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Ominous impact of coronavirus on RMG sector

Fazle Rabby

We all are aware that Coronavirus is a burning question of the day and almost all the people of this universe are panic with this unruly virus. Although it was originated in China first, but it is infecting people of different countries of the world day by day. The deadly virus has killed 41,100 people with around 850,000 confirmed cases in the world till 01, April. Around 177 countries of Asia, Europe, America, Australia & Africa have been affected by Coronavirus and the number of infected people is increasing at geometric rate.

corona-mapThe economic impacts of the COVID-19 pandemic is now being witnessed at all levels and the irrevocable financial damage, which may be considered secondary to matters of health and safety, in the near future may prove just as detrimental. The UN estimates the outbreak of this deadly virus could at least cost a trillion dollars and could slowdown the global economy to under 2.0 per cent this year.  Bangladesh will also have to share a sizeable part of this loss.

This dreadful virus is not only causing humanitarian disaster; but also affecting the world economy on a large scale and because of it, the World Health Organization (WHO) has declared ‘Global Health Emergency’ all over the world. The economy analysts are forecasting that the impact of Coronavirus may exceed the recession of 2008. Global stock market is in a very bad shape and according to the analysis of international media, the worldwide investors lost approximately 6 trillion US Dollar last week.

The price of oil has sunk to levels not seen since 2002 as demand for crude collapses amid the coronavirus pandemic. Meanwhile the price of US West Texas Intermediate (WTI) fell below $20 a barrel and close to an 18-year low. It was anticipated that the impact of Coronavirus will reduce soon; but the reality is different. Instead, this irresistible virus has become an epidemic issue for human being. The panic of this virus has spread all over the world and it has created a deep anxiety for world economy.

U.N. Secretary-General Antonio Guterres warned on 31, March that the world faces the most challenging crisis since World War II, confronting a pandemic threatening people in every country, one that will bring a recession “that probably has no parallel in the recent past.”

novel-coronavirusThe concern is increasing in Bangladesh as well. Import from China is being hampered significantly and due to its bad impact almost all businesses of Bangladesh are suffering; especially textile and readymade garments are in huge impact. Because of the crisis of raw materials, finished goods and accessories, their prices are in severe hike.

Executive chairman of Power and Participation Research Centre (PPRC) Hossain Zillur Rahman said three types of people will suffer huge economic losses due to the coronavirus attack. “One group is whose products are fully dependent on foreign buyers, the second group whose supply chain relies on imported raw materials– machinery– from abroad, and the third group is whose livelihoods depend on internal demands, and this the largest affected group.”

Former lead economist at the World Bank Dr Zahid Hussain said, “We’ve already seen the impact on some specific sectors, including RMG, health, tourism and other services sectors. The impact will be seen in other sectors soon, too. Actually, all the financial sectors will suffer more or less due to the coronavirus.” He added, “The country’s RMG export is already in the negative trajectory. A big impact will fall on remittance, too.”

When we talk about Bangladesh’s association in the world of global business, the first thing that comes to our minds is our ready-made garments (RMG) industry, which is by far the biggest export-earning sector – contributing over 84 per cent to the country’s annual export. Evidently this sector has started to witness its share of loss due to the virus outbreak globally. Bangladesh garment manufacturers says fashion retailers have cancelled or put on hold more than $3 billion in orders due to the coronavirus outbreak, though a handful have agreed to pay anyway.

The data from the Bangladesh Garment Manufacturers and Exporters Association released Monday reflected both orders already made or in the works and planned orders from the country, which is the world’s second largest exporter of clothing after China.

The cancelled orders, according to reports to the BGMEA from manufacturers, included tens of millions in purchases from many big buyers, including European buyers C&A and Inditex, Primark of Ireland, Britain’s Marks & Spencer and Tesco and U.S. retailers like Walmart and Target.

negative-impact-of-coronavirus-on-export-oriented-industries-in-bdBangladesh is just beginning to feel the direct impact of the pandemic and its government has ordered a shut down of most businesses to help contain it. But shocks to the country’s export markets have been cascading into its economy for weeks.

Unfortunately, the cancellation or slashing of orders does not only stop with an immediate impact on the profitability and earnings of the local manufacturers, this could also give rise to devastating economic consequences.

