40% of RMG businesses face LC opening delays: BIDS survey

A recent survey by the Bangladesh Institute of Development Studies (BIDS) has revealed that 40% of the country's ready-made garment (RMG) businesses are grappling with delays in opening letters of credit (LC) due to a shortage of US dollars.

Moreover, RMG stakeholders are also struggling with customs-related issues, with 60% of survey respondents reporting mismatches in harmonised system (HS) codes during raw material imports. 

The study, conducted in June on 63 firms with focus group discussions with RMG suppliers and stakeholders, also highlighted issues such as high bank charges and delayed payments from buyers.

The findings were shared today (8 December) on the second day of the "Annual BIDS Conference on Development 2024" during a session titled "Technology, Supply Chain, and Employment in Firms." The conference is being held at a city hotel and will continue till 10 December.

During the session, Monzur Hossain, research director at BIDS, presented a paper titled "Supply Chain Dynamics for Sustainable RMG Growth in Bangladesh" and outlined seven recommendations for the sector.

Nearly half of the respondents (46%) in the survey recommended lowering bank transaction costs, while others emphasised introducing telegraphic transfers (TT), maintaining a uniform USD exchange rate, standardising LC charges across banks, reducing tax rates, and adopting advanced technologies.

Monzur also emphasised on the importance of effective supply chain management to meet buyers' lead time requirements, stating that simply paying minimum wages is insufficient for business sustainability. 

The report also noted that Bangladesh faces extended lead times due to its geographic location and reliance on transshipment hubs such as Singapore and Malaysia. Unlike Bangladesh, competitors like China, India, and Cambodia benefit from greater self-sufficiency in shipping logistics, the report stated.

The session, moderated by Sajjad Zohir, executive director of the Economic Research Group (ERG), also highlighted the challenges in sourcing materials promptly from foreign suppliers, as per the reports findings.

Technological efficiency gains could impact 18 lakh jobs

A 50% increase in technological efficiency could result in the loss of approximately 18 lakh jobs in Bangladesh, with the textile and ready-made garment (RMG) sector being the most impacted, according to another paper presented during the same session. 

The findings of this study titled "How would technological progress impact employment in the manufacturing sector of Bangladesh? An empirical projection" were based on the Solow growth model.

The model, also known as the Solow-Swan model, is a neoclassical economic model that analyses how a country's output changes over time.

Presenting the paper, Farhin Islam, a research associate at BIDS, revealed that 10 lakh job losses are expected in the RMG sector alone.   

The study also identified other vulnerable sectors, including leather goods, food products, furniture, pharmaceuticals, and plastic and rubber manufacturing.

Speaking to The Business Standard, Farhin clarified, "We found this assuming there is no growth in the manufacturing sector."

However, the study also revealed that, if the manufacturing sector grows by 10%, with a 50% rise in technological efficiency, the total job creation by 2025, could surpass the losses, creating over 20 lakh jobs.

The study projected job growth in sectors such as food processing, paper products, coke and refined petroleum, non-metal mineral products, and computer and electronics manufacturing. 

"The unemployment we forecast will be much lower with labour-augmenting technology rather than labour-replacing technology," she said, emphasising the need to upskill the labour force.

"If we can skill up the workforce, we can boost output while preserving jobs," Farhin added, urging the government to implement more measures for workforce development. 

Session participants also stressed the social implications of technological adoption.

During the session, BIDS Director General Binayak Sen highlighted the importance of gender-based employment research in understanding the broader impact of technological advancements on the labour force.