Govt-guaranteed fund needed to speed up factory upgrades: H&M
A government-guaranteed fund is needed to finance remediation of garment factories as many small and medium units are yet to complete upgrades due to a shortage of low-cost funds, a leading international retailer said yesterday.
“Remediation or relocation of the units will not take place in Bangladesh if there is no guaranteed loan from the government,” said Roger Hubert, chief representative of Swedish retail giant H&M Group in Bangladesh.
As of today, there is no such fund or guarantee provided to the commercial banks, so they can issue low-cost loans to small and medium factories under a covered risk, he added.
At the launch of a report -- Remediation financing in Bangladesh's readymade garment sector -- at Westin Dhaka, he said 71 percent of remediation work has been completed in more than 250 factories that H&M sources from.
The International Labour Organisation and International Finance Corporation jointly launched the report, while retailers, garment makers, exporters and diplomats were present.
The rest 29 percent of remediation work is in progress as the factory owners have opened letters of credit to import safety equipment, he added.
Owners of about 3,800 factories in the country are now remedying their units as per the recommendations made by the engineers of Accord, Alliance and government sponsored inspections, to strengthen workplace safety. So far, more than 60 percent of the work is complete, according to data from the Department of Inspection for Factories and Establishments (DIFE).
The relocation of factories from Dhaka to nearby areas is not an easy task, but it is possible, said Hubert.
He also called upon brands and retailers to commercially support the small and medium manufacturers, either by increasing the price of items, raising the purchase volume or by extending the business relationship with the suppliers.
“Bangladesh will stay competitive. We have to target modern and sustainable industry standards. The local commercial banks can also finance the factories with low interest rates to help in remediation,” said Hubert.
“Orders are coming to Bangladesh as there are not too many alternatives. China, the largest apparel supplier worldwide, is losing market share. Bangladesh should focus on complex and fast fashion. The sky is the limit in terms of products as the work orders are here,” said Hubert.
“Investment needs to be made in remediation so that the factory remains safe. All the prerequisites have been done, now only remediation is needed,” he added.
Regarding the delay in release of funds from different agencies, Faruque Hassan, vice-president of Bangladesh Garment Manufacturers and Exporters Association, said more than a hundred meetings have been held in the last three years, but nothing could be done to finance remediation of the small and medium factories.
“I do not know exactly how many factories received money from different brands and retailers for remediation work,” said Hassan.
The Japan International Cooperation Agency (JICA) provided a fund to the central bank of Bangladesh at an interest rate of 0.01 percent, but the scheduled commercial banks have been demanding more than 10 percent to disburse it to borrowers. So far, only one company could receive loan from the JICA fund.
Many other manufacturers could not receive the loan because of complexities in documents required, while Rajdhani Unnayan Kartripakkha (RAJUK) also delays releasing documents.
The government will soon form the Remediation Coordination Cell (RCC) to settle different issues, like availability of low-cost funds and simplification of the terms and conditions of the funds, said Syed Ahmed, inspector general of DIFE.
“We have to make the conditions to remediation financing simple so that the factory owners can take it. The government will not compromise on workplace safety.”
“There must be a special arrangement for easy remediation financing at an interest rate of 4 to 5 percent. But all the garment owners do not need the financing from this fund,” said Ahmed.
The total cost of remediation in the Bangladesh garment sector, prior to any remediation efforts, was estimated at around $929 million, according to the report.
The report also said that if no remediation efforts had occurred, the cost of remediation for factories under Accord would amount to $403 million, $362 million for national initiatives and $162 million for Alliance. Of the $929 million, work of $294 million has been done so far.
According to the study, the cost of remediation can range from $20,000 to $900,000 per factory.
The total remediation cost for 80 percent of factories ranges between $100,000 and $250,000. It is estimated that 75 percent of factories in Bangladesh will not need large structural retrofitting work, and therefore will fall within this range.
The study also includes a review of Bangladesh's banking sector and the credit facility recently developed by international organisations such as IFC, JICA, and USAID, which make available some $187 million specifically for garment sector remediation.
Bernardo Contri, senior consultant at Emerging Markets Consulting, presented the paper.