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RMG sector needs fresh fund to fight second wave of Covid-19 pandemic

In 2020, no apparel exporter could escape financial losses as Covid-19 hit Bangladesh’s clothing industry hard.

Either they incurred losses due to work order cancellation or discounts on products. While a good number of exporters suffered due to deferred payment, of them a portion yet to realize the payments.

This left apparel exporters in a cash crunch to meet the costs of operation and worker wage payment. They are facing challenges to pay wages for the current month.

On top of that, cash flow shortens due to slower flow of work orders and the manufacturers are running factories with 30% less capacity.

RMG_ fresh_fund
Figure: Sector leaders opined that though the government provided financial support but it was for the immediate response and also not enough to face the fallout

However, government support gave the exporters a relief to pay workers wages to fight Covid-19 pandemic fallout but the second wave deepened the crisis.

Both the experts as well as factory owners opined the sector needs a fresh package to fight the fallout of the second wave of Covid-19.

“As the buyers denied to receive goods already shipped and landed in the port of the importing country, I had to provide a discount of $1.5 lakh,” Irfanul Hoque, Director of Fatullah Fabrics.

“This caused huge losses, which left me in fund shortage to meet the working capital.”

In addition, buyers further held orders due to the second wave of Covid, while I don’t have enough orders to run the factory with full capacity, said Irfanul.

According to BGMEA data, apparel factory owners are running the factories with 70% capacities due to lack of enough orders from the global buyers.

Though the government provided financial support but it was for the immediate response and also not enough to face the fallout, he adds.

In the given context, the government should offer fresh funds for the export oriented clothing sector for the sake of economic recovery as it contributes lots to the country in terms of employment and foreign currency earning, said Irfanul.

“The exporters have gone through a tough time and still they are facing lots of challenges as the global economies are suffering the devastating impacts of Covid” Ahsan H Mansur, executive director of Policy Research Institute (PRI) told Textile Today.

Order cancellation, discounts, deferred payment and lower flow of work orders left the manufacturers in cash shortage. So, to help the sector to turn around, the government can think of further financial support, he added.

As per the BGMEA data, global retailers canceled or held work orders worth $3.18 billion due to the pandemic. Though, 90% buyers reinstated but they deferred in payments.

Meanwhile, experts and trade body leaders also urged the government to extend the deadline to repay the loans as paying installment will escalate further cash shortage.

“To be more precise, we have seen an unprecedented slash in RMG export by 16.94% in the year 2020 compared to 2019. The situation is a reflection of the worsening global clothing retail and demand. While retail sales growth in both the USA and EU has been on a declining trend,” Bangladesh Garment Manufacturers and Exporters Association (BGMEA) president Rubana Huq said.

“With the detection of a new strain of the virus and that being more contagious than the first one, we missed the biggest sales season, Christmas.”

Since the factories are already in deep trouble struggling to meet regular expenses and cash flow while export is falling, price has dropped by 5% in recent months, the repayment of wage loan incentive, would mean 20% additional wage burden on the factories, which, at current business scenario, is absolutely difficult, said the business leader.

Meanwhile, exporters opined that the first and the second wave of Covid-19 have different magnitudes of impact on our industry.

Though the first wave was apparently more severe, the industry is already enough injured to absorb a milder second shock, they add.

“Instead of cancelling orders, they are now deferring order placements and splitting those into batches on shorter lead time. This has an adverse impact on our industry since factories are not being able to have a forecast and plan their capacity.”

In this backdrop of a multipronged crisis, it is getting increasingly difficult for the factories to stay on course without additional fiscal support by the government, said Rubana.

Considering the current circumstances, we appeal for your kind and empathetic consideration to extend the ‘repayment term’ of the wage assistance loan package, said Rubana.

Therefore, we urge the government to consider amending the repayment term from 24 months to 36 months with a moratorium of 12 months from 6 months, she added.

Supporting the demands of the manufacturers, Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem said: We should think about the workers’ employment and retain it. To this end, to ensure supply of working capital, the government may consider an extension for repayment.

But the manufacturers have to be more cautious about grabbing orders from the buyers to recover from the pandemic. If they can grab more work orders, it will help to increase their financial capacity to repay loans, said the economist. .

After the outbreak of Covid-19 in March, as an immediate response the government declared a stimulus package of Tk5000 of Tk5,000 crore for export-oriented industries to pay workers’ wages to tackle the impact of the Covid-19. Exporters were offered the package as a loan at 2% interest and the RMG sector took loans of Tk10,500 crore .

As per the terms of conditions of the package, manufacturers were asked to repay the fund in 18 equal installments over two years with a grace period of six months.

The repayment of the loan started from 17 January 2021.

If anyone has any feedback or input regarding the published news, please contact: info@textiletoday.com.bd

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