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Bangladesh Textile Breaking Shackles Of Instability And Power Outages To Consolidate FDI Growth

• By  Textile Excellence
• March 14, 2017

Foreign direct investment (FDI) in Bangladesh’s textile sector is steadily mounting and the total FDI at the end of September 2016 in the textile sector stood at US$ 2438.21 million. Currently grappling with labor issues and energy shortages, the industry is gearing up for deploying advanced technology and skill training to wriggle out of the situation.

The global reaction to the boom in the Bangladesh textile industry is mixed. For on the one hand, it’s favored for abundant cheap labor, strategic location as a gateway to the countries of Asia-Pacific region, and a legislative framework conducive to doing apparel business. On the other hand, it’s bogged by weak infrastructure, inconsistent energy supply, lack of land, weak financial sector, corruption and red tape in the bureaucracy.  Amidst this, most of Bangladesh’s foreign investments come from Asian countries, the largest contributor being South Korea with Hong Kong and British Virgin Islands registering a poor second and third.

According to statistics released by the Bangladesh Bank (the Central bank of Bangladesh) South Korea has invested US$ 758.08 million dollars for the period from September 2015 to 2016. The corresponding figures for Hong Kong are US$ 421.7 million.

The British Virgin Islands has invested US$ 214.02 million and has garnered the third spot in highest FDI figures for Bangladesh for the period ending September 2016. The other countries that made a significant contribution to Bangladesh Textile FDI during the same period include Taiwan with US$ 155.24 million, China with US$ 93.71 million, Singapore with US$ 67.4 million and India with US$ 66.71 million dollars.

The figures indicate that smaller nations in the neighborhood of South East Asia and Eastern Asia have contributed much more in terms of FDI as compared to the combined FDI corpus of the two neighboring giants China and India. Compared to the Asian nations in the fray to invest in Bangladesh textile and weaving sector, FDI from the United States stood at a modest US$ 33.02 million.

Indications are that the Bangladesh government will have to facilitate ease of business in a big way to attract major investors from the Western world like France, Germany and U.S. This includes the setting up of adequate infrastructure whereby the textile industry can locate itself in clusters in a special economic zone with adequate facilities for both workers and the visiting industry honchos. China has already provided some assistance in this direction for Bangladesh to set up a special textile park. According to the Bangladesh government, negotiations are on and it won’t be long before this is realized.

The local government on its part is proactively seeking FDI not only in textiles but also in the allied energy and infrastructure sectors that will help boost volumes in the textile trade. Some of the measures already undertaken include favorable industrial policy, export growth incentives and the Public-Private partnership which had been launched way back in 2009 and ratified for further enhancement ever since. The most heartening figure that was witnessed from the developed world was a gross FDI inflow of US$ 421.95 million for the year 2014 from the period July to December. However, here too, the net figure trickled down to a meager US$ 8.74 million.

Formal indicators have been witnessed that the western world wants Bangladesh to further reform its labor laws and provide enhanced package of minimum wages to its workers. In addition, they have expressed concern about safety norms that are adopted by the industry. However, of late, the Bangladesh government has monitored the upgrade of safety norms and has made a marked improvement in this parameter.

The sticky issue that remains to be resolved is the workers’ minimum wage reform. This may not disappear anytime soon as it’s bound to affect the cost competitiveness of Bangladeshi textiles and garments. The alternate path available for Bangladesh Textile industry is to boost the inflow of FDI from its neighbor India. As China has vacated the low end textile sector chain value, Bangladesh can fit into the vacuum along with Vietnam if it can capitalize on its superiority in labor force as compared to India and garner additional Indian investments in the textile sector in the bargain.

On the brighter side, Bangladesh has signed 30 bilateral trade agreements and the current Trump administration has scarped the TPP that made Vietnam a favorable destination for textiles in favor of bilateral trade pacts.

After a brief lull in 2013-14 owing to socio-political instability the country has managed to pick up and register a 47% increase in FDI during 2015. In contrast, 2016 proved to be a mixed year for Bangladesh with FDI packages flowing liberally into allied sectors like energy.

At present, from the overall perspective including the textile industry that is the major contributor to Bangladesh’s export earnings are China, South Korea, India, Egypt, United Kingdom, United Arab Emirates (UAE) and Malaysia. This indicates that the textile sector is headed for an exciting boom period in the near future given the inclination of the Industry stakeholders, the government and foreign players.

Textile Excellence