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Key Messages • For South Asia to expand apparel exports and jobs, it needs to adopt policies to increase market access, ease import barriers (notably for manmade fibers), improve export logistics, and facilitate foreign investment. • If it fails to do so—and fails to do so quickly—it risks losing out on a huge opportunity to create good jobs for development given China’s rising apparel prices. • For the U.S. market, our analysis shows that a 10 percent increase in Chinese prices could boost employment in South Asia by up to 9 percent, even without changed policies,so better policies would be a major plus.Forthe European Union market, Sri Lanka and India would benefit, although Pakistan and Bangladesh would not
PA R T What Role Can Policy Play in Increasing Apparel Exports and Jobs? Stitches to Riches? • http://dx.doi.org/10.1596/978-1-4648-0813-5 141 C h apt e r Policies to Foster Apparel Exports and Jobs Key Messages • For South Asia to expand apparel exports and jobs, it needs to adopt policies to increase market access, ease import barriers (notably for manmade fibers), improve export logistics, and facilitate foreign investment • If it fails to so—and fails to so quickly—it risks losing out on a huge opportunity to create good jobs for development given China’s rising apparel prices • For the U.S market, our analysis shows that a 10 percent increase in Chinese prices could boost employment in South Asia by up to percent, even without changed policies, so better policies would be a major plus For the European Union market, Sri Lanka and India would benefit, although Pakistan and Bangladesh would not How Policies Fit In So far this report has shown that South Asia’s apparel sector exhibits significant potential to increase apparel exports and jobs, although in the current situation Southeast Asia stands to capture more displaced production as apparel prices rise in China For South Asia—including our sample “SAR countries” of Bangladesh, India, Pakistan, and Sri Lanka—to become more competitive, it needs to improve its performance in areas that matter most to global buyers (see chapter 2) All the SAR countries (with the exception of Sri Lanka) generally appear to be cost competitive But they are inhibited by too great a concentration in c otton products, even though the industry is increasingly moving toward manmade fiber products (MMF) And they lag behind Southeast Asia in quality, The authors, Atisha Kumar, Stacey Frederick, and Raymond Robertson, are grateful for comments provided by the core team and for substantive inputs from Cornelia Staritz Stitches to Riches? • http://dx.doi.org/10.1596/978-1-4648-0813-5 143 144 Policies to Foster Apparel Exports and Jobs input availability (like synthetic fibers), lead times (the time between placing and receiving an order), reliability, and social compliance If the situation persists—that is, if no new policies are set up and implemented to alter the picture—a 10 percent increase in China’s prices would mean an increase in SAR exports of between 13 and 25 percent (depending on the country)—compared to a gain for Southeast Asia of between 37 and 51 percent (see chapter 3) This gap matters greatly because textiles and apparel have a larger potential than other sectors to create jobs in response to increased exports, especially for women (see chapter 4) The industry accounts for 14.6 percent of total exports in South Asia and is also one of the largest employers of female workers Within South Asia, there are tremendous differences in product mix and quality, level of policy involvement, and design and implementation strategies Each country specializes in different types of products—for example, Bangladesh and Pakistan largely produce a narrow range of basic cotton garments, India also concentrates on cotton but in a broader range of product categories, whereas Sri Lanka produces more synthetics and specializes in higher-value intimate apparel (see chapter 2) With respect to policies, all South Asian countries have adopted measures to promote the apparel sector in view of the Multifibre Arrangement (MFA) phaseout in 2005 Government policies in the region typically focus on tax and duty exemption, finance facilities for technology upgrading through capital investments (like TUFS [the Technology Upgradation Funds Scheme]), and skill development, clustering, and export promotion measures Sri Lanka has had the most effective initiatives in apparel, with the Joint Apparel Association Forum (JAAF)—the industry association—playing an important role in coordinating stakeholders In the other countries, coordination between stakeholders is limited More recently, India’s “Make in India” initiative proposes policies related to the manufacturing sector, and “Textiles