Nike, Adidas frantically looking for countries to set up factories, a golden opportunity for us
They can be brought to Bangladesh through the Taiwanese. Why can't we attract them while they are frantically looking for countries to set up factories? They can’t go to Thailand; the wages are high. They can't go to Laos, it's landlocked. They can't go to Cambodia; the population is very small. Nike and Adidas cannot even go to Turkey, which is a leader in the footwear industry, because of the high cost of labour
I have at least 50 years of experience in the leather goods industry. I will talk about what I have learned from there. I started my journey in 1972 when the economy was in turmoil. Those were the days of permits and licenses. Half of my time was spent wandering the corridors of the Secretariat. I spent half my time lobbying with the government to make the business environment more liberal.
The prime minister also spoke about export diversification. She has been repeatedly speaking about it. People have been talking about export diversification for a long time as well. But for some reason, it didn't happen. Something is blocking it.
In this discussion, Dr Abed Khan said, "When there is a lot of room for profit in the local market, why to bother focusing on exports." I beg to differ on that. We can do both at the same time. We can look at both the domestic and export markets at the same time. Both markets have their advantages.
You see, if we want to make any business successful, we need to grow that business. A business will die without growth. Moreover, there are limitations in expanding the market within the country. The local market is not completely open and it has a limit. That is why we need to look outside of the local market, which is bigger. The same can be seen in the western world. Let's talk about Mercedes Benz. Only 30 per cent of their products are sold in Europe. The remaining 70 per cent is exported. Because their country's market is small.
In the same way, we need to increase the size of our business. Why? Because, I think, the most important thing for any LDC or developing country is to create employment. You need to create jobs. That would be the easiest way to alleviate poverty. And the private sector has to do that. Why? Because the private sector creates employment.
You need to create jobs and you need industries to create employment. It can be a manufacturing industry or it can be a service industry – it can be any industry. The service sector contributes 51 per cent to the GDP. So we need industries. Because not everyone is skilled.
Another major weakness of ours is human resources. Thousands of foreigners are working in Bangladesh. According to official estimates, they are remitting $5 billion from Bangladesh every year. Then, unofficially, they are taking another $4-5 billion. A country like Bangladesh — in fact, any country for that matter — cannot allow the foreign currency to go out like this. So we have to diversify. We have to focus on exports.
Now let's come to the leather industry. We should have been at a different level. Let me give you some figures. At present, the global market for footwear alone is $365 billion. By 2040, it is estimated by the world footwear association that it is going to touch half a trillion dollars. If we could capture even one per cent of this export market, our shoe market would be $4 billion. That's a lot of money.
The second thing is that this industry requires huge manpower. The garment industry is two-dimensional — length and width. Whereas shoes are three-dimensional — length, width and depth. Because of this, it takes a lot of tooling. As a result, tooling costs more. This requires a lot of technology transfer. That is why we have set up a training centre, where we train completely unskilled workers and we teach them the know-how. Because, as is the case in the garment industry, if someone teaches him to operate a sewing machine as soon as he arrives, the work is learned, which is not possible in the footwear industry. Here you have to cut the leather. It is a natural product. Two pieces of leather are not the same. Each piece of leather is different. In short, you need a lot of technology.
China is leading the footwear industry at present. Ten years ago, China accounted for 70-80 per cent of global leather production. Now it has come down to 60 per cent. Still, they are the biggest player. Next, there is Vietnam. They started their first factory in 1990. We also set up the first factory in 1990. Vietnam has over 3,000 footwear factories. And we are still stuck with about 200-300 factories. Vietnam's footwear exports are somewhere between $16-17 billion. But we are stuck at $1 billion. Indonesia is in the third position in this sector. This is followed by India and they are moving very fast in this sector. India has finally come to realize that it is important to focus on the labour-intensive industry, not just on high-tech and IT.
You have to create wealth even in the domestic industries. If the population remains poor, what future does the domestic industry have? Where is people's purchasing power? So both are important.
Now, why is the leather industry not doing as well as the RMG sector? Another is the image problem. Yes, our image is much better than it was 15-20 years ago. We don't get the benefits that the garment industry gets. I am not against it — but other export-oriented sectors should be given the same opportunity. The garment industry gets a lot of help from the government. We are not getting equal opportunities.
