BANGLADESH should allow foreign direct investment (FDI) in the apparel sector to help the industry endure the Covid-19 crisis, analysts and businesspeople said on Monday, as per a local daily reports. They also said that over-concentration on cotton rather than manmade fibre (MMF) for making clothes is stymieing the growth potential of the readymade garment (RMG) industry. They suggested heavy investment in manufacturing yarns, fabrics and dyeing facilities with proper wastewater and chemical management should be core elements of the post-Covid-19 recovery efforts.
But there is a reason as to why local manufacturers oppose foreign investment in the apparel sector outside of the Export Processing Zones (EPZs). They fear the arrival of an economic chaos in the industry because they expect that foreign companies will employ workers paying higher wages compared to them. Over 300 foreign-funded apparel factories were being operated inside the EPZs as of 2017.
So when a joint venture factory offers wages higher than the government wage structure, workers in local factories also demand the same. Local manufacturers are not against allowing FDI in the apparel sector but according to them foreigners should also invest in the backward linkage industry. Bangladeshi manufacturers are good enough to invest in basic garments and don’t want any competitor in these products. Our local manufacturers have built the apparel industry with great effort and over a long period of time. Any foreign investment would undercut their major competitive advantage – the low wages, which make our exports so competitive.
So FDI should be allowed — but selectively. Only those garments which are not basic items producers should be allowed. In fact the most important thing that the government could do is not just to attract FDI, but make the conditions favourable for all RMG factories in Bangladesh.
To do that the road from Chattogram will have to be widened at all points — so that it can really become a six-lane highway. The Chattogram Port must be made more efficient to facilitate faster loading and unloading of goods. The electricity sector must be made more efficient and cheaper to further improve competitiveness. All of these things will be of more help to facilitate quality FDI flows to Bangladesh RMGs in the medium to long term.
