Catastrophe is one word that best describes the impact of COVID-19 on Bangladesh’s readymade garment sector. As people in the western world – Europe and the USA – started isolating and retail stores downed shutters amidst countrywide lockdowns, manufacturers in Bangladesh were spending sleepless nights anticipating what awaited them in the days to come.
It did not take long for things to manifest and with devastating effects! Large-scale order cancellations amounting to more than US $ 3 billion rocked the industry, and in the list of cancelers were names, big and small alike, representing almost the entire spectrum of the global retail landscape. Even though some brands and retailers later decided to reinstate some cancelled orders, the damage had already been done by then.
Just to give an idea of the scale of devastation, amongst all the garment manufacturing hubs in the country, the garment exporters from the port city of Chittagong alone had suffered work order cancellations to the tune of Taka 100 billion from the global buyers. Even though there are no proper estimations as to losses suffered by the other individual manufacturing hubs, the business loss of Chittagong is sufficient to give an idea of the gravity of the overall situation.
As a result, at least 30 RMG factories have closed down in Chittagong, claimed media reports citing officials from the Chittagong branch of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), according to whom, there are a total of 689 garment factories in the port city of which 241 are big ones, which have somehow managed to keep the show going. But the same cannot be maintained for the other small and medium-sized players, which like many of their counterparts in other parts of the country, are struggling to keep afloat and could call it quits for good any time soon.
“The RMG sector is facing a severe crisis in these times of coronavirus pandemic. It is now very difficult for the factory owners to clear the wages of workers,” underlined MA Salam, First Vice President of BGMEA in Chittagong, adding, “Orders worth Taka 100 billion have already been cancelled for factories in Chittagong and there are no new orders from the European countries.”
That almost 60 per cent of apparels manufactured in Chittagong make their way to the USA and Europe (as per some reports) annually, but shipment of many of which remained suspended since the pandemic started in Europe, has complicated the matter further.
“We are going through tough times of business due to the coronavirus outbreak. Garment orders have been cancelled while no new orders are expected in the near future. How can we run our factories in this circumstance?” asked NasirUddin Chowdhury, former First Vice President, BGMEA, adding, “The RMG sector in Chittagong is facing a crisis of existence now. The crisis started in January and is continuing until now. When coronavirus broke out in China, the export of raw materials from there came to a halt. But when the situation became normal in China, the pandemic began in Europe and the USA. As a result, the business of RMG sector in Chittagong as well as all over the country took a severe blow.”
However, now that outlets of all major clothing retailers and brands in the EU and US are reopening, what is the status of work orders in other hubs of the country?
As per reports, buyers are now coming back with work orders and some factories are even running with almost 80 per cent of their capacities, with many amongst the big names reportedly doing decent business. However, majority of suppliers maintained that the volume of fresh work orders is less, as the buyers are either reclaiming goods already manufactured or are executing old work orders.
“Inflow of new work orders is low. We are catering to old work orders now. There will be a nearly 30 per cent gap in receiving work orders this year compared to last year,” KM Rezaul Hasanat, Chairman and CEO, Viyellatex Group, told the media, while Mahmud Hasan Khan Babu, Managing Director, Rising Group, maintained his company is executing 85 per cent of knitwear orders, as there are adequate orders but as far as woven items are concerned, only 60 per cent of the total capacity could be used, as he needed to import fabrics from overseas, especially China.
“Up till August, the current inflow of work order is there, but September onwards, the volume of confirmed work orders is reducing. I am negotiating with my buyers for new work orders,” MA Jabbar, Managing Director, DBL Group, explained the status of the work orders, adding, “The inflow of work orders is not steady now. I can achieve nearly 80 per cent of my annual target of export at the end of this year.”
Meanwhile, Bakhtiar U Ahmed, COO, Fakir Apparels, said his buyers were now reclaiming old orders. “The volume of new orders is relatively low now,” he said, adding that buyers have stated they would not cancel any work orders but would take some time to take goods that have already been manufactured.
Lately though, apparel export from Bangladesh is showing signs of improvement, for sure. According to reports, readymade garment exports in the first 18 days of July stood at US $ 1.57 billion and this is largely due to global buyers reinstating work orders in a big way, claimed industry people, who underlined 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 the 18 days was a positive sign for the country, as the RMG sector had lost earnings worth US $ 4.33 billion in the March-June period of this year due to the global coronavirus pandemic.
