Bangladesh is second only to china in producing clothing for the world textile is one of the key economic sectors for us in bangladesh because it brings almost 80 percent of our foreign currency it has been one of the primary engines of growth in the nation of 164 million people.
The industry earns more than 35 billion dollars a year from exports and employees of four million people a large majority of whom are women hi everybody in the 1950s right after its independence bangladesh was one of the poorest countries in the world and from our previous video you already know.
That in the past 50 years bangladesh has gone from being a poverty infected country with a poverty rate of 80 percent to becoming one of the fastest growing countries in the world with a gdp of 400 billion dollars and a poverty rate of less than 12 and one of the most important reasons for this growth is the textile revolution of bangladesh because.
Of which this country went from being a no one to becoming the second largest ready-made garment exporter in the world in fact from 2011 to 2019 bangladesh textile export has more than doubled from just 14.6 billion dollars in 2011 to 33.1 billion dollars in 2019 and even in 2020 they exported 28 billion dollars worth of garments and all of this.
Happened because of the extraordinary policies implemented by the government of bangladesh so the question is what were these policies how did they turn bangladesh into the second largest exporter of ready made comments and most importantly what are the study materials to help you understand the incredible rise of bangladesh this video is brought.
To you by wind wealth but more on this at the end of the video so let’s start from the basics now if you remember from our sri lanka episode if an underdeveloped nation wants to grow what are the steps number one identify an important asset within the country number two use that asset to create value in the global economy.
Number three then create a strong clientele for cash flow number four use this cash flow to create more assets and then add more value to the global economy and then the cycle will keep continuing in case of dubai they identified oil sold it to the world made money then expanded to maritime trade facilities then they made money again.
And then built their business ecosystems but in case of bangladesh the case was a little different you see when you’ve got an asset like oil which is not available elsewhere in large quantities you can actually command a price tag over your asset and then make money in this case the middle eastern countries actually formed something called the organization.
Of petroleum exporting countries as in a formal cartel and using this cartel they actually started commanding the price that they want as a result endless amount of money actually flooded into the middle east but in case of bangladesh their asset was cheap label because ever since independence the bangladeshis did not get any opportunity.
To find jobs at home so in case of labor the catch is that you are always in competition with the rival to grab the opportunity in this case bangladesh was in direct competition with none other than china itself to tell you about it in 1978 the chinese had just opened up their economy and they literally became the manufacturing.
Hub of the world for not just textile but every other industry now usually if you take any industry they do not generally rely on just one country but diversify their outsourcing into different countries for manufacturing this is done so that in case if one country gets into trouble like russia did or like pakistan did then their.
Operation would not be entirely halted in case of the textile industry companies like zara or other companies usually outsource their projects to countries like china vietnam indonesia cambodia and bangladesh now during the 1980s and 90s china was hands down the leader of manufacturing and because of its ultra cheap labor cost they were by.
Far the first preference for any country to set up their manufacturing unit but during that time even bangladesh was slowly and steadily improving and they did everything in their capacity to build a conducive business ecosystem in bangladesh and in order to do that they brought in some incredible policies that addressed three of the most critical.
Problems faced by the businessmen in bangladesh the first of this problem was the unavailability of credit to buy machinery which means if a businessman is just starting up and he needs machinery worth 50 to 60 lakhs the banking system was too rigid to offer these loans to businessmen even if they had a sure shot at profit secondly even.
After this machinery is paid for the import duty was another big barrier in this case even if a low import duty of five percent is applied on a machinery were 10 crores that itself is 50 lakhs of import duty and this was a big entry barrier for any businessman to start his business and lastly there was infrastructure issue as in even if your.
Factory is completely built if there are frequent power shortages then it leads to loss in productivity if you do not have good highways in your country then it leads to logistic issues which again causes losses these were the three critical problems that were being faced by the businessmen of bangladesh because always they were not able to start a.
Business because obviously they are not able to employ more people as a result the economy itself was taking a hit this is when the bangladesh government actually realized that they have to do something if they want to grow and progress this is when the bangladeshi government actually came up with three incredible.
Policies that changed the face of bangladesh forever the question is what were these policies and how did they suddenly change the face of bangladesh well the first policy the bangladeshi government came up with was something called back to back letter of credit system now let’s try to understand how this works using a simple story let’s.
Say there is a company a that is a company in the us and sells heavy textile machinery company b is a trading firm that is based in india and has learnt that company c in bangladesh wants to purchase heavy machinery worth 5 crore rupees so if you see in this arrangement the buyer wants to buy the seller wants to sell and the broker.
Wants to make money but the problem over here is that the u.s company does not trust company c in bangladesh because it is an underdeveloped nation and any political or communal rift might actually put 5 crore rupees at risk but you see the indian broker b wants to ensure that the trade is made so that he receives his commission.
So here’s where the back to back letter of credit comes in handy what happens in this strategy is that companies he will go to a reputational institution in bangladesh and get it to issue something called the letter of credit with broker b as the beneficiary so basically the bank in bangladesh tells the indian broker don’t worry i.
