Revival, restoration; these words may currently sound a little far-fetched to many considering the havoc COVID-19 has wreaked on the industry in the last few months. However, going by some recent reports, one cannot rule out that the process of restoration may well have begun already.
The issue, however, remains debatable amidst claims by different quarters, which at best are contradictory!
As economies in West started opening up after months-long lockdowns and restrictions, almost all major businesses are back in action, and so are the brands and retailers. So, a victim of mass order cancellations not so long back, Bangladesh, as per recent media reports, has regained almost 80 per cent of the cancelled orders, while new work orders have also reportedly started trickling in.
According to Mohammad Hatem, First Vice President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), global buyers had started reinstating their cancelled or on-hold orders as the severity of coronavirus pandemic decreased in the European Union and some other export destinations, claimed media reports, adding global buyers have already revived 70-80 per cent of orders, which were cancelled or put on hold due to the coronavirus outbreak earlier.
“We are happy as buyers started reviving most of their cancelled orders, and now, we are running our factories with 70-80 per cent capacity,” underlined Mahmud Hasan Khan Babu, Managing Director, Rising Group.
US $ 1.57 billion in 18 days, an indication of revival?
Bangladesh’s garment exports in the first 18 days of July stood at US $ 1.57 billion, which many attributed to buyers reviving orders in a big way. Exporters said that although the export earnings were still lower than the amount earned in the same period of last year, the shipment of RMG products worth US $ 1.57 billion in 18 days was a positive sign nonetheless.
“The export trend in July is encouraging, as exporters are feeling pressure for additional shipments this month due to the upcoming Eid-ul-Azha vacation,” said Ahsan H Mansur, Executive Director, Policy Research Institute of Bangladesh, adding, “We should be happy if we could run our RMG factories with 70-80 per cent capacity up to September.”
It may be mentioned here that export revenue in the apparel industry witnessed a year-on-year decline of 18.29 per cent in March, 82.85 per cent in April and 61.57 per cent in May, as economies were under lockdowns in a bid to curb the spread of Coronavirus. However, as restrictions were slowly being lifted and a state of normalcy returned to the global supply chain, export earnings picked up as receipts of US $ 2.71 billion were recorded in June, just 2.5 per cent less than what it was during the same period the previous year, while between July 1-18, apparel exports stood at US $ 1.57 billion, which was US $ 1.78 billion in first 18 days of July last year.
BGMEA’s claim of 35 per cent capacity booking
Giving a new twist to the revival claims, the apex garment makers’ body, the BGMEA has recently come up with a report, as per which, in July, 56 per centof the total production capacity has been booked while only 35 per cent of the production capacity has been booked for the consolidated period of July-December this year.
This was according to a BGMEA survey, which examined the responses of over 100 manufacturers to determine the impact of the Covid-19 pandemic on work orders for the second half of 2020, as per which, the manufacturers confirmed work orders for 127.50 million pieces in the July-December period of 2020, while 365.78 million pieces can be produced at full capacity.
December is the worst month in the second half of the year, with only 17 per cent of total production capacity having been booked (10.27 million pieces out of 60.56 million) while in July, 56 per centof the total production capacity had been booked, as per the findings of the survey. “Factories have had less of their capacity booked and factories operating below capacity will not be able to recover operating costs. On top of that, orders have been placed at significantly lower price points compared to last year,” underlined Khan Monirul Alam Shuvo, Chairman of the BGMEA Standing Committee on PR.
China, a crucial factor!
Irrespective of whether the revival process has started already, many in industry believe China could turn out to be the deciding factor if garment exports are to make a turnaround. It’s not only that exporters see a real opportunity to grab some business moving out of China on account of the Sino-American trade war that could give a boost to apparel exports, also to be taken into account is China’s decision to allow duty-free access to 97 per cent of Bangladeshi products into China, which would also speed up exports from Bangladesh.
“We have to utilise the opportunity. It will create more jobs and increase our export earnings. We will lose the opportunities if we work slowly now,” stated Commerce Minister Tipu Munshi indicating how the trade conflict between the USA and China may create opportunities for Bangladesh, while BGMEA President Dr. Rubana Huq, on her part, maintained, “Chinese exports to the US have decreased by 52 per cent and if we can capture a portion of the business, Bangladesh’s exports will increase significantly.”
Meanwhile, the economists and trade leaders have urged the Government and exporters to take advantage of China’s extended duty-free market access, which they felt could earn Bangladesh an additional US $1.4 billion with the current export supply capacity. They made the call at a virtual workshop titled ‘COVID-19 and International Trade Issues: Policy Options for Promoting Bangladesh’s Exports’ organised by the Economic Reporters’ Forum, in which the Commerce Minister was the Chief Guest.
