The fallout of COVID-19 outbreak has been rather telling amongst all garment manufacturing destinations. And for a country like Bangladesh, the economy and employment generation of which principally depend on garment manufacturing and exports, it was nothing short of devastating.
The large-scale order cancellations by the global buyers had wreaked havoc in the industry with its impact being visible on the export front and scores of garment makers shutting down operations – some temporarily and in want of new orders, while many others permanently and being unable to cope with the financial implications – becoming the order of the day.
Ever since March when the factories had to close down owing to the countrywide shutdown, Bangladesh’s apparel exports have touched a new low in the last 2-3 months. In May, Bangladesh’s readymade garment export declined by more than 62 per cent in the first 29 days compared to that of the corresponding period last year.
According to the National Board of Revenue (NBR), provisional data compiled by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the RMG export in first 29 days of May this year declined by 62.09 per cent to US $ 1.07 billion from US $ 2.81 billion in the same period of 2019 amidst apprehensions amongst garment makers that in March-May period of 2020, exports might fall to US $ 5 billion, with possible unsettled liability of around US $ 2 billion.
If the export decline in May was around 62 per cent, that of April was even more pronounced. According to the data, the country’s RMG export in April this year declined by almost 85.25 per cent to US $ 374.67 million from US $ 2.54 billion in the same month of 2019.Whereas, garment export declined in March (when coronavirus was first detected in the country) by around 30.19 per cent to US $ 1.97 billion from US $ 2.82 billion in the same month of the last year.
Although the production has started in the country since 26 April, factories have been running with a limited number of workers due to health concerns and fall in demand in all export markets, exporters said.
“COVID-19 has changed the face of global business and has taken it to a point of uncertainty. But while we face challenges, we look forward to new opportunities to fight the battle, win and sustain,” maintained BGMEA President Dr. Rubana Huq, while underlining that all the export markets experienced fall between 8 and 22 per cent and unit value decreased by 0.90 per cent from the US and 1.87 per cent from the European Union during the pandemic.
She further added that order cancellations and orders being put on hold accounted for US $ 499 million from the US and US $ 1.55 billion from the EU, while expressing apprehensions that export worth US $ 3 billion would remain unpaid or deferred to the next 6 months.
Citing a study conducted by McKinsey, the BGMEA President said that COVID-19 would wipe off US $ 297 billion from the global apparel value in 2020.
This (repercussions of the large-scale order cancellations by the western buyers and lack of new work orders) has rendered around 419 garment manufacturing units to remain closed since the last couple of months. What’s even more alarming is that out of these 419 units, 100 have now shut down operations permanently.
According to reports, which cited high officials of the two apex apparel trading bodies of Bangladesh, the BGMEA and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), 348 units are members of BGMEA, while 71 are affiliated to the latter. Further, these 348 BGMEA member factories – 80 of which are closed permanently – are spread out across various garment manufacturing hubs in the country with Gazipur accounting for 91, Chittagong 67, Ashulia 79, Dhaka 40 and Narayanganj 70.
“As to our information, 268 factories out of 348 closed have gone for temporary suspension, and the rest are closed permanently,” underlined Dr. Rubana Huq, further adding that such closures are going to impact the employment generation and the economy of the country.
The BGMEA President also maintained that factory closures have been happening ever since the infamous Rana Plaza tragedy, the pace of which has hastened in the recent years due to financial distress, as the cost of doing business has gone up drastically, thereby not only impacting the small and medium-sized units but also the big and compliant factories. Further, the outbreak of COVID-19 and the resulting order cancellations have had an adverse bearing on the garment manufacturing sector of the country.
Speaking to journalists, BKMEA Director Fazlee Shamim Ehsan added that 71 of their member factories are in dire financial condition, as they have no new work orders and most of which they had earlier now stands cancelled, thereby pushing them to financial distress and uncertainty.
This also led to many workers losing their source of livelihoods. As per a study by Penn State University’s Center for Global Workers’ Rights and the Worker Rights Consortium (WRC), more than a million workers have already been fired or furloughed, as global fashion companies have cancelled or suspended orders in Bangladesh due to the coronavirus crisis. The study further added that 58 per cent of Bangladeshi clothing suppliers said they had to stop most or all of their operations because of order cancellations or lack of payments.
