How to address job loss and industrial unrest in post-July Bangladesh
After the July Uprising, as owners of some major conglomerates shut down their factories due to alleged misconduct, the job losses in the most competitive and export-oriented sectors of Bangladesh's economy face danger. Prioritising interconnected goals is a must now
Bangladesh's manufacturing sector is facing unprecedented turbulence, with large-scale job losses spreading across both ready-made garment (RMG) and non-garment industries (NGI) such as leather, jute, and pharmaceuticals. This crisis has been amplified by the aftermath of the student-led uprising of July 2024, which dismantled the former regime, leaving many manufacturing units in disarray.
Days earlier, it had been reported in the media that as many as 40,000 layoffs had occurred in a number of Beximco-owned garment factories and plants. Last week's report claimed an abrupt closure of six factories held by S Alam (NGI).
The owners of these conglomerates, closely aligned with the past regime and allegedly among the largest of bank defaulters, have either fled the country and/or are being held by law enforcement authorities awaiting trial.
The job losses, especially in the most competitive and export-oriented garment industry, or for that matter in the pharmaceuticals, signal danger for the country's export performance in the coming fiscal quarters.
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In recent decades, exports of manufactured goods have driven Bangladesh's economic growth and opened the industrial labour market to women. This shift has tightened the female labour market, raising all female wages.
The rise in demand for RMG jobs has also impacted lesser-skilled activities such as agriculture, construction, and domestic work. While data on real wages in female employment is limited, female nominal wages in agriculture rose faster than men's between FY11 and FY19 (more than doubling for women versus a 91% rise for men, per BBS), narrowing the wage gap to some extent.
The 2016 UNDP Human Development Report noted that Bangladeshi women earned more than their counterparts in Pakistan and India, reflecting the influence of RMG employment. However, this vital sector now faces the risk of a permanent loss in export market share to competitors such as Vietnam, India, and Turkey.
Reports suggest Vietnam will surpass Bangladesh as the second-largest RMG exporter globally in 2024, with exports valued at $44 billion compared to Bangladesh's likely $40 billion or less.
With Bangladesh ranking 71st in global pharmaceutical exports but showing double-digit growth, a production slowdown risks undermining its market share and future growth potential. A slippage due to production slowdown would deal a devastating blow to its capacity to hang on to its market share, not to speak of the potential for growth. A concerted effort should be mounted immediately to stem the work stoppages and slowdowns and, if feasible, engineer a reversal of the pattern.
Despite its deficits in democracy and human rights, Bangladesh achieved remarkable economic growth, averaging just below 6% (5.9%) annually over the past three decades. This sustained progress led to a steady decline in the national poverty rate, from 56.7% in 1992 to 18.7% in 2022. Much of this growth was driven by strong performance in manufacturing and exports, which significantly contributed to the country's output over the period.
The share of manufacturing value added to GDP rose from about 13% in 1990 to a peak of 19% in 2019, the highest in South Asia, even surpassing Vietnam. Concurrently, manufactured goods increasingly dominated exports, with the latter's share of GDP peaking at just over 20% about a decade ago. However, this share has gradually declined to 13.2% by 2023.
This downward trend, especially when coupled with recent factory closures and mass layoffs, paints a grim outlook for Bangladesh's economic resilience and its manufacturing-driven growth trajectory.
The way forward
Bangladesh must prioritise three interconnected goals, each critical in its own right. The first is to sustain and expand the country's share of RMG and NGI exports. The second is to facilitate this process by repurposing recently shut factories, those experiencing mass layoffs, or those likely to face closure soon.
The final goal is to stem the financial losses caused by new bank loans issued monthly to support payroll and essential expenses in struggling factories. For instance, media reports indicate that Janata Bank, already burdened with a high ratio of non-performing assets, has been issuing fresh loans of $52 crore per month as payroll support for Beximco factories.
Given that the value of affected companies' assets often falls short of their debts to the banking system, these assets, in effect, belong to the state and should be fully utilised.
A free-market solution may seem like a logical remedy, where workers laid off by struggling firms secure employment in competitors' factories, which could absorb new orders created by the sick firm's exit. However, this presumes an ideal sequence of events, rarely realised in practice.
One major challenge is the specificity of physical capital, where vacated orders require specialised equipment that healthier factories may lack. Another issue is the absence of established goodwill between new buyers and manufacturers.
Moreover, even if workers find new jobs, society still faces the economic burden of idle productive assets, such as plants and equipment, and the ongoing drain of financial resources.
One of the immediate priorities is to lease out dormant factories and plants to competent firms—whether domestic or joint ventures—with a steady flow of export or work orders, enabling them to expand capacity and meet greater demand. Lessees must present quarterly operational results to a designated committee, with leases revoked in cases of malfeasance or breaches of the lease agreement.
The selection process for lessees should be as transparent as possible, evaluating factors such as their history of work orders, managerial capacity, plans to enhance capacity, access to operational funds, and willingness to operate the leased factories efficiently—ideally by rehiring laid-off workers. Lessees must declare all income and comply with tax obligations as stipulated by the tax code.
Given the task's complexity, the leasing process should be overseen by a committee comprising professionals from various fields, including legal, economics, and forensic accounting, alongside private-sector experts such as bankers and industry specialists.
Senior officials from relevant government or regulatory bodies, such as the Bangladesh Bank (BB), Ministry of Finance (MoF), Ministry of Industries, and the SEC, should also be included. Due to the urgency of the project, the committee must commence its work immediately, making necessary adjustments as the process unfolds in good faith.
Dr Syed M Ahsan is a Professor Emeritus at Concordia University, Montreal, Canada. He is also a Visiting Fellow at the Bangladesh Institute of Development Studies (BIDS), Dhaka.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
