The RMG sector needs reform

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Muhammad Zamir There are three sectors in the Bangladesh economy which have prospered over the years --readymade garments (RMG), manpower export, and pisciculture and shrimp farming. The success in these sectors has had little to do with the government. The drive and the movement forward came from entrepreneurs from the private sector. These sectors (through exports and remittances) are now contributing approximately US$ 32.1 billion in foreign exchange every year to our country's exchequer. They are keeping the country afloat and have also been the force behind the creation of employment opportunities for millions of people in diverse sectors of the economy. The RMG sector, in particular, has been the source of employment for nearly three million women. That in turn has indirectly helped in gender empowerment, female literacy, better nutrition and family planning. Many analysts and so-called experts, over the last two decades, have been very sceptical about the continued growth of the RMG sector. Questions were raised about the sustained success of our RMG industry in the post-MFA period. They have been proven wrong. Subsequently, various regulatory aspects pertaining to the export regime in this sector raised doubts as to whether the knitwear and the woven sectors could both do as anticipated. Until now, the Cassandras have not been proved correct. The level of adaptability that has marked this sector has enabled it to grow despite many constraints. The President of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) recently said that there was a possibility that garment exports will hit US$ Dollar 25 billion by 2013. It was pointed out that buyers were impressed with the country's quality products and competitive pricing. The latest arson tragedy of Tazreen Fashions has, however, once again raised the stakes. This has drawn attention to this industry's rickety infrastructure and growing shortage of skilled manpower in mid-management. The BGMEA, during its assessment in August, appears to have forgotten to add a few other factors that are also seriously affecting growth in this sector -- inadequate gas and power supply, higher freight charges in the local and international markets, yarn price hike, higher transport costs and increase in prices of requisite capital machinery. To this has now been added the possible decision by Wal-Mart (the world's largest retailer of clothing and annual importer of nearly US$ 1.7 billion from Bangladesh) wanting not only a 2 per cent rebate on its current orders of Bangladeshi RMG products but also more safety measures for the RMG workers. There is speculation that this line of thinking on their part is partly due to the current trend of economic downturn in the USA and the fall-out from the Tazreen tragedy. This assumes greater seriousness given the fact that the price index for exportable local apparel items appear to have declined by more than 1.0 per cent over the last fiscal year, while 'the cost of doing business in Bangladesh, particularly in the RMG sector, increased by 15 per cent.' Another aspect that is affecting profitability in the RMG sector has been the exploitation by international buyers of the inexperience of our local manufacturers in this sector in the area of international marketing. Despite evolving success, most of our RMG business, even today, is done through middlemen. Our marketing network still leaves a lot to be desired. To all of the above has now been added another significant problem - vandalism. What increases the anxiety level is the fact that the industrial units that have come under attack have included factories that have tried to comply with the tripartite agreement reached in 2006 between representatives of the different stakeholders including workers and the owners. According to the media, nearly 150 factories have suffered since January 2008. This has included 24 cases of vandalised units in the months of August and September. Labour unrest, according to industrial specialists, has also affected nearly 400 units. This is quite a high percentage - almost 10 per cent of the entire garment industry manufacturing force. There have also been reports that some of the acts of arson and vandalism were undertaken by people who could not be identified by the owners or security personnel of the factories concerned. They have since been identified as outsiders. Another disappointing aspect was claims by management of affected factories that law and order enforcement personnel were sometimes available at the time of the incident but did not actively try to contain the situation. This has quite understandably raised demands from factory owners that the government needs to provide them with adequate security. When questioned about their destructive behaviour, agitated workers have pointed fingers at the owners. They have claimed that some of the conditions included in the tripartite agreement have not been respected by the management and the owners. They have alleged that at different times they do not get paid on time and do not receive some of the other benefits that have been promised. The owners, on the other hand, claim that such assertions are not true and that 'certain vested quarters' are deliberately instigating unrest and trying to destroy the competitiveness within this industry. I do not know if all the allegations made by the workers are true. It is however clear that all is not well in the state of Denmark (as Shakespeare's Hamlet would have put it). Besides, the absence of 'living wages' within this industry is creating frustration, unhappiness and making the workers susceptible to external provocation. One wonders why the in the RMG sector cannot pay the equivalent (in Taka) of at least US$ 2.5 per day to their workers. How can they expect workers to be able to perform without this minimum salary -- given the absurd and steep rise in the prices of basic commodities like rice, edible oil and vegetables? I am not even mentioning milk or fish or other sources of protein. Yes, there has been a welcome attempt towards food rationing during Ramadan. It has had a marginal effect. This is a step that needs to continue. The BGMEA and the BKMEA (Bangladesh Knitwear Manufactures & Exporters Association) could perhaps seriously think of setting up fair price/subsidised shops within their factories, where workers from that unit could buy essential food staples at slightly cheaper prices. The two associations could perhaps sit with the Ministry of Commerce and arrange for an agreed course of action where the Trading Corporation of Bangladesh (TCB) could be the focal point for such an exercise. The government could also take a more hands-on engagement with the leadership of the RMG sector in another area -- dispute resolution. In this context, with the agreement of all parties, they could initiate the formation of an arbitration facility through which disputes could be settled without workers resorting to violence. This facility could be an elected modified version of a worker's association. The workers will also have to understand that they have to behave more responsibly and stop unnecessary violence and vandalism based on rumours and external instigation. The government has to be a more active player within the matrix of the RMG sector. It is not enough to leave most of the lobbying to the private sector. We have to use our persuasive powers as leader of the LDC group to contain the damage that has been unleashed by Ghana and Mali. These two countries have persuaded Mr Jim McDermott, Chairman of the Ways and Means Sub-Committee of the US House of Representatives to exclude five categories of Bangladeshi textile and apparel products from facilities under the New Partnership Act (NPDA) 2007. We have to make it clear to the African countries that Bangladesh's duty-free access to the US market under NPDA will not hamper schemes as contained within the paradigm of the African Growth and Opportunity Act. We have to clarify to the poorer African countries that the real challenge comes from China and not Bangladesh. We have to explain also to the US government that this Act is aimed at reducing extreme poverty worldwide and Bangladesh needs to be included within the list. We have difficult times ahead of us pertaining to the RMG sector. This will need greater perspective planning and coordination. The government will have to help the entrepreneurs as well as the workers so that they can survive and prosper within the emerging competitive environment. Both sides need the support. Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance. mzamir@dhaka.net