Published daily by the Lowy Institute

Battered Bangladesh risks everything on unsafe factories

Workers safety is being compromised in the garment industry despite outrage at past disasters.

A textile worker in Dhaka {Photo: Asian Development Bank/Flickr)
A textile worker in Dhaka {Photo: Asian Development Bank/Flickr)
Published 21 Nov 2017   Follow @ConnellyAL

By Elliott Brennan, an intern in the Lowy Institute's East Asia Program, and Aaron L Connelly, Research Fellow in the East Asia Program.

As Bangladesh looks down the barrel of two humanitarian disasters beyond its control, its government and garment industry risks manufacturing a third.

In August, once-in-a-century floods left one third of the country underwater, killing at least 145 people, displacing 300,000, and decimating swathes of Bangladesh’s agricultural heartland. As the water settles and recedes, aid workers say they desperately lack the supplies needed to stave off disease.

In the southeast, the refugee crisis continues. More than half a million Rohingya have streamed over the Myanmar border from Rakhine State, fleeing what the top UN human rights official has said appears to be a textbook example of ethnic cleansing. Although Bangladesh has expanded camps to house the refugees, the prospect of their permanent settlement has already had a destabilising effect.

These are not transient issues. It will take years to rebuild after the latest floods. Yet on average 4.75% of Bangladesh’s GDP is exposed to flood risk, by far the highest in the world and trending upward. To the East, Myanmar and Bangladesh have formed a working group for the repatriation of the Rohingya refugees, but the path forward is still unclear and the status of the Rhohingya remains unresolved.

A country’s capacity to respond to such unpredicted and long-term humanitarian issues is underpinned by the strength and stability of its government and economy. For Bangladesh, there is cause for deep concern.

Bangladesh’s economy is fundamentally tied to garment exports. The country of 163 million is second only to China in making clothes for the world, totalling USD $28.1 billion according to most recent figures. The garment sector has directly fuelled Bangladesh’s development. The combination of a low minimum wage global demand for fast fashion and poor government oversight have created conditions whereby many people in the 5.1 million worker strong industry have been lifted from poverty. The garment sector has removed barriers to the employment of women, with 80% of the industry estimated to be female.

But the Bangladeshi garment industry is at a crossroads. The collapse of Rana Plaza more than four years ago killed at least 1,100 people and inspired an internationally-backed campaign to make Bangladeshi factories safe. The two main efforts, signed by over 200 global fashion brands, are set to lapse in 2018. As this deadline approaches, both appear doomed to fail, and the government has blocked any prospect of an extension.

This leaves a dark cloud over the future of worker safety in Bangladesh. Only 79 of 2,334 factories inspected have so far met the desired standard under the international monitoring programs. The prospects for the rest look glum.

One of the programs, the European-based ‘Accord on Fire and Building Safety in Bangladesh’, reports that as of October, almost nine of every ten factories that fall under its agreement are behind schedule in remedial works. The US-based ‘Alliance for Bangladesh Worker Safety’ lists 35% of its factories are lagging. But according to the International Labor Rights Forum, the number is actually more than half, with many beset by major, uncorrected structural problems.

The Alliance has confirmed it will cease operations by the end of 2018, although maintains its program will be completed before then. The factories will then be transfered to an existing safety scheme run by the government of Bangladesh.

In June, the Accord unilaterally announced it intended to enter a second phase beyond 2018. The decision was sharply criticised by the industry’s largest trade body, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), with warnings the Accord not to ‘try to be the East India Company’. Prime Minister Sheikh Hasina paid lip-service to such accusations of neo-imperialism when she recently told striking garment workers not to ‘give in to the provocations of outsiders to cause workplace troubles’.

Last month, the High Court of Bangladesh put a freeze on the extension of the Accord, citing its failure to seek government consent. After months of being forced through a gauntlet of legal and public pressure, the Accord has now agreed to abandon the extension.

The demise of the Accord was foreshadowed in August when the BGMEA laid out plans to continue remediation efforts under a new program through the office of the prime minister. With the decision of the High Court and the acquiescence of the Accord, this new scheme, called Shonman, or “respect,” looks set to go ahead. 

In theory, Shonman would bring all the right players to the table. The program would be run by an ombudsman selected by the prime minister and would include a steering committee comprised of members of the BGMEA, the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), the International Labour Organisation, brands, trade unions and labor ministries.

Shonman also aims to solve one of the main issues that stymied remediation efforts under the Accord and the Alliance. The two serve only 27 per cent of the estimated 7,100 exporting garment factories in Bangladesh, even though work is often sent in unauthorised subcontracts to the remaining 73 per cent. Almost 3 million workers in the latter set of factories have so far been excluded from the international coalitions’ efforts. Under Shonman, these factories would supposedly be held to the same standards as major exporters.

Despite this new commitment from the government, it’s doubtful the plan can be taken at face value. The current government program does not report on its inspections, and in September a fire killed six workers in one of its factories. The proposal also does not offer an answer to the question of ‘who pays?’ Currently, the Accord makes funds available through order guarantees, direct investment or by negotiating loans on behalf of the factory. The Alliance factories are backed by a $18 million loan facility from USAID that will likely wrap up with the program itself in 2018. Even with these initiatives, the average remediation cost per factory is around $250,000, and where a factory owner is unable to meet the costs, no one is obliged to assist them.

There are three other major international funding facilities available: the International Finance Corporation ($40 million), Agence Française de Développement ($60.3 million), and the Japan International Cooperation Agency ($13 million). But the unpredictable nature of the garment sector means most factories cannot access loans with interest rates of less than 10 per cent. With razor thin profit margins, taking on high interest debt is less attractive to factory owners than simply dragging their heels until the 2018 deadline passes.                                                            

As a result, the International Labour Organisation last year estimated there was a $448 million deficit between the funds made available for remediation and those required. There is no indication of how the shortfall will be met.

Securing the additional support of the prime minister’s office does little to quell these doubts. Hasina’s rhetoric indicates she is still reluctant to take responsibility for the reform of the sector. Her implicit support of Shonman only bolsters her already-strong track record of backing factory owners over workers. She recently told workers that NGOs are after a cut of their pay, and that it is workers’ responsibility to hold the factories to account for their pay and conditions.

Kneecapping the extension of the Accord and placing faith in a previously reluctant government is a high-stakes approach for the industry. Global fast fashion brands don’t have assets tying them to Bangladesh. They can move production to other garment manufacturing countries, such Cambodia. Bangladesh needs the garment sector to continue to grow. To do this it needs the trust of its ultimate consumers in countries such as Australia.  

The factory owners and the government may have waited out the first wave of international interventions. But if there is another disaster anywhere near the scale of Rana Plaza, the response will be withering. Consumers can be expected to put extraordinary pressure on multinational retailers to move production offshore, devastating the Bangladeshi economy and returning millions to poverty.

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