EXECUTIVE SUMMARY

Apparel Sector or Readymade Garments Industry (RMG) is the leading foreign currency earning
sectors of Bangladesh. Now-a-days Bangladesh financial sector is very much dependent upon
this sector. The annual export income of garments sector is driven from two sources one is
woven garments and others is knit wear. Readymade garments are a 100% export-oriented
garments. Readymade garments exports various garments product in foreign market. The
company makes shirts, ladies dress, shorts, trousers, and others for U.S.A, U.K, European
countries. The RMG industry in Bangladesh is facing a serious crisis because of COVID-19, with
virtual freeze on new business and mass cancelation of existing orders. Bangladesh Garment
Manufacturers and Exporters Association (BGMEA) has been appealing to the buyers to
continue ordering. BGMEA has formed task forces to monitor the situation, to collect
information on order cancellation, and to work with the Government to provide support so that
the industry can afford to pay the workers. Some of the trade unions have asked for a
shutdown of the factories, most of the others are working with government bodies and BGMEA
to ensure that the factories remain open and people have jobs and salaries. In the face of the
concerns raised by the trade unions and the RMG employers, on March 25th 2020 the
Government announced a BDT 500 million stimulus package, of which the majority is allocated
for workers’ wages and benefits. The finance ministry has unveiled the guideline for the
disbursement of the stimulus package for the export-oriented sectors to protect them from the
economic fallout of the global coronavirus pandemic. It is reported that the owners of export-
oriented companies and factories can pay wages to their workers for up to three months from
the stimulus package.

KEY WORDS: RMG, Covid-19, Cancellation, BGMA, Pandemic, Government, Stimulus package,
Export oriented.

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CHAPTER 1:

Introduction

2
The tremendous success of readymade garment exports from Bangladesh over the last two
decades has surpassed the most optimistic expectations. Today the apparel export sector is a
multi-billion-dollar manufacturing and export industry in the country. The overall impact of the
readymade garment exports is certainly one of the most significant social and economic
developments in contemporary Bangladesh. With over one and a half million women workers
employed in semi-skilled and skilled jobs producing clothing for exports, the development of the
apparel export industry has had far-reaching implications for the society and economy of
Bangladesh.

Apparel sector, which has been pivotal in the economic growth of Bangladesh, is facing an
uncertain future following the COVID-19 pandemic. The industry, which is the world’s second
largest exporter of readymade garment, is now staring at a loss of nearly $6 billion following the
cancellation or suspension of orders by its buyers.

The cancellation of orders was the result of the lack of demand from the US and European
markets, following the closure of hundreds of shops, owing to the pandemic-centric lockdown.
RMG exporters have sought the cooperation of the global community to save the country’s
primary industry and the labor force. Bangladesh’s RMG sector started facing obstacles much
earlier than the world. The initial challenges were related to sourcing of the raw material
following the suspension of economic activities in China as the virus spread in that country. The
industry relies heavily on China for its raw materials. This is also a significant portion of
Bangladesh’s billions dollar imports from China. The diversification of supply chain and the
opening of the economic activities in China now has resolved the raw materials issue. However,
then came the cancellation of orders, which is now threatening the survival of the sector.

According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA),

orders for over 900 million pieces of garments worth $2.9 billion had already been cancelled or
were being held up. The Bangladesh Knitwear Manufacturers and Exporters Association
(BKMEA), another prominent body of the country’s clothing industry, has claimed that more
than $3 billion has already been lost as most of the orders until July has either been cancelled or
suspended.

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At the time of writing, The Covid-19 pandemic has already had a profound impact on the supply
chain and demand for the apparel sector. Top exporters like Bangladesh have started feeling the
heat due to raw material sourcing challenges and canceled orders.

The performance of the RMG sector is more critical for an economy like Bangladesh, since
apparel contributes 84% of the country’s export, employing close to 3.5 million people. While
gauging the possible impact of the pandemic on the apparel sector, it is imperative to look into
the demand side scenario by analyzing the European, US and the emerging markets for apparel
export.

