Automation of the Readymade Garment Sector in Bangladesh: Who is paying the price?

[By Mohammad Sahid Ullah and Rawshon Akhter]

Alaya Akter, a first-generation garment worker in Bangladesh, began her apparel career as an operator assistant in the early 90s. She lost her job at the age of 48 due to automation at her factory last year. She is no exception; several thousands of Readymade Garment (RMG) workers across Bangladesh lost their job since the automation started after the Rana Plaza collapse in 2013 that caused 1,132 deaths and more than 2,500 injured. The increasing automation is also partly a realization of the “Digital Bangladesh” vision the Bangladesh Awami League party outlined in 2008 for the year 2021 – the country’s 50th anniversary. But it is coming at a price.

The losers of automation are mainly women like Aliya, who have migrated from the village with little or no education to work in the garments sector, primarily situated in the city areas. A study by the private think-tank Centre for Policy Dialogue (CPD) in 2018 found that the automation of manufacturing reduced the female workers’ participation ratio in the garment sector to 60.8% in 2016 from 64 % in 2015. The current male-to-female worker ratio in the garment industry is 41.7 to 58.3, according to a BRAC university study. The report of 2020 claims that the main reason for decreasing female workers’ participation is that the factory owners consider female workers illiterate and unable to handle modern machinery properly.

In Bangladesh, around 4.2 million workers in 4,825 factories produce goods for export to the global market, principally Europe and North America. To meet foreign retailers’ strict lead-time requirements, 47.37% of large businesses and 25% of medium companies use automation and other advanced technologies. The sector has been in a severe crisis of a lack of overseas buyers’ orders due to the global COVID-19 outbreak, However, the country has recovered thanks to a Tk. 10,500 crore ($ 1,221 million) bailout fund (Stimulus package) from Bangladesh’s government and a rise in retailers’ orders from overseas buyers. Yet, how automation will impact women in this garment industry and whether new technological interventions and the future of decent work for women are compatible remain open questions.

RMG factory in Bangladesh
Image credit: Fahad Faisal / Wikimedia

To explore the impact of automation among female garment workers we interviewed entrepreneurs, union leaders, and think tank members. Moreover, we consulted some recent studies on the matter. Several reports have mapped critical tensions between the empowerment and disempowerment of RMG workers for automation of this industry.

The garment industry’s struggle for survival

The CPD survey, after inspection of 193 garment enterprises and 2,123 workers, has found that female workers are proportionately less knowledgeable about operating different machines than their male counterparts. The initiative, Mapped in Bangladesh (MiB), was launched in 2017, a BRAC university project in collaboration with the Netherlands’ Embassy in Bangladesh, the Bangladesh Garment Manufacturers, and Exporters Association (BGMEA). The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) mentioned that wage hikes and automation are the major factors behind the decline in the sector’s overall workforce.

The $ 30 billion export and 15% of the Bangladeshi economy’s GDP generation industry considered that automation is the cause of job loss. At the same time, there is hope that RMG businesses become more profitable and sustainable due to automation. For instance, Mostafiz Uddin, Managing Director of Denim Expert Limited, a leading RMG businessperson from Chattogram, regarding automation recently said, “Automation facilitated increased economic growth which ultimately led to job creation.” The World Economic Forum also forecasts that by the mid-2030s, one-third of all jobs could be automated, stating that the workforce most likely to be disrupted will be those who have low educational attainment. This is a strong argument for placing an increased focus on training and education alongside work in the RMG sector. This is something that the Bangladeshi government has thankfully begun to look more closely at in recent years, opines Mr Uddin.

According to Mr Uddin, the garment industry is very people-intensive and provides millions of jobs, but automation is minimal. So, the productivity rates and wage rates are still low. Falling behind in automation will put the business at risk in the future; mentioning this, Mr Uddin points out:

“If we want to move onto the next level of high production, profit and wages we must   embrace automation. Our very survival will be under threat, given that all of our major competitors—Vietnam, India, China and so on—are now looking to automation in a big way.”

A similar voice was raised by Syed Nasir, Managing Director of QPail Ltd from Tongi, Gazipur, a big hub for Bangladesh’s apparel industry. He said, “Buyers prioritise error-free product, and automation ensures flawless products and also helps to boost production rate.” His factory started the automation process in 2016 and completed the transformation in late 2019 with a Taka 50 crore (US$ 5.81 million) bank loan. He opines that although 70% of his factory workers were women, it is less than a percent at the inspection level.

Mr Uddin admits that the adoption of automation from the very beginning jerks this low-cost, labour-intensive garment industry’s job security. “Countries like Vietnam, Pakistan, and Sri Lanka have already proved that new technologies and automation boost productivity growth, lower product prices, and ensure higher wages and much profit,” says Mr Uddin.

Inevitable automation – at whose cost?

“It is a day for quality and competent people, unskilled has gradually been replaced by skills. There is no way except adopting the automation to satisfy buyers,” said Syed Nasir. Following pressure from buyers, factories have to switch to automation with enormous costs, but buyers do not intend to pay more for a product. Thus, many factories face difficulties to repay loans, and some even shut their doors. Syed Nasir explains their approach:

“… as we grab orders, we can repay those loan from the profit. In fact, better price does not depend on automation, but boost up the priority to some extent in grabbing orders from other competitors.”

