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Dhaka Tribune

Emerging from the wreckage of Rana Plaza

Update : 04 May 2013, 06:00 PM

The collapse on April 24 of Rana Plaza, an eight-storey building that housed five garment factories in Savar, has seen over 500 killed and more than 2,000 injured, with hundreds still unaccounted for.

Coming only 5 months after the 112 deaths in the Tazreen factory fire, the overwhelming sentiment among the vast majority of Bangladesh’s 160 million people has gone from shock to moral outrage about the scant regard for human life among the factory owners.

There were violent protests and rioting across many parts of Dhaka city and its environs by thousands of enraged garment factory workers in the immediate aftermath and an uneasy equilibrium persists with sporadic violence still leading to forced factory shutdowns a week later.

Who is to blame?

The immediate explanation for Rana are a combination of owner indifference to worker safety coupled poor building safety and construction standards. Cracks in the building were observed on Tuesday but factory owners ignored the warnings as well as the protests of their employees and forced all the workers to return to the factories.

Necessary permissions were not obtained and safety/quality standards were not adhered to most likely because the owner of the building, a Mr Sohel Rana, was a ranking member of the ruling AL’s Jubo League in the area. It is fair to say that the large number of MPs who are factory owners directly (more than 10%), and the financial interests of an even larger number of politicians and government officials in the sector has allowed lax enforcement and owner irresponsibility to persist.

There have been numerous articles both domestically and international press about who is responsible: Profit-obsessed factory owners? Ineffective/indifferent government officials/politicians/regulators? International buyers paying unsustainably low prices?

The reality is that there is no single stakeholder we should be blaming as all three of these major stakeholders are culpable to some degree or another. As Brad Adams, Asia Director of Human Rights Watch (HRW) stated: “Given the long record of worker deaths in factories, this tragedy was sadly predictable ... The government, local factory owners, and the international garment industry pay workers among the world’s lowest wages, but didn’t have the decency to ensure safe conditions for the people who put clothes on the backs of people all over the world.”

The impact on RMG

As the country and the RMG sector goes through a necessary period of introspection and assessment of why this tragedy happened, we can all agree that change needs to happen, and a new regulatory framework for factory worker safety and a credible implementation plan needed to minimise the chances of another similar disaster occurring is urgently called for.

Given the almost uniformly negative images of the RMG sector and indeed the country playing out across the global media in the aftermath of Rana, we not only have to change the reality, but also the perception if the industry is going to overcome the current crisis and resume a path towards growth. This will require a targeted, focused and well-funded international PR strategy, especially in critical export markets. This will necessitate constructive engagement and persuasion that things will change for buyers, but also consumers, human rights organisations and even governments in the US and Europe.

A robust and effective solution is critical not only to avoid unnecessary and tragic human loss, but also to safeguard what is undoubtedly the primary growth driver for the Bangladesh economy - the sector recorded exports of more than $19bn (80% of the total) and which, along with remittances, is one of the twin pillars of the $120bn GDP. Six months ago, McKinsey was forecasting the RMG sector to reach $30bn of exports by 2015 as the major global buyers such as Walmart and H&M continued to look to take advantage of one of the lowest labour wage rates in the world and an ability to meet the large scale production with 5,000 factories. The “China relocation trade” saw Bangladesh benefit from shifting production as well as sourcing and if anything, it was happening even faster than optimists expected. But Rana Plaza, the Tazreen fire before that, and politically motivated strikes (hartals) disrupting production this year, has seen a rapid swing from optimism to pessimism. What needs to be done

Among the key stakeholders, the government and the trade body of factory owners, the BGMEA need to take decisive and bold steps to put worker safety and compliance at the top of the policy agenda. HRW noted that in June 2012, the relevant government inspection department had just 18 inspectors and assistant inspectors to monitor an estimated 100,000 factories in Dhaka district, where the Rana building is located.

Moreover, although the law allows for imprisonment for those responsible for violating workplace health and safety provisions, violations more commonly result in a monetary fine of around $13 per case.

As a first step, the government and owners need to set up a new statutory independent RMG inspectorate funded by obligatory and legally binding levies imposed on all BGMEA members. Such a unit, in addition to manpower and resources, would need to have effective training and large global buyers could help to define an acceptable level of worker and building safety. Global buyers can make a partial contribution to financing the initiative though expectations for them to bear the whole cost is also unreasonable and unrealistic.

All BGMEA members would need to pass this full and comprehensive audit to retain their BGMEA membership, without which, they should not be able to produce for export. These audits should be posted online for full public disclosure and transparency.

One view I heard from a senior NRB Wall Street professional, whose opinion I respect, was more skeptical that a domestic solution would work, and argued that any accreditation, inspection and enforcement body would have a limited impact on in-country stakeholders.