  1. Firstly, cancellation of current orders means a loss of resources with an imminent threat to the RMG backward linkage industries. These orders, which were placed by the international clothing retailers and buyers some 3-6 months back, are already produced and made ready for shipment by the local manufactures. Manufacturers have already incurred costs and remain indebted to all other suppliers from whom they have sourced the raw materials. Now provided that these orders are getting cancelled, how and who will pay back these suppliers of raw materials? Essentially this will trigger an alarming situation in the RMG sector together with its backward linkage industries.
  2. Secondly, over four million people are employed in this sector and therefore cancellation of orders could potentially create an obstruction in their scheduled wages and in extreme cases may even lead to the termination from their services, should the firm chooses to shut down due to insufficient orders. Learning from past experiences, situations like these could trigger labour unrest which has disastrous economic consequences.
  • Thirdly, there is a threat to the existence of small and medium-sized companies in this industry during this situation. As buyers are already cancelling orders amounting to millions of dollars, this dire state has the potential to persist for a considerable length of time; experts have suggested the economic aftermath of this virus outbreak could at least last a year. As a result, with insufficient volumes of orders, it is highly likely that small and medium-sized firms will be forced to shut down due to the failure of recovering the costs of business.

Many fashion brands have shut their stores in Europe and North America due to the coronavirus outbreak which leads to this order cancellation and suspension, which is affecting 4.1 million workers. BGMEA President Rubana Huq sent a letter to the global buyers urging them not to cancel or hold orders till July so that workers could get their wages and allowances during two Eid festivals.

In the meantime, on 25 March, Prime Minister Sheikh Hasina announced a bailout/stimulus package of Tk 5,000 crore for export-oriented industries to fight the impact of coronavirus on the country’s economy, which brought a ray of hope for the textile and apparel factory owners as well as workers.

Rubana Huq said they spent sleepless nights worrying about the fate of the workers. “Limitless gratitude to you (PM) for giving us this support at a critical time when orders stand cancelled and we face uncertainty. She said the money will be used for providing the salaries and wages of workers and employees only.

The economists highly appreciated Prime Minister Sheikh Hasina for announcing a bailout package of Tk 50 billion for the struggling export-oriented industries to overcome the coronavirus impact, and said such support should also be given to other sectors, especially the informal one.

Besides, Bangladesh Bank has undertaken a business-friendly initiative, announcing that no one will be considered a loan defaulter till June.

The BGMEA reported that $1.8 billion in orders have been put on hold and another $1.4 billion have been cancelled. Cancellations of planned orders, for April-December, amounted to nearly $1.7 billion, it said. The figures are conservative because they exclude orders that would go to multiple buyers.

Bangladesh manufacturers and labor groups have been appealing to big retailers to honor their commitments to suppliers.

Sweden’s H&M has said it will pay suppliers for orders already under production.

On March 29, Swedish retailer H&M announced that it would take delivery of the garments already produced and the goods in production without asking for any discount and pay for the orders.

The buyers include M&S, Target, Inditex, Kiabi and PVH, they said, adding that another brand H&M, one of the largest buyers, gave a similar assurance earlier, which came as a sigh of relief for local suppliers amid coronavirus pandemic.

“PVH and H&M are doing the right thing, in contrast to the long list of brands refusing to pay for goods workers have already made for them,” said Scott Nova, executive director of the Worker Rights Consortium.

More than 1 million of the more than 4 million garment workers in Bangladesh already have lost their jobs or have been furloughed because of order cancellations and the failure of buyers to pay for canceled shipments.

With the given situation, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) recommended its members to consider shutting down the production units. However, the factories those which have booking of work orders from international retailers and brands can continue the production with provided adequate health safety measures to protect them from the attack of Coronavirus, BGMEA said in a statement.  In a statement, BGMEA also said the factories those which are engaged in the production of Personal Protective Equipment (PPE) can also continue production in the factories. The Department of Inspection for Factories and Establishment (DIFE) also echoed with the views of BGMEA. Many factories were run after the announcement. But many could not run as the workers did not join their workplaces.

Bangladesh Knitwear Manufacturers and Exporters Association suggested its members to shut down the factories up to April 4 as per the government’s announcement of a general public holiday with effect from March 26.

hard-time-for-rmg-sectors-in-bdIt is high time the government stepped in before the situation worsens further. Policymakers should sit down with industry stakeholders and device policies that could effectively safeguard the RMG sector. Governments around the world are proposing trillion-dollar stimulus packages for their economies to help fight the coronavirus epidemic. Certainly, the RMG industry, which is the country’s major earning sector, is qualified to get a place in the government’s top priority list at this time of great peril. Industry insiders have proposed solutions such as support from disaster assistance fund, credit guarantee schemes from the central bank to encourage commercial banks’ continued support and amendment in the rules of the back-to-back letters of credit (LCs) to combat the current situation.

Finally, the government, oppositions, the NGOs, the other social organizations, the business people, the financial and non-financial institutions, and the people of Bangladesh should come forward and work together to handle this pandemic and minimize both the economic and non-economic losses.

In the coming days, the country should look into its resources and strengths to build a much more self-reliant manufacturing industry. We must put a value on ourselves, on our resources on our materials. All these resources could be utilized for much more value for many more outcomes providing a better and secure life. We are looking forward to a great future onward.

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