Garment factory closures cast dark shadow over Bangladesh economy

DHAKA — On the morning of Jan. 2, workers at four Keya Group apparel factories in Gazipur, Dhaka’s garment district, received notice they would lose their jobs on May 1, International Workers’ Day. The conglomerate, they were told, had decided to permanently close the plants.

Thus, the futures of several thousand workers fell into even greater uncertainty. The laborers had been abstaining from work since Dec. 29 while protesting for November paychecks they are still yet to receive.

The company blamed the closures on “current market instability … inadequacy of raw materials and inadequate work orders.”

That same day, the Anti-Corruption Commission of Bangladesh filed two cases against Keya Group owner Abdul Khaleque Pathan and some bankers for allegedly misappropriating 5.3 billion taka ($43.5 million) by obtaining loans through abuses of power.

The Keya Group workers will join tens of thousands of others who in 2024 lost their jobs as more than 100 apparel and other factories either shut their doors or halted operations.

According to a spokesperson for the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), 44 apparel factories, where about 20,000 workers had been employed, were shut in the first seven months of last year.

In August, after former Prime Minister Sheikh Hasina was ousted by a popular uprising, factory closures accelerated, with an additional 32 factories employing 31,400 going out of business due to gas supply problems, a lack of support from banks and labor unrest.

The jobs toll would be greater if factory closures in the knitwear, textile and other sectors were included.

The Beximco Group, one of the largest Bangladeshi conglomerates, owned by the family of Salman F Rahman, a former aide to Hasina, in mid-December declared layoffs at its 15 factories, citing a “lack of work in factories.” Some 40,000 workers were impacted when the layoffs took effect from Dec. 16.

Rahman is now languishing in jail on attempted murder allegations stemming from his attempt to flee when Hasina’s regime fell, police say. His companies have over $4.1 billion in unpaid loans from 16 banks and seven nonbank financial institutions.

The S Alam Group, owned by Mohammed Saiful Alam, another close associate of Hasina, in late December said it would lay off employees at nine factories, alleging banks were uncooperative when it came to opening letters of credit for importing raw materials. Saiful Alam fled to Singapore after Hasina fell.

Activists from different garment worker associations demand a further minimum wage hike in Dhaka in November 2023. The president of a manufacturers association says workers’ illogical demands are partly to blame for the country’s economic chaos.   © Reuters

According to the Quarterly Labour Force Survey published on Jan. 5, Bangladesh had 176,000 more unemployed people during the July-September quarter of 2024 than it did in the year-earlier period. At the end of September, the number of unemployed people stood at 2.66 million.

The South Asian nation’s economy is spiraling due to slow economic growth and factory closures. Its gross domestic product expanded 1.8% in the July-September period, down from over 6% in the year-earlier period, according to the Bangladesh Bureau of Statistics.

“We see a link between the factory closures and the current macroeconomic scenario of the country,” said Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, a Dhaka-based think tank.

With slower GDP growth, factories produce less and then find themselves with too many workers, he said.

According to Moazzem, the manufacturing sector grew 1.4% in July-September, down from more than 10% in the year-earlier period. In the service sector, growth waned to 1.5% compared to 5.1%.

Moazzem said large factories could survive with government subsidies but small and midsize plants face severe challenges to remaining in business.

Moazzem added that due to the near collapse of the country’s banking sector, factories are facing difficulties obtaining capital and are not receiving adequate support to import raw materials due to the country’s paltry foreign currency reserves.

“The situation is very worrisome,” he told Nikkei Asia. “We are heading towards a socially alarming situation.”

Faruque Hassan, a former president of the BGMEA, said some factories have been forced to close by banking-related problems, buyers canceling orders and other financial roadblocks.

“We have challenges and many big problems,” he said, noting the deteriorating law and order situation, labor unrest, management problems, and inadequate supplies of gas and electricity.

A woman purchases groceries from a government-subsidized Open Market Sales point in Dhaka in November 2024. Factory workers could starve when laid off, says labor activist Kalpona Akter.   © Reuters

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers & Exporters Association, blamed factory closures on workers’ illogical demands, foreign buyers’ lowball tactics and banks’ inability to cooperate with new lending.

He told Nikkei Asia that when buyers hold up a big payment, many small and midsize factories fall into difficulties they cannot recover from.

He said many factory owners have also been forced to halt operations due to labor unrest as workers seek higher wages.

Kalpona Akter, executive director of the Bangladesh Center for Workers Solidarity, said a good number of factories closed or halted operations last year in the major industrial belt of Ashulia, Gazipur and Naraynaganj.

“The workers face immediate impact when factories close,” she told Nikkei Asia. “They live hand-to-mouth. Job loss means they starve as they don’t have money to buy food.

“We don’t want the present trend of factory closures to continue for a long period.”

Akter herself was a child laborer.

With their businesses in dire straits, owners on Sunday demanded the government come forward with support.

Anwar-Ul Alam Chowdhury, president of the Bangladesh Chamber of Industries, led a delegation that met with central bank Gov. Ahsan H. Mansur.

The delegation’s demands included a relaxation of loan classification rules, faster disbursement of cash incentives, an exit policy for companies failing to operate profitably and lower interest rates for manufacturing industries. The delegation also requested long-term financing and that economic zone benefits be extended to existing factories.

source : asia.nikkei