3 August 2010
Bangladesh is currently experiencing a decisive social crisis with violent riots interrupting apparel production. This will result in a sharp increase in production costs in a country where exporters took advantage of very low prices in the past years, as reflected by our statistical tables.
Bangladesh is finally experiencing a decisive social crisis, after apparel exporters failed in raising wages for years.
Riots are currently reported in most apparel producing areas, as workers require a dramatic rise in salaries.
A jump of about 80% was Thursday offered by a tripartite body comprising of certain unions, employers and the government.
The monthly minimum wage would be raised from 1,662 taka (US$28) per month up to 3,000 taka (US$43), with a 3-month delay in implementation.
Union leaders are actually requesting a monthly salary of 5,000 taka (US$75) with immediate effect as of August 1st.
The minimum wage has not been raised since 2006 with food prices rising more than 40% in the meantime.
Bangladeshi exporters obviously took advantage of the very low level in their labor costs in the last years.
Although domestic apparel exports were expected suffering from the removal of limits on Chinese shipments to the European Union and the United States in the past years, they never ceased enjoying a double-digit growth in taka terms, as reflected by our table below.
With apparel exports accounting for more than 70% of total Bangladeshi sales to foreign countries, the social crisis is a major issue for Dhaka.
This also could have serious consequences for US and EU buyers having taken advantage of lower Bangladeshi prices during the economic recession, compared with rising costs in China and Vietnam.
Official data are showing a stagnation in Bangladeshi apparel exports in the past fiscal year (July 2009 - June 2010), although they apparently rebounded in May and June.
Sales were more difficult on the European market and the fall in the euro will probably limit future exports to the EU.
On the US market, there were relatively good exports in volume terms over the first months of the year, but unit prices were reduced by the Bangladeshi industry in order to comply with buyers' requirements.
Thanks to the fall in prices, Bangladesh got good results, even in categories where China's exports are surging to the US market.
The sharp increase in wages could now place domestic exporters in a much more difficult situation.
They cannot rely on a fall in the taka anymore, as the Bangladeshi currency is now benefiting from orthodox management, under IFM's rules.