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Bangladesh: Factory Upgrades Expected to Cost $3 Billion

Bangladesh has been putting plans in place to improve factories in its ready made garment sector, and experts now expect the cost to repair and relocate these facilities will run right around $3 billion.

Though funds for the fix-ups have yet to be allocated, Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh said the amount is manageable.

According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), around 1,000 factories need to be relocated from the country’s capital, Dhaka, in order to ensure workplace safety and environmental compliance.

“Relocation will help the sector attain $50 billion in annual exports by 2021,” Mansur said speaking at the Dhaka Apparel Summit earlier this month, according to Bangladesh’s The Daily Star.

Suppliers are so far facing challenges in accessing low-cost financing in the country, and Mansur said the Bangladesh government should discuss the matter with global lenders like World Bank, Asian Development Bank and Japan International Cooperation Agency to find a financing mechanism with reduced interest rates.

Two of the nation’s biggest improvement initiatives, the Bangladesh Accord on Fire and Building Safety, a band of more than 180 brands including Inditex and H&M, and the Alliance for Bangladesh Worker Safety, a group of 28 brands and retailers like Macy’s and VF Corporation, and their respective retailers and brands are working with the International Financial Corporation (IFC) to offer guarantees for suppliers to acquire loans, according to The Daily Star.

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VF announced earlier this month that in partnership with the IFC, it administered loans to three Bangladeshi garment factories for fire and building safety improvements. The financing agreement guarantees that VF will provide up to $10 million, which the IFC and its partner BRAC Bank will lend to VF’s contract suppliers. VF’s promise to back the loans will allow IFC to offer lower loan interest rates. The arrangement helps VF suppliers in Bangladesh conquer financial hurdles while improving safety conditions in the workplace.

Regardless of where the funding will come from, or when, remediation is well underway.

The Accord inspected 1,106 factories producing for its signatory brands and uncovered 80,000 safety issues. In its remediation guidelines, the organization said, “All fire alarm designs, sprinkler system designs and standpipe (hydrant) designs shall be submitted to the Accord for review prior to installation.”

The Alliance has inspected its 587 member factories and the group said in September that it would take $150 million to repair the safety flaws found during those inspections.

For factories not falling under either the Accord or Alliance, inspections are being carried out under the National Action Plan, backed by the International Labour Organization (ILO), developed in response to the Tazreen factory fire that killed more than 100 garment workers in Bangladesh. The purpose of the plan was to take comprehensive action to avoid further fires, tragedy and loss of life.

Sarah Labowitz, co-director of NYU Stern School of Business Center for Business and Human Rights, said, “It is necessary to discuss how they will carry on remediation,” adding that, “I hope that real discussions will take place on the practical solutions to how finance comes to small and medium sized factories.”