6_abu jahed

PrologueBangladesh experienced disequilibrium in both the internal and external sectors throughoutthe seventies. The situation was critical in the first three years after independence due to thebloody war in 1971. But during the three decades, the socio-economic condition of Bangladeshhas not been improved much as expected. Domestic resource mobilisation was highlyinadequate compared to investment requirements. The government resorted to deficit financing,money supply increased rapidly, and inflation rates were high. The balance of payment positionwas precarious. The situation was aggravated through rapidly rising import prices anddeterioration in the terms of trade. For these reasons, Bangladesh has been dependent onforeign aid for financing development programs and for filling up large fiscal and external

The Cost and ManagementVol. 35 No. 1January-February, 2007 pp. 59-70

ISSN 1817-5090

Mr. Md. Salim Uddin, MBA, FCA, FCMA is an Associate Professor, Department of Accounting & Information Systems, University of Chittagong andMr. Mohammed Abu Jahed, MSIS (USA), MBA is an Assistant Professor, Department of Management Studies, University of Chittagong, Chittagong.

Garments Industry: A Prime Mover of the SocioEconomic Development of Bangladesh

Md. Salim UddinMohammed Abu Jahed

Abstract: The garments industry has been leading the Bangladesh economy sincethe early 1990s. Garments are the country’s biggest export making up about three-quarters of total exports, and the industry is a symbol of the country’s dynamismin the world economy. The industry is also the main non-farm formal sector creatingemployment opportunities for the poor. The greater part of the workforce is female,less educated, and has migrated from rural areas. Thus, the garment industry isseen as contributing to poverty reduction in Bangladesh by providing employmentopportunities with higher wages for the poor who would otherwise be engagedin low-wage economic activities in rural areas. There was much discussion aboutthe survival of Bangladesh’s garment industry prior to the final phase out of theMulti-Fiber Agreement (MFA) from 1 January 2005 which was expected to greatlyintensify competition in the international garment market. One of the mostinfluential forecasts was that only China and India would gain from the MFAphase out and that Bangladesh and other smaller suppliers of garments wouldlose out. Fortunately, there was no immediate major adverse effect in Bangladesh.Garment exports to the United States grew over the whole of 2005, while thoseto EU declined only slightly. However, the prospects for the industry in Bangladeshare not certain and the future trend in garment exports needs to be watched.Keywords: Garments industry, Product and market diversification, Multi-Fiber

Agreement, Labor unrest.

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deficits. Faced with a situation of burgeoning population, limited land and poor resource baseand declining growth in agriculture severely constrained by a host of socio-economic factors,Bangladesh is hard pressed to rapidly expand employment opportunities outside agriculture.Against this backdrop, the urgent need to adopt and implement an export oriented, andemployment intensive industrialisation strategy. The outcome of the post-war industrializationefforts have reaffirmed one conventional wisdom-the key to the possibilities of rapidindustrialisation and sustained growth lies in the pursuance of a globally competitiveindustrialisation strategy dictated by the dynamic comparative advantage of the economy (Bakht,1993). In such a context, a least developed, resource poor, labour surplus country likeBangladesh, garment industry has been playing a vital role for the emancipation of socio-economic condition through employment and foreign earnings and acting as driving force inthe economic development. The garment industry also particularly has played a pioneeringrole in the development of industrial sector of Bangladesh. Though it took a rather late start i.e.in 1976 but it soon established its reputation in the world market within a short span of time.Resultantly, garment is now one of the main export items of the country. Besides, enrichingthe country’s economy it has played a very crucial role in alleviating unemployment.

In the above background, an attempt has been made in the paper to overview the garmentindustry in Bangladesh in order to assess its role in the socio economic development of Bangladesh.