“China’s extended duty-free market access is a golden opportunity for Bangladesh. We should make use of the opportunity right now as LDC graduation will mean the discontinuation of duty-free market access in China,” said Mohammad Abdur Razzaque, Research Director, Policy Research Institute, adding, “Bangladesh can earn an additional US $ 1.4 billion using the current export supply capacity. On the other hand, if we can increase our market share by 1 per cent, an additional US $ 25 billion worth of export is possible.”
Taking part in the discussion, the Commerce Minister said that after the COVID-19 pandemic, the US-China trade war has become more prominent, while Japan and European Union are also thinking about reducing dependency on China.
“We have to take advantage,” said Tipu Munshi, adding, “We are focusing on what will help to increase export and employment.”
Also, that Bangladesh is actively looking at market diversification is expected to give exports a boost. Recently Foreign Minister Dr. AK Abdul Momen had urged Bangladesh’s envoys in Europe and UK to explore new markets for Bangladeshi products protecting the readymade garment export markets during the pandemic, which was attended by Bangladesh envoys from the UK, Italy, France, Sweden, Belgium, Greece, Spain, Portugal, the Netherlands, Germany, Switzerland and Austria.
Taking part in the deliberations, the BGMEA President explained to the envoys the challenges the industry was facing while seeking their support in addressing those bottlenecks to which the envoys assured of all their cooperation.
Further, the all-out support provided by the Government since the outbreak of the pandemic, which is continuing still, many say, will act as a force multiplier towards regaining the lost ground in the export front.
Yet another package of Taka 3,000 crore
After the Taka 5,000-crore special package to help pay the workers’ wages rolled out initially, which subsequently witnessed an addition of further Taka 2,500 crore, the Government has come up with yet another stimulus package worth Taka 3,000 crore for the export-oriented industries to help them provide wages and salaries to their workers for July.
This is the third stimulus package for the export-oriented industries, which are now actively running their units, since March. The development comes after the BGMEA and the BKMEA, whose members generate most of the export receipts, jointly wrote to Finance Minister AHM Mustafa Kamal on June 22 seeking continuation of low-cost loans for 3 more months to September.
Garment factory owners are in deep worry about carrying out various activities, the future of the industry and how to pay wages to the workers, said the joint letter, a copy of which was also sent to the Prime Minister’s Principal Secretary.“As a result, it would not be possible for most garment factory owners to pay wages to workers for July, August and September,” the letter said, adding that the initial stimulus package had helped the garment sector withstand the crisis brought on by the global coronavirus pandemic.
Following this, the Government came up with the initiative subsequent to which the Bangladesh Bank sent letters to 47 banks to release the fund from the stimulus package, the allocation for which had since been raised to Taka 33,000 crore from Taka 30,000 crore.
Borrowers will have to pay 4.50 per cent interest rate to avail the fund while banks will get 9 per cent interest as the Government will give the rest as subsidy. Further, the borrowers will have to pay the loans within two years including a grace period of six months.
Simultaneously, to give a further fillip, the Bangladesh Bank has extended policy support till March next year to the country’s readymade garment and textile businesses against their export and import activities. On 19 March this year, the central bank offered the policy support for six months ending on September 30 this year for all sorts of import and export trade by the apparel makers.The bank has issued a circular recently informing all concerned that the support would remain valid until 31 March 2021.
The circular allowed the bankers to extend the period for realisation of the export proceeds by up to 90 days in addition to the stipulated four months’ timeframe from the date of shipment while the other facilities, which were granted in March this year, would remain unchanged, it added.
Hence, it is not without reasons that Commerce Minister Tipu Munshi expressed hope that Bangladesh’s economy would bounce back by the year end. “We have 5-6 sectors including RMG which will help our economy to bounce back at the end of this year,” claimed Munshi, while adding that a task force of the ministry holds meetings regularly and communicates with other ministries concerned.
“We are also working with 42 countries to improve export volume,” emphasised the Commerce Minister.
Getting back on track would be a challenge
Despite all efforts, salvaging the business loss suffered over the period of last couple of months is going to be a difficult proposition, even if things start improving on the export front. On one hand, if there’s apprehension that any new wave of the pandemic, especially in the export bastions of EU and USA, would make things even worse; on the other, despite order restorations, there’s still a big question mark on pending payments with garment exporters underlining that the industry might fail to realise or face deferred payment worth a massive US $ 3.0 billion. Also to be taken into account is BGMEA’s new disclosure that only 35 per centof the production capacity has been booked for the consolidated period of July-December, while the price of apparel products on an average witnessed 14 per cent fall as reflected from the orders confirmed so far in July for delivering during the period from July to December this year.
However, regardless of all the ifs and buts, garment makers have unanimously expressed hope that the industry would emerge stronger post-pandemic, no matter what!
