Ready-Made Garments (RMG) sector of Bangladesh

Introduction:

Entirely export oriented Ready-Made Garments (RMG) sector of Bangladesh has experienced a noteworthy enhancement since its commencement in last half of 1970s. Strangely enough, though this major industry is now totally based on private entrepreneurial efforts, its inauguration was rooted into an export consignment of Shirt which was done by Trading Corporation of Bangladesh (TCB), the state operated trading agency, in mid ‘70s. The export consignment held with some East-European countries. However, the entrance of private entrepreneurs in this sector gifted it with a tremendous boost.

Background:

Reformed domestic policy and the international Multi-Fiber Agreement (MFA) are the key procedures that ameliorated the condition of Bangladeshi RMG export (Quddus and Rashid, 2000).

In the decade of ‘80s, Bangladesh adopted a modification in national economic policy to run its economy under the tutelage of World Bank and International Monetary Fund (IMF). Establishment of Export Processing Zones (EPZ) channeled foreign direct investment in this sector (Bhattacharya, et al., 2001, p.2-26). Money-spinning facilities like cash assistance, income tax rebate, freight and power rate rebate, tax holiday, loans at lower rate, provision of back to back Letter of Credit (LC), guarantee scheme for export credit, decreasing interest rate in export credit, reducing harbor charges, bond facilities for warehouse, duty free imports of raw materials and productive machineries, were offered to export oriented RMG industries (Mayumi, 2004)

The MFA was an agreement of World Trade Organization (WTO), done in 1974 which set quotas for export of textile and garments related products from the developing countries (Rahman, 2004). Under this agreement, USA and Canada, the then largest RMG importers, imposed quota restrictions and maintained a limit in importing products from countries such as Hong Kong, Singapore, Thailand, South Korea, Sri-Lanka, India, Taiwan, Malaysia and Indonesia. Moreover, some countries had also major internal problems, like, sudden increase in labor cost in Sri-Lanka (Siddiqui, 2003). As a result, for minimizing the cost, the importers started looking for alternative sources and Bangladesh became a lucrative source for them for facilities like low labor cost and large export quotas (Wigg, 1990, p.154-159). Bangladesh received preferential treatment by USA and European Union, as a less developed country. Paradoxically, within 1985, Bangladesh appeared as a giant in international apparel sector and became a major competitor for the suppliers in USA, Canadian and European market. Thus, the bed rock of this major industry of Bangladesh was set down and slowly & gradually this industry has become the core of the national economy.
Later, RMG sector also received other facilities like Generalized System of Preferences (GSP) from USA and UK.

Major problems of RMG industry of Bangladesh:

In spite of being the main source of the money stream in internal economy of Bangladesh, the Ready-Made Garments sector is in continuous threat by some major and crucial factors. As a result, the whole sector is in risk and in a volatile situation which may disgracefully collapse the whole sector as well as the country’s economy. These problems or threats can be categorized in following sections:

1. Critical political condition
2. In-apt workers
3. Lack of proper in-work precautionary security measures
4. Workers Dissatisfaction

i. Critical political condition:

Internal political instability and security threats due to such instable condition has become a serious concern for the RMG industry. If we focus on recent situation, only during the political unrest in October and November, 2013, this industry had to count a loss of minimum TK. 2000 corer and orders worth $2.40 million were cancelled by the buyer only in first ten days of December, 2013. Moreover, due to the rail-road blockade, the exporters had to do air shipment which also compelled them to bear an extra expense of $0.9 million. For delayed shipment the exporters experienced a price cut by $4.65 million as orders valuing $6.6 million were supplied in delay (Bangladesh Sangbad Sangstha, December 12, 2013).

ii. In-apt worker:

Bangladesh is now a major competitor in international RMG market. This makes it compulsory to maintain the quality of the product. Quality control in production unit largely depends on time to time training and workshop programs organized for the workers. But, ironically, such initiatives are absent in Bangladesh. As a result, the qualities of the products are degrading which sometimes result in cancellation of the consignment and creates a negative image in the international market.

iii. Lack of proper in-work precautionary security measures:

The most serious issue regarding the RMG sector of Bangladesh is most of the factories lack proper safety measures against any unwanted perils. This is making the working zone immensely risky which also violates the rules and regulations of International Labor Organization (ILO). Such irresponsible attitude of the factory owners is the key reason behind many accidents in recent years which have taken great tolls of life. In past 11years, approximately 730 workers were blazed and killed and about 4700 workers were injured in several fire accidents in garments factories. The amount of deaths and casualties in building collapse is numerous. Only in the building collapse on April 24, 2013 of Rana Plaza in Savar, 1,130 people were reported to be dead and approximately 2,515 injured people were reported to be rescued from the building (New Age, April, 2013). Continuous accidents like Spectrum Sweater Industries, Phoenix Garments, Smart Export Garments, Tazreen Fashion, Garib & Garib, Matrix Sweater, Ha-Meem Group and many more has made the foreign buyers too much concerned about the issue.

iv. Workers Dissatisfaction:

The RMG sector has faced several incidents of strikes by the workers for the issue of inadequate payment. The workers belong to the lower income group of the society. Although, this sector is the backbone of the country’s economy, the radar of the sector, the workers, are not even paid the minimum to keep their heart and soul together. The sector became volatile due to labor unrest for the first time in 2006 and since then it has become a regular phenomenon. In 2006 the unrest condition was mitigated by discussion with the labor representatives and the minimum pay rate was decided to be Tk. 1662.50. But the agitation aroused again in 2010 and the rate was revised to Tk. 3000 per month which came into effect in November 2010 (The Daily Star Forum, August 2012).
But, if we consider the current inflation and living cost, the logical minimum wage should be higher. According to Center for Policy Dialogue (CPD), the minimum wage of a worker is shown below:

*Moazzem, K.G. and Raz, S., 2013, Revision of the minimum wage in RMG sector, pp.28.

Conclusion:

In current perspective, RMG sector is the lifeblood of the economy of Bangladesh. Both GDP and GNP depend on this sector. As a result, for the betterment of the national economy it’s must to strive to alleviate the problems of this sector. Moreover, the sector currently employs about 4.2 million workers whose fate directly depends on the existence of RMG sector.

References:

Moazzem, K.G. and Raz, S., 2013. Revision of the minimum wage in RMG sector, pp.28

Mridha, R.U., 2012, Causes of RMG unrest. The Daily Star Forum, [internet] August

Available at:

[Accessed 4 March 2014]

Alamgir, M. and Haque, M., 2013. RMG workers killed in fires, factory collapses in 11 years. The Daily New Age, [internet] 25 April

Available at:

[Accessed 4 March 2014]