Objectives of the StudyThe present study on garment industry as a driving force for the socio economic developmentof Bangladesh demands examination and evaluation of multidimensional aspect of garmentsector and its impact on the socio-economic condition of Bangladesh. In such a context, themain objective of the study is to examine, evaluate and analyze the some important aspect ofgarment industry in Bangladesh. In order to materialize the main objective, the followingspecific aspects of garment industry in Bangladesh have been studied, evaluated, examinedand analyzed:(i) To study and evaluate the growth and development of garment industry in Bangladesh;(ii) To examine the contribution of garment industry to the national economy of Bangladesh;(iii) To study the trend of garment product development and its composition in order to analyze

the product portfolio and its diversification;(iv) To study the present market composition for the Bangladeshi garment product vis-à-vis

market diversification;(v) Too evaluate the impact of post Multi-Fiber Agreement–MFA scenario in Bangladesh; and(vi) To analyze the recent labor unrest in the garment industry of Bangladesh.

Methodology of the StudyIn light of the objectives of the study, the paper has been designed to examine some importantaspects of garment industry in Bangladesh. An extensive literature survey has been conducted inorder to review the historical perspective, growth, development of garment industry as well asimpact of MFA period and post MFA scenario. The paper is based mainly on secondary data

60 The Cost and Management, January-February, 2007

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sources. Data and information from secondary sources were collected by consulting variousrelevant journals, studies conducted by various donor and development agencies, Bangladeshexport statistics published by Export Promotion Bureau and Bangladesh Bank, Economic reviewof Bangladesh, annual reports of BGMEA and the publication of WTO. The information publishedin the different newspapers and websites in recent times have been consulted in order to presentthe recent labor unrest situation in garment sector. The collected data and information werethen processed, tabulated and analyzed to present the findings in a logical and objective manner.

Development of Garments Industry in BangladeshIn the field of industrialisation, role of textile industry is found very prominent in both developedand developing countries. Economic history of Britain reveals that in the 18th Century the cottonmills of Lancashire in Britain ushered in the first industrial revolution of the world. Moreover,during the last 200 years or more many countries of the world have used textile and clothingindustry as an engine for growth and a basis for attaining economic development (Ahmed, 1991).Over the past few years garment industry is found to have played such an important role in theprocess of industrialization and economic growth. This industry is infact trying to put the wheelof her declining economic back to the track by giving essential life blood to it (Chowdhury,1991). The growth of garment industry in Bangladesh is a comparatively recent one. In theBritish period there was no garment industry in this part of the Indo-Pak-Sub-Continent. In 1960the first garment industry in Bangladesh (Then East Pakistan) was established at Dhaka and till1971 the number rose to give (Islam, 1984). But these garments were of different type intendedto serve home market only. From 1976 and 1977 some entrepreneurs came forward to setup100% export oriented garment industry. Both domestic and international environment favoredthe rapid growth of this industry in Bangladesh. By mid seventies the established developedsuppliers of garments in the world markets i.e. Hong Kong, South Korea, Singapore, Taiwan,Thailand, Malaysia, Indonesia, Srilanka and India were severely constrained by the quotarestrictions imposed by their major buyers like USA, Canada and European Union. To maintaintheir business and competitive edge in the world markets, they followed a strategy of relocationof garment factories in those countries, which were free from quota restrictions and at least sametime had enough trainable cheap labour. They found Bangladesh as one of the most suitablecountries. Available records show that the first consignment of garments was exported from thecountry in 1977 by Reaz and Jewel Garment. Desh Garment was the first biggest factory thatstarted functioning at Chittagong in 1977. In fact that was the humble beginning of new jointventure garment factory in Bangladesh. Thereafter many entrepreneurs became interested andstarted to setup garment factories following the Desh garment and realising the future prospectsglobally as well. Available records also show that one of the reasons of the growth of garmentindustry in Bangladesh is the collaboration of a local private garment industry, Desh garmentwith a Korean company, Daewoo. As part of its global strategies, the Daewoo Corporation ofSouth Korea became interested in Bangladesh when the Chairman, Kim Woo-Choong, proposedan ambitions joint venture to the Government of Bangladesh which involved the developmentand operation of tyre, leather goods, cement and garment factories (Rock, 2001). South KoreanCompany, Daewoo, a major exporter of garments, was looking for opportunities in countries forusing their quotas subsequent to the signing of MFA in 1974. Because of the quota limitation for

