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Cablegate: Textile and Apparel Statistics and Competitiveness

VZCZCXRO2522
RR RUEHCI
DE RUEHKA #6328/01 2910829
ZNR UUUUU ZZH
R 180829Z OCT 06
FM AMEMBASSY DHAKA
TO RUEHC/SECSTATE WASHDC 2208
INFO RUEHLM/AMEMBASSY COLOMBO 7615
RUEHKT/AMEMBASSY KATHMANDU 8764
RUEHIL/AMEMBASSY ISLAMABAD 1325
RUEHNE/AMEMBASSY NEW DELHI 9414
RUEHCI/AMCONSUL CALCUTTA
RUCPDOC/USDOC WASHDC 1596

UNCLAS SECTION 01 OF 02 DHAKA 006328

SIPDIS

SIPDIS

STATE PASS USTR

E.O. 12958: N/A
TAGS: ETRD ECON KTEX BG
SUBJECT: TEXTILE AND APPAREL STATISTICS AND COMPETITIVENESS
PROJECTION

REF: STATE 138090

1. Summary: The Bangladesh textile and ready-made garment
(RMG) industry has thrived following the end of quotas under
the multi-fiber arrangement. Although the industry benefits
from U.S. and EU restrictions on Chinese goods, other factors
including low labor costs, strong relations with major
European and US buyers and a reputation for better than
average social compliance have been more significant. The
industry continues to invest to remain competitive; however,
external factors, especially inadequate power, an
underdeveloped natural gas distribution network, an
inefficient port and systemic corruption continue to plague
the industry and will affect its competitiveness in the
medium term. End summary.

Requested Data
--------------

2. Post is pleased to provide the data requested in
paragraph 3 of reftel, together with information on the
sources and reliability of the data. All data is based on
the Bangladesh fiscal year, which runs from July 1 through
June 30.

A) Total Industrial production in FY 2005 was USD 9.6 billion
and in FY 2006 was USD 10.3 billion.

B) Total textile production in FY 2005 was 3.0 billion meters
and in FY 2006 3.5 billion meters (no data is available based
on price). Total apparel production was USD 7.1 billion in
FY 2005 and USD 8.7 billion in FY 2006 (both estimated).

C) Textile share could not be compared with the import and
export figures. Apparel production was 52% of total import
and 82% of total export in FY 2005 and 51% of total import
and 83% of the total export in FY 2006.

D) Total manufacturing employment was 5.5 million in FY 2005
and 6.0 million in FY 2006 (estimated).

E) Total textile employment is 500,000 and total apparel
employment is 3.0 million (estimated).

3. Data sourcing and reliability: Post collected information
from the three major industry associations -- Bangladesh
Textile Mills Association (BTMA), Bangladesh Garments
Manufactures and Exporters Association (BGMEA) and the
Bangladesh Knitwear Manufacturers and Exporters Association
(BKMEA) -- and from the Ministry of Finance, which includes
the customs service. Finding current and accurate data is
difficult in Bangladesh because of the unavailability of
timely official data, lack of coordination between different
agencies, lack of trained workforce in this area, and the
long processing time to organize the collect data. The
information provided is believed to be the best information
available.

Additional Information
----------------------

4. Bangladeshi RMG manufacturers are under continuing
pressure from buyers to reduce prices. The sizable increase
in both the volume and value of exports results from a
significant increase in the volume of exports, despite
decreasing price margins. Order volume is higher than in
previous years. There is significant new investment by both
foreign and domestic companies in new manufacturing capacity.
Some sources estimates one new factory or expansion
employing 500 or more workers is added by the industry each
week. According to anecdotal evidence, however, Bangladesh's
chronic infrastructure and governance problems have prompted
some investors to locate new factories in other countries.

5. Bangladesh has clearly benefited from US and EU
restrictions on certain Chinese apparel exports and many in
the industry worry that the removal of those restrictions in
2008 will negatively impact the RMG sector. Other factors,
including low labor costs, a relatively skilled labor force,
continued investment to improve productivity and a positive
reputation for social compliance have been more significant.
The government has not imposed nor considered imposing quotas
or other restrictions on Chinese textile and apparel
products. High tariffs and taxes protect the domestic

DHAKA 00006328 002 OF 002


textile industry from international competition and raise
costs for domestic textile users, including RMG exporters;
however, these barriers are not specifically targeted at
Chinese textile products.

6. Bangladesh already has some of the lowest labor costs in
the global textile and apparel industry. Bangladesh's
success in the global market, coupled with rising domestic
prices for staples, has created pressure for increased wages.
Wage demands erupted in two-days of civil unrest in May. In
response, the government and industry formed a wage board to
review wages. Although the wage board recommended a 73%
increase in the base minimum wage and increases in the
minimum wage for higher skill levels, labor groups, which had
sought a 200% increase, were disappointed and continue to
agitate for higher wages.

7. Chronic problems of infrastructure and governance
continue to bedevil the industry (and economic growth
generally) and threaten the industry's competitiveness in the
medium term. Electricity demand is growing at 8% annually,
yet there has been a net loss in generating capacity over the
past five years due to lack of new plants and deterioration
of the installed base. Operational capacity is estimated at
50%-60% of current demand and rolling blackouts are common.
Although manufacturers often have captive power generators or
standby diesel generators, high fuel costs and unreliable
natural gas supplies increase costs and undermine
productivity. Power is expected to be an important issue for
elections scheduled for January 2007.

8. Bangladesh's knitwear industry, in particular, benefits
significantly from EU GSP tariff preferences and, to a lesser
degree, from duty free access to the Canadian market.
Bangladesh does not enjoy similar tariff preferences in the
U.S.; nonetheless, exports to the U.S. of both woven and
knitwear products have risen by more than 20%, reflecting
Bangladesh's many competitive advantages, especially in low
value, high volume products. The BDG and industry continue
to press for duty free access under the proposed Trade Act of
2005. Addressing competitiveness issues in Bangladesh,
however, would have a more significant impact on the
industry's global competitiveness over the medium term.
PASI

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