The RMG sector's defining year

The RMG sector's defining year

Photo: star
Photo: star

According to a recent report by World Bank, Bangladesh is an unpolished diamond. The country was able to reach such a new height riding on the thriving ready-made garment (RMG) industry over the three and half decades.
The nation's economy was elevated from the poverty line to a sustainable growth rate due to a growth of the RMG sector.
Bangladesh has been maintaining a 6 percent economic growth for more than a decade only for the growth of the RMG sector, which created millions of jobs and pumped billions into the economy.
With its pride in quality and competitiveness in price, the RMG sector grabbed the position of the second largest apparel supplier globally after China.
Currently, Bangladesh's share is nearly 5 percent in the $450 billion RMG business globally. Bangladesh exported $21.51 billion in the 2012-13 fiscal with nearly 20 percent year-on-year growth despite a volatile global financial system and internal political crisis.
But the nation's RMG sector came under scanner and it posed a national challenge which needs to be attended to as soon as possible for ensuring sustainable business growth.
Bangladesh's RMG sector was headlined over the last year globally due to the nation's two deadliest industrial disasters --- Tazreen Fashions fire at Ashulia where 112 workers died on November 24, 2012 and the Rana Plaza building collapse at Savar where 1135 workers died and numerous were injured on April 24 last year.

Image crisis
Image crisis posed a major challenge not only for the RMG sector but also for the nation as a whole. The image crisis was created due to the Tazreen Fashions fire and the Rana Plaza building collapse.
The international retailers, brands and rights groups raised questions about safety compliances of the sector after the disasters.
The country brand came under question for weaker compliances in the sector. The safety standards and workers' rights are not properly monitored in the RMG sector.
After the Rana Plaza building collapse many customers chanted slogans in front of the shopping malls to protest the death of so many workers.
Consequently, more than 150 retailers and brands, mainly the European ones, signed the historic legally binding Accord on Fire and Building Safety in Geneva May 13 last year.
The signatories will inspect more than 1,600 garment factories in the country to ensure fire and building safety in the RMG sector.
Similarly, 26 US-based clothing retailers and brands signed the North American Alliance (NAA) to inspect 500 garment factories to ensure safety standards.
Under the National Action Plan (NAP), a 30 expert panel led by Bangladesh University of Engineering and Technology (BUET) started inspection of nearly 2000 garment factories from November 21 last year to ensure safety of fire and buildings.

Political crisis and trouble in business
Political crisis hampered the garment sector a lot over the last one year. The sector was greatly hampered over the last one year when the opposition parties imposed 75 days of hartals and blockades since January 1 to February of this year.
The miscreants burnt the goods laden trucks from the factories going towards Chittagong port. The garment makers could not carry the goods to the port for export from the factories. The international retailers started asking whether they will be able to cater the work orders as the political crisis deepened further.
Perennial gas and power crisis: Inadequate supply of gas and power to the industrial units has become a perennial problem now. Many garments units, mainly the composite garment units, are failing to start production only for the lack of gas connections in the factories, although those were constructed a lot earlier. China, the largest apparel supplying country worldwide, is losing its share globally for price competitiveness and shortage of workers and shifting to high-end technologies.
Poor infrastructure problem: With inadequate supply of gas and power, the poor infrastructures became a major challenge for the ready-made garment (RMG) sector. Poor road communication and a messy traffic system made the sector vulnerable.
The Dhaka-Chittagong highway, through which 80 percent of the country's exports and imports are carried out, is still is a bad shape. The government is delaying the works of expansion of the road to four lanes.
The goods laden vehicles have to stand for hours in the traffic jam on the way to Chittagong from Dhaka and its adjacent areas due to poor road. Many garment exporters complained that they cannot meet the strict lead-time set by the international buyers due to this.
Dearth of skilled workforce: Three decades old garment sector is now suffering from 25 percent shortage of skilled workers as the country could not arrange vocational and technical education system for the workers. The training system is still very inadequate. Most of the workers get in job training. As result, they are less productive and the rate of internal migration of workers in the garment sector is higher. Very few workers had the opportunities to have the training before joining in their services. Since the rate of productivity from the unskilled and semi-skilled workforce, the owners depend on quantity of workforce for optimum level of production.
Crisis of industrial land: Many local and foreign investors are not getting adequate land for establishing industries for scarcity of land even at higher prices. It will be very difficult to get a suitable industrial plot in the Dhaka-Mymensingh, Savar, Ashulia, Narayanganj and Narsingdi industrial belts for setting up new industrial units.

