The future of Bangladesh’s RMG sector is intertwined with the resumption of economic activities in Europe and the US, and a surge in demand.
The readymade garment (RMG) industry, which has been pivotal in the economic growth of Bangladesh, is facing an uncertain future following the COVID-19 pandemic. The industry, which is the world’s second largest exporter of readymade garment, is now staring at a loss of nearly $6 billion following the cancellation or suspension of orders by its buyers.
The cancellation of orders was the result of the lack of demand from the US and European markets, following the closure of hundreds of shops, owing to the pandemic-centric lockdown. RMG exporters have sought the cooperation of the global community to save the country’s primary industry and the labour force.
Bangladesh’s RMG sector started facing obstacles much earlier than the world. The initial challenges were related to sourcing of the raw material following the suspension of economic activities in China as the virus spread in that country. The industry relies heavily on China for its raw materials. This is also a significant portion of Bangladesh’s billions dollar imports from China. The diversification of supply chain and the opening of the economic activities in China now has resolved the raw materials issue. However, then came the cancellation of orders, which is now threatening the survival of the sector.
According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), orders for over 900 million pieces of garments worth $2.9 billion had already been cancelled or were being held up. The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), another prominent body of the country’s clothing industry, has claimed that more than $3 billion has already been lost as most of the orders until July has either been cancelled or suspended.
RMG accounts for almost 84 percent of all the exports. It is valued at $34 billion. The RMG sector is a product of the government’s 1974 industrialisation policy which emphasised on export-oriented industrialisation. The RMG sector was especially encouraged because of its low capital cost as well as the faster returns.
Today, the RMG sector is considered to be the backbone of the country’s economy. It has been a prominent factor of its economic success story. The country is now recognised as one of the fastest-growing economies of the world with a GDP of more 7 percent and it is expected to become the next Asian giant.
The success of the RMG sector has a trickledown impact on the socio-economic life of the country and it had touched millions of lives. RMG is the largest private sector employer, with around four million people involved in the sector. Women comprise two-thirds of the workforce and are the biggest beneficiaries, helping in their empowerment.
Any disruption in the RMG sector therefore will upset the economic growth of the nation and hamper the socio-economic gains attained in all these years. The fall in the demand has already resulted in massive job losses. It is feared that it may increase poverty in the country.
In March, the government had announced a $500 million bailout package exclusively for the garment industry. Later, the government announced another $8 billion stimulus package for all industries, a large portion of it being earmarked for the garment and related industries. Also, the Bangladesh Bank, the country’s central bank, has adopted an industry-friendly policy and declared that none of the factories will be considered defaulter until June.
These steps by the government are encouraging as it provides cushioning time to the industry to absorb the initial shocks. However, these measures are for the short-term and does not provide permanent alternatives. Sustenance of the sector requires long-term measures and the stimulus cannot provide the solution.
Of the 47,000 manufacturing units in the country, a significant number of them are involved with the garment industry. According to the BGMEA, the industry needs Taka 4,000 crore monthly for salaries and wages alone. So, the stimulus package could keep the factories floating around for a few months only.
The future of Bangladesh’s RMG sector is intertwined with the resumption of economic activities in Europe and the US, and a surge in demand. Since these countries are still struggling to contain the spread of the virus and the number of infected persons and deaths are rising, the potential for them to revive their own economy seems to be bleak in the near future.
Industry analysts feel that the RMG sector will have to wait a while to overcome the current crisis. In the absence of a vaccine to curb the pandemic, strict preventive measures like restrictions on economic and social activities and social distancing will continue to remain in force, limiting their economic activities to bare minimum. Shopping for clothing will have to wait.
Additionally, there is an increasing fear about automation in the industry to reduce human interface in the production in the post-COVID-19 world. In such a scenario, the question that arises is whether buyers will be interested in sourcing products from Bangladesh, which is labour-intensive, or will prefer to buy those products from the nearer shores.
In the post-COVID-19 era, innovation is the alternative to navigate the challenges faced by the Bangladeshi garment industry. One possible option could be deepening the e-commerce for marketing RMG products. Besides, emphasis should be given on developing Bangladesh’s own brands so that it reduces the industry’s dependence on the international buyers for selling its product.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Joyeeta Bhattacharjee (1975 2021) was Senior Fellow with ORF. She specialised in Indias neighbourhood policy the eastern arch: Bangladeshs domestic politics and foreign policy: border ...
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