Bangladesh needs to lower apparel production margin costs through raising efficiency, manufacture high-value added items with higher profit margins, capitalise on evolving geopolitical dynamics and thrive through heightened competition after LDC graduation.
The country's ready-made garment sector will lose trade preferences that offer substantial profit margins and the government supports, like bonded warehouses and cash incentives once the country graduates from least developed country status.
Dr. MA Razzaque, chairman of Research and Policy Integration for Development (RAPID) made the disclosure at a programme presenting findings of a study titled "Can Bangladesh Absorb LDC Graduation-Induced Tariff Hikes to European market. The programme was held on Sunday in a city hotel.
Sharifa Khan, senior secretary of Economic Relations Division, and Tapan Kanti Ghosh, senior secretary in the Ministry of Commerce, among others, spoke at the seminar.
Demand for Bangladesh's top 50 RMG products in the EU and the UK is highly elastic, Razzaque said, adding for most products in most countries, their own-price elasticities are between 3 and 4 in absolute value.
"Though some of the top 50 local RMG products have high markups (profit margins), for most of them the markup is between 2 and 4," he noted. He said after graduation tariff hikes will result in a significant shock to Bangladesh's exports.
As per UNCTD Bangladesh's potential export losses to be between 5.5 and 7.5 per cent; the WTO suggests a decline of more than 14 per cent.
In 2022-23, Europe-bound merchandise from Bangladesh amounted to $30.5 billion, of which apparel exports comprised $28.6 billion. The EU and the UK account for more than 60 per cent of Bangladesh's garment exports.
Currently, as an LDC, Bangladesh enjoys duty-free access to the EU for all exports, barring arms and ammunition.
The sector should consider raising the mark-up on current RMG products by capitalising on cost efficiency, improvements in infrastructure, power, utilities, skilled labour and management, modern technologies, and advanced supply-chain management.
It should explore opportunities to diversify RMG product portfolio by focusing on high-value-added products that inherently offer higher profit margins, Razzak said.
The garment sector should also capitalise on the evolving geopolitical landscape, he added.
"Many European countries are increasingly adopting the 'China plus one' policy to diversify their supply chains. Bangladesh can proactively try to secure a share of these expanding markets," he mentioned.
Bangladesh holds a significant market share in the apparel sectors of both the EU and UK.
He, however, said the introduction of tariffs on its imports could lead to a general rise in garment prices across these markets, and as a result higher prices could potentially assist Bangladeshi exporters in cushioning the impact of preference erosion.
As China's market share diminishes, it opens avenues for other nations, including Bangladesh, to fill the void, he further said.
About challenges after LDC graduation, Razzaque said concerns regarding safety, compliance, and environmental matters should be critically evaluated in the post-LDC era.
ERD secretary Ms Khan stressed on enhancing productivity, quality, and automation, saying price is one of the major factors and Bangladesh has no other choice but to compete.
Ghosh, said price competitiveness in the international market matters, and it depends on how Bangladesh reduces production costs.
