RMG sector in Bangladesh: Between a rock and a hard place

There is that old adage, don’t kill the golden goose. The garment sector in Bangladesh has been giving for many years now. Along with the remittances of overseas workers, the earnings by the RMG sector, Bangladesh has significant foreign exchange reserves of almost $14b. But it has come at a cost. Bangladeshi’s have received bad news on both fronts: Nov 2012: Tazreen Factory Fire kills 110, Jan 2013: Bahrain labour camp fire kills 10 Bangladeshis, Feb 2013: 19 Bangladeshi workers die in road crash in UAE, April 2013: 32 Bangladeshi workers injured in Greece demanding unpaid wages, and now the death of 300 people along with many more missing. Are these just hiccups along the way and we should not disturb the goose that gives, or are these to be taken as warning signs that the goose needs substantial makeover? One thing is for sure: impressive economic growth, averaging well over 6%, has been fuelled by the export oriented RMG sector and the remittances of expatriate workers. Consider the following observations by the Bangladesh Planning Commission: “The dynamism in manufacturing sector will benefit from greater outward orientation. Bangladesh has seen this from the highly positive experience of the Ready Made Garments (RMG) sector. . To increase the export potential as well as to diversify the export base, the Sixth Plan will seek to further reduce trade barriers within the context of the World Trade Organization (WTO) framework.” The same document goes on to comment: “Employment abroad and associated remittances have played a major development role in Bangladesh. This element of the employment strategy will be strengthened. In addition to the current strategy to export low skilled manpower, the effort would focus on the ability to export well trained skilled and semi-skilled manpower to existing as well as new destinations.” Bangladesh has made great strides: in many of the components measuring the Human Development Index, Bangladesh has pulled ahead of neighbouring SAARC countries, and many have forecast that with better governance and public policy, Bangladesh can move into the ranks of middle income countries by 2050. Poverty headcounts have fallen, from almost half the population to about a third of the population. But a third of the population means Bangladesh continues to be a country where a large number of people still live in poverty. The Planning Commission notes: “Notwithstanding this past progress, the Government recognizes that Bangladesh is still a low income country with substantial poverty, inequality and deprivation. An estimated 47 million people are living below the poverty line with a significant proportion living in households which are female headed, in remote areas, and consisting of socially excluded and other vulnerable people. Most of the labour force is engaged in informal low productivity and low income jobs.”What is clear in this planning document is what Bangladesh plans to rely on for continued economic growth. Despite gains, we still have a 47 million strong army of very poor people who will be willing to take all the risks that culminate in injury and death, both at home and abroad, to improve their lot. Our economic policies explicitly rely on continued availability of this work force to fuel our economic growth. Simply put, our current competitive advantage is not high productivity skills, but rather cheap labour, and our progress, at least in the immediate future, will depend on making this cheap labour available to the global economy: export goods made by cheap labour at home and export cheap manpower abroad. Prof. Anu Muhammad has written about value chain in the RMG sector, and according to him, “for every garment that is sold at $100 in the western market, the governments of those countries get $25, the foreign buyer makes $50 and, of the rest, a little more than $24 goes to the owners, raw material suppliers, etc, while the workers get less than one dollar.” That’s less than 1% of the total value added created. Yet that 1%, however meagre, has been of tremendous assistance to many poor households in Bangladesh. The RMG sector in Bangladesh got it started when manufacturers in countries like South Korea, hampered by export quotas and higher wages, shifted production to low wage countries like Bangladesh. And Bangladesh continues to benefit from rising labour cost in countries like China. 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. According to the report, exports from Bangladesh are expected to double by 2015 and triple by 2020. As the sector grows, pressure will grow to increase labor wages. The RMG is a low margin business, and unless there are significant productivity improvements, Bangladesh will have to rely on cheap labour to remain competitive. So, the story of low wage is likely to continue going forward, and yet, for many of the millions of people living still in poverty, the RMG sector, even with its low wages, may be the only hope to improve their lives and livelihood. We are shocked when events like fire and building collapses kill and injure many. We point fingers, and ask why we cannot provide a safer work conditions, if not better wages. Compliance has been an ongoing problem in the RMG sector. Mckinsey reports that on corporate social