Labour Market Assessment

Labour Market Assessment Ready Made Garments Sector in Bangladesh Mamunur Rahman Annex 3

Skills and Employment Programme Bangladesh i Executive Summary The Ready Made Garments (RMG) industry in Bangladesh is the single largest export earning industry of Bangladesh contributing around 80% of total export earnings and 18% of the GDP. The RMG industry also provides employment to around 4.4 million Bangladeshis of whom 70 percent are women. The labour intensive Ready Made Garment sector faces a shortage of skilled workers. RMG is one of the two targeted sectors for the Skills and Employment Programme-Bangladesh (SEP-B) co-funded by UK Department for International Development and the Swiss Agency for Development and Cooperation. In order to design the content and management plan for the implementation of SEP-B programme a study was carried out to conduct detailed scoping of the labour markets for the Ready Made Garments sector in Bangladesh. The study was conducted following a combination of secondary data research and primary data survey. The ready-made garments industry in Bangladesh consists of many small to medium garment factories, both registered and unregistered, that produce garments catering to foreign buyers. In 2013, there were 5600 registered factories mostly located in Dhaka, Gazipur, Narayangong and Chittagong districts. The RMG sector is maintaining an average growth rate of 12% per year and the export earnings from RMG is expected to double by 2015 and triple by 2020 compared to the earnings of 2010. With the growth of the sector the number of RMG employees is also expected to reach 8 million by 2020. Readymade garments manufacturers in Bangladesh are divided mainly into three broad categories based on their products namely woven, knit and sweater garments manufacturer. Total 36 occupations are commonly used under different production processes among which 25 fall under worker role and the rests under supervisory or technical role. Sewing is the single largest process employing 57% of total employees followed by Finishing process employing 20% of all employees. Both Sewing and Finishing processes are highly dominant by female. The survey result shows that most of the occupations suitable for female and DAP also related to sewing and finishing process. Considering skill level RMG employees are categorized as unskilled, semi-skilled and skilled. Results of different study show the distribution of these three categories as 17%, 20% and 61% respectively. The RMG sector is currently running at under capacity with a shortage of 15-20% skilled worker. Sewing Machine Operator is at the top of the list in terms of number of existing and projected labour demand followed by Overlock Machine Operator and then by Sweater Knitting Operator. High turn-over of the employees is one of the major challenges for the employers of RMG. The turn-over tendency of unskilled employees is higher compared to semi-skilled and then skilled employees. Minimum wage of RMG workers is determined by the Government and the current minimum wage is 5300 taka for the lowest grade worker, usually the unskilled workers. The wage difference between unskilled, semi-skilled and skilled worker are very minimum which is a clear disincentive for workers to invest for skills training. Supervisors are on top of the list in terms of monthly earnings followed by technician and then the workers. The workers involved in sweater production process earn based on their produced pieces and usually earn more than other workers. The unskilled and semi-skilled employees have potential to become skilled employee i

Skills and Employment Programme Bangladesh ii and even supervisor by learning skills and gathering experiences. The productivity of RMG factories largely depends on the efficiency and skills of workers. Occupations with maximum number of employees have also significant influence to the overall productivity. At the worker level recruitments are done through interview and by skill test of the worker. No standard certification system exists to assess the skill level of the worker. RMG employers prefer at least class 5 level education while recruit workers and at least class 8 for the technical occupations and supervisors. In RMG sector the practice of formal training is still not so popular. Only technicians and managerial staff undergo some formal training system but for the workers and supervisors the skills are achieved mostly through informal training which is well known as on-the-job training. Only a small number of entrepreneurs have been investing for developing the skills of their workforce. These are mainly multinational companies in the export-processing zones (EPZ) as well as some large manufacturers. The percentage of such companies having their in-firm training centre is not more than 10 percent. The high turn-over rate of skilled workers and the pouching tendency of skilled worker by other factories create disincentives for entrepreneurs to invest into the skills training of their workforce. The total number and capacity of current out-of-firm training centres is nowhere near to meet the existing skills demand of the sector. The existing out-of-firm training provision catering to the RMG sector and overseas market can be broadly classified in to four main categories Government initiative, private initiative, public private partnership and aided/funded programs. The private initiatives are initiated by the two main private industry associations BGMEA and BKMEA and also by some NGOs. Most of the private initiatives owned by the private entrepreneurs are centred round the EPZ areas due to the high demand from worker side as the factories in EPZ mostly use modern automatic machines and recruit mostly operators having knowledge of operating automatic machines. These type of private training centres offer low cost training courses and they are sustaining their business by their own efforts. However the poor infrastructure, low capacity, lack of training tools and machineries are the major challenges of these private training providers. Based on the analysis of secondary and primary data, this study has put forwarded several recommendations for SEP-B programme in order to better design the interventions for RMG sector such as, focusing on four districts namely Dhaka, Gazipur, Narayangonj and Chittagong; designing separate interventions to support both in-house and out-of-firm training initiatives; considering NGO led training centres in parallel to private training centres for partnership; selecting the occupations from the recommended list; targeting skills development at different levels such as, unskilled - semi-skilled skilled - supervisory skill; regular updating the curriculum considering technological update and need of the sector and the workers; providing additional support to RMG employers in development of effective HR policy, introduction of skill matrix system, improvement of working condition; finally keeping the training duration shorter and the cost within the affordable limits of the trainees. ii