He suggested that there is little faith in the capacity of existing players to effect credible change - the existing system is seen as a marketplace for patronage at all levels, and what is required is a mission from outside. It could be funded by a consortium of western importers from both the US and the EU, similar to the way that banks contribute to the cost of deposit insurance.

While that is an innovative suggestion, and there are credibility issues with BGMEA and government enforcement to date, a domestic solution is still preferable, in my view. Global buyers will remain wary about the liability of being held accountable for in-country enforcement in areas such as building regulations. Moreover, remember, RMG sourcing is global by nature, and if Bangladesh is the only country that demands global buyer attention, then they will be more reluctant to source from us relative to other alternate producing countries such as Vietnam, Cambodia, and even India.

The role of the buyers

However, I still believe that buyers such as Walmart, Tesco, H& M and others also have a critical role in terms of fair pricing . As I wrote in a previous Beyond Brics column in the Financial Times after the Tazreen fire: “The buyers have been a key element in ensuring greater compliance with approved standards in a wide range of areas including wage levels, worker conditions and safety. This should continue. However, there is an element of hypocrisy on the part of the buyers. They are banging the table on compliance while at the same time pushing prices down to levels that make acceptable compliance uneconomic for manufacturers.”

Another factor that has led to heightened pressure in the RMG sector to meet production deadlines, has been the growing importance of “speed to market” in the more successful global fashion brands. A February 7 Businessweek article, “The Hidden Cost of Fast Fashion,” noted: “Shoppers have become accustomed to the steady stream of colorful clothing that so-called fast-fashion apparel chains churn out. Rather than launching lines only at the beginning of each season, chains such as Inditex’s Zara and Hennes & Mauritz’s H&M introduce styles as often as every two weeks. The constant replenishment keeps fashion-conscious customers coming back for the generally low-priced goods. But worker rights advocates say fast fashion has another, darker cost: Demands for constant product turns may be putting workers’ lives at risk in developing nations such as Bangladesh, which suffered two fatal garment factory fires in as many months.” Such production pressures increase the risks of a Rana Plaza type disaster.

It’s also an ineffective response for buyers to shift production to other markets or indeed consumers in export markets to boycott Bangladeshi garments. This would only hurt the livelihoods of the 4 million workers in the sector, the majority of whom are women, whose families rely on their incomes.

As Sir Fazle Hasan Abed, the founder of Brac, the world’s largest NGO, wrote in a New York Times op-ed on April 29 (and reprinted in the Dhaka Tribune by special arrangement): “But ceasing the purchase of Bangladeshi-manufactured goods, as some have suggested, would not be the compassionate course of action. Economic opportunities from the garment industry have played an important role in making social change possible in my country … Partly because many women and their daughters now take garment industry jobs - even in factories where workers’ rights are virtually nonexistent - families living in poverty have changed their vision of the future. More have acquired long-term goals, like educating their sons and daughters, saving and taking microloans to start new businesses, and building and maintaining more sanitary living spaces.”

The challenge of recalibrating consumer expectations to “fair and sustainable” prices and away from “everyday (rock bottom) pricing” is the responsibility of retailers and human rights activists in developed countries.  

The pressure RMG owners face

Finally, looking beyond the knee-jerk rioting in the streets from garments workers, the current public outrage in the aftermath of Rana should be channeled towards an insistence that the hartals must stop immediately.

The large supply disruptions seen so far in 2013 in the RMG sector from hartals (there have been more than 40 days of hartals in the past 12 months) has already added to global buyers seeing Bangladesh as a less reliable sourcing destination.

The global RMG sector is increasingly driven by the concept of “speed to market” so successfully executed by Zara among others. Bangladeshi garments producers cannot afford to fail to deliver. Air freight costs ten times as much as sea shipment, but that is becoming an increasing necessity for Bangladeshi factories to retain their global customers.

The pressures to catch up on lost work days and demands from buyers to meet deadlines has increased the pressure factory owners face to always rush to catch up on lost production and even take risks doing so. As has been reported in the Dhaka Tribune, this was a big reason why Rana Plaza opened on April 24.

The only way forward

Additionally, in 2012, Bangladesh outperformed its peers in attracting the China relocation trade to RMG which underpinned a 6.7% growth rate, and record FDI of over $1bn as well as a surge in exports. But cheap labour cannot offset massive risks of production disruption from hartals as well as the reputational damage for worker safety from events like Rana Plaza and the Tazreen fire.

Global RMG buyers and producers will look to an even greater extent to Vietnam, Cambodia, and perhaps now Burma. On April 26 the BGMEA decided to close factories for two days in response to garment worker violence, adding production losses to an already stressed sector.

Bangladesh’s politicians need to give up their addiction to economically disruptive hartal politics and avoid killing the RMG goose that lays the golden egg if they do not wish to miss out on the once in a generation opportunity of the China relocation trade.

Ifty Islam is Managing Partner, Asian Tiger Capital Partners.  

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