The Road to Recovery
SYED ASHFAQUL HAQUE points out symptoms, diagnoses and prescriptions gone wrong of a long-ailing garment industry.
The economy of Bangladesh is what it is today mainly because of the readymade garment industry. But for how long will this situation prevail? There are a lot of worried wrinkles on the foreheads of garment manufacturers these days.
The sector, which accounts for more than 75 percent of export earnings of Bangladesh, is now at a crossroads. It may very well go the way jute and tea sectors have gone -- from boom to doom -- because of a number of problems that were never ddressed.
How did the sector get caught up in such grave problems of late?
The crisis did not herald all of a sudden, not even in one or two years. Rather, elements of crisis began to pile up when 35-odd individuals, with a few hundred unskilled workers, set out in the world of apparel business in 1973. It was an audacious journey indeed, of a few individuals, with the new-born state, banking sector, policymakers and workers with little idea about what it meant to make clothing-wears, let alone exporting them and earning elusive forex.
The problem then was the lack of understanding with regards to the dynamics of the industry and the world market. The problem now is the continued ignorance that has led to wrong diagnosis of and prescription for the ailment, which has nearly pushed the powerhouse of the country's economy to its peril. What would happen if this sector eventually nears death?
Around 20 lakh people, 70 percent of whom are females who work for about 7,000 garment factories, will be laid off. Twenty lakh workers mean 20 lakh families. At least 10 lakh people working in the backward linkage factories or support facility outfits including textile, accessories providers, dyeing, chemical, transport, shipping and printing will be out of jobs. And that's not the end.
Nearly 20 lakh bananas and the same number of sweets and bread are consumed by garment workers a day as snacks, an ex-president of garment exporters' association once remarked to highlight how a whole range of businesses revolve around the garment industry. Owners of small grocery shops, tea stalls, economy houses, garment waste factories and low-priced garment shops alongside footpaths will find it difficult to survive. The going will get tough for Bangladesh with the economy becoming nearly three times poorer.
Garment fortune was no God's gift and no government's effort. It was earned through high risks taken by some investors and hard work put in by their willing workers. Investors travelled abroad to meet buyers and spent days convincing them that they were capable of producing clothes. Wary of Bangladesh, renowned buyers in the 1970s refused to even meet them. Some wanted to take the risk simply because of cheap production costs, meaning cheap labour. Besides, they had nothing to lose as they could always cancel orders, putting all the financial loss on the suppliers.
That was how the journey began on the road infested with trouble from shady buyers and an unsupportive state machinery and banking system. Garment manufacturers learned very well how to make low-cost products even though the government took no initiative to encourage setting up of backward factories. They bought everything from abroad, mostly from China, and had those made in their factories.
Some successes, some failures. Successes led to repeated orders and failures to bankruptcy. Readymade garments of Bangladesh took baby steps in the late 70s, began walking in the early 80s and running in the late 80s.
The industry continued to grow despite neglect by the state and under the care of stakeholders, surviving the political unrest of the late 90s and quota-free regime from 2004. It was a joyride for the sector until it was jolted back to reality in 2006, when an unprecedented rioting by workers left about 350 factories, most of which were socially-compliant, vandalised. Just wage was their demand. And only then did the fact of how badly the garment workers were exploited surface.
Suddenly there was a lot of soul-searching and questions were raised regarding who should be blamed. Economists, social experts and the general people grappled for answers, wondering how on earth the industry, which made light work of quota-free concern in the post MFA-era with a robust growth of 35 percent in 2004-05 and withstood the global economic meltdown with consummate ease, could be so ill in 2010.
However, neither the owners nor the government were sincere enough to find out what actually went wrong. Ironically though, the major wrongs were in their policy, if any, and course of action.
Having gone through news reports, analyses, expert views, findings of investigations, it is safe to reach the conclusion that garment owners and all the governments are to be blamed for the crisis.
Although the garment manufacturers deserve to be hailed for the country's economic revival, they are found equally guilty at neglecting labour management. They made a series of blunders in the run-up to their zenith.
The readymade garment manufacturers first sowed the seeds of today's crisis by grossly neglecting labour welfare and management issues. Riding on waves of success in the world market, they forgot to look after their source of strength at home, the workforce and workplace. The fortunes they made, made them even greedier. When they needed to institutionalise the industry, by investing more in the workforce and machinery to ready them for bigger challenges -- the medium to high-quality products where competition is less and profit margin high -- they chose the wrong route.
They continued to fight over low-cost product orders in cheap apparel markets and spent whatever they could earn on extravagant lifestyles. After all, a garment owner has to have Pajeros in the garage, houses in the city's elite areas and vacations in Europe. Soon after getting letter of credit from buyers, many manufacturers started to list what more they should buy, ignoring the fact that the credit was to be spent on paying workers and executing orders. That is the story of most of the manufacturers and so the inevitable happened and that is precisely why over 60 percent of garment factories are ailing.
However, thanks to some wise and visionary manufacturers, the industry continued to thrive, giving a rather false sense of security that the sector was well on track and that problems would soon be resolved. But those judicious investors are not safe today either, as aggrieved workers of the sick factories are taking their pent-up frustration of neglect out on well-managed industries. Despite paying reasonable staff salaries and graduating themselves into medium-end market, premium manufacturers are paying a hefty price for the mistakes of fellow errant investors, with the government a mere spectator.
