Closure of Adamjee Jute Mills: Ominous Sign Author(s): Anu Muhammad Reviewed work(s): Source: Economic and Political

Weekly, Vol. 37, No. 38 (Sep. 21-27, 2002), pp. 3895-3897 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4412631 . Accessed: 26/11/2011 07:40
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lumpen trade union leaders to keep things under control. GS Sahota of Harvard University had been in Bangladesh in late 1980s to conduct an intensive study on the manufacturing sector. So far, this has been the most covered and analytically sophisticated study on the sector. Sahota could not hide his surprise after finding the conditions of Adamjee and other jute mills. His study noted in 1991, "Bangladesh installed better-practicetechnology of jute mills in Thedecline of the AdamjeeJute Mills goes back to as early as the 1950s than India's. Today, 40 years 1995, soon after a WorldBank-Bangladeshgovernment after that, many of Bangladesh jute mills agreementenvisaged wide-rangingchanges in thejute sector are still using the same machines, scarcely renovated" [Sahota 1991]. As a result, the involvingclosure, downsizingand privatisationof several mills jute mills in India flourished while 50 per and retrenchment their workers.Adamjee's experiencehas of cent of jute mills in Bangladesh have been sector, found replicationin numerouscases in the manufacturing closed down including the world's largest promptingrenewedquestions once again about adjustment one. In 1991, a task force of the first caretaker government revealed that the programmesand who actually constitute its true beneficiaries. assets of 29 jute mills, worth more than ANU MUHAMMAD to see a mad competition to grab all open 245 crore takawere by then denationalised at the face value of only 5.5 crore [TF spaces including wetlands and ex-factory he closureof AdamjeeJuteMills, lands. 1991]! Could those, even after this disestablished in Dhaka in 1951 by The causes, shown in the media behind tress sale, survive in private sector? We the closure of Adamjee have been its know the answer at least most of those: Adanjee, a leading business house of then Pakistan, has been considered by No. losses, nearly 1,200 crore taka in 30 years. the local-global policy-makers as a great The mills authority or even the ministries Does the cry of losses of the local-global relief. The 51-year old mill with about concerned did not issue any detail or policy-makers mean that the profit-mak30,000 workers, the biggest in the country, summary report explaining or reporting ing enterprises would be spared to surhas gone away without any review or to the people details of such losses, revvive? No. The chairmanof the privatisation rescue measures from the government and enue earned from the mills, foreign commission, ministers and above all the finally without any resistance from the exchange earned from the mill goods country director of the World Bank have trade unions. Three hundredacres of land during the same period and other related informed us in many occasions that policy lies there for something else, which has facts. Only things we have from the would not be different for profit-making not been disclosed yet. 50,40, 30-year old have been some comments, government enterprises. So, if Adamjee could have and as usual promise, from the jute minbeen a different story, even then it would machineryis therewaiting to be taken over ister and the chairman of privatisation face the same fate. If that is the case then by somebody. Thousands of skill workers are now unemployed, the lucky ones are commission. The government and its the issue of losses in Adamjee or in any relevant authority did not bother to exother SOEs becomes irrelevant so long waiting to be transformedinto shopkeepers. Several thousand petty traders and decision of closure or giveaway is conplain such an 'epochal' decision to the cerned. When the policy-makers are deprofessionals linked, with Adamjee are people, which is going to affect not only also now in hard uncertainty. The effects termined to dismantle the public sector by people who were living for generations in of it on millions of jute growers do not the area and the future ones but also the closure or privatisation of SOEs, irrespecneed elaboration. whole economy. tive of its performance and the accounts of profit or losses or its linkage effects on Adamjee Jute Mills have been thrown Although losses in state-owned enterinto the past. But is it only the Adamjee prises (SOEs) have always been a favourite the economy then the policy is not based that has gone into history or is it a trend topic of local-global policy-makers who on economics it is highly ideological/ of this economy to become a land of have also been united in their proposed political. But the emphasis on losses of solutions: dismantle public sector by closSOEs in public discourses is quite undersupermarketsdestroying potential manuing or privatise, none of them have made standable: it is easily saleable and easy to facturing enterprises? There are several instances of factories (public and private) to the anyattempt investigate hemorrhage hide the real agenda. of publicresources. seems thatnoneof It closing down on the one hand and of Adamjee, in fact, was established and rise constructions growing in every themare unhappy see losses in public later expanded not by private initiative to high comer, on the other. It is not surprising sector, ratherlosses are desirableto set alone. It is importantto note that the main that about 80 per cent of the new investwhole thinginto the chosen 'model'.It is resource-support to establish jute mills at ments are taking place in construction, easyto makelosses anissue,afterkeeping that time including Adamjee came from which has capturedhighest growth rate to conditionsof leakage,takingpolicies to the public resources. State policy regardfurtherinflate of GDP growth [Muhammad block normalfunctioningof the enter- ing state-sponsored manufacturing had 2000]. It is also not surprising, therefore, prises, patronising and encouraging been vital behind establishment of jute

