Hi-tech RMG and Bangladesh’s Future

‘Damned if Bangladesh does, damned if Bangladesh does not’ may explain the country’s current predicament. Capitalizing on having one of the world’s largest low-wage ready-made garments (RMG) sector, Bangladesh refuses to climb that sector’s value-chain. Looking outside the RMG sector, Bangladesh is ecstatic about moving up the global income-ladder, with a low middle-income entry just made paving the way for a high-end playground in the 2020s. Combining opportunities in both sectors simultaneously and collectively has not served as an option thus far. It should. Two structural forces demand we do so quickly.

The first is Bangladesh overtaking China as the world’s largest apparel supplier to the European Union by 2020, that is, on the threshold of our 50th birthday anniversary, a target the Hasina administration has laid down for consolidating the country’s middle-income credentials. Rising labour costs, as Brendan Menapace has articulated and what many other analysts have long been predicting, have slowly corroded China’s comparative apparel-export advantage across the European continent (as, indeed, elsewhere), elevating the likes of Bangladesh across Southeast Asia and Africa (http://magazine.promomarketing.com/article/bangladesh-poised-overtake-china-top-apparel-supplier-eu/?reflink=djem_Frontiers). From commanding half the European market at the time of the Great Recession (2008-10), China now hangs desperately on to a diminishing one-third, just as Bangladesh’s share of that market doubled to almost one-quarter today. Of course, it is not the only country cashing in on China’s structural changes, but the American Journal of Transportation recently found it to be the cheapest after Pakistan’s.

Just as such nationalistically-oriented apparel traders like American Apparel shift towards using labels like ‘Made in Bangladesh’ for the first time, the marginally improved global economic outlook means more orders on tap for exporters like Bangladesh. Monica Munni observed the concurrent growth, in escalating ratios, to be 9.72 per cent in Germany, 10.43 per cent in France, 25.79 per cent in Italy, 26.22 per cent in Spain, 29.38 per cent in the United Kingdom, and 41 per cent in Holland over the concluding fiscal year. This places Bangladesh on track to overtake China in 3-odd years across the continent (Financial Express, September 19, 2017, p. 17). In addition to China’s rising costs, as alluded to, she adds the weaker US dollar and Bangladesh’s recovery from its own RMG misfortunes (Rana Plaza incident, Tazreen fire, et al), as reasons why.

She might as well have added the relative stagnation of Bangladesh RMG wages. Although the Alliance/Accord-based reforms have had some impact in remedying working conditions and labour treatment, that we still continue to be more competitive than many African countries with even smaller economies than ours, or Myanmar and Vietnam in Asia, means this middle-income climb will essentially bypass the masses if our RMG industry is to be sustained. At the aggregate, when the country crosses the middle-income 2021 target, income distribution will be so skewed that many more millions of Bangladeshis may remain below the threshold level than in many other RMG-exporting countries, thus reinforcing the need to retain this particular low-wage production.

An earlier ‘Scopus’ column had indicated the advent of technologically tailored apparel in the United States (October 05, 2017) as a step towards further shifts in this direction across the industrialised world, including China. Bangladesh gets further conditioned: to be able to reap into a massive market opening, it will just have to hold RMG wages as close to where they now are for another 3-5 years. In other words, the country’s upward-mobility is held hostage to a low-wage anchor.

Bangladesh needs that income to build its middle-income infrastructures and modernise even as it delays the efforts to get there. Yet the social trade-off needed for this transformation can be sustained for only so long until inevitable compromises must be made. On the one hand, Bangladesh must bite the bullet with what this trade-off entails. It must, for example, examine non-wage rewards for RMG workers to augment the low wages. Working with the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) to construct cooperatives to supply food and the basics to workers could be one step to overcome the short-term hump.

As restlessness grows over the medium-term, BGMEA-driven technological substitution may also help address the tension without reducing the RMG export tally. After all, we can only follow China: in the initial years, absorb China’s apparel export-shift as best as possible, then, like China, shift towards technological substitution (although unlike China, by offsetting cost-escalations through non-monetary rewards).

Ultimately, we must diversify, if not in 10 years, then in 15, and only then can the social spin-off of a middle-income community become apparent and institutional. Since the apparel industry still remains a zero-sum industry, our gains can now be attributed, in part, to China’s losses; but increasingly, growth in African RMG exporters, Indonesian, Myanmarese, Pakistani, and Vietnamese can also only be in part, due to Bangladesh’s climbing costs. These outcomes may be hard to envision and substitute, but they will be coming. Only by keeping RMG wages as they are now for over 10 years can Bangladesh ward off those outcomes; but by then the social pressures may be too high and explosive to put off, for which reason slow adjustments should begin now.

No denying that our low-wage RMG sector is also feeding into our social upward-mobility, as expected in a middle-income climb: for every technology introduced and technologically-savvy workers trained, we keep feeding into middle-income wherewithal and away from manual labor. That human disposition cannot be avoided. How we balance employment, production, income, and technology to incrementally boost socio-economic standings is the million-dollar question we must address, the sooner the better, to end this century on a high.

 

 

Source:

The Financial Express, 26 October 2017, Bangladesh

By Imtiaz A. Hussain