61The Cost and Management, January-February, 2007

Garments Industry: A Prime Mover of the Socio Economic Development of Bangladesh

Korea after MFA, the export of Daewoo became restricted. Bangladesh as a LDC got theopportunity to export without any restriction and for this reason Daewoo interested to useBangladesh for their market. The reason behind this desire was that Bangladesh will depend onDaewoo for importing raw materials and at the same time Daewoo will get the market inBangladesh. For this desire Daewoo signed a five years collaboration agreement with DeshGarment. It included collaboration in the areas of technical training, purchase of machinery andfabric, plant setup and marketing in return for a specific marketing commission on all exports byDesh (Rock, 2001). The outcome of the collaboration of Desh-Daewoo was significant. In thefirst six years of its operation, Desh export value grew at an annual average rate of 90 percentreaching more than $ 5 million in 1986-87 (Mahmood, 2002). Rahman (2004) argued that theDesh-Daewoo collaboration is an important factor to the expansion and success of Bangladesh’sentire garments export sector. In such a context, following Table-01 shows the trend of growthand development of garment industry in Bangladesh.

Table-1: Growth of Garments factories in Bangladesh

Year No. of Factory Compound Growth Rate in %

1971 5 -1977 7 5.771981 7 8 82.701983 141 34.451984-85 384 65.031989-90 759 14.601994-95 2182 23.521999-00 3200 7.962004-05 4107 5.122005-06 4250 3.48

Source: Various articles and Annual Report of BGMEA

The Table-01 shows that the growth was very slow till 1977 and got momentum from 1977 to2005-06 in terms of number of industry. But the compound growth rate was highest till 1981and the rate was very good during 1989-90 to 1994-95 and thereafter i.e. 1994-95 to 2004-05,the industrial growth has been declined though the numbers of industries have been increased.The capacity as well as number of equipments is very good indicator to examine the actualposition of the garment industry as well as size of the industry. In such a context, the followingTable deals in this regard.

Table-2: Garments Industries with number of Machine

Year Garment Industry having No of Machine Total

Upto 100 101 – 200 201 and over

2004 2253 (64) 726 (21) 531 (15) 3510 (100)

2005 2275 (62) 773 (21) 620 (17) 3668 (100)

Source: Annual Report of BGMEA. Figures in parentheses indicate percentage


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From the Table 02 it is found that more than half of the total garment industries in Bangladeshhave the number of machines upto 100 or less than 100 and very few industries have themachine more than 200. It indicates that the small scale industries have been dominated inthe garment sector.

Contribution of Garments Industry to the EconomyGarments Industry occupies a unique position in the Bangladesh economy. It is the largestexporting industry in Bangladesh, which experienced phenomenal growth during last twodecades. By taking advantage of an insulated market under the provision of Multi FibreAgreement (MFA) of GATT, it attained a high profile in terms of foreign exchange earnings,exports, industrialisation and contribution to GDP within a short span of time. The industryplays a key role in employment generation and in the provision of income to the poor. Nearlytwo million workers one directly and more than ten million inhabitants are indirectly associatedwith the industry (Ahmed and Hossain, 2006). The sector has also played a significant role inthe socio-economic development of the country. In such a context, the trend and growth ofgarments export and its contribution to total exports and GDP has been examined the followingtable shows the position.

Table-3: Growth and Trend of Garments Exports, and contribution to GDP(Amounts in Million USD)

Year Garment Export (Min USD) Total Export (Min USD) Share to Total Export in % Share to GDP in %1984-85 116 - 934 - 12.42 - -1989-90 624 (40) 1924 (16) 32.43 (21) -1994-95 2228 (29) 3473 (13) 64.15 (15) 5.87 -1999-00 4349 (14) 5752 (11) 75.61 (3) 9.23 (9)2004-05 6418 (8) 8655 (9) 74.15 (-1) 10.63 (3)2005-06 7901 (23) 10526 (22) 75.06 (1) 12.64 (2)

Source: Economic Review of Bangladesh, BGMEA and Computation made by author. Figures in parentheses indicate compound growthrates (CGR) for the respective periods.

