Could the RMG sector be in trouble?
Populist moves by the government could impact heavily on the thriving RMG sector with the enforced new pay scales for employees. On one hand, the buyers’ consortium has been asking the Bangladesh Garments Manufacturers’ Association (BGMEA) to prevail in the government to extend the time frame for Accord implementation.
On the other, exporters had their hands forced by the commerce minister to introduce new pay scales. Inevitably, these two factors lead to a loss in competitiveness. Sri Lanka has addressed the issue by turning to specialized manufacturing with their highly educated workforce. China has already felt the pressure of wage increases by having to play second fiddle as Vietnam looks set to become Asia’s garments hub.
The government sought to support the RMG sector by not extending the time frame for Accord based on industry assurances that there was no longer a requirement for it.
Facts are not that simple.
There are lots of low hanging fruit that will turn bad sooner than later and barring the big players, the new wage structure may not be possible to be absorbed as selling prices continue to remain static to low. According to those in the know, a fresh recruit with standard three-grade education will take home Tk16,000 in pay.
The cost of re-educating and training them is not considered at all. The added benefits and welfare jack up the ticket further. And there are fears that, unless Bangladesh garners high-priced product benefits, this is unsustainable.
With more and more factories heading to composite nature, essentially under one roof, the breakthrough has to be in the direction of Sri Lanka -- that of a more mechanized animal and lower workforce numbers. Ever since the unrest over wage hikes, some 11,000 workers reportedly lost jobs as factories closed down.
The trend is ominous.
Globally, Accord has its network of suppliers ferrying wares that assist factories to be in line with the safety, security, and environment-friendly factors that are desired by buyers. When Accord’s activity ends, the income flow for these suppliers end with it. Increasingly, factories are going green and obtaining LEED certificates.
The same companies are asking for intervention in terms of pricing models, given the high margins that buyers operate on, but are reluctant to part company with. Most of the factories have had to bend over backwards to find the new investment required with a number of them going into the red.
European buyers have their case too. Their economies are going dangerously close to recession and this is reflected in consumer confidence. Shoppers are more inclined to hold on to their spending for the time being.
Policy decisions will have to focus on the future instead of being myopic, if the golden goose of export is to avoid going south. It’s a tough call but then governance is never easy.
Mahmudur Rahman is a writer, columnist, broadcaster, and communications specialist.