BANGLADESH UNIVERSITY OF PROFESSIONALS

Term Final Assignment

Title: Covid 19 Pandemic and Bangladesh’s
RMG Sector: Impact, Responses, and Priorities

Course Name: Industrial Relations

Course Code: HRM 8605

Submitted To:
Prof. Dr. Jakir Hossain
Faculty Member of FBS, BUP

Submitted By:
Sumaiya Akter
Roll: Ev 18018010
Batch: MBA Professionals 2018

Date of Submission
04-06-2020

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 Covid 19 Pandemic and Bangladesh’s RMG
Sector: Impact, Responses, and Priorities

Introduction

With the outbreak of novel coronavirus declared a pandemic and an international

public health emergency by the World Health Organization (WHO), the entire world
is working to address it. It is a rapidly evolving and emerging situation. Researchers
across the world are working hard to understand better the biology of COVID and the
epidemiology of the novel coronavirus disease-19 (COVID-19). The estimated basic
reproductive number of the virus is significantly higher than many other infectious
diseases, and this can potentially result in the capacity of health facilities becoming
overwhelmed, even in the countries that have the most developed healthcare systems
An estimated 20% of cases lead to clinically serious and complex conditions. With
some sporadic cases of serious illness in younger individuals, adults >60 years of age
and with co-morbid conditions make up the most vulnerable group. There are as yet
no vaccines or antiviral drugs approved for the disease, and hence, non-therapeutic
interventions to control the spread of the virus are the most effective measures to
control the disease. Worldwide, billions of people are staying at home to minimize the
transmission of the virus. Many countries are adopting preventive measures, e.g.,
remote office activities, international travel bans, mandatory lockdowns, and social
distancing. Bangladesh, a lower-middle-income country and one of the world's most
densely populated areas, is struggling to combat the spread of the disease. In this
write-up, we briefly articulate the impact, Responses, and Priorities of COVID-19 in
Bangladesh on RMG sector.

Reference: https://www.frontiersin.org/articles/10.3389/fpubh.2020.00154/full

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Covid 19 impact on RMG sector
The economic impacts of the COVID-19 pandemic is now being witnessed at all levels
and the irrevocable financial damage, which may be considered secondary to matters
of health and safety, in the near future may prove just as detrimental. The UN
estimates the outbreak of this deadly virus could at least cost a trillion dollars and
could slowdown the global economy to under 2.0 per cent this year. Bangladesh will
also have to share a sizeable part of this loss. As we estimate the percentage of the
global loss that we will have to bear, the government should identify the particular
sectors that will be affected the most. As per the Bangladesh Bank data in the fiscal
year 2018-2019, Bangladesh imported goods worth US $13.65 billion, while the
country exported products of US $831.2 million in the same period. On top of that,
over 50 percent of Bangladesh's textile and textile-related goods, including garment
accessories, are imported from China. Some economists look for a reverse-side
business fortune2. In what seen as a blessing in disguise they see a silver lining in the
shadows. That is, Ready Made Garment (RMG) order shifts from China to other
apparel exporters like Bangladesh which is second only to the economic superpower
China in terms of global clothing business.

Reference: http://m.theindependentbd.com/printversion/details/237479

When we talk about Bangladesh's association in the world of global business, the first
thing that comes to our minds is our ready-made garments (RMG) industry, which is
by far the biggest export-earning sector - contributing over 84 per cent to the country's
annual export. Evidently this sector has started to witness its share of loss due to the
virus outbreak globally. As of last week, 69 member companies of the Bangladesh
Garments Manufacturers and Exporters Association (BGMEA) have faced order
cancellation amounting to $93 million and up to $7.38 million work orders have been
suspended by the top international clothing retailers and brands3. As a result, industry
insiders are expecting further cancellation and slashing of work orders in the
foreseeable future as the world grapples with escalating numbers of infected cases and
mortality rates due to the fatal virus.