It is revealed from the Table 03 that the value of garment exports, share of garments export tototal exports and contribution to GDP have been increased significantly during the periodfrom 1984-85 to 2005-06. The total garments export in 2005-06 is more than 68 times comparedto garments exports in 1984-85 whereas total country’s export for the same period has increasedby 11 times. In terms of GDP, contribution of garments export is significant; it reaches 12.64percent of GDP in 2005-06 which was only 5.87 percent in 1989-90. It is a clear indication ofthe contribution to the overall economy. It also plays a pivotal role to promote the developmentof linkage small scale industries. For instance, manufacturing of intermediate product such asdyeing, printing, zippers, labels has began to take a foothold on limited scale and is expectedto grow significantly. Moreover it has helped the business of basling, insurance, shipping,hotel, tourism and transportation. The sector also has created jobs for about two million peopleof which 70 percent are women who mostly come from rural areas. The sector opened upemployment opportunities for many more individuals through direct and indirect economicactivities, which eventually helps the country’s social development, woman empowermentand poverty alleviation. In such a way the economy of Bangladesh is getting favorablycontribution from this industry.



Garments Product Portfolio and its Diversification

The specific character of products and level o f industrial development indeed determines itsvariance of product diversification. In such a context, the product mix, product line as well asproduct diversification are very important strategies for any industry to develop its market bymeeting the present market requirements. For the garments industry it is also very importantbecause product diversification will call for developing capability for product developmentand product design specially in response to fast changes in fashion. The growth pattern ofgarments export can be categorized into two distinct phases. During the initial phase it wasthe woven category. Second phase is the emergence of knitwear products. On the other hand,an analysis of the product mix of the garments industry revealed that so far Bangladesh hasbeen able to export very limited categories of products. In such a context, an attempt has beenmade to examine the growth and trend of product portfolio or categories of products exportedfrom Bangladesh. The following Tables deal with the value and quantity of different garmentproducts export including their growth pattern from 1992-93 to 2005-06.

Table-4: Pattern of Woven and Knitwear Garments Export (Figures in Million)

Year Export in Million USD Export in Million DozenWoven Knit Total Woven Knit Total

1992-93 1240 (86) 205 (14) 1445 36 (77) 11 (23) 471994-95 1835 (82) 393 (18) 2228 47 (75) 16 (25) 631999-00 3081 (71) 1268 (29) 4349 67 (60) 45 (40) 1122004-05 3598 (56) 2820 (44) 6418 92 (43) 120 (57) 2122005-06 4084 (52) 3817 (48) 7901 109 (40) 165 (60) 274CGR (%) 9.60 25.22 13.96 8.90 23.16 14.52

Source : Garments Export Data, BGMEA and Export Promotion Bureau-EPB. Figures in parentheses indicate the share in percentage. CGRstands for compound Growth Rate.

From the Table 04 it is evident that the compound growth rate of knit garment export is morethan woven garment export both in terms of value and quantity for the period of 1992-93 to2005-06. The share of knit garments in total export has been increased significantly both interms of value and quantity. The share of woven garment in total garments export has beendecreased from 86 percent in 1992-93 to 52 percent in 2005-06. It is observed that the demandfor knit garment is increasing in the export market. It is also observed that the export quantityof knit garments has been exceeded the export quantity of woven garments in 2005-06. Theposition can be better explained if we look into the more details of the product mix in theabove categories of garments. The garment sector has been able to diversify the product baseranging from ordinary shirts, T-shirts, trousers, shorts, pajama, ladies and children’s wear tosophisticated high value items like quality shirts, branded jeans, jackets, sweater, embroideredwear etc. In such a context, an attempt has been made to classify the garments export intodifferent products in order to understand product diversification strategy and its relativeimportance and performance as well. The following Table shows the picture in this regard.