Dr Syed Basher, Professor of Economics at the East-West University, Bangladesh, and a leading researcher on the RMG sector, categorises the effects of automation at the RMG sector into two-fold, firstly for the short term; this move cuts jobs. Still, it benefits by boosting production and reliability on the quality of output for the long term. Automation is a long-time process and almost all factories have already automated the washing and knitting section. Two-third of big factories have adopted the swing, the most important section of RMG.

“I don’t think the job cut affect women labour because it takes several years to switch a full-fledged automation or robotic installation. The shift takes place gradually and for such, there is not any possibility of sudden job loss. I feel automation might cause a job loss of maximum 300-400 thousand illiterate RMG workers altogether and who can easily absorb other entrepreneurial opportunities like established home-made tailoring or work for small fashion design houses,”

said Dr Basher. In answering a question about the consequence of disempowered rural women after losing jobs from the apparel industry due to automation of factories, he elaborates:

“The number of job cuts is not very high, the cancellation of orders by foreign buyers in the wake of the COVID-19 crisis has instead jeopardised the RMG sector during 2020, leading job losses and affecting nearly 2.5 million people, primarily women.” 

Mentioning a report in The Economist, Dr Basher said that the recent rise in global trade protectionism poses further challenges if it combines with technological advances in automation to shift manufacturing back to developed countries – the primary market for apparel produced in Bangladesh. The Economist Intelligence Unit’s core forecast is that automation and the “reshoring” of manufacturing to developed nations will have a marginal impact on Bangladesh’s apparel export industry in 2019‑23 because the industry stands on a strong bailout fund.

Lalin Salauddin, working as an administrator at a garment industry of Nasirabad Industrial Area in Chottagram, informed that many female workers left their jobs during this COVID-crisis leading either from pregnancy or their unwillingness to continue in automated factories. He said:

“We still value the female workers who have been working in our factory more than ten years as they are competent enough after having minimal training. More so educated male and female youths have got an appointment in recent past. In that sense, we create spaces for the new generation of the skilled labour force through automation.”

As mentioned about Alaya’s case, Lalin said, “Alaya has left, but we hire her young son Gani Arman with more salary, and therefore her leaving might not affect her position in the family.” He also said, “Bangladesh is moving towards Digital Bangladesh, so in honour of that move, we must change our attitudes, I mean adopt new technology.”

According to BGMEA, the apex body of the RMG sector, every year, about 100 new factories opens their doors, using advanced technology in the entire apparel manufacturing process. It believes that advanced technology helps cut down production costs significantly (30-40%) and has spill-over benefits in terms of higher productivity and cut down on lead time.

Ms Zakia Sultana, a veteran RMG worker union activist, associated with Bangladesh Centre for Workers Solidarity, Dhaka, admits that robot technology in manufacturing is growing, and factory-based employment is dropping for this. She said, “Workers unions are not against automation. However, an honourable departure from the job should be the rights, and we must honour that for the sake of harmonious leaving from the job.” After serving 10-15 years for a factory, workers expect some honour from their factory owners and worker unions – at least recognition. But as Ms Sultana explains, division within the unions and their leaders in the end effects those they are supposed protect – the workers.

Bangladesh has indeed made significant strides during nearly four decades to bring about gender equality, particularly in women’s participation in the RMG sector. The industry has been a source of economic opportunity and pride for some of Bangladesh’s poorest and most disadvantaged women – those from uneducated, rural families. However, they are also likely to be the first to be disposed of when technological advancements become commonplace. This falls in line with research showing that factory workers largely regard the female garment worker as a cheap and disposable labour source. However, the silent departure of Alaya from her job and the inclusion of her son ascertain that males will once again reap the benefits of the RMG industry in Bangladesh.


From unbanked to fully digital? A look behind Bangladesh’s online money transfers

[By Mohammad Sahid Ullah]

COVID-19 has shown how some states, when motivated, can institute compassionate, sweeping and radical changes that remake society and its relations between workers and their organizations. However, integrating novel interventions into our everyday life demands that we think beyond the reactive impulse to address chronic problems. When technology is used as a short-term fix to address what appears to be an immediate problem, it can mask the need for more sustained institutional reforms. We see such a tension arising in the case of e-payments made to workers in the readymade garments (RMG) sector in Bangladesh, a measure that appears to be benevolent and timely, but on closer examination reveals a range of conflicts that have to do as much with issues of trust and perception as with technological readiness.

The fintech triumvirate to the rescue

In May and July 2020 the RMG sector in Bangladesh distributed Tk 10,500 crore  [$ 1,221 million] as salaries to 2.6 million workers. These were online transactions from the bailout funds from the government to tide the labourers over during the economic hardship brought on by the global coronavirus pandemic during this period. The three key mobile financial services – bKash, Rocket and Nagad – have been credited with enabling the disbursal of these sizable funds. 

