The season of light and the season of darkness
Rubana Huq and Annisul Huq
It is indeed the best of times and the worst of times for Bangladesh's RMG sector. With the rest of the world not offering any substantial capacity in producing apparel, Bangladesh faces a tremendous potential to grow in quantity, value and repute. And of course, it is the worst time ever with 1127 deaths haunting us every night.
Consumers are reacting to Made-in-Bangladesh labels, activists are lining up in front of the stores importing from Bangladesh, buyers are anticipating more hiccups from our end and we are facing wrath, locally and internationally.
The EU trade commissioner has warned that he would be initiating an investigation, which could negatively impact our EBA (everything but arms) scheme. The US is also reaching their final verdict in regards to generalised system of preferences by June, which could impair our image.
Brands are fond of Bangladesh, but because of international NGO pressures and risks to a brand's reputation, many may rethink their sourcing strategy and consider shifting from Bangladesh, in the long run. This will clearly spell disaster for the country. In order to address this possibility, this industry needs a paradigm shift in the short, medium and long term.
We have formulated our proposals based on which a process of remediation can begin and also be modified in any manner deemed fit by the experts.
A quick look at the garment industry is needed at this point. Under Bangladesh Garment Manufacturers and Exporters Association (BGMEA), we have 4,382 factories, employing around 3.5 million workers. Of the total, Dhaka has 3,292 factories, Chittagong 788 and Narayanganj 314. A total of 2,068 factories are direct exporters with UD (utilisation declaration) status and the rest are indirect exporters, as per BGMEA data.
Under Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), there are 1,870 plus registered factories that employ 600,000 plus workers. Of these, 900 directly export obtaining UD; 500 of these factories could be rated as Tier 1 and the remaining 400 as Tier 2 and 3. There are 270 factories that are associate accessory units, while the rest 700 is reported not to be in production or has no existence.
In reality, there are a few hundred factories that are closed in both BGMEA and BKMEA. The system has allowed the leakage and there are many factories that exist possibly only on paper because of many bad years in business.
The first step would be to exercise diligence and scrutinise the existence of all factories falling under Tier 1, 2, 3, closed, and only registered factories without any existence. Since BGMEA and BKMEA are voters' organisation, this assessment needs to be done by a third party, as BGMEA/BKMEA cannot be expected to do a neutral investigation.
This should be completed by August 2013 so that the government -- starting September -- has a clear document reflecting a clear picture in hand. This will enable the government to plan on a short, medium and a long-term basis. However, the immediate closure of factories out of panic is not recommended. This is not going to be beneficial for the owners or workers.
Relocation is going to be the next big requirement for a medium and long-term solution. Of the factories we have, almost 33 percent have 100 percent compliance problems or can be identified as Tier 3 factories.
For example, 1,568 factories exist in Dhaka where 647 factories have direct export, and 500 could fall under the second tier of compliance. Therefore, we can safely say at least 1,000 factories need to be relocated.
Relocation needs not be done in one go and to one place. These factories could be split in two phases in two different locations. The process can be replicated in Chittagong as well, so that the factories can be relocated in four years.
What is this going to cost?
Ideally, a worker needs approximately 50 square feet of space in a compliant factory. If 500 workers of a small factory need to move, they will need 25,000 square feet of floor space.
The government should kindly provide raised land at subsidised price, which can be paid by the manufacturers. The total requirement per project for 1,000 factories will be Tk 10,000 crore which could initially be funded by the government and later adjusted gradually from the exporters' export proceeds. The related infrastructure and utilities must also be provided by the government. With this in mind, the government should allocate Tk 3,000 crore in the upcoming budget for project implementation on 'khas' land.
While current minimum wage isn't enough to match the living standards of a worker, a few details would have to be outlined at first. Post Rana Plaza, there were a few factories that were identified as high-risk establishments. At this point, the quick fix solution for all was to immediately address the wage issue. The question is, will it solve the problem? Are the brands going to agree to buy at a higher price? Will the consumers remember the Rana Plaza incident and pay more for the same basic product? How many consumers look at the 'Made in' labels?
Brands shop for the best price, quality, quantity and compliance. If the first one, price, comes under discussion, they still have the option to source from other competitive markets. Given that we have the maximum capacity to offer, will simply capacity be enough to hold back a customer from moving to other countries?
Before taking any step further, BGMEA, along with the government should have discussions with the brands on how far the brand's pocket can be stretched.
The point on the retroactive payment of wage hike does not make sense as no manufacturer has calculated this up charge in their margins and the minimum wage hike should be given at least three months notice for the manufacturers to enter into fresh margin negotiations with the buyers. Besides, discussion of a raise in minimum wages must be linked with productivity.
However, at this point, a welfare trust could be set up with the brands paying 1 percent of the FOB (free on board) price and the manufacturers paying 1 percent of their value addition. This could help build up a healthy fund for the workers to fall back on.
As for the fire safety and building code, a few brands have signed up to fund and monitor factory audits, independent of the country's regulations. These audits would be ordered and carried out under the supervision of safety inspectors and their teams as appointed by a Steering Committee headed by a neutral chair and assisted by three manufacturers and three labour leaders.
The brands would be paying $500,000 on a yearly basis to ensure that remedial actions are undertaken in the factories, which need the reforms the most.
Frankly, the cost of turning a Tier 3 factory to Tier 1 would cost around $12,000. Equipment alone would cost Tk 700,000 (a public address system would cost Tk 200,000) while fire training to 100 percent workers would cost another Tk 215,000. Therefore, factories that have sound structure could easily re-address their fire safety issues and remedy them immediately on a short-term basis.
All parties, including the government, BGMEA and the brands must act fast and unite under the same umbrella.
Rubana Huq is the managing director of Mohammadi Group. Annisul Huq is the ex-president of BGMEA, FBCCI and Saarc Chamber of Commerce.
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