Business & Economy

Ready-made Garment sector of Bangladesh

COVID 19 and beyond  

Nazneen Ahmed

The ready-made garments (RMG) sector is the main export industry of Bangladesh. According to the Labour Force Survey of Bangladesh 2016-17, the number of workers working in the RMG industry is 3.3 million, with the domination of the female workforce. An issue brief by the international labour organization (ILO) in 2020 (Understanding the Gender Composition and Experience of Ready-Made Garment Workers in Bangladesh) recorded that 60.5 percent of RMG workers were women in 2018. The industry contributes 11.2% to the gross domestic product (GDP)of the country. There are around 4,600 RMG factories in the country, and they generate 36% of manufacturing employment. 

There are two main types of RMG products: woven RMG and knit RMG. The RMG products from Bangladesh mainly go to the markets of the European Union (EU) and the United States). In 2020, COVID-19 badly hit the whole economy of Bangladesh, including the RMG sector. Since March 2020, the industry has been facing various disturbances. The RMG industry has been mostly suffering from a demand downturn in the export markets. Brands/ buyers cancelled many orders, some of them deferred the orders and payments. As a result, factories have reduced their production; some have shut down the operation entirely. During a month-long lockdown from late March to late April, all factories remained close. Most of them reopened after the lockdown was lifted. However, according to the textile Today (On May 27, 2020), the 348 factories associated with the Bangladesh Garment Manufacturers and Exporters’ Association (BGMEA) stopped their operation, of which 80 factories stopped production permanently. Also, 71 factories associated with Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) closed their operation. According to the Department of Inspection for Factories and Establishments (DIFE), 24,860 workers lost their jobs, of which 16,853 were from 86 factories of BGMEA, and 2,298 were from 16 factories listed with BKMEA.

Many of the reopened factories could not start producing at their respective capacity. Apparel products earned $34.13 billion in the fiscal year 2018-19, which was 84% of the total export of that year. The export came down to $27.95 billion in 2019-20 due to the outbreak of Covid-19 during the last quarter of the fiscal year. Though export of both knit and woven RMG went down, the decline is relatively higher for woven products (Table 1). 

Table 1: RMGExport from Bangladesh (Value in Million USD)

 2018-192019-20% of Change
Total RMG34133.2727949.19-18.12
Source: Based on data from BGMEA

Our RMG exports face challenges in all markets (Table 2), including EU, USA, Canada, and all the non-traditional markets like China, Japan, South America etc. 

Table 2: RMG export in different markets (in million USD)

Export to EU from Bangladesh
2018-192019-20% of Change
Total RMG 21133.0817146.18-18.87
Export to USA from Bangladesh
2018-192019-20% of Change
Total RMG 6133.725146.53-16.09
Export to Canada from Bangladesh
2018-192019-20% of Change
Total RMG 1179.3876.27-25.70
Export to Non-Traditional Markets from Bangladesh
2018-192019-20% of Change
Total RMG5687.174780.2-15.95
Source: Based on Data from BGMEA

Another problem joined the stream of COVID-19 induced challenges: the downturn in the prices of RMG products. Apparel Resources (10thNovember,2020) prices of apparel exported from Bangladesh between January and September were 2.1% lower than the previous year. The report noted that prices of apparel products fell by around 5.2% in September alone. As there is a downturn in demand, RMG producers are grabbing the orders even at a lower price. Many large factoriesalready had underutilized capacity before COVID, and demand-downturn has put them under additional pressure. After the Rana Plaza catastrophe, many RMG factories went through structural changes and invested in machinery and infrastructure development in factories. The current demand downturn has resulted in even further underutilization of production capacity. As a result, the cost of production has gone up. A study by Mapped in Bangladesh (a study project of BRAC university) found that out of 1850 factories they covered, only 27.08% of factories could utilize more than 80% of their production capacity in July 2020. The brands are taking this opportunity of higher supply capacity vis-a vis the reality of lower demand and offering lower prices. All these current realities ultimately boil down to the workers of the factories. 

At the onset of COVD-19, It is to be noted here that all the factories closed operations for a month (from late March to late April) following a government order to lock down economic activities. Only a few factories continued producing mask and protection gears with special permission. The government announced a special stimulus package of Tk 50 billion for the export-oriented industries that allowed the owners to take credit with a service charge of only 2% to pay workers’ wages during the lockdown. Later, more packages were announced for the economy, including the industry sector. These packages include credit facilities for industries (all categories: micro, small, medium, and large), Special incentives through export development fund etc.While the packages have helped the industry to navigate through the challenges of COVID-19, the continuation of this pandemic has not yet allowed it to recover fully. We still observe an overall decline in orders, decline in prices offered for products, underutilization of production capacity by large industries and also retrenchment/ termination of workers. The workers who could continue with the jobsvastly faced a reduction in their income as their overtime earnings declined due to low production levels. 