According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the apex body of Bangladeshi apparel industry owners, the vast majority of factories (1,821 out of 1,898) paid workers an Eid festival bonus, and 94 % of them have paid the salary for July through digital transactions. Although a section of RMG workers stated dissatisfaction for losses of 2 % from their payment because of online transactions fees for withdrawal of salaries and bonuses, various national dailies reported that most workers expressed satisfaction with the new system of payment. Amirul Hoque Amin, President of the National Garments Workers Federation, speaking on behalf of labourers, confirmed this, given the deep dissatisfaction that had pervaded across the industry in the South Asian region in the months immediately following the start of the pandemic, when workers experienced significant wage losses.

Image credit: UN SG’s Special Advocate for Inclusive Finance

BGMEA and the Ministry of Labour and Employment, with as many as 23 regional bodies of a national crisis management committee, worked together to monitor the progress of the payment to workers ahead of Eid-ul-Azha, the second largest religious festival in the country. They wanted to avoid labour unrest in the RMG sector especially before the religious festival.

Shift from the unbanked to mobile-banking

Before the Rana Plaza catastrophe, salaries were handed out in cash. Usually, during the first or in some cases within the second week of the month, they were distributed by the account department staff. It takes around 8-10 minutes to hand over cash for each worker according to Financial Inclusion Insights. Following the minimal wage movement by workers that was triggered by the disaster, BGMEA, and the Ministry of Labour and Employment of Government of Bangladesh along with the Garment Workers Federation decided to distribute salaries directly through bank accounts (the owner takes responsibility for disbursal of salaries). Although 50-60 % of factories started paying salaries through workers’ bank accounts, many unregistered factories (small and not affiliated with BGMEA) continued making cash payments.

Cancellation of orders by foreign buyers in the wake of the COVID-19 crisis has jeopardised the RMG sector, leading to the possibility of job losses affecting nearly 2.5 million people, mostly women. This crisis has led the BGMEA to seek assistance from the government for a bailout fund. To ensure transparency in fund distribution, the government sought a list of all workers and their bank accounts for transferring the salaries, but this time, directly to the workers—instead of going through the employers. Workers who did not have bank accounts, were asked to submit mobile money transfer accounts.

These varied demands clearly come with new challenges and require new strategies to reduce transaction costs. Where an intermediate agent is involved, a transaction fee of 2 % is charged, and this is borne by the recipient (the worker), whereas a direct transfer to the worker or a designated family member would not attract this fee. The issues go beyond this, including complete failures to deliver actual cash: In the case of mobile transfers, the recipient is required to show proof of the transaction to the agent who will then disburse cash, and if this message is accidentally deleted, or if the mobile is lost or stolen, it is impossible to collect the money. Some women workers may not even own a mobile phone, or not have control of their phones. There is also concern about the sustainability of such platforms given their narrow emergency focus. bKash, the largest mobile salary distributor, admits that workers showed interest in using mobile money if they could use it for more varied transactions than just money transfers.

Piloting the fintech experiment in times of crisis

To ensure the smooth payment of the wages, the government requested BGMEA to provide details of workers’ data early this year. Following the request, they handed over workers’ data of more than 3,000 factories across the country. The Bangladesh Bank (the country’s central bank) released money through 47 banks under a promotional package declared by the prime minister Sheikh Hasina for the RMG sector as part of the national COVID-19 bailout fund.

Reports from industry consortia as well as financial gateway operators suggest that a large number of workers indicated that they had received salaries through a digital money transfer, and the actual numbers reflected a big jump between April and May 2020—the time when the pandemic related lockdown began. However, this is curious, given that the World Bank’s Global Findex 2017 report indicates that only 50 % of Bangladeshis out of 164 million people had mobile banking and/or financial institution accounts as of 2017, of which only 21.2% have had mobile money accounts. Less than 2 % of RMG workers had such accounts. But the latest move has resulted in a sharp increase of mobile banking, with some estimating that around 95 % of the RMG workers have now either a bank account and/or a mobile account.

From emergency to sustainability

So what is the real issue at stake here? On the surface it appears that mobile money transfers have ensured some level of transparency and consistency in salary payments, and have moved a sizeable number of workers into the digital economy. But the 2 % transaction fee represents a burden on the worker and overall, a significant gain for the private corporations that enable the fund transfers. The National Garments Workers Federation, a left-wing workers’ union hold that the service fee cut from the wage is tantamount to the exploitation of poor workers through what they call ‘digital traps’. The Federation calculated a loss of around Tk 155 crore [$ 18.3 million] from the workers’ salary due to this digital transaction.

Image credit: WorldFish

There is no doubt that digital transfers have the potential to enable greater transparency and control for low income workers, but perhaps they would be more attractive if bundled with other digitally accessed welfare services. Concerns around sustainability and trust are legitimate and need to be addressed through more open communication between workers and employers, and clear working guidelines for the intermediaries, such as those that enable the digital transfers. This experience with mobile digital transfers suggests that work needs to be done to ensure readiness and smooth functioning at multiple levels—workers (including a consideration of the fact that most are women, who may not own their mobile devices), agents and other intermediaries, employers, and most importantly, government institutions and regulators.