Jute Economy of Bangladesh: A case study of IFI-led Privatization

Presented by:

A.K.M. Masud Ali

IFIs & Debt

3rd South Asian Workshop

INCIDIN Bangladesh20 December 2009, Dhaka, Bangladesh

INCIDIN Bangladesh9-11 Iqbal Road, Mohammadpur, Dhaka-1207, Bangladesh; incidinb@gmail.com

World bank suggested privatization

Military RegimeOf G. Ershad – New Industrial

Policy….650 industrial &Policy….650 industrial & Commercial enterprises

Were privatized.

By 1986 only aroundBy 1986 only around 160 units were left in public

Sector – public sectors shareIn industrial sector

Fell to 40 percent fromPrevious 85 percent.

World bank suggested privatization

B 1982 f i ti tiBy 1982 for privatization62 jute mills were

Earmarked – 38 percent ofTotal capacity and 31 unitsp y

Were actuallyprivatized. It is important to remember

that in 1971 as result ofNationalization 90 percent of

industrial fixed assets had passed into

Public sectorPublic sector.

False excuse of productivity….

The World Bank has argued that privatization would lead to higher productivity by reducing excess workerslead to higher productivity by reducing excess workers through retrenchment.

Privatization did not aim at achieving higherHowever, studies has showed that the ratio of workers after privatization did not differ much from that of public sector mills

Productivity but it was aimed at expandingthe so-called aid depended market economy which the

IFIs promoted in the name of democracy andsector mills.

Moreover, a large part of denationalized mills did not

IFIs promoted in the name of democracy and development. It led to loss of productive base and

export competitiveness., g p

continue their productive activities.

The Golden Age of Golden Fiber!

A declining trend?

The Golden Age of Golden Fiber!

Gone with the wind ?!?

Gone with the wind ?!?

Arket share of major export products (2006-2007) 01. Woven Garments 38.25%02 K it 37 39%02. Knitwear 37.39%03. Frozen Food 4.23%04. Jute Goods 2.63%05. Leather 2.18%06. Raw Jute 1.21%07 Ch i l P d t 1 77%07. Chemical Products 1.77%08. Tea 0.06%09. Other 12.28%

Products recorded decline over last year's performance (Raw jute )

Export target for 2008-09

Export performance for

% Change

of export

Export performance for

% Change

of export July-June,

2008-09

performance over export target

July-June,

2007-08

performance July-

June, 2008 09 target 2008-09

Over July-June June,

2007-08

192.30 148.17 -22.95 165.06 -10.23

Products recorded decline over last year's performance (Raw Products)

Export target for 2008-09

Export performance for J l

% Change

of export f

Export performance for J l

% Change

of export fJuly-

June, 2008-09

performance over export target

July-June,

2007-08

performance July-

June, 2008 09 target 2008-09

Over July-June June,

2007-08

331.07 269.25 -18.67 318.34 -15.42

Export promotion bureau, Bangladesh; Ministry of Commerce; http://www.epb.gov.bd/export_Trend.php

g JSeeds of Discontents

Bangladesh currently requires 4000-4500 i (MT) f j d llmetric tons (MT) of jute seed annually.

Production is only 1000-1200 MTQ litBangladesh Agriculture Development

Corporation (BADC) supplies 600 MT of certified seed

Quality of seed

certified seed. The rest 400-600 MT is produced by farmers The remaining 300-3300 MT is

is questionablefarmers. The remaining 300-3300 MT is imported.Gap in seed production 3,000 – 3,300Gap in seed production 3,000 3,300 MT/year

Profit in Average Productivity

Cost of cultivation (per Bigha) (p g )

=Tk.7030

Revenue from JuteRevenue from Jute (per Bigha)

= (12 mand x Tk.515)( )= Tk. 6180

R f J t

Total Revenue/Bigha = Tk. 7180

Revenue from Jute stick (per Bigha)

= Tk. 1000Total Profit/Bigha

= Tk. 150

Bigha = 42 decimals; Acre=100 decimals

Profit : An illusion….When farmers own wage cost for gsupervision is added.

When the interestWhen the interest paid on loan to mobilize investment Profit range ofis added….

Wh th i k/

Profit range of

Tk. 130 – Tk. 1,695When the risk/ opportunity cost of not cultivating food ?grain is added….

Marketing: Who takes the benefit?

Farmers use to sell their jute to localFarmers use to sell their jute to local merchants (They can not sell their jute directly to the jute mills).There are middlemen who absorb the largest

Jute mills play a vital role in terms of market pricing of jute.

section of marketing-gain by taking advantage of:

Lack of government procurementBureaucracy at mill-level procurement & paymentThe price of the jute is 300 taka less in

this year compare to the last year. 30 j t ill f thi i h b

Bureaucracy at mill level procurement & paymentDebt bondage & consumption pressurePoor access to transportationAbsence of price-regulation

30 jute mills of this region have been closed, down - according to the participantsparticipants.

Debt and compelled-sale:

Selling in advance (yield) is widely common among farmers/peasants – as they are

bl t h ld t j t f b tt iunable to hold on to jute for better price.

The credit program operated by NGOs is notThough everybody is well-informed about the negative i li ti f d bt b d d t i iThe credit program operated by NGOs is not friendly for the jute farmers because weekly installment begins after second week of

implication of debt bondage – due to ever increasing production costs and down-ward sloping price, it is

difficult to avoid loans at high interest or advance sell gtaking credit, high hidden costs (in the name of savings) and high rate of interest.

to the mahajans.

