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    Letter of Submission

    Date: 23th June 2013

    To

    Ms. Nilufar Sultana

    Lecturer

    Department of Finance

    Faculty of Business Administration

    Subject: Submission of assignment on Contribution of Garments Industry in Bangladesh

    Economy.

    Dear Madam,

    Here we are submitting our assignment on Contribution of Garments Industry in

    Bangladesh Economy prescribed by you in your course. For this Purpose, we have gone

    through internet, different books, articles, journals, interview of authorities and

    employees of the respective organizations and class lecture sheets for the relevant

    information of the assigned topic.

    Please call me for any further information at your convenient time and place.

    Yours truly,

    On behalf of Group Members

    Mohammad Abdul Halim

    Ph: 01815949285

    http://www.puc.ac.bd/BS/profile_NilufarSultana.htmlhttp://www.puc.ac.bd/BS/profile_NilufarSultana.htmlhttp://www.puc.ac.bd/BS/profile_NilufarSultana.html
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    Acknoledgement

    For last 40 years, the RMG industry started developing in Bangladesh primarily as an

    export-oriented industry although; the domestic market for RMG has been increasing fast

    due to increase in personal disposable income, increase in per capital income and change

    in life style. The sector rapidly attained high importance in terms of employment, foreign

    exchange earnings and its contribution to Real GDP. RMG industry of Bangladesh now

    accounts for over 76% of the country's total export earning which is 13% of the total

    GDP. The success of readymade garment exports from Bangladesh over the past two

    decades has crossed the most optimistic expectations. The paper reviews the history of

    our cloth Industry, present condition of RMG sector, export earning in different fiscal

    year, contribution to the GDP, social impact of this sector, and the opportunities as well.

    Here we have also mentioned the problems and the prospects about the RMG sector of

    our country.

    Table of contents

    01. INTRODUCTION...............05

    02. DISCUSSION..05

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    2.1 Garments Industry in Bangladesh..

    06

    2.2 History of our cloth Industry..06

    2.3The Present Scenario of RMG Industry in Bangladesh .....06

    2.4 Export 06

    2.5 Export income of different fiscal years..08

    2.6 Contribution of the RMG Industry in terms of GDP ....11

    2.7 Social impact of RMG Sector.. 16

    2.8 Problems of RMG Sector ..17

    2.9 Safety Needs..............................................17

    2.10 Prospects of RMG Sector ...18

    2.11 Challenges of RMG Industry...20

    03. CONCLUSION .......21

    01. INTRODUCTION

    The tremendous success of readymade garment exports from Bangladesh over the last

    two decades has surpassed the most optimistic expectations. Today the apparel export

    sector is a multi-billion-dollar manufacturing and export industry in the country. The

    overall impact of the readymade garment exports is certainly one of the most significant

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    social and economic developments in contemporary Bangladesh. With over one and a

    half million women workers employed in semi-skilled and skilled jobs producing

    clothing for exports, the development of the apparel export industry has had far-reaching

    implications for the society and economy of Bangladesh

    02. Literature Review

    2.1 Garments Industry in Bangladesh:

    Like other 3rd world countries Bangladesh is a developing country. Her economic

    development depends firstly on Agriculture and secondly on Industry. Although

    Bangladesh is not developed in industry, it has been enriched in Garment industries in the

    recent past years. In the field of Industrialization garment industry is a promising step. It

    has given the opportunity of employment to millions of unemployed, especially

    innumerable uneducated women of the country. It is making significant contribution in

    the field of our export income.

    2.2 History:

    Once upon a time the cloth of Bangladesh achieved worldwide fame. Maslin and Jamdani

    cloth of our country were used as the luxurious garments of the royal figures in Europe

    and other countries. The British rulers in India didnt develop our cloth industries at all.

    Rather they destroyed them and imported cloths from England. After the emergence of

    Bangladesh radical change has come to our garment sector. Garment industries started

    working from the 10's of the late century.

    2.3 Present Scenario:

    After the emergence of Bangladesh radical change has come to our garment sector.

