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CPD study on jute mills cited

Published in The Financial Express, published on Sunday, 2 August 2015.

Ailing BJMC jute mills a burden on government

Syed Jamaluddin

The Bangladesh Jute Mills Corporation (BJMC) operates 26 jute mills and employs about 60,000 workers. At the moment the mills are running at half of their capacity. The problem of the corporation is that it can not buy raw jute in time. This is because it has no money. It depends on government funding. When the government disburses funds, the market price of jute increases 40/50 per cent.

The jute harvesting season has already started (mid-July). BJMC can not buy jute now while the private mills will be buying jute with their own resources. What costs Tk 5.0 billion (500 crore) now will cost at least Tk 7.0 billion (700 crore) in October/November.

A worker in BJMC mills gets Tk 430 a day as wage which is more than double the amount in private mills. The corporation is also overstaffed. The private mills are run on no-work-no-pay basis but BJMC has to pay its workers weekly regardless of whether there is any work or not.    It has to pay Tk 800 million (80 crores) annually for interest payment against bank loans.

Historically, jute has been a vital sector for our economy. About 45 million people of the country depend directly or indirectly on jute farming, trading and employment in jute manufacturing. This important sector has been suffering for decades for lack of proper planning and appropriate decision. When the government decided in 2011 to reopen five jute mills, the Centre for Policy Dialogue  (CPD) was critical of the way jute mill workers were recruited in large numbers without any proper contingency planning and warned that it could backfire. This has now proved correct.

In 2011When the government decided to reopened the five closed jute mills in 2011, it provided Tk 1.05 billion (105 crore) and recruited 35,000 workers. BJMC report shows out of 35,000 newly recruited workers in 2011, 22,520 are without any work. The jobs of about 90 per cent of BJMC’s 67,000 workers in its 26 mills were made permanent by the government and these mills use only a third of their production capacity. This is happening because of fund constraint.

It is alleged that there is no accountability in BJMC in the matter of jute purchase in BJMC. It is also alleged that wet raw jute is purchased deliberately to add extra weight and price manipulation is also part of the game. Unless monitoring and accountability is ensured, one can forget about profitability of the BJMC mills.

Farmers are getting better prices this season for raw jute. The price is showing a good trend this year compared to that of last year. The amount of land under jute has declined this year. Price deprivation for years, irregular rain and lack of water bodies for retting jute are key reasons behind the plunge in acreage. It is said that full implementation of the mandatory jute packing act will benefit the farmers and the traders.

BJMC has already moved the ministry of  finance  for Tk 7.0 billion (700 crore) to meet the financial crisis. They need Tk 5.0 billion (500 crore) for the purchase of raw jute and Tk 2.0 billion (200 crore) for arrear wages and festival bonus of the staff. Most of the BJMC mills are in running condition.

Both the public  and private sector jute mills  are having difficulties in marketing jute abroad. Private sector mills are facing unequal competition with the BJMC mills who are getting financial support from the government. Private sector  jute mills do not even get bank loans easily.

The Bangladesh Bank (BB) has issued a circular for providing loans to private jute mills on the basis of merit. There is a good number of conditionalities which block allocations. The present government  has provided Tk 48 billion (4,800 crore) to public sector jute mills to run the mills profitably but these mills are running at a loss.

There are 130 jute mills in the private sector. Although these mills have a number of problems they do not come to the government for financial support. They have urged the government to provide bank loans to all jute mills at 8.0 per cent interest.

Jute was once known as the Golden Fibre but after liberation of Bangladesh it was not possible to sustain the glory of jute. Nationalisation of all jute mills in the initial years of independence  is blamed for the ills of this sector. It is now a burden on the economy. Businessmen are not willing to sell jute on credit to BJMC as they have no confidence in the organisatiion. The traditional policy on jute is not successful. Report of the  jute commission could  offer a practical solution.

One option for solving the problems of the jute sector would be to privatise the jute mills belonging to the BJMC. The private sector will handle their problems in a pragmatic manner. This will enable the government to take uniform policy for jute sector as a whole. The government can provide incentives without taking the total liability as in the case of state-owned jute mills.

The writer is an economist and columnist.

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One comment

  1. very good and useful article

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