US embassy cable - 05DHAKA4154

UNCLAS DHAKA 004154 
 
SIPDIS 
 
E.O. 12958: DECL: N/A 
TAGS: ECON, ETRD, EINV, BG, Garment Industry 
SUBJECT: Bangladesh Garment Exports Post-MFA 
 
 
1. Bangladesh Export Promotion Bureau reports that 
half yearly (January - June 2005) ready made garment 
(RMG) exports have increased by six percent (from 
$3,118 to $3,302 million) compared to the same 
period in 2004. These results reflect higher volumes 
at lower prices and mask variances among RMG 
sectors. 
 
2.  The value of knit RMG exports increased 25% to 
$1,420, whereas the woven RMG export decreased by 4% 
to $1,781.  Knit RMG exports are gaining momentum 
because backward linkage industries are providing 
80% of the raw materials (bypassing Bangladesh's 
weak and costly port infrastructure), whereas, in 
the case of woven, it is 30%. 
 
3. Exporters attribute the increase to higher 
volumes, which have offset a significant drop in FOB 
prices.  Overall, Bangladesh has not yet seen the 
loss of market share that many had predicted; 
however, one of the leading RMG exporters recently 
told the Acting DCM that the lower prices had cut 
his margins to the minimum.  The company is barely 
surviving, but expects better days in the near 
future, he said.  The Secretary of the Bangladesh 
Garments Manufactures and Exporters Association 
(BGMEA) told the Embassy Economic Specialist that 
the rumor of safeguards against certain Chinese RMG 
items is bringing some buyers back to Bangladesh 
again. 
 
4.  Exports of RMG products, which account for over 
70% of Bangladesh's total exports, are facing major 
competition from Chinese products, especially at the 
low end.  Many buyers, however, continue to source 
from Bangladesh for several reasons: i) buyers want 
to source from diversified markets to reduce risk; 
ii) consumers still consider Bangladeshi apparel 
products a good choice; and iii) manufactures are 
lowering their prices to meet competition and 
survive in the market.  Moreover, ADB assistance to 
the current Chittagong port and proposed private 
operation of the New Mooring container terminal will 
begin to address infrastructure weaknesses that add 
to the cost of Bangladesh RMG goods. 
 
5.  Comment:  Although early results are positive, 
it is still too early to say how the Bangladesh RMG 
sector will perform post-MFA over the medium and 
long term.  Thus far, however, industry investment 
and exporters' efforts to create backward linkages, 
coupled with competitive pricing and a reputation 
for meeting social compliance requirements have 
enabled the industry to hold its own in the new 
competitive environment.  End Comment. 
 
Chammas