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Table-5: Pattern of Export Performance of Different Garments Products (Amount in Million USD)

Year Shirts Trousers Jackets T-Shirts Sweaters Others

1994-95 791 (36) 101 (5) 147 (7) 232 (10) N/A N/A

1999-00 1021 (23) 484 (11) 440 (10) 564 (13) 325 (8) 1515 (35)

2004-05 1053 (16) 1668 (26) 430 (7) 1350 (21) 893 (14) 1024 (16)

2005-06 1057 (13) 2165 (27) 390 (5) 1782 (23) 1044 (13) 1463 (19)

CGR(%) 2.67 32.13 9.28 20.36 21.47 -

Source: Garments Export Data, BGMEA and Export Promotion Bureau-EPB. Figures in parentheses indicate the share in percentage.CGR stands for compound Growth Rate.

From the Table 05, it is evident that the highest compound growth rate has been found inTrousers 32.13 percent, followed by T-shirts 20.36 percent, Jackets 9.28 percent, and T-Shirt2.67 percent respectively during the period of 1994-95 to 2005-06. The rate of Sweater is alsosignificant during the period of 1999-2000 to 2005-06. It is observed that the share of Trousers,and T-Shirt in the total garment export is increasing. On the other hand, the share of shirts andJackets is declining trend. The Figures indicate that Bangladesh has concentrated in theproduction and export of Trousers, T-Shirts and Sweater. This mean’s that there is a scope andactually need for structural change in product mix.

Garments Market DiversificationThe international textile and garment industry has undergone several shifts in production andmarketing since the 1950s. The first shift occurred in the 1950x and early 1960s when productionmoved from North America and Western Europe to Japan. The second supply shift was fromJapan to the Asian newly industrialised economics (NIEs)-Hong Kong, Taiwan, South Koreaand Singapore- and this permitted the latter group to dominate global textile and garmentexports in the 1970s and 1980s. Over the past 10 to 15 years, there has been a third shift asproduction within Asia has moved from the NIEs to China and South East and South Asianexporters and as exports from non-Asian countries, in particular control America, the Caribbean,Eastern Europe and North Africa, have increased substantially. These production shifts havebeen influenced by a range of factors, including the distortions to international trade arisingfrom MFA quota system and labour cost differentials. In this scenario, Bangladesh garmentindustry is well placed to withstand the increase in competition in its export markets. Ourexport market for garments products is spread over a vast space of more than 20 countries withUSA, UK, France, Canada, Germany, Belgium and Middle Eastern countries being the majorand notable ones. Initially, Bangladesh has concentrated only in a few markets. It hasconcentrated in USA, Canada and Europe. The competitors of Bangladesh, for example, Indiahas continued to expand its trade, diversify its markets and change product mix of its exports.As the recent performances indicate, the production and marketing capabilities of Bangladeshhave increased substantially. But still it lacks the core competence necessary to stay in a highlycompetitive market which one can anticipate in present post MFA period. If it wants to increaseits world market share and competitive edge, it needs to diversity its products and markets. Inthis context, it is imperative to analyse the major export market for Bangladeshi garments



product. The following Table shows the major share of export market in USA, EU and othercountries in this regard.

Table-6: Selected Region-wise share of Garment Export in percentage

Year USA European Countries USA & EU Other Countries2001-2002 42.67 55.43 98.10 1.902002-2003 38.02 57.12 95.14 4.862003-2004 28.64 65.42 94.06 5.942004-2005 30.64 64.24 94.88 5.122005-2006 33.67 49.77 83.43 16.57

Source: Bangladesh Bank Quarterly; Publication of Bangladesh Bank

From the Table 06 it is observed that Bangladesh garment export market has concentrated in USAand EU till 2004-05 which indicates Bangladesh has successfully established a remarkable presencein the world markets, particularly in the US and EU markets. In the year 2005-06 a successfulturnaround was observed in exports to third countries which is about 16.57 percent of total exportmarket and it was only 1.90 percent in 2001-2002. It is expected that the trend of marketdiversification will continue and this will help to maintain growth momentum of export earnings.

