Dhaka Courier

Turning the corner

img

The bullishness of the Bangladesh economy as it looks to emerge out of the hit from the Coronavirus pandemic, and the measures implemented to tackle the public health crisis, continues to defy expectations. For example in May, two months into the pandemic, global ratings agency Moody's had predicted that economic activity in Bangladesh would decelerate sharply over the next 18 months - till late into 2021.

By July though, this view was changing: Frederic Neumann, Co-head of Asian Economics Research at HSBC bank, shared his insights at a virtual session for HSBC Bangladesh clients and stakeholders that month, titled ‘Impact of COVID-19 on the Bangladesh economy and silver linings.’

In his presentation, Neumann said, “Bangladesh continues to impress with economic resilience. Strong growth in recent years was based on solid fundamentals, with stable inflation and a robust external payments position. Bangladesh exports have also gained global market share in recent years and the continued rise in remittance has helped to support local demand.”

He went on to provide his assessment of how the economy was coping in the face of the lockdown and social distancing: “Bangladesh’s economy has so far managed the challenges brought by the global COVID-19 outbreak well. While exports in particular have suffered amid a global decline in apparel demand, and remittances have cooled, the fall in oil prices and slowing imports have kept the country’s trade position in a resilient position. Locally, consumer spending has softened due to a softer labour market and the need for social distancing. However, the government has delivered a robust response to support demand, supported by an accommodative central bank.”

The two areas Neumann noted as damaged, exports and remittances, have since delivered startling results.

Inward remittance inflow witnessed a whopping 50 percent growth during the July-August period, Finance Minister AHM Mustafa Kamal revealed last week. “There has been a buoyancy in the inward remittance flow (record 50 percent growth in remittance in July-August) while growth will also be there in export earnings. I hope such an uptrend will continue. This has been possible because the country’s people are the main lifeline,” he said.

The finance minister was briefing reporters virtually after chairing a meeting of the Cabinet Committee on Government Purchase (CCGP). According to the Finance Ministry, Bangladesh received remittances worth $4.56 billion during this July-August period while single month remittance inflow in August, 2020 reached $1.96 billion - the second-highest monthly figure on record. The July figure of $2.6 billion happens to be the highest. And June 2020 is in third place with $1.83 billion.

Terming the 50 percent growth in remittance inflow during this July-August period as “unprecedented,” Kamal termed it “an unbelievable incident”.

“If we compare with the last year, attaining 50 percent growth in remittance in just two months is an unbelievable matter as the last year was the highest earning year for Bangladesh in remittance,” he said. The annual remittance figure for 2019/20 was also the highest ever.

Exports - which of course, is disproportionately made up of RMG - followed a similar trajectory. We can all recall that initial period when international buyers started cancelling orders, portending dire straits in the economy with an expected spike in unemployment. This was not entirely avoided, despite the government’s generous stimulus package. RMG exports, which typically make up at least four-fifths of the total, plunged to just $370 million in April, from $2.25 billion the previous month. It would, however, start getting back on its feet again right from the following month, climbing back to $1.23 billion.

The road back

As the industry fought back, a global campaign took hold to force the industry to reverse its cancellations. A survey of 319 Bangladesh garment factory owners conducted by the Center for Global Workers’ Rights between 21 and 25 March found that over a million garment workers in Bangladesh had been fired or furloughed due to unprecedented amounts of order cancellations and lack of order payments.

Almost all buyers refused to help pay the cost of those workers, with 72 percent of furloughed workers sent home without pay, and 80 percent of dismissed workers going without severance pay. The study noted that that's despite many of the brands having “responsible exit” policies committing to support factory workers in scenarios such as natural disasters.

Over half of the country’s suppliers have had the bulk of their orders cancelled, with 45.8 percent having either ‘a lot’ or ‘most’ of their in-process or already completed orders cancelled by buyers, and 5.9 percent having all orders cancelled, according to the report.

