International expectations about our RMG industry

Ambassador Muhammad Zamir

There have been several interesting developments with regard to the existing dynamics within the paradigm of the Ready Made Garments industry. The renewed attention about its different facets has partially been evoked by its continued success in being able to overcome challenges. It has also been due to the inter-active engagement by some of the stakeholders, both from within as well as from abroad.

This interest for the well-being of this important sector that employs more than 4.5 million workers, mostly women, was reflected at the end of September with an announcement that the International Labor Organization has decided to set a target to bring additional garment factories under its Better Work (BW) programme by June, 2017. This is being done to ensure greater social compliance and workers’ rights. Louis Vanegas, Programme Manager of BW Bangladesh has revealed that at present, 98 garment factories in Bangladesh are members of the BW programme. Now they are going to target the engagement of another 225 factories by the end of next June and 500 factories by the end of 2021. It may be recalled that this programme, sponsored by the ILO and the International Finance Corporation in Bangladesh after the Rana Plaza tragedy a few years ago.

At present the BW operates in seven countries across the globe- Bangladesh, Cambodia, Indonesia, Vietnam, Jordan, Haiti and Nicaragua. Their present monitoring involves 1,300 factories, employing more than 1.6 million workers. In the context of Bangladesh, at present, they are, under this programme, covering 98 factories, employing 201,995 workers. Their activities, however, are not in conflict with the ongoing inspection regime of garment factories as undertaken by the two foreign agencies- Accord and Alliance.

This scheme aims to improve working conditions and social compliance within the matrix of growing competitiveness in the global garment supply chain. This involves ensuring better social dialogue to resolve ant crisis in the garment sector- like wage increase, ensuring better productivity cleanliness in the workplace, dismissal threats, abuse of probationary contracts and better worker management. Researchers have apparently found that BW’s supervisory skills training have facilitated an effective strategy for improving working conditions and empowering women within this industry.

Those running the BW programme have referred to a study carried out by the Tufts University that has revealed that the BW programme has facilitated in achieving significant gains in the quality of life for workers in the factories and has also enhanced productivity and profitability for the factories concerned. In some cases, greater productivity has resulted in higher take home pay and lesser concern with working overtime on poor wages. It has also been pointed out that production line overseen by supervisory skills-trained female line supervisors, particularly in Vietnam, increased factory productivity (when compared with lines overseen by supervisors who had not received such BW training) considerably. Given this view, the possibility of greater association of the ILO in imparting BW training should assist Bangladesh.

One needs at this point to take a holistic evolving view pertaining to our RMG trade in the recent past. Exports of RMG from Bangladesh to the European Union rose by 4.2 per cent in the calendar year 2015 and exports reached 8.0 per cent growth in the first quarter of the current year. Compared to this, exports of RMG from Cambodia to the EU shot up by 12.6 per cent in 2015 and again by 17.7 per cent in the first three months of 2016. EU clothing imports from Pakistan also rose by 6.5 per cent in 2015 and by 8.4 per cent in the first three months in 2016. EU imports of clothing from Vietnam also increased by 3.2 per cent in 2015 and by 1.6 per cent in the first three months in 2016.

Apparently, this growth in some of the other Asian countries has been due to the EU shifting their sourcing during this period from China. This was partially also due to the fact that several companies in China moved, or planned to move some of their clothing production to other countries in order to benefit from abundant supplies of cheap labour and also preferential terms of trade, applicable for these countries with regard to their exports to the EU and the USA. In fact according to available data on Global Apparel Markets, EU clothing imports from China plunged in volume by 9.9 per cent in the first quarter of 2016.

It is understood that some manufacturers in Bangladesh have also been trying to take advantage of this emerging situation. However, their results, till now, have not been very successful. One hold-back has been the excessive monitoring by outsiders of the different factors associated with safety and other elements pertaining to our RMG industry since the Rana Plaza disaster. The other factor has been the rise in export costs after the recent spate of terrorist attacks in Bangladesh. The government’s firm action in tackling terrorism is slowly ushering back confidence, but some damage has already taken place- both in terms of buyers and their representatives coming to Bangladesh to place orders and transporting such RMG items by air to destinations in Europe, Australia and some other countries. Responsible Bangladesh authorities have initiated special security measures and zero tolerance has been initiated in this regard. It is consequently being hoped that the storm will slowly pass away across the horizon.