    Garment industries started working from the 10's of the late century. At present there are

    about 3000 garment industries in the country and 75 percent of them are in Dhaka. The

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    rest are in Chittagong and Khulna. These Industries have employed fifty lacks of people

    and 85 percent of them are illiterate rural women. About 76 percent of our export earning

    comes from this sector. The RMG workers received USD 315.25 million as their wage in

    FY 2002. This purchasing power contributed significantly to the growth of the economy

    through its multiplier impact in terms of consumption expenditure and savings.

    2.4 Export:

    To about 30 countries around the world, Bangladesh presently exports ready-made

    garments, with over 45% to USA, 50% to the countries in EU and 3% to Canada and rest

    to the other countries of the world. Bangladesh is known in these countries as -

    Bangladesh isasmall country with a strong presence.

    Rank Origin Amount (Million US$) Rate of change

    (%)

    2004 2005 2006 2004/05 2005/06

    World 66,875 70,811 73,393 5.89 3.65

    1 China 10,723 16810 19868 56.77 18.19

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    2 Mexico 6,845 6,230 5,448 -8.99 -12.55

    3 Indonesia 2,402 2,882 3,675 19.99 27.50

    4 India 2,277 3 ,059 3,242 34.31 6.00

    5 Vietnam 2,506 2,665 3,158 6.37 18.49

    6 Hong Kong 3,878 3,524 2,817 -9.13 -20.08

    7 Bangladesh 1,872 2,268 2,809 21.17 23.858 Honduras 2,742 2,685 2,518 -2.09 -6.24

    9 Cambodia 1,418 1,703 2,131 20.08 25.17

    10 Philippines 1,765 1,822 1,999 3.21 9.70

    11 Thailand 1,823 1,833 1,859 0.60 1.39

    12 Sri Lanka 1,553 1,653 1,687 6.46 2.03

    13 Guatemala 1,947 1,817 1,667 -6.66 -8.28

    14 Dominican Republic 2,036 1,831 1,535 -10.09 -16.14

    15 Italy 1,585 1,520 1,474 -4.12 -2.98

    16 Pakistan 1,147 1,273 1,427 10.99 12.11

    Note: Knit and woven garments are defined as commodities with HS codes of 61 and 62.

    Sources of data: U.S Dept. of Commerce, Bureau of Census by World Trade Atlas.

    Table: Region-wise Share of RMG Export

    Year Export share

    to USA

    Export share

    to European

    Countries

    Combined

    Share of USA

    & EU (%)

    Export Share

    of Other

    Countries (%)

    2001-2002 42.67 55.43 98.10 1.90

    2002-2003 38.02 57.12 95.14 4.862003-2004 28.64 65.42 94.06 5.94

    2004-2005 30.64 64.24 94.88 5.12

    2005-2006 33.67 49.77 83.43 16.57

    Position of Bangladesh is exporting product in USA is not very satisfactory but this

    situation is better than any other condition of the previous time. But if our Government

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    take some essential law and break out the wall of biasness then the position of

    Bangladesh in Garments sector would be hope to better. Country's apparel export has

    been growing on an average at the rate of 25% for last several years. The country,in 2004

    ranked 7th largest apparel exporter to the USA the EU.

    2.5 Export income of different fiscal years:

    Items of exportable garments:

    Among the garments of Bangladesh are shirt, pajama, jeans-pant, jacket, trouser, hats,

    laboratory coat, sweater, pullover, jumper, jacket, trousers, gloves, sports dress,

    nightdress etc.

    MAIN APPAREL ITEMS EXPORTED FROM BANGLADESH (in Million. US$)

    Year Shirt T-Shirt Trousers Jackets Sweater

    1993-94 805.34 225.90 80.56 126.85 -

    1994-95 791.20 232.24 101.23 146.83 -

    1995-96 807.66 366.36 112.02 471.73 70.41

    1996-97 759.57 391.21 230.98 309.21 196.60

    1997-98 961.13 388.50 333.28 467.19 296.29

    1998-99 1043.11 471.88 394.85 393.44 271.7

    1999-2000 1021.17 563.58 484.06 439.77 325.07

    2000-2001 1073.59 597.42 656.33 573.74 476.87

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    2001-2002

    (Jul-Mar)

    666.18 403.98 449.18 296.82 362.23

    Source: BGMEA.