Traditional money lenders also make money – it also often leads to advance-sell (atit also often leads to advance sell (at preset low price)

Present status: Farmers’ experience

Jute mills are closed downJute mills are closed downContinually falling price of raw jute at marketLow export pDecreased Jute cultivationLowered Production Seasonal unemployment of agriculture labor Interested to produce oil seeds (til mustard), sugar cane Turmeric Chilly Onion Garlic andcane, Turmeric, Chilly, Onion, Garlic and vegetables, instead of JuteProduction of jute seed has completely ceased

Overview of Bangladesh Jute

In Bangladesh, about 1.2 million acres of land are used for jute cultivation with an average yield of 4.56 bales of jute per acre for the last 5 years. (The eighth session of the council of IJSG held at Dhaka on May 02-03.)

almost 3 million farms are involved in jute production. In 1999 Bangladeshi export earnings from jute amounted to US$55 million, with the country

fproducing 720,000 metric tons of jute. This is about one-third of the jute production of the middle of the 1980s1980s. In 1999, 813,000 tons of jute was produced (24% of world production).

Tolls of Privatization of Jute MillsHuman toll of closure of the Jute Mills: The impacts of the closure of the mills upon the life and livelihoods of the workers The specific impactslivelihoods of the workers. The specific impacts upon the children’s – education and health. Continual and indiscriminate focus on closure:There is now an informal discussion on closure of another two mills and there is a pressure upon the remaining 16 Mills for turning the existing workersremaining 16 Mills for turning the existing workers as contractual workers. Loss of Human Resource and Experience: The

ld h d h k d t h t l d t lgolden handshake and retrenchment leads to loss of skilled workers, management and experts from the jute sector.j

National Coordination Committee for Development of Jute and Jute Economy

Tolls of Privatization of Jute MillsThe workers of the jute had acquired an industrial culture, identity, an exposure of urban life and above all at least a secured life for themabove all at least a secured life for them. There had been a distinct cultural transformation and an orientation to an institutional life. Employment at Adamjee (for instant) led to access to a habitat and occupation based identity. L f j b l d t di l t d

Thus liberalisation not only brings insecurity in terms of loosing identity or segregation from the industrial culture. IFI led privatization thus led toLoss of job leads to displacement and

disorientation as there are limited choices in formal sector, working as wage workers in the informal

industrial culture. IFI led privatization thus led to destruction of identity and entitlement of this

working mass.g g

sector remains as option in reality for those workers.

Tolls of Privatization of Jute MillsSome of the closed public sector jute mills are leased out to the private sector. The proposal of leasing the closed public sector jute mills indicates that th ill till h ithese mills are still having economic/commercial viabilities. There is a need of disclosure ofThere is a need of disclosure of information regarding any attempt of framing of any proposition on any formframing of any proposition on any form of such leasing. before any option of lease is further explored.

National Coordination Committee for Development of Jute and Jute Economy

The backward linkage based jute economy with global market leadership

World Bank led reform – leading toPrivatization and closure of the mills

-The largest of all Adamjee is Sh td !Shutdown !

Dichotomy in production and trade

Under WTO treaty jute is part of y j pcommodity trade deal

While in Bangladesh production of raw jute is within the realm of agriculture

In global tradeIn global trade Jute farmers need to be united

with the Jute workers

What have we gained ???Debt Burden

The country’s annual debt servicing in the l t fi i l ll d t dlast financial year swelled to a record US$1.97 billion, making it the biggest chunk of expenditure in the national budgetchunk of expenditure in the national budget, officials said Saturday.

What have we gained ???Debt Burden

The amount was up by $414 million compared to the previous fiscal year and it made up 15.7 per cent of the total budgetary

dit hi h th th di iexpenditure — higher than the spending in education and health.

What have we gained ???Debt Burden

Debt service payment represented 15.53 per cent of country’s total merchandiseper cent of country s total merchandise exports, 9.2 per cent of exports of goods and services including remittances and 2 5and services including remittances and 2.5 per cent of the gross domestic products (GDP).(GDP).

The Jute Commission

The present government has initiated a jute commission – the people awaits for acommission the people awaits for a comprehensive policy reform to reflect peoples’ concerns in jute economy for protection of environment, agriculture, industry and export interests – and primarily the livelihood concerns!

The lost opportunities!?!

2004

Items1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005(July-June)Items 2000 2001 2002 2003 2004 June)

Raw jute 71.62 67.18 61.13 82.4 79.7 96.19

Total Export 5752.2 6467.3 5986.1 6548.4 7603 8654.5% of total

export 1.25 1.04 1.02 1.26 1.05 1.11

When Bangladesh has dismantle its bulk supplyWhen Bangladesh has dismantle its bulk supply capacity by dissolving the public marketing/supply

mechanism and closing down the production units –the global market of natural fiber is increasing!!!

Export Promotion Bureau

Once again World Bank manages to stage “tragedy”!!!

Capitalist market failure!

1. The LDCs lend Developed Economies so that they can import from LCDsthey can import from LCDs

2. LDCs import from the developed economies to produce exports

3. LDCs borrow from IFIs to finance Import

J h d b k d li k d lJute had backward linkage and greatest value addition in Bangladesh export basket –thus

breaking away from this debt financed so called “export led growth model”.export led growth model .

Export Promotion Bureau

Unity of Farmers and Workers

Jute is an unifying f t f kfactor for workers

And farmers both nationally and globally. Jute can also help us to beak awayJute can also help us to beak away

from the debt bondage of IFIs – Let’stake continue that struggle!!!gg

Gone with the wind

?Let’s bring new

Wind of Change!!!

Thank you!Thank you!

Welcome to discussion……