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Problem : Prospect : Challenges in RMG sector

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16th-May-2018       
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Dr. Anu Mahmud :
Over the last four decades since the Independence the readymade garments (RMG) sector has become one of the important vehicles of economic development and wellbeing of the weakest section of people-the womenfolk of the country. It is no wonder that the World Economic Forum ranks Bangladesh 9th in the country of nations with the fastest growing economies.
RMG has greatly contributed to lifting the nation from the "economic basket case" to the status that saw a GDP (gross domestic product) growth rate of more than 7 per cent in the fiscal year (FY) 2016-2017. Currently the sector employs about four million (40 lakh) workers. About 80 per cent of the RMG workers are women who, like most average women in developing nations, were dependent and reliant on others for their own sustenance. It is well-accepted by development gurus that without participation of a half of the working age population in the productive sector, no nation will ever be able to become economically sustainable. The government's stated objective of attaining the middle income country status may not be achievable without sustained growth of the RMG sector.
RMG has ensured a sustained flow of the precious foreign exchange to the coffer of the country's central bank and allayed the concerns about sustainability of the country's economy during any global volatility. RMG has fetched about 81 per cent of the export earnings of the country in the FY 2013-2014. The RMG sector, hence arguably is the powerhouse- the face of Bangladesh's economy.
But Bangladesh is risking too much when its hopes and future hinge on a large share of foreign exchange earnings from the RMG sector alone. At the top of the list is a fierce competition from other developing nations and China. Although Bangladesh may boast a large number of cheap, affordable non/semi-skilled labour, it should not go as far as to think that it is the only country that reaps such population dividends-"blood diamonds"can be found for cheap else-where in the world too.
Bangladesh must compete
Apart from China, Bangladesh must compete against the fast-growing number of looms in Vietnam, Indonesia, India, Thailand and Turkey, all of which provide "labour diamond" for a bargain, sometimes even cheaper.
If the productivity of each worker is factored into the equation, in many case, Bangladesh stands in a significantly disadvantageous position due to the low productivity of labour. In fact, Bangladesh ranks near the bottom of the productivity index of countries (assessed by GDP generated per hour) with a score of 1.98 while India stands at 3.4 and Thailand at 8.54. So, while RMG has constantly been able to play the backbone of the nation's economy, there is a possibility, a very slight one, that it may not be able to retain that position as competitors further develop and strengthen their own RMG sectors with higher production, lower prices and more appeal with high-end products for potential clients.
The second threat seems to come from what will be the most, non-conventional  and radical change in the industrial revolution of the 21st century: robots are here. The robots that will replace a lot of human in this sector will not only be faster and more productive but also be more cost effective in the longer term, encouraging companies to replace their biological workforce with a new race of AI (artificial intelligence) workers. In fact, China has already started this initiative, though on a very modest scale.
The third problem has been a common industrial dilemma in Bangladesh ever since the inception of the RMG sector, although some of it has been improved with the technical support of the buyers and the owners of such factors. Two major accidents in the RMG sector combined with low, unsatisfying wages of barely $ 113 and the employment of child workers illegally have not escaped the eyes of the clients, who place great importance on industrial safety standards and compliance, and thus a good number of the industries have received the hike-warm response from their clients to supply of RMG products. More than 200 factories had to shut down resulting in loss employment for the weaker stratum of our society.
Diversifying export sector
The focus of the nation should now be on diversifying the export sector and remove the country's heavy dependence on the RMG sector as a constant source of the foreign exchange reserves; in this case, Bangladesh has ample opportunities to introduce and install different industries that can earn revenue in the foreign currency.
This could include increasing agricultural exports, expanding the jute production and processing sector, expanding the technology and electrical products sector, pharmaceutical factories and footwear and leather units, and enabling them to market their products overseas and establishing an international service centre that will work with international consumers.
Diversification will not only distribute the task of collecting foreign revenue among more businesses, thus making the country more vibrant economically, but also it will provide a slew of employment opportunities for many of the skilled-workers in the country.
Positive steps can save
The country's garments industry is in transition. Following the Rana Plaza disaster, European Union (UN)-based retailer under the Accord and North American retailers under the Alliance inspection more than 2,300 garments factories in order to identify how their safety standard could be improved. Of those, 150 were referred to the government for immediate action on the ground of serious safety risks. Again, of the 150,39 were closed, 42 partially closed and 69 were allowed to operate with some recommendations. The rest were brought under a remediation programme. But there remained another 1,549 outside the scanner of the Accord and Alliance. On inspection for structural, fire and electrical integrity under a joint initiative by the government and the International Labour Organisation (LAO), about one-third of those factories have been closed by their owners. Non-compliance with safety standard, failure to compete in the market and also the reluctance to reinvest in units led to their closure.
If these are negative developments, there is a silver lining also in that 64 factories moved to new buildings, 14 were shifted to export processing zones (EPZs)and 178 were added to Western retailers' platforms. This means that a total of 256 factories inspected under the National Initiative (NI) got their acts together. Now of the rest 780 garments units, 312 are housed in their own buildings.
Contd on page 42

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