News - 2022

Yes EU can!

© Initiative Lieferkettengesetz

Inflation and its effects on the producing countries of the clothing industry

The inflation rate in Germany is currently at 10%, but also people in theproduction countries are looking to the future fearfully. Food prices have skyrocketed in many countries, while real wages are stagnating and less and less is enough to live on. In addition, the subdued consumption mood in Europe is having a noticeable impact on textile factories.

In September, the inflation rate in Germany rose to 10%, the highest inflation rate since the postwar years. In their fall report, leading economic institutes paint a gloomy picture: They expect a recession before the end of the year. The economic downturn, possibly intensified by a gas shortage, could mean a considerable loss of prosperity for Germany's citizens. The forecasts for 2023 do not look any better. Inflation in Germany is already having a strong impact on consumer behavior: According to the German Retail Association (HDE: Handelsverband Deutschland), 60% of the people are already cutting back on purchases, and even more are preparing to live more frugally in the coming months. But what does this mean for the producing countries?

Subdued consumer sentiment leads to shrinking order volumes in factories

In Cambodia, the downtrend in consumer demand is already evident. Over 170 factories partially paused production in September or instructed their employees to work fewer hours. A decline in orders has also been noticeable in Bangladesh since June. In Vietnam, apparel exports fell by more than 30% in September compared to the previous month, so companies are now giving their employees extra days off due to low workloads. Workers can no longer earn extra pay through overtime, which many rely on. It is expected that the changes in working hours in September and October will mean a 10-20% pay cut for workers. In the Philippines, thousands of garment workers* have already been laid off due to a lack of orders.

Some countries have been struggling with energy shortages for months. In August, oil prices in Bangladesh were increased by more than 50% in just one week, leading to large protests. The government subsequently released a plan for a zone-based weekly holiday for industrial facilities across the country to counter the energy shortage and ensure a sustainable power supply. In October, nevertheless, workers in Gazipur reported hour-long power blackouts that resulted in production shutdowns. In Pakistan, a disruption in gas supply led to widespread factory closures and mass layoffs. Faced with severe fuel shortages and price increases in Myanmar, many factory owners are barely able to maintain operations. Weaving mills in Tamil Nadu responded to the Indian government's announcement of a 30% increase in electricity prices with strikes.

Inflation rates of up to over 80% make food unaffordable

While Bangladesh and India have inflation rates similar to Germany's (9 and 7.5%), inflation rates in other producing countries have skyrocketed exorbitantly. In Turkey, people are struggling with inflation of 83.5%, in Pakistan the rate is 23%, in Myanmar 18%. Sri Lanka is also struggling with a particularly high inflation rate. At 70%, it is one of the highest in the world. Food inflation in the country is as high as 95%. Due to the increased cost of food, workers in producing countries are unable to provide a balanced diet for themselves and their families. They buy less nutritious food, dishes are less varied, meals are skipped. Meat, vegetables or fruits are rarely on the table. There is no money left for medical care for family members. In countries like Bangladesh and Sri Lanka, garment workers have been protesting for months, demanding an increase in minimum wages in the sector to cover rising prices.

For garment workers, the living expenses are rising, but real wages are stagnating or shrinking. For many, wages were already not enough to live on and are now causing severe hardship.

National crises put additional pressure on workers

In many manufacturing countries, the current economic problems are compounded by other crises. In Myanmar, for example, textile workers and trade unionists are suffering under the tyranny of the military, which staged a coup a year and a half ago and has since suppressed trade union activities and persecuted and arrested labor rights activists.

For months beginning in June, Pakistan was hit by unusually heavy monsoon rains that caused devastating floods and killed 1,600 people. Nine million people were forced to leave their homes and take shelter in makeshift tents. About 40-45% of the harvest in the cotton fields has been destroyed and thus the livelihood of many farmers. In Sri Lanka, people have been protesting against the government since 2021 due to mismanagement, which has led to issues such as shortages of food and medicine. The island nation suffered greatly from the Corona crisis. Corruption and a high level of foreign debt aggravated the crisis, which is now leading to soaring inflation figures.

We need effective laws to protect people in textile supply chains

Effective due diligence laws for companies are needed to ensure that the people who are sewing our clothes are not perpetually the major victims of global crises and are protected from inhumane business practices. We appeal to Chancellor Scholz and the German government to advocate for an effective supply chain law at the EU level that closes the loopholes in the German law so that people in the value chains can live a life in dignity. We also turn to the EU and demand that it protects the human right to a fair wage. Garment workers deserve a wage that is sufficient to live on!

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