Wage hike implications weigh heavy on Bangladesh apparel makers

A seamstress in a Narayanganj-based apparel manufacturing unit, 16 kilometres southeast of capital Dhaka, Ameena’s monthly wage had not increased in a while, making it difficult to make ends meet.

Rising inflation only added to her worries!

However, she did not have to wait long; on November 7, 2023, the Ministry of Labour and Employment finally made the much-anticipated announcement. The minimum monthly wage for the apparel workers was revised to Taka 12,500 (~$113.85) from Taka 8,000 (~$72.87).

This adjustment, the first in five years, was announced by the state minister of Labour and Employment, Monnujan Sufian, during a crucial meeting at the ministry, which came into effect from December 1, 2023.

The government’s response to the growing discontent amongst garment workers as they struggled against inflation, resulted in the establishment of the new wage board on April 9, 2023.

The board soon got down to the task of reviewing the workers’ salary.

With factory owners proposing Taka 10,400 (~$94.73) and workers demanding Taka 20,393 (~$185.75) as the minimum wage, tensions escalated into violent protests after the owners’ proposal came to the fore on October 22.

Nearly 500 establishments called off production, anticipating workers’ unrest and damage to property.

To bring the situation under control, Monnujan Sufian unveiled the new wage structure without any delay.

However, the trade unions and the workers were piqued as they deemed it insufficient, leading to further protests and clashes with the law enforcement agencies as paramilitary force, Border Guards Bangladesh (BGB), was called in to help the police to restore order.

Eventually calm prevailed, allowing most closed factories to resume production.

Despite the apparent calm, the underlying discontent related to the annual 5 per cent increment in wages persisted, which many felt, had failed to address adequately the reality of the rising living costs.

The garment workers’ wages increase by 5 per cent annually over their basic pay currently while proposals for a more substantial 10 per cent increase has been turned down.

The first minimum wage for the Bangladesh apparel industry—which dates to 1980s when it had started taking baby steps—was set at Taka 930 (~$8.47) in 1994, marking a modest beginning, to what would become a contentious journey.

Subsequent revisions in 2006, 2010, and 2018 gradually raised the minimum wage, culminating in Taka 8,000 (~$72.87) before the announcement of revised monthly wage of Taka 12,500 (~$113.85) was made in 2023, as per the new wage board.

The government’s decision to increase wage did help to calm things down it nevertheless largely had a contradictory effect on the apparel makers.

Labour accounting for a major component of the overall cost of garment production, increase in workers’ wage gave them the jitters.

According to reports, for a knit manufacturer, 35 per cent impact on salary is for the sewing unit only. Then there is a substantial impact at the printing unit as well, which is about 39 per cent, affecting the overall FOB price by 4-5 per cent. 

“The wage increase has created challenges for everyone,” claimed Amer Salim, director of Knit Asia Ltd/Aurum Sweater Ltd, speaking to Fibre2Fashion.

A little over three months since the new wage structure came into being, many are forced to dig deep into their pockets to pay the workers’ salary.

Aurum is an industry-leading sweater manufacturer based in Gazipur, which produces high quality pullovers, cardigans, and host of other offerings for men, women and children and considers France, Italy, Brazil, US, Germany, Türkiye, UK, and Japan amongst its primary export markets.

Decathlon, NewYorker, OVS, Renner, K-Style, Action, KiK, Benross, Woolworth, and many such globally renowned names form Aurum’s distinguished clientele.

A part of the New Asia Group, Knit Asia Limited has been recognised as the third best green factory in the world and awarded LEED Platinum certification with 99 points.

Leadership in Energy and Environmental Design (LEED) certification provides a framework for healthy, highly efficient, and cost-saving green buildings, which offer environmental, social and governance benefits.

“The increase in wages is on the expected lines,” meanwhile held Md. Fazlul Hoque, speaking to Fibre2Fashion.

What bothers Fazlul however is the fact it had happened at a time when the industry is going through a turbulent period thanks to multiple issues—infrastructural challenges, increased power tariffs and gas prices, supply chain bottlenecks, and many more.

An industry veteran who served as the president of the Bangladesh Knitwear Manufacturers & Exporters’ Association (BKMEA) for six years and was also the president of the Bangladesh Employers Federation (BEF) besides being the director of the International Apparel Federation (IAF), Fazlul is well versed with the dynamics of apparel manufacturing being an apparel maker himself and understands well the challenges faced by the other garment exporters on account of the wage hike.

Meanwhile, explaining the implications of the wage increase at a different level, Salim said this has created a sense of disappointment amongst a certain section of the senior operators, who are associated with the industry for long.

What apparently upset them is the fact that workers at the entry-level got a massive raise in wage, much higher than they had anticipated.

To pacify the disgruntled lot and bring in some ‘parity,’ many factories had little choice but increase the salary of the senior operators, beyond the threshold as stipulated by the new wage board.

“Our cost of doing business has gone up by almost 20 per cent,” claimed a garment manufacturer on condition of anonymity, emphasising had the wage hike happened at normal times, things would have been somewhat different.

The promised support from the buyers, do not seem to be forthcoming either.

“Despite the assurance, I wasn’t too sure since the beginning if all the buyers would adjust their prices in accordance,” expressed doubts another apparel maker.

His scepticism is not without reasons. As per recent reports, a staggering 79 per cent buyers were yet to increase prices keeping with the new wage structure.

A survey conducted in this regard found 5 per cent buyers increased product price by 1 per cent, 6 per cent buyers increased by 2 per cent, 3 per cent buyers increased by 3 per cent, and 4.5 per cent buyers increased product price by 4 per cent.

It further revealed that 32.8 per cent apparel manufacturers revealed their customs and bond expenses went up by almost 26-50 per cent year-on-year in 2023, while on average, the RMG factories were forced to run 27.5 per cent below capacity due to lack of work orders.

Things had not improved lately so it seems as many apparel makers claimed work orders that they received for the coming few months are significantly less than their respective production capacities.

For the small and medium-sized garment makers the situation seems grim!

Banks and financial institutions are hesitant to lend us support, rued a few such small players, drawing an ominous picture.

Early days as it is, industry insiders said it would take a few more months at least to gauge the actual ramifications of the wage hike, while many of them emphasised they will not be surprised if a sizeable number of small/medium-sized players are forced to call it quits.

Priding itself on inherent diversity and vibrance, this will not be good news for the world’s second largest apparel exporting nation, which attracts buyers from far and wide.

ALCHEMPro News Desk (DR)