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Reference: https://tbsnews.net/economy/rmg/apparel-makers-face-further-hardships-buyers-
demand-discount-64132
After China, as Europe has become the new epicentre of the virus outbreak together
with surging numbers of infected cases in the US, Bangladesh's RMG sector is now
exposed to a much bigger threat since the European Union (EU) and the US are the
country's biggest trading partners of textiles and apparels. Due to the rapid outbreak
of this deadly virus, governments of the affected nations were forced to take extreme
precautionary measures ranging from the introduction of self-isolation to complete
lockdown of cities. As a result, consumer spending has plummeted substantially and
local stores and malls were forced to shut down, prompting international fashion
retailers and apparel brands to cancel and axe their order volumes.

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Unfortunately, the cancellation or slashing of orders does not only stop with an
immediate impact on the profitability and earnings of the local manufacturers, this
could also give rise to devastating economic consequences. Firstly, cancellation of
current orders means a loss of resources with an imminent threat to the RMG
backward linkage industries. These orders, which were placed by the international
clothing retailers and buyers some 3-6 months back, are already produced and made
ready for shipment by the local manufactures. Manufacturers have already incurred
costs and remain indebted to all other suppliers from whom they have sourced the raw
materials. Now provided that these orders are getting cancelled, how and who will pay
back these suppliers of raw materials? Essentially this will trigger an alarming
situation in the RMG sector together with its backward linkage industries. Secondly,
over four million people are employed in this sector and therefore cancellation of
orders could potentially create an obstruction in their scheduled wages and in extreme
cases may even lead to the termination from their services, should the firm chooses to
shut down due to insufficient orders. Learning from past experiences, situations like
these could trigger labour unrest which has disastrous economic consequences.
Thirdly, there is a threat to the existence of small and medium-sized companies in this
industry during this situation. As buyers are already cancelling orders amounting to
millions of dollars, this dire state has the potential to persist for a considerable length
of time; experts have suggested the economic aftermath of this virus outbreak could at
least last a year. As a result, with insufficient volumes of orders, it is highly likely that
small and medium-sized firms will be forced to shut down due to the failure of
recovering the costs of business.

Reference: https://thefinancialexpress.com.bd/views/views/your-order-has-been-cancelled-the-
coronavirus-impact-on-the-rmg-sector-1584974682

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Impact on RMG workers
Millions of RMG workers are going to be affected economically by the COVID-19 crisis.
Majority of these workers are female, coming from poor socioeconomic backgrounds,
and mostly working at a low wage in garments factories predominantly producing low-
price garments. Historically, the garments workers have been often denied their
rightful benefits. RMG is the most important industry for Bangladesh, as a result, the
industry leaders can negotiate for support with the government in crisis situations like
this. But it is extremely important that the poor, vulnerable workers get the fair share
of the support package. Our research will provide useful insights into whether this is
happening and what role different stakeholders are playing in the negotiation process.

Reference:https://bigd.bracu.ac.bd/study/effect-of-covid-19-on-rmg-sector-and-trade-union-
efforts-to-mitigate-fall-out/

Reference: https://tbsnews.net/coronavirus-chronicle/covid-19-bangladesh/pandemic-hits-hard-all-
business-sectors-63517

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How is the labour market going to be affected? In organised sector activities like the
RMG industry, lay-offs may result if purchase orders are cancelled and new orders are
not received. Will they show up in higher unemployment rates as in developed
countries like the US? Most likely not. That is simply because in the absence of
unemployment benefits, the retrenched workers will not be able to remain
unemployed for too long (and anyway, surveys are not carried out every year). They
will have to do something in order to eke out a living - probably at lower levels of
sustenance.

In situations where lay-offs are caused only (or primarily) by deficiency in external
demand, the tendency usually is for the retrenched workers to crowd into the informal
sector trade and service-type activities. But the present economic downturn is going
to be different for Bangladesh in that the domestic economy is also being affected. So,
there will not be many alternatives for those dependent on wage labour and petty self-
employment. In fact, those working in the domestic informal sector are also facing
difficulties in maintaining their livelihoods.