According to the provisional data prepared by the BGMEA compiling statistics from the National Board of Revenue, the RMG exports in the first 18 days of July this year declined by 11.74 per cent to US $ 1.57 billion from US $ 1.78 billion in the same period of last year. “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 but it might take a slow pace in August,” maintained 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.”
Meanwhile, speaking on the issue, BGMEA President Dr. Rubana Huq said, “The deceleration in export decline is certainly a positive sign of hope for the industry. However, this may not necessarily indicate new order placements by the buyers, but reinstatement of the cancellations happened immediately after the outbreak of COVID-19.”
She said that this might be noted that the industry had lost US $ 4.33 billion worth of exports during March-June, and the growth was still below the positive trend, while adding that new orders were also being placed, but it was not enough for most factories to run with full capacity.
“Order placement is up to 60 per cent compared to last year and a total recovery will take up to the middle of next year,” Rubana added, while Mohammad Hatem, First Vice President, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), on his part maintained that the global buyers had started reinstating their cancelled or on-hold orders, as the severity of the pandemic decreased in the European Union and some other export destinations.
He said that the global buyers revived 70-80 per cent of orders which were cancelled or put on hold due to the coronavirus outbreak.
“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, adding it is a positive sign that shipments in the 18 days of July stood at US $ 1.57 billion.
Worries nevertheless still remain for both Europe and the USA! Even as manufacturers are gearing to scale up production, there seems no respite from coronavirus cases in the USA with the country reporting significantly higher number of fresh cases at the time of filing of the report, bringing back apprehensions that the Government could impose some restrictions, which if at all, will not augur well for businesses while the economic outlook for Europe seems to be another concern area, especially in the long run.
As per recent reports, Euro zone is all set for deeper recession and weaker rebound with the economy dropping deeper into recession this year and rebound less steeply in 2021 than previously thought, as per European Commission’s forecast. Further, France, Italy and Spain are struggling the most due to the COVID-19 pandemic, the Commission noted.
The downbeat assessment of Europe’s economy comes amidst the concern that the US recovery may also be faltering as a surge of new coronavirus infections prompts states to delay, and in some cases, reverse plans to let stores reopen and activities resume.The EU executive said the 19-nation single currency area would contract by a record 8.7 per cent this year before growing by 6.1 per cent in 2021. In early May, the Commission had forecast a 2020 downturn of 7.7 per cent and a 2021 rebound of 6.3 per cent.
The Commission said it had revised its forecasts because the lifting of COVID-19 lockdown measures in euro zone countries was proceeding less swiftly than it had initially predicted.The EU executive significantly cut its earlier forecasts for France, Italy and Spain, all hit hard by the pandemic, and now expects downturns in excess of 10 per cent this year in each. In Germany, the euro zone’s largest economy, where widespread testing has helped limit fatalities, the Commission moderated its estimates both of 2020’s downturn to a fall of 6.3 per cent from an earlier prediction of a 6.5 per cent drop forecast in May – and next year’s rebound.
The Economics Commissioner Paolo Gentiloni told a news conference that to reduce risks of a second recession, EU fiscal rules could remain frozen even after growth returns next year.The Commission also said its inflation forecasts were little changed, at 0.3 per cent this year and 1.1 per cent in 2021. The new growth figures indicate an economic recovery gathering momentum in June, although it is based on a number of “critical” assumptions, with “exceptionally high risks”. The forecasts assume no second wave of infections triggering renewed restrictions, although social distancing measures would persist, while monetary and fiscal policy measures are expected to support the recovery.
The main risks include a potential wave of new infections, more permanent scars from the crisis including unemployment and corporate insolvencies, and the absence of a future relationship deal between the EU and post-Brexit Britain. “At the global level, the still rising rate of infections, particularly in the US and emerging markets, has deteriorated the global outlook and is expected to act as a drag on the European economy,” the report said.
So, even if the inflow of new work orders is slowly picking up and exporters hoping that the situation would improve further by the end of this year, any second wave of the pandemic could very well sound the death knell for many, fear industry insiders. Garment manufacturers fear retail sales in the EU and US will slow down again if a fresh wave of infection spreads at those major export destinations and a slump in sales in the western world for any reason will have an effect on the inflow of work orders for Bangladesh.
“I think we have to wait until after coronavirus crisis eases in Europe and the USA for new orders. But how many factories can survive until then?” MA Salam asks a critical question, indicating things still remain very much fluid and could very well turn for the worse in case there is any second wave of the pandemic.