Major global fashion brands have taken prompt responses to help in flattening the Coronavirus
curve and this has left significant impacts on worker employment, revenues and overall
operations.

4
 CHAPTER 2:

Literature Review

5
The COVID-19 outbreak has already started to affect different sectors of economy. Firstly the
immediate impact of the pandemic is temporary shutdown of factories and businesses in an
affected country; as a result production is declined [Barua (2020)]. For example, productions in
China and some other countries have already been temporarily suspended by many large
multinational companies, and transport routes through air and sea to and from China and many
other economies have already been closed down, resulting in a partial or full border locked
down[Whalen & Bhattarai (2020), Wilson (2020)]. Barua, S. (2020) studied that the pandemic
could affect international relationships by affecting the existing and the upcoming economic
programs under government to government (G2G) cooperation particularly between China and
other economies [Barua (2020)]. Due to the outbreaks, China backed public projects under
investment or aid frameworks have come to halt - as materials and project staff cannot travel
back and forth resulting delays or cancellation of G2G aid or investment programs as China and
their partner countries. Currently, China has about 7000 projects underway in 69countries under
the G2G cooperation framework, which could have a big hit due to this pandemic [Barua,
(2020)]. In Bangladesh, Major undertakings like Padma Bridge, Padma Rail Link, Karnaphuli
Road Tunnel and the Greater Dhaka Sustainable Urban Transport Project include monetary and
specialized contribution from China, the two of which are required to be antagonistically
influenced. Beside these, the three prominent sectors of the economy of Bangladesh that are
Agriculture, Industry and service sectors which contributed 18%, 29% and 53% to the GDP of
the country respectively are adversely affected by the coronavirus pandemic [BER-2019]. The
Asian Development Bank (2020) predicts that Bangladesh will lose roughly $3billion in its GDP
simultaneously work cuts for around 9 million individuals. In particular, in the sectoral
situations, the most noteworthy GDP misfortune and employment cuts will be good to go
division including money related area, exchange and open administrations by $ 1.14 billion and
2,01,106 individuals separately followed by agribusiness ($637 million, 4,58,000individuals), the
travel industry ($510 million, 50,000 people), development and utilities ($ 400million, 1.18
million people) and transport administration ($334 million, 67,000 people) [ADP(2020)].

6
Bangladesh piece of clothing manufacturing plants are probably going to battle to pay some 4.1
million laborers in the area, who are low workers. BGMEA's site appeared about $2.67 billion
worth of requests — or 828 million bits of attire in 966 manufacturing plants — have just been
dropped or suspended, and it influences around 1.96 million specialists so far. On the other hand
global production of Cotton is largely dominated by India, China, the US, Pakistan, and Brazil.
As demand of cotton in China is declined for their long-time lockdown due to coronavirus
pandemic that resulting demand supply mismatch in international market. Along with this,
decrease in yarn exports for India to China will mean an even greater excess supply of yarn and
lower prices in the international market. [Light castle analytics wing (2020)].

At the governmental level, COVID-19 can have a significant impact, such as expenditures on
health by government and labor and productivity loss. The government has to increase spending
for the health services and goods consumed by patients (including primary health care, medical
equipment, diagnostic tests), but also non-patient cost components such as planning and
administration of health programs, training, and health education, and health prevention and
promotion activities. President Donald Trump recently signed an $8.3 billion emergency
coronavirus spending package to combat its spread. Coronavirus reduces the productivity and
efficiency of the government workforce as the governments (including ministries, banks,
insurance, share markets, and academic institutions) are stifled by coronavirus inertia. (Ranjan
Roy,2020). Ccording to Mkentane, L. (2020). Clothing industry workers to get full pay during
Covid-19 lockdown. R Paul Paul, R. (2020, March 31) said Garment exporter Bangladesh faces
$6 bln hit as world retailers cancel orders. Perera, W. (2020). Bangladesh government
downplays COVID-19 threat as job losses mount. PM announces Tk 5,000cr stimulus package
for export-oriented industries. Amid the mounting human toll and global economic fallout
triggered by the COVID-19 pandemic, Bangladesh and other South Asian governments must
ramp up action to curb the health emergency, protect their people, especially the poorest and
most vulnerable, and set the stage now for fast economic recovery, says the World Bank in its
twice-a-year-regional update. Bangladesh’s economy will be significantly impacted by the
COVID-19 pandemic. The decline in national and global demand for manufactured goods,
particularly in the garment sector, risks creating unemployment and deepen poverty. The urban
poor will be hardest hit while the number of additional poor will be higher in rural areas. The
national shutdown will impact private consumption. While growth is expected to recover over

