FDI in apparel, textile industries

Published at: Dhaka Tribune, August 26, 2019

Bangladesh textile and apparel industries received $408 million in foreign direct investment (FDI) in 2018, down by $13 million from the previous year.

While total FDI in the country saw a 68% rise to $3.61 billion in the same year, the plunge in overseas investment in textile and apparel sector raised question about its reasons and effectiveness. Is there a need for FDI in the sector? If needed, which segment or sub-sector of the industry needs it?

For the last couple of years, FDI in the apparel and textile has been hovering around $400 million.

Do textile and RMG sectors need FDI

When Bangladesh badly needs to produce high-end products and increase production capacity in the apparel industry, FDI in the area can play an important role in technology transfer from the skilled foreign professionals, economists and trade analysts believe.

“In increasing the export earnings and sustaining the current growth of exports, Bangladesh needs to increase production capacity and move for high value goods to get better deals from foreign brands for its apparel items. To this end, the sector needs a huge amount of capital and skilled workforce where FDI can play an important role,” Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem has told Dhaka Tribune.

He thinks such FDI should come in backward linkage textile and high-end products of the readymade garment as it will help transfer foreign and latest technologies to embolden local industry.

FDI in these segments can be a boon for Bangladesh economy in moving towards the value added products, the economist adds.

Where FDI is needed

Bangladesh is doing well in basic and medium-end products in RMG, where primary textile is supplying fabrics and yarn. But there is a huge scope of investment in the primary textile, especially in high-end fabric textiles.

“Since there is a gap between demand and supply of raw materials for the apparel, we need foreign investment in the primary textile, which needs huge investment,” Bangladesh Textile Mills Association (BTMA) president Mohammad Ali Kokhon says.

But the FDI will not be attracted unless the government policy becomes favorable and production cost is reduced offering utility services including gas and electricity at affordable prices, Kokhon points out.

According to BTMA, currently primary textile sector can meet around 90% yarn demand for knit RMG and 40% yarn demand for woven RMG.

On the other hand, denim fabrics in the country can meet around 50% demand, where higher-end fabric is mostly dependent on import.

“Usually, apparel makers discourage FDI in basic product manufacturing as we have enough capacity in basic and medium segments,” Mohammad Hatem, former vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), says.

But there is a scope of investment in dyeing, chemical, high-end products such as suit, lingerie, outwear jacket and fancy items, Hatem adds.

Can anyone invest in apparel sector?

Under the Bangladesh Export Processing Zones Authority (BEPZA) and Bangladesh Economic Zones Authority (BEZA), 100% FDI is allowed in the textile and apparel sector but it discourages such investment for basic items.

“In EPZs, 100% foreign investment in apparel and textile sector is allowed but we discourage this in the case of regular items as there is no scope of technology transfer and knowledge and experience sharing out of such traditional investment ,” Nazma Binte Alamgir, General Manager of BEPZA, clarifies.

“We encourage oversees investment in high valued items such as jackets, suite, army dress, fashion jackets, outwear and protective jacket,” she adds.

Besides, a foreign investor can invest outside EPZs or SEZs and s/he has to take permission from the Bangladesh Investment Development Authority (BIDA) and then become a member of BGMEA or BKMEA for exporting clothing items.

FDI status in the sector

As per Bangladesh Bank (BB) data, last year the FDI in the sector declined by 3.24% to $408 million, from $421.68 million in 2017.

Hong Kong was the largest investor with an investment of $83 million in the country’s textile and garment industry, followed by United Kingdom’s  $43 million, China with $40 million, South Korea $35 million, British Virginia Islands $33 million and Bermuda with $31 million, according to FDI data.

Why investment is slow

Business people blame the rise in the production cost and cumbersome process of getting factory permission along with scarcity of land.

“In making investment in any country, investors seek security and return of their investment. Since the production cost is higher here due to rise in gas and electricity prices coupled with land scarcity, FDI is low,” says Mohammad Ali Kokhon.

In order to further increase the FDI in the sector, the government has to promote investment opportunities by creating enabling business climate and offering incentive to keep production cost a reasonable level, Khokon states.

However, the business leader hopes the FDI in the sector will rise as the government is providing investment facility in Special Economic Zones.

Trade war opens new horizon

Economists believe that ongoing US-China trade war has opened up new opportunity for Bangladesh as investors are relocating their ventures from China to elsewhere.

“In the face of intensifying trade friction between the US and China, investors are fleeing China. They are investing in many Asian countries,” Policy Research Institute (PRI) executive director Ahsan H Mansur says.

“Bangladesh should attract the Chinese investment here,” he adds.

He strongly believes Bangladesh has enough opportunity to grab work orders and investment from foreign nations.

Bangladesh has to liberalize its trade and investment policy to incentivize FDI which would ultimately give a boost in investment as well as capacity, he adds.

FDI in Bangladesh textile and wearing industry

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Author: BIZDATA INSIGHTS