Skills and Employment Programme Bangladesh iii Table of Contents Executive Summary... i Table of Contents... iii List of Abbreviations... vi List of Tables... vii List of Figures... viii CHAPTER 1... 1 Introduction... 1 1.1. Rationale... 1 1.2. Background of the study... 1 1.3. Objectives of the study... 2 1.4. Structure of the report... 2 CHAPTER 2... 3 Approach and Methodology... 3 2.1. Methodological approach... 4 Secondary data research... 4 Interviews, consultations and discussions... 4 Primary data collection... 4 Compilation and synthesis of findings... 5 2.2. Challenges and limitations of the study... 5 CHAPTER 3... 6 Basic Information about the RMG Sector... 6 3.1 Size and geographical distribution... 7 3.2 Current GDP contribution... 11 3.3 Projected GDP contribution... 13 3.4 Current share of employment... 13 3.5 Projected share of employment... 16 3.6 Employee demographic information... 17 Educational level of existing employees... 17 Age distribution of existing employees... 18 CHAPTER FOUR... 19 Labour Market Assessment of RMG Sector... 19 4.1. Occupations, employment and wage structure... 19 iii

Skills and Employment Programme Bangladesh iv Production process and major occupations... 19 Current employment by occupation and gender... 21 Current employment by skill level... 25 Existing and projected (5 years) labour demand by occupation and skill level... 28 Employee turn-over by occupation and skill level... 29 Occupation-wise wage... 32 Future occupations by employment potential... 34 Occupations suitable to female and DAP... 35 Occupations with greatest potential for career progression... 35 Occupations with greatest potential for productivity improvement... 36 Duration of training to achieve skills required for different occupations... 37 4.2. Managing workforce demand and job access in RMG sector... 38 Recruitment practices... 38 Entry requirements by occupation and skill level... 40 4.3. Skills development practices in the RMG sector... 42 In-house training facilities... 42 Out-of-firm training facilities... 44 Major constraints related to hiring and retaining skilled workers... 46 Practice of supporting external training centre... 47 Practice of hiring trained persons from external training institutions and level of satisfaction... 48 Willingness and ways to collaborate with SEP-B... 49 4.4. Summary of analysis and findings... 49 CHAPTER 5... 52 Conclusions and Recommendations... 52 Recommendation-1: Selection of geographical location for SEP-B interventions:... 52 Recommendation-2: Selection of partners for SEP-B interventions:... 52 Recommendation-3: Selection of occupations:... 53 Recommendation-4: Targeted skill level:... 53 Recommendation-4: Support updating curriculum and course materials... 54 Recommendation-5: Support to retain skilled employees... 54 Recommendation-6: Training duration and cost... 54 References... 56 Attachments... 57 Attachment-1: Minimum wage structure for the RMG sector... 57 iv

Skills and Employment Programme Bangladesh v Attachment-2: List of RMG industries surveyed... 60 Attachment-3: List of individuals consulted... 61 v

Skills and Employment Programme Bangladesh vi List of Abbreviations ADB BB BBS BDT BEPZA BGMEA BKMEA BMET BOI BTEB CPD DAP DFID EPB EPZ FDI FY GDP GSP HSC ILO KII MoF NGO PROGRESS RMG SEP-B SSC TIDC TTC TVET UNDP US USAID WDI WTO Asian Development Bank Bangladesh Bank Bangladesh Bureau of Statistics Bangladeshi Taka Bangladesh Export Processing Zones Authority Bangladesh Garment Manufacturers and Exporters Association Bangladesh Knitwear Manufacturers and Exporters Association Bureau of Manpower, Employment and Training Board of Investment Bangladesh Technical Education Board Centre for Policy Dialogue Differently Abled People Department for International Development Export Promotion Bureau Export-Processing Zones Foreign Direct Investment Fiscal Year Gross Domestic Products Generalized System of Preferences Higher Secondary School Certificate International Labour Organization Key Informant Interview Ministry of Finance Nongovernmental Organization Promotion of Social, Environmental, & Production Standards Ready-made Garment Skills and Employment Program-Bangladesh Secondary School Certificate Textile Industry Development Centre Technical Training Centre Technical and Vocational Education and Training United Nations Development Program United States United States Agency for International Development World Development Indicators World Trade Organization vi

Skills and Employment Programme Bangladesh vii List of Tables Table 3.1: Growth of the Industry and Employment... 8 Table 3.2: Contribution of RMG sector to the total export of Bangladesh (selected years).. 11 Table 3.3: Characteristics of population and labour force over the years (in million)... 13 Table 3.4: Employment by broad economic sectors (percent) in 2010... 14 Table 3.5: Rate of unemployment (percent) by age group, sex and residence in 2010... 14 Table 3.6: Rate of unemployment (percent) by level of education in 2010... 14 Table 3.7: Age distribution of RMG employees... 18 Table 4.1: RMG factory distribution according to type of factory (product type)... 19 Table 4.2: Production process of RMG factories... 19 Table 4.3: RMG occupation list... 20 Table 4.4: Percentage of existing employees in different occupations separated by gender and DAP... 24 Table 4.5: List of occupations with greatest absorption capacity in RMG sector... 25 Table 4.6: Existing and projected (5 years) labour demand by occupation and skill level... 28 Table 4.7: RMG occupation list with average monthly salary... 33 Table 4.8: List of top 15 occupations in terms of wage... 34 Table 4.9: List of future occupations... 34 Table 4.10: List of occupations suitable to female and DAP... 35 Table 4.11: List of occupations with significant contribution to the overall productivity... 37 Table 4.12: Duration of training to achieve the skills required for different occupations... 38 Table 4.13: Recruitment practice of employers... 39 Table 4.14: Minimum education demanded for most common occupations... 40 Table 4.15: Key findings on in-house training practices among surveyed factories... 43 Table 4.16: Comparison of different types of training providers from a qualitative perspective.... 45 Table 4.17: List of major constraints related to hiring and retaining skilled workers... 47 Table 4.18: Expectations of private sector entrepreneurs regarding skills training... 48 Table 5.1: List of recommended occupations for SEP-B... 53 vii

