Bangladesh RMG: keeping volume on thin margins

Bangladesh's ready-made garment (RMG) sector is often described with one number: about US$39 billion in exports a year. In 2024-25 it was US$39.34 billion, or about 81 per cent of everything the country exported. Knitwear brought in US$21.15 billion and woven garments US$18.18 billion.

That number is the result of decades of winning on volume. In my research assistant work at BRAC University, I looked at how the industry stays competitive despite slow logistics and weak infrastructure. This post asks a different question: what does that model keep?

How much stays

In 2025-26, gross garment exports were US$38.97 billion, down 0.96 per cent on the year before. Imported raw materials cost US$14.75 billion. That leaves about US$24.22 billion, a retention rate of 62.15 per cent, up from 59.01 per cent a year earlier.

This is a good sign, but it needs care. Retention rose in a year when gross exports fell slightly and raw material imports fell by much more, about 8.5 per cent. That could mean factories used more local yarn and fabric. It could also mean cheaper inputs or lower stocks. I do not yet know which, and it is one of the things I want to test.

Even at 62 per cent, the retained amount is not profit. It pays wages, power, interest and everything else. A study of apparel exports to Europe found that median markups were below 4 per cent for most products, and that buyers respond strongly to price. The same study found that the top five products bring in about half of export earnings.

Why thin margins matter now

Thin margins leave little room to absorb a shock, and two are coming.

The first is in export markets. About 60 per cent of garment exports go to the EU and the UK, and they enter duty-free. Bangladesh is scheduled to leave the least developed country group on 24 November 2026. The government has asked for a three-year deferral, and the UN's Committee for Development Policy has supported it. When I wrote this on 8 October 2026, I had not seen a final decision from the UN General Assembly.

Whatever the date, the sequence is the same. The EU gives three more years of duty-free access after graduation. Then stricter rules apply: a two-stage production rule for clothing and, without GSP+, an average tariff of about 12 per cent. A factory cannot absorb a 12 per cent tariff out of a 4 per cent markup.

The second is at home. Bangladesh Bank began phasing out cash incentives on exports in January 2024, because WTO rules do not let non-LDCs pay subsidies tied to export performance.

What would keep more

• Backward linkages. More locally made inputs, especially fabric, so that less of each export dollar leaves again.
• Product mix. A move toward higher-value products, where margins are wider.
• Cost efficiency. Better ports, power and lead times, which raise margins without raising prices.

Each of these is about value. None of them is rewarded by a system that only counts shipments. That is the link back to the first post in this series, and to the changes I suggest in the second.