Cash crunch makes survival harder for garment exporters
Pandemic-struck local garment suppliers are struggling to survive because of a poor cash flow caused by delays in payments by international retailers and brands despite the restoration of the orders.
In April last year, the buyers started cancelling or suspending the orders following the spread of the virus, which forced shops to shut amid lockdowns in Europe and North America, two major export destinations of Bangladesh.
Some 90 per cent of $3.18 billion worth orders have been restored so far after negotiations by the manufacturers, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), and the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
Buyers have agreed to pay the local suppliers in different modes, which include as high as 50 per cent discount and deferment of payments from six months to one year.
Ahmed F Rahman, managing director of Kappa Fashions Ltd, said nine small and medium-sized garment exporters had together settled with their Hong Kong-based buyer at 43.5 per cent discount after nearly a year of negotiation.
"The exact date of the export receipt from Asia Today is not finalised yet. We are hopeful that the buyer will complete payment in March this year," Rahman said.
"The companies are borrowing money from banks and near and dear ones to run businesses for the delay in export receipts."
The entrepreneur received Tk 2.5 crore from the stimulus package of the government to pay wages to the workers. But he said it was not enough.
"It would have been better had I got Tk 2 crore every month."
Vidiya Amrit Khan, deputy managing director of Desh Garments, has been facing fund shortage because of the delay in payment from buyers and the reluctance of banks to extend financing.
Rahman and Khan are not alone.
Many suppliers, especially the small and medium enterprises, are struggling to stay afloat in the wake of the weak cash flow due to the order cancellation and delay in payment.
Because of the retailers and brands' irresponsible business behaviour, many workers and officials at the buying houses and the liaison offices of western brands in Dhaka lost jobs.
The coronavirus pandemic wiped out 3.57 lakh jobs in the garment industry in Bangladesh in 2020 as factories went for layoffs and closures because of the collapse in demand, showed a survey of the CPD and the Mapped in Bangladesh, a project of Brac University. Some 58.7 per cent of factories have started hiring.
More than 300 small and medium factories may shut their units for good as the owners are not interested in reopening them, according to the BGMEA.
The factories, especially the woven ones, plan to sell the units because of a shortage of orders.
Kwun Tong Apparels, a Hong Kong-based garment factory housed inside the Adamjee Export Processing Zone, is trying to sell the unit as it had to offer a massive discount to JC Penney, an American treasure in the clothing business. The company had been shut after making a partial payment to the workers.
One of the US-based buyers of Kwun Tong Apparels cancelled orders worth $20 million, and another retailer had to be given a discount of $25 million.
Ha-Meem Group, one of the leading garment producers in Bangladesh, settled the payment issue with JC Penney after negotiations, said AK Azad, managing director of the group.
"I received $0.5 million out of a total $1.8 million from JC Penney. The company promised a full payment after the final transfer of the ownership to the new owners," he said.
In December, JC Penney completed the sales, under which Simon Property Group and Brookfield Asset Management acquired all of JC Penney's retail and operating assets.
Kutubuddin Ahmed, chairman of Envoy Group, said the smaller units were not receiving orders.
The indication of the flow of orders is not encouraging either despite the arrival of coronavirus vaccines.
Sixty-nine terminated workers of the Dhaka office of the UK-based Debenhams have not received their arrears yet.
"Debenhams does not reply to our emails. It is highly unlikely that we will get the wage from Debenhams," said Akhter Uddin Ahmed Asad, country manager of the liaison office of the brand.
The unpaid salaries and allowances of the terminated employees stand at $1 million, he said. Forty local suppliers to Debenhams have received partial payment. The company owes $60 million.
Although 90 per cent orders have been restored, the BGMEA does not have any specific data on buyers' payment to local suppliers, said BGMEA President Rubana Huq in a WhatsApp message.
"But we are not aware of any major complaints except for a few brands that went bankrupt putting the suppliers in great uncertainty," she said.
The factories, which include the suppliers that have not seen the restoration of the orders, are facing an enormous financial crisis due to the bankruptcy of the buyers, particularly in the form of non-payments and forced loans, the BGMEA chief said.
The apparel industry has about $8 billion in receivables at any point of time considering the average trade terms of 90 days, she said.
According to the BGMEA, 1,334 out of nearly 2,000 active members received funds from the stimulus package.
Out of more than 850 members of the BKMEA, 420 availed loans from the package.
The non-member factories of the BGMEA and the BKMEA did not receive funds, according to the CPD-MiB study.
Thanks to the unprecedented support from the government, factories were able to withstand the first wave and were operating in a survival mode, Huq said.
"The second wave has worsened the situation further as it has hit the retail business and demand for clothing, slowing our exports. While factories are already suffering from fund shortage and running on an average of 30 per cent idle capacity, the recovery is challenged further."
The garment factories are also uncertain about the business prospect in the coming months.
Only 44 per cent factories said they were sure about the orders for the six months from November 2020 to April 2021, the CPD-MiB study showed.
Some 56 per cent of factories are under different levels of uncertainty, and 11 per cent indicated high uncertainty.