Regulations must be eased to sustain trade war benefits: Arshad Jamal

TBS: Vietnam is marching forward in apparel exports. So how are we faring vis-à-vis Vietnam?

Arshad Jamal: Our readymade garment industry has developed certain skills and attained a certain standard in the last 35 years, despite problems in the port, infrastructure, gas crisis, electricity shortage and political instability. Now we are in the driving seat of the global apparel industry. We are more sustainable than Cambodia and Vietnam because our industry is fully led by local entrepreneurs while for those countries, foreign entrepreneurs run the show.

I myself have visited factories in Cambodia and found that the owners do not sit in the factories and a handful of thug-like characters manage the show. Although the factories look nice from the outside, they seriously lack transparency and accountability.

Apparel is a labour intensive sector and if foreign investors run them, the factories suffer from lack of competitiveness because here profits are very thin and if foreigners take out fat profits, very little will be left for the workers and development of the factory. In such a situation, a slight change in price or tariff can lead to shifting of orders.

TBS: With the trade war between the US and China, how would you assess Bangladesh's prospects in bagging more orders?

AJ: There is an idea that with the trade war between US and China, some orders will shift to Bangladesh because of additional 25 percent tariff. But I don't think it should be looked at as such a simplistic causal relationship. Buyers always look for countries with backward linkage facilities, product development, research capability and production capacity.

So, because of the trade war, Bangladesh may be temporarily benefitted. But we will have to increase our productivity and efficiency. To get medium-term benefit out of the trade war we urgently need to reform our regulatory framework.
At present, we are engaged in a 'hide n seek' game with the regulatory authorities, with respect to bond management. It is being alleged by the regulator that we are selling out bonded products – products which are imported from other countries duty-free under the bonded warehouse privilege – at the open market.

However, the bond commissionerate is not trying to understand the reality. In the apparel sector we have reached such a height that it is no longer possible for us to carry imported fabrics by a microbus to Islampur and sell it.
In my own factory, around 80,000 pieces of jeans are manufactured every day. However, in denims, a huge number of jeans is wasted because of washing defects.

The government allows 12 percent to 15 percent of production as wastage which we can sell in the open market. If 15 percent is the wastage number, then over 1,200 pieces of jeans are wasted in my factory every day.

However, a difference in opinion arises between us and the bond commissionerate when we want to sell the wasted jeans in the local market, because of a lack of clarity in rules.

The bond law, the value added tax (VAT) act and the customs act of the country have some sections and provisions which are contradictory to each other. These incongruities in the legal framework must be removed if we are to reach our target of raising our annual export earnings from the apparel sector to $50 billion.    

For instance, the bond law lists specific products that can be imported duty-free. However, often there are differences in demand depending on the buyers' taste and country of destination. For example, a key ring or a tiny doll or a sticker may have to be attached to a jeans, on buyer's demand. Various new chemicals are also being invented for washing jeans. We have to meet these demands for the sake of our export. But, since these products are not on the duty-free list, we have to import these after paying duty. This erodes our competitiveness.

There are four to five chemical factories in our country that can feed our jeans factories. In a bid to protect these factories, the government has imposed duty on chemical imports. But the local factories cannot deliver even three percent of the total chemicals that the apparel industry requires.

If the government removes duty on chemicals, it will lose about Tk2,000 crore in revenue. But this would allow many large chemical companies of the world to come to Bangladesh. If this happened, the sheer mismanagement that is prevailing in the chemical sector would not have developed and untoward situations like the Nimtali and Lalbagh tragedies could have been avoided. We need to have a masterplan if we are to reach the goal of earning $50 billion from apparel exports a year.   

TBS: The recent compliance drive will surely help us?

AJ: The Accord and Alliance have helped make our industry safer. However, in complying with their prescriptions, our apparel industry had to bear many unnecessary expenditures, which are an extra burden for a poor country like ours. The government could have protested their stiff conditions in this regard.

We have invested more than Tk1,50,000 crore in safety measures after the Rana Plaza tragedy. The industry will certainly try to recover the amount by making profits. However, the price of a piece of jeans is still $25 on the international market. And it is not possible to raise the price through bargaining.

We have also formed a RMG Sustainability Council taking representatives of buyers, manufacturers and workers, which will self-monitor compliance of the factories. It will be launched from May next year. Accord has already accepted the formation of the council. We are now negotiating with Alliance for the acceptance of the council. And finally when the government gives nod to it, we can go into action. This will help reduce our cost for compliance.

TBS: How would you compare our infrastructure with Vietnam's?

