Bangladesh Sees Factory Lure Even as Blaze Spurs Labor Gains

A Bangladeshi Army personel walks through rows of burnt sewing machines after a fire in the Tazreen Fashion plant in Savar, about 30 kilometres north of Dhaka. Sourrce: AFP/Getty Images Close

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A Bangladeshi Army personel walks through rows of burnt sewing machines after a fire in the Tazreen Fashion plant in Savar, about 30 kilometres north of Dhaka. Sourrce: AFP/Getty Images

Bangladesh will remain attractive to manufacturers even after a deadly factory blaze renewed pressure to improve labor conditions, the central bank governor said as he signaled inflation risks will be contained in coming months.

“Given the current rock-bottom wage levels, there will be no significant impairment in competitiveness from the incremental cost burden for the improvements,” Atiur Rahman said yesterday in e-mailed responses. “Global garment manufacturers will be attracted to Bangladesh in ever greater numbers.”

The Nov. 24 fire at a factory making clothes for retailers such as Wal-Mart Stores Inc. killed more than 100 people and followed labor unrest earlier in the year that disrupted the nation’s pivotal garment export industry. A legacy of political instability and corruption are among other challenges to faster growth, and Rahman said the government’s goal of more than 7 percent expansion this fiscal year “no longer looks feasible.”

Still, domestic demand will help gross domestic product rise at least 6.2 percent in the 12 months through June 2013, he said. Further fuel-price increases to curb subsidies will likely be “modest, not requiring drastic new monetary tightening to manage the limited inflationary impact,” Rahman added.

Inflation has held below 8 percent since August, slowing from almost 12 percent in September last year. Bangladesh Bank has raised its benchmark repurchase rate by a total of 325 basis points to 7.75 percent since August 2010 to restrain prices.

‘Remain Competitive’

“If costs increase due to improved safety standards, it will eventually pay off,” said Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh in Dhaka. “It is an investment in safety standards and human resources. Bangladesh will remain competitive to foreign buyers.”

Discussions to finalize a potential $1.8 billion deposit in Bangladesh Bank from Qatar’s monetary authority are due in early 2013, Rahman said. The deposit will boost the nation’s balance of payments and help sustain a “good” credit rating, he said.

Bangladesh’s taka is up about 2.5 percent against the dollar this year. The benchmark Dhaka Stock Exchange General Index has declined 20 percent in the same period.

To contact the reporter on this story: Arun Devnath in Dhaka at adevnath@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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