Rise of Bangladesh Textile and Garments Industry

Overview

The textile and ready-made garment (RMG) industry is the foundation of Bangladesh's modern economy. In the fiscal year 2025-26, garment exports earned $38.70 billion — knitwear $20.62 billion and woven garments $18.08 billion — out of total merchandise exports of $48.00 billion, a share of 80.62 percent, according to the Export Promotion Bureau (EPB). The year before, garments had earned $39.34 billion, or 81.49 percent of exports. The industry directly employs around four million people, most of them women, and Bangladesh remains the world's second-largest apparel exporter after China. Yet the sector stands at an inflection point: exports fell in FY2025-26 for a second difficult year, its duty-free access to Europe is time-limited by the country's scheduled graduation from least-developed-country (LDC) status in November 2026, the United States imposed new tariffs in 2025-26, and chronic gas and power shortages are eroding the cost advantage on which the whole model was built.

History

Garment making in Bengal is centuries old, but the export industry is a creation of the late 1970s. The first consignment of garments was exported from Bangladesh in 1978, and in 1979 Desh Garments Ltd — the country's first fully export-oriented garment factory — was established with technical and marketing collaboration from South Korea's Daewoo Corporation. Under the Desh–Daewoo agreement, about 130 Bangladeshi workers and managers were trained at Daewoo's plant in Pusan in 1979. They returned to form the nucleus of the industry's skills base, and many of the trainees went on to found factories of their own; Desh is still remembered as the "mother" of the RMG industry. A second Korean firm, Youngone, formed the first equity joint-venture factory in 1980.

The trade rules of the time made the experiment possible. The Multi-Fibre Arrangement (MFA), in force from 1974 to 2005, capped how much established exporters such as South Korea could sell to the United States, Canada and Europe — which is precisely why Daewoo was looking for production sites in countries that still had quota room. As a least developed country, Bangladesh received quota-free and preferential treatment and generous quotas of its own, and through the 1980s and 1990s hundreds of factories opened around Dhaka and Chittagong, supported by bonded-warehouse facilities and back-to-back letters of credit. When the MFA quota system finally ended on 1 January 2005, many predicted collapse; instead, Bangladeshi exporters held their market on price, scale and an increasingly deep local supply base, and exports kept growing for most of the next two decades.

The industry's darkest day reshaped it a second time. On 24 April 2013 the Rana Plaza building in Savar collapsed, killing at least 1,138 people, most of them garment workers. The disaster triggered the binding safety regime described below and pushed the industry toward the compliance and green-manufacturing standards that are now central to its reputation.

Scale and Exports

Bangladesh's garment exports grew from a few million dollars in the early 1980s to $39.34 billion in FY2024-25, before slipping 1.64 percent to $38.70 billion in FY2025-26 as demand weakened in Europe and energy shortages bit at home. Knitwear is the larger half of the trade — $21.15 billion in FY2024-25 and $20.62 billion in FY2025-26 — reflecting Bangladesh's strong domestic spinning and knitting base; woven garments earned $18.18 billion and $18.08 billion in the same years, according to EPB data.

The geography of the trade is concentrated. In FY2025-26 the European Union took $19.06 billion of garments — 49.25 percent of the total — even as shipments there fell 3.31 percent, with Germany, the largest EU market, down 11.50 percent to $4.38 billion. The United States, the largest single-country market, took $7.74 billion (20.01 percent), followed by the United Kingdom at $4.39 billion and Canada at $1.34 billion. Non-traditional markets — Japan, Australia, India, Turkey, South Korea and others — took $6.16 billion, a 15.93 percent share that exporters are trying, so far without much success, to raise in order to reduce dependence on Western buyers. The industry's raw-material base is examined in the profile of the cotton industry, and its oldest competitor fibre in the profile of the jute industry.

Employment and Wages

The BGMEA counts more than 4,000 garment factories employing more than four million workers. Women make up a majority of the workforce — industry estimates commonly put the female share at around 55 to 60 percent — and the arrival of factory wages for rural women is widely credited with major social effects, from later marriage to higher girls' schooling, alongside persistent criticism of pay and conditions.

Pay is set by periodic minimum wage boards. The minimum rose from Tk 8,000 to Tk 12,500 a month with effect from 1 December 2023 — a 56.25 percent increase that still fell well short of the Tk 23,000 workers had demanded during the protests that preceded it. Because inflation has continued to run high — 8.34 percent in September 2026, on Bangladesh Bureau of Statistics figures — the real value of that wage eroded quickly. A 2026 amendment to the Labour Act shortened the wage-review cycle from five years to three, and after renewed protests in the autumn of 2026, in which unions demanded Tk 30,000, the government formed a new six-member wage board on 1 November 2026. Owners' and workers' representatives agreed that the new structure would take effect from 1 December 2026; the amount itself had not been decided when the board first met in early November 2026.

Workplace Safety

Rana Plaza produced the most far-reaching factory-safety regime in the global garment industry. The Accord on Fire and Building Safety in Bangladesh, signed on 15 May 2013 between global unions and more than 200 mostly European brands, was legally binding: it imposed independent inspections of structural, fire and electrical safety, public reporting and remediation, with consequences for factories that failed to comply. North American brands ran a parallel, voluntary programme, the Alliance for Bangladesh Worker Safety, which wound up at the end of 2018.

