It was recently reported that increased orders from the European Union, as well as the US, have created 300,000 jobs in the RMG sector. Everyone appreciated the good news and some argued that it was a sign of economic recovery.
The reality, however, is not as simple, and there is always more to the story. Before delving into the nitty-gritty of economics, a bit of background may be necessary.
A TBS report recently found that the RMG sector in Bangladesh - a sector responsible for 84 percent of all exports in FY 2019-20 - had received 15-20 percent higher orders compared to 2019, while overall exports to the US and the EU grew by 26.83 percent and 18.3 percent, respectively, from January to July 2021.
The Vice President of BGMEA, Shahidullah Azim claimed that this rise in orders has created 300,000 additional jobs in the sector.
Why the sudden surge in orders?
No, we did not have an ace up our sleeves nor did we pull off any masterful tricks or invent any new trade dimension. The recent surge in orders from the Western economies may very well have been driven primarily by better health conditions and better preparedness against Covid-19 in the West.
Thanks to the ease of access to vaccines and mass vaccination initiatives in the West, particularly the US and the European Union, things have begun to go back to normal. Most prominent fast-fashion brands have started reopening their outlets to let the customers in for in-person shopping after a long time. With the sharp increase in consumer demand, came the drastic spike in orders.
On top of that, Vietnam - the main competitor of Bangladesh and the second-largest exporter of RMG products following China - is still struggling to tackle the largest spikes in Covid-19 cases, reporting around 4,000-5000 cases and above 150 deaths each day. The country was eventually forced to go into lockdown and even deployed troops to enforce the lockdown guidelines.
Prolonged lockdown periods left many RMG factories in Vietnam with no choice but to cancel their orders. According to the Vietnam Textile and Apparel Association, 30-50 percent of these factories have to remain closed during the lockdown period, since they could not meet Covid-19 regulations imposed by the government. So, Vietnam's sorry battle against Covid-19 has siphoned many orders from the US away to competing companies in Bangladesh.
That is, while accord and alliance may have helped us gain the trust of the EU and the US back, most of the recent increase in income orders may be attributable to temporary changes in external variables and the BGMEA may not have had much to do with it.
Is this a sign of economic recovery?
Yes, it does imply a sign of economic recovery, but maybe only in the short run.
The RMG sector has exhibited signs of recovery over FY 2021 as RMG exports have risen up to $31456.7 million from $27949.2 million in FY 2020. But exports still have not come back to the FY 2019 level, which was calculated to be $344933.3 million. This surge in orders might just cross that threshold in FY 2022.
Many other sectors like transportation, trade, agriculture etc. associated with the RMG sectors will benefit from the increasing orders received by it. On top of that, as economists argue, there might be some multiplier effect of the growth in exports thanks to the recovery in the RMG sector.
That being said, it is time now to get back to reality.
As mentioned, the increase in orders may have been a short-run response to increased demand in the markets in the West. Quite understandably, economists are worried about whether such surges in incoming orders are sustainable.
Firstly, this rush of orders will eventually be over as consumers get used to in-person shopping again. In addition, Vietnam, hopefully, will be able to recover from the shock of Covid-19 soon and the number of orders to Vietnamese factories should return to normal as well.
Hence, it is pertinent to ask whether this rise in orders would contribute to any long-term change in exports growth and employment in the RMG sectors.
Secondly, economists also have doubts regarding the creation of 300,000 jobs. When asked about the employment effect Professor Dr Sayema Haq Bidisha, a prominent labour economist, argued that the RMG industry was also incorporating automation into its production process, leading to increased production.
Whether the production process is capital-intensive (higher automation) or labour-intensive would heavily affect the number of jobs added in response to the increase in orders.
This comment points to another worrying trend in the RMG sector over the past few years, starting long before the pandemic: stagnant employment growth in the RMG sector.
In fact, the growth in employment in the RMG sector has remained stagnant for quite some years now. One statistic might exhibit this quite accurately.
From 2015 to 2019, RMG exports have risen from $25491.4 million in 2015 to $34133.3 million in 2019- an increase of 33.9 percent. At the same time, employment in the RMG sector grew from about 4 million workers in 2015 to only 4.22 million workers in 2019; a mere 5.5 percent increase in employment.
The Covid-19 pandemic could not have broken out at a worse period.
According to some estimates, (a survey conducted by the CPD and Mapped in Bangladesh), about 3.5 lakhs workers (3.1 lakhs according to another study by BIGD) lost their jobs during the Covid-19 pandemic. According to these studies, the total job losses over the course of the pandemic could have been as high as 600,000.
The question arises- will adding 300,000 more jobs take employment in the RMG sector back to its original level before the pandemic (or even better)?
Mapped in Bangladesh reported that the RMG sector in Bangladesh currently employed 2.267 million workers which is much lower than the 4.1 million workers employed (4.22 million according to some estimates) in 2019. Adding 300,000 workers, that too debatable and only in the short run, may not ensure complete recovery of the lost jobs.
The role of automation
Economists argue that increased adaptation of automation in the RMG industry may be one of the reasons behind the slow recovery in terms of job loss. Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA) once stated that about 100 new factories are using advanced technologies and automation to make their production process more efficient.
On top of that, approximately 250 factories in Bangladesh are meeting the demands for their orders using automation and technology. While such use of advanced technology cuts down production costs by 30-40 percent and increases productivity, it also leads to job losses in the RMG sector.
Proponents of automation argue that the integration of advanced technology into the production process may lead to job losses in the short run but it will create more diversified employment opportunities in the coming days. Whether the current RMG workers will be able to adapt to those changing circumstances remains to be seen.
Finally, in the report, experts from the RMG industry prioritised the exports of high-value RMG products and skilled labours in the sector to remain competitive in the long run and to move towards a more sustainable business model.
While automation may be one of the many ways to achieve the efficient production of high-value goods, the RMG workers who lose their jobs in the process and may not get their jobs back should be properly compensated as well.