Little garment factories struggling to stay afloat

Image: Collected
The dearth of work orders from international retailers and brands to small and medium-sized garment factories is indeed acute that lots of entrepreneurs are searching for buyers to sell units and exit the industry once and for all. 

The fallouts of the coronavirus pandemic have brought the SME garment units with their knees as orders collapsed with the global drop in sales.

The units of the apparel industry, regarded as the lifeline of Bangladesh's economy, had faced abnormal delays in payment from potential buyers, order cancellations and suspensions and non-availability of loans from the stimulus package.

However, the large garment factories in this top export earning sector will be faring easier to some extent when it comes to getting orders, because of better coping mechanisms stemming from their large production facilities and capability to make shipments promptly.

During the pandemic last year, 300 SME units which are also participants of the BGMEA experienced to shut down, explained Rezwan Selim, a director of the Bangladesh Garment Makers and Exporters Association (BGMEA), citing the trade body's data.

Of them, nearly 20 factories have reopened and some are struggling to reopen because they did not receive do the job orders and weren't able to manage cash, said Selim, who manages labour affairs and closed factories.

The flow of work orders isn't good even for the big factories, he added.

Most the factories, particularly the SMEs, are performing at 40 to 50 % capacity as a result of the lockdown in key export destinations as a result of second wave, he said.

Because the inflow of orders in big units is slow, the SMEs are not getting the associated subcontracting orders, Selim said.

Nearly 50,000 staff lost jobs for the closure of the factories, he said.

Wanting to remain unnamed, a good garment factory owner found in Gazipur explained he was buying a client for his factory built-in 2017 in 22 bighas of land.

He had 1,400 workers in his factory prior to the pandemic hit the united states in March this past year. Six months in the future in September, he previously to shut the factory, leaving his staff without a job.

The entrepreneur partially reopened the factory to focus on the domestic market. Today 70 workers are employed at his factory.

The over-60-year-old investor shed Tk 12 crore as one of his American buyers declared personal bankruptcy due to the Covid-19.

As production found a halt, recycleables well worth Tk 20 crore lay unused in his factory ground and at the slot.

"I have been struggling to regenerate my business even prior to the pandemic as I spent lots of money to adhere to the factory safety tips of the Accord," he said.

The Accord on Building and Fire Protection in Bangladesh had referred factory safety improvement plans. In Bangladesh, more than 70 % of garment factories will be small and medium-sized.

About 10 % of the factories said through the ongoing organization slowdown, 50 % to 100 % of the task orders didn't cover costs, but those needed to be accepted.

They did so merely to keep their business afloat, according to a recently available study of the Centre for Policy Dialogue (CPD).

Up to now, retailers and makes have reinstated 90 % of the cancelled and suspended orders well worth $3.18 billion, nonetheless they are delaying producing payments, coping a blow to the SME units.

Yet in its analysis, the CPD found that only 44 per cent of factories were selected about orders in the six months to April.

The rest 56 % have different degrees of uncertainty. Of these, 11 % had a high level of uncertainty on orders. These factories happen to be mainly small.

In his heyday, the Gazipur-based garment factory owner used to export garment items worthwhile practically Tk 70 crore annually and he'd spend Tk 1.70 crore in wages to personnel every month.

"I owe Tk 70 crore to banking institutions," he said.

He could not qualify for the soft mortgage loan from the government-sponsored stimulus fund due to stringent circumstances. And he could not repay loans from the incomes of garment organization.

"I have to offer my factory and the area to repay the bank loans. And the repayment of the lender loan would be the end of my 18 years of business life," he said.

However in the last 18 years, he ran the factory with a good hope to establish a business empire. However the fallouts of Covid-19 contain shattered his dreams.

This fate of the garment owner can be reflected in the garment export data.

Between July and January, the initial seven months of the current fiscal year, garment shipments declined 3.44 % year-on-year to $18.40 billion.

This correspondent spoke to at least 10 exporters having small and medium-sized garment factories and industry leaders to know about the fates of the SME units.

