFA phase-out period caused a sluggish investment
scenario. In part the momentum in the post-MFA phase-out period
is indicative of the efforts underway towards capacity building
through backward integration. This is evident in the pace of
lending to the RMG sector and in the rising import share of RMG
related machinery. However further progress would be necessary to
improve and sustain competitiveness on a global scale.
Policy Regime of Government: Government of Bangladesh has
played an active role in designing policy support to the RMG
sector that includes back-to-back L/C, bonded warehouse, cash
incentives, export credit guarantee scheme, tax holiday and
related facilities. At present government operates a cash
compensation scheme through which domestic suppliers to export-
oriented RMG units receive a cash payment equivalent to 5 percent
of the net FOB value of exported garments. At the same time,
income tax rate for textile manufacturers were reduced to 15
percent from its earlier level for the period up to June 30,
2008. The reduced tax rates and other facilities are likely to
have a positive impact on the RMG sector.
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Infrastructural Impediments
The existence of sound infrastructural facilities is a

prerequisite for economic development. In Bangladesh, continuing
growth of the RMG sector is dependent on the development of a
strong backward linkage in order to reduce the lead time.
However, other factors constraining competitiveness of
Bangladesh’s RMG exports included the absence of adequate
physical infrastructure and utilities.
Labor Productivity
The productive efficiency of labor is more important
determinant for gaining comparative advantage than the physical
abundance of labor. In Bangladesh, the garment workers are mostly
women with little education and training. The employment of an
uneven number of unskilled labors by the garment factories
results in low productivity and comparatively more expensive
apparels. Bangladesh labor productivity is known to be lower when
it compared with of Sri Lanka, South Korea and Hong Kong.
Bangladesh must look for ways to improve the productivity of its
labor force if it wants to compete regionally if not globally.
Because of cheap labor if our country makes the labor
productivity in the apex position, then we think the future of
this sector is highly optimistic.
Research and Training
The country has no dedicated research institute related to

the apparel sector. RMG is highly fashion oriented and constant
market research is necessary to become successful in the
business. BGMEA has already established an institute which offers
bachelor’s degree in fashion designing and BKMEA is planning on
setting up a research and training institute. These and related
initiatives need encouragement possibly intermediated by donor-
115
2003
assisted technology and knowledge transfer. A facilitating public
sector role can be very relevant here.
Supportive Government Policy
In contrast to the public sector-led import-substituting

industrialization strategy pursued during the first few years
after independence, the industrialization philosophy of the
government changed rather dramatically from the late 1970s when
the emphasis was on export-oriented growth to be spearheaded by
the private sector. Towards this end, various policy reforms were
implemented in the 1980s and 1990s. Some of these reformed
policies contributed considerably to the growth of the RMG
industry in Bangladesh. During the 1980s, a number of incentives
were introduced to encourage export activities. Some of them were
new like the Bonded Warehouse Facility (BWF), while others like
the Export Performance License (XPL) Scheme 37 were already in
operation and were improved upon. Also, rebates were given on
import duties and indirect taxes, there were tax reductions on
export income, and export financing was arranged. Under the XPL
scheme, exporters of non-traditional products received import
licenses for specific products over and above their normal
percentage allotment based on the f.o.b. value of their exports.
Under the Duty Drawback System, exporters of manufactured goods
were entitled to get refund of duties and taxes paid on imported
inputs used in export production, and also all excise duties paid
on exported finished goods. For certain fast-moving items such as
RMG, a notional system of duty payments was adopted in 1982-83.
Under this system, exporters were exempted from paying duties and
taxes on imports used in export production at the time of
importation, but were required to keep records of raw and
21packaging materials imported. The duties and taxes payable on
the imports were kept in a suspense account. Liabilities to pay
the amounts in suspense were removed on proof of exports. The
116
2003
discussion in this section clearly points to the positive
contribution made by policy reforms to the growth of the RMG
industry in Bangladesh. In particular, two policies– the SBW
facility and the back-to-back L/C system- led to significant
reduction in cost of producing garments and enhanced
competitiveness of Bangladesh’s garments exports. It also allowed
garment manufacturers to earn more profit which, when necessary,
could be used to overcome difficulties arising from weak
governance. Furthermore, poor governance, reflected in the
leakage of duty-free imported fabrics in the domestic market,
paradoxically enough also helped the garment manufacturers to
earn extra ‘profit’ and thereby enabled them to absorb the ‘high
cost of doing businesses – a fall out of bad governance.
117
2003
References:
1 .Chaudhuri, Salma and Pratima Paul-Majumdar, The Conditions of

