Let RMG work as engine of economic growth

The readymade garment (RMG) workers have long been on the streets chanting slogans and attacking factories for a reasonable minimum wage. Undoubtedly they need a wage that meets their minimum living costs and thus promotes their productivity. The owners have expressed their unwillingness to respond to the workers' needs. In this tug of war, apparel factories are now almost on the verge of shutdown.
In the meantime, frequent hartals have begun to impose heavy tolls on readymade garment industry:  pickets torch the lorries carrying RMG goods, the buyers postponing their trips to Dhaka and switching over to other destinations.  The RMG sector in Bangladesh is seemingly on its way to a serious crisis it has ever witnessed.  It is high time that the government and the opposition, owners and workers take a fresh look at the conundrums pertaining to this industrial lifeline of the economy. The rationale is as follows:
It is now widely accepted that workers' remittances and earnings from RMG units are emerging as key drivers of our economy. Even during the recent recession that rocked the world, these two kept us on an even keel. Mahabub and I have found that remittances now constitute 26-30 per cent of the income of rural households compared to about 9.0 per cent in 1988. The growth rate of income from remittances soared at more than 15 per cent per annum over this span of time.  More importantly, even for functionally landless households, remittance now accounts for about 13 per cent of household income with a growth rate of 12 per cent per annum.
Remittances from our workers abroad (numbering 6.5 million) now stand at $14.4 billion up to June 2013. This accounts for about 10-12 per cent of our GDP (gross domestic product).  Two-thirds of the total comes from Middle East countries. In fact, remittance inflows more than offsets the savings-investment gap; it exceeds various types of inflows especially Official Development Assistance (ODA) and net earning from exports. This has helped maintain the Current Account Surplus. Again, each additional migrant worker brings in $816/yr in remittance. Depreciation of exchange rate by one taka increases annual remittance by $18 million. However, the appreciable increase in inflows of remittances might be adduced to various factors: remittances reach respective households within 10 minutes - thanks to the efficiency gained in terms of money transfer, several awareness campaigns initiated by the central bank and its permission to open exchange houses to facilitate the process. Mentionably, about 4,00,000 people migrated abroad from July 2012  to February 2013.
Globally, during the last decade, remittances have outpaced private capital flows and Official Development Assistance. Remittance receipts were about 7.0 per cent of developing countries' imports and about 8.0 per cent of domestic investment. It is further argued that the manifold increase in remittances could have been due to a shift from formal to informal channels. Of course, a large part of this is mopped up through informal channels. For example, in Bangladesh the share of informal flow is estimated to be 54 per cent, Uganda 80 per cent, Dominican Republic 4.0 per cent and El Salvador 15 per cent.
The roundabout impacts of remittances are worth noting:
(a) Remittance raises consumption levels of the household groups, especially rural and poor households;
(b) The increased consumption of rural households might lead to larger multiplier effects since they are likely to spend more on domestic output which, in turn, would affect employment and income;
(c) Remittances also stabilises and smoothens household consumption during adverse shocks such as flood, crop failure, energy crises etc.;
(d) It supports human capital formation by allowing spending on education and training etc and
(e) It lessens the working capital constraints of farms and small-farm operators etc.
However, remittances might lead to wider inequality through disproportionate inflows to better-off households. They also could impinge adverse social impacts on spouses and children of remitters.
In a seminal research, Khandaker and Raihan note that while poverty was reduced at 1.8 per cent during 2000 and 2005, average GDP growth was 5.5 per cent and population growth was 1.2 per cent. "The period covering years 2000 and 2005 experienced a significant fall in poverty with high growth in remittances and RMG exports. This association tends to suggest that a significant part of poverty decline mat be attributed to the growth of remittance of RMG exports".
The poverty impacts of RMG export demand plus remittance's shock simulation indicate that the head-count ratio has declined by about 2.5 percentage point in this case compared to the base value. This is a major finding that almost a quarter of poverty decline between 2000 and 2005 in Bangladesh is attributed to the combined impacts of remittances and RMG export. Thus, ceteris paribus, if there were not such a growth of remittances and RMG exports during 2000 and 2005, headcount poverty may not have declined by 9.0 percentage points, declining instead by only about 6.5 percentage points. Again, had it not been high for remittances alone, poverty would decline by 7.4 percentage points instead of by 9.0 percentage points. This shows that remittance growth might have played a more important role in reducing poverty than the RMG. In general it is reported that a 10 per cent increase in per capita official international remittances lead to a 3.5 per cent reduction in poverty.
We, therefore, need to protect the goose that lays golden eggs for us although and  unfortunately, labour unrest on one hand and devastating hartals, on the other, are crippling this sector.  In fact, in a highly competitive world for manufacturing exports, we should increasingly rely on cheap labour supply in new markets. In the coming years, demand for our low and semi-skilled labour is likely to increase following global economic recovery and output growth.
We can offer a few policy suggestions in this regard:  
(a) To encourage more migration, the NGOs (non-governmental organisations) should take up micro-credit programmes for households with migratory motives of members. This point we want to emphasise as, in early periods, only rich households could access migration owing to availability of financial capital. Since the poor had little on that count, income disparity widened in rural areas. Over the years, inequality was reduced to an extent (still gini coefficient is 0.71 from 0.82 in the 1980s) as small and poor households somehow managed to send their members abroad. But if NGOs could be involved, that would ensure transparency, accountability and some pre-migratory education;
(b) The government should search for markets through 'economic diplomacy' and facilitate skill development of workers at home;
(c) The government should see that migrants are not cheated by the recruiting agencies;
(d) Formalisation of inflows through exchange facilities should be enhanced. On the export front, serious attempts should be made at diversification of exports both commodity and region wise; export incentives through trade facilitation should be increased and we should see that the exchange rate does not have anti-export bias.
Last but not the least, in the garments sector particularly, calm should prevail with workers getting reasonable wages for their survival. This will result in a stable environment in the factory. It should be remembered that employers in the long run benefit more by paying more to the workers as higher wage would translate into higher productivity and higher earnings for the employers. The employer should also ensure that the premise of production is safe, sound, and secured. Otherwise it might deplete the capital stock of the owner. After all, a stitch in time saves nine!
And finally, opposition parties should keep garments off their hartal programmes. The government should ensure special security bearing in mind that a barricade to garment shipment will be a serious blow to the economy of the country.
The writer is a Professor                          of Economics at                      Jahangirnagar University.                  [email protected]