Originally posted in The Daily Star on 19 July 2021
In the wake of the Covid-19 pandemic in March 2020, global brands and buyers had either cancelled or postponed imports of apparel from Bangladesh. Later, towards August and September 2020, many buyers reinstated their orders which helped apparel exports rise. Driven by ready-made garments (RMG), the export sector of the country bounced back to a large extent during the pandemic though it remained lower than the pre-Covid period. Recently, however, RMG exporters have expressed concerns as many buyers have once again cancelled their orders as the country went into lockdown to tackle the spread of coronavirus.
As the government has no choice but to go for a strict lockdown during this wave of the pandemic, worries over economic recovery continue. But lockdown is only a temporary solution and has a high cost. Therefore, vaccination of all eligible people at the earliest is the only solution to survive. Otherwise, the cycle of lockdown and opening up will continue for quite some time. This will cost the economy dearly. Various surveys have indicated a rise in unemployment and poverty as economic activities have shrunk. The cancellation of RMG export orders is indeed a great concern as the sector is a strong pillar of the economy. It is the source of about 3.6 million jobs and over 80 percent of income from exports. While the apparel sector has to think of overcoming the current challenges and staying afloat during the pandemic, there are also a number of important medium and long-term issues which need to be addressed parallelly. These are related to Bangladesh’s new identity as a developing country, and stringent compliance issues and competition from other players in the global market.
As we recall, following the Rana Plaza tragedy in 2013, Bangladesh’s apparel sector came under tremendous pressure for improving compliance and safety in its factories. Accordingly, the RMG industry made an important transition towards improved compliance in the sector. Major compliance measures were undertaken to ensure the safety of factories and workers through collaboration among Bangladeshi entrepreneurs, the Accord on Fire and Building Safety, the Alliance of Bangladesh Worker Safety, and the Partnership for Cleaner Textile. The labour law of the country was amended and the right to form trade unions in factories, including in the special economic zones, was approved. The minimum wage of RMG workers was raised in an attempt to make it comparable to other competing countries. These initiatives were useful in developing standards and ensuring transparency and compliance. These had also helped attain higher RMG exports though there were some periodic fluctuations.
Compliance measures have helped in bringing more credibility to the RMG sector. But compliance is not a one-off initiative. It is an ongoing process and has to be pursued continuously for sustainable growth of the sector. It is encouraging to note that a number of RMG entrepreneurs have accepted compliance as an integral part of their business. Many entrepreneurs have taken self-motivated initiatives to stay ahead of the curve and maintain competitiveness. This has been critical since the Accord and Alliance left in 2018; with their departure, monitoring safety issues in factories is to be continued with similar rigour by the entrepreneurs themselves.
Of course, higher compliance by the industry also means higher costs of production while entrepreneurs face stiff price competition in the global market. In such a situation, some may opt for reduced production capacity to make up for additional expenditure on compliance requirements. This is obviously not desirable as the sector plays a crucial role in the economy. One of the ways to make up for increased costs is through higher productivity and moving towards high value products in high-end markets. Higher productivity will require technological upgradation in the industry. There is, of course, a danger of labour displacement due to the adoption of technology. It is apprehended that several categories of jobs will be lost due to technological intervention during the fourth industrial revolution. The RMG sector will also experience such technological transformation. However, the issue of technology and labour market disruption is part of the overall policymaking process of the decision makers. The RMG entrepreneurs will have to make sure that workers are upskilled and re-skilled for new types of jobs which may be created in the sector. At the national policy level, the government will have to create an enabling environment for greater private and foreign investment for more employment generation, ensure better training and skills development for absorbing workers in new opportunities, and increase access to finance for self-employment.
The role of buyers as a major stakeholder cannot be overlooked in the case of improving compliance in the RMG industry. They have to collaborate with suppliers in improving productivity. Ironically, in a fiercely competitive market, brands and retailers are always on the lookout for the lowest prices. Many buyers source from Bangladesh to maximise their profits through low prices. Ethical buying and fair price are not always under the purview of profit-making brands. If that was so, then some other competing countries would have been dropped from their sourcing list. This emphasises the need for investing in higher productivity. Wages and labour rights related issues also have to be taken seriously into cognisance. If the sector can invest in safety, compliance, and technological upgradation, it can also increase labour wages. In the short run, an increase in labour costs will lead to higher production costs; however, in the long-run these costs can be internalised by higher productivity and efficiency.
Higher compliance in the sector has become all the more important as Bangladesh is going to graduate from the least developed country (LDC) category by 2026. There will be many challenges after graduation. One important challenge is the loss of preferential market access of Bangladesh products, including RMG products, in many countries. For example, as an LDC, Bangladesh gets duty-free quota-free access to the European Union (EU) market under the Generalised System of Preferences (GSP). The EU is a major destination of Bangladeshi exports. In these new circumstances, Bangladesh will have to compete with other countries to enter the global market by paying the existing tariff which will make the country less competitive. While there will be GSP+ opportunities during the post-graduation period, in order to avail these facilities, Bangladesh will have to ratify 27 core international conventions. Among these, 15 are human and labour rights related conventions.
Therefore, without adequate preparation from now on, fulfilment of stringent compliance issues could be difficult. This will require a comprehensive work plan by the government, which has to be implemented in a collaborative manner. The government, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), workers’ associations and trade unions, buyers, development partners, civil society, and the media are all a part of this journey.
Dr Fahmida Khatun is the Executive Director at the Centre for Policy Dialogue.