7
the medium term, downside risks remain, particularly from a domestic outbreak of COVID-19
and fragilities in the financial sector. (The World Bank, April 12,2020).

According to Baldwin and di Munro (eds.) (2020), the pandemic has affected all major
economies including the G7 countries, who jointly share 60% of world supply and demand
(GDP), 65% of world manufacturing, and 41% of world manufacturing exports; therefore, as
these economies are now severely affected, the rest of the world will follow suit. di Mauro
(2020) term such outcomes as ‘macroeconomic flu’ - a temporary negative supply and demand
shock - causing output to fall temporarily, followed by a quick recovery and possibly a full
catch-up on the shortfall. But that happens when it is a normal flu or a macroeconomic sneeze -
not a pandemic like COVID-19 which is seemingly producing large scale, global, and possibly
persistent economic disruption (di Mauro, 2020). While the macro effect symptoms of COVID-
19 are becoming increasingly visible in different economies, a growth effect hasn’t reflected yet
at least in a visible or measurable way. But as researchers and economists agree about a looming
recession and possibly a depression across economies, the world has no time to spare in the
preparation to face it. Realizing this, governments in many affected countries, particularly the
large ones, have already announced monetary and fiscal policy measures. Countries such as the
US, the UK, China, Australia, Canada, and Malaysia have already reduced their benchmark
interest rates in a desperate bid to boost up the economy, however, economists think it won’t be
enough (Letzing, 2020, March 18).

Among the Economic Sectors in Bangladesh, Service segment is generally significant. The
commitment of administration division to the GDP is about 53% (Bangladesh Economic
Review-2019). In this way, Service divisions impact the improvement of national economy.
There is an idle interest for administrations in Bangladesh. To indicate the need of
administrations for gigantic populace of Bangladesh, such areas are to be opened for private
business people with required control. The gigantic commitment of administration part and an
expanding pattern in that have assumed a significant job in high development of GDP. Due
toCovid-19 pandemic, service sector might be hampered badly.

Money related division, explicitly the financial area in Bangladesh, can be the most influenced
segment. This is on the grounds that banks were the core of all emergencies, for example, the
sovereign euro emergency and the worldwide money related emergency. In the event that banks

8
come up short, the Small and Medium Enterprises (SMEs)will be progressively influenced.
While Federal Reserve has already reduced the policy rate to increase liquidity to tackle the
impacts, the measure has created increased concern for the health of financial. The World Bank
predict that such financial impact of coronavirus will mitigate about 24 million people from
escaping poverty in East-Asia and the Pacific alone[Vaswani, K. (2020),
https://www.bbc.com/news/business-52103666]. The remittance effect could be huge for
developing countries that are major exporters of migrant labor and rely on their foreign
remittances earned like India and Bangladesh as loss of jobs and delayed or non-payment of
wages in different countries might significantly reduce remittance inflows putting extra pressure
on their reserve and currency markets [Barua S. (2020)]. 10 million Bangladeshis working
abroad such as Saudi Arabia, Italy, United States sent about USD $18 billion in FY 2018-19.
Figure 6 depicts remittances in Bangladesh decreased to 1638.53 USD

9
 CHAPTER 3:

Objective of the Study

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3.1: BROAD OBJECTIVE

The Primary objective of this report is to understand the impact of Covid-19 on apparel sector,
the challenges it’s facing and to identify the steps to secure the apparel sector in Bangladesh.

3.2: SPECIFIC OBJECTIVE

 To know the role of apparel sector in Bangladesh economy.

