RMG backward linkage industry faces hardship
It is heartening to know that Bangladesh RMG export growth has returned to positive territory, overcoming the C-19 led setbacks. Unfortunately, the backward linkage industry is yet struggling to survive, because of a sharp rise in raw material prices. Consequently, a number of accessories' factories have been shut down. Additionally, prices of raw materials for accessories and packaging items have started shooting up since last January.
However, over the last five months, prices of yarn increased to $3.5 from $2.5 per kg, polymer used to produce poly bags and hangers has jumped to $1,600 from $960 per tonne, and kraft paper to $1,400 from $880 per tonne. The prices of ink and chemicals have also increased. Even though the prices of these items have skyrocketed in the international market, garment manufacturers, and especially foreign buyers and retailers are hesitant to pay higher prices for these accessories. Quite understandably, the backward linkage industry is going through testing times.
Locally produced garment accessories and packaging items meet 95 per cent of the demand of the RMG sector. Some 10 per cent more can be supplied from the backward linkage industry if it goes into production at full capacity. Currently, there are about 1,800 factories producing garment accessories and packaging items in the country. They supply 40 types of products. The accessories and packaging manufacturing industry's investment now stands at around Tk35, 000 crore. About six lakh workers are engaged in the industry. If the industry stops operating, workers will lose their livelihood and RMG sector will experience a blow.
Unfortunately, though the backward linkage factories fall in the SME category most of them have not received any funds from the Tk20, 000 crore stimulus package announced by the government. Therefore, in the fiscal 2019-20, the accessories and packaging manufacturing sector's earning reduced to $5 billion in deemed exports while in the fiscal 2018-19, it was amounted to $7.5 billion.
Undeniably, our apparel sector continuously received uninterrupted supply of accessories and packaging items from domestic sources because of its strong backward linkage - even amid the pandemic last year.
Therefore, the importance of backward linkage industry is immense in our economy, since RMG yet remains the main export item of Bangladesh. If the backward linkage shrinks, the country's main export sector will have to rely on imports for huge quantities of accessories. There is also a risk for manufacturers to increase lead time as well as additional costs. This will negatively impact garment exports as well. Under these circumstances, it is vital to ensure fair price of accessories at all cost and ensure sustainability of the backward linkage industry.