Another Tk3,000cr for salary support of RMG when SMEs need more

The government has for the third time slopped another dollop of Tk3,000 crore from taxpayers' pockets as a soft loan for the export industries, mainly garments, to pay workers' salaries.

With this latest tranche, the support from public money to the garments sector stands at Tk10,500 crore, twice what the original stimulus package had envisaged, thanks to what economist Dr Hossain Zillur Rahman terms as the "voice power" of the garment owners who have raised enough din to make the garment sector a priority above everything else.

Economists, however, point out the inherent contradictions of the demand of the garment sector for salary support with public money.   

With the pandemic setting in and orders disappearing, the garment owners took little time to start talking about job cuts and salary support from the government pocket. This raised the question about the financial structure of the $34 billion apparel sector that also imports $13 billion in fabrics and accessories. Whether building no reserves for this demand-sensitive industry was a wise decision is a big question now.

Moreover, orders have started to pour in since May and factories are humming once again.

However, the finance ministry on Thursday sent a letter to the Bangladesh Bank, allocating more Tk3,000 crore for the export sector. The central bank was asked to disburse the money from the stimulus package of Tk30,000 crore.

Under the new extension amount, borrowers will get a loan at 4.5 percent and the remaining 4.5 percent will be subsidised by the government.

The main objective of the stimulus package was to protect employment as business entities cannot support their workers amid the pandemic, said Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office.

"But in the garment sector, we have been seeing a contradictory situation from the beginning of the lockdown," he said.

Explaining the contradictory issues, he said garment factory owners were demanding to reopen factories even amid order cancellations.

If orders had been cancelled, why were they so aggressive about reopening factories even during the pandemic? Factory reopening contributed to worsening the coronavirus situation in Bangladesh, he added.

"Keeping factories open, they have been claiming that they could not pay salaries to the workers, so they demanded funds from the government to pay wages. So, there is inconsistency in their activities," Dr Zahid said.

He raised the question as to why RMG is the only priority – other small sectors are also in existential threat, many small industries lost business opportunities during Eid. As a result, they could not pay their workers.

Citing media reports, Zahid said the export sector has already restored orders worth $11 billion.

Moreover, there is a small difference in export earnings growth in June compared to the same period of last year.

"So, if there are export earnings, why could they [exporters] not pay salaries? That is the question the government should raise," he said.

On March 26 this year, Prime Minister Sheikh Hasina announced a stimulus package of Tk5,000 crore to pay wages of workers at export-oriented factories that have been impacted by the fallout of Covid-19. Exporting firms could use the fund to pay workers for three months – April, May and June.

Exporters got the fund at virtually zero cost as they had to pay only 2 percent service charge against the loan only once.

Later in June, the government allocated more Tk2,500 crore at the same cost.

Confirming the extended facility of Tk3,000 crore, Mohd Humayun Kabir, executive director of the Bangladesh Bank, said that it is to help the export sector as payments and export shipments are being delayed.

"Exporters were pursuing the government to extend the facility, following which the loan facility was extended," he added.

The Bangladesh Bank sees logic in extending the facility because if money goes to workers, it will stimulate consumption, Kabir explained.

In April, the prime minister unveiled stimulus packages of Tk72,750 crore, including Tk 5,000 crore for the export sector, to provide financial support to the ailing economy.

Exporters bagged most of the benefits as they got double the initially announced incentives, whereas small businesses have ended up as the least-benefited sector despite being the most-affected one.

For instance, under the Tk20,000 crore package announced for micro and small and medium enterprises MSMEs, only Tk518 crore had been disbursed until July 15, according to Bangladesh Bank data.

On the other hand, of another package of Tk30,000 crore announced for large industries, around Tk10,000 crore has been released so far.

In June 2020, export earnings stood at $2.71 billion, showing a 2.50 percent decline compared to the corresponding month of the previous fiscal year, according to the Export Promotion Bureau.

Industry insiders said the apparel sector started to turn around as they got export orders amounting to around 60 to 70 percent that of previous years. Some even got fresh export orders for up to September, which is adequate to run the factories.

Some big brands started to restore their cancelled orders as apparel store sales in the US almost tripled in May this year from the previous month.

For instance, Swedish fashion retail giant Hennes & Mauritz (H&M) continues to place a significant number of orders with their apparel supply chain partners in Bangladesh despite incurring losses, for the first time in decades, due to the Covid-19 pandemic.

The group intends to increase its commitment in the country, as lockdown measures imposed in Europe and the US are being gradually relaxed.

H&M is the world's second biggest fashion retailer but the largest for Bangladesh in terms of the volume of readymade garments sourced from here.

What do exporters say?

"We could not predict the future of business as we were totally hopeless during the Covid-19 outbreak. Now the situation is returning to normal," said Siddiqur Rahman, vice president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI). 

"But many buyers are not paying on time and have extended the time for deferred payment," he added. 

Siddiqur, also the former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), mentioned that most factories have a good amount of work orders to run their units till July. Orders generally slow down between August and September.

He said that though stores are gradually reopening, customers are not visiting them yet as they are still worried about Covid-19.

"So, buyers are placing small orders like 10,000-20,000 pieces, which was about 1 lakh units last year," he said, adding buyers want to observe the market situation first.  

Citing an example from his factory, Siddiqur said they have some orders that had already been prepared in March, but the buyers want to receive those goods next October as those clothes were made for the summer session.

"The government's stimulus package has resulted in the rebirth of the apparel industry," said Fazlee Shamim Ehsan, a director of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

"Otherwise, most factories would have faced shutdown during the pandemic and law and order would have worsened as most factories would have failed to pay their workers," he added.

Shamim further explained that apparel exporters do their business with a limited profit margin – at 3 to 4 percent. When they operate factories at 20 to 30 percent less capacity, that may put them under big pressure to make the business cost-effective, as almost all other costs remain unchanged.   

The BKMEA leader expressed his gratitude to the prime minister for giving financial support to pay workers and for working capital. 

At least 70 percent factories need this stimulus package support for the next two months, but the government has extended their cooperation for just another month, he added.