The Financial Express

RMG units commonly lack financial backup to cope with crisis: CPD

| Updated: January 26, 2021 13:16:36

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Financial management of the country's readymade garment (RMG) factories is very poor and the majority of them including large ones did not have financial backup and plan to cope with immediate crisis, according to a latest report.

Though subsidized credit provided under the stimulus package and the gradual rise in production orders helped the factories address the crisis, the recovery rate of the sector is slow especially those of small and the factories that are not association with any of the two apparel trade bodies--BGMEA and BKMEA.

It also found that 37 per cent factories have both retrenched and recruited workers while a total of 0.357 million workers lost jobs and 56,372 were laid off during the Covid-19 pandemic.

The findings of the report titled 'Vulnerability, Resilience and Recovery in the RMG Sector in view of Covid-19 Pandemic: Findings from the Enterprise Survey' were disclosed at a virtual dialogue on Saturday.

Centre for Policy Dialogue (CPD) and Mapped in Bangladesh (MiB) jointly conducted the survey on 610 garment factories during the period between October and November, 2020.

CPD executive director Dr Fahmida Khatun made the introductory remarks while MiB project manager Syed Hasibuddin Hussain moderated the dialogue.

Member of parliament and member of the parliamentary standing committee on ministry of primary and mass education Shirin Akhter, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) first vice president Mohammad Hatem, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) director Mohammad Abdul Momen, East West University professor Dr AK Enamul Haque, labour leaders Taslima Akhter, and Kutub Uddin Ahmed, among others, spoke on the occasion.

Since the outbreak of the deadly virus, the sector has confronted multiple shocks and vulnerabilities, said CPD research director Khondaker Golam Moazzem.

"Thanks to various stimulus packages provided to the export-oriented sector, it has started to recover," he said, adding that the process of resilience and recovery of the sector is likely to slow and will require a longer period of time.

In case of financial difficulties, both member and non-member factories are found to be in the same trend, he said. Non-member factories faced the cash-hit situation more early and unfortunately, they were not eligible to get government's stimulus package for subsidized credit.

To cope with the crisis, the majority of factories depend on three sources- applied for getting subsidized credit (60 per cent); informal credit (33.7 per cent); enchased bank deposits (34 per cent).

The report suggested making the application process for stimulus packages easier to apply particularly for small scale enterprises, saying that 40 per cent of the small factories against 90 per cent big ones applied for the package.

A section of enterprises did not apply due to their inability to pay monthly instalments, it added.

The study has estimated the performance of resilience of RMG enterprises of Bangladesh for the first time and found overall resilience performance is below the average (43.4).

According to the report, April and May, 2020 were most troubled months for the country's RMG factories but the capacity utilization of the factories improved over time with the rise in orders.

Regarding the orders for November, 2020-April, 2021 period, 44 per cent factories claimed that they have certainly been in orders, it said.

The rest 56 per cent have different levels of uncertainty and 11 per cent of them indicated high uncertainty with regard to orders for next six months, the report said.

The study identified that the pandemic created an opportunity for new business and about 12 per cent factories received new types of orders including face masks and personal protective equipment.

Such new product orders partly helped factories maintain their business operation during the Covid period and non-member factories partly survived by supplying these new products, the survey found.

The future development of the RMG sector should consider more foreign direct investment (FDI) in different segments of the value chain, it suggested.

The resilience and recovery will require proper planning and development with regard to robustness, resources and recovery related issues, it said, adding that the factories need to diversity sources of industrial raw materials and ability to maintain key functions.

It also recommended diversifying their buyers/suppliers base by including not only large-scale buyers/brands but also small-scale buyers/brands.

To cope with the challenges, a good number of factories took orders during the April-September, 2020 period which did not even cover their production costs, it showed.

"About 10 per cent factories indicated that they had taken 50-100 per cent of their orders which did not cover their costs," it said.

Although sample enterprises reported 2.7 per cent laid off of their workers, total job lost during this period was as high as 13.95 per cent.

The majority of RMG factories did not follow labour laws and rules in laying-off and terminating workers amid the coronavirus pandemic.

Factory owners can retrench workers complying with the labour laws, said Mr Hatem.

If any factory owner retrenches workers violating laws, the trade body would take necessary measures to realise the lawful benefits of workers, he said.

Most of the factory owners were operating their units at a loss of 10-20 per cent, he said, adding that the government should increase the repayment tenure of the stimulus package for the factories.

"Risk is absorbed by the supplying country and suppliers but the buyers and brands are largely risk free. Workers' health risk is a big challenge for the industry," said CPD chairman Rehman Sobhan.

He suggested a social insurance scheme with contributions from the government, manufacturers, buyers and workers as well as donors.

Taslima Akhter suggested further research on the effects of Covid-19 pandemic on workers' health for their future productivity and earnings.

She called for an emergency fund for the workers during such a crisis.

Kutubuddin Ahmed alleged that many of the pregnant women workers were retrenched during the Covid period without giving any benefits.

He recommended nurturing the workers to increase their productivity that may include vaccinations, health services, a rationing system and social security.

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