The growth of the textile and readymade garments industry is essential to the economic prosperity of the region. Its recovery must be enforced with proper evaluation and understanding.
The COVID-19 pandemic has shaken the global economic foundations. The economic fallout has multidimensional implications that will persist for years to come. As the lockdown regulations are being across the world, we evaluate how soon the regional (South Asian) economy can get back on its feet. Quick economic recovery is essential to saving the lives and livelihoods of the people in one of the world’s densely populated regions.
In a discussion titled “RESTART ASIAN ECONOMIES: Ideas and Actions for The Textile and Readymade Garment Industry,” hosted by the Friedrich Naumann Foundation (FNF), the panellists discussed the current state of the hotel industry. They explained the magnitude of the crisis and its implications on the local economy. The interaction facilitated the exchange of ideas, challenges faced by the entrepreneurs and their solutions, and the government’s role towards reviving the sector. Moderated by Dr Nazmul Hossain, Country Representative, FNF, Bangladesh, the panellists were A.F.M Nurur Rahman (Bangladesh) General Manager, Ha-meem Group, and Felix Fernando (Srilanka) Group Director, Omera Line Ltd.
According to Felix Fernando, there are roughly 350 export-oriented ready-made garments in Srilanka. At the height of the pandemic, the industry was able to secure orders for PPE. Although the industry could not completely utilise the opportunity due to compliance issues, it was able to generate revenues amounting to half a billion dollars.
Previously, Srilankan RMG sector was growing steadily at the rate of 5-7% for the past five years. Compared to last year, the export volume for January to August declined by 25% due to the pandemic. Srilanka’s RMG exports are heavily dependant on two key markets, the EU and USA. Although the markets have shown signs of coming back to normalcy, stakeholders in the sector are sceptical about a second wave in the winter.
Except for the ones manufacturing PPE(s), most factories in Srilanka remained closed at the initial stages of the pandemic. Despite the shutdown (March-April), the factories had to pay full salaries of the workers as directed by the government. As the situation improved, the factories were allowed to re-open gradually with limited capacity, ultimately restoring to full power by June.
Concurrently, the government allowed RMG factories to pay 50% of salaries for the workers not being able to come to work. Also, large companies initiated partial shutdowns of factories to assimilate to the situation. The factories also used a rooster system for the workers to ensure workers do not lose their jobs. They also used other cost-cutting initiatives like reducing overtime. Government incentives like temporary working capital loans were invaluable. Unlike Bangladesh, the cancellations were not as drastic, there were only three cancellations, and their amount was not as significant.
A.F.M Nurur Rahman shared a similar experience; the Bangladeshi RMG sector has also taken a massive hit from the pandemic as the cancellations have been far more damaging to the industry. Analogous to Srilanka, Bangladesh’s RMG exports are heavily dependant of the US, EU and other G20 countries and the economic forecast for the countries are not very encouraging. The disruption started in December 2019 has been prevalent throughout 2020.
According to Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the industry has lost close to 5 billion dollars worth of orders. After the initial shutdown, factories across Bangladesh started operating in May due to social distancing regulations. As a cost-cutting measure, RMG factories in Bangladesh streamlined their workforce at the top positions by reducing highly paid executives and implementing reduced working hours.
The panellists discussed non-financial short term government support for the industry in both countries to ensure robust growth.
The stakeholders of the industry are in contact with the government to ratify numerous Free Trade Agreements FTA(s). Srilanka will be eligible for GSP+ status for 3-4 more years as the economic status of the country has declined in recent times (upper-middle-income country to lower middle income country). The government also needs to evaluate the enormous trade deficits that exist with countries like India and China and look to reduce the gap. Most importantly, it has to assess and remove import restrictions on products that are necessary for the economic growth of the country.
The government can aid the sector by facilitating faster port facilities and other administrative barriers to trade. It has to address the increasing port congestion and implement directives to manage the congestion. The stakeholders of the industry have to understand the shifting dynamics of the sector in the global markets and adapt accordingly. The government also take initiatives to increase the capacity of the shipping companies that will enable the factories to respond fasters to demands. Government has also to ensure uninterrupted energy supply to the factories. Energy disruption can seriously impede growth. Concurrently, the government can work with the private sector to set up medical facilities for workers at the proximity of their work or residence. The focus has to remain firm on the mental and physical well being of the workers.
Posted by FNF South Asia on Monday, October 5, 2020