Skills and Employment Programme Bangladesh viii List of Figures Figure 2.1: Study Approach... 3 Figure 3.1: Garments Industry of Bangladesh... 7 Figure 3.2: RMG factories distribution by major districts... 9 Figure 3.3: RMG workers distribution by major districts... 9 Figure 3.4: Geographical location of RMG factories in Bangladesh... 10 Figure 3.5: Share of RMG as percentage of GDP... 12 Figure 3.6: Share of exports as percentage of GDP... 12 Figure 3.7: Total labour force and RMG employees... 15 Figure 3.8: RMG employees as percent of total labour force... 16 Figure 3.9: Current and projected employment (in million) in RMG... 17 Figure 3.10: RMG workers distribution by Education level... 18 Figure 4.1: Distribution of employees in woven garments production process... 22 Figure 4.2: Distribution of employees in knit garments production process... 22 Figure 4.3: Distribution of employees in sweater production process... 23 Figure 4.4: Distribution of employees in RMG sector... 24 Figure 4.5: Skill Profile of RMG workers according to CPD survey... 26 Figure 4.6: Skill Profile of RMG workers according to primary data survey... 27 Figure 4.7: Comparison of the survey results on the skill level distribution of RMG employees... 27 Figure 4.8: Employee turn-over tendency by occupation and skill level... 31 Figure 4.9: Typical career progression path of RMG workers... 36 Figure 4.10: Employers' expectation of minimum educational qualification for different occupation... 41 Figure 4.11: Classification of Out-of-firm training provisions in RMG sector... 44 viii

1 CHAPTER 1 Introduction 1.1. Rationale Bangladesh is a developing country in South Asia and is one of the most densely populated countries in the world with around 156 million people living in a land area of 56,977 square miles (147,570 square kilometres) 1. Around 30% of the population lives below the poverty line 2. Agriculture and industry are the first two contributors to country s economy. Although Bangladesh is not developed in industry, Ready Made Garment (RMG) has been one of the most important industries in the country. RMG is the single largest export earning industry of Bangladesh contributing around 80% of total export earnings and 18% of the GDP 3. The RMG industry also provides employment to around 4.4 4 million people of whom 70 percent are women. The industry is growing constantly maintaining an average annual growth rate of 12% and creates employment opportunities for thousands of poor unemployed people every year. This steady increase in employment opportunity is significantly contributing to improve poverty indicators in Bangladesh. The labour intensive Ready Made Garment industry encounters shortage of skilled workers. In order to respond to the growing market demand of Bangladeshi garments and to remain competitive, skills development of the workers has become an important issue for the development of this sector. On the other hand, skills training can create opportunities for the increasing number of unemployed people and increase their income. Designing an effective skills development programme, capable of increasing income for the unemployed and under employed, requires an assessment of the existing skills gaps, current and future skills demand and the expectations of different stakeholders engaged throughout the sector. These efforts to strategically plan maximize efficiency within the RMG sector and ensure Bangladesh remains a competitive industry supplier in the global market. As the numbers of unemployed lessen, the Bangladesh economy strengthens to the benefit of society as whole. 1.2. Background of the study Private sector companies in Bangladesh consistently identify low skill levels within the labour force as a fundamental constraint to Bangladeshi growth. The Ready Made Garments and Construction sectors are developing rapidly, and have tremendous potential to absorb labour 1 Bangladesh Bureau of Statistics (BBS). 2011, Population Census 2011. Dhaka, BBS 2 HIES 2010 3 Bangladesh Bank; Export Promotion Bureau 4 BGMEA website 1

2 and offer employment to large numbers of uneducated men and women. However, a shortage of skilled workers limits potential to fully capitalize on the opportunities. The Skills and Employment Programme-Bangladesh (SEP-B) is a co-funded programme of UK Department for International Development and the Swiss Agency for Development and Cooperation which aims to stimulate private sector investment in training for poor people. The 20.5 million, 5-year project, strives to cultivate an enabling policy environment and transform private sector training markets to support the absorption of large numbers of disadvantaged groups into skilled and semi-skilled employment. It will support skills training market that targets the poor and those with limited education. The project interventions will be tailored to employer needs in the Ready Made Garments and Construction industries, and linked to jobs that improve earning potential and subsequently enable beneficiaries to graduate from poverty. The SEP-B project is implemented by GRM International in partnership with Swisscontact and the British Council. Realizing that the success of SEP-B programme largely depends on the appropriate design of content and management plan for implementation, this study was designed and carried out during the inception period. It presents a detailed scoping of the labour markets for the Ready Made Garments sector. 1.3. Objectives of the study The overall objective of this study is to conduct detailed scoping of the labour markets for the Ready Made Garments sector in Bangladesh. The specific objectives of the study are as follows: To map the largest firms/employers within the sector across all (7) divisions including locations and assess their current and future demands for skilled and semi-skilled workforce. To assess and analyse occupations with the greatest absorptive capacity, greatest earning potential, greatest potential for career progression, most attractive to vulnerable groups, allowing sufficient skills development in a short training interval. To analyse wage bands across grades. To collect workers demographic information To identify recruitment processes and entry barriers for employment, and bottlenecks hindering sector stakeholder collaboration. 1.4. Structure of the report Chapter 1 sets the rationale, background and objectives of the study. Chapter 2 describes the approach and methodology adopted in this study. Chapter 3 presents basic information about the sector including the current and projected GDP contribution and employment share of the sector. Chapter 4 gives the assessment result of RMG labour market incorporating the results of secondary research and primary survey conducted. Finally, Chapter 5 draws the conclusions and provides recommendations. 2