responsibility (CSR), Bangladeshi exporters have a poor record. Of the 5000 or so manufacturing facilities in the country, 50-100 factories have achieved high degree of compliance. That is 1% of all manufacturing facilities. Compliance takes money, and in a low margin business, where cost competitiveness is the only leverage Bangladeshi manufacturers have, the impact of compliance on cost is a real issue. Despite repeated safety events and calls to alter course, very few seem interested in paying for the cost of safer working conditions.Some blame the government and the owners. Says Laia Blanch of War on Want, “It is dreadful that … governments continue to allow garment workers to die or suffer terrible, disabling injuries in unsafe factories making clothes for western nations’ shoppers. How many more lives must be lost or crushed before ministers and companies act to stop these scandalous human tragedies?” Others point the finger at buyers. Sam Maher Sam of Labour Behind the Label, is quoted in the Guardian: “It’s unbelievable that brands still refuse to sign a binding agreement with unions and labour groups to stop these unsafe working conditions from existing. Tragedy after tragedy shows that corporate-controlled monitoring has failed to protect workers’ lives.” The Workers Rights Commission has been campaigning for a binding legal contract between buyers and workers representatives in Bangladesh that would require Bangladeshi manufacturers to improve fire safety standards with buyers making a commitment not to buy from manufacturers who violate safety standards. The agreement would have gone into effect if five large buyers signed on. Only two did. The programme has not been implemented. Charles Kernaghen, director of International Global Labor and Human Rights is quoted in CNN stating: “These are the lowest wages in the world, and the factories with the worst health and safety conditions. Yet the big companies love the cheap wages, the long hours, because they are all about the costs.” The NY Times quotes one expert from University of California, Berkeley, that the prices paid by Western buyers “are so low that they are at the root of why these factories are cutting corners on fire safety and building safety.” Bloomberg reports that at a meeting in Dhaka in April 2011, attended by many of the largest US retailers, including Walmart, to discuss a memorandum that would require the retailers to pay for improvements, the buyers refused. Walmart representatives are quoted to have said that modifications needed to improve fire and safety standards are costly, and with 4500 such factories, the cost would be prohibitive for the buyers. So that’s the trap: the golden goose is caught between a rock and a hard place. Garment manufacturing in Bangladesh is a low value, high volume business. Low margins and the need to remain cost competitive keeps owners from making safety improvements. Prof. Ross of Clark University states that, “factory owners are in a bind. They are forced to be ruthless and brutal, and they are.” Successive governments have failed to bring about change in the manufacturer’s attitude, convinced by the argument that buyers could simply move business elsewhere if costs rise. In many ways, governments are complicit in pushing the problem aside. Following the Tazreen fire, the government’s investigators concluded that the fire was a result of sabotage, exactly the same conclusion reached by the BGMEA. Sabotage by whom and why we never heard about, but sabotage rules out negligence and absolves the owners of responsibility. Convenient! Publicly available estimates suggest that upgrading safety standards would cost about $3 billion. If spread over 5 years, the upgrades would cost about 10 cents per piece of garment exported out of Bangladesh. $600 million per year committed to prevent major disasters does not seem like a large number. But think about it, if it saves 300 lives, that’s a cost of $2 million per life of a worker whose skills have an economic value of maybe $1000 in wages per year. It is much cheaper to mourn and pay workers families $2000 each in compensation. Incentives are indeed very skewed. How much do we really care? Yes, when it happens en masse, we express our grief and shock, declare a day of mourning, keep our national flag half-mast, and observe a moment of silence. But in our country things like these are daily occurrences: two burned alive when vehicle set on fire during hartal, five killed by police shooting, three killed by having their arteries slit, seven killed by mob, two killed in crossfire, missing without trace, and the list goes on. Take each category and add up reported deaths in daily newspapers, and it won’t be long before the number 300 is reached. A number like 300 dead all at once shocks us and makes it a lot more difficult to digest than the stream of one’s and two’s that die needlessly every day. In the last 6 months we have seen 400 workers die in factory fire and building collapse. If that same figure is stretched over a year, that is about one death a day in an industry that employs over 3.5 million workers. Looked from the latter perspective and from the cost benefit angle, a hiccup and not an unmitigated disaster! A rather sad commentary on the very poor in our midst, who have lost lives and livelihood.