Sushmita Saha, Assistant Manager, Credit-SME and Bonnishikha Chowdhury, Executive Officer, Credit-SME

COVID-19, the great Pandemic, changed the fundamentals of everything, starting from economy to business to healthcare and what not. The actual impact of this pandemic can be so dreadful that Noble- winner economist duo Abhijit Banerjee and Esther Duflo compared the pandemic similar to “bombings during a war”, in that the levelling of the economy is mainly caused by external forces. To make matters worse, developing nations are going to face the COVID heat more than the developed ones, since greater portion of the world’s population live there. In fact, for developing nations, it is hard to estimate the true impact of this deadly virus amidst poor healthcare system, more people under the poverty line.

Having said that, coronavirus crisis has dwarfed the Great Recession (spanned 18 months) in just 2 months in the United States. An overwhelming amount of data has shown the extent of the economic pain: millions of Americans have filed unemployment-insurance claims, millions of jobs have been erased, and consumer spending, retail sales, and production have plummeted by record amounts. The hit to the labor market has been particularly extreme. It took just four weeks for the coronavirus downturn to erase the number of jobs created since 2009 and nine weeks for unemployment-insurance claims to surpass the Great Recession, which spanned 18 months. To predict what can eventually happen to the world post-pandemic is quite challenging because of the unforeseen challenges. So far, two developed economies, Japan and United States of America entered into the claw of recession. In a V-shaped recovery, an economy suffers a sharp decline, and recovers quickly and strongly after that. The governments are trying to provide various stimulus packages, incentives and minimizing the effect of the contagious Coronavirus by effective lockdown. The battle is undoubtedly a tough one and the game can only be changed by developing strategies which will protect both health and economy. Bangladesh and other South Asian governments are taking continuous immediate actions to manage health emergency and protect economy amidst of global economy fallout by the Covid-19 pandemic. It is expected that Bangladesh will experience a sharp economic downfall due to stagnant economic activities, collapsing trade, falling global and local demand for the garments’ products, increased unemployment, rise in poverty and stress in the banking and financial sectors.

It can be seen that Bangladesh’s real GDP is forecasted to decline to a range of 2% to 3% in FY 2020 from an estimated real GDP of 8.2% in FY 2019 by the World Bank. However, the government of Bangladesh targets 8.2% GDP growth for the fiscal 2020-21 in the recently announced National Budget. The country hopes to control coronavirus situation by September and thus hope to see a quick economic recovery. On the other hand, according to the latest report by the Bangladesh Bureau of Statistics (BBS), overall inflation fell to 5.35% in May from 5.96% in April. It is normal that inflation goes down when demand falls. Driven by plummeting income caused by pandemic situation, non-essential and luxury items are off people’s purchase list. Moreover, Bangladesh missed two important seasons which would boost the consumer spending and business performance in normal situation otherwise: Pahela Baishakh (Bengali New Year) and Eid-Ul-Fitr. This explains the downward movement of inflation.

On the other hand, remittance inflow dropped 14% in May 2020 year-on-year. After Ready Made Garments (RMG), remittance is the second pillar of Bangladesh economy. Bangladesh has around 10 million workers overseas. The Covid-19 pandemic has thrown them in uncertainty as economies remain under severe strain. Many saw their wages were cut, while many lost job opportunities. Many countries went into lockdown and houses for facilitating remittance went shut. However, inward remittance increased in May 2020 from that of April 2020, following the celebration of Eid-Ul-Fitr. The relaxation of conditions for incentives on the money sent by expatriates by the Central Bank lifted the sinking flow of remittance amid the pandemic situation. However, inflow may fall in June 2020 due to the post-festival effect and looming global recession.

Lower credit demand followed by disrupted supply chain is a devastating impact of the pandemic on a burgeoning economy like Bangladesh. This led to private sector credit growth as low as 8.82% in April 2020 on a year-on-year basis from 8.86% a month ago, according to Bangladesh Bank’s latest statistics. Country’s overall imports dropped by nearly 62% per cent or US$3.13 billion in April 2020 mainly due to the spread of coronavirus in different parts of the world including Bangladesh. Settlement of letters of credit (LCs), generally known as actual import, in terms of value, came down to $1.95 billion in April 2020 from $5.08 billion in the same month of 2019. On the other hand, opening of LCs, generally known as import orders, fell by nearly 70 per cent or $3.66 billion to $1.60 billion in April from $5.26 billion a year ago, according to the Central Bank data.