BANGLADESH

Closure of Jute Mills

OminousSign

Adamjee

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mills and theirsurvival. Between 1950 and 1961 many public institutions were established to build an industrial base in Pakistan. Those include: Pakistan Industrial Development Corporation(PIDC) in 1950 and its division into two wings (EPIDC and WPIDC) in 1962, Pakistan Industrial CreditandInvestmentCorporation(PICIC) in 1957, the formation of East Pakistan Small Industries Corporation (EPSIC) in 1957 and IndustrialDevelopment Bank of Pakistan (IDBP) in 1961. Between 1952 and 1958, PIDC extended support to the private sector by establishing 12 jute mill companies. PIDC's partners in private sector were all West Pakistanis although all of the jute mills were built in East Pakistan. Share of East Pakistanis as entrepreneursremained insipid. Only a handful of local investors' participatedbutthey were also dependent on state support, as an estimate said, "the share of the Bangalee entrepreneurin the finances need to set up a jute mill was as low as 10 per cent" [Ahmad 1978].

A Story of Rapid Collapse

Jute industry had been the mainstay of the manufacturingsector but its profitability and survival always rested on explicit and implicit subsidy from the state even in the private sector. The export bonus scheme was a very important part of that package. It was introduced in 1959 and gradually extended. This scheme had been providing significant support to the exporters of jute and jute products. Its role in making jute industry more profitable was such that,"withoutthe bonus earnings not only that there would not have been any surplus of sales value over costs but in fact there would have been considerable loss"...and "the contention that the industry was running efficiently in the 1960s to be able to make good profits is in fact a myth" [Ahmad 1977]. After Bangladesh came into being, the state did not continue the incentives and support, given traditionally to the jute sector that constituted afterwards the

major part of the public sector. On the contrary, direct incentives were further strengthened for the private sector exportoriented enterprises later. Import of raw materialsand capital machinery have been duty free for 100 per cent export-oriented industries. Exporters also have cash compensation of 25 per cent, income tax rebate, and tax holiday, increased ceiling for foreign currency retention. In different forms, the garments sector alone is now getting nearly thousand crore taka support from public resources. Although public sector jute mills also had been exportoriented enterprises they did not get similar supports [Sapri 2001]. One could wonder what would be the profit-loss scenario of the foreign investors in EPZ or local investors in garments if the state withdrew all support, indirect and direct subsidies? The closure of Adamjee was announced on June 24, 2002 but its death warrantwas actually issued on February17, 1994, when government of Bangladesh signed an

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ResearchDivision of the Departmentof Women and Child Development Governmentof India invites proposals from for Universities,WomenStudy Centres.Schools of Social Workand otherResearchOrganisations empirical,participatory and action research and other studies that have strong relevance for policy and programme interventionfor the of empowerment women and developmentof children. The proposalsshould cover emergingareason which adequateinformation analysisare not available.A few suggested and held in Delhi. This can be perused in themes of researchhave been identifiedfollowing a workshop with researchers -cd.nic.inu website wxvw,w. Department's The proposal shall include inter alia the theme of research,the objectives, hypotheses to be tested. brief review of literature highlight why the researchon the theme is necessary,relevanceof researchfor policy formulation, to size of to sample and researchmethodology to be followed. bio-data of the researchers be involved with the project and cost estimateof the study.Guidelinesfor submissionof research proposalscan be perusedin the same website. For further enquiriespleasecontact P.G.DharChakrabarti JointSecretarv of Department WomenandChildDevelopment Ministryof HumanResourceDevelopment ShastriBhavan.New Delhi Phone:3381654, Fax: 3070480 e-mail:dh;irc:inic.in

