The current global recession has affected everyone and everything to have crossed paths with it. From banks in America to sweatshops in China its butterfly effect stretches around the world and has finally made its way down to Bangladesh. Six months ago when the crisis first reared its ugly head, many in Bangladesh assumed it would not hurt our economy as badly as the West. The fact that Bangladesh was not well integrated into the global economy was for once cheered rather than jeered. But seemingly people have slowly come to their senses, with most of the West in economic freefall, Bangladesh's booming garments sector, which amounts to a phenomenal 76% of its total exports has felt the real pinch of the recession. In all likelihood the garments of recession in the West will be made in Bangladesh.
Nader Rahman and Refayet Ullah Mirdha
Photos: Zahedul I Khan
As the largest and most important export, the garment industry is the backbone of Bangladesh's fledgling economy and any shocks to its system could prove fatal for the growth of the nation. The demise of the banking system in Europe and America has left many major chains without suitable credit and in some cases it has led to the speedy path of bankruptcy. Those issues have created huge problems for the Bangladeshi garments industry as foreign customers, withhold and defer payments, cancel orders and in most cases bargain for lower prices. Its collective effect on the garments industry has already been felt by factory owners and workers alike.
Ghulam Faruque, Chairman of the SQ Group, one of the largest sweater exporting factories in Bangladesh says, “local exporters are facing the problem of deferred payment and price cutting from the international buyers due to the global recession.” Worryingly, foreign buyers are even negotiating the prices of previously confirmed orders. This could have disastrous effects in the long run if the situation continues, as many business plan for the future with expected profits. A substantial decrease such as the minimum of a 10% drop in prices the buyers are currently clamouring for could cripple the sector. Faruque continues, "The next three-four months are very critical for Bangladesh's garment sector. If we can sustain ourselves for the next four months, then maybe, we would be able to ride out the recession," he also cautiously added, “the access to credit should continue at any cost for the garment entrepreneurs."
The problems are compounded by the fact that orders are down from every single retailer in the US and Europe with the exception of Walmart.
Md. Fazlul Hoque, President of BKMEA says, “We need support from the government immediately if our sector is to be protected from the external shocks of the global recession. We have already asked for cash support and sought policy support regarding bank interest rates and banking rules.” His major worry was how long the government would take to act on their demands. Others view this bailout strategy as questionable. Prof MA Taslim, chief executive officer of Bangladesh Foreign Trade Institute, says, “Talk of reducing bank rates and essentially asking for government subsidies do not make complete sense to me. Our banks survive on the garments industry, they are its meat and drink, but there is no way they can lend at lower rates than they are currently offering. We shouldn't jeopardise the banking sector just to help out another sector. We must keep our priorities in order.”
Abdus Salam Murshedy, President, BGMEA
Prof Taslim raises some important issues, but most within the garments industry would probably disagree with his ideas. They see this as a crisis that must be avoided at all costs and in a way they are right, but by simply bending over backwards and providing them with everything they asked for would set a dangerous precedent. With that idea in mind Prof Taslim says, “this storm will be weathered by the companies that are willing to move with the times. Dynamic companies, those which are willing and able to change the way they think are the ones that will succeed.” The companies that do not change and are simply looking for a handout are those most likely to be left behind by this recession. This, in a way, is a wake up call that the garments sector needs to answer; it must restructure itself and change or suffer the consequences.
Even then, not everyone sees this as an opportunity for change, Abdus Salam Murshedy, President, BGMEA says, “without government help our industry will suffer unbelievable damage. Just look at our main competitors, India, Pakistan, China, Vietnam and Cambodia they are all getting cash subsidies and huge government support and that is how and why they have been able to control their garments sector. They are going through exactly what we are going through, the only difference is they have got genuine governmental support and we have nothing.” Aside from government support India, Pakistan, Vietnam and Cambodia have also all experienced major currency devaluation in the past year, 30.91%, 27.62%, 10.21% and 5.78% respectively, in comparison to 0.61 in Bangladesh, thus making their exports cheaper than ours. This could push more buyers away from Bangladesh to their countries as they will be tempted to move to countries where the government supports the garments industry and where devaluation has made their imports cheaper.
Other problems that afflict the sector include repeated labour trouble, and a lack of efficiency, which currently stands at less than 50%.
The problems are compounded by the fact that orders are down from every single retailer in the US and Europe with the exception of Walmart. The Utilization Declaration (UD) for the month of January was down 4.98% and in February they were down a whopping 17.58%, while the figures for March have not been published, most estimates say it will be yet another double digit negative showing. Things are headed in the wrong direction but is there anything that can be done to stop this negative trend? Murshedy says, “Aside from the current crisis there is a lot that can be done to help our sector flourish. We are in a bad condition with regard to our gas and electricity supplies. If only we could get regular supplies of amenities then we could reduce our prices and be more competitive internationally.” Other problems that afflict the sector include repeated labour trouble, and a lack of efficiency, which currently stands at less than 50%.
But while people look to the future many are suffering now. In the past year numerous major international chains have filed for bankruptcy and when the 100-year-old Woolworths finally closed its doors in early 2009 many businessmen in Bangladesh were fuming at the way its bankruptcy and move into administration were handled. Over a dozen Bangladeshi garments manufacturers lost millions of dollars as Woolworths crashed, with Shanin Group reportedly losing a sum in excess of 30 crores. While the losses have yet to be totalled, the final figure should be in the region of 20 million dollars for Bangladeshi garments manufacturers. It is difficult for these companies to look to the future after they have suffered losses of such massive proportions. Compared to this scenario many in Bangladesh must be happy just to reduce their orders and the price, at least it won't be a million dollar loss.
Nazrul Islam Swapan, Managing Director of Nassa Group, an industrial conglomerate with 34 units, says he has abundant export orders up to June, but after this period he may face the challenge as fresh orders are declining sharply. He said many small and medium garment factories are already in trouble, as they are not getting orders from big factories under the sub-contract basis. "I can hardly choose the buyers, as I have to run my factories with nearly 40,000 workers. Now, I am receiving orders from any buyer. But, I am hopeful the orders will rebound sharply in Bangladesh after the recession," Swapan says.
Badius-Salam, Executive Director of Ananta Garment Limited, suggests the small and medium garment entrepreneurs form a consortium to sustain the recession. He says, "Many small and medium units have already started suffering from the recession." During such periods international buyers become very choosy, as a result, the small and medium exporters can hardly make any profit. "So, a consortium may work better during this period," he says.
The companies that do not change and are simply looking for a handout are those most likely to be left behind by this recession.
In the end all is not lost and a happy balance can be struck between the garments manufacturers and the government. The assistance could be channelled to those companies who lost entire orders such as Shanin Group and Inter Stoss after the bankruptcy of Woolworths. In the long run gas and electricity supplies must be improved so that majority of our factories which are running at less than 50% efficiency can somehow compete on a global stage. An across the board bailout for industry does not seem fully warranted, yet the fact that the garments sector makes up over three-quarters of all Bangladeshi exports does call for some sort of protection during the crisis period. What form that protection will take and how much it will be is still a matter of much contention, the businessmen must realise that the government is firmly behind them and cannot let the sector fail, it is too large and too important to fail. The owners also have to face the truth, simply asking for a government handout is not the way forward. They have to learn to adapt to such market changes and realise, that in a way business much like the natural world, it is all about the survival of the fittest.
(R) thedailystar.net 2009