 To know the present scenario of the sector because of covid-19.
 To understand the possible effect of covid-19 in apparel sector.
 To know the government’s role to protect the industry.
 To identify the opportunities of the Bangladesh apparel sector after covid-19.
 To recommend the measurers needed to be taken for regaining the status.

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CHAPTER 4:

Methodology

12
This paper information is based on both type of sources primary data sources & secondary data
sources.

4.1: PRIMARY DATA

In preparation of the report, no structured questionnaire was used. Data pertaining to online
information process and most of the information is collected from the online project guide and
some other team members of apparel sector of Bangladesh by taking online interviews and first
hand observation.

4.2: SECONDARY DATA

Secondary data was also collected from research reports, newspapers and other printed & digital
sources, while a review of the announcement and guidelines were taken from websites, books
and previous studies.

13
CHAPTER 5:

Findings

14
5.1: APPAREL SECTOR IN BANGLADESH ECONOMY

The Bangladesh economy remains highly dependent on the ready-made garments industry for
manufacturing employment, foreign reserve, and women empowerment. The industry contributes
11.2% to the gross domestic product of the country.1 More than 4,600 RMG factories constitute
the largest industrial sector in the country and contribute to 36% of manufacturing employment
engaging 4.1 million workers.2 Industrious, disciplined and low-cost women workers are the
backbone of this industry. With 61% women employment, the RMG industry has played a
crucial role in women empowerment and gender equity.

Bangladesh’s market share in global RMG trading is circa 6.5%, and the country consistently
remained the second largest exporter after the People’s Republic of China.4 Bangladesh
primarily exports to the European Union (62%) and the United States of America and Canada
(21%). Over the last three decades, the RMG exports have registered a cumulative average
growth of 14.8% per annum reaching $34.2 billion in FY2019 which is 84.2% of the country’s
total exports.The figure below shows the growth of the RMG industry since 1990 defying all
regional and international crises, however, the industry is now at the crossroads due to COVID-
19 fallouts.

15
There are lots of role RMG sector in Bangladesh. The garments sector of Bangladesh most of the
worker is women. At least 80% women workers are working in this sector. Therefore, the
contributions of women workers are very important. Anyway, in brief the important roles are-

Economic Role:

Bangladesh is a fertile field for RMG sector. It has brought revolutionary to its economy
contributing about 81% to its total foreign income which was 3.89% in 1980-81. Therefore,
RMG sector in Bangladesh acts as the vertebral column of our economy.

Solving Unemployment Problem:

Bangladesh is one of the most densely populated countries in the world. With the increase of
population employment opportunities is not creating accordingly. So a large number of its
population is to remain jobless. But the growth of RMG sector have created job opportunities for
more than 6 million people directly and about 30 million more indirectly.

Women Social Status:

In Bangladesh, the majority of workers of RMG sector are women. Women are not kept confined
within the four walls of kitchen only to cook. They are now incoming which has changed their
contribution in family and social decision making.

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Development of other Key Sectors of Economy:

The RMG sector stimulates the development other key sectors of economy and contributes to
launce of some business firms like Bank, Insurance, Transport, Logistic, Communication
process, buying house, liaison office, money laundering etc.

International Relation:

RMG sector helps Bangladesh to make international relationships among the other countries in
the world. Bangladesh exports garments to different nations of the world such as U.S.A, UK,
Germany, France and other E.U countries which make a better international relationship among
the nations.

5.2: IMPACT OF COVID-19 IN BANGALADESH APPAREL SECTOR

Bangladesh’s overdependence on apparel export might prove to be its Achilles heel. Large scale
order cancellation and deferment is causing a liquidity crisis across the sector, prompting the
BGMEA President to appeal for support, both from international buyers and the government.
The government has responded by announcing a stimulus plan of BDT 5,000 crore, explicitly
geared towards the export led sectors. The primary goal of the stimulus package is to protect
jobs, facilitate regular salary payment and ensure survival of the financially weak apparel
factories. Details of the plan are still being worked out and timely deployment of the fund would
be imperative to stabilize the sector.