CHAPTER 2 Skills and Employment Programme - Bangladesh 3 Approach and Methodology The study was conducted following a combination of secondary data research and primary data survey. A schematic of the research approach is shown in Figure 0.1. The present study made use of a mix of research techniques and tools. The choice and application of tools and techniques were done based on the overall objective of the study, type and quality of information at hand, resource and time constraints, and local situations. This adaptive approach was necessary to conduct the study in most efficient manner. Research was conceptualized based on review of existing literature and professional experience of the researcher. The researcher has 9 years of working experience in the field related to the Ready Made Garments sector in Bangladesh. Figure 0.1: Study Approach Study Approach Secondary Data Research Literature Review Data collection Conceptualization Analysis and Synthesis Reporting Primary Data Survey Survey of Employers Consultation KII 3

4 2.1. Methodological approach Secondary data research A total of 16 sources were utilized for secondary data analysis. The background report on RMG for the study titled Private Sector Training Certification and Employment Services in Bangladesh commissioned by UK Department for International Development in 2012 was an especially key secondary document used for this study. Labour market study reports of Unnayan Onneshan were collected and used as reference. Economic data were collected from various sources such as Bangladesh Bank, Ministry of Finance, Export Promotion Bureau and World Bank for analysis. Labour force data were collected from Bangladesh Bureau of Statistics and World Bank. The Department of Inspection for Factories and Establishments was the key source of data related to RMG factories and worker. Data compiled by BGMEA and BKMEA, the two associations of RMG employers, were also collected for analysis. A list of reference is given at the end of this report. Interviews, consultations and discussions In order to validate the findings from secondary research as well as collect new information, concerned persons of the employers associations from BGMEA and BKMEA were consulted. In addition, owners of Private Training Centres and RMG Employers were also interviewed for the purpose of this study. A list of persons consulted is given as ANNEX-2 and 3 of this report. Primary data collection For the purpose of primary data collection statistical sampling rule was followed. As per the BGMEA, there are 5600 garment factories in the industry whereas BKMEA estimates this number as 5300 5. These estimations clearly indicate absence of clear database. Therefore, to be on safe side, total number of factories was considered as 5600 and following methods have been used for calculating the sample size. Population size : 5600 Confidence level : 90% Margin of error : 12% Sample size : 45 The following formula was used to calculate the sample size: Sample size = Where: Z 2 * (p) * (1-p) c 2 Z = Z value (1.645 for 90% confidence level) p = percentage picking a choice, expressed as decimal (0.5 used for sample size 5 Based on consultation carried out at BGMEA and BKMEA headquarters on 07 May 2014. 4

5 needed) c = confidence interval, expressed as decimal (here.12 = ±12) The available data show that 99% 6 of the industries are located in four districts: Dhaka (40%), Gazipur (38%), Narayangonj (10%) and Chittagong (11%) district. Hence samples were selected using random sampling method proportionally from these four districts. An available list of 1566 RMG factories was used to randomly select factories for the survey. Given the time constraints and sensitivity of doing employee survey, interviews were conducted only with the employers. A mix of quantitative and qualitative surveying would be the ideal methodology of this study, but due to time limitations a qualitative assessment could not be completed. A thorough and detailed questionnaire with both open-ended and closeended questions was prepared for collection of primary data focusing on major research questions and is presented in ANNEX-4 of this report. Compilation and synthesis of findings The findings from secondary data research, primary surveying, key informant interview, discussions, consultations and literature review were documented and summarized. The results of analysis were summarized in tabular formats, charts and diagrams. Finally, the findings were synthesized and are reported in Chapters 3, 4 and 5. 2.2. Challenges and limitations of the study Limited Secondary Data- Due to lack of available data, several tables and charts presented in this report are based on the author s calculation combining available secondary data. The distribution of RMG industries and employees by major districts is an example of this. Insufficient Study Time- Due to time limitation the sample size was determined with high margin of error (12%). However, given the homogeneity of the industrial units and considering the fact that the primary survey is to validate the existing secondary information, 12% margin of error is still acceptable. In addition the survey questions are of more qualitative nature and open ended. Hence high margin of error will not affect the interpretation significantly. Limited Staffing Resources for Delivery- Due to resource limitations in staffing the primary data collection had to be outsourced to an external firm. However, the research team guided the enumerators and monitored the quality aspect through- out the survey. Sector Sensitivity- Considering the sensitivity and restrictions from employers side, primary surveying was not conducted at employee level. The employee demography has been collected from available secondary sources and has been incorporated into this report. 6 Website of Department of Inspection for Factories and Establishments (http://www.dife.gov.bd), May, 2014 5