Post MFA Scenario in BangladeshThe textile and apparel industries have led industrializatio n at the early stage of developmentin many countries of the world. Most developed countries which have lost competitivenesshave imposed quantitative restrictions on the trade in textiles and clothing since the 1950s,although there has been progress in trade liberalization as a whole. Over the last thirty years,international trade and investment in the global textile and garment (T&G) sectors has beeninfluenced by Multi-Fiber Agreement (MFA) quantitative restrictions (quotas) applied by themajor developed country importers (the United States, the European Union, Canada andNorway) on T&G exports from (predominantly) developing countries. MFA quotas werenegotiated bilaterally and applied on a discriminatory basis to some exporting countries butnot to others, thus differing from country to country in both product coverage and the degreeof restrictiveness. In such a context, the Multi-Fiber Arrangement governed the trade in textilesand clothing from 1974 to 1994. This arrangement was superseded in 1995 by the Agreementon Textiles and Clothing (ATC) under the administration of the World Trade Organization(WTO). From 1 January 2005 all such quantitative restrictions on the trade in textiles andclothing were phased out, and finally abolished. Historically speaking that as per requirementof The ATC, all MFA quotas on T&G products be removed over a ten-year transition periodsplit into three phases and ending on 1 January 2005, thus finally incorporating internationalT&G trade into general GATT rules that prohibit discriminatory measures and call for thereduction and elimination of quantitative restrictions. The quota system under the MFA hasdistorted international T&G trade and has resulted in global welfare losses since quota limitson the exports of selective producers have prevented an allocation of resources to the mostefficient T&G producers and prevented prices in quota protected developed country markets


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from falling. Competitive exporting countries with comparative advantages in T&G productionhave been restrained from expanding under the MFA quota system, while relativelyuncompetitive producers have enjoyed guaranteed market access (up to the quota limit) todeveloped country markets (Spinanger, 1999). In such a context, there was serious concernthat low income countries, such as Bangladesh, Cambodia and the like, which relied heavilyon the garment industry, would suffer from the keen competition expected to be triggered bythe complete liberalization of trade in textiles and clothing from the beginning of 2005. Fromthe many corners it was predicted that China would expand its exports and India would follow,and that the other relatively small exporters would suffered seriously from the competition ofthese two giants. However, it turned out that some garment-exporting Least Developed Countries(LDCs), such as Bangladesh, Cambodia and Haiti, faired very well throughout the year 2005.In this context, an attempt has been made to examine the export data of selected countriesduring MFA and post MFA to US and EU markets in order to assess the indicative impact ofpost MFA scenario in Bangladesh as well as other largest garments exporters. The followingTables show the picture in this regard.

Table-7: Exports of Knit and Woven Garments to the United StatesRank Origin Amount (Million US$) Rate of Change (%)

2003 2004 2005 2003-04 2004-05

1 China 8,690 10,723 16,808 23.39 56.752 Mexico 7,098 6,845 6,230 -3.56 -8.983 Hong Kong 3,732 3,878 3,523 3.93 -9.164 India 2,056 2,277 3,058 10.74 34.295 Indonesia 2,155 2,402 2,882 11.47 19.996 Bangladesh 1,759 1,872 2,268 6.45 21.1513 Cambodia 1,229 1,418 1,702 15.42 20.06

Source: U.S. Department of Commerce, Bureau of Census cited in Yamagata, 2006

Table-8: Exports of Knit and Woven Garments to the EURank Origin Amount (Million US$) Rate of Change (%)

2003 2004 2005 2003-04 2004-05

All Countries 56,918 65,552 69,642 15.17 6.241 China 10,913 13,714 20,334 25.66 48.272 Turkey 8,112 9,348 9,790 15.24 4.723 Bangladesh 3,471 4,578 4,346 31.90 -5.084 Romania 4,124 4,572 4,285 10.87 -6.285 India 2,599 3,020 3,988 16.23 32.0219 Cambodia 475 643 587 35.27 -8.77

Source: Eurostat cited in Yamagata, 2006.