Secondly, for the footwear industry to take off, we need joint ventures. If you analyse the footwear industry of China and Vietnam, you will see that they are all joint ventures. The shoe industry of the two countries was developed by a joint venture of the Taiwanese. I also have a joint venture with the Taiwanese myself. I asked him, "Why did you come to Bangladesh?" He replied, "I have a factory in China, I have a factory in Vietnam. But I understand that there is no future in China. Because the Chinese government is no longer interested in the footwear industry, the leather goods industry. They are now interested in the high-tech industry. Moreover, the one-child policy has led to a labour crisis in China. Although two children are now allowed, most Chinese do not have more than one child.
So now we have a golden opportunity. This opportunity must be seized. We now have to set up factories with big companies. We have to take joint initiative with Nike and Adidas. Even today, big companies like Nike and Adidas do not invest a single dollar in an industry. They just give you work orders and you make the product.
They can be brought to Bangladesh through the Taiwanese. Why can't we attract them while they are frantically looking for countries to set up factories? They can't go to Thailand; the wages are high. They can't go to Laos, it's landlocked. They can't go to Cambodia; the population is very small. Nike and Adidas cannot even go to Turkey, which is a leader in the footwear industry, because of the high cost of labour. Even Turkish investors want to come to Bangladesh. But they are not coming. Where is the problem?
I keep on telling the government that it is not only labour-intensive and capital-intensive, but also very land-intensive. This industry takes a lot of land space. There just needs to be a special economic zone for the footwear industry. It can be anywhere, including North Bengal, because now the communication is improved. There will be some logistical problems, but they can be solved. And the logistics problem is not just in the footwear industry but in all industries.
It can be a fantastic export diversification. We cannot be equal to the garment industry, because clothing is cheaper than shoes. However, the average price of a pair of shoes is about $15, compared to that, clothing is much cheaper. So the more shoes are produced, the more the export income will increase.
So, first of all, the land problem has to be solved. Then, we have to ensure similar benefits as RMG. There should be the same export policy for all industries. Other sectors cannot have step-motherly treatment. RMG is the favourite child of the government. But the government has other sectors as well. They also need to be taken care of.
Next, special economic zones need to be set up. Fortunately, our prime minister is extremely leather and footwear oriented. I have seen it with my own eyes. So we are getting a lot of help from the current government.
If Active Pharmaceutical Ingredients(API) can get a separate economic zone, why not the footwear industry? The shoe industry is even more labour-intensive. And the issue of training can also be solved. If joint ventures are taken, foreign partners will bring the technology. There is no reason to worry about it.
But the environment needs to be created. How to create an environment? Give them the land. Give them the facilities, incentives. Lead time is crucial. Shoes are very fashionable items. Two types of shoes are worn in winter and autumn.
But I'm not worried about that. We just need partners for joint ventures. That's the only way to do it. China has done it. Vietnam has done the same. If Nike, Adidas can go to Indonesia, then why can't they come to Bangladesh?
But I'm not worried about all the macroeconomic problems. My thoughts are on the basics. Give us land, give us special economic zones. I have said this many times. But somehow our words are lost in the bureaucracy. Now I don't understand why I have to pay 20 per cent tax for technology transfer. It has to go.
Now is the right time to do these things. Because before Covid, big foreign buyers like Adidas didn't even need to reply to our emails. But now they are showing a lot of interest. Because they don't want to put all the eggs in one basket. So far, all their eggs have been in the basket of China and Vietnam. Now they are shaken up because of Covid. So they are looking for new places.
So now is the time to create the environment. So let them come. Technology will come with them. Employment will be created. Life will be much simpler. Thank you very much.
Disclaimer: A discussion meeting titled 'LDC Graduation of Bangladesh: Transformation and Preparedness' was jointly organised by the Ministry of Commerce and Dhaka Chamber of Commerce and Industries on Thursday. Syed Manzur Elahi, former advisor to the caretaker government, a leading businessman and the chairman of the Apex Group, spoke at the event. His speech is published for the readers of The Business Standard.