Bangladesh’s Economy Faces Challenges as Fast Fashion Growth Slows, Calling for Diversification

Bangladesh is the beating heart of the global fast fashion business.

The clothes its factories export stock the shelves at H&M, Gap and Zara. Over three decades, this has transformed the country from one of the world’s poorest to a lower-middle income nation.

But its garment industry, worth $55bn (£42bn) a year, is now facing an unsettled future after weeks of protests toppled the government of Sheikh Hasina in August. Hundreds of people were killed in the unrest.

At least four factories were set alight, while manufacturers struggled to operate under a nationwide internet blackout. Already, three big brands, including Disney and US supermarket chain Walmart, have looked elsewhere for next season’s clothes.

The disruption is continuing. From Thursday, some 60 factories outside Dhaka are expected to be closed because of worker unrest. Staff have been protesting with various demands, including for better wages.

Recent events “will impact the confidence level of brands”, says Mohiuddin Rubel, a director at the country’s garments manufacturers and exporters association.

“And probably they might think – should we put all our eggs in one basket?” he says, noting rival garment-producing countries like Vietnam. Indeed, Kyaw Sein Thai, who has sourcing offices in both Bangladesh and the US, suggests the recent political unrest could result in a “10-20% drop in exports this year”. That’s no small amount when fast fashion exports account for 80% of Bangladesh’s export earnings.

Even before the events of the past few months, Bangladesh’s garment industry – and its economy – were not in good health. Child labour scandals, deadly accidents and the Covid-19 shutdown had all taken their toll.

Soaring prices had made manufacturing more expensive – but slowing demand meant you couldn’t sell for as much. This was especially bad for Bangladesh, which relies heavily on exports. As profits from exports shrank, so did foreign currency reserves.

There were other problems too: excessive spending on showpiece infrastructure projects had drained the government’s coffers. And rampant cronyism weakened its banks, as powerful businessmen with links to former Prime Minister Sheikh Hasina’s Awami League party failed to repay loans.

“It wasn’t benign neglect but a designed robbery of the financial system,” the country’s new central bank governor, Dr Ahsan Mansur, told the BBC in an recent exclusive interview.

Fixing this, Dr Mansur said, was his top priority, but he warned it would take years and the country would need more financial support, including another IMF bailout.

“We are in a difficult spot and we want to remain fully compliant in terms of servicing our foreign obligations, every penny of it. But we need some additional cushion for now,” said Dr Mansur.

Mahaburbur Rahman, whose family founded clothing manufacturing firm Sonia Group two decades ago, points out that the country’s falling reserves of foreign currencies alone are enough to dent confidence.

“They are concerned about how we will pay for imports of yarn from India and China if we don’t have enough dollars. Many of them are not even able to come to Bangladesh anymore to place new orders because they aren’t getting travel insurance,” Mr Rahman says.

But Bangladesh has a bigger problem at hand – the protests that ousted Ms Hasina were driven by students who were frustrated over the lack of well-paying jobs and opportunities.

While the clothing factories may have created millions of jobs, they don’t pay well. Some factory workers who spoke to the BBC said they struggled to survive on pay that was barely half the national minimum wage, which meant they were forced to take out loans to feed their children.

Many of them joined the student-led protests in recent months to demand better pay and conditions.

“We will settle for nothing less than a doubling,” union leader Maria said. “Wages have to reflect the increase in cost of living.”

The student protesters, though, are calling for a more radical shake-up of the jobs market.

Abu Tahir, Mohammad Zaman, Mohammad Zaidul and Sardar Armaan were all part of the demonstrations.

All unemployed for between two and five years, they tell the BBC that they are keen to work for the private sector but don’t feel as if they are qualified for the jobs that are available.

“[My parents] hardly understand how competitive the job market is. To be unemployed is a major source of pressure in my family. I feel belittled,” Mr Zaman says.

“We just get a degree, we are not getting the right skills,” says Mr Zaidul.

“The new adviser is an entrepreneur himself though, so we all feel more hopeful he’ll do something about this,” he adds, referring to the country’s interim leader, Muhammad Yunus. Mr Yunus won a Nobel Peace Prize for his pioneering work in micro loans.

Dr Fahmida Khatun of the Centre for Policy Dialogue think tank points out that diversifying the economy will be critical to meet the aspirations of educated youth – arguing that that would be no bad thing for the economy.

“No country can survive for a long time based on only one sector,” she says. “It will take you so far, but no further. There have been [diversification] attempts, but so far it’s only been in the books.”

A disused technology park outside the capital Dhaka offers evidence of this. Inaugurated in 2015, it was meant to be part of a nationwide initiative to create higher paid jobs and cut Bangladesh’s reliance on garment production.

It now sits abandoned – a reminder of the previous administration’s economic failures.

“This is the perfect example of the gap between what industry needs and what the government has provided,” says Russel T Ahmed, a software entrepreneur.

“Nobody asked us if we needed these parks. Bangladesh has been investing in physical infrastructure, but how much have we invested in human infrastructure? That is the raw material this industry needs.”

What the new government needs to do, says Dr Khatun, is remove bottlenecks like corruption and red tape to encourage foreign and private investment.

Mr Yunus has vowed to bring comprehensive reforms to the country’s economy and fix institutions that have, as Dr Khatun says, been “systematically destroyed” over the past few years.

He has a formidable task ahead – steadying the economy, delivering free and fair elections, and preventing government policymaking from being controlled by vested interests.

All of this has to be done as the country faces a raft of other problems: slowing global demand for the goods it makes, deteriorating relations with its giant neighbour and trading partner India, which is harbouring Ms Hasina, and climate change causing more intense cyclones in the flood-prone nation.
These challenges are as vast as the hopes many people have heaped on Mr Yunus’ shoulders.