The state too can be safely blamed for its failure in streamlining a sector that grew up in the most disorganised manner. All the governments demonstrated their policy of bankruptcy, lack of political will, apathy and failure in handling the chronic crisis, pushing the industry to almost well beyond repair. The total disrespect and neglect of policymakers towards the most revenue-earning sector is showcased in the remarks of late M Saifur Rahman, the three-time finance minister who once compared garment exporters with tailors. That unfortunate tag precisely demonstrates how unhelpful the environment was for a sector to bloom.
No government ever felt the need to formulate a visionary policy for the industry, let alone sincerely pursue it to prosperity. They just could not care less. Not a single minister or lawmaker ever cared to understand what was hurting the goose that was laying the golden eggs. The governments were only interested in the revenue aspect, not in the problems.
When the sector bloomed on its own, no government came forward to help set up backward linkage factories, a crucial support sector that could give Bangladeshi garments a huge edge over competing countries. Also, it never felt the need to ensure that exporters got prompt and privileged services from banks, ports and the transport sector. For some ambiguous reasons, policymakers always turned a deaf ear to the demands of manufacturers to arrange a central bonded warehouse for woven fabrics, accessories and a separate ministry for garment.
As if that was not a big enough show of neglect, whenever worker unrest hit the industry, the government machinery was quick to find a conspiracy by both national and international enemies instead of trying to identify the roots of the problems and helping to fix them. But nothing could harm the sector more than the government's failure to protect industries from rioting workers, who damaged and burnt their machinery and workplaces for consecutive days over the years. This particular inaction was strong enough for buyers and industrialists to clearly understand that the business climate in Bangladesh was no longer safe.
Owners and governments apart, there were others -- political parties, a section of workers, labour leaders and banks -- each of whom have contributed their fair share in the crime.
Workers made a difference for garment exporters in the $500 billion world apparel business. Their cheap labour gave a decisive edge over other competitors. They made up their shortcomings in skills by being mostly docile and dedicated in learning the ropes quickly. They just worked and watched silently how badly their owners handled their skill development and welfare issues for decades. They saw it all, bore it all, until recent years when the cost of living sky-rocketed.
They hoped in vain that the government would make their employers listen to their pleas for better pay. They heard enough of the reality that garment price in cheap apparel market has not gone up in 12 years. Rather, the price of a basic t-shirt has gone down by a few cents from what it was 10 years ago at $1. They understood it all -- the miserly buyers, opportunist labour leaders, shady rights leaders and dishonest politicians -- each of the quarters cashed in on their plight. And eventually they took to the streets, soon turning into mindless mobs who were destroying what they had built. But what they could not realise was that they had actually started to drive the apparel economy away from Bangladesh to safer destinations in South East Asia.
So, is it all over for the garment sector?
It seems to be headed that way -- unless we all wake up to the rude reality and do what is needed to be done right away. All the stakeholders must join hands to get the sector out of the quagmire and back on track, with the government playing the pivotal role. The first and foremost thing to do is to ensure safety of investment, that no matter how grave the problem is for the workers, not a single factory can be harmed by anyone. The government must make sure that the business climate is congenial, absolutely safe for buyers as well as manufacturers. Attackers or troublemakers of the industry have to be dealt with no mercy.
Then the labour issues must be addressed, for which collective effort is a must. The government must identify sick industries and separate them from well-managed and socially-compliant factories that hardly need any help.
A comprehensive long-term plan should be in place to bail out the sick industries. The government can very well allocate a rescue fund so that they can provide higher pay to their workers and repay loans in phases. The government and the garment manufacturers' association should come forward and help disadvantageous factory owners in areas of marketing, merchandising and production.
In other words, the sick industries will have to be brought under strict regulation and put through a system so that a few years down the line, they can learn to live without assistance. Under a visionary government policy, these owners should be taught how to manage labour issues, build industrial capacity and gradually graduate their outfits into ultimate league -- the less crowded market of medium to high-end products. Once they arrive there, fully ready, they can only go up, earning more than enough to take care of their workforce and outfits.
The next major task at hand for the government is to help build backward linkage industries alongside extremely efficient and easy-to-avail support sectors -- bank, customs, ports and transport.
The dynamics of the world apparel market have changed in many ways ever since the quota system. This privilege offered by rich countries to least developed countries was withdrawn, throwing the competition for work wide open. Unlike in the past, buyers these days do not like to wait for their orders to be produced and delivered over months. They offer little over a month for production and letter of credit for short period in order to save money and time.
It is certainly a huge task for garment exporters to fulfil and be competitive. The government and banks must come forward to bail them out. The infrastructure has to be modernised remarkably as faster railway, efficient ports and friendly customs would help exporters cut lead-time significantly.
As for the banks, the silent beneficiary of the garment boom, it should be a time to pay back. Banks should be made to offer quick soft loans to the industries so that they can take care of production procurement, salaries and other costs. Loans would be duly paid when proceeds arrive at banks after shipments.
The government and banks also have to protect exporters from dishonest buyers and buying houses, the safe beneficiaries of the sector. Banks have to do a thorough banking espionage on the financial track record of buyers before any dealings are made. A buyers' database has to be developed in order to minimise risk of exporters. If there are reported incidents of mishandling of buyers or unfair dealings, the government should settle these disputes. The government and banks can also play a big role in improving links between buyers and manufacturers so that buying houses, which mint money as commission agents, cannot deprive exporters from just profit.
If these can be ensured, there is no reason why the readymade garment sector will not turn into a galloping horse, breaking export targets every year.
Syed Ashfaqul Haque is Chief News Editor, The Daily Star.