They said the problem had been improving following the first wave of Covid-19 had passed but it started deteriorating with the onset of the next wave as fresh lockdowns were introduced in major export places in Europe and the US.

"I have been in a position to recover 75 per cent of the business. I could not recover 100 per cent because of the next wave," stated Mostafiz Uddin, managing director of Denim Professional.

Buyers prefer putting orders with a large unit to make sure deliveries are made promptly and due to the big units experience the area to negotiate prices, he said.

The entrepreneur requested that the government think of a flexible policy in order that all factories, especially the SMEs, can take advantage of the stimulus package.

Md Ehterab Hossain, managing director of Base Style, and Md Emdadul Haque, general supervisor of Dynasty Sweater (BD), shared stories of buy cancellations and reductions and discount rates.

"Orders worth $2 million had been stuck and lastly I had to agree to settle it at a 15 % discount," said Hossain. Foundation Fashion ships T-t shirts and polo shirts worth $1 million on a monthly basis.

"I am struggling to keep my business afloat as the amount of orders possesses plunged," he said.

The abnormal price hike of yarn has only added even more woes to the SMEs. The costs of yarn gone up by a lot more than $1 per kg over the last three months, said industry operators.

Small and Medium Garment Factories Lack Support

BGMEA Director Selim said a lot of the SMEs did not get the stimulus fund because they themselves were not directly making exports.

The closed SMEs used to export one or two consignments and generally worked together with a major unit through subcontracting.

Rubana Huq, president of the BGMEA, said the SMEs were the worst-affected with regards to managing finance and business since they worked for potential buyers having relatively smaller turnovers.

When asked whether there was a gap when it found an individual policy serving both big units and SMEs, she said, "Absolutely yes."

"Therefore, they might need different policy methods to survive in this crisis period," she said.

The government has provided yet another working capital scheme for the SMEs through the pandemic, she said.

However, the operating capital loan support was tricky to access as far as readymade garment factories are concerned as a result of stringent processes requiring homework, she said.

Another factor may be the nature of business and the modality of personal assistance necessary for the RMG enterprises which change from any various other sector, she added.

"For the immediate term, special assist with SMEs in regards to to accessing financing to carefully turn around and reconstruct themselves will be crucial for continuing the expansion journey of the sector and economy most importantly," said Huq.

Mohammad Hatem, senior vice-president of the Bangladesh Knitwear Producers and Exporters Association, said apparel exporters faced harassment on availing stimulus loans as a result of stringent conditions and bureaucratic tangles.

Many of the SMEs cannot avail the mortgage loan at all although they needed it the most, he said.

Some circulars of Bangladesh Lender are unjust for the SMEs, he said.

Only bigger units have been entitled for availing the loan from the stimulus package, Hatem said.

However, soon after negotiations with the central bank and the finance ministry, the conditions had been eased to a tad, he added.

Selim said a lot of the SMEs didn't get the stimulus fund because these were not directly making exports.

KI Hossain, president of the Bangladesh Garment Shopping for House Association, said almost all of the SMEs were dependent on subcontracting but now it had been not available due to inflow of fewer orders from overseas retailers and brands.

Khondaker Golam Moazzem, exploration director of the CPD, said the government's Tk 1,000 crore technological upgradation fund ought to be spent found in its true perception to boost online sales of little and medium units in order that they can ride out the difficult circumstances.

Nazneen Ahmed, senior research fellow of the Bangladesh Institute of Advancement Studies, said a cost war in the global garment business was ongoing.

Because the bigger units have a competitive advantage, they are able to absorb the losses. But tiny and medium-sized units cannot afford that, she explained.

Both Moazzem and Ahmed said orders for big factories was not fully restored. Tiny suppliers which were used to providing to little buyers and vendors were in trouble.

"The government must ensure that the small and medium-sized systems receive soft loans from the stimulus plans. Their mortgage loan repayment period ought to be extended," said Ahmed.