Bangladeshi garment workers shout slogans as they participate in a May Day rally in Dhaka on 1 May 2016.

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Bangladesh's Ministry of Labour and Employment announced on 6 March that the government had formed a council to manage industrial relations in the country's economically-vital garment sector. The council is to be led by state labour minister Mujibul Haque and will be formed of representatives from other government ministries, garment exporters, and trade union leaders. The council is part of the Awami League (AL) government's response to increasingly volatile relations between trade unions and garment factory owners. In December 2016, tens of thousands of workers at as many as 30 factories in Ashulia, Dhaka, went on strike for nine days over demands for higher wages. The strike ended following government assurances that residential rents in Ashulia would not be increased for three years – but officials have since remained adamant that there is no scope to raise wages.

The unrest in Ashulia caused at least USD100 million in losses to the industry, according to the Bangladesh Garment Manufacturers and Exporters Association (BMGEA), the leading trade body in the country. The estimated cost reflects the enduring importance of the garment manufacturing sector for Bangladesh's economy. More than 4.2 million people in the country work at an estimated 5,000 garment manufacturing factories and in fiscal year 2015/16, the sector raised USD28 billion – constituting more than 80% of the country's total exports. The government aims to increase this figure by 8% in the next year and eventually cross the USD50-billion mark by 2021.

Government action against trade unionists

Various human rights organisation, including Human Rights Watch, alleged that the government carried out widespread repression of trade union members following the Ashulia unrest. According to these organisations – supported by local media reporting – thousands of striking workers were dismissed from their jobs and were blocked from gaining future employment in the sector. Moreover, dozens of trade union activists were detained by police, triggering condemnation from a host of international retailers – all key customers for the sector. Some retailers went on to boycott the February 2017 Dhaka Apparel Summit. The boycott contributed to the international pressure that eventually forced the government into releasing 34 activists following the summit.

Resistance to wage increase

The Ashulia unrest was triggered by demands for the government to increase the minimum monthly wage for garment sector workers to USD187. The current wage is set at USD67, but was last raised in 2013. The government and factory owners, however, remain reluctant to raise wages further, principally because of concerns that the sector would lose its low-cost competitive advantage against competing countries, notably Vietnam, Myanmar, and Pakistan. While this argument is often made, factory owners are also likely to point to rising operating costs for the sector in their opposition to further wage increments for workers. In particular, growing energy costs are likely to be a key concern. Gas prices were controversially raised by 22% by the Bangladesh Energy Regulatory Commission in February 2017. On 5 March, the state minister for energy and power warned industries that that gas prices would increase further for them, as they would be supplied with more expensive imported gas in the next two years. Such a raise would likely affect garment factories, which are energy intensive and suffer from inefficiencies.

Outlook and implications

Aside from the strikes in December 2016, there has been intermittent large-scale unrest in Bangladesh's garment sector since 2013. IHS Markit, however, assesses that further unrest in the sector is likely over the next year, particularly towards the end of 2017 when the government normally reviews the minimum wage. Strikes will primarily be driven by demands for higher wages and trade unions are likely to take advantage of international sympathy for their cause. These demands, however, are unlikely to be met directly by the government and factory owners, increasingly because of rising operating costs. The council established by the labour ministry is unlikely to be able to mitigate this risk and the government is likely to continue to resort to aggressive tactics against trade unions.

Industrial unrest in the garment sector is most likely in the industrial hubs surrounding Dhaka – Ashulia, Gazipur, and Savar. Strikes will involve a high risk of street fighting between thousands of protesters and police, who will probably use tear gas, baton charges, and water cannon to disperse crowds. Workers have previously vandalised factories during protests, but have generally caused minimal damage. Striking workers are also likely to block key highways leading to Dhaka during mass protests, causing severe transport disruption to the capital. Any sustained violence will probably have a moderate-to-high impact on the ability of garment exporters to meet export commitments. In extreme cases, disruption at factories is likely to last for a month or longer. Unrest is also likely to exacerbate reputational risks for foreign companies supplied by Bangladesh's garment sector as workers are likely to additionally raise poor safety standards at factories (see Bangladesh: 25 November 2016: Despite overall improvements, unmet targets underline continued risk of strike and reputational risk in Bangladeshi garment sector).