If any country seems to be profiting from the trade war between Washington and Beijing, it is neither America nor China but Bangladesh. The introduction of 25 percent tariffs on Chinese imports and Trump’s threat of bringing more goods under the purview has forced manufacturers to look for production centers in nations other than China. And thanks to Bangladesh’s low wages, it is attracting a lot of interest from international investors.
A booming export destination
Bangladesh’s economy has been growing spectacularly over the past years. While in 2010, the country had a GDP growth rate of around 5.5 percent, the number hit 7.3 percent by 2017. Much of the economy’s strength comes from its very shrewd export strategy.
“It [Bangladesh] has grown fast on the back of these exports, chiefly the ready-made garment sector, which has been central to the country’s growth… Also important have been international remittances in part arising from its very enterprising people, but also from well-managed migration policies. Also, it’s important to note that Bangladesh has benefited indirectly from India’s successful economy,” Professor David Lewis, an academic from the London School of Economics and Political Science, said to the South China Morning Post.
The garment industry of Bangladesh is estimated to be around US$30 billion, accounting for 80 percent of all exports. The Ready-Made Garment (RMG) sector contributes close to 13 percent of the country’s GDP. The country is targeting to hit US$50 billion in RMG exports by 2021, taking its share of the global apparel market from the present 5 percent to 8 percent. According to a report by McKinsey, Bangladesh is projected to become a hotspot for apparel exports within the next five years.
While all this sounds good news when looking at the nation’s GDP, garment workers are unhappy with the state. The employees often work in terrible conditions and have to be content with extremely low wages. The country has almost 4 million garment workers who used to earn an average of US$63 per month. After huge protests from the trade unions, the government raised minimum wages to US$95. However, workers are still unhappy since the wages are unable to keep up with rising living costs.
But it is also true that the low wages actually help Bangladesh’s garment industry get more orders. Minimum wages in countries like Cambodia and Vietnam are often double, which gives Bangladesh a cost advantage over the Southeast Asian nations. If employee wages were to be raised significantly, the country could end up losing the cost advantage, eventually endangering the survival of the garment industry itself.
Bangladesh has been seeing record Foreign Direct Investment (FDI) inflows in recent times. “Factors such as sound economic growth, a young talented workforce, and the infrastructural development necessary to attract investments are visible in Bangladesh. So foreign investors have poured funds here, giving FDI a sharp rise, despite a global slowdown,” Kazi M Aminul Islam, Executive Chairman of the Bangladesh Investment Development Authority (BIDA), said in a statement (Dhaka Tribune).
According to data from BIDA, Bangladesh received US$3.61 billion in FDI last year, which is 67.94 percent higher than the investments it received in 2017. China was the top investor at US$1.03 billion. The Netherlands secured the second spot at US$692 million, while the United Kingdom came in third with investments of US$371 million.