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South Asia has put in place a number of policies to support the textile and apparel sector, but there is still significant room for improvement in a number of key areas such as product concentration, quality, input availability, lead times, reliability, and compliance that are relevant to boost exports and create good jobs for development, according to World Bank report titled Stitches to Riches. The report found that South Asia exhibits significant potential to capture displaced apparel production as a result of rising costs in China. The Bank’s estimates suggest that a 10 per cent increase in China’s prices would boost South Asian exports between 13 and 25 per cent, although the gain would be even bigger for Southeast Asia (between 37 and 51 per cent). These higher exports, in turn, would potentially translate into more good jobs for development. Moreover, female workers are expected to benefit the most—including through higher expected wages than in agriculture, which would have positive ripple effects for both the overall economies and individual households. The report estimates that a 10 per cent rise in Chinese wages could be associated with an increase of up to 9 per cent in male and female employment in the South Asian countries. Individual estimates vary by country, gender, and trading partner - with Pakistan and Bangladesh winning the biggest gains for the US market and Sri Lanka doing the best in the EU markets. This also underscores the unique situation and policies in place in each country It is important for South Asian economies to design and implement policies to improve competitiveness in apparel. Most South Asian countries would benefit significantly from easing barriers to the import of inputs and facilitating market access and foreign investment. According to the report, apparel firms in India are disproportionately concentrated in the informal sector and tend to be small. Further, firms mainly produce cotton garments and have not made inroads into the market for synthetic apparel. India currently has midrange unit values but low productivity, product diversity, and lead times. The World Bank’s elasticity estimates reveal that a 10 per cent increase in Chinese prices to the EU can increase male employment by 4.3 per cent and female employment by 3.26 per cent. As for policy options for product diversity, policy makers could reduce tariffs and import barriers to ease access to MMFs - such as more transparency for duty drawback schemes and bonded warehouses, and removing antidumping duties on MMFs. They could also lower excise taxes or provide other incentives to develop a domestic MMF industry. To improve productivity, they could help firms enter the formal sector and take advantage of economies of scale with less complex labour policies. They could also promote foreign investment for apparel by adopting clear and transparent policies on foreign ownership (already in place for textiles) and within EPZs. Plus, India could diversify markets by taking advantage of market access to emerging markets. Given that almost all apparel and textile firms are domestically owned, India is in a better position to expand exports to markets - other than the US and Europe - that already have established production networks and sourcing relationships with East Asian and Southeast Asian firms. Finally, better roads will shorten lead times, the report said. Bangladesh's apparel firms produce large quantities of apparel at low costs, due largely to its low wage rates. Firms mostly specialize in low-value and mid-market price segment apparel and have not penetrated the high-end apparel segments. Along almost every apparel product category, the benchmarking highlights that Bangladesh has the lowest prices. However, it performs poorly in the areas of compliance, quality, and reliability - which are important in attracting foreign investment. Bangladesh also stands to gain greatly in terms of jobs from additional apparel exports a 10 per cent increase in Chinese prices to the US would lead to an increase of over 4 per cent each in male and female employment. Bangladesh has many policy options to increase exports. Policy makers could attract more foreign investment through additional incentives and transparency to ensure access to buyers and additional capital. They could ensure that policies to improve compliance are enforced (such as better safety conditions in export processing zones [EPZs]), which will help make Bangladesh a more attractive destination for foreign investors. And they could reduce the import barriers faced by firms in importing MMFs to improve quality and produce more higher–value added apparel. The report said Pakistan has a fast-growing apparel sector that accounts for 19 per cent of its exports, and firms are competitive with global exporters in terms of prices. Yet, despite low prices in most apparel product categories, Pakistan lags competitors in reliability, and political stability is still an issue. It also remains highly concentrated in cotton products. Pakistan stands to gain many jobs from the apparel sector. A 10 per cent increase in Chinese prices to the US would increase male employment by 8.93 per cent and female employment by 8.5 per cent. For policy makers, one way to increase product diversity and move away from cotton-based apparel is to reduce barriers on imports to ease access to MMFs. They could attract global buyers and investors by adopting policies to reduce red tape and increase transparency. They could diversify markets, taking advantage of market access to emerging markets. And they could shorten lead times by improving road infrastructure to facilitate access to ports for exporting firms. Sri Lankan apparel prices are higher than those of competitors in most product categories, and its product portfolio is largely made up of higher-value, niche products. Average literacy in Sri Lanka is higher than in other South Asian countries, and a more skilled workforce also allows them to produce more sophisticated apparel products. Sri Lanka stands to gain significantly from increasing its apparel exports, particularly to the EU market. Elasticity estimates highlight that a 10 per cent increase in Chinese apparel prices could increase Sri Lankan male employment by 8.55 percent and female employment by 7.87 per cent. Sri Lanka could benefit from policies to diversify its export markets, attract additional foreign investment, and capitalize on its skills advantage by producing new, more sophisticated products. To help firms diversify end markets and export destinations for existing products, policy makers might consider more trade agreements with potential partners - foreign investment remains at 2 per cent of GDP, even five years after the end of armed conflict. Clear investment policies to portray stability and attract additional investment could also help. Finally, policy makers could position Sri Lanka as a regional apparel and textile trade hub, taking advantage of infrastructure and location. The report said South Asia must create good quality jobs for a rapidly expanding young population and bring more women into the labor force. The apparel sector in South Asia is labor intensive, employs more women on average than other manufacturing sectors, and provides jobs that allow for the acquisition of skills. Despite these development benefits, the sector has not reached its full potential because of inefficiencies that affect its competitiveness.
Keywords
South Asia, textile- apparel sector, China, female workers, Bangladesh, India, informal sector,
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