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Where does the solution lie?

  • Published at 03:41 pm February 18th, 2020
bproperty issue 18

Export-wise, the RMG sector grew by a staggering 39.37% between FY2013-14 and FY2018-19

Inadequate infrastructure, lack of experts, a profusion of child labour, and abuse of safety regulations — just a few hurdles Bangladesh’s apparel industry has had to overcome throughout the years in order to reach the point it has. Today, it is a multi-billion dollar industry and constitutes over 80% of total exported goods from the country. It is, essentially, the backbone of the economy, and Bangladesh is in second position after China in the global readymade garments export market. But as the president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Rubana Huq, said, the RMG sector is not doing all that great at the moment.

About 133 factories closed down during the 2019 calendar year — most of which were run by small to medium entrepreneurs. And during July-January of 2019-20 fiscal year, earnings from RMG exports dipped by 5.71% in comparison to the same period of the previous year — over $1 billion in earnings. However, this sort of scenario is not something that was expected by the industry experts and has, in fact, been a long time coming. The solution to this problem may just lie in real estate relocation.

Bangladesh has been well-known in the global market as a low-cost labour resource for years. For importers, readymade garments from Bangladesh meant inexpensive quality items. But that contention is being challenged by other up and coming exporters — especially by a few African nations. They are vying for the spot Bangladesh holds in the international apparel market. And unlike factories in other nations, ours need to strictly follow and maintain the safety and compliance regulations set in place, if they want to continue trade in foreign markets.

The Tazreen Fashion factory fire and the collapse of Rana Plaza brought widespread compliance violations by the RMG factories of that time into the limelight. Many regular organizations and even nations have put an embargo on Bangladeshi apparel businesses until necessary remediation was in a place that meets the safety standards as well as follows the emerging green trend when possible.

Since then, the Accord on Fire and Building Safety in Bangladesh and the Alliance for Bangladesh Worker Safety have turned things completely around. Today, Bangladesh’s garments industry sits at the zenith of sustainable and environmentally friendly garments factory designs and operations. Furthermore, Bangladesh has the most number of Leadership in Energy and Environmental Design (LEED) platinum-rated factories in the world — seven of which rank in the top 10 globally.

Still, the earnings dwindled during the first half of FY2019-20. Surprisingly, even with the restrictions, the RMG sector continued its growth. Export-wise, the RMG sector grew by a staggering 39.37% between FY2013-14 and FY2018-19. The number of BGMEA members during those times had also increased — from about 4,222 to 4,621 factories. But many, including the owners of the recently foreclosed apparel businesses, attribute the reason for the recent decline to compliance failures. According to them, the cost of adhering to the compliance regulations — especially in cities like Dhaka — is too high and is forcing them to shut down.

Excluding Savar and Ashulia, Dhaka has around 1,300 RMG factories within its bounds — 160 in Mirpur, 134 in Pallabi, 83 in Rampura and 82 in Badda — as per the latest figures from the Department of Inspection for Factories and Establishments (DIFE). Finding enough space to establish new RMG factories in the city that comply with regulations is very costly, if not impossible — especially the recent trend and demand for “green factories.” For small and mid-sized factories, there is no other way than to cut costs somewhere else to stay afloat, and that can be done best by relocating or opening their business in a place where maintaining compliance is neither very expensive nor difficult.

Usually, such locations tend to be outside the city borders, where ample space can be allotted to adhere to the Bangladesh Nationa Building Code and the National Tripartite Plan of Action on Fire Safety and Structural Integrity. Historically, most of the factories — not just RMG ones — have eyed Gazipur and its surrounding areas for such establishments. As such, Gazipur has the highest concentration of RMG factories after Dhaka. But there are a few problems that small and mid-sized RMG businesses may encounter while trying to follow the traditional route, including facing a scarcity of appropriate real estate just like Dhaka.

The Sadar area of Gazipur has very little space available for establishing new adequate factories. Following in the footsteps of major RMG businesses and procuring land, in locations where factories would have less impact on the environment, and have better scope to adhere to safety regulations can also be difficult due to high real estate prices. 

Similarly, Narayanganj — an area that is heavily industrialized — has seen many RMG factories established in the past few decades. However, most of the focus in Narayanganj has been on Fatullah and the Sadar areas, which have about 550 apparel factories combined. But recently, the focus has shifted from these areas to Rupganj, which now has 60 apparel manufacturers operating and the number is sure to increase further in the coming years. The reason for such focus can be attributed to the very location of Rupganj itself.

The area is only a few kilometres from Purbachal New Town. The quick development of the project has signalled a gold rush throughout the entire region, including Dhaka East and Rupganj. For small and mid-sized RMG businesses, this can be a good opportunity to create a foothold in the industry. But to cut down costs even further, businesses need to look toward other areas — areas where they can get tax rebates such as in underdeveloped or remote areas and private specialized economic zones that offer several years of full tax holiday among other numerous benefits.

While access to government-made economic zones might be out of reach, private economic zones are a great alternative for businesses to establish themselves and prosper. While still a relatively new concept in the country, these economic zones present the best chance to recover for the RMG sector’s declining export earnings. The principle is simple enough — less expenditure and better tax breaks mean more earnings for businesses.

Even BGMEA is hopeful about the prospect of being involved in private economic zones. So much so that they are proposing to invest $2 billion at the Mirsarai Economic Zone. The perception is that such zones will help reduce production costs and help Bangladesh’s apparel manufacturing industry keep its place in the global market and prevail another challenge like it has done so many times in the past. Whether that will be the case this time as well is still unsure. But for the economy of the country to keep growing, the continuous success of the RMG sector is a must.