It is time to update many long-standing processes
No matter what our civil society or media say, our politicians and our government seem to be focused when it comes to supporting the apparel sector. The sector, or more precisely, its leadership, at times may be too focused on driving their own narrow agenda. However, the government has kept its cool about supporting this labour-intensive sector dominated by “women power.”
The country's apparel exports earnings in the first 18 days of July reportedly stood at $1.57 billion despite the ongoing pandemic, which local manufacturers consider as a good sign of reviving new or cancelled work orders. Bangladesh brought $1.78bn during the same period of July 2019, which means $210m down from last year.
The country reportedly earned $2.25bn, $374.67m, $1.23bn, and $2.24bn in March, April, May, and June this year respectively. That means exports declined by 20.14%, 85.25%, 62.06% and 6.63% from March to June over the corresponding months of last year. According to EPB data, the industry lost $4.33bn worth of exports from March to June, and its growth is still below the positive trend.
Whether it can make best use of the export potentials created by China market access or not, the country is still in an advantageous position for the EU market due to duty-free market access there. However, for the US market, Vietnam is ahead in the game because of the presence of Chinese investors, who might shift the US orders to Vietnam.
Analysts are talking of increased focus on diversification for post-pandemic recovery and rebuilding of the embattled apparel industry. How vulnerable the industry is to the uncertainties in its export market had never been so evident as has been the case in the last few months.
Seriously impacted by the pandemic, many European apparel buyers were failing to honour their pre-pandemic purchase obligations with Bangladeshi apparel exporters. As a knock-on effect, many apparel units, especially small to medium ones, have gone for lay-offs, even outright closures despite the government's efforts to keep them afloat through continuous financial support.
This has once again arrested our attention towards significant dependence on a kind of product or market to run an entire industry. Much concern came from the potential danger it poses, not only to the industry in question but also to the economy. Especially when the export proceeds from this sector make up almost 10% of the nation's GDP or 84% of its total export earnings.
Hence the importance of looking for alternative products and markets for the apparel industry itself is being rightly discussed in every corridor. A closer look into the composition of our apparel exports will show that just five products constitute 70% of exports while 74% of those products are cotton-based. With regards to their export destinations, 83% of those items go to the European and the North American markets.
It may not be the best of times for pushing for diverse markets or products, but it is obviously the right time to reflect upon the way we run our apparel sector. Its operating model, cross-border transaction model, and financing model need to be revisited soon.
Most of the BGMEA leadership was always focused on deriving the best for their peers from the government. While I won’t blame them much for not being able to look beyond, now I would appeal to them to revisit their operating model, reviewing the capacity model, driving efficiency and performance agenda in each of their plants with constant focus on cost rationalization with the help of technology and re-engineering of processes.
While our increasing amount of apparel exports is changing to “open account” trading, our fabric and accessories imports are still restricted to irrevocable L/Cs, making the process captive to ultimate buyers.
Just after the Rana Plaza incident, BGMEA with the help of the commerce ministry and Bangladesh Bank, revisited the entire financing model of apparel industry and got a lot of changes made in the EDF and other facility programs. This is possibly again the appropriate time to go for further revisit of the entire cross-border transaction, production, and financing models, along with an “exit strategy” since the country is yet to have a bankruptcy law enacted.
Our apparel sector has tackled many problems, be it abolition of child labour, the Tazreen fire, the collapse of Rana Plaza, attending to workers’ rights to form unions, a global recession, and what not. The next fight should be for streamlining the trade process itself -- efficiency improvement and costs rationalization along with product characteristic change. The necessary “homework” must be done well.
Mamun Rashid is an economic analyst.