Lack of work orders puts garment sector in crisis

Atiqur Rahman started an apparel manufacturing factory early last year in Gazipur when Bangladesh was receiving huge work orders.

“Everything was going well. But since the Russia-Ukraine war, buyers have gradually reduced work orders. I have even failed to manage orders through sub-contracts,” Atiqur told The Business Post.

“Even in the last 20 days of June, I did not manufacture a single piece of clothing while I had to pay workers Tk 20 lakh in wages. Now I have planned to sell my factory, but no one has showed any interest yet,” said a frustrated Atiqur.

Like Atikur, 88 factory owners have failed to continue operations due to a lack of work orders. Over 100 factories have been in operation with the bare minimum orders, causing huge losses, and they are likely to shut down.

Most of the readymade garment (RMG) factories now in operation are running at 70 per cent of their capacity.

The situation is such that survival is now a big challenge, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem told The Business Post.

“Many small factory owners call me every day to arrange some orders, but I fail to help them most of the time. I do not know what will happen next if the Russia-Ukraine war prolongs,” he said.

Fakir Fashion Managing Director Fakir Kamruzzaman Nahid told The Business Post, “Now it is difficult to survive by depending on three or four buyers. This is why it is quite difficult for a sub-contract factory to continue operations.”

“If sub-contractors cannot manage direct orders and are still in operation, they are going to face more difficulties in the days to come,” he added.

According to the Export Promotion Bureau, apparel export earnings came down to $3.16 billion in May from $3.93 billion in April. Industry insiders said it had happened due to the war and normalcy would return gradually.

The finance ministry predicts apparel export earnings growth is likely to slow down to 20 per cent in FY23, which is now above 35 per cent.

Industry insiders and industrial police officials told The Business Post that they found at least 88 factories that might not be able to pay the June wages. Most of the factories are yet to pay the wages for May due to a financial crisis.

Not only these 88 but all sub-contract factories are also facing a crisis due to order shortages. If the current crisis prolongs after Eid-ul-Azha, they will also be forced to shut down their operations.

Even many reputed factories are also facing a financial crisis, but banks have assured them of providing support, which will help them overcome the problems.

Since July last year, sub-contracting factories have mushroomed in Bangladesh, thanks to growing work orders because of China’s power shortage, its trade conflict with the West, Myanmar’s political crisis, and Vietnam’s Covid-19 situation.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) claimed that around 1,100 sub-contract apparel factories were in operation two months ago, which helped earn foreign currencies and create jobs for about five lakh people.

Around $5 billion worth of apparel items are sourced from subcontracting factories, Shahidullah Azim, vice-president of the BGMEA, told The Business Post.

But due to shortages of work orders, more than 100 sub-contract factories have gradually been closed, he said.

Industry insiders further said the Russia-Ukraine war is the main reason for the current work order crisis.

Bangladesh’s apparel sector earned over $500 million from Russia in the first six months of the last fiscal year and another around $1 billion came in indirectly. But when the war began, exports to Russia almost came to a stop.

On the other hand, the war has created high inflation in the US and Europe, the main export destinations of Bangladesh. This is why buyers are also reducing orders.

Fabrica Knit Composite is providing orders to sub-contract factories and one of its main buyers is from Russia.

“I annually exported to Russia around $15 million worth of apparel goods directly, but now I am not receiving any orders from them due to payment problems. This is why I cannot provide enough orders to sub-contract factories,” Fabrica’s Managing Director Mizanur Rahman told The Business Post.

Nipa Group Managing Director Md Khosru Chowdhury told The Business Post that he is providing work orders to sub-contract factories but has to reduce the volume due to order shortages.

“Many factory owners informed me that they do not have even a single order. Most of the sub-contract factories will fail to survive after September if the war does not stop,” he said.

“Even many reputed factory owners come to me to get orders,” Khosru added.

The home ministry held a meeting on June 29. Intelligence agency officials at the meeting said around 100 factories would fail to pay the wages for June while Eid-ul-Azha’s festival bonus is uncertain, sources said.

During the meeting, BGMEA and BKMEA participants said the 88 factories are not their members but their members are also facing a crisis due to order shortages.

They said they would try to do something for those 88 factories.

“However, the meeting decided that the owners would have to arrange money anyhow to pay the due wages if they are forced to sell their factories,” a participant in the meeting told The Business Post on condition of anonymity.

“As we know, they do not have any options, except for selling their assets.”