Of those cancelled cases, 72 percent of buyers refused to pay for raw materials already purchased by the supplier, while 91 percent refused to pay for the cut-make-trim cost - or production cost - of the supplier. As a result, 58 percent of factories were forced to shut down most or all of their operations.

Mark Anner, director of Pennsylvania State University's Center for Global Workers' Rights, said: “The responsible approach is for brands and retailers to find ways to access lines of credits or other forms of government support to cover their obligations to supplier factories so that they can cover their expenses and pay their workers in order to avoid sending millions of workers home with no ability to put food on the table let alone cover medical expenses.”

By June, these orders were starting to come back. Eventually, according to BGMEA’s own figures, 80 percent of the cancelled orders, that amounted to $3.15 billion, came back. Riding on that turnaround, the June export figure for the industry jumped to $2.28 billion - back to pre-plunge levels. And catching up on the sudden glut of orders led to $3.24 billion in July - the most lucrative month since July 2019 for the industry. The figure for August has been a respectable $2.47 billion - slightly up on the corresponding figure for August 2019.

What about the jobs lost? On June 4, the BGMEA President had mentioned the possibility of a 55% job cut during the month of June due to lack of orders, and that sacked workers would be prioritised for re-employment when the situation improves. This statement immediately drew massive criticism from labour leaders. As a result of the labour leaders’ protest and widespread criticism in social and print media, BGMEA clarified on 6 June that there was no announcement on job cuts or lay-offs – rather, the President’s statement was a speculative statement based on the turbulent situation.

More than 324,000 readymade garment workers (out of 4.1 million, around 8 percent) lost their jobs and 1,915 factories, mostly subcontracting ones, had been shut since the coronavirus outbreak began in the country in March this year, according to a Bangladesh Institute of Labour Studies’ study report that was released in late August, that painted a very grim picture of the entire scenario. The study titled ‘COVID-19: Decent Work in Readymade Garment Sector’ found that 80 percent of the workers had no savings while 27 percent of the workers had reduced their food expenses as monthly wages became irregular during the pandemic.

The report however was promptly trashed by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Department of Inspection for Factories and Establishments (DIFE).

In a press statement, BGMEA categorically disagreed with the findings. Some 300 small and medium factories, most of which work on subcontracts, had shut down during the study period, said the statement signed by Rezwan Selim, a director of BGMEA who handles labour issues and factory shutdowns.

These small BGMEA-member factories could not avail government soft loans at 2 per cent service charge as they could not fulfil a lot of the terms and conditions, he said. About 48,000 workers have lost their jobs in and around Dhaka and they are from the subcontracting factories that were not receiving work orders from their mother factories.

"The BILS figures are too high and misleading," he said, adding that the factories, by and large, are running at 70 percent capacity now as the buyers are coming back. "If the job terminations and shuttering of factories had been as high as BILS mentioned, the export figures would not have risen by such a margin."

The DIFE’s inspector general termed the findings “inconsistent with reality”. The DIFE was particularly reliant on the lack of labour unrest over payment or termination. Eventually, BILS was forced to back down from their own report. Amirul Haque Amin, the vice-chairman of BILS, admitted that the study had “a lot of limitations”, and that the report’s findings were at least two months old.

Looking ahead, observers appear nervous over the effects of a second-spike of COVID-19 in Europe. However, normalcy has returned to the supply chain with China, the main sourcing destination for Bangladesh’s textile and garment-related raw materials. As a result, the industry is witnessing improvements fast, according to insiders.

Firms exiting China

One of the enduring themes during the pandemic has been a possible reordering of global supply chains. Many foreign firms, it was said, would be moving out of China in particular and Bangladeshi firms were told to be on the lookout. In May, it was reported that at least 34 Japanese companies operating in China had shown an interest to relocate their units to Bangladesh.