    In 1977-78 fiscal years Bangladesh exported forty thousand shirts in Germany and earned

    one million U.S. dollar. At the beginning of the 80's this industry flourished rapidly. In

    1983-84 fiscal years the income from garments raised to 6 corers 50 lakh US dollar. In

    1998-99 it became 420 corers U.S. dollar. By 2003-2004 the factories multiplied three

    times. Simultaneously the export has also increased. The amount of export income in

    2003-2004 increased to 568 corers US dollar. Starting in late seventies, the apparel

    industry of Bangladesh now accounts for over 76% of the country's total export earning.

    Country's apparel export rose to US$2809 million in 2006 from a mere US$6 million in1981.

    Year Export (in US $ million) Percentage change

    1991 92 624.16 32.49

    1992 93 866.82 38.88

    1993 94 1182.57 36.43

    1994 95 1445.02 22.19

    1995 96 1555.79 7.67

    1996 97 2228.35 43.47

    1997 98 2547.13 14.11

    1998 99 3001.25 17.83

    1999 00 3781.94 26.01

    2000 01 4019.98 6.29

    2001 - 02 4349.41 8.19

    2002 03 4859.83 11.74

    2003 04 4583.75 5.68

    2004 05 4912.12 7.21

    2005 06 5686.09 15.83

    2006 --07 6745.40 15.07

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    2007--08 7621.62 11.4

    2008--09 8460.09 13.8

    2009--10 9835.59 16.6

    2.6 Contribution of the RMG Industry:

    In terms of REAL GDP:

    In terms of GDP, RMGs contribution is highly remarkable; it reaches 13 percent of

    GDP which was only about 3 percent in FY91. This is a clear indication of the industrys

    contribution to the overall economy. It also plays a pivotal role to promote the

    development of other key sectors of the economy like banking, insurance, shipping, hotel,

    tourism, road transportation, railway container services, etc.

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    There are about 2500 export oriented ready-made garment industry in Bangladesh those

    are clustered over mainly Dhaka and Chittagong. Such distribution offers buyers

    advantage to choose the right manufacturers and exporters, throughout the year, with

    minimum effort. It is a huge surprise that the top foreign currency earner that earns

    annually on average 76 per cent of the country's hard currencies from exports and

    employs the greatest number of workers in the organized garments industrial sectors,

    such a monolith should be shown no concern when the government's long awaited

    package program for the recession hit export-oriented industries was unveiled last week.

    It is, as if, the policy planners are obsessed about molehills while the mountain remains

    ignored. Following is a chart to show the contribution of numerous industries in

    Bangladesh:

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    Source:

    Export

    Promotion

    Bureau,

    Bangladesh

    (Value in

    Million US$)

    FIGURE

    Banking and Insurance

    Growths of the RMG sector and the related activities have contributed a lot to the robust

    growth of the financial sector in Bangladesh. In FY 2002 the banking sector earned about

    37 million dollars from business with the RMG sector in the form of interest and charges

    and L/C charges. More than one-tenth of the commercial banks asset portfolio belongs to

    the RMG and textile sector in the country [Appendix table 2]. In FY 2001 commercial

    banks lent Taka 4400 crore to the textile sector, while the amount lent to the woven-RMG

    sector was Taka 812 crore. The export financing business of the commercial banks is

    largely dependent on the textile and RMG sectors. The RMG sector received Taka 2175

    crore as export-finance in FY 2001 which was 46.14% of the total export financing

    portfolio of the banks. A World Bank7 survey revealed that almost all firms (98%) are

    the clients of the commercial banks for working capital and procurement of machines and

    equipment (57%).

    The RMG sector has also contributed to the growth of the countrys insurance sector. On

    average, every year the premium paid by the RMG sector to the insurance companies was

    Year Product Export %

    2008-09

    RMG 12347.77 79.33

    Frozen

    Food

    454.53 2.92

    Tea 12.29 0.08

    Raw Jute 148.17 0.95

    Chemical

    Product

    421.58 2.71

    Jute Goods 373.18 2.40

    Leather 177.32 1.14

    Agricultura

    l Product

    122.3 0.79

    Others 1508.06 9.69

    Total 15565.19 100.00

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    about 6 million dollars. All firms have their machines and plants insured and,

    additionally, 87% of importers of input and 15% of the RMG exporters get their

    imports/exports insured.

