That Bangladesh garment industry has been through some real tough time due to the coronavirus pandemic is a well-known fact. COVID-19 came in as an unpleasant surprise for garment manufacturers who had already been struggling under faltering margins and rising overheads over the last few years.
If the temporary shutdown as imposed by the Government — that rendered all manufacturing units shut for some time — had halted production, resumption of work was of little help for garment makers as they had to deal with the menace of large-scale order cancellations from global buyers while also dealing with buyers’ demand for discounts and deferred payments.
Under the given situation, the rollout of the coronavirus bailout package by the Government to help the export-oriented sector, including the RMG industry, pay the workers’ wages was undoubtedly a very welcome and timely intervention, without which many garment workers would have struggled to survive. However, the scheme requires the factories to clear the debts in 18 equal instalments over 2 years, with a grace period of 6 months.
But now the owners have applied for 5 years’ time to pay back the loans despite the fact that there has been an uptick in exports lately, whereas most of earlier cancelled/withheld orders by the global buyers have also been reinstated while there were reports of new work orders also coming in.
Earlier in September, Dr. Rubana Huq, President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), reportedly wrote to the country’s Commerce Minister (who himself is a former president of the garment makers’ body) soliciting ‘cooperation’ and ‘compassion’ in this regard.
“I think it is a justified demand considering what the industry has been through on account of the COVID-19 pandemic. Looking at from the perspective of the small and medium players especially, it’s been a really hard time for them. For almost 2-3 months, there was no production and when we resumed work, there were large-scale order cancellations besides demand for discount and deferred payment by many buyers. Considering all these issues, the moratorium against the loan taken by the garment makers from the Government (to pay wages to their workers), I think, should be increased from 6 months to 1 year and the payback period should be increased from the current 2 years to at least 4,” former President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and Managing Director of Plummy Fashions Limited, told Apparel Resources, adding, “It would take many of the factories at least a year or so to get back to their feet, provided there is regular inflow of business. So, the demand for payment and moratorium-term extension by the apparel exporters is not irrational.”
The letter written by the BGMEA, reports claimed, highlighted the travails of the industry during the pandemic and said it will take 8-9 months to receive the payment for recent and past work orders placed by the buyers.
Therefore, it will be ‘nearly impossible’ to repay the loan within the stipulated time, it argued.
The Government announced 20 incentive packages worth Taka 1.1 trillion until now to combat the COVID-19 pandemic and reverse the economic slowdown it caused. The first stimulus of Taka 50 billion was given to the export-oriented garment sector to pay their workers during the crisis. The package for the months of April to June was announced on 1 April as the owners took out the loan with a 2 per cent service charge from commercial banks and paid their staff.
The fund was empty before the repayments were made for June, prompting the Government to add another Taka 25 billion to it. But the BGMEA and BKMEA appealed for more financial support from the Government to pay their workers from July to September.
The Government arranged a loan for the owners to clear the salaries for July from the Taka 300 billion fund created for the industries and services sector. It later injected another Taka 30 billion into the fund.
On 24 July, Bangladesh Bank wrote to the chief executives of banks to provide loans to the owners to pay their workers. The owners could take out a final loan for paying the salaries due in July, the letter said. Only those who took out loans to pay June’s salaries could apply for a loan under the programme.
But the interest rate was set at 9 per cent, including a Government subsidy of 4.5 per cent, with the borrowers responsible for paying off the rest.
On 20 August, the garment factory owners once again sought a loan to pay the workers’ salaries for August, September and October.
“Like BGMEA, we believe that our demand is legitimate,” Mohammad Hatem, Vice President, BKMEA, underlined while speaking to the media.
The buyers began to cancel or defer the work orders when the coronavirus pandemic upended the apparel market in the United States and Europe. Also, Bangladesh imposed a lockdown in a bid to curb the spread of coronavirus in the country, shutting all factories on 26 March.
According to the Export Promotion Bureau (EPB), garment exports slumped to US $ 360 million in April due to the pandemic. It subsequently climbed to US $ 1.23 billion in May and then US $ 2.25 billion in June. Subsequently, garment exports surged to US $ 3.24 billion in July, the first month of the fiscal year, and then to US $ 2.46 billion in August.
The readymade garment sector saw no growth in July and August, but the income still surpassed the target by 2 per cent.
“The garment sector is passing through a tough time due to the COVID-19 pandemic. That is why we asked for 5 years’ time to repay the loans,” said BGMEA Secretary Abdur Razzak to justify the garment makers’ demand.
Meanwhile, to further support the garment makers in these trying times, the Government has kept the 2 per cent cash incentive unchanged for the exporters of apparel products to the Eurozone in FY21 as it was awarded in FY20.
The Government recently retained the cash incentives for the current fiscal year 2020-2021 against export of products under 38 categories, which were announced in the previous fiscal.
In September last year, the Bangladesh Bank (BB) issued a circular announcing cash subsidy against export of products under 37 categories. Later, on 30 January this year, the central bank issued another circular announcing 15 per cent cash incentive against rice export. Apart from the continuation of incentive for the sectors, the central bank’s circulars related to cash incentives would remain valid, said a BB circular issued.
As per the central bank’s circular issued in September last year, additional 1 per cent special incentive was applicable against the export of readymade garment products. RMG exporters were enjoying 1 per cent additional special incentive in addition to the 4 per cent cash incentive against export of new textile and garment products and expanding export of textile items to new markets, outside of the United States, Canada and the European Union.
Small and medium industries of the textile sector would get cash incentive at the rate of 4 per cent against the export of apparel products.
The export-oriented local textile sector would enjoy cash incentive at the rate of 4 per cent as an alternative to duty bonds and duty drawbacks.
The 2 per cent cash incentive also remained unchanged for the exporters of apparel products to the Eurozone in FY21 as it was awarded in FY20.
There is no denying the fact that the Government has always come ahead to help the industry in whichever way possible and justly so as the RMG sector is the lifeline of the country’s economy. However, if the Government would agree to the new request of the garment makers and the duration of paying the debt, against the loan taken, to 5 years as against the 2 is to be seen.