Next year and a half will be challenging; we need to hold our ground: BGMEA president

Mahmud Hasan Khan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and managing director of Rising Fashions Limited, sat down with Shakhawat Liton, executive editor of The Business Standard, for an episode of "Zero Sum Game" to talk about the state of the country's largest export industry — from the energy crunch squeezing factories to the borrowing costs holding back investment, and whether Bangladesh's $100 billion export ambition still holds up. 

Khan believes the industry can still post around 10% growth even without new investment, simply by tapping underused capacity and fixing supply chain disruptions that stretch a 10-hour job into 12 or 13 — though he points back to energy as the persistent bottleneck. He also weighed in on the US tariff talks, the push to diversify away from China, and what it will take to win back investor confidence at home and abroad. 

How is the readymade garment sector really doing?

The graph has always moved through ups and downs, but if you draw the line, it is rising cumulatively. The sharp fall was due to Covid-19; another dip came from a data correction, when indirect exports once counted as direct were reclassified. As for last year's decline, energy mattered, but the bigger factor was external — above all, the uncertainty around US tariffs. 

When a buyer does not know whether the tariff will be 35%, 20% or 10%, his budget does not change: if a duty is added, he simply buys fewer pieces for the same money. Buyers hesitated and cut orders, and that was worldwide. 

So I would not say we are doing very well, nor that we are doing badly. We are in an average situation. We have also started looking beyond volume — not just whether we ship $40 billion or $50 billion, but what value addition and retention we actually keep.

How serious is the energy concern?

We are already running at only 70% of capacity; 30% sits idle. We have become heavily dependent on imported fuel, and the supply chain is fragile. Three years ago, nobody knew what an FSRU was; now two floating units carry us, and when one shut down accidentally, the whole system was thrown into crisis. 

A third has cleared the cabinet, but it will take 18 to 24 months at the earliest, while our own gas fields deplete by about 150 million cubic feet a day every year. The real answer is exploration, renewable energy and, above all, land-based storage rather than floating terminals. 

Under the previous government, around eight multinational companies submitted letters of intent for storage; the state need not invest – under a public-private model, it needs only to provide the land. If those decisions are taken quickly, the challenge eases. If we delay, it grows.

And what does this uncertainty do to buyers?

Their confidence is slipping, and they are telling us so. Garment-making itself needs little direct energy – electricity is largely enough. The problem is backward linkage: fabric and yarn manufacturing, which consume gas. So we could ask the government, for the next two years, to divert gas from fertiliser to industry and import fertiliser instead. 

Fertiliser is very important – we have 18 crore people and food security matters – but it can be imported for now. New domestic gas connections will have to stop, and hard choices on CNG will have to be faced. Compressed natural gas for a three-wheeler is a livelihood; for a private car it has become a luxury. These are unpopular decisions, but taking them is how the industry survives.

Is the target of doubling exports to $100 billion within five years realistic?

If you ask me at this moment, it is not a realistic target. We are still dependent on garments and textiles. We agree we must move towards industries with lower energy requirements – furniture, footwear, even semiconductors – but saying it today does not make it happen tomorrow, and those sectors need energy too. 

More importantly, the world trusts Bangladesh on garments; "Made in Bangladesh" is now globally accepted for clothing. That confidence does not yet exist for mobile phones, electronics or furniture. Having the target is good, but the next two years are challenging. Energy is one big piece; the rest is infrastructure – the Dhaka-Chittagong road, for instance. These decisions must be taken fast. Indecision is the worst decision of all.

The July Uprising began as a movement over jobs. What is the investment situation now?

Private sector credit growth, which ultimately converts into investment, is at its lowest since Bangladesh was born. The situation is simply not good, and it is tied to infrastructure and to the cost of funds. 

With interest at 13, 14 or 15%, I do not know which manufacturing is feasible – trading, perhaps, but not manufacturing. Rates must come down to single digits, or at least to 10%, and to get there, you have to cut non-performing loans; as NPLs fall, banks can offer cheaper money. 

Low-cost facilities like the Green Transformation Fund and the Technology Development Fund should be enlarged. And investors need visibility – the government says wait two years, which is fine for planning a new industry, provided progress is shown continuously, with data.

If domestic investors are struggling, what message reaches the foreign investors we are trying to attract?

They will not come. Foreign investors follow domestic ones – when locals invest, others take confidence and follow. Someone may still come for an extraordinary product we do not make, drawn by cheap labour, but even that must now come with low energy needs. 

You can hold as many roadshows and open as many offices abroad as you like – I hear we have opened one in China – but the first thing an investor asks for is energy, and then he runs into the red tape and the licences. Our own people still have the appetite and the ability to invest; what is missing is the basic infrastructure.

Where does Bangladesh stand on the US tariff and the trade deal?

On tariffs, we are among the least affected — we sit within the 10% band. That figure rests on allegations we do not accept; we have no forced labour, and the Americans acknowledged as much, but they want us to avoid sourcing raw materials from places where forced labour exists. 

Buyers have largely grown used to 10 or 12%; at that level, we have no real problem. There is also a clause that garments made with US cotton would face no tariff on that portion, and we are lobbying on it continuously — good news may come by September or October, applicable to Bangladesh, Indonesia, Malaysia and Cambodia. 

My one worry is our habit of one government signing a deal and the next scrapping it without review. The previous administration's renewable energy agreements were cancelled wholesale, and that shattered investor confidence.

Is there pressure to reduce your dependence on China?

The pressure is indirect but real — it is embedded in that same tariff, tied to sourcing from non-market economies. So we are diversifying. In knitwear, we are almost 90% to 95% self-sufficient in our own yarn and fabric; we are self-sufficient in woven and denim, and we are trying to source more from Indonesia and Vietnam. 

It cannot be switched off tomorrow morning, but the realisation that this dependence must fall is now firmly established.

Diplomatic relations with India fell to a historic low after the July Uprising. What about trade?

In trade, I see no problem — we have no difficulty getting the raw materials we need from India. There was one dispute: we had stopped yarn imports through the Benapole land port, and India retaliated by closing much of its road-borne exports, so our exports to India fell. 

Otherwise, we import machinery from India, and when there was a diesel shortage recently, they offered to send more. The problem is not trade; the problem is politics. Fix the politics and trade benefits further.

Under the previous regime, trade bodies often served partisan interests rather than their members. Are we breaking out of that?

BGMEA was the first trade body to hold an election under the interim government, and no one has questioned that vote. When leadership is chosen by members, it is accountable to members, and that must also align with the national interest. A person can hold several identities — party worker, association president, company director — but I must act according to the chair I occupy. 

We all remember the culture of everyone raising their hands and begging a leader to stay for life; we do not want to return to it. That compromises an association's bargaining power and benefits a handful of leaders while the whole industry collapses — it is why "businessman" now carries a negative impression. I am optimistic that it is changing. The current head of government does not like flattery; when his own people overpraise him, he stops them.

Looking two years ahead, where will the export sector stand?

For our sector, I expect about 10% growth, even without fresh investment, simply by utilising the underused capacity and fixing the supply chain disruption that turns a 10-hour job into 12 or 13 hours. The challenge, again, is energy. 

I would call the next year and a half challenging; if we can just hold our ground, we can advance after that. Jobs will follow investment automatically, and an export industry does not only create jobs directly. Think of the lakhs of rotis and snacks we serve at tiffin every day; whole local industries grow around that. Job creation is essential.