The embassy of Bangladesh in Beijing informed the development to the Ministry of Foreign Affairs. Quoting JETRO officials in Beijing, the embassy said the 34 out of 690 Japanese firms registered in China had revealed the relocation plan following the announcement of a stimulus package by the Japanese government for the shift out of mainland China. Sheikh F Fahim, president of the Federation of Bangladesh Chambers of Commerce and Industry or FBCCI, wrote a letter to the country representative of the Japan External Trade Organisation on May 12 calling for facilitating the relocation.

By late July however, these hopes had been dashed. Rabobank, a Dutch financial institution, conducted a study on the probable destinations of the foreign companies that are planning to move out of China. After analysing the 'export similarity with China', labour wage and 'ease of doing business' of 17 countries, including Bangladesh, the study showed that only in labour costs Bangladesh stood second among these countries. But in doing business, Bangladesh was placed 17th and in 'export similarity with China' its position was 16th out of the 17 countries.

JETRO released a list of the 30 Japanese firms that were poised to receive subsidies from its government for moving production facilities from China. Fifteen of these Japanese companies are going to shift their plants to Vietnam. Of the rest, six would move to Thailand, four to Malaysia, and three to the Philippines.

Dr Ahsan H Mansur of the Policy Research Institute put it down to Bangladesh failing to prove itself as an FDI-friendly country over the years..

"We have failed to show respect to the foreign investors," he said, citing the troubles faced by multinational corporations such as Youngone of South Korea and GrameenPhone, majority owned by Norway's Telenor.

Bye-bye social distancing

On September 1, the government lifted all remaining restrictions on public movement and activities, which were imposed to contain the spread of coronavirus, despite little sign of the local outbreak of the pandemic being under control.

As of September 8, Bangladesh was the 14th worst-affected country in the world in terms of total caseload, with 327,359. Some 4,516 Bangladeshis had lost their lives to Coronavirus - which is dwarfed by the death marches witnessed in the Americas and Europe, or that is now in progress next door in India. But still, the country has never seen anything like it.

The percentage of daily tests that come out positive (positivity rate) still remains high compared to the global trend. The positivity rate was 14.3 percent on September 7, finally on its way down from a stubborn spell above 20 percent, but the World Health Organisation recommends achieving a positivity rate lower than 5 percent for two consecutive weeks before lifting Covid-19 driven shutdowns. So much for working with the WHO.

Economist Dr Abdur Razzaque estimates the hit to the Bangladesh economy ranged between $9 billion and $21 billion till June.  He said the 'new poor' due to Covid-19 are in the range of 16 to 42 million and 70 million or 42.5 percent of the population were either poor or vulnerable prior to the pandemic.

Adding the new poor would make it around 90 million either poor or vulnerable and poverty (absolute poverty) elimination now could take 5 to 10 years more depending on different growth rates. He termed the post-LDC graduation one of the major challenges for the exports as the country will lose duty-free market access to major markets, including the European Union, Canada and Australia, where local products have to face duty ranging from 6.0 percent to 18 percent, especially RMG, home textiles, footwear and fish.

Bangladesh’s export competitiveness will erode in the post-graduation period as EU tariffs on the Vietnamese exports will come down to zero for over 99 percent tariff lines by 2027, Dr Razzaque said, while presenting his findings at at a virtual workshop, organised jointly by the Economic Reporters' Forum (ERF), RAPID and the Asia Foundation.

After LDC graduation, tariffs on Bangladesh apparel items could see a sharp rise of 9.5 percent. The alternative, of putting off the LDC graduation, would seem to be a step backwards however. Having come this far, surely it is too late to turn back on such a landmark event, that has been played by the current regime for so long now. A firmer grasp over the situation surrounding the situation surrounding the pandemic would have been preferable, but the country must back itself to make the best of the days ahead.

  • Turning the corner
  • Ready Made Garments (RMG)
  • Gross National Product (GDP)
  • Remittances

Leave a Comment