From humble beginnings in the 1970s, Bangladesh’s textile and readymade garments (RMG) industry has grown to become the most important part of the nation's economy. It provides livelihood to millions of people. More than 4,500 garment factories and over 1,500 textile mills operate in various industrial clusters in cities like Dhaka, Gazipur, Narayanganj and Chattogram.

The RMG sector has demonstrated remarkable growth over the past four decades. From just $31.57mn in FY 1983-84 (3.89% of total exports), the sector has grown to $39.35bn in FY 2024-25, representing 81.5% of total merchandise exports, according to Bangladesh's capital advisory firm LynkUp Venture Catalyst.

However, in the recent past, multiple factors have come together to create an existential inflection point for the industry, according to a recent report by LynkUp Venture Catalyst. The world's second-largest apparel exporter, generating almost $40bn annually and employing 4mn workers, faces a convergence of energy crises, financial system stress and operational paralysis that has compressed asset values to historic lows.

Factory capacity utilisation has collapsed to an estimated 50-60% across the ecosystem, driven by chronic gas shortages and working capital starvation. Non-performing loans have surged to 26% in the RMG sector and 25% in textiles, triggering a CIB-driven credit lock that paralyses refinancing and Letter of Credit issuance. Asset valuations now trade at fractions of replacement cost, offering patient capital the raw material for high-IRR turnaround platforms.

Bangladesh boasts of 81.5% of export earnings through garments, with 273 LEED-certified factories more than any competing jurisdiction, providing ESG-aligned manufacturing infrastructure that Western brands increasingly demand. The country’s export -based economy rests on four decades of specialised labour pools, backward linkages from spinning to finishing, and preferential trade access that cannot be replicated easily by any other country. Certainly not without decades of investment and effort.

Primary challenges

Energy shortages have become the primary production constraint. Severe gas and power shortages have forced more than 30% of national textile capacity offline. Mills that require about 15 PSI gas, ae receiving 2-3 PSI or none. According to the report, around 50% of mills have shut down; factories are operating at about 50% utilisation rates, and erratic energy supply is causing delivery delays and contract risks.

An ongoing foreign exchange shock and cost inflation are crushing working capital. As a result, the Bangladesh taka (BDT) has depreciated from 83 to 123 to the dollar, eroding around 35% of working capital and the LC openings have become restricted while raw material imports have sharply reduced. Loan interest rates have increased from 9% to 13-14.5% while production costs are up 20% year-on-year due to energy, foreign exchange, tariffs and VAT. With gas and fuel prices increasing sharply, there is a severe liquidity stress in the Tier-2 & Tier-3 mills, the report stated.

Because of this, the crisis now has the potential to have a profound impact on the socioeconomic structure of the country. Women comprise over 50% of the RMG workforce and bear a disproportionate impact from factory closures as it impacts their livelihood. Also, the proliferation of approximately 2,000 unregulated subcontracting facilities has intensified compliance, ESG and reputational risks across the supply chain. The RMG industry provides direct employment to about 4mn, but according to the report, about 100,000 jobs were lost in the past year and around 2mn are at risk due to the current crisis.

With RMG contributing approximately 11% of GDP, the sector's distress translates to an estimated 0.5-1.2 percentage point drag on annual GDP growth, elevating this from a sectoral crisis to a macro-critical national economic threat, LynkUp said.

Crisis offers opportunity

The report, however, argues that for institutional capital with restructuring expertise, this dislocation presents a generational entry opportunity into a structurally irreplaceable global supply chain node. Bangladesh retains irreplaceable structural advantages despite the distress, the report adds. The sector's financial architecture is under severe strain, creating forced sellers and distressed entry points.

Four investable themes emerge from the crisis, each addressing critical system failures. Distressed asset acquisition targets underutilised facilities with embedded operational leverage; operational turnaround platforms require energy stabilisation and working capital injection; trade finance funds can capture premium yields, addressing the $15-20bn Letter of Credit funding gap, green textile financing aligns with buyer ESG mandates while modernising the 3,500-4,500-factory base.

The consolidation playbook mirrors successful private equity interventions in Turkish and Vietnamese textiles during comparable stress periods, the report said, adding that the recovery window is bounded but executable. With targeted capital deployment, debt restructuring and energy infrastructure fixes, the sector can restore above 80% utilisation within 24-36 months, LynkUp said.

Buyer relationships with global brands remain intact and the order volatility reflects supplier financial distress, not demand destruction. First-mover capital will secure controlling positions in assets that will re-rate significantly as operational normalisation returns. Bangladesh offers asymmetric risk reward rarely available in emerging market manufacturing, the report argues. The combination of systemic distress, irreplaceable supply chain positioning and clear operational levers creates institutional-grade return potential for investors with restructuring capabilities. The alternative continued erosion of the sector would destabilise a critical node in global apparel supply chains, making external capital infusion a shared imperative for brands, policymakers, and institutional investors alike.

Bangladesh's textile sector stands at a cyclical low but structural opportunity peak. The current crisis, while severe, has created exceptional entry valuations for investors with the expertise and capital to execute complex turnarounds, the report said.