The current lock-down has been extended of contagion of Covid-19. By looking at the trajectory
of the infected numbers in comparable countries, it’s likely that the number of infected patients
in Bangladesh might increase sharply over the coming weeks. This would likely disrupt the
production process further in apparel factories. Alongside this, continued spread of Covid-19 in
EU and US–, the new epicenters of the disease, would further dampen demand for apparel and
lead to another round of order cancellations.

Already in the garment sectors, many factories are closed due to the lockdown rendering many
people jobless. The situation of employment is extremely bad. This can be gauged from the fact

17
when there was rumor that factories are reopening, most of the workers who had left for home
when government announced lockdown, rushed back – some walking and some by bribing the
driver of whatever vehicle they could get to travel to their work place to collect their salaries for
March and to join fearing loss of job if they do not join work. Unfortunately, they found the
factories still under lockdown and many of them are yet to receive their salaries. The Bangladesh
Garment Manufacturer and Exporter Association (BGMEA) issued a directive to factory owners
to pay wages.

The garment owners are equally facing financial trouble as orders are getting cancelled and
rescheduled due to Covid-19. Therefore, for the owners to pay the workers is also becoming
difficult. In a joint statement of STAR Sustainable Textile of the Asian Region of which the
BGMEA is a part, made a request to the global brands to “take delivery or shipment, and proceed
with the payment as agreed upon for goods already produced and currently in production with
materials ready, and not cancel orders which are already in production; offer fair compensation
to suppliers (100% FOB) if production or delivery has to be suspended or stopped, or offer
salaries directly to workers of suppliers” among several other demands. According to BGMEA,
out of 4,200 factories, 1,143 factories have reported a loss of US $3.17 billion affecting 2.27
million workers due to cancellation of orders to the tune of 980 million pieces.

According to a report, Bangladesh imported textile fiber and articles worth US $5.02 billion, out
of its total $13.63 billion import, from China in fiscal year 2018-19. In February itself, the
BGMEA wrote a letter to the Prime Minister highlighting how due to Covid-19 in China, import
of raw material that largely feed the garment industry is getting affected. According to another
report, “the import from China was 41 per cent of the total import of cotton, cotton yarn/thread
and cotton fabrics valued at $7 billion in the last fiscal year”. According to Bangladesh Bank, in
2018-19, cotton, manmade fiber, knitted fabric, etc. constituted 41.3 per cent of total import from
China.

In Bangladesh, after the woven garments, the knitwear sector is the second largest contributor to
revenue and together with the readymade garment industry; in the last financial year, they
contributed 84.2 per cent of total export earnings. Currently, the industry employs about 4.2
million workers, of whom 90 per cent are women, mostly from the rural areas. It is interesting to

18
note that garment sector is registering loss of revenue since last year. Export earning reduced by
7.74 per cent between July to November 2019. While 61 factories have been closed leading to
31,600 workers losing jobs. However, new opportunities were also created with the
establishment of 58 new garment factories which employs almost 60,000 workers. In spite of the
opening of new factories, there is a downward trend in export for various reasons even though
there is a forecast that the US-China Trade War would benefit Bangladesh garment industry, the
result is mixed given the globalization. The data of Bangladesh Bank showed that in
manufacturing sector, the following sectors registered downward growth: Knitwear (-$5.13
million), Woven garment (-$6.29 million), Home textile (-$9.70 million), Special textile (-$9.97
million); all registered negative growth from July to January (FY 2019-20), when compared to
the same period (FY 2018-19). Bangladesh’s import of yarn is also reduced by 22.44 per cent in
the same financial year. Import of raw cotton, textile articles and staple fibers from various
countries showed a reduction. This reduction in imports reflects that the RMG sector is facing
challenge; because there is no evidence of import substitution of these items. There has been a
discussion for some time in Bangladesh at the need to diversify its RMG export and move away
from producing low end products like T-shirts, shorts, trousers, etc. to high end garment
production sector. Diversifying export basket has remained a major challenge for Bangladesh.

