RMG under threat

The raging controversy over wage hike in the RMG sector continues. Although the garments owners have agreed to pay the minimum salary of Tk.5,300 recommended by the wage board, workers have said that they would not settle for less than Tk.8,114. The current wage level is one of the lowest in the world and their fight against unsustainably lower wages is understandable given the growing cost of living.
At this stage of our industrialisation, RMG is the driving force of all economic activities. Despite the low wages, it still has brought about a big social change, especially in the lives of women.
There are number of stakeholders involved with this sector — factory owners, buyers, workers, government, to name a few. An allegation against factory owners is that they make huge profit, but one needs to understand all factories are not same in size and capacity. Among many, only a handful of big factories are getting direct orders from the Western buyers and the rest of them are doing the sub-contract jobs and, as such, their production cost is different and so is their profit.
Moreover, in most cases fabrics and all other accessories needed to make clothes are usually supplied by the buyers and the factories get only the sewing cost. The breakdown of $1 paid as the sewing cost for garments is somewhat like this — the cost of fabrics 60 cents, other accessories 10 cents, wastage 5 cents, documentation and handling 3 cents, transportation 2 cents and establishment and overhead cost 20 cents. Actually, the factory has to spend the 20 cents to pay wages and meet mortgage payments on any loan, or meet fixed and other variable costs. Cost of productions becomes higher when shipment needs to be sent by air because of hartal or other disruption.
At present, we are producing mainly entry-level mid-market products, and opportunity to get into other levels of apparel business is very high. In March 2012, McKinsey released a report stating that 86% of purchasing officers in Europe and North America expect to reduce sourcing from China, and 89% expect to increase sourcing from Bangladesh. Industry experts are claiming that buyers do come back to place orders repeatedly, but every year they lower the price further. Some independent garment activists have authenticated the fact that since 1988 the costs of women’s clothing have fallen by 7% and men’s by 8% in North America. In the UK, costs have dropped 20% since 2005. Retailers sell clothes at much higher rates than what they pay to factories. Shirts that sell for $20 in United States are made in Bangladesh for about $1.80, which is about 11 times of the FOB (Free On Board price).
The above situation reminds one of the British Raj, when our poor farmers had no choice but to cultivate indigo. Prices were dictated by the planters, which were so low that the farmers could not even recover their production cost. But the planters made profits by exporting indigo to other countries. Similarly, garments buyers are also making big profits in collaboration with some local agents, but most of the factories are struggling because of low prices offered by the Western buyers.
Nevertheless, we must accept the fact that it is the cheap labour cost that has made Bangladesh a competitive place for apparel manufacturing. Having said that, low wages for protecting the cost advantage is not a sustainable solution. We need to find other ways to become competitive.
The government cannot escape its responsibility by merely announcing a minimum wage. In order to make the sector competitive it needs to provide required infrastructure, uninterrupted power and gas supply and, most importantly, security and safety for all.
Our labour productivity is known to be lower compared with our regional competitors. Garment workers are mostly women with little education and training. The employment of unskilled labour by the garment factories results in low productivity and comparatively more expensive apparels. Therefore, all the stakeholders must take measures to enhance the skill of workers by providing vocational training.
Many owners are claiming that 77% increase in minimum wage might force some factories to close if they are not able to pass the cost to buyers. Since western buyers are the main beneficiaries and have plenty of room to adjust, they should offer fair prices to make the situation better.
Labour movement needs to do things to improve workers’ lives, and is most beneficial when it is tied to the fortune of the industry and not the politics of the country. But in the name of protest, the burning and vandalising of public transport, private vehicles, trains, shops and factories might bring more harm than good to them in the long run as businesses generally tend to avoid unstable and conflict-prone areas.
With no other sector looking as potent as RMG sector, it is fair to assume that the country will be dependent on this sector for the next ten-fifteen years. Many have termed this sector as a Golden Goose; unfortunately the golden goose that lays golden egg is under threat of being slaughtered at the hand of a section of greedy and unruly people. Let us preserve the Goose until we find some other business and move up the development ladder.

The writer is a businessman. E-mail: [email protected]