In October 2018, one of Scotland’s leading newspapers, the Courier, published a story which started with the following sentences: “The jute ship Banglar Urmi docked at Dundee 20 years ago and discharged 310 tons of raw jute which was the last cargo to be processed in the city. The bales were destined for the Arbroath Road spinning mill Tay Spinners, which was by then the last remaining jute spinning factory in Europe. The 80 workers took until mid-December to process it, then their giant machines fell silent.”
That was the end of the jute spinning and weaving industry in Dundee, the Scottish town whose name is synonymous with that of jute manufacturing.
This was in 1998.
But as the jute industry in Europe declined and one by one the jute mills started to close, there was a rebirth half a world away.
But before I tell that story let me recall my last column.
In that column, I talked about the long-term trends in Bangladesh’s jute industry and reached two main conclusions.
First, the popular perception that the industry had declined over time is wrong.
Second, there is a significant difference in performance between the public and private sectors, with the former showing a secular decline and the latter an improvement over time.
However, we also noted some differences within the private sector. In this column, I go deeper into the private sector story.
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Backdrop
Let us start with a bit of history.
All jute mills were nationalized at the time of independence.
While there was some debate within the government on whether mills owned by Bangladeshi entrepreneurs should be taken over, the eventual decision was to nationalize all jute mills.
After about a decade of public ownership, 34 jute mills were returned to their previous Bangladeshi owners during 1982-85 with another being privatized later.
With some exceptions, the privatized jute mills did not do too well and many started closing in the 1990s.
This was due to several reasons.
Poor maintenance during public ownership had led to a deterioration of the machinery by the time these mills were privatized.
Moreover, many of these mills were saddled by huge debts, a large part of which was incurred when they were under public ownership after independence.
Appropriate financial restructuring prior to, or at the time of, privatization could have helped address this problem and leave the privatized mills with a reasonable financial structure.
Perhaps due to these factors, many owners of the privatized mills lacked commitment to turn around the enterprises.
In many cases, the original owners had grown old, and the next generation was uninterested in the jute business.
Public ownership
Finally, it may be noted that despite privatization of several jute mills, about two-thirds of the capacity remained under public ownership, i.e., in the jute mills managed by the Bangladesh Jute Mills Corporation (BJMC).
BJMC was thus the market leader and price setter.
Supported by government subsidies, it could afford to set output prices low.
The private jute mills, who did not enjoy such subsidies, could not compete at such artificially low prices.
That’s one side of the private sector story.
While many of the privatized jute mills were declining, as were the public sector ones, another part of the private sector thrived.
I had touched upon this in the previous column. Let me elaborate here.
Adamjee
Bangladesh’s largest jute mill, the Adamjee Jute Mill, was closed in 2002.
The mill was making losses year after year and had to be kept afloat with financial support from government, including subsidies from the government exchequer and loans from other BJMC mills.
The latter was a burden on these public sector mills but keeping Adamjee afloat was a political priority for the government.
At some point, the government realized that this ‘white elephant’ was not sustainable and decided to close the factory.
What happened after that is a fascinating story of creative destruction and resource reallocation.
Part of this resource reallocation story happened outside the jute sector.
The land on which Adamjee sat was converted into an export processing zone – I have written about this in an earlier column.
But another part of the story unfolded within the jute industry centering on the machinery freed up by Adamjee’s closure.
Some of this machinery was either unusable or too fragile to be relocated elsewhere.
Some were given to the public sector jute mills as repayment of the loans given by these mills to Adamjee.
However, the bulk of the machinery, perhaps 60% according to some industry insiders, was bought by a new generation of small jute mills that were established from 2003 onwards, i.e., just after Adamjee’s closure.
These were mostly located in North Bengal which accounts for about a quarter of the raw jute produced in the country.
An industry insider who termed these the ‘born again jute mills’ informed me in an email exchange, “They managed to fix them and get them up and running with an incredibly low operating cost base. The factory was usually constructed on the sponsor’s family-owned land, the labor used to be within a 5km radius and the raw jute within a 20km radius.”
The jute was usually provided on credit by the farmers to the local entrepreneur, who turned them round in 1-2 months to then repay the farmer.
Very little bank finance was needed, and establishment costs were low.
Such mills proliferated as more jute mills closed and their machines became available.
Later, some of these small jute mills bought new Chinese made machines for their expansion.
Although starting small, some of these mills have grown large over time.
These small jute mills, which emerged after 2002, are all members of the Bangladesh Jute Mills Association, and the aggregate export volume data for BJMA includes their exports.
As I mentioned in my previous column, the BJMA mills collectively show a decline in export volume from 1983/84 (i.e., when privatization started) to around 2002/03, after which there is a rebound.
This tipping point coincides with the emergence of this new generation of small jute mills set up with Adamjee machinery.
Indeed, as industry insiders tell me, much of the subsequent increase in exports by BJMA mills is largely accounted for by the rise of these mills.
Some of these mills were set up by entrepreneurs involved in other industries.
This was partly to meet their own bagging requirements and partly to diversify their industrial holdings.
Jute yarn making on the rise
The third part of the story of the private jute industry is the rise of the jute yarn making industry that I discussed in my previous column.
This is also a largely post-independence generation of jute mills, emerging earlier than the North Bengal based mills mentioned above.
There were only six private jute yarn mills prior to independence, accounting for only 2-3% of all jute good exports at that time.
These were also nationalized in 1972 and privatized in the second half of the 1970s.
They account for a minuscule part of current-day jute yarn exports from Bangladesh.
Almost all jute yarn exports come from mills set up after independence.
Two factors contributed to their growth, starting from the late 1970s and early 1980s.
The first is the closure of jute mills in Europe and other parts of the globe – a phenomenon I alluded to at the outset.
An industry insider told me that he had bought used machinery from countries as diverse as Brazil, El Salvador, Morocco, Tunisia, UK, Germany, Spain, the Netherlands, Czech Republic, Poland, Serbia, Italy and Thailand, and new machines from China and India.
These mills in Europe and elsewhere found demand for their jute products falling with the advent of synthetic packaging material in the 1970s.
Some of the old machines from such mills, more specifically the preparatory machines required for spinning of yarn, were bought by Bangladeshi entrepreneurs who set up the jute yarn mills in the 1980s and 1990s.
More recently, new machinery has come largely from China, but these follow the design of the original jute machinery manufacturer, James Mackie and Sons of Belfast.
In other words, there has not been much technological improvement.
These mills were set up to take advantage of another development, i.e., the growth of machine-made carpets (area rugs), especially in the Middle East from the 1990s onwards.
The bulk of the jute yarn exports from Bangladesh go to such carpet manufacturers.
Thus, as often happens in life, two developments occurring around the same time proved fortuitous for the jute yarn industry of Bangladesh.
These were the closure of jute mills around the world and the rise in demand for carpets in the Middle East.
At the end of the day, though, it is the proactiveness of a few entrepreneurs which allowed Bangladesh to take advantage of these fortuitous developments.
I started my previous column by writing about the common misperception in Bangladesh of a declining jute industry.
This piece builds upon the previous one to show that the story of Bangladesh’s jute industry is much more nuanced and promising than many of us think.
And at the heart of that story, as that of many other stories in Bangladesh, is entrepreneurship.
Once known as a nation of poets and philosophers, Bangladesh has now become a nation of entrepreneurs.
The jute industry is just one manifestation of it.
The author is an economist, previously with an international development agency