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agreement with the World Bank/IDA for additional damages in the future, such as: US $ 247 million jute sector adjustment "(i) permanent closure of private sector credit. This jute sector reform project has mills, with related loss of security, income been considered by the policy-makers as and dislocation of careers; (ii) job loss for one of major projects of the World Bank thousands of employees and (iii) loss to 'help' industrialisation in this country. to Bangladesh's economy and social The programme, however, involved welfare" [World Bank 1997]. So, in essence people of Bangladesh (i) closing 9 of the 29 public mills and two large public mills; were burdened with more debt for not downsizing (ii) retrenchment of about 20,000 em- establishing new factories or promoting ployees in the public sector; and older ones either in public or private sector (iii) privatisation of at least 18 of the but to 'downsize' or 'close' them. Ironiremaining 20 public mills. cally, the amount taken as credit from the March 1995 was the estimated date for World Bank to close down or downsize release of the second tranche from the jute manufacturing units was more than World Bank upon some conditions. Those the amount losses in 30 years from conditions include: (i) wage policy in jute Adamjee. industry satisfactory to IDA; (ii) dispose of equipment of four closed mills and The Larger Picture equipment; (iii) close five identified public mills and downsise one other to reduce The experiences regardingjute mills is capacityin the publicsectorby 2,700 looms; consistent with the overall experiences in (iv) reduce permanent employees in the the manufacturing sector. Many of old public mills by an additional 8,000; (v) enterprises,public andprivate,have closed reduce government's share in the total down or downsized during last two deloom capacity to at the most 7,000 looms cades. A portion of the sector has been by privatisationor other means of disposal gradually replaced by the export-oriented of at least nine mills; and (vi) complete ones. Due to closure of many large-scale factories and sickness of medium and small liquidation of the BJC. The second tranchewas delayed because enterprises, the number of industrial the then government failed to privatise or workforce has shrunk despite new entry close 14 public jute mills in time as re- in export-oriented garments and EPZs. quired for that. The World Bank became Since 1989, absolute level of employment happy to see that the next government has fallen from 7.8 million to nearly five tendered nine public jute mills and would million; this fall has been steeper in tender five more. But what happened to manufacturing sector, from seven million the privatesector in Jute?Did they prosper to nearly four million since 1989 [BBS by the money and pressure from the World 1996]. The recent closure will add to that Bank and follow up steps by the govern- sharp fall. In fact, during the last three decades ment? World Bank documents give a negative answer. proportionate share of manufacturing in According to the World Bank Inspection GDP marked a little change, rather it Panel's report, a group of Bangladesh showed a clear sign of decline in some citizens who were intended beneficiaries periods. According to the old estimates of of the project filed a request in August GDP, manufacturingwas 7.90 per cent in 1996 and it was resubmitted in November 1972-73, it increased to 8.47 per cent in 1996. The requestersclaimed that they and 2000, less than 1 per cent increase in 30 the jute private sector had been harmed years. It is important to note that share of ratherthan helped through 'some flaws in manufacturing reached 11.14 per cent in the design of the reformprogramme'. They 1982 and then it began decreasing. This categorically stated that the private sector is the same period when StructuralAdjustwas worse off than before the 'reform ment Programme (SAP) sponsored by the credit'. They also alleged, "the JSAC is World Bank/IMFstartedfunctioning. With responsible for the reduction of private the new estimates, the methodology sector capacity. Operatingloomage for the adopted recently, figures go upward but private sector has dropped from 5,955 trends remains the same. According to the looms in FY 1992-93 to 3,969 looms in new estimates, the share of manufacturing December 1996." They also hold JSAC in GDP was 15.43 per cent in 1995-96; responsible for temporary closure or re- it decreased to 14.68 per cent in 2000. If duction in capacity of 11 private mills. Not we compare the share of manufacturingin only that,the requestersapprehendedmajor early 1980s with the figure in 2000 then

it would show a clear de-industrialisation (GOB, different years). This outcome exposes the real agenda of different 'reform' programmes. Effectively, different governments have been happily participating in projects to make productive sectors more costly and non-competitive, to make sick industries sicker, and transform potential fields for productive expansion into liabilities and finally set the direction of the economy in a way thatgives enough scope for to frauds, lumpens and grabbers while creating hell for skill, creative, innovative workers and entrepreneurs. While more than one hundred thousand people were thrown directly under the 'income poverty line' by closing down Adamjee, the interest groups who usurped billions of taka by looting and mis-managing, have probablyturnedto anotheroperation. With the new addition of poverty, child labour, women trafficking, prostitution and uprooted people, new 'poverty alleviation' projects will now find a start. The ministries were prompt and secretive to close down Adamjee accusing workers for making losses of 1,200 crore taka in 30 years. Within a week of that 'epochal' decision, Transparency International informed us that the ministry - high officials have been contributing to the country by draining off 11 thousand crore taka per year! What will happen to them? They will flourish and fatten. The AID projects are there to support them. M

References
Anu, Muhammad (2000): Economyof Bangladesh (in Bangla), Dhaka. BBS (1996): Report on Labour Force Survey in Bangladesh, 1995-96. Gian, S Sahota (1991): 'An Assessment of the Impact of IndustrialPolicies in Bangladesh' in Bangladesh Development Studies, special issue. Ministry of Finance, GOB (1995, 1996, 2000, 2001): Bangladesh Economic Review. Qazi, KholiquzzamanAhmad (1977): 'Was the JuteManufacturing IndustryProfitablein PreLiberation Days?' BDS Journal, July issue. - (1978): 'The Manufacturing Sector of Bangladesh- An Overview', BDS Journal, Autumn issue. and Bhattacharya RasheedA MTitumir Debapriya, (2001): BangladeshExperiencewithStructural Adjustment: Learning from a Participatory Exercise, StructuralAdjustmentPartcipatory Review Initiative, SAPRI Dhaka, March. Task Forces(TF)(1991):Reportof theTaskForces on BangladeshDevelopmentStrategiesforthe 1990s, Vol 2. World Bank (1997): The First Four Years (19941998), Bangladesh: Jute Sector Adjustment Credit,Reportand Recommendation, May 14.

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