    Shipping and Logistics

    The RMG sector has contributed to the shipping business in Bangladesh and stimulated

    setting up of several container yards, expansion of port facilities to handle large container

    carrying trains, increase of cargo handling and storage facilities. RMG manufacturers

    also extensively use services of Clearing & Forwarding Agents for the purpose of

    customs clearance of inputs and finished goods. It is estimated that port usage fees earned

    from the RMG sector account for more than 40% of the income of the port authority.

    RMG sector contributed about US$65 million in FY2002 to earnings of the Shipping

    business of the country by way of port charges, C&F Agents commissions, freight

    charges, forwarding charges etc.

    Transport Communication

    The growth and development of inland transport services to a considerable extent owe to

    the growth of the RMG industry. Both wheel transport service and railway service are

    widely used by RMG sector for activities related to manufacturing and cargo movement.

    The concept ofcovered van emerged in Bangladesh for safe transportation of the RMG

    products in particular. In 2002 the inland transport industry received about 27.3 million

    dollars as revenue from the RMG sector.

    Contribution to Government Exchequer

    The RMG sector contributes to the government exchequer both directly and indirectly. In

    FY 2002 the sector paid 6.3 million dollars as stamp and postage, license renewal fee etc.

    Payments made for visa form, license form, GSP form and other forms to the Export

    Promotion Bureau amounted to 58.85 million dollars in FY2001 [See Appendix Table 6

    and 7]. The sector also paid USD 2.4 million to the government as direct taxes in FY

    2002.

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    Professional Services

    The RMG sector extensively uses professional services from CA firms, legal agencies,

    and business consultants. In FY 2002 total payment for professional services is estimated

    at 3.61 million dollars.

    Engineering Sector

    The RMG industry paid 14.2 million dollars to the engineering sector which included

    payments to repairing and maintenance service industry (USD 4.29 million), electrical

    engineering (USD 4.38 million), transport vehicle maintenance service ( USD 2.87

    Million), and machine tools service (USD 2.63 Million).

    Utility Services

    Payment of Electricity bill by the RMG industry is estimated to be 14.74 million dollars

    in FY2002. Utility payments for gas, WASA etc. amounted to an additional 3.75 million

    dollars.

    Information and Communication Technology

    The RMG sector also plays a catalytic role in the growth of the countrys ICT sector. The

    services consumed by the RMG industry generated revenue for the ICT sector. Payments

    for ICT services which include communication, hardware and software services is

    estimated at 9.88 million dollars in FY 2002.

    Real Estate

    Demand for real estate development by the garment industry to accommodate offices and

    factories of over 3400 garment units has generated a lot of activities in the Construction

    Industry. The RMG industries paid approximately 26.24 million dollars as factory, office

    and garage rent in FY 2002.

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    Hotel and Tourism

    About 1000-1500 overseas apparel buyers and their representatives visit Bangladesh

    every year for business purpose. In FY2002 the RMG industry created a business ofapproximately 4.42 million dollars for the countrys tourism industry.

    Waste Recycling Industry

    Approximately 0.2 million people are engaged in waste (mainly, the waste out prices of

    fabrics) recycling industry of the country which get their materials from the RMG

    industries. With these waste materials, they are making stuff toys, patterns, quilts,

    cushions etc.

    Emerging Consumer Market

    The 1.6 million workers in the industry have created a large demand for consumer goods.

    A regular source of earning increases the basic consumption needs such as improved diet,

    better healthcare, improvements in family utensils and housing conditions etc. The sector

    has created an increasing demand for consumption of low cost commodities, cosmetics

    items, dresses, footwear, fast food and other products. A whole industry has been created

    to service this growing demand and created employment opportunities for hundreds of

    thousands of people.