CHAPTER 3 Skills and Employment Programme - Bangladesh 6 Basic Information about the RMG Sector The Ready Made Garment (RMG) industry in Bangladesh is only thirty five years old since the first garment exporting unit took the first step in the clothing export market in 1978. Currently Bangladesh holds more than 4 percent share in the global clothing export market and has positioned itself as the third-largest garment exporting country in terms of value after China and Turkey. RMG roughly covers 80 per cent of the total export revenue of the country and is the highest earning industry in the economy.7 Total GDP of the country is 129.8 billion US$ (FY: 2013) where the RMG sector contributes 18%. Around 6% of the total workforce is employed by this sector. The ready-made garments industry in Bangladesh consists of many small to medium garment factories, both registered and unregistered, that produce garments catering to foreign market. In 2013, there were 5,600 registered factories that employed 4.4 million workers8 of whom 70 percent were women. Box 1: Key facts and figures of RMG sector: More than 5500 RMG factories in BD and rising Average annual growth rate is 12% 79.6% of export earnings and 18% of GDP come from the RMG sector. 40% (4.4 M) of the industrial workforce or 6% of the total workforce is directly employed by the RMG sector. 70% of workers in the RMG sector are women. RMG products are of two major types: knit garments and woven garments. Historically, Bangladesh focused on producing knit garments but in recent times Bangladesh is more successful in woven production as well. Recently Bangladesh enjoyed being the second largest knitwear exporter in terms of volume in 2012. The knitwear and woven garments export volume has grown at 10% and 15% respectively in FY 2012-13, which is higher than that in FY 2011-129. The competitiveness of garments exporters largely depends on the fulfilment of four main expectations of buyers namely low cost, better quality, product variations and delivery in the shortest possible time. It is obvious that ensuring high quality and having product variation requires skilled workers. Improving productivity influences the maintenance of low cost and ability to meet delivery dates. When garment factories are functioning optimally, management can appropriate adequate attention to overcoming challenges such as the increasing cost of raw materials, power crises and transportation bottlenecks. In order to respond positively to 7 Bangladesh Bank; Export Promotion Bureau 8 BGMEA website. 9 Bangladesh Bank; Export Promotion Bureau 6

7 the growing market demand of Bangladeshi garments and to remain competitive, skills development has become the most important issue for the development of the sector. 3.1 Size and geographical distribution The broad Garments industry of Bangladesh is mainly divided into two sectors namely Textile and RMG. Textile sector comprises of spinning mills and textile factories. Both spinning mills and textile factories use imported and locally produced cotton as raw material to produce yarn, fabric and home textiles. The yarn produced by the spinning mills and fabric by the textile factories are used as raw materials by the RMG factories. The home textiles (such as bed sheet, curtain, towel etc.) are also exported mainly to US and EU markets. RMG sector comprises of woven garments factories, knit garments factories and sweater factories. These factories use yarn, fabric and accessories (both imported and locally produced) as raw materials to produce Ready Made Garments. The RMG products are mostly exported to different parts of the world and a small portion is catering to the local market. Other than Textile and RMG factories there are also tailoring shops catering to local markets only by making tailored garments. Accessories manufacturers are also part of the Garments Industry who produces accessories like button, zipper, label, packing materials etc. and supply to RMG factories as well as the Tailoring shops. The following figure shows the overall picture of the Garments industry in Bangladesh: Figure 0.1: Garments Industry of Bangladesh Source: Author s compilation 7

8 During the last two and a half decades, there has been a steady growth in the field of RMG. The RMG industry enjoyed a tremendous rise from 30 enterprises in 1980 to 5600 in FY2012-13. Data in Table 0.1 depicts the growth of the industry in terms of number of (registered) units and workers employed in RMG sector. Table 0.1: Growth of the Industry and Employment Year Number of Garment Factories Employment in Million Workers 1983-84 134 0.04 1984-85 384 0.12 1985-86 594 0.20 1986-87 629 0.28 1987-88 685 0.31 1988-89 725 0.32 1989-90 759 0.34 1990-91 834 0.40 1991-92 1163 0.58 1992-93 1537 0.80 1993-94 1839 0.83 1994-95 2182 1.20 1995-96 2353 1.29 1996-97 2503 1.30 1997-98 2726 1.5 1998-99 2963 1.5 1999-00 3200 1.6 2000-01 3480 1.8 2001-02 3618 1.8 2002-03 3760 2 2003-04 3957 2 2004-05 4107 2 2005-06 4220 2.2 2006-07 4490 2.4 2007-08 4743 2.8 2008-09 4925 3.5 2009-10 5063 3.6 2010-11 5150 3.6 2011-12 5400 4 2012-13 5600 4.4 Source: BGMEA website: http://www.bgmea.com.bd (accessed in May 2014). There is a clear lack of reliable data on RMG factories in Bangladesh. The available data from the Department of Inspection for Factories and Establishments shows that the RMG factories are mostly located in Dhaka, Gazipur, Chittagong and Narayangonj district. Almost 99% of the RMG factories are located in these four districts. The rest of the factories are scattered in 8

Percentage Skills and Employment Programme - Bangladesh 9 Comilla, Narsingdi, Tangail, Mymensing and Manikganj. The following graph shows the geographical distribution of the RMG factories in Bangladesh: Figure 0.2: RMG factories distribution by major districts Chittagong, 10.87% Gazipur, 37.87%, Narayanganj, 10.13% Dhaka, 39.78% Dhaka Gazipur Chittagong Narayanganj Mymensingh Manikganj Tangail Comilla Narsingdi Source: Author s calculation based on available data from the website of Department of Inspection for Factories and Establishments (http://www.dife.gov.bd) The distribution of RMG employees also follows the pattern of factories. Almost 99% of the RMG employees are working in Dhaka, Gazipur, Chittagong and Narayangonj districts. The following graph ( Figure 0.3) shows the geographical distribution of RMG employees in Bangladesh: Figure 0.3: RMG workers distribution by major districts 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 39.8% 37.9% 10.9% 10.1% 0.8% 0.3% 0.2% 0.0% 0.0% Female Male Total% Districts Source: Author s calculation based on available data from the website of Department of Inspection for Factories and Establishments (http://www.dife.gov.bd) 9

