Introduction

Textiles have been an extremely important part of

Bangladesh's economy for a very long time for a number of
reasons. The textile industry is concerned with meeting the
demand for clothing, which is a basic necessity of life. It is an
industry that is more labor intensive than any other in
Bangladesh, and thus plays a critical role in providing
employment for people. Currently, the textile industry
accounts for 45% of all industrial employment in the country
and contributes 5% of the total national income.

However, although the industry is one of the largest in

Bangladesh and is still expanding, it faces serious problems,
principally because the country does not produce enough of
the raw materials necessary, unfavorable trade policies, and
inadequate incentives for expansion. As a result,
Bangladesh's textile industry relies heavily on imports, and
the country does not earn as much foreign exchange from its
textile industry as it should.

History of the Textile Industry in

Bangladesh
Traditionally, artisans working in small groups, in what
are often referred to as cottage industries, produced most of
the textile in the sub-continent. There were many such
artisans in the area that was to become Bangladesh. In fact,
from prehistoric times until the Industrial Revolution in the
eighteenth century, East Bengal was self-sufficient in
textiles. Its people produced Muslin, Jamdani, and various
cotton and silk fabrics. These were all well regarded even
beyond the region as they were manufactured by very
skilled craftsmen.
The material produced by the artisans of Bengal started
facing vigorous competition beginning in the eighteenth
century after the growth of mechanized textile mills in the
English Midlands. This eventually led to a great decline in the
number of Bengali workers skilled enough to produce such
high quality fabrics. According to popularly held beliefs, as
the region's spinners and weavers meant competition for
their emerging textile industry, the British imperialists
responded by trying to force the artisans to stop production.
They were said to have sometimes used methods as harsh
as cutting off the thumbs of the craftsmen so they would
never be able to spin or weave again.

Not only were huge amounts of fabric produced in

Bengal, the area was also a prime producer of the indigo
plant, from which the indigo dye was extracted. This natural
dye was widely used before the advent of chemical dyes in
the nineteenth century. In fact, the rich blue color provided
by the dye is still sometimes used for dyeing denim. Bengali
dye masters had special recipes for producing the desired
colors, just as chefs have recipes for achieving desired
flavors. However, as was the case with the traditional
handloom fabrics, indigo dye production also gradually
declined.

The problems of the indigo industry were principally a

result of two factors. First, because indigo was a cash crop,
the British administrators in this part of the empire forced
farmers to grow the indigo plant in order to increase the
administrators' profits. Unfortunately, the indigo plant is
nitrogen depleting and thus exhausted the soil very quickly.
The farmers received little real income from the crop since
the British kept most of the profits, and in times of economic
hardship, such as when the indigo price fell, they were
unable to survive by eating their produce, unlike farmers
who grew staples such as rice or wheat.

Another reason for indigo's gradual disappearance as a

dye stuff was the unpredictable nature of the plant.
Sometimes one farmer would have a good harvest, while his
neighbor would not be able to produce anything. The
combination of poor yields and the unpredictability of the
crop gradually led farmers to cease growing the plant and
moving on to other, more profitable crops.
 The fabric produced and dyed in British factories
flooded the Indian markets. In time, its importation became
one of the points of contention in the growing Independence
Movement of the Sub-Continent. As separation from Great
Britain was becoming a foreseeable reality and local
production again profitable, the textile industry was
reorganized as new methods of production were adopted.
Water, a necessity for the chemical processes involved in
processing the modern dyes now used, was abundant in East
Bengal. This contributed to the establishment of mechanized
textile factories in the area.

However, after 1947 and the partition of East and West

Pakistan from India, most of the capital and resources of
Pakistan came under the control of West Pakistanis. The
textile industry thus stagnated in East Pakistan as
Momentum for development shifted from the eastern part of
the country to the west. The west also grew more cotton
than the east, which was used as a plea for developing the
industry in the west instead of in the east. The majority of all
industries in the east were also owned by West Pakistani
industrialists.

When Bangladesh gained its independence from

Pakistan in 1971, the new government nationalized the
textile industry, as it did with many other businesses in
which West Pakistanis had been the principal owners.
Although there were some Bangladeshi industrialists, they
did not form a large or politically powerful group and thus
had to surrender control of their factories to the government
as well. All of the country's textile factories were then
nationalized and organized under the Bangladesh Textile
Mills Corporation, or BTMC.