and Garments” are included as key industries in this initiative Are South Asia’s policy efforts sufficient? What more could be done? This chapter attempts to answer these questions by pulling together the material developed in earlier chapters We start by estimating how many new jobs South Asia might hope to create if the status quo continues Then we explore how policies are linked to the stages of production in textiles and apparel, which policies matter most for this industry, how South Asia performs in these areas, and the key hurdles that need to be tackled to give the region a greater competitive edge Our key finding is that with respect to jobs, all four of the SAR countries exhibit significant employment generation potential as represented by elasticities of employment to Chinese prices Bangladesh and Pakistan have the highest potential to increase jobs (in percentage terms) for exports to the U.S markets, and Sri Lanka is the big winner with respect to European Union (EU) markets To increase jobs, it is imperative and urgent for the SAR economies to enact supporting policies We find that, although reform priorities vary by country, most countries would benefit from increasing market access, easing barriers to the import of inputs such as MMFs, and facilitating foreign investment Stitches to Riches? • http://dx.doi.org/10.1596/978-1-4648-0813-5 145 Policies to Foster Apparel Exports and Jobs Predicting Job Effects in South Asia Throughout this report we have assumed that higher Chinese prices will boost the demand for apparel from South Asia and that firms in South Asia will respond by creating jobs We have also assumed that more jobs will enhance welfare (as opposed to simply leave the level of welfare unchanged) because workers will be drawn from either the informal sector or agriculture, both of which pay lower wages than apparel exporting firms In other words, apparel exporters face a relatively elastic supply curve, especially in the short run because there is a large pool of temporary workers But how many new jobs will the increased demand translate into? To answer that question, we combine two elasticity estimates—(i) the responsiveness of South Asian apparel exports to an increase in Chinese prices (from chapter 3, table 3.5) and (ii) the responsiveness of employment to apparel output (from chapter 4, table 4.3)—for both males and females in the U.S and EU markets That is, %∆Employment = expeEx (5.1) %∆Exports %∆Prices (5.2) This is correct because and ε Ex %∆Employment , %∆Exports (5.3) such that, when multiplied, we get %∆Employment %∆Prices (5.4) For the U.S market, we find that a 10 percent increase in Chinese apparel prices would increase apparel employment in Pakistan for males by 8.93 percent— by far the biggest winner—followed by Bangladesh (4.22 percent) and India (3.32 percent) (table 5.1, panels a and b) The gains for Sri Lanka are less than 1 percent, but it is important to keep in mind that the estimates in table 5.1 are for exports to the United States only The story is much the same for females In India, the gains in employment for females are small (2.51 percent) because of the small employment estimate for India Overall, because apparel hires relatively more females to begin with, the expected total number of women working in apparel would increase more than the number of men working in apparel For the EU market, the most striking result is the large difference in the predicted employment gains for Sri Lanka, whose elasticity is very high (table 5.1, panels c and d) The results suggest that a 10 percent increase in Chinese apparel Stitches to Riches? • http://dx.doi.org/10.1596/978-1-4648-0813-5 146 Policies to Foster Apparel Exports and Jobs prices would increase Sri Lankan male apparel employment by 8.55 percent, followed by India (4.30 percent), but Bangladesh and Pakistan would experience small decreases because their trade estimates not suggest that they are close substitutes for Chinese apparel products in the EU market For females, the results are qualitatively similar in that employment in Sri Lanka now would appear to increase by 7.87 percent, whereas the other countries are predicted to have a small change Again, the exception might be India If China’s prices to the EU increase by 10 percent, India could have a 3.26 percent increase in female employment Table 5.1 For the U.S Market, Pakistan and Bangladesh Are the Big Winners, Whereas Sri Lanka Is for the EU Panel a: Male employment responses for exports to United States Country Bangladesh India Pakistan Sri Lanka Elasticity of exports to prices (εxp ) Elasticity of jobs to exports (εEx ) 1.358* 1.462* 2.531* 0.024 0.311*** 0.176*** 0.353*** 0.380*** Elasticity of jobs to prices % ∆Employment % ∆Prices 0.422 0.332 0.893 0.009 Panel b: Female employment responses for exports to United States Country Bangladesh India Pakistan Sri Lanka εxp εEx % ∆Employment % ∆Prices 1.358* 1.462* 2.531* 0.024 0.323*** 0.172*** 0.336*** 0.350*** 0.439 0.251 0.850 0.008 εEx % ∆Employment % ∆Prices 0.311*** 0.176*** 0.353*** 0.380*** −0.074 0.430 −0.021 0.855 Panel c: Male employment responses for exports to the EU Country Bangladesh India Pakistan Sri Lanka εxp −0.238 1.895* −0.060 2.249* Panel d: Female employment responses for exports to the EU Country Bangladesh India Pakistan Sri Lanka εxp −0.238 1.895* −0.060 2.249* εEx % ∆Employment % ∆Prices 0.323*** 0.172*** 0.336*** 0.350*** −0.077 0.326 −0.020 0.787 Source: Chapters (table 3.5) and (table 4.3) of this report Note: *** p[...]