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RMG sector in 2019: Factories closed outnumber factories opened

  • Published at 10:00 pm January 11th, 2020
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File Photo: Female RMG workers Mahmud Hossain Opu/Dhaka Tribune

During the period 133 garment factories were shut down, rendering around 62,582 workers, mostly women, jobless in the $34 billion industry that employs close to 40 million people

Export-oriented apparel makers set up 123 new units in the just-concluded year, which is expected to generate employment for over 67,500 people.

In contrast, during the period 133 garment factories were shut down, rendering around 62,582 workers, mostly women, jobless in the $34 billion industry that employs close to 40 million people.

According to Bangladesh Garment Manufacturers and Exporters Association (BGMEA), 78 new garment factories registered with the association last year, creating jobs for an estimated 47,500 people.

On the other hand, another 70 new units registered with Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). The new units will generate employment for about 20,000 people, hope the association leaders.

Of the new units, 45-50% are by fresh entrepreneurs, while the rest are by the existing entrepreneurs, who have gone for expansion.

 

The important aspect of the new investments is that all of them are focused on compliance and technology to meet the buyers' requirement and workplace safety. 

On the other hand, some of them also are concentrating on producing value added products. 

“We are in the apparel business for years. The new unit, Magic Works Limited located in Bhaluka, is a part of our expansion,” Shah Mohammad Mohit, chairman and managing director of Magic Works Ltd, an woven products manufacturer, told Dhaka Tribune. 

"Since workplace safety and compliance are important issues now, we have attached big importance to them in the new venture," he said.

Besides, latest technology and innovation were core in the investment as the consumers' behavior and taste were changing very fast in the fashion industry, he added. 

Magic Works has made an investment of Tk120 crore, creating employment for about 4,000 workers. The annual production capacity will be 1.58 lakh pieces. 

“In 2019, a total of 78 apparel entrepreneurs became our members but all the new units have not gone for full production," said Md Rezwan Selim, a BGMEA director. 

Of the new members, about 50% were new investors, while the rest were existing members who went for expansion, said Rezwan, also managing director, Softex Sweater Inds (Pvt) Ltd. 

Newcomers were focusing on safety and compliance issues, he added.

Though the trade leaders as well as economists see the new investment positively, they have called for making the investment in new and prospective products for sustaining the business.

“Amid negative export growth, new investment as well as expansion are positive signs for the sector and the economy,” said Khondaker Golam Moazzem, research director of Centre for Policy Dialogue (CPD. 

"Right now, Bangladesh has capacity in excess in some products and segments. So, the new investment and expansion should focus on new products having scopes to grow," said Moazzem.  

To this end, the economist suggested, the trade body should give forecast on future direction of markets and demands so that the newcomers could make proper decision. 

Besides, the association should provide information on capacity to discourage investment in products, which already have capacity in excess, he added. 

He also discouraged new membership in sectors where there was already enough entrepreneurs.  

"New ventures need more investments, modern technology, enhanced efficiency, productivity, compliance and environment-friendly measures to be sustainable and competitive in the global supply chain," he noted.

Why factories are closed

In 2019, a total of 63 BGMEA members closed factories, which rendered over 32,582 workers jobless, while 70 knitwear manufacturers under BKMEA have also shut down factories making about 30,000 people unemployed in the same period.    

Non-compliance and lack of implementation of new wage structure are largely blamed for the closures and the nature of laid off factories are small and medium (SMEs). 

Losing competitiveness due to rise in production cost is another big reason for the factory closure.

“It is unlikely that all the factory owners closed their manufacturing units because of non-compliance. They shut down factories for lack of enough work orders while manufacturers also lost competitiveness due to higher production cost caused by the new wage structure implementation as well as electricity service charge,” BGMEA President Rubana Huq told Dhaka Tribune.

If compliance was the only reason for the shutdown, then it could be earlier, she argued.   

"Besides, they are not getting banking support in improving compliance and meeting other necessary expenses," Rubana added. 

However, there are some factories housed at shared building and run on rent have been shut on compliance grounds as the building owners are unwilling to spend for making them compliant. 

“After the Rana Plaza incident, workplace safety and compliance have been major challenges for the manufacturers. As a small factory owner, I could not make investment, while building owners also declined to make investment," a factory owner told Dhaka Tribune, seeking anonymity.

 “For this, a good number of owners like me have shut factories and planned to relocate to compliant buildings outside the capital,” he added.

He also argued that for lack of compliance, buyers were not placing orders and the local companies stopped providing works on subcontracting.  

How to save the small entrepreneurs

“Most small and medium enterprises failed in compliance as they were unable to adjust new structure. Being hit hard by cash crunch, the SMEs were forced to stop production,” BKMEA first vice president Mohammad Hatem told Dhaka Tribune.

The government should come up with financial support and low cost financing to improve safety standard or relocate from the shared building, said Hatem. 

Meanwhile, BGMEA stressed establishing a common compliant place for the SMEs.    

“We have pledges to protect the small and medium enterprises. I think, it is time to save small manufacturers as the taste of consumers is changing and they are buying less at higher prices,” said Rubana Huq. 

Small factories had the capacity to offer specialized and small quantity products, which would suit the consumers’ new taste, said Rubana.

“Instead of taking half a million orders at low prices, it is better to take small orders at higher prices. Small model is better than a big one with a big factory,” she said. 

In creating opportunity for the small and medium entrepreneurs, BGMEA has sought allocation of 200 acres land at Mirsharai in Chittagong to build shades for them with compliance. 

“If we can do it, they will be able to produce quality products,” the business leader said.