10 Figure 0.4: Geographical location of RMG factories in Bangladesh Bangladesh Map RMG Factories 10

11 3.2 Current GDP contribution The economy of Bangladesh has undergone rapid structural transformation from an agrarian base towards manufacturing and services. The contribution of the agriculture sector to GDP has decreased from 49 percent in 1973-74 to around 18.7 percent in 2012-13. Over the same period, the contribution of service sector has increased from 40 percent to 54 percent. The industry share to GDP has also increased from 11 percent in 1973-74 to 29 percent in 2012-13. 10 The growth of industrial production has averaged more than 6% over the last 5 years. The export sector has been the main contributor of industrial growth, where ready-made garments played a leading role experiencing an average growth of 16 percent over the last 5 years. The bulk of exports are manufactured/processed products, ready-made garments and knit wears 11. The country s export-oriented RMG sector has been making significant contributions to the economic development of Bangladesh since 1980. The earning of foreign exchange, improving the balance of payments and dramatic employment creation, particularly for women, has significantly contributed to poverty reduction. The sector is also encouraging the creation of different forward and backward linkages contributing to the overall economic activities of Bangladesh. The closely related sectors with the RMG sector are textile, transport, freight forwarding, bank and insurance services, housing services, real estate, storage, machinery, and cotton cultivation. Contribution of the RMG sector to the total export has been presented in Table 3.2. Table 0.2: Contribution of RMG sector to the total export of Bangladesh (selected years) Year Export of RMG (in million US$) Total export of Bangladesh (in million US$) % of RMG to total exports 1983-84 31.57 811.00 3.89 1987-88 433.92 1231.2 35.24 1991-92 1182.57 1993.90 59.31 1995-96 2547.13 3882.42 65.61 1999-00 4349.41 5752.20 75.61 2003-04 5686.09 7602.99 74.79 2006-07 9211.23 12177.86 75.64 2007-08 10699.80 14110.80 75.83 2008-09 12347.77 15565.19 79.33 2009-10 12496.72 16204.65 77.12 2010-11 17914.46 22924.38 78.15 2011-12 19089.69 24287.66 78.60 2012-13 21515.73 27018.26 79.63 Source: BGMEA website: http://www.bgmea.com.bd/home/pages/tradeinformation (accessed in May 2014). In terms of GDP, RMG s contribution is highly remarkable; it has reached 18.5 percent of GDP by 2012 which was only about 0.54 percent in 1985. Figure 0.5 and Figure 0.6 below show 10 BBS, 1978; Bangladesh Bank 2014 11 Bangladesh Bank 2014 11

Share of GDP (percent) Share of GDP (percent) Skills and Employment Programme - Bangladesh 12 the share of RMG exports and total exports as a percentage of GDP, respectively. The export share of GDP is also showing a positive trend over the years, and this is mainly due to the rapid growth of the RMG sector. The export share of GDP was 6% in 1985, which has increased to 23 percent in 2012. It presents a positive trend, despite slight decline in 2009 and 2010 due to the global financial crisis. Figure 0.5: Share of RMG as percentage of GDP Share of RMG as % of GDP 20 18 16 14 12 10 8 6 4 2 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 Year Source: WDI 2013 online database Figure 0.6: Share of exports as percentage of GDP 25 Share of Exports as % of GDP 20 15 10 5 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 Year 12

13 Source: WDI 2013 online database 3.3 Projected GDP contribution Even after political turmoil, the incidence of devastating fire at Tazreen Fashion and the building collapse of Rana Plaza, RMG export earnings assumed a positive and satisfactory growth rate in FY 2012-13 and in the first eight months of this current fiscal year (FY 2013-14). The main reason behind the success is increase in the non-traditional markets. The export of readymade garments reached USD 12233.23 million comprising 81.7 percent of total export receipts during July-February of FY 2013-14 compared to USD 10225.68 million comprising 80.2 percent of total export receipts during the corresponding period of FY 2012-13. During July-January of FY 2013-14, export growth rate of readymade garments increased by 17.72 percent where the growth rate was 9.92 percent respectively in the corresponding previous fiscal year. This gives a clear indication of further increase of the RMG share in total exports and in GDP for the fiscal year 2013-14. The Bangladesh RMG industry will continue to face growing demand. McKinsey has forecast demand growth through 202012. Citing the trend of global buyers, the report forecasts that Bangladesh would fetch up to US$ 42 billion annually from RMG exports in the next 10 years by maintaining an annual growth between 7 and 9 percent. The report in its near-term estimate also said that the earning would be double by 2015 and triple by 2020. The report said the advantages in price, capacity, capability and trade regulations provide the base for positive RMG growth in Bangladesh, which will be accelerated further in the future, driven by the increasing demand of international buyers from Europe, the US and many emerging markets. A shift in orders from China to Bangladesh, for cost competitiveness, is a major reason behind the rise in exports. The report, however, said that the country s RMG sector would face some major challenges to achieve the status of a global hub. The challenges include poor infrastructure, limited inland transport alternatives and lack of a deep-sea port. 3.4 Current share of employment At national level the latest labour force survey was conducted back in 2010. The survey reported total labour as 56.7 million of which 54.1 million as employed and 2.6 million as unemployed. The total country population was 147.74 million during 2010 whereas the population of Bangladesh as of 2013 was 156.3 million. So it can be assumed that since 2010 the labour force of Bangladesh has also increased significantly. The following tables summarize the key results of labour force survey 2010. Table 0.3: Characteristics of population and labour force over the years (in million) population Working age Employed Unemployed Year Male Female Total Male Female Total Male Female Total Male Female Total 12 McKinsey (2011), Bangladesh s ready-made garments landscape-the challenge of growth 13