Tables 7 and 8 show the trends in garment exports to t he United States and EU from the fivelargest garment exporters and the two leading exporters among the LDCs, Bangladesh andCambodia. It was revealed that China and India expanded garment exports to the US and EU,the world’s two largest markets. Along with China and India, Bangladesh and Cambodia havealso increased their exports to the United States during 2005 by more than 20 percent. Thoughtheir garment exports to the EU declined between 2004 and 2005, the drops were not significant;



and the growth in the same figures by more than 30 percent between 2003 and 2004 surpassedthe decline in 2005 (Table 8). As a whole, the sum of garment exports to the two largestmarkets grew by 2.54 percent for Bangladesh and by 11.06 percent for Cambodia in 2005.Since the US and EU are going to be imposing new restrictions on textile and garment importsfrom China for at least a couple of years, exports from that country will slow down, makingroom for the remaining garment exporters to increase growth. Thus, the prospects for Bangladeshto continue expanding its garment exports are encouraging.

Labor Unrest in Garments Sector

Labor is an important input in industrial production. This is truer in garment industry ofBangladesh. Mechanization and automation have not diminished the role of human elementin industrial establishments. In fact, the role of the workforce has become highly critical ingarment industry. Nor have the economic reforms belittled the significance of labor.Liberalization of economy has brought labor to centre stage. Human resource is taken to be animportant factor to increase productivity, improve quality and reduce costs all necessary tosurvive in the competitive world. There are several issue related to labor. They are trade unionmovement, wage policy and industrial relation. Industrial labor in the garment sector hasundergone important changes over the two decades. Most important changes are commitmentto industry, protective legislation, status of the worker, employment pattern, growth of tradeunionism, industrial disputes, political interference and in some cases unfair labor practices.Despite the prevailing positive labor management relationship, the spiraling labor unrest inthe Bangladesh RMG industry started on May 2005 after a knitwear factory owner rejected an11-point charter of demands. The factory was completely gutted in the blaze. Protesting workersforced their way into an exclusive industrial zone for foreign investors and damaged machinery.These workers demanding unpaid wages and a weekly holiday smashed scores of vehiclesand burn down factories in Savar, an industrial town near Dhaka. Among the 250 damagedunits, at least 30 were owned by foreign investors in the Savar Export Processing Zone. Accordingto Bangladesh Garment Manufacturers and Exporters’ Association (BGMEA) nearly 300 factories,including 21 factories in the Savar Export Processing Zone (EPZ), were damaged during thethree-day crisis. The total loss of the garment industry is around four billion taka (nearly $70million). Many vehicles were also set on fire during the unrest, which left three workers deadand hundreds others wounded. This is reportedly the worst industrial rioting in Bangladesh inthe ready-made garment industry which is the country’s biggest export earner. The violencealso dealt a serious blow to the industry’s image apart from causing huge losses. Some tradeunion leaders blamed the outbreak on accumulated anger of workers, who even do not haveany weekend. They alleged that some garment owners do not pay the worker their salaries intime and overtime regularly. The violent outburst of the workers crippled the industry formany days. Several quarters seen it sabotage behind this development. On the other hand,another quarters seen it is an explosion of anger that remains unresolved for long. Protests overlow wages and other exploitative conditions continued in the month of June 2005 too. The


