According to industry players, the corporation incurred losses in every step – from purchasing raw jute to selling finished products
Mills under the Bangladesh Jute Mills Corporation (BJMC) have been victims of its sheer negligence for adapting with the modern trends by upgrading the decades-old machines and diversifying products, as well as a proper business plan.
The administrative nature of the BJMC board – always run by bureaucrats with little knowledge of the business – also contributed to the problems the mills have been facing for years that brought huge losses to the mills and their ultimate demise.
The state-owned entity was once the pride of the nation. For a period, just after Independence, people preferred BJMC jobs over a career in civil service.
But that very prestigious corporation died on Wednesday with the government's formal announcement that the mill workers had been terminated under a golden handshake package.
The government pulled the plug on the BJMC in order to end the perennial issue of astronomical losses blighting its 25 state-owned jute mills.
One of the reasons, Jute and Textile Minister Golam Dastagir Gazi rightly pointed out, was that wages accounted for two-thirds of the production cost of a unit; in contrast, private sector mills spend only 15 percent of their total costs for wages.
He was also on point that running the BJMC as usual would only add to the losses and it was better to shut the mills now instead of delaying the inevitable.
But why has the situation become so critical? Who is to blame for the sad demise of the corporation? Some points can be considered here that can provide some insights behind the death of the BJMC.
Case 1: The "Products" page on the website of BJMC – the world's largest jute mills corporation – was last updated on September 27, 2016. The page for "Jute vs. Synthetic Products" is empty, but even that was set up six years ago.
Can a business entity, be it public or private, run in the present digital world when sellers and buyers mostly do business online?
Case 2: The mills were running with decades-old machinery and product diversification was non-existent despite a growing worldwide interest for jute goods.
Case 3: The BJMC was led by a board. A chairman – always a bureaucrat – headed this board. In most cases, an additional secretary of the government was appointed as the chairman of the corporation. Joint secretaries were deputed as directors, be it for marketing, research or quality control. Even the secretary of the corporation was always a bureaucrat.
Whether these appointees, all civil servants, were the right persons to run this as a business having the required knowledge or experience were not taken into consideration. These executives were appointed on a temporary basis so there was an absence of motivation to run the corporation on a commercially successful basis. Can a business organisation survive in the competitive world with such a management structure?
Case 4: The BJMC jute mills were established between 1949 and 1967. Machines and products were in line with the demand in international markets at that time. Business ran as usual till the early '80s before plastic entered the scene and put up a stiff competition to jute products.
In the '90s the private sector came up with heavy investments in the jute sector. They poured money into new machines and product diversification. Two-thirds of Bangladesh's jute and jute goods exports come from yarn that is manufactured by private mills, something the BJMC does not have the capacity to produce.
"There is no way for a business organisation to run or survive in today's world without a business plan," said Rashedul Karim Munna, president of the Jute Diversified Products Manufacturers and Exporters Association.
The demand for jute products, especially recyclable ones, has been growing constantly despite the rise of plastic, said Munna, whose company Creation (Private) Ltd has won the national export trophy in the Highest Exporter category for 2017 and 2019.
"I have never seen negative growth in my exports in the last two decades," he said.
Jute was the single most important export item for Bangladesh till the 1980s. With the fast growth of readymade garments (RMG), frozen fish and leather and leather goods, the golden fibre lost its importance.
"The demand for products has changed significantly in the last three decades and private entrepreneurs have invested in installing modern machines to diversify products, but the BJMC remains the same," he said, adding that Akij and Janata jute mills have made steady business over the years.
According to BJMC insiders and industry players, the state corporation incurred losses in every step of the way – from purchasing raw jute to selling finished products – but there was nobody to check it.
It was an open secret in the jute industry that the BJMC used to buy low-quality jute at high prices in the name of giving farmers the benefit, which indeed was a goal of the government. But middlemen and a section of corrupt officials abused this goal for personal gains.
Khandaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD), said there was mismanagement and inefficiency at the BJMC from raw jute purchase to production. So the losses have been increasing every year, he said.
"They do not buy jute during the season; they buy when the prices go up. The benefits go into the pockets of middlemen," said Moazzem who has conducted research on the sector.
He said that low-quality jute was bought at the price of top-grade jute.
Despite a huge budget for repair and maintenance, the production capacity of the state-owned mills is less than 50 percent of the private sector. So workers sat idle but they got wages as per the government's rules.
The researcher said workers were recruited based on political consideration and the influence of management and labour leaders.
"Just 20 percent of the workers can run the BJMC mills, given the number of looms in operation [less than 50 percent] and sales," he further said.
Under the circumstances, Moazzem finds it illogical to keep the BJMC mills running.
According to him, the state-owned mills should have been given to the private sector entrepreneurs who are experienced and keen on running the mills.
Abdul Barek Khan, secretary general of the Bangladesh Jute Mills Association, said the BJMC was disrupting the market by selling products at lower prices than the production costs.
"Mismanagement and inefficiency have sunk the corporation," Khan said.
Process of closure began more than a year ago
Around six months ago, the government ordered the BJMC not to take any export or local sale orders, except for the food and agriculture departments of the state. The BJMC suspended a project head of a Chattogram-based mill for violating the order.
"The process of shutting down BJMC mills began more than a year ago," said a senior official of the jute and textile ministry that carried out a study on the state-owned jute mills.
The ministry had a series of talks with the stakeholders on the findings of the study. Later, the government formed a committee headed by a former top bureaucrat at the Prime Minister's Office to work on it. The BJMC chairman was a member of the committee. Some other government agencies were also involved in the process.
"There was nobody who thought that the mills could have been run cost-effectively," said the ministry official.
Local administrations under which the BJMC mills are located were also informed about the closure of the state mills.