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In Bangladesh, More Risks to the Textile Industry

5 MINS READOct 25, 2013 | 10:01 GMT
In Bangladesh, a Possible Disruption to the Textile Industry
Bangladeshi riot police face striking garment workers in Narayanganj on Sept. 26.
(STR/AFP/Getty Images)
Summary

The international textiles and garment industry is growing wary of Bangladesh as the South Asian nation braces itself for potentially violent political upheaval. The ruling Awami League-led government's term will end Oct. 25, and according to the constitution, new elections must be held within 90 days. Nearly every political transition since 1990 has been politically contentious, but what complicates the current environment are recent strikes among textile laborers, who are upset with what they believe are inadequate working conditions. Bangladesh is no stranger to political instability, but sustained disruptions to the textile supply trade may discourage foreign investors from pouring money into the world's second-largest textile exporter.

Bangladesh's ruling Awami League plans to oversee the country's political transition and organize fresh elections, a task that has been the responsibility of an interim, military-backed government since 1990. For the past 20 years, the Awami League, led by Sheikh Hasina, has alternated control of the country with its chief rival, the center-right Bangladesh Nationalist Party, and the military has tried to ensure some sense of tranquility during times of changeover.

Average Monthly Minimum Wage

Chart - Bangladesh - Minimum Wage

Unwilling to surrender the political gains made in its landslide electoral victory in 2009, the Awami League and its political allies outlawed such caretaker governments in 2011. The Bangladesh Nationalist Party denounced the move, saying that elections without a caretaker government would be neither free nor fair. With the deadline to hold fresh elections looming, the Awami League has attempted to weaken the opposition through a series of contentious war crimes tribunals, leaving the opposition party and Islamist allies such as Jamaat-e-Islami to voice their frustrations with public demonstrations and to quietly encourage labor protests targeting Bangladesh's textile industry.

So far, the Awami League and the Bangladesh Nationalist Party have failed to reach a consensus on how the political process should move forward. The Awami League has suggested an all-party transitional government, and the Bangladesh Nationalist Party has demanded a return to the neutral caretaker government, but neither side has accepted the other's offer. The Awami League hopes that the support of the judiciary and domestic security forces — as well as the military's desire to operate within the bounds of the constitution to prevent a coup — will help pressure the Bangladesh Nationalist Party to comply with its wishes. For its part, the Bangladesh Nationalist Party, including its more conservative and Islamist allies, hopes to incite enough domestic unrest to force the military to intervene, preferably on the side of the Bangladesh Nationalist Party.

Ultimately, the military wants to avoid another civil war. In the years since the Awami League revoked neutral caretaker governments, the military has not acted overtly to make sure its interests are met. The military will likely push both sides to negotiate a settlement to obviate the need for another coup, but if domestic unrest and violence reach appreciably higher levels, if the Bangladesh Nationalist Party boycotts the elections or if its allies show no signs of ending their resistance against the government, the military may be forced to act.

Rising Challenges

Bangladesh Garment Exports

Bangladesh Garment Exports

Foreign investment has flowed into Bangladesh for several years despite regular political and domestic instability. Poor economic and infrastructure development has enabled Dhaka to keep labor costs comparatively low. As a result, the garment and textile sectors have expanded in Bangladesh, which is second only to China in textile exports. But international investors and clothing labels are watching all these issues — domestic instability, ongoing labor strikes, disruptions to supply chain infrastructure and growing international criticism of labor conditions in Bangladesh — threaten Dhaka's ability to guarantee the long-term, competitive profitability of its textile sector.

Of course, neither the Awami League nor the Bangladesh Nationalist Party wants to see permanent damage to the nation's textile industry. Both parties are hoping their respective political machines can help minimize the damage in the coming weeks. Garment exports make up more than 75 percent of Bangladesh's total exports and account for approximately 16 percent of gross domestic product. They are also Dhaka's primary source of foreign currency inflows, which it desperately needs to help offset the country's negative trade balance.

The Awami League's leftist politics have made it the traditional ally of organized labor in Bangladesh; the support of labor bosses and factory workers is a key pillar of the League's political base. At least 10 percent of Bangladesh's parliament is composed of owners of large-scale factories (most of which are textile or garment factories), and anywhere from 30 percent to 50 percent of government officials are linked to the textile industry in some way. Though the Awami League enjoys the support of labor bosses and has rewarded their loyalty, the Bangladesh Nationalist Party recently has attracted peripheral labor groups unhappy with the Awami League's patronage system. This points to the opposition's tactic of undermining a key base of the Awami League's voters.

Bangladesh: Key Infrastructure and Textile Manufacturing Centers

Bangladesh: Key Infrastructure and Textile Manufacturing Centers

The challenges of operating in Bangladesh appear to be on the rise, with the outgoing government unable to reach deals on payment and inspections of factory conditions either with foreign companies or with local labor bosses. Domestic manufacturers want to push the rising insurance and labor costs onto foreign firms that are balking as the profit margins of Bangladeshi operations shrink.

As Dhaka's competitiveness declines, so might growth in foreign investment and imports. This would further undermine an already weak economy that the International Monetary Fund suggests needs to grow by at least 6 percent annually to feed and fuel its growing population. Bangladesh's marshy, inundated geography has made infrastructure development difficult, leaving the population dependent on a few key highways, rail lines and ports. With so many critical internal infrastructure bottlenecks, even small-scale roadblocks, protests and strikes at key facilities can cause dayslong or even weekslong disruptions throughout the country and the supply chain.

Global fashion brands and retailers have invested billions into Bangladesh in recent years. Rapid divestment seems unlikely in the short term. Instead, Bangladesh will see some potential investment redirected to regional competitors such as India and Southeast Asia. Overall economic growth could slow accordingly. With no easy stable solution to Dhaka's domestic political problems in the near term, the government will continue to be an unreliable partner for foreign firms that want to keep their operations profitable. As the competition between the Awami League and Bangladesh Nationalist Party culminates, local party bosses on both sides will need to prevent serious, protracted disruptions to Bangladesh's textile supply chain if they want to keep investors interested in their businesses. 

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