A number of countries have already announced measures to fight the economic crisis.
Both monetary and fiscal policies are being used in order to support businesses and
strengthen social protection. In US, Federal Reserve has lowered the rate of interest to
nearly zero and has announced measures of quantitative easing (QE). Simultaneously,
the government has announced a fiscal package to provide support to businesses that
are in danger of closing down and to strengthen social protection. The basic objectives
of this package are to protect jobs and to provide social protection to those who are
going to be laid off. At this moment, the country's government is discussing a huge
expansion of the fiscal package.

UK has also announced a financial package to provide support to various sectors -

mainly in the form of loans. The declared objective is to support the economy,
businesses, incomes and jobs. What is noteworthy is that in the announcement of

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measures by both UK and US, jobs and social protection are explicitly mentioned. So,
they appear to have a social face.

What has the Government of Bangladesh done? Not much is seen up to now, except
for the announcement by Bangladesh Bank of a few "policy support" measures to ease
exports and imports. What these would imply in reality remains to be seen.
Meanwhile, BGMEA (Bangladesh Garment Manufacturers and Exporters Association)
has already come up with a case for support from the government, although the precise
nature of the support sought has not been elaborated.

It may be recalled that during the global economic crisis of 2008, fiscal stimulus was
provided to the RMG industry with the objective of preventing a major decline in
exports. The assumption perhaps was that if the flow exports could be maintained,
jobs in the industry would also be protected. Whether that expectation was met is a
question that was never fully evaluated.

Given the real possibility of a decline in both export and domestic demand, it is
necessary to prepare a package of fiscal and monetary stimulus to support economic
activities. Furthermore, given the timing of the crisis (especially, the advent of
Ramadan and Eid), it would be useful to provide support to industries. However, such
support must be linked to the prevention of lay-offs and smooth payment of wages to
workers during this critical period. A strong social face with transparency,
accountability and independent evaluation built into the measures is needed.

Reference: https://thefinancialexpress.com.bd/views/views/covid-19-and-economic-crisis-need-
for-measures-with-social-face-1584889514

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Responses
The Bangladesh government took a number of quick initial actions. International
organisations, NGOs, and civil society organisations have been key partners in the
state’s response.

The Bangladesh Medical Association (BMA) was instructed to prepare a list of 500
doctors to be incorporated towards COVID-19-related infection management in the
immediate aftermath of the first cases being reported. To address acute shortages in
healthcare equipment and medical supplies, the Bangladesh Garment Manufacturers
and Exporters Association (BGMEA) is coordinating with five member companies to
produce 500,000 Personal Protective Equipment (PPE).

On 25 March, Prime Minister Sheikh Hasina announced a bailout/stimulus package

of Tk 5,000 crore (equivalent of 530 million EUR) for export-oriented industries to
mitigate the impact of the coronavirus on the country’s economy. The premier
indicated that the money from the package could only be disbursed in the form of
salaries and wages for employees and workers of those industries.

On 1 April 2020, the finance ministry unveiled the guidelines for disbursement of the
Tk 5,000 crore stimulus package. Businesses can avail of funds from the package at
2% interest to pay their workers’ salaries for up to three months. The salaries must be
paid to either a bank or mobile financial service account. Management of export-
oriented companies or factories have to provide salary sheets, workers’ lists and their
mobile banking accounts to banks so that salaries for April can be directly disbursed.
The banks, afterwards, will forward the same documents to Bangladesh Bank for
reimbursement. The borrowers will get a six month grace period, meaning that they
will start paying back the borrowed money in instalments to the government from the
seventh month of receiving the money.

