THE Bangladesh Garments Manufacturers and Exporters Association (BGMEA) held a three day exposition of its products that ended last Monday. The BGMEA holds such a fair -- the Bangladesh Textile Exposition (BATEXPO) -- on annual basis and the recently-concluded one was the 16th consecutive one in the series. The fair was buttressed by a seminar which was attended by leading lights from the government as well as the BGMEA leaders.
In the seminar, the BGMEA leaders pleaded fervently for government's financial assistance to help the reopening of some 500 sick and closed down garments industries. The Finance Minister in response to the suggestion remarked that in a market economy such ups and downs of enterprises were natural and the government in a market economy is not obliged to come to the rescue of entrepreneurs who fail to compete properly. He advised that instead of making such proposals that would further likely increase the classified loan burden of banks, the RMG sector should try and breed a new crop of dynamic and able entrepreneurs who would not fail. The finance minister did not say it but alluded to the not-so-much explored prospects of establishing linkage industries by a class of truly competent entrepreneurs.
The adhoc measures emphasised by the BGMEA leaders at the seminar must have disappointed those who really wish that the RMG sector of Bangladesh should gain in strength and fully secure itself from future pitfalls. The BGMEA leaders were found demanding establishment of a central bonded warehouse with fabric imported from the SAARC countries. They also demanded import of yarn through land ports notwithstanding that permission for such imports in the past facilitated mainly smuggling from which the government earned nothing in the form of revenues. The BGMEA leaders recommended these measures as a way of cutting down on the lead time to make apparels for exports. But the same lead time can be cut even shorter along with much greater value addition or retention of export earnings if backward linkage industries are set up in the country in requisite number to produce such items as fabric and yarn. The BGMEA leaders are for short term expedient gains at the cost of the longer term bigger gains and the establishment of sustainable secure conditions for their business by helping the flourishment of the linkage industries. Such an attitude is indeed tragic specially in the backdrop of their enterprising abilities in the past.
When the export-oriented ready-made garments (RMG) industries were emerging in Bangladesh from the late seventies, no one was sure of their sustainable future. But the banks of the country came forward with confidence to invest in the RMG sector. The result has been a great success for the investors in such industries, the banks and the country. From a handful of such industries in the mid seventies, there are thousands of garments industries today and most of their owners did very well for themselves from deciding to invest in this sector. The banks that financed the substantial amounts of the capital requirements of these industries and followed up with providing working capital to them, were also well rewarded for sponsoring entrepreneurship in this field.
There are many projects in other sectors where the banks did not get a good return on their investments. In many such cases, the loans extended by the banks turned classified long ago and have been adding seriously to their liabilities; the garments were a different story altogether. The investment of the banks in garments industries generally proved to be a success. Ever since the start of a few of these industries in the mid seventies, the RMG sector has only added to their number and there was no looking back for the operators of this sector. Bangladeshi apparel export grew on average 22 per cent in each of the years of the last decade.
But the point is that the banks were extremely successful, so far, on the whole with their investment operations related to the garments sector. They recovered their loans extended to the RMG industries to satisfaction with high rates of interest. Therefore, the banks did very good business in relation to the sector.
Like their support to the RMG industries of the first generation in the decades of the seventies, eighties and nineties, the banks can now come forward wholeheartedly to invest in the second generation of industries linked to the garments sector. There is a huge opportunity awaiting for an entrepreneur wanting to invest in the backward linkage industries needed by the RMG sector. Investment in such industries can prove to be just as rewarding -- if not more -- like in the RMG industries that have been set up for apparel making.
Presently, there is a scope for the establishment of 148 spinning mills, each with 25,000 spindles, and 295 weaving and 280 dyeing cum finishing units. Thus, it should be obvious that massive investments are waiting to be made profitably in the textile sector. The same should also create many jobs and expand economic activities in different ways. But ironically, these investments are not being made up to the desired level. One may contend that establishment of even a single spinning mill to make yarn or a composite mill to produce both yarn and fabric requires huge investments. For a local bank in the past, it was easy to finance even a dozen medium to large RMG industries rather effortlessly by itself in a short period of time.
The bank's resource base allowed such investment without a thought . But the spinning mills or composite mills are another matter. However, the banks can get around this problem by forming consortiums among themselves or, through syndication arrangement, pool enough resources into a fund for investment exclusively in backward linkage industries for the RMG sector.
There are several reasons why the banks should be promoting the linkage industries. First of all, these would be sound investments with good returns in the long run. Secondly, the banks would be hedging their investments made in the first generation of the RMG industries. If such industries face setbacks from the insufficiency in the number of locally available linkage industries, then the effects of the same will be passed on to the banks. If the garments industries start failing as a consequence of insufficient linkage support locally, then the huge investments made by the banks in the RMG industries would be at serious risk. Thus, in their own narrow interests, the banks should be specially enthusiastic to encourage the establishment of the linkage industries.
The government should have been playing a lead role in promoting the linkage industries. But it hasn't played such a role so far and this is very odd. It should have gone all-out by now to mobilise a special fund, independent of the banks, to set up linkage industries. Such a fund could be mobilised long ago after successful negotiations with lending bodies like the World Bank, the Asian Development Bank, International Finance Corporation (IFC), etc. Funds could be obtained from such organisations at bearable low rates of interest. Even funds could be mobilised by selling bonds to the expatriate Bangladeshis. But no such activism was seen on the part of the government although an investment scheme for RMG's linkage industries drawn up by it and funds for the purpose mobilised by it, could be very helpful in securing the all too important RMG sector, apart from making a contribution towards value-addition in export activities, industrialisation of the country and employment creation.
It is better to be late than never. Appreciating these words of wisdom afresh, the government, the banks, other financial institutions and all potential investor are expected to waste no further precious time in getting their act together to invest in RMG sector's linkage industries.