The challenge of GSP continuation
The international community put the sector under pressure for laxity in safety standards and poor workers' rights in the factories.
With such untoward incidents the United States Trade Representative (USTR), the US government's chief trade negotiation body suspended the country's GSP (Generalised System of Preferences), a trade privilege, to the US market June 27 last year.
With the suspension of the trade benefit, the USTR has also given a roadmap as the action plan for regaining the status.
The US has given 16 conditions to improve the situation for getting back the GSP. Although, the GSP to the US market is not much important for Bangladesh, still it is important for the image of the country.
Bangladesh used to export only 0.54 percent which is nearly $26 million, of its total exports to the US market annually.
Moreover, Bangladesh's main export apparel items did not enjoy the zero-duty benefits under the GSP. This is why Bangladeshi garment exporters pay 15.3 percent duty to the US customs on export of apparel items.
In 2012, Bangladeshi garment exporters paid $746 million to the US customs for exporting a little above $5billion worth of garment items. But, Bangladesh was supposed to enjoy zero-duty or low tariff rate to the US market as the country is still a member of the Least Developed Countries (LDCs).
With the suspension of the US GSP, the EU has also come up with some cautionary measures to avert further collapse of the factory buildings in Bangladesh.
The EU signed the Sustainability Compact with Bangladesh involving the International Labour Organisation (ILO) for observing the improvement of labour rights, safety in the work places and building up good relations with the international stakeholders.
Under the Compact the EU, country's single largest trade region where 60 percent of the total export go in a year, will observe the improvement of workers' rights and safety condition up to June of this year.
Bangladesh exported more than $27.02 billion worth of products in 2012-13 fiscal. Of the sum more than $14billion worth of products were sent to the EU.
If the situation improves further, the EU might not take any harsh trade actions against Bangladesh. But, in case of failure the EU might take trade action against the country. In this case, the EU also might suspend the GSP for Bangladesh.
Three agencies including Accord on Fire and Building Safety, a platform of 150 European led clothing retailers and brands, Alliance for Bangladesh Workers Safety, another platform of US-based 26 retailers and brands and BUET led 30teams have been inspecting the safety and building standards after the twin industrial disasters.
Here, also country's garment factories have been facing trouble to meet the higher standards of the fire and building safety.
The impact would be very serious if Bangladesh cannot face the challenges boldly. Firstly, the economy will lose out as many garment workers will lose their jobs due to failure in meeting the standards.
Currently, more than 4 million workers are directly employed in the RMG sector. The banking, insurance, transportation, ports, small and medium businesses are directly dependent on the RMG sector.

The way forward
The RMG business is not an individual industry now, it is a national industry. All efforts should be there to protect the sector, which is contributing nearly 17 percent in the national GDP annually.
RMG is the highest bread winning sector, so we should take care of it. The government's policies should help the sector thrive. Any deterrent in the sector will have a negative impact in the whole economy.
The government must maintain a very warm relationship with the major exporting countries so that the export remains unhurt in the wake of any crisis.
A new opportunity has been created for Bangladesh as China is losing its business for the higher cost of production over there.
If, Bangladesh can grab even a small percentage of Chinese shifting orders, the country's apparel business will continue prospering for long time.
The country should not miss this opportunity. Moreover, the garment export to the new markets is also increasing at a faster rate.
The country should also keep it up. Bangladesh should also develop its own brand globally as the country's pie in the global RMG trade is also increasing gradually.
The banking sector and financial institutions should also keep flow of capital in this sector so that new ventures come every year, which will help to increase the trade.
Both the government and the entrepreneurs should spend money to produce the skilled human resources for makingthe business sustainable.
Everybody should keep in mind that the business -----made in Bangladesh-----will keep bubbling for a long time worldwide.

The author is a writer for Star Business.


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