    2.7 SOCIAL IMPACTS OF THE RMG SECTOR

    Women Empowerment

    It is well recognized that womens participation in income generation activities lends

    them a better status within the family and provides them with considerable freedom. A

    job ensures equitable access to household resources (nutrition) and larger investment on

    female human capital (health and education). .At present, this sector has created highest

    employment opportunity in the country where nearly 2 million women are working.

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    As a result the distress, poor, divorced and suppressed women of the

    country now dont think themselves as helpless.

    Savings

    Regular earning enables a large number of the garment workers to go for some savings.

    Workers also get family pension schemes etc. Thus they create savings.

    Child Labor

    Bangladesh responded positively to the international requirement of elimination of child

    labor from the garments sector. Under the Memorandum of Understanding jointly signed

    by BGMEA, ILO, UNICEF and US Embassy, Dhaka on 4 July 1994, Bangladesh

    pledged to eliminate child labor by November 1996. Accordingly, it took necessary

    measures to do so. The laid-off children were provided financial support so that they

    could attend schools until they attain the age of 15. BGMEA and some NGOs jointly

    operate a number of schools for these children

    Population Control

    Employment opportunities especially for women created positive impact on family

    planning and population control in the country. Independent working-women are getting

    more conscious about the advantage of a small family, and they are adopting modern

    family planning methods. Adolescent girls are working to avoid early marriage as they

    have their own source of income and are self-dependent.

    2.8 Problems Regarding With RMG:

    The garment industry of Bangladesh has been the key export division and a main source

    of foreign exchange for the last 25 years. National labor laws do not apply in the EPZs,

    Leaving BEPZA in full control over work conditions, wages and benefits. Garment

    Factories in Bangladesh provide employment to 40 percent of industrial workers. But

    Without the proper laws the worker are demanding their various wants and as a result

    Conflict is began with the industry, such as,

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    Low working salary is another vital fact which makes the labor conflict.

    Worker made strike, layout to capture their demand. Some time bonus And the

    overtime salary is the important cause of crisis

    Insufficient government policy about this sector is a great problem in Garments

    Company.

    lack of marketing tactics

    absence of easily on-hand middle management a small number of manufacturing

    lack of training organizations for industrial workers, managers and supervisors,

    managers, autocratic approach of nearly all the investors

    fewer process units for textiles and garments

    sluggish backward or forward blending procedure , incompetent ports entry/exit

    complicated and loading/unloading takes much time

    time-consuming custom

    2.9 Safety Needs

    Safety need for the worker is mandatory to maintain in all the organization. But without

    The facility of this necessary product a lot of accident is occur incurred every year inMost of the company. Some important cause of the accident are given below-

    Routes are blocked by storage materials

    Machine layout is often staggered

    Lack of signage for escape route

    No provision for emergency lighting

    Doors, opening along escape routes, are not fire resistant.

    Doors are not self-closing and often do not open along the direction of escape.

    Adequate doors as well as adequate staircases are not provided to aid quick exit

    Fire exit or emergency staircase lacks proper maintenance

    Lack of proper exit route to reach the place of safety

    Parked vehicles, goods and rubbish on the outside of the building obstruct exits to the

    open air

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    Fire in a Bangladesh factory is likely to spread quickly because the principle of

    compartmentalization is practiced

    Lack of awareness among the workers and the owners

    But now the situation is much improved and we found, all the surveyed garments are

    fulfilling the requirement of emergency exit. It is provided in all the cases, signage is

    present and fire fighting equipments are up to date, a departure from the past. Even fire

    drill is held once in a month.

    2.10 Prospects of the RMG Industry

    Despite many difficulties faced by the RMG industry over the past years, it continued to

    show its robust performance and competitive strength. Factors like price competitiveness,

    enhanced GSP facility, market and product diversification, cheap labor, increased

    backward integration, high level of investment, and government support are among the

    key factors that helped the country to continue the momentum in export earnings in the

    apparel sector. Some of these elements are reviewed below:

    Market Diversification

    Bangladeshi RMG products are mainly destined to the US and EU. Back in 1996-97,

    Bangladesh was the 7th and 5th largest apparel exporter to the USA and European Union

    respectively. The industry was successful in exploring the opportunities in markets away

    from EU and US. In FY07, a successful turnaround was observed in exports to third

    countries, which having a negative growth in FY06 rose three-fold in FY07, which

    helped to record 23.1 percent overall export growth in the RMG sector. It is anticipated

    that the trend of market diversification will continue and this will help to maintain the

    growth momentum of export earnings.