On 1 June 2020 the Accord's Bangladesh operations were handed to a permanent national body, the RMG Sustainability Council (RSC) — a tripartite organisation governed by an 18-member board drawn equally from manufacturers (BGMEA and BKMEA), brands and trade unions. The RSC inherited the Accord's staff, caseload and functions, initially covering more than 1,600 factories, and continues inspections, remediation monitoring, safety training and a worker complaints mechanism. Since September 2021 the framework has sat under the International Accord, the Accord's successor agreement, whose commitments in Bangladesh are delivered through the RSC. Factories outside this system are covered by national inspection arrangements, and the completeness of remediation in smaller, subcontracting factories remains a recurring concern in safety reporting.

Green Manufacturing

If safety was the industry's forced transformation, green manufacturing has become its chosen one. Bangladesh now has more LEED-certified garment factories than any other country: 284 by May 2026, of which 121 were Platinum and 144 Gold rated, according to BGMEA figures based on US Green Building Council (USGBC) certification. Sixty-nine of the world's 100 highest-rated LEED factories are in Bangladesh, including 18 of the top 20, and in January 2026 HAMS Garments of Gazipur scored 108 out of 110 points — reported as the highest LEED score ever recorded in its category. Around 550 further factories were awaiting certification in 2026. The economics are practical as much as reputational: LEED factories use less energy and water per garment, and buyers facing their own climate-disclosure rules increasingly treat green certification as a condition of orders.

Markets and Trade Terms

Two trade shocks now frame the industry's future. The first is LDC graduation. Bangladesh is scheduled to leave the UN's least-developed-country category on 24 November 2026. Its garments currently enter the European Union duty-free and quota-free under the Everything But Arms (EBA) scheme, which is reserved for LDCs. The EU grants graduating countries a three-year transition, so EBA terms would run to about November 2029; after that, Bangladesh must qualify for the EU's GSP+ scheme — which demands ratification and effective implementation of international conventions on labour rights, human rights, the environment and governance — or fall back to standard GSP or most-favoured-nation duties of roughly 9 to 12 percent on garments, a serious margin in a business that competes on cents. The EU's new GSP regulation, adopted in June 2026 and applying from January 2027, keeps that three-tier structure. In February 2026 Bangladesh asked the UN to extend its preparatory period by three years, to November 2029; the request had been referred to the UN General Assembly and, as of late October 2026, no final decision had been published. The WTO has estimated that the loss of LDC preferences overall could eventually cost Bangladesh up to $8 billion a year in exports.

The second shock came from the United States, which grants Bangladesh no preferences at all. On 2 April 2025 the US announced a 37 percent "reciprocal" tariff on Bangladeshi goods, on top of existing duties that already average about 16.5 percent on apparel. Negotiation brought the reciprocal rate down to 20 percent from August 2025, and a bilateral Agreement on Reciprocal Trade signed on 9 February 2026 cut it further to 19 percent and promised zero reciprocal duty for garments made with US cotton and US synthetic fibres. Days later, on 20 February 2026, the US Supreme Court ruled that the emergency-powers law used for the reciprocal tariffs did not authorise them. Washington replaced them first with a temporary 10 percent surcharge and then, from July 2026, with a 10 percent tariff under a different legal authority (Section 301), which Bangladeshi goods were still facing in November 2026, with the February trade agreement still unratified. The episode is a case study in the sector's exposure: its largest single-country market can rewrite its costs overnight. Strikingly, shipments held up through the turbulence — exports to the US actually rose 2.63 percent in FY2025-26 — but exporters warn that order books, placed months ahead, reflect the uncertainty with a lag, a concern buyers and Bangladesh Bank both track closely.

Challenges

The most immediate constraint is energy. Gas and power shortages that deepened through 2026 forced factories onto diesel generators and into partial shutdowns: a survey of 134 knitwear factories reported by Reuters in September 2026 found that 55 percent had seen buyers cancel or cut orders because of gas and power shortages since late August, and 78 percent had partially halted production. Industry leaders put production-cost increases at roughly 40 percent over three years — gas tariffs, electricity prices, interest rates and the 2023 wage rise compounding together — and say some 400 factories have closed in that period. Lead times of 60 to 95 days, against roughly 45 to 60 days in India and about 60 in Vietnam, push time-sensitive orders to competitors; Vietnam's garment exports passed $44 billion in FY2025-26, and Bangladeshi commentators openly discuss the risk of losing the world-number-two position the country has held for over a decade.

Structural weaknesses persist behind the headlines. Backward linkage is strong in knitwear, where local mills supply most yarn, but the woven sector still imports a large share of its fabric and yarn, lengthening lead times. The product mix remains concentrated in basic, low-margin items — T-shirts, trousers, sweaters, shirts — with man-made-fibre garments, where world demand is growing fastest, still a minority of output. And the export basket as a whole remains extraordinarily concentrated: no other sector comes close to garments, which is why the struggles of industries such as leather attract such policy attention.

Outlook and Conclusion

The industry's near term is unusually clouded: a new minimum wage taking effect in December 2026, an unresolved LDC-extension request, a three-year countdown to the end of EBA access on the scheduled graduation path, a 10 percent US tariff of uncertain durability, and an energy crisis that relief measures have yet to fix. Against that stand real assets — unmatched scale in basic apparel, the world's deepest bench of green factories, a safety regime no competitor has replicated, and a demonstrated ability, from the end of the MFA quotas in 2005 to the tariff turbulence of 2025-26, to keep shipping through shocks that were supposed to finish it.

The strategic questions are equally clear. Securing GSP+ — or an equivalent arrangement — before EBA expires; fixing gas supply to the industrial belts; moving into man-made fibres and higher-value products; and raising the non-traditional market share above its stuck level of about 16 percent would together decide whether the FY2025-26 dip was a pause or a turning point. What is not in doubt is the industry's place in the country's story: the sector that began with 130 trainees in a Korean factory in 1979 still earns four-fifths of everything Bangladesh sells to the world.