Bangladesh's garment industry looks set to cash in on US-China trade war
AS the world's second-largest garment exporter, the value of Bangladesh's overseas sales swelled to an all-time high of US$40
AS the world's second-largest garment exporter, the value of Bangladesh's overseas sales swelled to an all-time high of US$40.5 billion in the year ended June 30, coinciding with the Trump administration raising tariffs on $200 billion of Chinese goods to 25 per cent from 10 per cent.
The US-China trade war has led to orders for half of the 1,981 tariffed products so far being re-routed to other nations, including Vietnam and Malaysia.
Bangladesh-based garment manufacturer, Newage Group, is spotting an opportunity for the first time in three decades to sell to the US market, all thanks to President Donald Trump's trade dispute with China, reports Bloomberg.
Newage, a supplier to Hennes & Mauritz AB, has been engaged in business with European companies for three decades and is now also receiving inquiries from Macy's Inc and Gap Inc, the group's vice-chairman Asif Ibrahim said.
'The rate of inquiries has gone up by 30 per cent,' Mr Ibrahim was quoted as saying. 'Tariffs are being imposed unilaterally by one person at this point in time. That made some retailers a bit nervous. They are shifting their orders to this country to lower their business risks.''
Macy's said in May the company has been working for a 'number of months, and really for a couple of years, about moving production out of China.' Gap said at the same time that it has been migrating sourcing out of China for the past few years.
For Bangladesh winning part of the $41 billion of the clothing business that goes to China will provide a fillip to an economy that the Asian Development Bank predicts will grow by a record eight per cent for the next two years. The garment industry contributes 13 per cent to Bangladesh's gross domestic product and employs four million people.
Finished clothing has so far been excluded from the tariff list, but in the event that talks fail and the US President raises tariffs on $300 billion of Chinese products in the next round, textiles are expected to be impacted. Bangladesh and Vietnam are well positioned as apparel manufacturing hubs and will be obvious choices as retailers with exposure to the US relocate their production out of China, according to a report by Fitch Solutions.
To take advantage of rising demand, Newage, which has an annual revenue of $100 million, partnered with a Chinese investor to establish a $20 million garment factory in Kaliakoir outside the capital Dhaka. The unit is due to commence production within four months.
'There's a huge potential to further expand investment' in the garment industry, Bangladesh Prime Minister Sheikh Hasina told Chinese businessmen during a presentation in Beijing on July 4. 'We highly value the huge interest demonstrated by the Chinese investors in our country and as such we are setting up a special economic zone for the Chinese Investors.'
However, for Bangladesh companies there are obstacles to garnering more orders from western businesses. With its infrastructure ranked at 103 in the World Economic Forum's Global Competitiveness Index, compared with 29 for China, Bangladesh needs to upgrade its supply chain, modernise its garment factories, construct highways and cut red tape at ports to net more buyers.
Prime Minister Hasina opened two four-lane bridges on the highway to the Chittagong Port in May and another bridge earlier in March, reducing travel time to the nation's main port by half. The government has also been accelerating construction of highways.
Still it takes 168 hours for exporters in the nation to ship from Dhaka, compared to just 23 hours in Shanghai, the latest Doing Business report by the World Bank shows.
Exporters also need to boost productivity, according to Dhaka-based Centre for Policy Dialogue's executive director Fahmida Khatun. 'In order to increase productivity, we need to go for technological upgrade and automation in the garment industry. There are some companies that have adopted automation, but it has to be done across the sector,' she said.