DHAKA, Bangladesh — It’s time for the money to start moving.
The question that factory owners here have been raising over the last year — where the money will come from to fix their plants — is slowly beginning to find answers, as inspections now give way to making real changes.
“The sector will need a huge amount of resources for undertaking major transformational shifts in the areas of building, construction and relocation and complying with environmental and labor standards,” said Ahsan H. Mansur, Ph.D., executive director of the Policy Research Institute of Bangladesh. “And how much funds are needed is now becoming clearer.”
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Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association, observed that about 1,000 factories would be required to relocate, and overall, a fund of $3 billion would be needed to cover all costs, including fixing safety features.
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Mansur said the amount of money needed for the relocation varied with the size of the factories. “For factory relocation, we know that the bigger the factories are, the more money they are going to need for acquiring lands, providing facilities and setup, remediation and relocation,” he said.
According to his analysis, for factories that export between $2.6 million and $20 million and that hire 300 to 1,200 workers, the amount needed for relocation would range between 25 million takas, or $300,000 at current exchange, and 85 million takas, or $1.09 million, depending on their size. The cost of detailed remediation would be between 2 million takas, or $25,000, and 7 million takas, or $90,000. The cost of acquiring and providing facilities and industry setup in the dedicated zones would be between 200 million takas, or $2.5 million, and 678 million takas, or $8.7 million.
Banks are taking center stage as the opportunities — and needs — for borrowing and lending have become crucial. The high interest rates charged by banks within Bangladesh have been discouraging, factory owners said, and they have been calling for brands to lend and invest more in the process of change, as well as asking the government to reduce interest rates.
But there is no shortcut to the Corrective Action Plan itself — which means fixing the problems found in the 2,000 factory inspections completed by the global teams of buyers and retailers of the Accord, Alliance and the local National Action Plan.
The Alliance, a consortium of 28 brands and retailers that has 587 factories in Dhaka, completed inspections in July.
The Accord, the compendium of more than 160 European buyers and retailers, has completed the inspections in 1,106 factories, and shares 300 additional factories with the Alliance. Inspections by the Accord identified more than 80,000 safety issues, Brad Loewen, the Accord’s chief safety inspector noted. These range from the need to reduce weight loads to a failure to install fire doors and alarms, the failure to have protected fire exits and the need to strengthen building columns.
The National Action Plan by the International Labour Organization and the Bangladesh University of Engineering Technology has another 1,750 factories, 600 of which have been inspected so far.
The factories that have been closed — 29 at the last count have been classified as red — are about 2 percent of total inspections.
Those classified as amber need fixing within six weeks of inspection. These make up approximately 24 percent of inspections. The rest are yellow-green, which means that they need a fair amount of work, to be completed within six months of inspection.
Mansur noted funds for fixing these problems could be negotiated through commercial terms, joint investment, direct payment from the government level and other donor support. He also felt that the Accord and the Alliance needed to ensure that “sufficient funds were available to pay for renovations and other safety improvements as required after inspection.”
Innovative partnerships are being struck to make this happen.
The Alliance has been making concerted efforts to make $100 million in affordable capital available to factory owners. On Monday, as the VF Corp., which is a member of the Alliance, stood guarantor for a $10 million fund from the International Finance Corp., an arm of the World Bank, the money to three supplier companies of $1.3 million was cleared. These included three factories that supply to the VF Corp.: Arunima Sportswear Ltd.; Olio Apparels Ltd., and Radisson Apparels Ltd.
It has been an unusual investment — not just of dollars but of faith, a promise of the future and of continued business for these factories.
Rob Wayss, executive director of Bangladesh Operations for the Bangladesh Accord Foundation, said the Accord puts a “tremendous amount of effort into making sure that the financial support part of the remediation is understood and applied in practice. We meet with the factory owner and owners’ representatives.
We work proactively; the Accord facilitates a meeting with the lead brand and the other brands can join if they want,” he said, adding that the IFC also is in talks with 10 Accord brands to make similar investments happen.
That it is time for out-of-the-box thinking is obvious from the initiatives by companies such as Levi Strauss & Co., which worked with the IFC to give an incentive to its factories in Bangladesh to meet environmental labor and safety standards.
