RMG value addition hits new high

Value addition in the readymade garment (RMG) industry reached 64.98% during the first quarter (July-September) of the current fiscal year, the highest since 2012-13, data from the Bangladesh Bank show.

According to the report of the Bangladesh Bank titled "Quarterly Review on RMG: July-September FY21," value addition remained almost static between 60% to 64% in almost a decade.

Apparel exporters hope value addition will increase further by the end of this fiscal year riding on the supply of local fabrics and accessories despite the lack of basic raw materials, such as cotton, petrochemicals, and chemicals.  

They also say the industry has the potential to increase value addition by up to 80% within a few years through some policy changes to bring more investment in woven textile, man-made fibre, and chemical production.

This may contribute to reducing fabrics import cost by about $3 billion, they add.

Industry insiders say the RMG sector has shown its capacity on the back of the strength of the local primary textile and accessories industry.

The primary industry has the capacity to fulfil about 95% of the demand for knit fabrics, 98% for accessories and about 50% for woven fabrics.

Talking to The Business Standard, Envoy Group Chairman Kutubuddin Ahmed said almost every buyer was focusing on shorter lead time during the pandemic and that is why exporters were using local fabrics and accessories to produce clothes.  

He said some buyers were forcing exporters to ship products within 21 days. 

The apparel sector's value addition will increase further by this fiscal year, thanks to local raw materials, he said.

"We still lag behind in woven fabrics production while local denim mills have the capacity to meet about 80% of the export market demand," said Kutubuddin, also the chairman of Envoy Textiles, the world's first greenest textile factory.

He continued, "A woven textile mill requires larger investment, and takes up to seven years to reach breakeven. Usually, banks are not interested in financing such projects."

Such projects also need loan moratorium for up to 2.5 years, he said.

Citing the example of his company, Kutubuddin said, "We are using offshore financing to import capital machinery as these are low-interest loans."

"However, the Bangladesh Bank does not allow such loans to continue for over a year. If the government brings changes to this rule, that may encourage local entrepreneurs to invest in such textile projects," he added.

Fatullah Apparels Chief Executive Officer Fazlee Shamim Ehsan said apparel exporters also need to change their mindset to produce high-value products instead of basic items.

Citing an example of his factory, he said, "We are producing knitted jackets priced at $7-12 each while we made T-shirts priced at $1-1.5 each using the same machine three years ago."

"We have no option to add more value without producing high-value products," he added.

According to the central bank report, value addition rate stood at 61.76% in fiscal year 2012-13 and the highest was 64.32% in 2018-19.

The rate dropped to 56.49% in fiscal year 2019-20.