Economic Ramifications of COVID-19 on RMG sector: Challenges and How to Address Them

Esrat Sadia03 January, 2022

Economic Ramifications of COVID-19 on RMG sector: Challenges and How to Address Them
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The SARS-CoV-2, commonly known as COVID-19 has created panic all over the world with more than 289M cases. The pandemic didn’t bring anything but agony and anguish with it. It is causing severe detriments in the business sector along with industries.
The readymade garment (RMG) industry can be the backbone of the economy of Bangladesh since the tag “Made in Bangladesh” has brought glory for the country. Bangladesh is highly dependent on the RMG sector for foreign currency. The country holds the second position in RMG exports with a 6.80 percent market share, largely because of its low labor cost. This sector creates about 4.2 Million employment opportunities and contributes a significant part to the total GDP. But the worldwide COVID-19 pandemic is causing immeasurable havoc in this business.
The collapse of Demand: The major problem that the RMG sector is facing right now is the sharp fall in demand for garments. RMG companies of Europe and America, that buy from Bangladesh are closing doors. The major buyer stores like H&M, GAP, Marks & Spencer, ZARA, Primark have closed. As a result, shopping has come to a standstill as people avoid discretionary spending. The devastating fall in household income is creating this issue. During the COVID-19 pandemic, the GOB declared a state of lockdown. As a result, the garment factories were closed by BGMEA in line with the instructions. Along with this, the global lockdown impacted by Corona Virus has made the clothing shipment process problematic. Though the demand for online purchases has increased, supply chains could not continue to meet demand given changes to freight options.
Price Hike of Raw Materials: The biggest supplier of raw materials for the Bangladesh RMG sector is China. China being the origin of the CoronaVirus pandemic, the worldwide RMG market is willing to alter its supply chains to be less dependent on China. As a result, the country is facing difficulties to supply raw materials due to the lack of clients. Because of China’s failure to send raw materials in time, prices of local stocks of products have risen up by approximately 50% in some cases. To meet manufacturing deadlines, some factory owners have been forced to bring materials by air with high shipping costs. Due to the shortage of supply, prices of different products have increased by 30%-40%. Moreover, the worldwide pandemic has triggered huge job losses, especially for women in this sector, according to the WTO.

Measures were taken by GOB and BGMEA: In this current situation, GOB has taken some fast necessary initiatives to recover from the subversive effects of COVID-19. The BGMEA has been appealing to the international market to continue ordering. Though some of the trade unions have asked for a shutdown of the garment factories, others are working with BGMEA and governing bodies to ensure that the factories remain open and people have jobs and salaries. In the face of the concerns elevated by the trade unions and the RMG employers, on March 25, 2020, the Government announced a $588 million stimulus rescue package, of which the majority is allocated for approximately 4.2 million workers’ wages and benefits.
Effective Long-Term Possible Solutions: To tackle the current situation Bangladesh as a country has to build a more independent RMG industry. It’s high time GOB took an active initiative to reduce its over-dependence on China for raw materials. Instead of costly raw materials, Bangladesh can be self-dependent by producing its own raw materials using jute, hemp, stinging nettle, banana, etc. It won’t obviously resolve all the raw material issues, but it can decrease our dependence on China.
To survive the post-pandemic period it’s a must to introduce new and effective methods and implement them in the industry. A feasible method that can be used for a long-term plan is BlockChain and ERP. Blockchain is a decentralized, incorruptible, distributed ledger of economic transactions that can be programmed to record not only financial transactions but also everything of value virtually. This technology manages cost and inventory, assures quality, and reduces total lead time.
Besides, the technology assures cross-border payments which leads to a 40% to 80% reduction in transaction costs and takes an average of 4-6 seconds to finalize, where it takes 2-3 days using the standard regular transfer process. Moreover, in sidechains or complementary blockchains where many “small” transactions are recorded regularly, a blockchain based on the Proof-of-Authority can be a centralized, efficient, and less power-consuming solution.
To initiate the plan GOB has to ensure 24/7 flexible logistics. To do so, all the major transport bodies of RMG industries have to be brought under one visible platform or network, by using an ERP system. Thus a one-stop program will form, where the excessive cost regarding extra transportation and middlemen will reduce. Besides, the companies have to ensure an extended supply chain where they will co-operate and perform beyond the organizational barrier.
In the post COVID game of economic dominos, Bangladesh must take a comprehensive approach that encompasses sustainability and economic durability to combat and finally conquer. To recover the inherent shifts in the post-COVID-19 supply chain management landscape, the RMG industry of Bangladesh should undertake crisis-resilient measures. Self-sustenance and environmentally safe plans can utilize technology in the right way to fulfill its potential to revolutionize the world as we are standing on the verge of the fourth industrial revolution.