14 1999-00 64.09 60.26 124.35 38.30 35.90 74.20 31.10 7.90 39.00 1.10 0.70 1.80 2002-03 68.33 65.08 133.41 41.20 39.60 80.80 34.50 9.80 44.30 1.50 0.50 2.00 2005-06 70.04 67.26 137.30 43.01 41.58 84.59 36.10 11.30 47.40 1.20 0.90 2.10 2010 74.15 73.59 147.74 47.85 47.74 95.59 37.90 16.20 54.10 1.60 1.00 2.60 Source: Labour Force Survey (LFS), 2010 Table 0.4: Employment by broad economic sectors (percent) in 2010 Broad Economic Sectors Total Male Female Agriculture 47.56 40.18 64.84 Non-agriculture 53.07 60.71 35.21 Manufacturing 12.44 12.73 11.77 Other industry 5.28 6.87 1.55 Services 35.35 41.11 21.89 Source: Labour Force Survey (LFS), 2010 Table 0.5: Rate of unemployment (percent) by age group, sex and residence in 2010 Bangladesh Urban Rural Age group Total Male Female Total Male Female Total Male Female Total 4.50 4.10 5.70 6.50 5.70 8.30 4.00 3.60 4.90 15-19 10.60 9.80 11.40 12.40 11.70 13.40 10.10 9.80 10.60 20-24 7.10 6.80 7.70 9.90 8.70 11.50 6.30 6.20 6.40 25-29 5.40 4.30 7.30 7.90 6.30 10.80 4.60 3.70 6.20 30-34 4.20 3.80 4.80 5.60 5.00 6.90 3.60 3.40 4.00 35+ 2.40 2.40 2.70 3.90 3.90 3.80 2.00 1.90 2.40 Table 0.6: Rate of unemployment (percent) by level of education in 2010 Bangladesh Urban Rural Level of Education Total Male Female Total Male Female Total Male Female Total 4.50 4.00 5.70 6.50 5.70 8.30 3.90 3.60 4.90 No education 2.80 2.30 4.10 3.80 3.40 4.60 2.60 2.10 3.90 Class I-V 3.80 3.40 4.70 5.10 4.40 6.40 3.50 3.10 4.20 Class VI- VIII 5.20 4.80 5.90 5.60 5.10 6.90 4.60 4.70 5.70 Class IX-X 7.20 6.80 7.90 9.10 7.40 12.40 6.50 6.50 6.80 SSC/equivalent 7.30 7.50 6.80 9.70 9.40 10.60 6.20 6.70 4.80 HSC/equivalent 13.70 11.80 19.50 17.00 13.90 25.40 11.40 10.40 14.60 Degree/ equivalent 0.50 0.40 1.30 0.40 0.40 0.60 0.60 0.30 2.00 Master s/equivalent 10.30 8.20 19.90 11.50 9.20 20.00 8.60 6.90 19.40 14

Number (in million) Skills and Employment Programme - Bangladesh 15 Engineering/ medical 14.30 10.60 30.80 14.70 11.70 27.60 12.30 5.90 48.10 Technical/ vocational 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Others 2.90 0.00 9.70 0.00 0.00 0.00 3.90 0.00 23.40 As per the World Development Indicators database of World Bank the current labour force is 76 million as of year 2012. The following graph shows the trend of labour force from 1990 to 2012 and the number of employment in RMG sector. Figure 0.7: Total labour force and RMG employees Total labour force vs RMG employment 80 70 60 50 40 30 20 10 0 Year RMG employment (in million) Total labor force (in million) Source: Author s calculation based on data from World Bank and BGMEA The share of RMG employment in total labour force is gradually increasing over last two decades. Currently RMG employment is around 6% of the total labour force and 40% of the industrial workforce. The following graph shows the share of RMG employment in total labour force from 1990 to 2012. 15

Percent Skills and Employment Programme - Bangladesh 16 Figure 0.8: RMG employees as percent of total labour force 7.0% Share of RMG employees as % of total labour force 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Year Source: Author s calculation based on data from World Bank and BGMEA 3.5 Projected share of employment Industry leaders from the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) find the shortage of workers crucial to full capacity utilization. According to them, the estimated need hovers around 20% to fill up the vacant positions in the industry. At present employment of the RMG sector is about 4.4 million. Considering 20% shortage of workers the current employment capacity of the sector becomes 5.28 million. As mentioned in section 1.1.2 McKinsey forecasted 7 to 9 percent annual growth of the RMG industry till 2020. Considering 8% annual growth the projected number of employment in RMG sector will reach 8 million by 2020. The following graph shows the current and projected employment in RMG sector from 2000 to 2020. 16

