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A quick review of RMG sector: resilience is the ultimate resistance

The world set the spotlight on Bangladesh and expected that its RMG sector would grow to around $60 billion by 2020. Then they strongly questioned the integrity of the garment industry after the country’s one of the most shocking tragedies in Rana Plaza in Savar near Dhaka. A series of accidents evoked extensive criticism and came into sharp focus following which US GSP facility has been suspended. Never ending worker unrest is hampering the sector’s regular activities regularly. Finally, countries political turmoil is making it vulnerable for all to do business and RMG industry is badly affected as it is a high traffic supply chain business which requires many parties to work together many things to move together. Hartals & blockades are hindering all those activities. When it is clear that despite international market opportunities, internal problems are severe enough to stop the growth we still see that the sector is moving forward. So, what is the reason behind that?

Progress continues:

The country entered the apparel export market in 1978 with only 9 units and earned USD 0.069 million. During the last three decades this sector has achieved a phenomenal growth, due to policy support from the government and more importantly dynamism of the private sector entrepreneurs along with extremely hardworking but civic workers. Now the number of RMG units is more than 5,000 and the export earnings have exceeded USD 24 billion with 145 countries using `Made in Bangladesh’ knit garments and 126 countries using Bangladesh woven products. Analysts are telling-the apparel export numbers can be more than tripled by 2020.

A latest report published in ‘Wall Street Journal’ on a Mckensey analysis shows optimistic figures despite number of negative developments around the sector in Bangladesh. McKensey finds no other option other than Bangladesh especially for bulk or high volume garment production. That report got Bangladesh better positioned than Cambodia & Vietnam. But the further developments including the latest wage hike in Bangladesh gives reasons to reassess the scenario.

No more the only option:

Happenings of current months in this South Asian region, is to bring a major change in the global apparel supply chain. Bangladesh had a clear advantage in wage and so it was cheapest in making garment. The new wage declared recently brings out a distinctive shift in that. Workers’ pay would be similar now in countries like Bangladesh, India & Pakistan. Recent currency depreciations in India & Pakistan are giving them an upper hand. Other cost components of doing business is potentially high here in Bangladesh. Namely cost of capital, political instability cost, cost occurred due to improper infrastructure, cost of interrupted power & gas supply and vandalism & turmoil cost. If Bangladesh cannot resolve the unprecedented and unexpected wraths on the garment sector, the growth here is to be stopped and orders can be shifted to countries like India & Pakistan.

The ill cycle behind:

It is understandable that the growth could have been even more but there are reasons why progress was not as expected. And also we cannot say that the vicious cycle of struggling of RMG sector has ended or will end. Foreign buyers squeeze the suppliers every year to sliver the cost per unit of garment; garment manufacturers, on the other hand, compete with each other by under-cutting one another’s prices; consequently price declines further. An added wage hike would hit this process badly. On the other hand, with a lower profit margin, manufacturers refuse to undertake costly renovations and discover different means of maximizing profit. One way they do this is by subcontracting their production to smaller non-complaint factories. Sometimes this is carried out without the knowledge of the foreign buyers and that is why a lot of global clothing brands deny their authorizations in the factories even though their labels were found in the rubble after accidents. Low levels of work safety especially available in those subcontract factories also pose a massive problem. Between 2000 and 2013, more than 1,500 lives perished in garment industrial disasters caused by fire, building collapses or stampedes. Fire breakouts are the most common, with two out of three accidents recounting to faulty fire extinguishers and electrical short circuits. Though industrial accidents are a recurring phenomenon, the trend is not exclusive to Bangladesh.

 Other challenges remain the same:

Economists identified high lead time, less productivity comparing to other competing nations along with that poor law and order situation and infrastructure bottleneck remain as the major impediments for garment industries. In the absence of adequate number of backward linkage industries, duration of producing apparels take comparatively more time, as enterprises need to import raw materials and face an unnecessary delay due to bureaucratic Red Tape, sluggishness of customs formalities and the loading and unloading of ships. In order to shorten these periods, the garment manufacturers tend to force their workers into lengthy working hours when a large order comes in, but this arrangement, which ignores the workers basic right, is ineffective in both the short and long term in international business. The majority of workers receive training on the job. Regional basic sewing schools, as vocational training institutions currently are there in enough number.

Immediate focus should be:

To adapt announced new minimum wages, the manufacturers require significant efficiency increases to offset the rising costs in the future. These require investments in vocational training institutions. Bangladesh is in fact paying very high salary against each piece of garments sewed as per the information from the owners association, BGMEA. Paying to trained skilled and efficient worker is not an issue as they already have very potential demand in the industry and they are earning a lot. From product to worker sector’s main focus would be value addiction.

If not, the manufacturers will keep on discovering loopholes in order to decrease costs. Despite that garment sector could triple by 2020, employing six million people. This depicts that the productivity of the industry may rise as it moves towards high value exports. To address the current problems the government can develop a system where tax holidays are attached to factory compliance. Moreover, vocational training schools should be fit in the factory premises. The garment factories must train a certain number of workers per year; such term can be brought into as a legal obligation for the factories. A clear roadmap of wage increments is crucial so that manufacturers can adjust costs with having future wage increments in mind. A sudden politically motivated decision like the latest one must create similar series of instabilities that happened through last six months. Such unprecedented loss and cost is being paid frequently and so many of the factories are becoming sick.

 Resilience is the ultimate resistance:

Last but not the least, Bangladeshi RMG and textile industry is to sustain. From micro economy to macro economy, from personal earnings to social earnings all depends on this sector for around 20 million people in the country. Whatever you earn, more or less is the garment sector. It is true we must try to improve our earnings our livelihood, our standard of life. And the country is doing that having a base on the RMG & textile sector.

On the other hand, when we have a builtin history and reality of living amid scarcity of resources and opportunities, RMG & textile industries are the key reasons our economy is growing. Building through struggle, growing amid problems, Bangladeshi people has their most resilience to withstand all these difficulties. Owners to workers all are really working hand in hand to make these changes possible.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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