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BD Factory Owners Worried About Higher Minimum Wage; Increased Productivity “Only Way to Survive”

After months of often tempestuous political wrangling and bursts of violent protests, Bangladesh’s government  finally agreed upon a new salary structure for garment factory workers late last month. Effective December 1, according to an announcement by Labor Minister Rajiuddin Ahmed Raju, the new minimum wage would be set at  5,300 taka ($68), a massive 77 percent increase.

Needless to say, disgruntled factory owners feel that the new salary structure will sting the nation’s primary industry.

Speaking to the Wall Street Journal, Rubana Haq, managing director of Mohammadi Group, a prominent exporter contracted by H&M and Walmart, said, “We are extremely concerned, especially because we are all negotiating for the next season with our customers.”

Though the minimum wage issue has been officially settled, the factory owners only capitulated begrudgingly. Speaking to the AFP, Reaz-Bin Mahmood, the vice president of the BGMEA, said, “We have accepted the wage board decision following the Prime Minister’s request. But it’ll be difficult for many of us to raise the wages, if the Western retailers don’t hike order prices by 10% to 15%.”

Arshad Jamal Dipu, BGMEA director and representative of the garment owners on the Board, said that the workers’ demand are just too costly. “The industry can’t afford a minimum wage more than 5,000 taka at this moment,” he said.

The factory owners, represented by the Bangladesh Manufacturers and Garment Exporters Association (BGMEA), resisted the new wage level, attempting to negotiate it down to 4,500 taka (approximately $58). However, Prime Minister Sheikh Hasina intervened and convinced them to yield to the Wage Board’s recommendation.

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Labor Secretary Mikail Shipar said, “During the meeting, the Prime Minister ordered them to implement the new minimum wages of 5,300 taka from December. And they’ve agreed to implement the pay hike.”

Factory owners have collectively maintained that the wage hike will necessarily lead to price increases that may undermine Bangladesh’s primary point of attraction for Western retailers: cheap labor. Huq complained, “At an average, we’re looking at a 20 to 30 cents rise on every product and that’s a surprise leap for any brand or any producer. We are forced to look at cutting corners in terms of lowering our overhead.”

In addition to the new salary hike, Bangladeshi exporters have struggled with the effects of the appreciation of their currency, which is now trading at 77 taka to the U.S. dollar, a substantial leap from last January’s exchange rate of 84 taka to the dollar. Making matters even worse, India, an increasingly assertive manufacturing competitor, has benefited from a 12 percent depreciation of its rupee.

Factory owners have reportedly responded to the higher wage rates by decreasing the number of workers on their payroll, executing significant layoffs. Also, there has begun a frenetic rush among owners to find new ways to bolster efficiency and increase overall productivity. Bangladesh has historically been able to produce cheaply, making a basic polo shirt for an average cost of $3.46, while China makes the same shirt for $3.93. However, the average Chinese worker can produce as many as thirty-five pieces per day, while the average Bangladeshi worker tops out at twenty-seven.

Khurrum Siddique, director of Simco Dresses Ltd. in Dhaka, said, “Increasing productivity is the only way to survive.” Abdus Salam Murshedy, president of the Exporters Association of Bangladesh, said, “We have to increase productivity and to cut costs, especially since the country is going through political unrest, which is hurting production.”

And many industry insiders have expressed concern that unrest will eventually start to take its toll on the Bangladeshi economy. Gazipur has been center stage for the  persistent political violence that has plagued Bangladesh, the  result of a contentious dispute between factory workers and owners over raising the minimum wage. Even after the Bangladesh Ministry of Labor officially signed off on the new minimum wage recommendations from the ad hoc Wage Board, simmering tensions have failed to subside. More than 2,000 garment factory workers took to the streets in Gazipur, violently demanding that recently shuttered factories reopen and that wage increases take immediate effect.

Also, last week there was a coordinated attack on a car transporting three officials from JHK Trader SRL, a Spanish retailing company. They were part of a three car caravan carrying seven officials in total passing through Dhaka, the nation’s capital, en route to the Wisdom Attires factory in Narayanaganj.

Frightened by the sudden attacks, JHK plans to pull its business from Bangladesh. According to Reaz-Bin Mahmood, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the climate of fear and insecurity will make it difficult to attract buyers. “We want security for the retailers and brands, in the interests of the garment sector. It will be very difficult to retrieve the work order, as the buyers were scared by the attacks.

Ahsan Mansur, a director at the Policy Research Institute in Dhaka, painted a picture of challenging economic terrain for Bangladesh moving forward. He said, “An increase of 2,000 taka is a substantial increase by country standards. This is a major challenge that may force Bangladesh to look at higher-value products with bigger profit margins rather than the very basic clothing items in which it specializes now.”