Number of employment (in million) Skills and Employment Programme - Bangladesh 17 Figure 0.9: Current and projected employment (in million) in RMG Current and projected employment in RMG 9 8 7 6 5 4 3 2 1.8 1.8 3.5 3.6 3.6 2.8 2 2 2 2.2 2.4 5.13 5.545.99 4.75 4.4 4 6.47 6.987.54 8.14 1 0 Year Current employment Projected employment Source: Author s calculation based on BGMEA data and McKinsey (2011) research report. 3.6 Employee demographic information Educational level of existing employees Although the national literacy rate for the population of age 15 and above is 57 percent (WDI 2011), among the garment workers surveyed by CPD in 2006, 95.4 percent are literate. According to the survey 63 percent of the interviewed workers have an education beyond the primary level, 33 percent up to class ten, and 21 percent up to a secondary school certificate (SSC), 7 percent up to the HSC, and 2 percent bachelor and above. 17

18 Figure 0.10: RMG workers distribution by Education level Employee distribution by education level HSC, 7% SSC, 21% Bachelor and above, 2% Up to Class Ten, 33% No Education, 5% Primary, 32% No Education Primary Up to Class Ten SSC HSC Bachelor and above Source: CPD/GATE survey 2006 Age distribution of existing employees According to the CPD survey (in 2006) Average age of a male worker in the sample was 25.4 years, while that of a female worker was 24.4 years. It appeared that a female worker ends her working life in the apparel sector in most cases before she reaches 30 years of age possibly because of marriage, stress of work, etc. A recent survey report published in the ABC Journal of Advanced Research, Volume 2, No 2 (2013) shows that majority of workers are in the age group of 20-30 years. The following table shows the age distribution of the employees of five garments factories surveyed in 2013. Table 0.7: Age distribution of RMG employees Age Percent less than 20 years 11.3 20-30 years 66 30 years and above 22.6 Total 100 Source: Survey result published in ABC Journal of Advanced Research, Volume 2, No 2 (2013) 18

CHAPTER FOUR Skills and Employment Programme - Bangladesh 19 Labour Market Assessment of RMG Sector 4.1. Occupations, employment and wage structure Production process and major occupations Ready-made garments manufactured in Bangladesh can be divided mainly into three broad categories: woven, knit and sweater. Shirts, trousers, jackets are the main woven products and undergarments, socks, stockings, T-shirts, polo-shirts and other casual and soft garments are the main knit products. Sweaters can be broadly categorized under knit garments, but because of the difference in manufacturing processes the product type is considered a completely separate sub category. Depending on the type of products produced the garments manufacturers are also divided into three types namely woven garments manufacturer, knit garments manufacturer and sweater manufacturer. The exact number of factories of these three types is not available. The following table gives an estimate of the distribution of RMG factories according to their type. The derived percentage also matches with national data on commodity wise export earnings. Table 0.1: RMG factory distribution according to type of factory (product type) Type of factory Percent Woven 55% Knit 29% Sweater 16% Total 100% Source: Author s calculation based on available data from the website of Department of Inspection for Factories and Establishments (http://www.dife.gov.bd) accessed in May, 2014 The woven garments manufacturers mostly import fabrics and perform Cutting, Sewing and Finishing. Whereas the knit garments manufacturers are self-sufficient and perform Knitting, up to Finishing. The production process of sweater is different from woven and knit garments. The production steps involved in the three types of products are summarized in below table: Production process Table 0.2: Production process of RMG factories Product type Woven Knit Sweater Cutting Knitting Winding Sewing Dyeing Knitting Finishing Cutting Linking Printing Trimming Embroidery Mending Sewing Washing Finishing Finishing 19

20 The occupations involved in the production processes of RMG can be broadly classified in 4 different categories Managerial: All managerial level staff including General Manager, Production Manager, HR Manager, Compliance Manager etc. Supervisory: Sewing line supervisor, cutting supervisor, finishing supervisor etc. mainly assigned for the supervision of a group of workers. Technician: Employees with technical knowledge like Machine Mechanic, Electrician, Boiler Operator, Generator Operator etc. Worker: All workers including Assistant, Operators and Senior Operators who are responsible to perform operation(s) involved in the production of a complete garment. The Government has classified the workers of the RMG sector into 7 different grades for the purpose of defining minimum wages for each grade by the minimum wage gazette 2006 which was revised latest in December 2013 13. The lowest grade VII is assigned for the unskilled worker known as Assistant/Helper and from grade VI up to grade III are assigned for semi-skilled to highly skilled workers respectively. Grade I & II are assigned for the technical staff such as Chief Cutting Master, Quality Controller, Electrician, Mechanic etc. Other than the managerial roles there are 36 occupations commonly involved in the production processes of Woven, Knit and Sweater products. Out of these 36 occupations 6 are Supervisory, 5 Technician and remaining 25 fall under Worker category. The following table lists the 36 occupations related to RMG sector: Table 0.3: RMG occupation list Type of factory Role Production Process Fabric Knitting Dyeing Cutting Printing Occupation Woven Garments Knit Garments Circular Knitting Machine Operator No Yes No No No Yes Knitting Supervisor No Yes No Yes No No Dyeing Machine Operator No Yes No No No Yes Dyeing Supervisor No Yes No Yes No No Washing Man No Yes Yes No No Yes Marker Yes Yes No No No Yes Cutter Yes Yes No No No Yes Band Knife Machine Operator Yes Yes No No No Yes Cutting Master Yes Yes No Yes No No Screen man No Yes No No No Yes Printing Operator No Yes No No No Yes Printing Supervisor No Yes No Yes No No Embroidery Embroidery Machine Operator No Yes No No No Yes Sewing Sewing Machine Operator Yes Yes No No No Yes Sweater Knit Supervisor Technician Worker 13 Ministry of Labour and Employment. (2013) 20