The other factor that is going to be a challenge for the RMG and Knitwear sector is Bangladesh’s
graduation from LDC to Middle Income country in 2021, therefore duty free - quota free access
which has helped Bangladesh’s RMG sector to grow to become second largest exporter, would
no longer be available. It would now be subjected to Generalized System of Preferences (GSP)
rule of the European Union, which is a major destination of Bangladesh RMG. According to a
study by ECOSOC, Bangladesh “would face tariffs of 9.6 per cent in the EU under the GSP”. It
has to undergo stringent rule of origin and lose concession it is getting as LDC and this will
affect woven garment sector the most. Bangladesh, however, can apply for GSP+. While these
are the challenges that need to be taken into account, the Covid-19 outbreak has further added to
its woes. The closure of the factories for a month would impact both the industries as well as the
workers. The stimulus package of US $590 million announced by Prime Minister Hasina
specifically for garment industries to overcome short term crisis of paying wage and the offer of
US $3.5 billion capital loan with lower interest is unlikely to help the industry much which
employs largest number of workers. Moreover, both United States and Europe are witnessing

19
highest number of people with infections as well as death from Covid-19, generating a health
crisis there. Bangladesh's RMG export to USA has increased by 4.5 per cent in 2018. The US
remains single largest market for Bangladesh’s garment industry. Its export to the EU constitutes
56.4 per cent of its total export. The lockdown in these countries would have severe repercussion
not just on their economy and would impinge on Bangladesh’s economy as export to these
countries may witness a decline. Already the signs are there where orders are being cancelled.

Post-Covid-19, there is a possibility of garment workers demanding high pay as the inflation
rises. Some of the garment factories are schedule to open from 28th of April and the workers
staying near to the factory would join work. It is equally true that many garment workers staying
in other areas would attempt to join due to the fear of losing jobs and new jobs would be difficult
to find.

5.3: COVID-19’S IMPACT ON APPERL’S SOPPLY CHAIN

The impact on the RMG industry will not be limited to itself and might have grave repercussions
on other industrial, consumer and service sectors. The value addition in the RMG industry has
increased gradually and stands at 63.2% as backward-linkage industries developed.13 At an
investment of $6 billion, a large capital-intensive textile industry has been established for
supplying yarn and fabric to the export-oriented RMGindustry.14 Presently, there are 1,461
manufacturing units in the textile-value chain, of which 425are in yarn manufacturing, 796 in
fabric production and 240 in dyeing-printing-finishing operations. There is also a large number
of accessories suppliers, mostly small and medium enterprises (SMEs), who are providing
buttons, zippers, hangers, threads and other accessories.

5.4: GOVERNMENT’S RESPONSE

To fight COVID-19’s unfolding fallouts, the government announced a stimulus package of

Tk956 billion ($11.2 billion), or 3.3% of GDP to revive the economy, by strengthening the social
safety net, export sectors, SMEs and other priority sectors. The package allocates Tk50 billion

20
for RMG and other export-oriented industries which could only be used for paying salaries and
allowances to workers and employees. The size of the Export Development Fund has been
increased from $3.5 billion to $5.0 billion which provides short-term facilities for importing raw
materials for export-oriented industries. Out of this package, the central bank will institute a
$600 million Pre-Shipment Credit Refinance Scheme for RMG and other export-oriented
industries. This highly welcomed package, though significant, will meet only a fraction of the
massive requirements of the sector, which needs at least $470 million to pay wages every month.
The country requires more support for the basic subsistence of the workers and to keep the
industry alive.

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 CHAPTER 6:

Recommendation and Conclusion

6.1: RECOMMENDATIONS

6.2: CONCLUSION

The impact of COVID-19 has just started to unfold and will evolve fast. The full impact will be
more visible in the next few months or beyond. In order to mitigate the impending economic and
potential social crisis, it is needed to stay ahead of the curve and get ready with appropriate
emergency assistance and post-crisis assistance in different forms as appropriate. It may be
needed to sequence ADB’s sovereign and no sovereign operations for better effectiveness and
sustainability in a risk-measured manner. Obviously, the impact of COVID-19extends well

22
beyond the RMG industry to other economic sectors. Assistance to the apparel sector, which is
the largest contributor to urban poverty reduction, may help other associated sectors in the
supply chain and normalize the economy significantly and faster.

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