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Bangladesh looks for 29 cents
Publication Date : 28-04-2014
A year on from the April 24, 2013, Rana Plaza factory collapse in Bangladesh, the world's attention largely seems to have shifted away from the problems in the garment industry that were exposed by the tragedy. There has been some tentative progress to improve conditions for workers. But serious challenges remain if the 1,132 deaths in that accident aren't to be in vain, let alone repeated.
The government in Dhaka and the foreign retailers who buy garments from Bangladesh have not been idle. Starting in December, the minimum wage has been increased to US$69 per month from $39 without overtime. The Labor Law also was amended last year. New provisions include a requirement that factories with more than 5,000 workers have a clinic and a lower threshold (of 100 workers as compared to 200 before) above which factories need to offer compulsory group insurance. And workers are starting to organise to press for better safety standards and pay.
Meanwhile North American retailers' Alliance for Bangladesh Worker Safety, and European brands' Accord on Fire and Building Safety, a five-year programme committing to improve factory conditions and source from safe factories that comply with structural integrity along with fire and electrical safety. These initiatives are unique and are not applicable to any other country.
All of these moves are helpful. Yet the fundamental economic problems facing the industry remain unsolved. Consider some simplified calculations for a small factory of four “lines,” or rows of 50 sewing machines:
The minimum wage hike works out to 20 US cents per garment for this hypothetical factory, and suppose a recent audit shows that the owner has to spend $132,000 in building improvements within a year. An approved fire hydrant system will cost $75,000, a reservoir for the fire sprinklers will be $15,000, a fire-system control panel will be $25,000, and nine fire-proof doors will cost a total of $17,000. Assuming this factory produces 1.4 million pieces annually, it will incur an additional cost of approximately 29 cents per piece in wages and safety improvements.
Yet the prices the factory's foreign customer are paying haven't increased at the same pace. A boy's shirt may now be sourced at $3.90 per piece, up from $3.70 per piece a year ago. But of that increase, 11 cents have been spent purchasing the same fabric at a higher price this year. That leaves the factory with only 9 cents per piece, a shortfall of 20 cents compared to its pay and safety expense.
To bring the fixed cost of safety improvements down to an affordable per-piece level, the factory would need to produce 200 per cent more shirts. That's utterly implausible given Bangladesh's poor infrastructure and the finite demand for boy's shirts.
And manufacturers still need to compete on price to attract orders. Despite their efforts through the Alliance and the Accord, foreign retailers are not always willing to pay more for garments. With factories mostly idle from April to July, retailers know they can bargain hard and factories will accept orders at very competitive prices just to keep the factory spaces filled.
For bigger factories with better existing safety conditions, remediation is costly but possible. But those factories aren't the source of the problem anyway. Rather, the concern remains so-called Tier 3 factories, smaller operations running on shoe-string budgets that accept work subcontracted out by larger manufacturers.
Some have suggested simply shutting down these small factories. But hundreds of workers, many of whom are their families' primary breadwinners, would suddenly find themselves unemployed. The challenge therefore lies in making these factories immediately safe through minimum safety measures and then ultimately through relocation.
Although compliance cannot be changed overnight, manufacturers have made small and affordable rectifications in the workplace. With pressure to form trade unions, the voice of the workers has surfaced with an alternative platform of elected Workers' Participatory Committees. In four of my own factories, we introduced elections for workers' representatives. In one of my factories, workers complained of not having enough female supervisors, which eventually led the manager to promote six more women to supervisory positions the following month.
The process of remediation of unsafe factories must also not rest only with Accord, Alliance or the ILO. Every stronger factory should assume responsibility for boosting the industry's reputation by helping smaller factories comply with new standards. If 250 responsible manufacturers could each monitor and mentor 10 smaller factories on compliance issues, that would then alter the reality for 2,500 factories.
Razia Khatun, a worker at New Wave Style Limited, lost her right arm during the Rana Plaza collapse and when interviewed, looked at the camera lens and asked a few straight questions: “Why don't we see your offices collapsing? How can our workplace, an eight-story commercial building be reduced to two floors? Why are our lives not important?” These are questions that can never be answered by the manufacturing community alone. We often talk about the brands and the vendors being partners. Now is the time to prove it.
The writer is Managing Director of the Mohammadi Group, a garment manufacturer and exporter in Bangladesh.