Crisis in Bangladesh: A turning point for global apparel supply chains

Published: 2024-09-27

INSIGHTS

Gas crisis and political instability in Bangladesh, highlighted by Sheikh Hasina's resignation, have severely disrupted the country's RMG industry.
The crisis may shift supply chains, favouring competitors like India, Vietnam and Sri Lanka. Bangladesh's future depends on political stability, energy infrastructure improvements, and diversification efforts.

The gas crisis, along with the political turmoil in Bangladesh, including the stepping down of Prime Minister Sheikh Hasina, has created uncertainty that is further straining the industry and economy. This instability has disrupted not only the overall industry but also the textiles and apparel sector, and it is likely to push international buyers to consider alternative sourcing destinations, potentially adopting a ‘Bangladesh-plus-one’ strategy. This shift could lead to a significant loss of market share for Bangladesh's ready-made garments (RMG) sector. The countries that are major import partners of Bangladesh include the US, the UK, Germany, Canada, France, Spain, Italy, Belgium, Denmark, and Australia. Many of these countries are also investors in Bangladesh's apparel industry. The countries that have heavily invested in Bangladesh's apparel industry, such as the US, Germany, the UK, and Canada, are seriously considering sourcing products from other Asian nations, such as Vietnam, India, and Sri Lanka.

The ready-made garment (RMG) sector of Bangladesh has been the cornerstone of the country’s economy. The industry's contribution to Bangladesh's GDP is significant, with estimates suggesting that it accounts for around 18 per cent of the country's total GDP and was growing at a rate of about 6 per cent, according to IMF data. The official estimate for Bangladesh's GDP was $1.429 trillion at the end of 2023 in purchasing power parity terms.

The industry that has made a crucial contribution to rebuilding the country and its economy is none other than the RMG industry, which is now the single biggest export earner for Bangladesh. The country's apparel exports in 2023 reached a staggering figure of $47.5 billion, accounting for over 86 per cent of the total export earnings from the textiles and apparel industry combined. More than 290,000 registered manufacturing units employ 4.22 million workers in the RMG industry, with strong female participation (41 per cent), according to estimates, which has grown at a rate of about 7 per cent over the years.

Bangladesh remains the second-largest RMG supplier to the world after China. The countries that are lagging include Vietnam, Germany, Italy, and India.