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Issues in the Labour Market

Covid Crisis: Export Industries and Workers

Photo by Fahad Faisal / Original used under CC BY-SA 4.0

In recent years, there has been greater attention and movement towards improving working conditions and worker safety in Bangladesh. However, the economic fallout of the Covid-19 pandemic has introduced a new set of challenges for both employers and employees.

To better understand this issue, Quay Asia has put together a comprehensive account of the challenges and successes in the export-oriented industries during this unprecedented time. In a series of three articles, we will trace events from the starting point to the present day focusing on the health and safety of workers in the ready-made garment industry.

This series is primarily for the benefit of policy makers and administrators in the private sector. The goal is to inspire better practices to protect workers, avoid sudden disaster and ensure long-term sustainability of businesses.

How Stakeholders Have Responded

In this series, we will review the actions of all major stakeholders – the international community, buyers, government, trade organizations, employers and employees. Here we describe early events, and how the actions of foreign buyers and other international bodies affected businesses and ultimately the health and safety of workers in Bangladesh.

Early Events in the Economic Crisis

First, let’s start at the source: demand from foreign consumers and buyers is the source of the business model. Its importance cannot be overstated – it is the sole reason the export industries exist. So when global consumers slowed their shopping, foreign buyers canceled their garment orders and put payments on hold.  Buyers could cancel orders en masse, dictate discounts and neglect payments as they were empowered by routine business practices, such as payment after delivery. The consequences were devastating to the livelihoods of readymade-garment business owners and their employees. As early as March 23, factories had $1.5 billion USD in garment orders canceled, impacting the lives of workers in at least 1,089 garment factories.

A second injury to the garment sector came on March 26 in the form of widespread shutdowns to curb the spread of the virus. The prominent industry trade association, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), urged its 4,500 member factories to close if they could not provide adequate hygiene. In sum, canceled orders, delayed payments and the desire to protect workers and their communities stopped production. 

How This Affected Workers

How did this affect the workers at the center of these operations? Let’s look at the workers’ point of view through the eyes of our fictional character, Farzana:

Farzana sits at her bench, readying her station for tomorrow’s work. Her supervisor comes to the front of the room and calls for the workers’ attention. “Stay home tomorrow,” he says.

Several days pass at the hostel the workers share, and Farzana is feeling restless. Now she has no work, but she’s always had work! At the age of 10, she started working as a domestic worker to help support her family. At the factory, they had a dependable wage, but suddenly, that’s been upended. Because of the virus, the supervisor said, buyers have stopped placing orders and there’s no work to do.

“When will we work again?” Farzana says and her roommates echo. Now Farzana ruminates – her wages support herself, her parents and her younger sister. With the money she sends back home, her sister can study in class four, something Farzana wasn’t able to do. Her parents couldn’t afford her schooling; that’s the reason she started working.

Farzana’s story exemplifies what we know of the lived experiences of many workers in the export industries, which in 2017 included an estimated 4 million workers.

In the months after March, there were furloughs and layoffs; many workers were out of work and out of a wage – the exact number is not known. Before, garment workers were lawfully guaranteed a minimum of 8000 taka, about $95, each month. Wages such as these certainly contributed to the dramatic decrease in the number of people living on less than $1.90 per day (the international poverty line, adjusted for 2011 PPP): from 44.2 percent in 1991, to 9.2 percent in 2019. Women like Farzana were among those on the rise until the global pandemic, when the poverty rate jumped from an estimated 20 percent to 30 to 35 percent.

Farzana counts her remaining bills, calculating how long she can afford food and rent in the hostel. “It will be gone in weeks,” she cries. The virus is everywhere, and there is no certainty when things will reopen. “How will I survive?” 

Farzana knows she needs work and a wage; she waits for news from the factory, and as time passes, she tries to save her remaining money – she stops buying fish and meat and eats less to make the money last. But time passes, and the factory does not open. Then she learns she will not receive last month’s salary.

After receiving this news, she goes into the capital city in search of work. She returns to the neighborhood where she once did domestic work, hoping to work in a home and earn a wage again; she can cook and clean and is willing to work hard. The street places where people used to gather for tea or to hail a rickshaw are mostly empty. The few people she encounters barely acknowledge her employment inquiries. So after a fruitless day searching for work in the city, Farzana returns to her hostel and resigns herself to her decision: tomorrow she will return to her village home.

Returning home seems to be her only option, but it also comes with unknowns: “Will Abba and Ammu want me to marry now?” she wonders. Her parents have said she’s of marrying age, but when she got the job in the factory and started bringing more money into the household, they stopped searching for a suitor. Now, however, her circumstances have changed.

