Travel  |  Business World  |  Women's World  |  Entertainment

Change Your Life!

Competition from Africa, the Caribbean, India & China next 5 years

News
Sports
Chat
Travel
Dhaka Today
Yellow Pages
Higher Education
Ask a Doctor
Weather
Currency Rate
Horoscope
E-Cards
B2K Poll
Comment on the Site
B2K Club

February 18, 2001 

Dhaka-- (UNB) – Amidst fears by garment manufacturers of shifting US export orders from Bangladesh, a recent study said the US Trade and Development Act (TDA) 2000 is a wake up call for the industry to turn threat into opportunity for the post-quota world beginning in 2005.

Without question, the study said, the US legislation provided opportunities for Caribbean and sub-Saharan African countries to take markets away from Bangladesh, as the tariff advantage is substantial.

“It would be a mistake to shrug off this threat,” the study said, but added, “we see opportunity, not threat” commenting on the possible impact of TDA 2000 on Bangladesh garment industry.

The study was conducted on behalf of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Most sub-Saharan African countries were given duty-and quota-free access to the US market through TDA 2000 although there is a cap to the total amount of imports from these countries. Caribbean countries were also given the same privileges if they use US made fabrics.

The problem that confronts the Bangladesh RMG sector over the next three years before the quota regimes are terminated is increased competition from countries benefited under the TDA.

Duty-free access made a considerable difference - duties for most important categories are 15-20 per cent. If a Bangladesh exporter wants to compete against a Caribbean country then it must reduce costs (C.I.F) by 15-20 per cent to offset the tariff advantages available to its competitor.

The study said there is little to fear from the emergence of a large African RMG industry that would develop with leadership in technology and marketing from Asia when Bangladesh took almost ten years to develop a substantial volume of exports.

“There is no reason to believe that the African nations can go any faster,” it said.

Of the African countries, the study said, Kenya and Mauritius would make serious efforts to supply the US market through establishing capacity substantially with marketing and financial support largely from Asia. There is less opportunity for other African countries.

By the time the African industry is built up the trade regime will pass through the December 2004 removal of quotas when the tariff is expected to come down to limit the advantage of Africa, it said.

The study said the impact of the Caribbean expansion in the US markets would be to halt any growth of exports and possibly reduce sales by 5-10 per cent. After 2002, it would decline substantially if the needed improvements were not made.

However, the study anticipated that Bangladesh would be able to shift production to European markets so long as duty-free access to the EU is allowed.

Besides African and Caribbean countries, Bangladesh would have to face tough competition from India and China in next five years.

The study suggested rapid action by the industry and the government in Bangladesh to prepare for the forthcoming removal of quota system.

To deal with the threat from the rise of the Caribbean and sub-Saharan African RMG industry, it recommended increasing factory productivity. At present, there is little use of modern management tools to determine costs, control inventories and take action to reduce costs through greater labour productivity.

It also suggested improving the port and customs facilities, providing reliable power - the subject of most frequent complaint in the industry.

It also called for improved financing to reduce cost of imported raw materials and shortening the time between order and shipment, and negotiating aggressively to reduce entry barriers and achieve either favoured access or equal access.

The study stressed investment in backward linkages and protecting such industries against dumping by India and China, investment in forward linkages to improve market access, deepen customer relations, improve transportation links and to understand changing fashions.

It estimated that the reasonable corrective actions would permit the industry to operate at a reduction of prices of 36 per cent without decline in the present profit margins.

The study said the price of exports (FOB) would increase by 20 per cent while the cost of raw materials decline by 10 per cent, usage of raw materials and other inputs decline by 5 per cent per unit of output, labour productivity increase by 20 per cent and the cost of purchases of local inputs other than labour decline by 10 per cent.

“This is sufficient to absorb the tariff differences and reduce prices further to stay in competition,” it said.

If nothing were done, the competition would quickly erode existing profit margins, leaving survival of the Bangladesh industry in the US markets on the failure of the Caribbean and the sub-Saharan African countries to take advantage of the TDA 2000, the study added.

Send This News to a Friend