Garment workers’ salary disbursement from the stimulus package started as of 3 May.
Salaries of affected workers of factories that applied and qualify for support under the
Tk 5,000 crore stimulus package will be disbursed directly to the workers’ accounts by
the government. Following a tripartite meeting between government, worker
representatives and RMG industry owners, the state minister for labour said, ‘RMG
workers who did not work in April will get 60 percent of their salary for this month

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before Eid. Those who worked in factories that remained open amid shutdown in April
will get 100 percent salary. Besides that, those who resumed work from April 26 will
get 60 percent of their wages for the previous 25 days, and full wages for the last five
days of this month.’ The salaries for April will be sent through mobile financial services
directly to the RMG workers’ accounts.
On 5 April, the Prime Minister announced four fresh financial stimulus packages of Tk
67,750 crore. The PM said the government simultaneously developed four
programmes under the plan, to be implemented in phases categorised as Immediate,
Short and Long. The four programmes are: increasing public expenditure, formulating
a stimulus package, widening social safety net coverage and increasing monetary
supply.

HSBC Bangladesh announced a set of measures to help its textile and garments clients
tide over the economic fallout from the coronavirus pandemic. The bank will provide
special short-term loans of up to one year, with principal moratorium for four months,
which can be used for the purpose of supporting payroll bills and utility payments. The
bank will also allow three months’ moratorium against the existing term loans enjoyed
by businesses belonging to the textile and garments sector, according to a press release
issued by HSBC Bangladesh. During the moratorium period, clients will not be
required to pay any instalments, and the lender will also not seek any amount of
repayment from them. The Bangladesh Bank has asked banks to extend similar
support to businesses.

On 25 March, the Bangladesh government sought $1 billion in support from the

International Monetary Fund and the World Bank as the country looks to support its
people, businesses and industries reeling from the pandemic.

Bangladesh Bank has declared a moratorium on loan repayments up to end-June

2020. Relaxations in Foreign Exchange Regulations up to September 2020 were
announced on 19 March. An emergency relief package of US$ 600 million, later raised
to USD 8573 million to implement four programmes, has been offered. On April 12,
the government announced a USD 1.7 billion relief package for the farming sector.
Those whose livelihoods have been affected are being provided with meals under
existing social safety programmes, rather than through direct cash transfers.

Reference: https://www.eurasiareview.com/10052020-bangladeshs-response-to-covid-19-analysis/

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Priorities
What are local stakeholders doing to lobby their government?

The Industriall website mentions the appeal of the IndustriALL Bangladesh Council
(IBC) to the Government of Bangladesh:

All the factories including the ready-made garments have to be closed down with due
payments to the workers until the situation improves.
No workers can be terminated or retrenched under this disastrous situation.
Special measures and treatment have to be ensured if any workers fall ill or are
attacked by the virus, including taking necessary steps to ensure good health and
security for all workers.
Rationing for the workers has to be ensured in this difficult time.
No factories can be closed/laid off without paying the worker’s dues.
In any emergency situation the government has to ensure cash money assistance to
the workers.
A tripartite (government, BGMEA employers’ group and IBC) monitoring taskforce
has to be established under the leadership of the Labour Ministry.
Brands and buyers are urged not to cancel their work orders.

The Centre for Policy Dialogue (CPD) in Bangladesh advocated for the
following:

Suppliers should discuss with their brands/retailers about possible cooperation

in order to share revenue losses incurred for
cancellation/deferment/withdrawal of orders
Scope to share the losses of business enterprises (partially/fully) with
buyers/brands/retailers
Minimum support to maintain day-to-day expenses; support for retaining the
staffs and workers and rationing support facilities for contractual workers
Export-oriented sectors, such as the RMG sector, needs cash flow support to
retain workers, deferment of LC payment, deferment of import LC receipt,
interest payment support to banks, low cost credit support from development
partners.
Reschedule loans on case by case basis for exporters: Bangladesh Bank can
provide guidelines to commercial banks in view of this to address loan
repayment difficulties.
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What are local organisations doing to support and protect the workers?

Awaj Foundation indicated that it is seeking donations for an emergency fund

for workers who have lost their jobs. This will mainly be in the form of cash
disbursements to make sure that their basic needs for food and shelter are met.
Awaj Foundation indicated that it will also continue to provide some health
services and will connect workers with other resources when they need more
intensive help.
Following concerns over shortage of personal protective equipment (PPE) for
doctors and nurses, five organidations — Pay It Forward Bangladesh, Honest,
Buet Alumni Association, Rotary Club Dhaka North-west and Manush
Manusher Jonno Foundation approached Marks & Spencer with a request
to produce 400,000 suits for doctors and nurses.