We know that many poor and vulnerable people are in situations like Farzana’s – facing uncertainty, unable to afford food and, whenever possible, trying to stretch small savings. Around mid-April, the income of the poor and the vulnerable was 70 percent less than pre-Covid times; the poor reported cutting food consumption by 40 percent, and the vulnerable non-poor reported cutting food consumption by 35 percent. 

The Actions of Buyers Explained

Cancellations and delayed payments flooded in during the early months of the Covid-19 pandemic. The worst month for Bangladeshi garments was April, when exports were down 88 percent year-on-year, from $3.03 billion to $0.37 billion. But what happened and what did buyers do in the interim?

In April, BGMEA singled out Primark, Matalan and the Edinburgh Woollen Mill for canceling £1.3 billion of orders that were in production or had been completed. But they weren’t the only ones; on April 17, Rubana Huq, president of BGMEA, spoke about ongoing negotiations with global companies: “We are still observing their departure from original contract terms … which includes renegotiating prices as low as 50 percent of the original deal.” She said buyers were following a strategy to buy time. A study from the Worker Rights Consortium and the Center for Global Workers’ Rights at Penn State University confirms, as of April 1, the following buyers had not committed to paying for orders in production or completed:

  1. Bestseller
  2. C&A
  3. JCPenney
  4. Kohl’s
  5. LLP* 
  6. Marks & Spencer*
  7. Mothercare
  8. Primark*
  9. Tesco*
  10. Walmart

*These companies have since promised to pay for orders in production or completed. See the full updated list at workersrights.org.

Early on, a few buyers stood by their suppliers. H&M was an example of this, and their actions were not just a drop in the bucket as the retailer is the largest apparel buyer in Bangladesh; H&M purchases garments worth some $3-4 billion a year from 230 Bangladeshi factories. On March 29, H&M sent a message to the media, vowing to take in-production and completed orders, and further said, “We will, of course, pay for these goods and we will do it under agreed payment terms. In addition, we will not negotiate prices on already placed orders.” Even so, they said they would not be placing new orders for the foreseeable future.

Meanwhile, as of April 1, the Workers Rights Consortium and the Center for Global Workers’ Rights at Penn State University reported the following buyers had committed to paying for order in production or completed:

  1. H&M
  2. Inditex
  3. Kiabi
  4. PVH (with deferred payments)
  5. Target (USA)
  6. VF 

The full list of companies that have committed to pay for orders, including those who have come forward since April, is available at workersrights.org.

Huq also publicly acknowledged PVH, Inditex, Marks & Spencer, Kiabi and Target’s early commitments on April 1, but when she spoke again on April 17 she seemed to rebuke all buyers except one: “We are not aware of any other brand except one [H&M] that has declared its plan in detail regarding delivery and payments centrally in black and white.” 

Why did buyers neglect suppliers in Bangladesh? The short answer is they were short on cash themselves. Global retail sales are down some 30 percent this year according to Mckinsey & Company. With lower liquidity, some companies cannot pay their debts.  

One such example is the American retailer JCPenney – the big-box store retailer has struggled in recent years, with online competition and falling sales. On May 15, the company filed for “Chapter 11” bankruptcy in a U.S. court. Chapter 11 form of bankruptcy allows a company, in this case JCPenney, to restructure and continue operations.

As part of that process, on August 19 JCPenney submitted a list of creditors’ claims to a court, which included four Bangladeshi companies:

  • Four H Fashions $479,313
  • MBM Garments LTD. $888,174
  • Refat Garment LTD. $1,966,730
  • Supreme Knitwear LTD. $338,850
    Total debt: $3,673,067

As JCPenney is restructuring and will continue to operate, these Bangladeshi companies and other creditors should get paid, in part or whole, eventually. However, this debt, listed in JCPenney’s official court filings, is small compared to the sum total of the orders the retailer canceled or postponed: $35 million according to reports from BGMEA in June. In October, the Workers Rights Consortium is still reporting JCPenney has made no commitment to pay in full for orders completed or in production.

The American retailer JCPenney is not the only major buyer of Bangladeshi exports to declare bankruptcy; Neiman Marcus Group and J. Crew also filed for Chapter 11 this year. And similarly, two UK brands, Debenhams and Edinburgh Woollen Mill Group have used the UK’s version of Chapter 11 (administration). As this was ongoing, Debenhams requested a 90% discount on the $66 million it owed Bangladeshi suppliers in May. “We can at most handle 15 percent discount,” replied Zahangir Alam, the coordinator of the national Debenhams Vendors Community in Bangladesh.