Impact of COVID-19 on industries

Ready Made Garments (RMG)

For the export-oriented industries in Bangladesh, one of the biggest barriers to overcoming the losses during pandemic is being dependent on China. China is Bangladesh’s biggest trade partner, source of imports including raw materials and also an export destination for Bangladesh. Thus, even before the virus spread, our economy faced the hit in case of producing export oriented goods and exporting goods. 82% of our total export basket comprises of RMG, which puts this industry in a tight spot in wake of COVID-19. As per BGMEA web portal data till April 29, 2020, in total 982 million pieces of products or USD 3.18 billion worth export orders were cancelled/suspended. RMG and knitwear manufacturer losses constitute about 18 % of the total revenue of the garments sector. It is feared that many of the buyers may not sustain the crisis and be back to full-scale operation anytime soon or ever again. Bangladesh, currently the second largest garment exporter worldwide, is also facing a tough competition from Vietnam. Vietnam has been performing strongly as it recently signed a free trade agreement with the European Union. Vietnam is a better choice for investment than Bangladesh as the country is concentrating on product diversification, while Bangladesh still manufactures basic apparels. Also, Vietnam is one of the few countries that combatted COCVID-19 at an early stage, whereas Bangladesh is still struggling with the widespread infection.

Agriculture

A recent study by BRAC revealed that Farmers across the country have lost an estimated BDT 56,536 crore during the Covid-19 forced shutdown across the country. The study, done on 1,581 farmers across 64 districts, also reflects that due to the damages to their yields and low prices, each farmer suffered a loss of BDT 207,976 (on an average) during the period of past 45 days. According to the study, during late March 2020, demand for essential commodities went up by a staggering 300% due to the panic caused byCovid-19, and later in May demands dried up which led to price drops, but the production of crops did not stop. As Boro harvest is completed across the country, the nation is unlikely to face cereal shortage in the next six months, according to experts. Analysing the food stock situation, by the time the current and upcoming stock of Boro would be consumed, in the next six months, Aman should be ready for harvest unless any natural disaster takes place. However, the main challenge for the government in coming days will be ensuring supply of other food items including fish, livestock and vegetables. Vegetables and fish farmers are already facing hard times as they are unable to sell their produce. This fiscal’s budget allocates BDT 29,984 crore for agriculture sector, which is 5.3% of the proposed total budget. Although it has been termed that Agriculture is the second highest priority sector, the percentage allocation dropped from that of last year.

Leather and Leather products

After apparels, leather and leather products are considered as the biggest foreign currency earner of Bangladesh. Leather and footwear combined accounts for 3.3% of the overall export basket. Bangladesh exported $1 billion worth of leather and leather products last fiscal year and this year’s target had been set at $1.1 billion. However, since the corona virus out break this sector has been unstable. Rapid outbreak in Hong Kong, China and Italy has affected the exports. The exporters who export leather goods are have stocks piled up. On the other hand, due to lock down the factories were also closed.

Jute Industry

The jute industry is such an industry which require very small investment, do not require any import, but can earn a huge amount of foreign currency. However, this sector was already troubled with internal mismanagement now COVID-19 has hit our golden harvest hard. As per the opinion of industry experts, the aggregate production of this sector will fall at least 25% and that will lead 50,000 workers’ employment in panic due to pandemic.

Real estate/Construction sector

Real estate sector is going to hit hard in the wake of pandemic situation. Private construction is not likely to pick up within next 6 months since, due to less purchasing capacity, mass people will buy essential commodities rather purchasing apartments. Also, the mega projects undertaken by the government took a slow turn. The government for the first time in decades planned to reduce the Annual Development Programme (ADP) to BDT 2.05 trillion. Due to the pandemic situation, the current state of the big projects are going slow, and also among the 10 big projects, Padma bridge and Metro rail will get the top most priority rather the rest. Having said that, it is inevitable that these projects will be ongoing, since construction work for all of them are in progress. It is a matter of concern for this sector that if government will undertake any new project in next couple of years, in the wake of this pandemic.

