New year may bring bad news for Bangladesh’s readymade garment sector

While the entire world is aspiring and expecting everything better and satisfying during the new year 2024 – for Bangladesh, the third-largest Muslim nation with 170 million population, it may be just the opposite as the country’s readymade garment sector currently is facing serious problems due to ongoing protests by the workers demanding increase of their wages. Meanwhile, country’s main opposition – Bangladesh Nationalist Party (BNP) is making frantic bids in further complicating the situation by giving instigation to garment workers in resorting to violence during their protest, while it also is pursuing lawmakers in the United States – the single-largest buyer of apparel items from Bangladesh, as BNP leaders believe, turbulence in this sector would disrupt Bangladesh’s foreign exchange earnings, which would put the ruling Awami League under extended pressure.

Meanwhile, BNP has succeeded in pushing the RMG sector into indefinite strike from January 1, 2024. Earlier, on December 18, 2023, at the frantic lobbyist bids of BNP, members of the US Congress, Ilhan Omar (D-MN), Jim McGovern (D-MA) and Jan Schakowsky (D-IL) in a letter to Stephen Lamar,

President and CEO, American Apparel & Footwear Association demanded “living wages for Bangladeshi garment workers”, while in their own country, workers at a large number of organizations such as Walmart for example, are reportedly underpaid.

According to media reports, in addition to the above-named members of the US Congress, five more members of the US Congress namely

Raúl Grijalva, Barbara Lee, Alexandria Ocasio-Cortez, David Trone, and Susan Wild have so-signed the same letter where they said, “As you know, the recent wage increases announced by Bangladesh’s wage board, which would not even meet the rising cost of living, have led to extended mass protests. Police have responded with violence against protesters and trade union leaders, resulting in at least four deaths, numerous injuries, and a wave of unjust arrests, detentions, and indefinite factory shutdowns. We agree with the Biden administration’s call for the government of Bangladesh to respect and protect workers’ rights to organize, protest peacefully, and collectively bargain without fear of retaliation, violence, or intimidation”.

Most interestingly within five days of dispatch of the letter from the members of the US Congress, UK’s influential The Guardian published an article titled ‘Woman making Christmas jumpers for UK turns to sex work to pay bills’, which said “Story of garment worker’s ordeal in Bangladesh, where she works in a factory producing clothes for brands including Tesco, Matalan and Next, shines light on low factory wages …”, which also is about “low wages” in Bangladesh’s RMG sector.

In November, the Bangladesh government announced a higher minimum wage for garment workers, raising it 56 percent to about US$113 per month. The new wage comes after weeks of violent protests by workers demanding higher salaries, which left two workers dead and several more injured. But the workers expressed frustration at this stating, “The increase is not enough when prices of all items and rent have gone up sharply. We work to survive but we can’t even cover our basic needs”.

Meanwhile, Financial Times in a report said, “Big western fashion brands are not paying “ethical” prices for Bangladesh-made clothes, the country’s exporters’ association said, as protests over wages sparked factory closures in the world’s second-largest garment exporter”.

H&M, Zara’s parent company Inditex and Walmart are among the largest buyers of Bangladesh-made clothing and the sector accounts for 85 per cent of the country’s exports, totaling an estimated US$47bn in the last fiscal year, according to industry data.

The Financial Times said, “The Bangladesh Garment Manufacturer and Exporters Association (BGMEA) has asked members of the American Apparel & Footwear Association, an industry body that represents companies including Adidas and Gap, to raise purchase prices from December in line with the new wage to maintain factory owners’ margins. In separate statements, the AAFA, H&M and Inditex said they were “committed” to improving wages but did not comment on whether they would increase prices. Inditex has previously said it would incorporate wage data into purchasing prices. Walmart did not respond to a request for comment”.

According to a 2015 report of the International Labor Organization (ILO), “In US dollar terms, China had the highest minimum wage in 2015 in the Asia and the Pacific region among the major garment exporters included in this brief, with a minimum wage of US$297 per month in Shanghai. This was about 4.5 times the lowest minimum wages, which were found in Sri Lanka (US$66) and Bangladesh (US$68).

“The minimum wage in Shanghai is around 4.5 times the minimum wage in Bangladesh, when both are converted to US dollars at market exchange rates. However, if the cost of living is higher in Shanghai than Bangladesh, then the standard of living that a garment worker can afford on the minimum wage in Shanghai may not be 4.5 times the standard of living of a garment worker in Bangladesh”.

The RMG sector in Bangladesh directly employs over 4.2 million people, 60 percent of whom are women, and indirectly supports 40 million Bangladeshis.

According to BGMEA, “Experts concede that, while Bangladesh, backed by flexible labor laws, has built large garment units in recent years and thus enjoys a significant degree of scale, more than 80 per cent of units in India are still in the SME/unorganized sector, due to rigid labor laws and other challenges.  Thus, it has not only failed to possess the inherent strengths of manufacturing, but is also not able to generate favorable treatment from large foreign buyers. Rigid laws have prevented India from functioning flexibly in a seasonal industry. India has only three or four garment makers, with a turnover in excess of US$100 million. Hence, the turnaround time of Indian firms from order to delivery is 63 days. In Bangladesh, the turnaround time is far less – about 50 days. Also, it takes only one day for a consignment to reach a port in Bangladesh.  In India, it can take as many as 10 days for a consignment to reach a port. All such factors are barriers to creating scale.

“One of the major reasons for Bangladesh’s sharp competitiveness is that it is cheaper to produce goods in Bangladesh than in India. According to a case study, the unit labor cost of producing a cotton shirt in the US is about $7, while the unit labor cost of producing the same shirt in India comes to about 50 cents. But in Bangladesh, the unit labor cost is only 22 cents. This gives Bangladesh a competitive advantage over countries, including India. Experts are of the view that Bangladeshi RMG exports have the potential to achieve the US$100 billion mark in the next decade or so”.

From this statement it is proved – the key reason behind Bangladesh’s advantageous position that results in remaining as one of the largest exporters of apparel products is its “competitive labor cost” or lower wages. Now, if the Bangladeshi apparel exporters shall be forced to further increase minimum wages and if Western buyers do not agree to increase the price, products manufactured in Bangladesh may not enjoy price advantage compared to that of India and few other countries. Meaning, the year 2024 may bring unexpectedly bad news for Bangladesh’s apparel sector, which would seriously affect its overall economy.