Garment Workers in Bangladesh - An Appraisal, Report, Bangladesh
Institute of Development Studies, October 1991.
2. Bangladesh Unnayan Parisad, A Study On Female Garment Workers

in Bangladesh, draft report, Dhaka, May 1990.
3 Ahmad, Muzaffar, "Readymade Garments Industry in Bangladesh,"

Bangladesh Journal of Political Economy, Vol. 9, No. 2, 1988, 94-
122.
4. Wiig, Arne, "Non-tariff Barriers to Trade and Development--the

case of garment industry in Bangladesh," in Norbye (edited)
Bangladesh Faces the Future, University Press Limited, Dhaka,
1990. Ather, S. A., "The Readymade Garments Industry: Current
Status, Problems and Prospects," Doc-TIP-MPU-B-11, June 1987.
5. Hossain, Najmul and Jagjit Brar, "The Garment Workers of

Bangladesh: Earnings and Perceptions Towards Unionism," Journal
of Business Administration, Vol. 14, No. 4, 1988.
6. Quddus, Munir., Entrepreneurship in the Apparel Export

Industry of Bangladesh," Journal of Asian Business, Vol. 9, No.
4, Fall 1993, 24-46
7. Quddus, Munir, “Apparel Exports From Bangladesh: Brilliant

Entrepreneurship or Spurious Success? Journal of Asian Business,
Vol. 12, No. 4, Winter 1996, 51-70.
8. Islam, Anisul M, and Quddus, Munir, “The Export Garment

Industry in Bangladesh: A Potential Catalyst for Breakthrough,”
in Wahid and Weis (edited)
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2003
9.The Economy of Bangladesh: Problems and Prospects, Praeger,
Westport, 1996.
BGMEA Newsletter, September 1998 issue.
10.The world bank group
11.Bangladesh statically bureau.
12.Book of Bangladesh bank.
119
2003
Appendix
Market Analysis
(US $)
Constant-Market-Share Analysis of Bangladeshi Garment Exports
(1889- 1998)
(1) (3) (5) (6) (7) (8)

(2) (4)
Actual world Actual (
( rj
( r ∑( r ij V ij )
Exports Bangladeshi V. j )
rj V. j )
)
Export. V • j
V • j ′
MARKETS (1989) (1989)

(1998) (1998)
USA 19697725 5138652 58968 174833 1.609 94880145 9045751 9486564
20 112 394 007 .95 6.40 4.85
UK 44655368 1114081 67141 167983 1.495 10037715 1029956 1003666

0 728 91 52 .55 8.99 7.51
CANADA 18713395 3193492 12719 112022 0.707 899259.4 1951151 898658.

4 81 37 27 6 .35 78
FRANCE 65750760 1459470 47974 295973 1.202 5852857. 7359248 5851425

0 576 24 85 28 .42 .03
ALL 12785466 5562984 20527 457065 3.351 687886. 314896. 687891.
OHTERS 6 09 8 58 45 01
TOTAL 33888224 8587785 71957 232888 1.532 11235786 1103823 1103946

20 2106 224 036 ( r ) 4.80 81.60 14.20
120
2003
COMMODITY ANALYSIS
(US $)
Constant-Market-Share Analysis of Bangladeshi Garment Exports (1889-1998)
(1) (2) (3) (4) (5) (6) (7) (8)

Actual world Exports . Actual Bangladeshi
( r j ( r j V. j ) ( r V. j ) ∑( r ij V ij )
Export. V • j V • j ′ )
COMODITY (1989) (1998) (1989) (1998)
SITC‐3
Other Outer 1055859416 2401808544 52268129 100881717 1.422 74325279.44 33922015.72 66628665.64
Garment.(men’s or
girls)
Other Outer 642057664 1317517176 16885777 76326212 0.863 14572425.55 10958869.27 17764227.94
Garment(women’s
or girls)
Babies Garments 760276580 2017400484 1033324 274109290 1.617 1670804.91 67057.23 1708610.18
and Cloths
Babies Garment & 3100113890 639948597 990736 26321986 0.759 751968.62 642987.67 1054398.53
Clothing
Accessories(not
knitted)
Babies Garment & 45026240 1631260968 162530 1251723 2.208 358866.24 105481.97 426301.42
Clothing Accessories
(knitted)
Boys & Girls 170352124 579916337 616728 695469 1.421 876370.49 4002530.97 1482750.62
Garment made up of
Fabric
Total 3388822420 8587852106 171957224 232888036 0.649 111600238.40 111600238.4 263811614
( r)
121
2003
Analysis
Bangladeshi Exports in 1998----------------------$232888036
Bangladeshi Exports in 1969----------------------$171957224