Other multiple factors have also affected the initiatives undertaken by RMG entrepreneurs to diversify their product destinations in 11 non-traditional markets- Australia, Brazil, Chile, China, India, Japan, Korea, Mexico, Russia, South Africa and Turkey. Factors like higher duty and complex rules of origin have not been helpful for Bangladesh products. It may be recalled that apparel exports to non-traditional markets witnessed more than 20 per cent growth during the period- FY 2011-12 to FY 2013-14. This rate of growth has however slowed down to 10.48 per cent in FY 2015-16. The rate has since come down to 8.90 per cent. Out of the $4.31 billion apparel exports to non-traditional markets, including the 11 prospective ones, in the last fiscal year, knitwear fetched $2.11 billion and woven wear $2.20 billion. In the last fiscal, apparel export to Brazil and Turkey fell by 35.53 per cent and 5.69 per cent respectively. Shipments to South Africa however witnessed 0.49 per cent growth. Exporters have since blamed high duty and tariff barriers- 33 per cent in Brazil, 30 per cent in Turkey and Mexico and a tariff structure ranging from 40 to 50 per cent in South Africa for our poor export performance to these countries. Turkey being an apparel producing country has initiated this response to safeguard its domestic manufacturers. BGMEA has also indicated that failure to expand RMG exports to Latin America and Central American countries are also partially due to the difficulties associated in visa processing facility.

It would also be important to note here that though the EU accounted for $17.15 billion, about 61 per cent Bangladesh’s total RMG exports ($28.09 billion) last fiscal, only $143.77 million came from nine East European countries- Bulgaria, Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia, Slovenia and Croatia. Bangladesh had put in a lot of hope towards increasing export of RMG products to Russia but that has also not been possible due to high import duty that goes up to 20 per cent. In addition to this, there is also the additional charge of 18 per cent VAT. Frequent fluctuations in the Russian currency rate and also the practice of Russian buyers resorting to deferred letters of credit, ranging from 90 to 120 days have also discouraged potential Bangladeshi exporters. The only optimistic note came from our exports to Poland and the Czech Republic. Our overall exports to these two countries grew remarkably to $616.27 million and $ 414.37 million respectively last fiscal against $322.74 million and $63.75 million in FY 2011-12.

Bangladesh RMG manufacturers are trying to take their challenges in their stride and overcome them through innovative solutions. Analysts noted towards the end of August that diversion of orders from Bangladesh’s rivals has opened up new opportunities for local denim goods producers. To cope with increasing demand, the country’s denim industry is taking steps not only towards expansion of production facilities but also upgradation. This development has assumed importance because 66 international brands have already expressed special interest in this Bangladeshi RMG sector. These buyers from the EU and the USA are interested to source denim products from Bangladesh bypassing China, India, Pakistan and Vietnam.

On the other side there has also been the disappointing report in the media on 27 September that after warnings from Alliance and Accord, international buyers from the EU and USA have decided not to buy RMG products manufactured by nearly 150 Bangladeshi RMG industrial units. Apparently, despite criticism, these industrial units failed to achieve the desired work-place safety requirements suggested by these monitoring authorities.

This measure has lent greater importance to some of the observations made by Lilianne Ploumen, the Minister in charge of Foreign Trade and Development Cooperation of the Netherlands during her visit to Bangladesh at the end of September. She accepted that Bangladeshi producers had brought in expensive improvements in their factories and had also marginally raised the salaries of workers. In this context, she also indicated that there was need for more transparency among all the stakeholders in the supply chain- the retailers, producers and the workers. She also noted that despite many expensive improvements within the manufacturing infrastructure, retailers’ payments to the garment makers had risen only by 1 per cent in 2015 compared with 2012. This had to be addressed by the retailers.

One needs to add here that she appears to have overlooked the massive profits being made by middle-men who function in their capacity as representatives of buyers. This is an area that also needs to be addressed more seriously. A reduction in their margins of profit and increased prices for RMG products could enable the manufacturers to provide better wages and improved social care for the workers, particularly the women workers. This, in turn, would also afford better human rights for them.

In the meantime the wise decision by our government to form a new Remediation Coordination Cell (RCC), to start working in full swing from 2018 after Accord and Alliance have completed their task, should help in the continued positive monitoring of the RMG industry.

Initially the RCC will focus on building available capacity of the Department of Inspection for Factories and Establishments (DIFE). However after taking full responsibility in 2018, the Cell will provide all necessary support to the garment sector for maintaining standard, safety and security.

All stakeholders need to work together. Bangladesh has shown the world how commitment can take a country forward. It has been a difficult task. However, there is no need for disappointment.