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Bangladesh Spooked By Strikes

Production costs are rising in Bangladesh, and apparel manufacturing leaders are blaming a familiar culprit – workers. Exporters claim that an increase in general strikes has kept them from delivering goods in time to meet shipping deadlines, forcing them to use costly air freight. This is increasing the overall cost of production.

Atiqul Islam, president-elect of the influential Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said that overall production costs are up 20 to 25 percent. He also repeated earlier statements that foreign buyers are suspending or canceling orders.

Many firms have been considering shrinking their Bangladesh sourcing, but the problem isn’t rising costs. Instead, firms want to move sourcing to countries that have better enforcement of safety and labor standards, to protect against the blowback that follows incidents like the recent Tazreen Fashions factory fire. Those issues – labor rights and factory safety – are the same things that workers are striking for, but industry leaders do not seem to see the connection.

The RMG sector is not directly affected by the strikes, but the transport sector is. Workers will often blockade the roads to the port and roads into and out of major export zones, as finished goods fill warehouses.

The outgoing vice-president of the BGMEA said that even an hour’s delay can harm profit margins for manufacturers and retailers, increasing the likelihood of cancellation, deferred payments, and discounting.

A recent estimate from the Bangladesh Chambers of Commerce and Industry indicated that every day of striking costs the country $255.1 million and costs the RMG sector $45.9 million. In the last year, that has amounted to almost 4% of GDP.

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Apparel exporters are also more generally worried that the country will develop a reputation for blown lead times and labor violence, leading buyers to shift orders to Cambodia, Vietnam, and other stable low cost countries. Firms may also diversify or reduce orders, pending the resolution of political uncertainty.

A wave of strikes has rocked the Bangladeshi economy as wages have failed to keep up with inflation and political factions have sought to use worker unrest to increase their political influence. In the garment sector, dozens of people have been killed in strikes in the past year.

To insulate the sector from the turmoil, the government is looking to new markets and is pursuing trade agreements with possible new buyers of Bangladeshi apparel, such as Australia, Brazil, Chile, China, India, South Korea, Mexico, Russia, South Africa, and Turkey. However, the same factors that may be making current buyers skittish could also negatively impact attempts to grow new markets.

According to the Bangladesh Bank, the opening of back-to-back letters of credit for fabrics, accessories, and other garment industry products, and LCs opening for cotton yarn, fell to $425.8 million and $25.5 million in February, from $659 million and $34 million in January.

The concern among bankers is that this could turn into a trend of declining exports and shrinking credit, if conditions don’t improve. Overall, business conditions are being negatively affected by political skirmishes and the issue of the “caretaker government.”