Manyretrenched workers could not return to their pre-COVID jobs even if their factories have restarted operations. There are various reasons behind this: factories chose to employ relatively younger workers (new or retrenched workers from closed factories) as they work at a lower level of basic pay compared to the older workers whose basic salary level had gone up with years of experience. Also, new workers could be appointed at a lower level of payment due to job crisis. 

For unemployed workers, maintaining a livelihood has become exceedingly difficult. Many of them are living on loan, have cut down expenses in whatever way possible. They could not pay the rent of their houses;the education of their children is at stake. The older the workers are, the less is the opportunity to get a job in the RMG sector and even in other sectors where physical work is required. Some factories did not follow the government rules while terminating or retrenching the workers. As a result, workers did not receive the financial benefits properly while they lost the job. Some factories even did not give them enough time while terminating them. 

Based on the discussion above, we may infer that the current crisis of the RMG sector of Bangladesh is threefold and solutions to those problems require actions by different stakeholders. The challenges faced by the sector include1. lower demand in the destination market and lower price of products offered by brands; 2. The struggle of the retrenched/terminated workers are struggling for livelihood and employed workers are earning less, and 3. entrepreneurs have a high cost of production mainly due to underutilized production capacity and stimulus package could not help relatively smaller enterprises. 

The vaccination program for COVID-19 has created hope among people,and we expect the demand situation in the international market will improve soon. But several questions/ apprehensions remain around the attitude of the brands towards the RMG enterprises and the attitude of the factory owners towards workers. Besides, we have to support the workers who have already lost their jobs and could not get a new one. All these realities indicate that brands/buyers, entrepreneurs and government all have responsibilities for the successful recovery of the RMG industry. The brands should not lower the price. Internationally, awareness should be raised regarding the impact of the lower price on workers. Various international agencies working to bring more transparencies in this sector, such as Transparency Pledge, Better Work, Open Apparel Registry, and Fair Wear Foundation, should discuss brands’ attitude and how they affect workers’ lives in the end. 

RMG manufacturers need to work with the brands regarding their role in paying prices properly. The manufacturers should also work with the government in this regard. There is a possibility that the brands will continue with the lower price even when the COVID pandemic is over. Therefore, we need to work on this. BGMEA and BKMEA may document the nature of price decline for major products exported from Bangladesh. Rather than saying that not many workers lost jobs, these two premier organizations may reveal how they had to cut jobs due to lower prices offered by the brands and demand shortfall. Information regarding job loss is very vague and that is not helping the industry. The government, through DIFE, should reveal the real situation. The government may utilize its diplomatic relations with the governments of our RMG destination countries regarding prices and attitude of brands. Goal 17 of the sustainable development goals (SDGs) of the United Nations calls for cooperation among nations among various issues, including trade. We may utilize that platform to sensitize about the situation. If we can not go back soon to the pre-COVID price level (at least), that may extend deep-rooted negative impacts on our trade and consequent effects on workers’ lives and overall poverty level. 

We have to support the workers who have lost jobs to get another job or start some businesses to continue with their basic livelihoods. The government may work through NGOs who are working for workers. DIFE should play a better role to ensure proper compensation to the workers who lost jobs. DIFE also has a role in working with the trade unions to ensure workers’ rights and the smooth functioning of the RMG industry. Healthy trade unionism is also required. While some dedicated trade unionism helps the workers, in many cases, unhealthy trade unionism is negatively influencing the relationship between owners and workers. We have to think of the kind of trade unionism we want to maintain a balance between ensuring workers’ rights and a reasonable relationship with owners. We have to ensure transparency from all stakeholders. 

Bangladeshi producers should look for new markets for the future. They may increase the business ties with South Asia and Southeast Asian buyers as those markets are recovering faster than the EU and USA. This is a challenging time. Brands, manufacturers, workers, and government -all stakeholders should play their roles to ensure the sustainability of this sector. 

The Author is a Senior Research Fellow at Bangladesh Institute of Development Studies (BIDS)

Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button

Ad Blocker Detected!

Advertisements fund this website. Please disable your adblocking software or whitelist our website.
Thank You!