Dhaka, Bangladesh (BBN)-A year after Bangladesh’s garment manufacturing industry faced one of the deadliest industrial accidents in modern era, prompting some American retailers to stop buying apparel made in the country, there are signs that business is starting to grow again.
During the first nine months of their fiscal year, exports of garments rose 13 percent compared to same period last year, according to Bangladesh’s Export Promotion data, reports storysouthasia.com.
But the gains follow several months of contraction that began after the collapse.
Export growth rates declined to 4-6 percent between July and September and then dipped again at the start of 2014 because factories were shut for almost a month following the country’s turbulent political situation.
Despite an increase in worker wages and production costs, “financial numbers have shown great resilience,” said Zaid Bakht, Research Director at the Bangladesh Institute of Development Studies.
Bakht and all other sources in this story spoke on phone interviews to storysouthasia.com.
In April last year, 1,135 people had died and many others were left severely injured when the nine-story Rana Plaza complex on the outskirts of the capital city Dhaka, the hub of the garment manufacturing industry, collapsed in the biggest industrial disaster in the country’s history.
Readymade garment manufacturing forms Bangladesh’s biggest industry with as many as 5000 manufacturing factories.
In barely three decades, competitive labour cost and a high baseline skill level in this industry made Bangladesh the world’s second largest producer, after China, for the global garment retail business.
With an industry worth of around $20 billion a year, the apparel industry accounts for almost 78 percent of the country’s exports, contributing 10 to 12 percent to the country’s GDP.
Industry experts say that so far the export rates remained steady because export has a natural growth and no other country could immediately match Bangladesh’s scale and volume to become an alternative.
The bigger worry for manufacturers on the ground is that the industry’s growth rate has fallen considerably from projected estimates.
Manufacturing orders have been reduced, and new buyers are hesitant of entering the market.
The long-term sustainability of the business came into question after the massive accident last year, as manufacturers feared big Western buyers might gradually pull out of the country.
“This is a consolidation phase,” said Asif Khan, an equities and emerging markets analyst with BRAC, the country’s biggest stock brokerage firm.
“The industry is still recovering and the bigger picture will be clearer by the end of the year.”
“Going ahead, smaller non compliant factories will be phased out and bigger factories are likely to survive and expand,” Khan added.
The industry’s top 100 groups – one group may have multiple factories – currently have approximately 70 percent market share of exports.
“Since Rana Plaza, the industry’s growth has been significantly restricted,” said Arshad Jamal, Director at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the country’s powerful trade body.
BGMEA president Atiq ul Islam said that the growth rate has fallen by two-thirds since the collapse.
The European Union countries form the biggest buyers of garments from Bangladesh, importing $12.56 billion in 2012-13, according to official Bangladesh Export Promotion data.
Retail brands from United States stood second, importing $4.997 billion in the year before the collapse.
“Buyers were worried whether we will be able to deliver quality and timely production and there has been almost a 25 percent decline if not more in the industry’s growth,” Shams Rehman, whose manufacturing operation Stylecraft Ltd.
has been running since 1979, said. “Leave apart getting a new buyer, my existing buyers have stopped orders.”
Rahman says that his factories have a capacity of producing 2.1 million basic shirt pieces a month but he has been getting orders only for about 1 million pieces for the last seven months.
Fears of withdrawals of some retailers have been true.
“There has been a movement in terms of the buyers. Some have pulled out,” Bakht said. “But most buyers have pulled out of small time factories that were not compliant (to safety standards) and not out of Bangladesh altogether. The complete pulling out hasn’t been at an alarming level.”
An Institute for Global Labor and Human Rights report says Bangladeshi workers make anywhere from 18 cents to 26 cents an hour.
The average hourly wage in China is $1.34. Protests in the aftermath of the collapse saw the minimum wages increased by 77 percent and according to Bakht more than 90 percent factories have already implemented the wage increase.
But the manufacturers are hard pressed with the increase in the subsequent production costs.
“The cost of business has become significantly higher but the buying price is not increasing,” Jamal, who apart from leading the BGMEA also owns manufacturing units, said.
“We are reorganising ourselves to meet those safety compliances and the maximum wages have increased as well. For every piece, our production cost has gone up by 25 cents but the buyers are not paying anything more than 10 cents.”
It was widely reported that people scouring the rubbles soon after the collapse had found tags for Italy’s Benetton and Spain’s Mango, Canada’s Joe Fresh and Ireland’s Primark.
Walmart was the most prominent American company whose tags were found.
With international labour groups blaming these European and American retailers for not looking into the working conditions of their manufacturing units, retailers promised widespread inspection and partial funding of new safety equipment.
Few factories, some of which employ tens of thousands of people, don’t have even the most basic safety equipment such as sprinklers or fire escapes on every floor.
After the backlash, nearly 200 brands formed two umbrella groups to organise a cleanup of factories in Bangladesh that didn’t meet safety requirements.
These retailers also proposed a $40 million fund set up to compensate the families of the dead and the injured.
Of the 29 western brands who sourced clothes from Rana Plaza factories, about half have deposited $15 million into the fund, a report from Clean Clothes Campaign, a 24-year-old organisation for international workers’ rights, noted.
British retailer Primark made the largest contribution of $7 million.
Mango, Primark, Benetton, H&M, and Adidas were also among the first Western brands to sign up an accord, in which they agreed to bankroll safety inspections and lend the money for upgrades.
The American companies formed an alliance that is conducting inspections independently from the European accord.
Though the community realises that these retailers are trying to prevent another Rana Plaza from happening, there is a lot of tension and trust deficit among the manufacturers.
Since the accord and the alliance started inspections in October, almost 100 small-time non-compliant factories have been shut down.
Others have been asked to make substantial adjustments to their buildings that cost hundreds and thousands of dollars.
“People are looking at this garment industry from a Western point of view. This is the fundamental mistake that’s being made,” Jamal said, giving the example that retailers are asking them to buy doors and sprinklers from costly overseas brands.
“We are being treated like thugs in our own country. The Western retailers don’t understand that safety conditions can’t improve overnight and there’s going to be a lot of collateral damage in the manner in which these changes are being enforced.”
These changes, ranging from picking the lint off the floor, redoing staircases, introducing fireproof doors on every floor and adding sprinklers are adding costs for the manufacturers.
Manufacturers like Rehman worry that after increasing wages and picking up the tab for extensive safety improvements as well they will lose their competitive edge to countries like Vietnam, India and Ethiopia where he says his buyers have started placing bigger orders.
Others don’t agree that Bangladesh’s dominance will change anytime soon because of its reputation as a quality producer.
“Growth rate should bounce back in the long term because Bangladesh’s industry is not just about low cost of labour, it also has the most skilled labor even at the entry level. New African countries that are being suggested can’t match that efficiency,” Jamal added.
The road to recovery for the industry can be made smoother by diversifying their products and markets. Until five years ago, Bangladesh had negligible exports to Japan but that has significantly changed now.
The garment industry is now exporting to India as well and Latin America is another market that manufacturers are hoping to tap.
Bakht, the BIDS economist who has supervised many development projects in the past, suggested that an improved product range and new markets might be the solution for the industry’s long-term sustainability.
BBN/SS-31May14-2:00pm (BST)
