Recession in Bangladesh?
The global financial crisis, which originated in the sub prime mortgage market in the United States, is now in full flow. Although it first appeared that Bangladesh would escape the worst of the crisis, recent falls in export orders for RMG and textile products, which constitute eighty percent of foreign currency earnings, have made policymakers uneasy. Additionally, it is feared that the remittance flow might dry up because fewer Bangladeshis are going to work abroad.
Although we are not tuned into the global economy; share prices falling in America will have no direct effect on Bangladeshis living in Bangladesh, what has to be understood is that we live in an interconnected world, and can never be totally isolated from the workings of the wider world. The 'domino' effect of the financial crisis should not be underestimated just because we are not directly affected.
Evidence that ripples of the crisis have reached our shores comes from the Finance Minister's announcement that a crisis management fund will be formed in the next fiscal year that will provide quick financial assistance to entrepreneurs hurt by the ongoing global crisis. He has also pledged financial assistance to RMG exporters in the next budget to help them tackle the fallout from the global financial crisis.
Reaz Bin Mahmood, Director BGMEA, confirms fears of the declining state of Bangladeshi garments. "The U.K market hasn't stabilised yet with the volume of orders falling, and the prices have gone down by 50 percent," said Mahmood. The proposed stimulus packages for the RMG sector, says Mahmood, will not help all that much. "Instead what we need is for the bank interest rates to be cut down, and for them to extend or linger loan repayment terms. We also need greater infrastructure support from the government when it comes to services like electricity. The power cuts have really affected our industry adversely."
Aminul Huda, a senior manager of a buying house, is well aware of the problems the garments industry faces. “It all started with the fires in 2006, when a lot of our buyers were frightened away. Even then we had consistent demand for our goods. Now, with the onset of the global crisis, our orders make for sorry reading,” said Huda. In 2007, they received orders for three and a quarter lakh pieces worth $2.1 million. In 2008, the number shrank to just over two lakh items worth $1.2 million.
On what this decrease in business means for the factory and its workers, Huda said, “Up until now we have tried to make the best of it and there have not been any job losses. But if things continue to go down this route, job cuts will be inevitable in the future.”
On job losses, the BGMEA director said, "If I don't have orders to keep my factory running, how can I pay my workers? And then you have fires like the one we had a few days ago as a result of the workers' anger at not being paid in time."
With the onset of the global financial crisis, there have also been concerns over remittance flows to third world countries. The World Bank's Global Economic Outlook projects a 4.2 percent to 7.3 percent decline in remittance flows to South Asia in 2009. Although remittance flows have been encouraging so far, executive director of Bangladesh Bank Khandaker Muzharul Haque has warned that we would have to wait till the last quarter of the year to know whether the World Bank's prediction will actually come true or not.
Anecdotal evidence suggests that a lot of Bangladeshis working abroad, especially those occupying low skilled positions in Middle Eastern countries, are coming back after having lost their jobs. This is a double-edged sword as those coming back cannot contribute to the flow of remittance into the country, and at the same time will increase the number of people unemployed in the country.
The issue of remittance is very crucial to Bangladesh. They form a large chunk of our dollar reserves and therefore finance imports into a country that is highly dependent on imports. Moreover, many families and individuals depend, to differing extents, on money sent by relatives working abroad. When this cash flow stops, as it undoubtedly has from those who have lost their jobs abroad, it reduces the spending power of the families. This in turn will affect retail businesses, as there will be less demand. As mentioned earlier, the 'domino' effect of this crisis should not be underestimated.
It's not all doom and gloom, however. Positive signs have been there in recent times. The price of oil has risen to $70/barrel, and this means that operations in middle eastern countries will resume in full flow. That means that more workers may not be laid off, and the remittance flow into our country may be sustained.
The new budget seems to be transparent, judging by the finance minister's detailed publicised plans to help us through this. One change that will affect the more fortunate amongst us - while helping the poor - is that luxury items will be taxed higher to increase government expenditure; a compulsory weapon in the fight against recession. The new budget also promises a reduction in bank interest rates for small and medium enterprises in an effort to help them grow. Being a low-income country, our economy is precariously placed and therefore even minor setbacks can have disastrous effects. It is important that we do not wait for the disaster to happen, and take pre-emptive measures to avoid it.
Photo: Sazzad Ibne Sayed
Your own 'bailout' plan
Yes, yes… the recession has not hit Bangladesh as it has in many western countries and those that are plugged into the world financial markets. Finally, it pays to be an outcast. But look closer, and you will realise that something of such magnitude happening in one end of the world will inevitably have an effect on the other.
Once you think about it, it's easy to understand how we can be affected by something we are supposedly not affected by. Fewer imports mean the numerous retail shops and malls that peddle imported shampoos, phones, clothes, etc., will be in trouble. We, the consumers will have less to buy, and therefore less to spend. If we spend less, those in retail will suffer. If the RMG industry starts cutting jobs engendering unemployment, society will suffer.
We keep hearing that we are a country hugely dependent on imports. Why not set about changing that; buy goods produced in Bangladesh, by Bangladeshis for Bangladeshis. The readers of this magazine do not have to be told anew about all the options available in our domestic fashion market. We have got highly fashionable clothes made for us everywhere. Time to forget about how people in the idiot box dress, and look around and take pride in looking like a Bangladeshi.
Of course, nobody will be expected to change everything all at once; you will still want to buy a certain favourite product you have been used to for a long time, but it is important to remember that any change in your buying habit in favour of our domestic products will have the wider positive effect of bolstering those industries and therefore reducing our dependence on foreign imports. A healthier domestic market also means that there will be less fallout.
So much for what we can do on a macro level, what about on an individual level? In financially uncertain times, it is important to save. The onus, one has to remember is on saving. A common habit is to save the money that is left over after spending. The foolproof way is to spend after putting aside a certain amount as savings. If you fall upon hard times, that savings account will be your best friend.
The word 'unaffected' implies inaction on the part of those who are said to be unaffected. We should be very thankful that we are not in trouble yet, given our weak economy. However, to stay that way, inaction will not help. We have to stand up for ourselves by expressing solidarity with Bangladeshi products. To guide our fragile country through this threat, we have to work hard to strengthen our economy. Let's set a trend of national responsibility; it will help us well beyond this crisis.