... attract increased foreign investment since the 1980s However, even in Bangladesh, challenges to attracting foreign investment remain For instance, Samsung, a multinational manufacturer of electronics, was initially interested in investing in Bangladesh but could not follow through because of issues with acquiring land in EPZs Boosting investor confidence should remain a high priority in Bangladesh In India... to Foster Apparel Exports and Jobs Box 5.2 Using FDI to Make Inroads into Textile and Apparel Markets Whereas barriers to entry into apparel manufacturing are low in terms of capital, technology, and skill levels, gaining access to U.S and EU buyers can be quite difficult For that reason, ties to Asian foreign investment have played an important role in the growth trajectory of apparel exports over... need to find ways to boost productivity to maintain competitiveness Overall, productivity levels in South Asia remain lower than in China and Vietnam In India, labor productivity is almost one-third the level in China in the apparel sector A key way to increase productivity is by reforming labor regulations, such as those governing hiring and firing and number of hours worked One study finds that India’s... Textile and Clothing Industry in Sri Lanka.” Textile Outlook International 147: 79–119 ——— 2012a “Prospects for the Textile and Clothing Industry in India.” Textile Outlook International 156: 86–127 ——— 2012b “Prospects for the Textile and Clothing Industry in Indonesia.” Textile Outlook International 155: 70–109 ——— 2012c “Prospects for the Textile and Clothing Industry in Vietnam.” Textile Outlook International... Arabia, and the United Arab Emirates on forward linkages This means (i) preferable tariffs for its apparel exports, (ii) knowledge on how the retail industry operates (in these countries), and (iii) relationships with brand owners and retailers that have large market shares in these emerging end markets foreign investment has played a key role in the initial setup of the apparel industry in Bangladesh and. .. Textile and Clothing Industry in Cambodia.” Textile Outlook International 161: 119–58 ——— 2014 “Prospects for the Textile and Clothing Industry in China.” Textile Outlook International 168: 79–133 Sahoo, P., G Nataraj, and R K Dash 2014 Foreign Direct Investment in South Asia: Policy, Impact, Determinants and Challenges New Delhi: Springer Saleman, Y., and L S Jordan 2013 The Implementation of Industrial... Apparel Industry Will Overcome Challenges.” Sunday Observer, May 5 http://www.sundayobserver.lk/2013/05/05/fin26.asp Tewari, M 2008 Deepening Intra-regional Trade and Investment in South Asia: The Case of the Textile and Clothing Industry India Council for Research on International Economic Relations (ICRIER) ——— 2009 The Textiles and Clothing Industry Study on Intraregional Trade and Investment in. .. technology upgrading through capital investments (like TUFS) and Stitches to Riches? • http://dx.doi.org/10.1596/978-1-4648-0813-5 165 166 Policies to Foster Apparel Exports and Jobs skill development, clustering, and export promotion measures Sri Lanka has had the most effective initiatives in apparel, with JAAF—the industry association— playing an important role in coordinating stakeholders In the other... buying equipment; (iii) transporting inventory, raw materials, and equipment; (iv) halting and shifting production; (v) rebranding, logistics of a new address, and printing business cards and letterheads; and (vi) financing relocation expenses for workers or severance packages Key benefits of relocation to a zone include (i) design of a zone with improved infrastructure and adequate transportation facilities;... processing zones (EPZs) (box 5.1) Although EPZs have been established in all four SAR countries, they do not play an important role in the apparel industry in terms of output and employment Duty drawback schemes for exporters work well in Bangladesh, but in India and even more so Pakistan—there are obstacles to using them (Jordan, Kamphuis, and Setia 2014; Nabi and Hamid 2013) For example, in India,