The production of related industries like cement, steel, tiles etc. also reduced significantly causing unemployment of a huge number of workers.

The new normal: E/F-commerce trend:

The whole pandemic situation all on a sudden spiked the demand of online based services to rocket high. Online grocery stores like Chaldal, Swapno etc. are experiencing double digit growths in the number of deliveries with Chaldal’s average 5000 ordersper-day jumping to 10,000 to 15,000 orders-per-day on an average. However, the food delivery and ride sharing companies are facing trouble since people are preferring homemade foods due to hygiene issue and maintain social distancing. The ride sharing services have also been closed since lockdown period. On the other hand, some logistics services like Pathao, e-Courier, Biddyut, Paperfly, SA Paribahan are facing an unlikely surge in orders. Interestingly, online health care services are becoming more popular due to this situation. Doctorola, Olwel, Praava online health care are receiving thousands of calls every day.

Stimulus packages to rescue:

To save export oriented industry workers a stimulus package of Tk 5,000 crore was distributed to diminish the impact of the coronavirus on the country’s economy and pay their salaries. Four fresh financial stimulus packages of Tk 67,750 crore is introduced for increasing public expenditure, formulating a stimulus package, widening social safety net coverage and increasing monetary supply. Moreover, Bangladesh government sought $1 billion in support from the International Monetary Fund and the World Bank as the country looks to support its people, businesses and industries reeling from the pandemic.

Takeaways for Bangladesh to manage supply chain disruption:

Bangladesh’s quick economic recovery from the COVID-19 depends on the length of the shutdown, the performance of the global economy, meeting the basic needs to maintain an immediate steady economy and later by taking major measures for economy recovery.

• To initially mitigate the risk of supply-chain, it is very important to educate the employees, suppliers, consumers and other stakeholders of the business about the crisis. The company should reinforce screening protocol, keep a detailed plan to manage absenteeism so that work is not disrupted, promote flexible working hours, work from home access by aligning IT systems and support, and make a contingency plan for the overall business.
  
  
• Understanding the demand impact specific to the business is very important. If answers to questions like what will be the short-term demand-supply synchronization strategy, how to prepare for any sudden shift in the potential logistics options, how to communicate with key customers in a crisis and finally what will be the rebound plan based on the global scenario, can be planned and executed, there is good chance to mitigate any risk that can cause disruption to supply chain.
  
  
• Leveraging advanced technologies such as the Internet, AI, block chain technology, robotics, and 5G, (digital supply network) DSNs are designed to plan and meet future challenges. No matter whatever crisis we face as a country or in the world, technology, enhanced digital privacy and use of visibility in different parts of business chain are inevitable for future undisruptive successes.
  
  
• Taking action beforehand and instill a system in place to channel immediate support, strong institutions and sustainability through citizen engagement.
  
  
• Bangladesh’s GDP growth 2019-2020 is likely to decline but is forecasted to rebound in FY2021. As many citizens already lost their job and businesses going under losses, to boost aggregate demand, SMEs, service sector strength and trade and commerce promotion, the government can take fiscal measures to increase investment.
  
  
• The government needs to enhance the strength of the health sector by increasing capacity of medical equipment, doctors, nurses, and everything needed to accommodate treatment for the citizens.
  
  
• The agriculture sector needs to be taken care of as well because it is the main driver of the economy.
  
  
• Advancement and adoption in technology are extremely crucial for a crisis like pandemic. Better access of work from home, giving formal training to employees, preparing an alternate plan from the business end are extremely important to combat a crisis as such.
  
  
• From individual’s end, saving is extremely important. Planning for the future, having alternate income sources, taking care of health and be aware of the global incidents should be taken more seriously.

• Bangladesh serves as an example of needing urgent project design that facilitates urgent responses, effective institutions and long-term partnerships, all of which can play key roles in disaster preparedness and response.