Md. Rashaduzzaman :
The RMG sector of Bangladesh is now in threat from both buyers and suppliers end due to recent global coronaviurs situation. Initially, it was assumed that Bangladesh will be benefited from coronaviurs situation of China though most of the global reputed brands were planning to shift their export orders from China to other RMG manufacturing countries like Bangladesh, Vietnam, India, Indonesia and Cambodia. Some globally reputed buyers have already been shifted their export orders from China to other countries like Bangladesh since January, 2020. But now it’s time to think whether coronaviurs situation will create opportunities for RMG sector of Bangladesh or it’s a big threat for country like Bangladesh, where RMG sector are contributing around 84% of the total export earnings.
Our Garments industries have too much dependency on China for RMG raw materials sourcing. We are sourcing around 60% woven fabrics; 15-20% knit fabrics and 80-85% dying chemicals and accessories from China for RMG export. After China shutdown since January, 2020, our RMG raw-materials sourcing has been affected badly and it will take another three to six months for stabilizing the raw materials supply chain from China. The alternative raw materials supplying countries like India also affected by coronaviurs and they have already suspended all type of VISA excluding diplomatic VISA till April 15, 2020.
Our garments industries will hardly mange up to April, 2020 from their current raw-materials stocks and raw-materials on board. But after April, 2020, they may face serious raw-materials crisis due to lack of availability of alternative sources at chipper rate. So, most of the cases our RMG industries will face serious problem to maintain shipment schedule, which will result shipment cancelation, discounting, air shipment or to source raw-materials from expensive sources for maintaining shipment schedule. More importantly, most of our buyer countries are now gradually affected by coronaviurs, especially EU countries. According to Export Promotion Bureau (EPB) data, Bangladesh’s export earnings from ten countries including USA, Germany, France, UK, Spain, Italy, Netherland, Poland, Canada and Japan in the FY 2018-19 was $28.89 billion (including $25.53 billion from RMG sectors) out of total export earnings of $40.53 billion (including total RMG export of $34.13 billion), which is 71.23% of our total export earnings:
Country wise export earnings of Bangladesh in FY 2018-19
Country Amount % of Export
USA $6.87 16.95%
Germany $6.17 15.22%
UK $4.16 10.26%
Spain $2.55 6.29%
France $2.22 5.48%
Italy $1.64 4.05%
Netherland $1.28 3.16%
Poland $1.27 3.13%
Japan $1.37 3.38%
Canada $1.34 3.31%
Others $11.66 28.77%
Total $40.53 100%
Source: Export Promotion Bureau (EPB)
Our top ten buyer countries have been badly affected by coronoviurs, i.e. according to EPB, our 71.23% export market are in deep threat. One of our major RMG buyer countries, Italy is now shutdown and other EU countries are gradually affecting. In the FY 2018-19, we have earned around 55% of our total export earnings from EU countries including $1.64 billion, i.e. 4.05% (mostly RMG goods) from Italy. So, currently 55% of our export market in EU countries is almost in shutdown position and most of the globally reputed buyers from EU will be affected and will incur a large amount of losses for the recent panic situation in EU countries. The buyers may ask for discount, cancel or reduce their export orders to observe or overcome their current situation. So, our Garments Industries will face challenges to execute their export orders in hand and for future orders sourcing.
However, most of the RMG factories already procured raw-materials or opened BBLC for importing raw-materials on deferred payment basis for executing export orders in hand against Sales Contract (mostly). Now, if the buyers will ask for discount, cancel the existing sales contract or reduce the export orders, then the garments factories will face challenges for settlement of deferred payment against their outstanding BBLC for procurement of raw materials, which will have chain impact on all the backward linkage industries, Banks and total economy as a whole. Moreover, our upcoming export orders will be reducing gradually for minimum three to six months, which will have a great impact on our project export earnings of $44.40 billion (including $37.42 billion from RMG) @ 7.03% growth rate for FY 2019-20.
If we fail to take correct initiatives now, most of our medium and small size garments industries could not able to manage the upcoming challenges and will forced to close their factories. If so, then it will make a digester on our export earnings, employment and total economy as a whole. So, this is the right time to take proper initiatives to save the heart of our economy, the garments industries of Bangladesh:
o Government should take initiatives for formation of a high level strategic committee from all the stakeholders including BGMEA and BKMEA leaders, Policy Makers, Bangladesh Bank and ABB leaders to make strategic decision and ensure quick implementation.
o BGMEA and BKMEA should open monitoring cell to observe and support their members and maintain proper MIS for the global impact of coronaviurs.
o Government may develop crisis management fund through Bangladesh Bank (long term refinance fund @ zero/ lower rate of interest) to support our RMG sector for settlement of deferred payment against already imported raw-materials or outstanding BBLC and to overcoming the current situation, which will indirectly support our backward linkage industries and Banking Sector.
o Government should increase cash incentives or to develop separate cash incentive packages through Bangladesh Bank to support the RMG industries for overcoming their prospective losses and survival.
o Government should allow especial exchange rate incentives (like foreign remittance) to the RMG Industries for the time being to support their operating expenses management.
o Bangladesh Bank may take initiatives to relax some term and conditions in their guidelines to overcome the current situation.
(Md. Rashaduzzaman, a Corporate Banker & DBA Researcher, Department of Finance, Faculty of Business Studies, University of Dhaka; email: [email protected])