The industry remained under the control of the BTMC

until 1982-83. Bureaucratic obstacles combined with other
problems such as low productivity in the labor force, lack of
planning, indiscipline, lack of accountability, and poor
machine maintenance and operation resulted in a lack of
profits.
The government thus gradually denationalized the
production of textiles. Factories were privatized, beginning
with the dyeing and weaving units. Since that time, much of
the industry has been privatized through auctions and other
means.

The textile industry has been the catalyst for

industrialization in numerous countries. For example, in
England, the Industrial Revolution with the new development
in coal and steel led to the establishment of a mass textile
industry, which catalyzed the industrialization process in the
eighteenth century. Similarly textiles played a major role in
the industrialization of Japan, South Korea, Taiwan, Hong
Kong, and Indonesia. The same has been true to a certain
degree in this country. After privatization, the quality of the
fabrics produced improved significantly, leading to a great
increase in the demand for Bangladeshi textiles in both the
international market, as well as the export oriented garment
industry of Bangladesh. This launched the industry into a
period of rapid growth that is continuing at present.
The Current Position of the Textile
Industry in Bangladesh
Today, the textile industry of Bangladesh can be divided into
the three main categories: the public sector, handloom
sector, and the organized private sector. Each of these
sectors has its advantages and disadvantages. Currently, the
organized private sector dominates, and is also expanding at
the fastest rate.
Public Sector

The public sector is that portion of the industry controlled by

organizations that are part of the government. The factories
in the public sector enjoy certain privileges such as
government funding. However, in Bangladesh, factories in
the public sector are not well supervised. There are frequent
changes in officers, and many of these officials do not have a
personal interest in the factory for which they are
responsible. In addition, the equipment in this sector is not
well maintained, as much of the money allocated for this
purpose is not spent as planned, but is wasted through
corruption and poor accounting.
Knitwear export grew by 35.17 per cent from last July to
March this year totaling 63.39 million dozens of various
items. Export of woven garments grew at the same time by
13.04 per cent totaling 66.23 million dozens.

It showed garment industry, particularly the knitwear

industry, is unfurling its competitive strength in the global
market, particularly in the USA and European countries.

Meanwhile, export earning stands at 5,420.93 million US

dollars from July to March under the current fiscal showing
slightly over the target set for this period. Export earning in
the previous July to March 2002-03 stood at 4722 million US
dollars. It means exports grew by 14.80 per cent during this
period in dollars while in local currency the rise stood at
16.20 per cent.

In March alone, export earning was at 627.28 million US

dollars against 513 million in the same period last year,
according to trade figure compiled by the Export Promotion
Bureau.

In local currency, export from July to March this year stood at

Taka 31,772 crore from Taka 27,341 crore in the same
period of the previous fiscal 2002-03. The overall export
target for the current fiscal stood at 7,349 million US dollars
or Taka 43,443 crore. The business sources said exports
suffered some initial setback in March and in the following
April due to flare up of confrontational politics, but the
economy showed its strength to keep the shock at the
minimum.

Trade statistics showed the overall growth in export value

during this period was only 1.22 per cent showing a rise of
11 per cent for primary products but only a 0.38 per cent
rise for industrial products.

In terms of export volume, however, the rise has been

recorded at 13.58 per cent including a negative growth of
0.70 per cent for export of primary products compared to a
rise of 14.77 per cent in industrial goods.

Some trade figures showed that the export earning from

frozen food increased by 13.11 per cent during the period
under review. The earning from leather goods also
substantially increased. Export of jute goods grew by 9.64
per cent but its prices declined by 3.84 per cent.

Export of raw jute declined by 10.90 per cent with a slight

fall in its prices. So also the export of fertiliser declined by
18.39 per cent while its prices increased by 22.76 per cent.

The Future of the Textile Industry in

Bangladesh
The textile industry in Bangladesh has grown in an
unplanned manner and a critical demand-supply gap has
arisen for both yarn and fabric. The crisis will naturally
deepen unless appropriate backward linkages, the
incorporation of the fundamental steps in the textile industry
all through to the RMG industry, can be built to meet the
rapidly approaching challenges in the global textile market.
As the population is growing and the standard of living is
increasing in Bangladesh, the demand for textiles is
increasing rapidly. This presents an urgent need to
dramatically increase capacities in spinning, weaving,
knitting, and dyeing, printing, and finishing sub-sectors. This
will require the adoption of the most modern and
appropriate technology to ensure quality products at
competitive prices.
The possibility of increased yarn production in Bangladesh is
an issue that has been looked into extensively by many
researchers. These investigations have revealed the country
actually has a comparative advantage over all competitors in
terms of the expense of yarn production. However, in
regards to the total yarn cost, Bangladesh's advantage over
India and Pakistan disappears, even though it remains
competitive with other producers. This is essentially a result
of the higher cost of raw materials in Bangladesh, as most
need to be imported.