Japan International Cooperation Agency has signed a memorandum of understanding with the Bangladesh bank for $12.5 million of low-cost finance to be made available to factories, an amount that economists believe may be a lifeline for the factories being inspected by the National Action Plan, which don’t have big global brands to support them.
“It is necessary to discuss how they will carry on remediation. I hope that real discussion will be on the practical solution to how finance comes to small- and medium-sized factories,” said Sarah Labowitz, codirector of New York University Stern Center for Business and Human Rights, at a discussion on the remediation at the Apparel Summit earlier in the week.
The Bangladesh bank will provide $1.25 million to each export-oriented garment factory at a 9 percent interest rate.
An analysis of inspection reports from all three initiatives so far indicates that 69 percent of factories around Dhaka are in specifically constructed locations, while 28 percent are in shared locations. Two percent have been converted from shared to specific factories.
Of the factories inspected in Dhaka so far, 1,434 are in specifically made buildings while 569 are in shared spaces and 62 have already been converted.
In Chittagong, 49 percent, or 256 factories, are specifically constructed factories; 42 percent, or 225, are in shared spaces, and 9 percent, or 50, have been converted.
Some in the industry complain that interest rates in Bangladesh — at more than 14 percent — make it hard for factory owners to borrow from local institutions.
Shah Sarwar, managing director and chief executive officer at IFIC Bank, which is a private sector bank with 32.5 percent owned by the government, said the bank has announced a 10 million taka ($128,000) loan on “very soft terms to buy basic fire safety equipment for the garments industry.
“The situation in the garment industry has changed from when they were family owned and tried to do things in a more individual way into a new arena, where the compliance, the safety, national standards have become more the need of the day,” he said. “Now what they need is to move out of rented places to make factories that are compliant so they need fire safety equipment to have safety so we are structuring our products to help them through this transformation period. We have a serious history of hand-holding in the garment industry for the last 30 years and have watched companies transform.”
Appeals to the commerce minister to reduce interest rates, which was urgent to meet the deadlines set by the Accord and the Alliance, have been made by factory owners who have clearly indicated their ability and desire to change and accommodate with the results of the inspections.
“We’ve actually seen them [the owners] being very cooperative in wanting to make the changes and sometimes it is an education process because they don’t always understand the purpose for the change,” Daniel Duty, vice president of global affairs and corporate social responsibility at Target, told WWD.
“You know you have to have some conversations and talk about why and how it can actually benefit their business at the end of the day. A lot of the factory owners are starting to see that by making these changes, it can actually make their business better, they can be more productive, they can be more profitable, they can be more successful,” he said.
Duty talked about the “historic” effort, as retailers such as Gap Inc., Wal-Mart Stores Inc. and Target Corp. were working together — something they’ve never tried to do before — especially at this scale.
“And we actually like each other, and like working with each other,” he said with a smile, talking about the changes taking place among factories in Bangladesh and describing the situation as “impressive.”
“Just seeing that change has been very dramatic so that’s very rewarding,” Duty observed. “What is interesting is that no one company alone could do what we have done as a coalition and that’s been really satisfying to see. Both the speed and quality of work that we can get done together in inspecting factories, in figuring out what’s to be done in remediating the factories, training the workers, all of that is happening very quickly, and I think it is the coming together of so many people that has allowed that to happen.”
There are still many frustrations — and far from enough money available for the lists of requirements the factories need to meet.
It also is, essentially, about working together with local and global financial institutions, brands and bigger garment companies that can help with funding.
As Duty pointed out, some of the frustration was just the sheer amount of work left to do and the shared responsibility to make it happen.
“There are so many parties that have to be a part of it; no one company and no one authority can solve this issue. The government has to come to the table, the industry, factory owners, labor and the brands, and you want everyone to have the same timing and enthusiasm and so forth that everybody else has,” he said.
Economists have also warned that the investment in remediation would need to be complemented by investments in the infrastructure — better transport facilities to carry the goods, availability of electricity, gas, etc.
Zahid Hussain Ph.D., lead economist at World Bank, has estimated that development of the infrastructure would cost between $74 billion and $100 billion.
It is obviously a long road ahead, but one that the garment factories are taking with the goal of doubling growth in the next seven years to $50 billion in exports.