The study was based on responses from 316 suppliers — each of which may own multiple factories — who completed an online survey between 21 March and 25 March.
In such a scenario someone needed to intervene to ensure orders are reinstated and dues to the suppliers are paid. As expected, BGMEA under the leadership of Rubana Huq rose up to the challenge and took a multi-pronged approach to try bringing back some sanity in the industry.
To start with, Bangladeshi manufacturers said that they would blacklist Western fashion brands that ‘exploit’ them by failing to pay their bills due to the new coronavirus crisis, days after threatening to sue a major British retailer over its debts. The BGMEA has written to British billionaire Philip Day’s Edinburgh Woollen Mill (EWM) group, asking it to pay up for clothes shipped before 25 March.
“BGMEA has taken the stand of blacklisting specific buyers and has begun with EWM,” said Rubana Huq, adding, “Severing business with them is not the ultimate means we should pursue; however, we will definitely take a position where we see buyers’ wilful attempt to exploit the suppliers.”
Meanwhile, a spokesman for Edinburgh Woollen Mill, which includes Austin Reed and Jaeger, said that the company had engaged with all of its suppliers with the best of intentions. “We have looked at literally every option on the table and worked hand-in-hand with all our suppliers to find solutions, but we also need to recognise that these are difficult and complicated issues,” he said.
As coronavirus has led to global store closures, many Western retailers have put clothing orders on hold, leaving workers across Asia without jobs and raising doubts about the long-term survival of the industry.
The Bangladeshi factory owners said they had singled out Edinburgh Woollen Mill because it had asked for large discounts which violated local laws, international standards and defied the principles of ethical sourcing. “Certain buyers are taking undue advantage of the COVID-19 situation and demanding unreasonable discounts despite concluded contracts pre COVID-19 and despite continued business activity,” the letter written by BGMEA to EWM maintained, adding, “You, the notice recipients, are amongst those who are claiming such discounts.”
Such demands would be ‘financially catastrophic’ for manufacturers, the letter further added.
Simultaneously, the BGMEA has also started engaging different international rights groups to ensure that international retailers and brands pay local suppliers besides working closely with the Bangladesh Government and the country’s missions abroad to initiate parallel track of discussions with foreign buyers and Governments.
So far, work orders worth nearly US $ 3.50 billion have been cancelled by different international retailers and brands due to the COVID-19 pandemic. Of the amount, most have been assured of payment by the buyers, though delayed and there is also uncertainty in payment as some buyers are not responding to the calls of BGMEA, for instance the EWM.
“BGMEA has taken all-out steps to re-engage the buyers in discussions. We are also working closely with social and international partners like International Labour Organisation (ILO), Human Rights Watch, Workers Rights Consortium and academia to build a global opinion to support our manufacturers and workers in this difficult time,” the BGMEA President explained the traders’ body efforts, adding, “We are also in close discussions with our factories re-assessing the cancellation status, as well as how buyers are re-engaging with them. There are some positive developments, though very insignificant, and we are thankful to countries which have announced no cancellations by their buyers. We hope global brands and retailers will act on their conscience and respect the business deals, so that we can resolve the issues amongst us.”
At the same time, we also seek further support for innovative and inclusive solutions like ‘credit guarantee scheme’ or of similar sort from the Government to protect the industry from possible default and closure and so that factories can turn around and continue to operate, added the BGMEA President. She also underlined that it was absolutely important for Bangladeshi exporters to be more conservative while making a deal with their buyers, and also to follow a proper due diligence procedure regarding buyers solvency before any deal is made.
“We would also need to formulate our own policies, probably by the central bank, to suggest a standard operating procedure for the Bangladeshi exporters in the event of being exposed to a bankrupt buyer,” Rubana said, adding, “The more secured we can make our transactions with buyers and the exposure to banks with least turbulence caused at the buyers’ end, the better it will be for all of us in the supply chain.”
Such all-out efforts by the traders’ body, experts believe, are not just the need of the hour, but also unavoidable by all accounts if Bangladesh garment industry is to survive and sustain in these trying times.