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garment workers continued to hold rallies and clashed with law enforcers, leaving many peopleinjured and few dead. Defying a ‘red alert’ imposed by law enforcers at the Dhaka ExportProcessing Zone (DEPZ) and its adjoining industrial areas, workers were involved in clashes inthe Savar, Ashulia and Gazipur areas. The deepening unrest in the garment industry forcedthe foreign investors to announce on June 2005 that they have shut their units as fresh violenceflared up in the Export Processing Zone (EPZ). Investors of 92 units in the EPZ said that theywill not reopen the units until the government gives guarantee of law and order in the area.They also requested the EPZ authority to declare the EPZ closed indefinitely to cool off thesituation. Leaders of the garment factory owners’ also urged the government to form an industrialpolice force to ensure a secure working environment for the apparel industry. They felt that theoverall security situations in different industrial hubs were not risk free despite the government’sdeployment of huge security forces. It was true that in the year 2005 the political instabilityhas been made worse by the simultaneous labor unrest in the economic lifeline of Bangladeshthat is its garment industry. Initially the government and the industry leaders underestimatedthe magnitude of the problem and tried to brush it aside by floating various conspiracy theories.

Conclusion

Bangladesh has earned nearly $8 billion in 2005-06 by exporting garment products, mainly toEurope and the United States. This is about 75 percent of total export earnings of the country.The RMG industry has around 4,250 units across the country. It employs more than 2 millionworkers, most of whom are poor women. Whenever the country is criticized for its high levelof corruption and confrontational politics, its garment industry is held up as a success story.After the end of the Multi-Fiber Agreement at the beginning of 2005 and the changeover to thenew World Trade Organization regime, it was feared that the Bangladesh’s booming textileindustry would suffer as it would loose business to countries like China and India. But fortunatelyfor Bangladesh, so far this prediction has been proved wrong. In fact, the industry has continuedto grow at a healthy rate of 20 percent. However, this does not indicate that the Bangladeshgarment industry has become more competitive. The reality is that this increase has beenlargely due to restrictions imposed on China by the Western nations. As the quotas under MFAhad led to an artificial trade structure, the international RMG market faces a restructuringprocess. Bangladesh’s exports are heavily concentrated in the RMG sector, which has been amain driver of growth and poverty reduction. With more than three-quarters of exports RMGrelated, the country is vulnerable to the MFA shock, in particular since it is confronted withother problems that affect its competitiveness. These problems are not limited to the RMGsector, but will be exposed more fully there in the post-MFA world. The challenge is thereforeto improve competitiveness, both in the RMG sector and economy wide, and diversify exports.Garment industry in Bangladesh has been facing multidimensional problems since itsestablishment. Acute power crisis followed by non tariff restriction, chronic labor unrest, lackof infrastructural facilities, inadequate supply of material and accessories, inability or lack ofefforts to diversify the products and markets, irregularities relating to customs, bond, and



shipping, financing and the like are the major problems hampering the production and increasingthe cost of production significantly. Due to power shortage shipments are sent through air,thereby increasing its cost. Unfortunately the government has not taken any step to improvethe situation. On the other hand, people have been shot dead for demanding regular supply ofelectricity. In this context, it is still right time to devote all out efforts by the relevant agenciesand authority as to expansion and solutions of numerous problems that it faces now. In fact awell designed plan with diversified product manufacture still provides opportunities to usethis sector for socio economic development of Bangladesh. In such a context, it is suggestedthat appropriate and relevant government and nongovernmental authorities/agencies can takesome strategic and effective measures which includes liberal bank loan facilities for revivingsick garment units and BMRE; development of primary textile subsectors for fulfilling the rawmaterials needs; arrangement for captive power supply for utilization of production and itscontinuation; adequate fiscal incentive for growing the sector; strategic arrangement ormechanism for quick resolution of labor dispute; creation of separate ministry for garmentindustry, establishment of cost reduction strategy and labor productivity cell to conduct variousstudy in this field and other supportive policies relevant for the growth, development andsurvival of garment industry in Bangladesh. These may be helpful to overcome the problemsand the contribution of garment industry towards socio economic development of Bangladeshwill be improved and sustained through value addition. r

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