Will make the payment of 5 crore with 20 lakhs in commission to you on biahuf company c and now that the broker has an assurance from a reputed bank he will take that letter of credit to go to his reputed bank in india and ask them to issue another letter of credit to company a in the us so here’s where the indian bank.
Assures the american company that the bank will pay the company 5 crore rupees on behalf of the broker so now company a feels safe about the indian bank paying them money and now they ship their heavy machinery knowing that once the transaction is complete it will be paid by the indian bank so at the end of the day the broker is also assured about.
Being paid by the bangladeshi bank and the american company is assured about being paid by the indian bank so this way the credit risk has been removed from the transaction and all the parties have been benefited this made it extremely easy for the bangladeshi businessmen to actually set up their textile manufacturing business.
Eventually that ended up giving jobs to millions of people in bangladesh and this is where the second policy came in now if you look at the above example you will see that if the bangladeshi businessman is imposed with an import duty of just 5 then he has to pay 25 lakh rupees in taxes alone but at the same time if the.
Bangladeshi government decides to do away with the import duty then the government will lose out on a significant amount of income so here’s where the bangladeshi government came up with a policy innovation called the policy of duty drawback facilities through bonded warehouses if sharm wants to import his machinery raw materials.
And replacements without import duty then all the finished products that he produces using these materials must be kept in bonded warehouses wherein the product must compulsorily be used for exports only and this is checked by the special customs authority who actually check the import and export containers going to and from the bonded factory.
This way the bangladeshi government is able to provide ease of business for the businessmen who are exporting the products and at the same time they do not lose out on the import duty income for all the domestic products and lastly in spite of all the political instability bangladesh has improved its infrastructure and connectivity by a.
Large extent and they have done that through transportation and logistics improvement this is how bangladesh had been laying its foundation since 30 years from 1971 to 2001 and here’s where the table started turning from early 2000s onwards the chinese labor cost started increasing in fact by 2012 the cost of labor in china was so high as.
Compared to bangladesh that it had reached around 400 to 500 per month per worker and in bangladesh during the same time the average monthly salary for garment worker was only 70 to 100 per month per worker so let alone europe and u.s even the chinese factories started outsourcing their work to bangladeshi factories.
Now the question over here is why only bangladesh why not indonesia or cambodia well the simple answer for that is that bangladesh was fully equipped with infrastructure and workers to embrace the opportunity that was at its doorstep while indonesia had 2450 factories in 2012 vietnam had 2000 cambodia had 260 whereas bangladesh alone had 5 000 rng.
Factories with the workforce of 3.6 million workers or 36 lakh workers as a result if you look at the growth of bangladesh textile export you will see that from 2011 to 2019 bangladesh textile export more than doubled from 14.6 billion dollars in 2011 to 33.1 billion in 2019 and even during the pandemic they exported 28 billion.
Dollars worth of ready-made garments this is how by identifying a rising industry by creating a conducive business ecosystem with policy innovation and most importantly by laying a foundational infrastructure for an upcoming opportunity bangladesh today stands as one of the fastest growing countries in the world and just to give.
You a reality check bangladesh story is not a fairytale at all and it also has some very very dark sides that you never want to experience as the textile industry continues to grow the situation looks set to get worse the bangladesh government says it’s doing all it can to crack down on child.
Labour but there is little evidence of that in this factory environmental experts say unplanned development call run industries brick factories and construction works have made the situation worse textiles industries produce around 56 billion litres of contaminated water a year.
Islamist groups are increasingly demanding a state founded on islamic law in recent years dozens of free thinkers secular activists members of religious minorities and outsiders have been killed by radical islamists we wonder what future awaits bangladesh these are about hazardous working.
Conditions that have led to horrific accidents child labour that is ruling the life of thousands of children and the systematic persecution of hindus which is hidden in plain sight and lastly the biggest threat for bangladesh is that all of these policy innovations have been so focused on textile industry that now the countries actually become.
Over dependent on just one sector wherein the rng sector alone accounts for more than 80 percent of their total export revenue as of 2021 so if anything happens to this industry the country is again going to collapse into an economic crisis and this brings me to the most important part of the episode and that are the study materials to help you.
Understand the different dimensions of the rise of bangladesh before we move on i want to thank our partners wind wealth for supporting our content for full disclosure even think school is an investor in wind wealth wind wealth is a platform by which you can invest in bonds of leading nbfcs with strong backers and earn 9 to 11.
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Study materials the first thing i’m attaching is a mckenzie report of both 2012 and 2021. this is a detailed analysis of the rmg sector of bangladesh secondly there is this wonderful study done by brookings that actually outlines the efforts taken by the country to achieve this extraordinary growth of the rmg sector and lastly i am attaching a.
Short note on both back to back letter of credit system and bonded warehousing which will help you understand these concepts better and if there are any other study materials that i find to be interesting i’ll attach all of them in the same list that’s all from my side for today guys if you learned something helpful please.
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