Since the outbreak of Covid-19 in Bangladesh, the export-oriented apparel sector has faced multiple shocks and vulnerabilities. It has been struggling to cope with the emerging challenges despite numerous steps taken by several enterprises as a part of resilience and recovery measures. Progress in tackling the challenges is becoming more visible due to the gradual resumption of economic activities and vaccine availability.
Although several studies were undertaken focusing on the level of shocks and vulnerabilities in the ready-made garment (RMG) sector at the onset of the outbreak, it is more important to analyse the resilience and recovery capacity of RMG enterprises in tackling the novel impediments. Centre for Policy Dialogue (CPD) and Mapped in Bangladesh (MiB) under Center for Entrepreneurship Development (CED) of Brac University undertook the project titled "Vulnerability. Resilience and Recovery in the RMG Sector in view of COVID Pandemic: Findings from the Enterprise Survey" to assess, as its name suggests, the level of vulnerability and capacity for resilience and recovery of RMG enterprises in the coming months.
Resilience and recovery of an enterprise are a part of its risk management strategies that work as protective measures against rising vulnerabilities. A better understanding of resilience-related issues during the pre-incidence period helps enterprises prepare for any large-scale crisis.
The study estimates a 'resilience index' to measure an enterprise's resilience to and recovery from a large scale crisis beyond its control. The study has assessed the resilience of RMG enterprises, a first in Bangladesh. The index comprises of three components: robustness, recovery and resourcefulness. The study uses data from a nationally representative sample survey conducted in four major industrial clusters - Dhaka, Gazipur, Narayangonj and Chattogram - that assess the vulnerabilities, resilience, and recovery process of RMG enterprises. Out of 3211 listed RMG enterprises, a total of 610 sample enterprises were included in the survey. The primary sample covered 82 per cent member and 18 per cent non-member enterprises, and 54 per cent can be considered small enterprises, 40 per cent medium and 6.7 per cent large.
About 96.4 per cent of the factories were not in operation during the "official holiday" period enforced by the government; however, few large, medium and small factories were in operation upon permission from the Department of Inspection for Factories and Establishments (DIFE). More than one-third (33.23 per cent) of the small factories remained partially closed during the pandemic. The number was higher in the case of medium-sized factories as well. Around 10 per cent of the large factories were found to be partially closed.
Over 50 per cent of the enterprises had business dealings with a limited number of buyers. Around 7.0 per cent of the small enterprises, 7.1 per cent of the medium enterprises and 12.0 per cent of the large enterprises were dependent on a single buyer. This high dependence on a single source is a significant sign of weakness, resulting in catastrophic outcomes during crises like the Covid-19 pandemic.
The pandemic has exposed several weaknesses in regard to addressing vulnerabilities, resilience and recovery, which may lead to the stagnation of growth in the global apparel value chain. Despite strong coordination and awareness, major weaknesses spread across numerous issues, including maintaining essential functions and alternate sites, result in an overall resilience performance below the average of 43.4. Regardless of business operations, resilience performance does not significantly vary across large and small scale factories.
The RMG sector is plagued with poor performance, particularly in small scale, non-member factories, located in Narayangonj and Chattogram. The pandemic forced most factories to scale down their operations by more than 10 per cent. The average number of workers per factory came down to 790 in September 2020, which was 886 in December 2020. Enterprises that were surveyed reportedly laid off 2.7 per cent of their workers, but the overall lay-off could be as high as 13.95 per cent, making 3.57 lac workers unemployed. At present, around 33 per cent of the factories have a lower share of female workers than the pre-pandemic period. Such a large number of factories with a relatively lower share portrays rising vulnerability for women working in the sector.
Around 232 factories, 6.9 per cent of the total number, were forced to shut down permanently during the pandemic. The study found the financial management of RMG enterprises to be very poor. Most factories did not have any financial plan to cope with an emerging crisis. Subsidised credit under the stimulus package and the gradual rise of production orders helped factories to tackle the problem. Stimulus package covered only 70 per cent of the enterprises; the rest 30 per cent that was left out were mostly small and non-member factories.
The study concludes with some recommendations that would pave the path better to handle any future crisis in the RMG sector. It encourages associations to diversify their supply base by including both large scale brands and small scale buyers. Brands and buyers should ensure better buying practices by maintaining regular contact with the suppliers and proactively engaging with small-scale manufacturers. Providing technical know-how and other business-related support will facilitate the small enterprises to upgrade their value chain.
The Department of Inspection for Factories and Establishments (DIFE) needs to ensure that factories pay the stipulated wages. It should also enforce fair recruitment processes at the factories. BGMEA and BKMEA also have a major role to play in this regard. They should implement the members to develop a financial sustainability plan and follow-up regularly. Stimulus packages need to be more outreaching. Procedural difficulties that discouraged almost 30 per cent of the factories from applying for assistance need to be addressed. Bangladesh Bank and other commercial banks need to reexamine the process to make it more accessible.
Special development programmes that include technological enhancement, management improvement, financial management improvement, buyers' networking and online IT investment need to be designed for factories located in Chattogram and Narayaongonj. Emphasis should be given on incentivising the SMEs and non-member RMG factories to facilitate their upgradation. The associations should initially undertake proper mechanism to make the non-member factories as 'associate members' and thereby support them in upgrading their compliance standards and finally making them 'full members'.
A new set of emergency preparedness measures must be drawn up to ensure swift recovery and smooth damage control. The government should make it a part of factories' compliance requirement to pay workers' wage payment through MFSs, bank accounts, or agent banking. The future roadmap to develop the RMG sector should keep foreign direct investment (FDI) in the centre of the plan to ensure product diversification, the better competitive environment at the domestic level, the transfer of technologies and better industrial relations.
Dr Khondaker Golam Moazzem is the Research Director at Centre for Policy Dialogue (CPD).
ASM Shamim Alam Shibly is a Research Associate at CPD.
Fahim Subhan Chowdhury is a Senior Research Associate at Centre for Entrepreneurship Development, BRAC University.