About 50,000 workers have lost their jobs as 50 small and medium-sized garment factories have shuttered their operations since April mainly because of higher cost of production and lower prices offered by foreign buyers.
The closure will take the number of SME apparel factories that went out of business in the last one year to more than 200 units, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
“We are in a very unpleasant situation,” said Rezwan Selim, director of the association who is mainly tasked with dealing with labour and payment issues.
There are more than 1,000 SME units in the garment sector, each employing between 500 and 2,000 workers, according to industry insiders.
Almost every day owners of the SME units are contacting the BGMEA about problems they are facing in running their factories, Selim said.
The businessman also blamed the recent wage hike, lower work orders to the SME units and the recent free trade agreement between Vietnam and the European Union for the SME units’ current woes.
The smaller units can hardly afford to pay the increased salary that came into effect in January, he said.
Many work orders are shifting to Vietnam, one of the competitors of Bangladesh, because of the free trade deal.
Another important reason is that larger firms’ sub-contracting work to SMEs has been restricted after the Rana Plaza building collapse in April 2013.
“The situation is like the survival of the fittest,” Selim said.
The bigger units are getting bigger as they can afford the higher cost of production and have negotiation skill, he added.
Like many others, Rafiqul Islam, managing director of Designtex Sweaters, wound up his Konabari-based factory in June.
“I was incurring losses and finally decided to close my sweater unit, which I ran for 18 years.”
Before the closure, Islam used to export $20 million worth of sweater items annually, selling each unit for $4.5 to $4.70. Every month, he used to pay Tk 3 crore in salary and another Tk 1 crore in other expenses.
“However, in recent months I had been facing a lot of difficulties and finally decided to shut down the unit by paying all the dues to 2,500 workers. Like me, many other SMEs may face the same fate as they are also confronting difficulties.”
Islam is running two units now.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, echoed the same as Selim and Islam. SME garment units are facing multiple challenges. Primarily, they have capital shortage and low negotiation skills.
The restriction on sub-contracting is a major threat for the units as most of them were dependent on the bigger units overloaded with work orders, he said.
“Now they can’t do the same job because of poor compliance.” The units have spent a big amount from their own pockets for remediation of factories as per recommendations of the Accord and the Alliance.
“The SMEs are a strength to any economy. They should improve the compliance so that the bigger ones and retailers can place work orders with them.”