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How can micro small and medium garment units survive during recent crisis?

The garment sector has been passing through a hard time as the export is declining over the last three months. Especially, the micro small and medium factories have been passing through bad days now.

How can micro small and medium garment units survive
Figure: Closure of nearly 60 micro small and medium factories is a major reason for the declining of garment export over the last few months.

There are so many reasons for the declining trend in apparel shipment. Closure of nearly 60 micro small and medium factories is a major reason for the declining of garment export over the last few months.

Why the small factories are losing out from the business?

For many reasons, the micro small and medium enterprises (MSMEs) are losing out from the business.

For instance, these factories are not competitive for the higher cost of production and a lower rate of profitability.  They have a low capital base and low turnover with a few number of workers. Most of such factories have between 500 and 800 workers.

The number of such factories is nearly 1000 across the country.

Most of the time either they cater to small quantity work orders or continue as subcontractors. However, their problem gripped more with the ban of subcontracting in the garment sector in an excuse for a safety issue in the workplace.

Once they were running their factories well with handsome work orders all the year-round. But now they cannot because they cannot maintain strict compliance set by international retailers and brands.

Key reasons for the crisis in micro small and medium garments
Figure 2: Key reasons for the crisis.

But at the same time the Accord and Alliance, two international factory inspection and remediation agencies did not give them any financial assistance for making them compliant although they had promised for such assistance earlier.

Since they have been failing to maintain the compliance the buyers are not placing them work orders. So, the bad impact is noticed in the national export due to their failure in a strong performance.

What measures need to be taken for small and medium enterprises?

This is the right time to do something special for the country’s garment sector by helping the micro small and medium units.

Because the micro small and medium units not only help to grow exports by direct shipment and acting as suppliers for the larger units but also create employment for thousands of unskilled and semi-skilled workers but also create a good class of fresh entrepreneurs.

It has been proved over the last four decades in the garment sector in Bangladesh. So that the government should come forward to help the sector.

Bangladeshi garment exporters have been enjoying four percent (4%) cash incentives on garment export to new destinations.

Bangladesh considers all as new export destinations except the EU, the US and Canada. The government has also given an additional 1 percent cash incentive for all markets on export.

However, the exporters have been claiming that they are facing trouble in receiving the 1 percent incentive as the finance ministry applied some conditions including 30 percent value addition by the garment manufacturers.

The exporters have been saying that it is very difficult to add 30 percent value to the current scenario of the business.

The government should ease the system of paying the incentive to the garment exporters so that they can survive this slowdown from the export slump.

Moreover, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) demanded devaluation of at least Tk1 against each US dollar so that the apparel exporters can survive now.

The government is giving 1 percent cash incentive for all markets on export. At the same time, exporters have been enjoying four percent (4%) cash incentives on garment export to new destinations. However, the exporters have been claiming that they are facing trouble in receiving the 1 percent incentive as the finance ministry applied some conditions including 30 percent value addition by the garment manufacturers.

The export of garment items has been going down. So the government can consider this demand made by the BGMEA.

The government has already reduced the source tax to 0.25 percent but it needs implementation as per the demand of the BGMEA.

These are the policy and fiscal measures that the government needs to do for the garment sector in general.

The ports including sea and air should function properly so that the exporters can send their goods timely with saving money. Ports and road efficiency can also save the operational costs of the exporters.

There we should keep in mind that air shipment of goods is very expensive. If any factory faces air shipment the profit of this particular company is gone for the full year. Rather he or she will be in big trouble for the existence of the factory.

So during this crisis moment, the exporters should be aware that they are not facing any expensive air shipment. The government bodies concerned should facilitate the exporters in this connection.

During this crisis moment, the government can take special measures particularly for the micro small and medium industries because the MSMEs are major driving forces for the sector.

The government may introduce a special financial measure for those MSMEs. For instance, those units may be given easy loan rescheduling facility and allocation of a special fund at least for a certain period so that they can weather the current turmoil period of export.

What are the benefits from the assistance?

If the micro small and medium enterprises survive the whole sector will be benefited. Our history of garment entrepreneurship started from such micro small and medium in mid-1970.

The entrepreneurs started their journey from the small and now they became larger units. If now we nurture the small units one day they will become larger units and employ thousands of workers to contribute to the economy.

The smaller units can also help the bigger units. Many such units have been facing the tough tests of compliance of their buyers.

If they get the assistance they will be able to remediate the factories and bring work orders from the retailers and brands and finally, they will survive.

Moreover, most of the small units have been suffering from a bank loan crisis. With the temporary financial assistance, they might be able to pay back the loan to a bit at least and run the business.

However, the banks should be very careful so that they do not become bankrupt or loan defaulters again.

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