The government had announced a stimulus rescue package worth $588 million for the RMG factories, which is intended to help the factories cover the wages and allowances of approximately 4.1 million workers
The readymade garment (RMG) industry can be dubbed the backbone of the economy of Bangladesh since the tag "Made in Bangladesh" has brought glory for the country.
The RMG sector grew at a rate of 55 percent between 2002 and 2012, making it one of the fastest-growing industries in the country's economy. RMG export accounted for 80 percent of the total exports in 2012, which increased to 81.13 percent in 2014.
In the 2017-18 fiscal year, the apparel sector grew by 8.76 percent with total earnings of $30.61 billion - an amount that accounted for 83.66 percent of the country's total export earnings. In the 2018-19 fiscal year, it was 32.68 billion, which is 84 percent of the total RMG exports amounting to $34 billion.
In the course of the success stories, one can surely ask what has been done to strengthen the sector further through digitisation?
The Centre for Entrepreneurship Development (CED) of BRAC University is currently implementing the "Mapped in Bangladesh" (MiB) Project, which began in April 2017. The project is being implemented with coordination of BRAC, while Laudes Foundation and the Kingdom of the Netherlands are providing funds for the implementation.
The project is aimed to digitally map all the export-oriented factories in Bangladesh through a country-wide census. It has already published the data of 2,526 factories comprising the factory clustered areas of Dhaka, Gazipur and Narayanganj in its website Leveraging the experience of working with various RMG stakeholders as part of the project, the authors find that the full focus of the RMG industry has always been on those associated with the export market. So far, little or no focus has been put on those associated with the local or domestic market.
Over the years, with the growth of RMG factories focused more on exporting, some entrepreneurs also emerged who focused on the domestic market.
While most of the exporting factories are members of BGMEA or BKMEA or both, there are some non-member factories, who are catering to the export market as well.
There is a big number of factories producing for the local/domestic market. With an estimated population of 164.7 million, the Bangladeshi domestic market is huge, and these factories have been meeting the domestic demand for quite some time now.
This is evident from the local markets, such as Bangabazar at Ramna, Nurjahan Market near Dhaka College, the roadside vans selling garment items at any part of the metropolitan cities, and clothing markets all over the country.
One round in any of these markets is enough to give a clear picture of the comparison of quality of the products available now and that were available five or ten years back. In those days, garment products sold at these shops were mostly rejected stock-lot items and of inferior quality. However, at present, the products sold are of satisfactory quality, and are mostly not rejected stock-lot items. They are using fine fabrics and the finishing are of a good standard.
Another group of manufacturers evolved under the umbrella of the RMG factories that produce for both the domestic and international market. Due to lack of research and data, the exact number of such factories and manufacturing units is still unknown.
This group includes accessories manufacturers, label producers, embroidery factories, printing factories, carton makers, polybag manufacturers, packaging factories, and finishing centers, among others.
The accessories manufacturers produce many items including - hanger, hangtag, collar stand, size tag, tissue paper, backboard, neck board, paper band, pin/clip, tag pin, carton sticker, safety sticker, arrow sticker, elastic bag, mini polybag, gum tape, scotch tape, p.p. band, inner carton, outer carton, iron seal, both side tape, plastic staple, barcode, universal product code (UPC), ball chain, carton pad, size stickers, numbering stickers, defect indicator, safety pin, brass pin, size clip and master carton among others. Previously these accessories had to be imported.
At present, all these accessories are produced in Bangladesh and are used by RMG factories producing for both the export as well as domestic market meeting 90 percent of the demand. There are factories that concentrate on producing and supplying only labels to RMG factories.
The recent Covid-19 outbreak has stagnated the RMG sector of Bangladesh. The factories and their workers have been hit hard by the pandemic. The whole sector has come to a pause with the world's biggest and most reputable brands and retailers cancelling and/or postponing orders that have already been manufactured or are in work-in-progress.
Brands and retailers are also canceling upcoming orders and refusing to pay for the cost of raw materials and fabrics that have already been purchased by the factories to meet their orders.
As a quick response, the government had announced a stimulus rescue package worth $588 million for the RMG factories, which is intended to help the factories cover the wages and allowances of approximately 4.1 million workers. Undoubtedly, it is a great initiative by the government. However, the package is only for export-oriented RMG factories, who have at least 80% of their production for the export market, and are members of BGMEA and BKMEA.
This leaves behind those factories that cater for the export market but are not members of trade associations, perform sub-contract, produce for the local/domestic market and also factories of backward linkages involved in the RMG supply chain.
These factories employ a significant number of employees and are being owned by entrepreneurs who invested from personal sources (own savings, loans from friends and family, etc.). Many of them are operating these factories with minimum profit margin.
For the sake of argument, if we consider this category to generate employment half of what the export-oriented association member factories do, the amount is approximately 2 million. If we are leaving these 2 million out of our focus, we are leaving out 2 million families as well.
These entrepreneurs also have a lack of access to formal banking channels and financial institutions due to their size and nature of their business.
Furthermore, as these factories are not oriented to the export market, they rely on the demand of local customers which tend to surge during the Eid period. There is no doubt that the festive buying during the upcoming Eid will be negatively affected due to the ongoing crisis caused by Covid-19 pandemic. As a result, there are chances that many of these factories will be out of business and will be permanently closed.
Considering the efforts of the entrepreneurs associated with these factories and their contribution of employing a large labor force; we, therefore, urge the government to take this category of factories into account while providing them with the initiative for appropriate stimulus rescue packages, before it is too late.
The authors are researchers at Centre for Entrepreneurship Development (CED), BRAC University