Edinburgh Woollen Mill Group also met tough negotiations. BGMEA sent and published a letter to the EWM owner, Philip Day, which presented the possibility of blacklisting the buyer. “We are blacklisting non-responsive buyers who are not only not paying but also not responding to suppliers,” BGMEA President Rubana Huq told The Daily Star. “For example, many buyers haven’t paid us but we have had their offices chasing us about salary and bonuses and whether those have been paid.” A spokesperson for EWM group responded to BGMEA, “We think their approach [the letter] has been unproductive and uncollaborative.” Through the press, Huq answered, “It should be noted that the demand for the discounts will not only be financially catastrophic, but will also expose our members to various claims and liabilities from regulations, banks and other third parties, which will eventually legally implicate the buyers themselves.”

Without orders to fulfill, factories shut down their operations and furloughed or permanently laid off workers. In both instances, employers are required by law to give workers some pay. Considering many businesspeople had invested and lost significant capital in canceled or unpaid orders, many had less cash and struggled to pay their workers. Global buyers did not offer to help pay furlough wages or severance costs: some 97% of 316 suppliers said buyers did not offer financial assistance to cover the cost of furloughing or dismissing workers.

One buyer, the UK’s Primark, pledged in April to create a fund to pay the wages of garment workers. At the time, factory owners were also asking whether Primark would pay for raw materials and orders already completed, orders which Primark had canceled. And the conditions on Primark’s proposed funding came with a confusing caveat: the funding would be adjusted should governments offer support packages. Huq had this to say in response: “Wage compensation should not take government loans into consideration. These brands have existing business commitments with their suppliers that are their responsibility to honour.”

On April 20, Primark, which recorded $8.86 billion in revenues in 2019, put out a statement saying it would commit to paying for $460 million dollars in orders it had previously cancelled globally. However, it did not mention what percentage of its cancelled orders this amount represented. In response, the Workers Rights Consortium said, “Primark is better at public relations than at honoring its obligations to suppliers and workers.” However, Primark has since changed course, and as of September 10, the retailer has been moved to the Workers Rights Consortium’s list of buyers that have committed to paying.

Garment orders are coming again, and many factories have reopened. In September, garment exports were $2.41 billion, down 17 percent from $2.91 billion last year. While some reason for relief compared to the 88 percent decrease in April, the recovery is not in full effect for many small and medium factories, some of which are not receiving enough orders and are not operating at full capacity. Nor is it good for the 300 factories (and their workers) which, according to the BGMEA, have not reopened.

In the next article, we will detail how garment suppliers and factories have responded to the Covid-19 economic situation.

The Actions of International Organizations

“Organisations such as the World Bank, International Monetary Fund and International Finance Corporation should come forward and support the Bangladesh apparel industry at this critical time.

The world will keep turning after Covid-19 is beaten. And the whole world will still need apparel supply chains, unless people across the world decide to stop wearing clothing.”

– April 7, Mostafiz Uddin, Managing Director of Denim Expert Limited

How did the international organizations respond?

International Financial Institutions did not respond with direct support for the garment industry, although IFIs and other international bodies have supported two publicized efforts to ensure salaries for laid off and furloughed workers, as will be discussed later. The IFIs did direct financial support to the government of Bangladesh. The assistance went to the governmental Covid-19 response and related economic and social efforts. Here’s what we know:

March 28 – ADB provided a $300,000 emergency grant for Covid-related health safety materials 

April 3 – WB approved a $100 million loan for Bangladesh’s COVID-19 Emergency Response and Pandemic Preparedness Project, which was meant to upgrade health facilities and labs

April 30 – ADB approved a $100 million loan for Covid-related public health measures

May 8 – ADB approved a $500 million loan for Bangladesh’s Covid-19 Active Response and Expenditure Support (CARES) Programme to mitigate the economic impact of the pandemic, including salary support for 1.5 million workers in export-oriented industries

May 29 – IMF approved a $732 million dollar loan for Bangladesh’s Covid-response, without the oft-included austerity conditions

May 30 – ADB gave a $231,000 grant for Covid-19 facilities

May 22 – AIIB provided a $250 million loan to support the CARES programme, an atypical move for the bank which typically only lends for infrastructure 

June 21 – WB approved $1.05 billion in loans: $500 million for job creation in economic zones and software parks; $295 million for creating jobs, training youth and increasing the government’s cloud computing capacity; and $250 million for the governmental Covid-19 emergency response 

While these loans and grants were not specifically targeted at export workers, the food assistance and Covid-19 testing initiatives likely benefited export workers, as well as other poor and vulnerable members of the population.