What have been the responses and requests of business associations to

support the industry?
The BGMEA is continuously monitoring the situation in garment factories.
According to the BGMEA website. To date (13 April), 1136 factories reported
that it has lost USD$3.15 billion in cancelled/postponed orders, equivalent to
976 million pieces. A staggering 2.26 million workers are affected thus far.
BGMEA President Dr. Rubana Huq released a video message in which she
urged international apparel buyers to come forward to support the apparel
industry of Bangladesh during this hard time.
Reported in several media outlets, BGMEA President Dr. Rubana Huq has also
written to the German Federal Minister for Economic Cooperation and
Development Dr. Gerd Müller, urging him to kindly immediately call for all
their brands sourcing from Bangladesh to not cancel or hold any shipments up.

What are international brands doing to support suppliers and protect

workers?

In response to urgent appeals, a number of brands including H&M, PVH,

Inditex, Marks & Spencer came forward with assurances to help garment
suppliers by taking the shipment of goods that have already been manufactured
or ordered. However, media reports have also come out saying that brands have
decided to temporarily suspend placing new orders.
A Research Brief from the Center for Global Workers’ Rights of Pennstate
University in Association with the Worker Rights Consortium, drawing from
responses from an online survey of Bangladesh employers, reported that more
than half of Bangladesh suppliers have had the bulk of their in-process, or
already completed, production cancelled. This was also reported in
several media.
Reference:https://www.fairwear.org/covid-19-dossier/covid-19-guidance-for-production-
countries/covid-19-impact-and-responses-bangladesh/

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Conclusion
It is high time the government stepped in before the situation worsens further.
Policymakers should sit down with industry stakeholders and device policies that
could effectively safeguard the RMG sector. Governments around the world are
proposing trillion-dollar stimulus packages for their economies to help fight the
coronavirus epidemic. Certainly, the RMG industry, which is the country's major
earning sector, is qualified to get a place in the government's top priority list at this
time of great peril. Industry insiders have proposed solutions such as support from
disaster assistance fund, credit guarantee schemes from the central bank to encourage
commercial banks' continued support and amendment in the rules of the back-to-back
letters of credit (LCs) to combat the current situation.

Reference: https://thefinancialexpress.com.bd/views/views/your-order-has-been-cancelled-the-
coronavirus-impact-on-the-rmg-sector-1584974682

References
https://www.nordeatrade.com/fi/explore-new-market/bangladesh/economical-
context
https://en.wikipedia.org/wiki/Economy_of_Bangladesh
https://thefinancialexpress.com.bd/views/views/covid-19-and-economic-crisis-
need-for-measures-with-social-face-1584889514
https://www.thedailystar.net/opinion/news/navigating-covid-19-impacts-
bangladeshs-external-sector-1886347
https://bigd.bracu.ac.bd/study/effect-of-covid-19-on-rmg-sector-and-trade-union-
efforts-to-mitigate-fall-out/
https://thefinancialexpress.com.bd/views/views/your-order-has-been-cancelled-
the-coronavirus-impact-on-the-rmg-sector-1584974682
http://m.theindependentbd.com/printversion/details/237479
https://www.eurasiareview.com/10052020-bangladeshs-response-to-covid-19-
analysis/
https://www.thedailystar.net/business/news/govt-seeks-1b-imf-wb-
1886107https://www.frontiersin.org/articles/10.3389/fpubh.2020.00154/full
https://tbsnews.net/coronavirus-chronicle/covid-19-bangladesh/pandemic-hits-
hard-all-business-sectors-63517
Dhaka Stock Exchange
Chittagong Stock Exchange
Bangladesh Bank
Bangladesh Bureau of Statistics
Ministry of Finance

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