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    Product Diversification

    In the globalize economy and ever-changing fashion world, product diversification is the

    key to continuous business success. It is clear that value addition accrues mostly in the

    designer items, and the sooner local entrepreneurs can catch on to this trend the brighter

    be the RMG future.

    Backward Integration

    RMG industry in Bangladesh has already proved itself to be a resilient industry and can

    be a catalyst for further industrialization in the country. If Bangladesh wants to enjoy

    increased market access created by the global open market economy it has no alternative

    but to produce textile items competitively at home through the establishment of backward

    linkage with the RMG industry.

    Flow of Investment

    It is important to have significant flow of investment both in terms of finance and

    technology. However further progress would be necessary to improve and sustain

    competitiveness on a global scale.

    Policy Regime of Government

    Government of Bangladesh has played an active role in designing policy support to the

    RMG sector that includes back-to-back L/C, bonded warehouse, cash incentives, export

    credit guarantee scheme, tax holiday and related facilities. The reduced tax rates and

    other facilities are likely to have a positive impact on the RMG sector.

    Labor Productivity

    In Bangladesh, the garment workers are mostly women with little education and training.

    Bangladesh must look for ways to improve the productivity of its labor force if it wants to

    compete regionally if not globally.

    Research and Training

    The country has no dedicated research institute related to the apparel sector. RMG is

    highly fashion oriented and constant market research is necessary to become successful in

    the business. A facilitating public sector role can be very relevant here.

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    2.11 Challenges of RMG Industry:

    Both external and internal factors contributed to the phenomenal growth of RMG sector.

    One external factor was the application of the GATT-approved Multifibre Arrangement

    (MFA) which accelerated international relocation of garment production. Under MFA,

    large importers of RMG like USA and Canada imposed quota restrictions, which limited

    export of apparels from countries like Hong Kong, South Korea, Singapore, Taiwan,

    Thailand, Malaysia, Indonesia, Sri Lanka and India to USA and Canada. On the other

    hand, application of MFA worked as a blessing for Bangladesh. As a least developed

    country, Bangladesh received preferential treatment from the USA and European Union

    (EU). Initially Bangladesh was granted quota-free status. To maintain competitive edge

    in the world markets, the traditionally large suppliers/producers of apparels followed a

    strategy of relocating RMG factories in countries, which were free from quota restrictions

    and at the same time had enough trainable cheap labour. They found Bangladesh as a

    promising country. So RMG industry grew in Bangladesh. The application of MFA had

    negative impact on many garments exporting countries. The countries, which were

    adversely affected by quotas under MFA, created pressure to discontinue MFA by

    integrating textile and clothing industries into GATT system. As a result, the Uruguay

    Round negotiations envisaged the phasing out of MFA by the end of 2004. With the

    phasing out of MFA, the position of Bangladesh in the world market will change as all

    countries including those under quota restrictions, will enjoy quota free status.

    Bangladesh will have to compete with a larger number of established and powerful

    suppliers of readymade garments. Bangladesh has taken some steps to face the new

    challenges. Such steps include removing infrastructural bottlenecks, building additional

    supply capacity, use of cost reduction strategy, and increase in value-addition through

    backward integration.

    03. Conclusion:

    Garments industry operators in Bangladesh are feared of the present situation. The

    regaining of this competitiveness involves the government extending an adequate

    package program of assistance to the garments sector at the soonest. Much harm has been

    already caused to this sector from not extending such assistance to it a lot earlier. But

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    there is still opportunity for government to limit damages in this sector by the earliest

    announcement of a package program that should include at least ten per cent cash

    assistance, withdrawal of value added tax (VAT), reduction of port charges, supply of

    diesel at subsidized prices to run generators, decreasing interest rate on credits to a single

    digit, allowing the rescheduling of classified loans on longer terms basis, etc.

    Bibliography

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