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How is RMG coping in the time of coronavirus?

  • Published at 12:55 pm April 17th, 2020
rmg empty factory corona
Syed Zakir Hossain/Dhaka Tribune

The government and the BGMEA should work out a program that enables companies to complete their orders

There is no dispute about the importance of the garment sector for the Bangladesh economy. Prior to the emergence of this sector, Bangladesh exports were limited to three or four products, none of which had any prospect for major growth.  

The key resource of Bangladesh is the availability of large numbers of low cost workers and this was not involved in traditional exports. With the emergence of the garments sector, this low cost labour was mobilized. 

Without the RMG sector, the economy would have continued in its low growth of 3-5%. Remittance growth would have resulted in increased production for domestic consumption of low quality products, but would not have led to a modern, increasingly advanced production of high quality goods.   

Collapse of demand  

The Covid-19 pandemic destroyed demand for garments. Demand went down in North America and Europe due to sharp falls in household incomes, brands facing uncertainty in future demand, and the closure of outlet shops under lockdown orders.  

Famous brands closed retail stores, suspended much of their labour force, and cancelled or delayed delivery times of orders to producers in countries such as Bangladesh.   

The condition of the industry

In mid-April, the sector is closed down with the current intention to re-open on April 24. Many believe the lockdown may be extended. At the time of writing, about 60% of the workers have been paid for March 2020.  

Actual arrears on salaries are greater, as some companies have not been paid for three or more months. BGMEA and the government hope that the March salaries will be fully paid by the first week of May. There are already limited signs of worker discontent.  

With a strong effort by the government and BGMEA, many buyers reinstated their orders, greatly improving short run prospects.

The government’s program for workers in the export sector is coming into play and will provide coverage for a substantial number of workers. [If the average gross wage is Tk9,500/month then Tk5,000 crore will cover 1.75 million workers; assuming all of the funds are used for RMG workers. An independent estimate of the number of workers based on the Tk9,500/month and the share of export value covered by the gross salary payments without overtime concludes the employed labour is in the range 3.00-3.50 million.] 

The actual number of workers that will obtain wage payments through the government’s program during these months will depend on how many companies submit applications, how many loans will be made by the banks, and how many workers have bank accounts or mobile banking accounts.  

My estimate is that 1.25-1.5 million workers will be covered in the program.  There will be some confusion, as some workers covered will actually be working on production for export. But this program will make a tremendous contribution to the welfare of the workers over the next three months.

Recovery of the industry

The industry has taken a tremendous blow with the collapse of orders. A trickle of orders for the winter season is coming through, but the value of orders is far below normal.  

How rapidly will the industry recover? The answer lies in the buying behaviour of consumers in Europe and America. IMF forecasts a sharp decline in 2020 for the industrial countries, followed by a sharp increase in 2021 but still falling short of the levels in 2019.  

These forecasts are based on the assumption that there will be no second wave.  Everyone can make their own view about these forecasts, but I think it would be very bad to base policy on such optimism. Return to full operation at the same level of 2019 will probably only be achieved by the second half of 2022.  

The following is my forecast of RMG exports. It is presented by half year for 2020-2022.  The data for 2019 is actuals. The total presented is for the calendar year.  

The key assumptions here are for first half of 2020 and the end of 2022 to return to the same level of 2019. This also assumes critically, partial opening of factories in May and June 2020. This is discussed below.

Keeping the industry alive

There remain with the factories considerable orders to be completed and shipped.  These need to be completed by June. To do so will require a controlled opening of the factories.  

I note that around Asia, many countries have their garment factories at least in partial operation, with specific guidelines. Indonesia, Vietnam, China are largely open. Cambodia is partly opened. India has limited operations, and is opening in several more states. In contrast, Bangladesh is closed.

Due to the good work of the government and BGMEA, most of the orders meant for delivery by June have been kept open. It is obviously essential to complete and deliver these orders. Bangladesh’s hard won reputation for reliability is at risk, particularly as the buyers agreed not to cancel the orders. To do this, factories must be re-opened under carefully controlled conditions.

Orders for the winter must be produced in July, August, and September 2020. To complete these orders, the sample production and approval must be done in May; this allows order of fabric, yarn, cotton, etc.  

Failure to obtain and fulfill these orders will have serious consequences for the future. China is certainly in a position to produce these orders, and although in the long run China is getting out of the garment sector, in the short run as it strives for economic recovery, they will be tough competitors.  

No one is giving anything to Bangladesh.  

What is needed

The RMG sector is now at a great crisis point. If the lockdown continues, the industry will lose reputation; many orders will shift to other countries. The buyers need product.  

They need it now, and will need to stock for the winter season. If Bangladesh does not produce now when the buyers need clothes, they will turn elsewhere in the future.

Of course, careful rules will need to be worked out. The factories and BGMEA can do this by consulting with the buyers. The buyers want the maximum safety.

The four key steps to preserve the industry are:

1. Working out protocols and rules that will enable factories to operate under safe conditions. 

This will involve close coordination with the health services; establishment of testing sites in the vicinity of the factories; strict rules for wearing masks and using hand sanitizers as well as spreading out sewing lines.  Shift times can be adjusted to reduce the number of workers in the factory.

2. Ensuring that the shipment in and out of samples and materials for samples is possible; customs at the airport must be available for clearance.  

3. Taking time during the work day to teach workers about safety and how to manage things at home. 

4.  Establishment by the government and BGMEA of an inspection system to ensure compliance with the protocols. Factories must be inspected regularly to establish confidence for the workers and the buyers.  

Let us hope that the government and BGMEA can work out a program to enable a partial re-opening of companies that have orders to complete and to enable the sample preparation for winter orders to go ahead. 

Forrest Cookson is an American economist.

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