AJ: We are facing severe gas crisis. Around 65-70 percent of the country's total gas is used in the power sector while the apparel sector uses only 17 percent, the bulk portion (12 percent of the total supply) of which is consumed by the textile mills. This means the readymade garments get merely three to five percent of the country's total gas supply.

The apparel industry is a priority sector of the government, so the government should have constructed a separate gas line for it. The number of new gas connections to RMG factories in the last five years is ridiculously meagre. A firm cannot avail a gas connection even after paying crores of taka.

The reality is the RMG sector requires seven percent of the present supply of natural gas in the country but we are getting only three percent.

Vietnam, Bangladesh's key competitor in the global apparel market, is ahead of us in terms of infrastructures such as port, road and LNG. They are making the right investments in the right places, which we are not.

TBS: How would you assess our manpower capability?

AJ: We have shortcomings in marketing. We have a shortage of skilled merchandisers. Besides, we do not have proper understanding of costing and product development. We have to hire workforce from India, Sri Lanka and other countries for these areas. A recent survey conducted by the BGMEA found that as many as 177 foreign employees were working with 52 garment factories. Most of them were found to have been working in product development, research and development (R&D), and merchandising departments. The major reason for this is that we are not being able to produce enough skilled workforce. We have to motivate our educated youths to enter the garments sector.

The garments sector should be presented as a prestigious sector for jobs. The educated workforce of the country is not mentally prepared to work long hours in the garments sector. They want a corporate life with fixed worktime. Many of the educated youths are going abroad for jobs after completing their education. The main point is that we have to raise the standards of our education.

TBS: What is your assessment about our productivity?

AJ: We all have a misconception about productivity. By 'productivity' we generally mean the ratio of machine and labour force for the purpose of producing goods. However, there is a big fallacy in this. The real productivity is the percentage of value addition.

Productivity is determined by assimilating the data regarding man-machine ratio, amount of produced goods and amount of value addition. And on this count, we are not lagging much behind our competitors in terms of production per day.
Productivity is measured in Standard Minute Value (SMV). SMV is the time required for a qualified worker working at "Standard Performance" to perform a given task. For example, it is supposed to take 25-26 minutes for us to produce a pair of jeans trousers.

We are currently at an efficiency level of 58 to 61 in manufacturing jeans. Vietnam with an efficiency level of 65 is ahead of us. Efficiency depends on three aspects: man-machine ratio, value addition and SMV or standard minute value.
We are doing moderately in SMV. We have made marked progress in man-machine ratio. A recent survey has shown that the labour force in garment industry has shrunk, especially female manpower, from 80 percent to 54-55 percent.

By now, 85-90 percent of our factories have become automated. The machines are ultramodern. Before we had such modern machines, we could not get any production in the first hour of starting our factory as we had to spend time in changing thread adjustment in line with the style. And now our machines are computerised and we can programme the machines beforehand. When a supervisor puts his mobile phone to the touchscreen of a machine, all the systems in the machines will adjust automatically.

But we need further automation to be competitive. Vietnam is much ahead of us in this regard, as they have a skilled workforce.
We are taking up a number of projects through the BGMEA for skill development of our labour force, such as a national single productivity scheme. The aim of this project is to bring all activities and funding, which are being conducted separately in the area, under one umbrella.

TBS: So why is women employment decreasing?

AJ: This decrease in woman workers is because of infusion of technology. Earlier they were engaged in low-skill work such as cutting thread, marking on fabrics, and assisting in cutting. All these activities are now automated.
In addition, the sustained high growth has caused economic migration. Women no longer want to work long hours in garment factories because they want to start their families after a certain age. The social structure also is not allowing them to develop leadership in RMG. So we need to think of giving women skill training so that they can contribute to the economy.

TBS: Why are we not diversifying our products?

AJ: We have to formulate a proper plan for diversifying our products. We do not have any such planning right now. Buyers have a general mind-set that they will come to Bangladesh for buying jeans or they will go to Pakistan for T-shirts. Vietnam has progressed much more in this area.

I want to emphasise another point. Even within the items we make, there are a lot of scope for diversification because each of these products have many sub-sectors which we are not exploring.

TBS: What about our factories getting greener?

AJ: We have been working on two fronts on water use in jeans production. We are trying the control the method of washing jeans. That means we are trying to adopt water saving methods. Previously, jeans was washed through single rinse or double rinse methods. Those needed a lot of water.

Now, we are planning to use multitasking chemicals and use the same chemical multiple times.  We usually need 127-130 litres of water to wash each pair of jeans. Now the amount has dropped to 70-75 litres. Our factory aims to bring down water consumption to 60-65 litres by this year.  The IFC has set a parameter of using water for washing apparels. They want to reduce the water use per garment to 50-55 litres. So we are getting closer to that goal.