Change in Exports $60930812
100%
1. Due to increase in world trade: $ 110382381.60 18.12
2. Due to commodity composition: $1975483.20 3.24
3. Due to market distribution: $ -1963250.60 -3.22
4. Due to increase competitiveness: $ 50536197.80 82.94
Notation- V ij = value of A’s exports of commodity to country j

in period 1, V ij ′= value of A’s exports of commodity I to
country j in period 2, r= percentage increase in total world
exports from period 1 to period 2, r i = percentage increase
in world experts of commodity i from period 1 to period
2, r ij = percentage increase in world exports of commodity i to
country j from period 1 to period 2.
* r ij
was first computed from the cross classification of
actual world exports by market destination and commodity
V ij
groups and multiplied by , the cross classification of
change in actual Bangladeshi exports by market destination
and commodity groups from 1989.
122
2003
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Research On Bangladesh Readymade Garments

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Master /

Garment Individual Study

Masters in International Economics and Finance

Sk. Ashiquer Rahman

Sk. Ashiquer Rahman

Bangladesh economy experienced a trend rate of growth of 4.8

Now we are going to the Country Competitiveness Indicators

Table 2. Macro and Market Dynamism:

Source: World Development Indicators database, July 2000

Source- World Bank Group

Actually, growth has accelerated in Bangladesh in the 1990s.

Consistent with the on-going trend of the free-

Seventy-five per cent of Bangladesh's exports is

In terms of GDP, RMG’s contribution is highly remarkable; it

So, There in the light of importance of garments industry

2.1. Statement of the Problem and its Significance:

A total of 1,276 ready-made garment (RMG) factories

Needless to mention, the government, the factory owners and

The international and national trade bodies, policymakers

2.2. The objective of the study:

The purpose of the present study has been to assess

2.3. Scope of the study:

The period under the study will cover approximately

2.4. Organization of the study:

My paper is consists of six chapter-

Chapter 1 gives the introduce the present condition of

Chapter 2 gives the statement of the problem, scope of the study

Chapter 3 -gives the general view about Bangladeshi’s garment

Chapter 4- is devoted to the methodology and definition used to

Chapter 5 -Is mostly devoted to explain the results obtained in

3.1. Market structure of Bangladeshi Garment Industry:

Textile Sector in Bangladesh is predominantly made of

Each of the above sectors is analyzed to generate an overall

The further break-up of main items of knitwear and RMG export

Value of RMG Export: Taka 79.7 Billion

The quality of fabric produced domestically in Bangladesh is

Million Meters Total Market

Demand 3155 1325 1830

Production 915 915

Import 2240 410 1830

The above chart indicates the importance of export market

Table 1: Apparel Exports from Bangladesh in Value and Volume

TOTAL APPAREL TOTAL APPAREL EXPORT

Table 2: Major Items of Apparel Exported from Bangladesh

YEAR SHIRT T-SHIRT TROUSERS JACKET SWEATER

Source: Bangladesh Exports

Table 3: Export Markets for Bangladesh Apparels

EXPORTS U.S. EUROPEAN CANADA

Source: Bangladesh Exports Promotion Bureau (EPB)

TOTAL APPAREL EXPORT IN MILLION US$

USA 1,443. 228.69 1,671. 44.21%

Source: Bangladesh Exports Promotion Bureau (EPB)

3.2. Recent Performance of the Apparel Export Sector

In a liberalized trade regime, competition among textiles

Average Quota Prices of Selected Garments Items Exported by

Table: Quota Prices of Selected Garments Items Exported Position

(Source: Export Promotion Bureau of Bangladesh)

4.1. Literature Review:

Several authors have analyzed aspects of the garment

Dr. Nadvi identifies four sets of global challenges that are

Dr. Salma Chaudhuri Zohir’s paper provided some important

Dr. Kabeer opined that through the wider

Improving the market access