As can be seen in chart 2, Bangladesh has a lower waste

percentage than all its competitors. Power along with Korea
is the cheapest in Bangladesh amongst all the yarn
producers. The country also has a very low depreciation rate
and a fairly low interest rate as well, aided by a low
conversion cost as well. However, the price of auxiliary
materials in Bangladesh is the highest among all the yarn
producers, as is the price of raw materials. Due to these two
factors Bangladesh loses its comparative advantage over
India and Pakistan.

Most of the raw cotton imported by Bangladesh comes from

overseas. The country is not only handicapped by the import
tariffs and shipping expenses, but India and Pakistan
subsidize the raw cotton, which is sold locally, resulting in
countries like Bangladesh paying more for the same cotton.

The outcome for the Bangladeshi spinning mills of such price

differentials is that they obtain raw cotton of the same
quality at prices, which are approximately 30% higher than
the Indian mills, and Pakistani mills. In addition,
Bangladesh's spinning mills have to pay another 6 to 7% for
handling, freight, and commission charges which put them in
a disadvantageous situation. The new infrastructure
development surcharge, or IDS, on all imports, which was
stipulated in the 1997/98 fiscal year, added another 2.5% to
the price of imported raw cotton.

The weaving and knitting sub-sectors will also need to

expand at a rapid rate, as there is a large demand-supply
gap in the country. With increased investment in the sub-
sectors and modernized machinery, Bangladesh could profit
greatly from larger and more competitive weaving and
knitting sectors.

As the current dyeing facilities are mostly dependent on

imported fabrics, they are expanding at a rate which is not
dependent on any of the other sectors. However, as local
grey becomes more competitive, and its production is
increased, the dyeing, printing, and finishing sub-sector will
also need to expand to accommodate for the increased
supply.

The leakage from bonded warehouse facilities and

smuggling of materials across borders also need to be
monitored closely in order to assure the competitiveness of
the local industry. The reduction of such problems will
automatically improve the market position resulting in
improved opportunities for the expansion of the Bangladeshi
textile industry.
The Bangladeshi government has been urged by the textile
mill owners to prepare a 10-year policy for the development
of textile sector and ensuring its competitiveness in global
market.

They also sought continuation of government support with a

15 percent cash incentive on textile exports, which is going
to be phased out next year.
"We need a textile and clothing policy along with a plan
conforming to the changes in the global market," said
Bangladesh Textile Mills Association (BTMA) Chairman MA
Awal at the closing of Texbangla 2004, a three-day textile
fair.

The BTMA chairman also demanded immediate approval and

proper implementation of a proposal to set up a $1.5 billion
special fund, which was placed before the prime minister this
January for the development of backward linkage industries.

MA Awal also called for maintaining status quo on the

current policies on central bonded warehouse, Saarc
cumulation and rules of origin.

"If global cumulation with eased rules of origin comes into

effect, it will seriously hamper growth of textile industry,"
the BTMA chairman feared.

On the issue of central bonded warehouse, which is a long

drawn demand of ready made garment exporters, he said
there is no need of setting up a central bonded warehouse to
reduce lead-time of export.

Speaking at the closing function, Local Government, Rural

Development and Co-operatives Minister Abdul Mannan
Bhuiyan stressed the need for reaching a consensus on the
issue of central bonded warehouse.

A Matin Chowdhury, former chairman of BTMA, made a

presentation at the function highlighting the prospects and
problems of textile industry.

The BTMA organised the Texbangla 2004 at Dhaka Sheraton

Hotel to showcase exquisite products made of locally
produced yarn and fabrics.

A total of 32 companies displayed cotton and blended yarn

for knitting and weaving, cotton and acrylic yarn for sweater,
knitted fabrics, dyed yarn of cotton and blend, home textile,
dyed and printed cotton and blended fabric.

