The editor of a leading English daily wrote about minimum wages for the RMG sector in the Daily Star last Friday, stating that the garments industry pays 0.8% tax whereas corporate tax for other sectors is 40%. This is a blatant misrepresentation of facts and a clear example of negative media bias towards the garment owners.
The fact is, garments exporters pay 0.8% tax at source on gross export, regardless of profit or loss. With industry average profit margins of less than 5%, that translates to 20% tax on profit, even though the corporate tax rate for garments is 10%. The government does not refund this excess tax, even if we claim a loss.
Meanwhile, our competitors in China do not pay tax on exports, get preferential rates of exchange and other export incentives. Bangladeshi garment exporters have to import fabric from China, our main competitor, at additional cost and longer lead times, so the only competitive advantage we have is lower wages, which account for less than 20% of the cost of a garment. Dysfunctional politics, hostile unions, inadequate infrastructure and higher interest rates are challenges that our Chinese competitors do not have to deal with.
When the minimum wage was increased from Tk1,662 to Tk3,000 in 2010, buyers were compelled to pay higher prices, as long as we were still price competitive with China. The big question is – can we still compete with China after the next wage increase?
The aforementioned editor has fully endorsed the CPD recommendation to increase the minimum wage to Tk6,560. CPD has made this recommendation based on the minimum living cost of a garment worker taking into account house rent, nutrition etc. Three months ago the government set the minimum wage for jute mill workers at Tk4,380. So my question to our esteemed economists at CPD is – do jute mill workers eat less than garment workers? Have our esteemed economists at CPD ever set foot in a garment factory, or conducted a study on price structure and production costs of garments?
First of all, there is simply too much hullaballoo about minimum wage – it is totally misleading. There are 7 grades of garment workers – Grade 7 workers get a minimum wage of Tk3,000 and comprise less than 1% of garment workers. Grade 7 workers are novice unskilled workers like helpers and cleaners, and are available in abundant supply. Many of these workers go on to become skilled operators and earn 2 to 3 times the minimum wage.
The majority of workers are Grade 4 skilled sewing operators, whose minimum wage is Tk4,218. But the demand for skilled workers is very high, so it is difficult to get them for less than Tk6,000. With overtime, festival bonus and other benefits, they earn more than Tk8,000 per month. This is a healthy sign for the garment industry – wages being determined by demand and supply in a sustainable way i.e. market forces instead of riot forces. The minimum wage for Grade 1 operators is Tk9,300 – if garment wages are increased 128%, they will get Tk20,615. Umm, excuse me CPD, but how much do entry level university graduates make in Bangladesh?
The media keeps highlighting the minimum wages vs the perceived affluence of all garment owners, thereby adding fuel to the fire engulfing the garment industry. But here are the facts: there are 5,600 garment factories registered with BGMEA, of which 2,400 are closed. Of the remaining 3,200 factories, 20% control 75% of the business and are extremely wealthy.
The largest garment company in Bangladesh does over one billion dollars of export. But 80% are small to medium factories just struggling to survive. I beg the media to highlight their struggle instead of focusing on the wealth of a few garment owners. Any diversion of orders from Bangladesh will lead to hundreds of these factories going out of business and lacs of workers losing their jobs. The unrest will stop when the unions stop feeding off the negative public perception of garment owners.
The reality is that the garments industry is exposed to great risk and is extremely vulnerable. Unlike jute mills or other industries, we do not make a generic product. Every order is different and made for a specific customer. Any disruptions in production can lead to cancellations and air shipment, which is suicidal for any garment factory.
Shut down production for a week, and that factory can go bankrupt. This is the kind of leverage unions have in the labour intensive garment industry. Perhaps that will explain why there are 147 unions for garment workers registered in Bangladesh.
During the unrest in the garment sector in 2006, hundreds of factories closed down permanently and hundreds of thousands of workers lost their jobs. Unions were used to incite unrest prior to elections in 2006, and they will be used again prior to the next elections. The victims will be both workers and owners of the garment industry. The media has a big role to play in the interest of the whole nation.
Let us start by not applying double standards to the garment industry. Why Tk8,000 minimum wage just for garment workers? Why not make Tk8,000 the national minimum wage for all workers in all industries and service sectors? Let the government decide the minimum wage and make it the national minimum wage for all workers. l