As previously mentioned, some of this money was specified for providing the wages of export-industry workers through funding of the government’s CARES programme. This money was probably directed to workers through the government’s stimulus package for the export industry, announced in March. The package was some Tk 5,000 crore, about $590 million, in loans for the sector, with the condition the money could only be used for the salaries and wages of workers in April, May and June. Business owners who could not pay wages out of pocket could avail these loans with a two percent service charge and a two-year repayment period. 

We will further detail the government’s actions on Covid-19 and the export-oriented industries in the second article of this three part series.

A second effort to support workers that have lost their jobs is in the works, with funding from the European Union, Germany and the French Development Agency. 

As part of a EUR 334 million package for Bangladesh’s pandemic response, the European Union gave EUR 93 million towards providing cash assistance to garment workers out of work, and Germany granted another EUR 20 million. While these grants came in consideration of the sudden economic downturn, this contribution is in addition to broader and longer running efforts by the EU to strengthen social security systems in Bangladesh.

For disclosure: Quay Asia is part of a consortium of European companies advising the European Union Delegation and the Bangladesh government on this project.

The responses of these international bodies show concern for the immediate health needs and economic well-being of the country, and their projects likely included workers from the export industries within their scopes. But was the response sufficient?

As we know, orders have picked up and many workers have returned to work. For these workers with a wage, concern shifts to ensuring safe working conditions and preventing the spread of Covid-19. The premier international organization in this regard is the International Labour Organization.

“The sustainability of businesses depends on how we protect our workers from COVID-19.”

– Tuomo Poutiainen, country director at the International Labour Organisation

In April, an ILO and IFC partnership called Better Work Bangladesh published management guidance for ready-made factories in Bangladesh. So that employers can self assess, the guidance was published as a checklist with recommendations such as

  • hand washing stations and temperature checks at the gate
  • changing fingerprint attendance systems to punch cards
  • awareness training
  • physical distancing, increased ventilation and air purifiers
  • face masks for employees
  • in-house medical staff
  • a dedicated and representative Covid-19 task force
  • flexible leave policies for workers, e.g., not requiring a doctor’s note

These guidelines came just as factories began reopening: Some 1,400 factories reopened April 26, and the next day, another reported 1,800 reopened.

The ILO started development of a virtual learning platform for Covid-19 prevention awareness and Occupational Safety and Health guidelines a few months later. The ILO said this learning hub would kick-off with the virtual training of 150 master trainers, nominated by BGMEA and the Bangladesh Knitwear Manufacturers and Exporters’ Association (BKMEA), with a follow-up “training of the trainers”.

“Our joint response is focused on providing ‘best practices’ to RMG factories to support a safe and stable return for their workers.”

– Tuomo Poutiainen, country director at the International Labour Organisation

More recently, the ILO advised the Department of Inspection for Factories and Establishments in the creation of the “Guideline on Occupational Safety and Health (OSH) to Prevent and Mitigate COVID-19 in the Workplace”, guidelines for containing Covid-19 in all workplaces.

Where Do We Go From Here?

Although garment orders are still down, most factories have reopened. Thus, for many workers, the danger of going hungry has abated while the threat of Covid-19 intensifies. But in spite of health concerns, workers have little choice but to return to work. There are few reports of the Covid-19 response or the rate of infection in factories, although this absence of evidence should not be taken as evidence of absence. Overall in Bangladesh, the full extent of the situation is unknown. The high positivity rate (17.7%) and lower levels of testing suggest that the actual number of cases may be significantly higher than reported. 

Recent events have highlighted how power dynamics in the supply chains have forced suppliers and factory owners in the garment industry to assume disproportionate financial risks, and prompt the question: Should business practices change?

Going forward, alternative ways of doing business could provide manufacturers with supply costs or a percentage of the due payment upfront. Systems could be put in place to guarantee payments. This is not only about the bottom line of the business owner; it is inherently linked to workplace conditions and the health and safety of workers. Because in addition to the risk of doing business, business owners also are responsible for their workers – and when business owners lose, ultimately their workers lose too. 

A robust social security system is another means of protecting workers. With the necessary investment and infrastructure, the government could provide a social safety net for the unemployed, as well as the sick, elderly, disabled and pregnant. 

A garment worker earning $95 USD per a month cannot afford any loss of working hours. Their situations are the most fragile in that any setback, like the Covid-19 economic crisis, can suddenly push them into food insecurity and poverty. To ensure the health, safety and human dignity of workers, all stakeholders, including those in the international community, must recognize the fragility of the livelihoods of garment workers, as seen during the Covid-19 pandemic.

Coming Soon …

In the next article, we will look into the response of the government and business owners. Part three will conclude with the response of workers. Throughout the series, we will foreground  the working conditions and the safety of workers.