Of the total RMG export of $5 billion, the contribution of local

textile mills is about $2 billion, according to BTMA sources.

The sector meets 90 percent of total requirements in knit

and 40 percent of the total requirements in cotton fabrics.
BTMA has a total of 626 members employing some 1.5
million workers

Conclusions
The importance of the textile industry in the economy of
Bangladesh is very high. Furthermore, the industry is
expected to be the catalyst in the industrialization of
Bangladesh, and has been declared as a thrust sector by the
government. However, the largest sub-sector of the industry,
spinning, faces numerous problems, coupled with faulty
government policies and a lack of fairness in competition
from neighboring countries.

The explosive growth of the RMG industry in the country,

however, has not been supported by the growth of backward
linkage facilities. Because of the inferior quality and supply
of local fabrics, which are also non-competitively priced, the
RMG industry is almost completely dependent on imported
fabric. As a result, the foreign exchange earning from the
RMG industry is extremely low. This value addition could
obviously be boosted if appropriate backward linkages were
established in the textile industry.

Therefore, it is extremely important that some remedial

measures are taken for the effective development of the
industry and to achieve the targets set by the government
for 2005 to meet the post-MFA challenges. When I began my
research I was quite negative about the future of the
industry seeing little opportunity for it being competitive in
the post GATT period. However, over the course of my Senior
Project investigations, I have realized that Bangladesh's low
labor cost, skill development potential, a presently
expanding market, and favorable conversion cost can be
used to turn the challenges of the quota-free market into a
window of opportunity. In addition, most developed countries
are turning away from industries like the textile industry and
investing in other sectors, thus creating a vacuum in the
market.

If the appropriate steps are taken to prepare the country for

2005, Bangladesh will not only maintain the current market,
but also expand her global market share, increase the value
added to its exports, and widen the range of products it
produces. The main steps that must be taken to realize
these goals are as follows:
1. To attain self-sufficiency in fabrics by ensuring that the
RMG industry's fabric needs can be met locally.
2. Ensure that the sub-sectors of the industry are better
articulated resulting in a more synchronized development in
the industry.
3. To modify governmental policies to benefit the textile
industry, for example-to reduced the import duty on raw
cotton and dyes and chemicals.
4. To create better facilities for training the workforce in the
industry.

I have also developed some idea of the types of solutions

necessary to overcome the problems faced by Bangladesh's
textile industry. In fact, many of these problems would be
minimized if some of the government policies regarding
textiles were modified. The bank charges and interests
interest rates for loans are extremely high; as a result it is
very difficult to gather the capital to set up and maintain any
type of factory especially textile units which require much
expensive equipment. A reduction of the interest rate would
not only encourage entrepreneurs to expand their current
facilities but should also attract new investors. The handling
charges for shipping are also extremely high, which adds to
the cost of the materials that are imported and exported.
There is currently a serious lack of coordination among the
various government agencies that are connected in some
way with the textile industry. As a result of this lack of
specialization, duplication of work, and waste of time and
resources, policies are often found to work against each
other. Industries, which require immediate attention, are not
given the necessary regard and fail to obtain speedy
solutions to their problems.

In my opinion, the governmental institutions dealing with the

textile industry is becoming increasingly disorganized as the
industry in expanding. It is therefore necessary to enhance
the institutional capabilities and the skills of these officers
through proper training and more permanent office
positions, as well as greater accountability.

The Bangladesh Tariff Commission or BTC should place

greater emphasis on textiles and should develop more of its
policies around the industry. In order to do so, the BTC would
benefit by making the following changes:
1. Hire more professionals to conduct extensive research on
Bangladesh's trade requirements
2. Impose stricter controls on import incentives such as
bonded warehouse facilities to protect the market from
leakage

3. Enhance the government's representation with major

trade organizations such as the WTO

4. Formulate policies and programs to enable local industries

to become more efficient and competitive in the
international market.

Another area that needs to be examined is that of the

government's incentives. Currently, the numerous incentives
provided by the government are modified on a yearly basis.
As a result, a number of industrialists do not feel secure
about them and at times are hesitant to expand their
businesses in fear of policy changes exposing them to
greater financial risks. Any required modifications should be
made to these incentives after a careful study then they
should then be made permanent or at least guaranteed for a
longer and specified period. This would provide investors
with a sense of security and encourage expansion.

Source
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