Workers continue to die in unsafe factories, but the industry keeps booming.
An unidentified relative of a Bangladeshi garment worker cried at the scene of an Oct. 9 factory fire in Gazipur. The blaze came six months after a factory building collapse killed 1,100 people and exposed the harsh and often unsafe conditions in an industry that is the world’s third-largest.
DHAKA, BANGLADESH – After the Rana Plaza clothing factory near Dhaka collapsed in April, killing at least 1,100 people, the big Western clothing companies that have their garments run up in Bangladesh came under pressure to intervene more forcefully to improve safety and working conditions in the workshops they buy from.
Two groups of retailers and fashion brands, one mainly North American and one mainly European, have begun implementing new monitoring programs.
Meanwhile, the disasters continue: Earlier this month 10 people died when another factory in the Bangladeshi capital, used by big foreign clothes retailers, went up in flames.
Nevertheless, it has become clearer since Rana Plaza that clothing firms have little option but to continue sending work to Bangladesh. It will remain Asia’s primary production base outside China for cheap clothing, with exports on track to rise by a fifth, to $24 billion, in the current fiscal year.
The country’s clothing industry has the advantage of scale: It has 5,000 factories, compared with 2,500 in Indonesia and 2,000 in Vietnam. Its labor costs less than any of its Asian rivals: Even a near tripling in the minimum wage, to $100 a month, as garment workers are demanding from the government, would not change this. And unlike clothes put together in China, India and Sri Lanka, those stitched in Bangladesh enjoy duty-free access to the European Union.
Such is the growth in demand for cheap wares that Bangladesh’s clothing industry is forecast to quadruple in size over the next 20 years. It already employs 4 million, mostly women, in a country with 31 million households. Unless productivity rises sharply, millions more women will be drawn from their homes into the workplace, a drastic change in a conservative society.
For factory owners, profits slide
Although output is booming, profitability has slumped. In the past five years the price of the average garment has fallen by 12 percent in local-currency terms. In that period the factory owners’ return on investment has plunged from an average of 50 percent to 20 percent, estimates Forrest Cookson, an American economist and expert on the Bangladeshi economy. That still sounds good, but capital is costly. To get money from domestic banks, palms have to be greased, so textile firms in effect borrow at around 18 percent.
So, despite the prospect of years of further growth, some local factory owners are talking of cashing out. A recent surge in Bangladeshis buying homes abroad is perhaps a sign that some of the families that control the clothing business are preparing an exit. Others are getting money out by under-invoicing foreign sales and keeping the difference abroad.
The most promising way to make the country’s clothing industry both safer and more profitable is to boost productivity and output at the larger and generally better-run factories, and drive the smaller ones out of business.
This, broadly, is the objective of Tau Investment Management, a New York– based firm that seeks “capitalist solutions to capitalism’s failures.”
It wants to inject up to $50 million in each of a number of big factories, to sort out their safety, environmental, labor and efficiency problems. It hopes foreign clothes firms will flock to these high-quality suppliers, leaving the rest to wither away. A commendable idea, but a risky and expensive one.
Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.