WB for creating market-responsive and cost-competitive industry in jute sector
Wednesday, 26 September 2007
The World Bank (WB) Country Director Xian Zhu has suggested for creating a market-responsive and cost-competitive industry for revival of the jute sector of the country, reports BSS.
In an article sent to newspapers he said, "One possible direction Bangladesh could take is to consolidate production capacity in the more efficient mills and to create a market-responsive and cost-competitive industry."
The WB official expected that the government's new jute policy would focus on enhancement of the country's production capacity, diversification of the product base and growth of export earnings.
"It would be good if it is complemented with good corporate governance practices within the remaining BJMC (Bangladesh Jute Mills Corporation) mills to ensure that both public and private mills can compete on equal footing. The BJMC's financial losses continue to be a significant fiscal burden," he said adding this has arisen not only from BJMC's nearly automatic access to loans from the nationalised commercial banks (NCBs) for many years, but also BJMC's greater control over the purchase price of raw jute and export price for jute goods.
The WB representative opined that these conditions do not create a level-playing field for private mills.
He pointed out that availability of superior grades of jute makes Bangladesh well placed to enter and compete in export markets for high value-added and price-competitive jute products.
The WB representative said, a surge in global demand resuscitated jute exports, both raw and products, from Bangladesh while export of these two items increased by 120 per cent and 40 per cent, respectively over the last six years.
He said in the 90s, the government focused on the jute sector problems through a restructuring programme in order to create a commercially viable jute industry. Supported by the World Bank's Jute Sector Adjustment Credit (JSAC), the government put together a Jute Sector Restructuring Programme (JSRP) in 1993 to rationalise cost structure in the jute industry and to introduce mechanisms through which financial discipline and accountability could be established.
Xian said the measures under the programme included closing the worst performing mills -- nine out of 29 -- and downsizing two large public mills, privatisation of at least 18 of the remaining 20 public mills, retrenching 45 per cent of labour force, and debt restructuring of about Tk 35 billion.
For the retrenched workers the JSRP had a safety-net programme, which included separation benefits varying between $2,600 and $13,000 depending on the years of service and re-training. All the 20,000 retrenched workers got the separation benefits, but the retraining programme failed to attract their participation.
Xian said it was anticipated that at the completion of the reform programme, most of the jute mills would be in private hands. However, he said, political instability in the following years stalled the reforms. Debt restructuring, loss financing and labour retrenchment were implemented but closure and privatisation of jute mills were put in abeyance.
He observed that there was an unintended and adverse shift in production from the relatively more efficient private mills to less efficient public mills largely because of the creation of an uneven playing field for private mills. The BJMC's access to budgetary funds as well as a guarantee of loss financing for several years allowed it to under-price its products, making it harder for private mills to compete.
The WB official said, poor financial performance of jute mills continued to be a major concern. Today BJMC was the second largest loss maker among public-sector manufacturing enterprises, with annual losses of Tk 2.3 billion, accounting for over 50 per cent of total manufacturing SOE losses in FY-2006, he said.
Xian said, in 2002, jute sector reforms got a new lease of life with the closure of Adamjee Jute Mills (AJM). This alone led to a decrease in BJMC's losses from Tk 3.9 billion in FY-2002 to Tk 2.1 billion in FY-2003. It also led to an increase in BJMC's productivity, which jumped from roughly Tk 25,000 per employee in FY-2001 to Tk 39,000 per employee in FY-2003.
In an article sent to newspapers he said, "One possible direction Bangladesh could take is to consolidate production capacity in the more efficient mills and to create a market-responsive and cost-competitive industry."
The WB official expected that the government's new jute policy would focus on enhancement of the country's production capacity, diversification of the product base and growth of export earnings.
"It would be good if it is complemented with good corporate governance practices within the remaining BJMC (Bangladesh Jute Mills Corporation) mills to ensure that both public and private mills can compete on equal footing. The BJMC's financial losses continue to be a significant fiscal burden," he said adding this has arisen not only from BJMC's nearly automatic access to loans from the nationalised commercial banks (NCBs) for many years, but also BJMC's greater control over the purchase price of raw jute and export price for jute goods.
The WB representative opined that these conditions do not create a level-playing field for private mills.
He pointed out that availability of superior grades of jute makes Bangladesh well placed to enter and compete in export markets for high value-added and price-competitive jute products.
The WB representative said, a surge in global demand resuscitated jute exports, both raw and products, from Bangladesh while export of these two items increased by 120 per cent and 40 per cent, respectively over the last six years.
He said in the 90s, the government focused on the jute sector problems through a restructuring programme in order to create a commercially viable jute industry. Supported by the World Bank's Jute Sector Adjustment Credit (JSAC), the government put together a Jute Sector Restructuring Programme (JSRP) in 1993 to rationalise cost structure in the jute industry and to introduce mechanisms through which financial discipline and accountability could be established.
Xian said the measures under the programme included closing the worst performing mills -- nine out of 29 -- and downsizing two large public mills, privatisation of at least 18 of the remaining 20 public mills, retrenching 45 per cent of labour force, and debt restructuring of about Tk 35 billion.
For the retrenched workers the JSRP had a safety-net programme, which included separation benefits varying between $2,600 and $13,000 depending on the years of service and re-training. All the 20,000 retrenched workers got the separation benefits, but the retraining programme failed to attract their participation.
Xian said it was anticipated that at the completion of the reform programme, most of the jute mills would be in private hands. However, he said, political instability in the following years stalled the reforms. Debt restructuring, loss financing and labour retrenchment were implemented but closure and privatisation of jute mills were put in abeyance.
He observed that there was an unintended and adverse shift in production from the relatively more efficient private mills to less efficient public mills largely because of the creation of an uneven playing field for private mills. The BJMC's access to budgetary funds as well as a guarantee of loss financing for several years allowed it to under-price its products, making it harder for private mills to compete.
The WB official said, poor financial performance of jute mills continued to be a major concern. Today BJMC was the second largest loss maker among public-sector manufacturing enterprises, with annual losses of Tk 2.3 billion, accounting for over 50 per cent of total manufacturing SOE losses in FY-2006, he said.
Xian said, in 2002, jute sector reforms got a new lease of life with the closure of Adamjee Jute Mills (AJM). This alone led to a decrease in BJMC's losses from Tk 3.9 billion in FY-2002 to Tk 2.1 billion in FY-2003. It also led to an increase in BJMC's productivity, which jumped from roughly Tk 25,000 per employee in FY-2001 to Tk 39,000 per employee in FY-2003.