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As production falls, businesses start to shed workforce

As production falls, businesses start to shed workforce Reported by Rexo News:

Bangladesh hit by dollar shortage resulting in job losses, contributing further to unemployment worry

09 February, 2023, 10:40 pm

Last modified: 09 February, 2023, 10:44 pm

Infographic: TBS

“> Infographic: TBS

Infographic: TBS

As job cuts in global tech industries make headlines, a much more low profile workforce reduction has started at home, striking fear among the mass of low-skill workers in the country.

Industries attribute the downsizing to plummeting imports and the resulting crisis in raw materials, thanks to the current dollar crisis.

The greenback shortage-led belt-tightening in July last year has also reduced production by almost 50% over the past couple of months, according to entrepreneurs who were forced to lay off workers subsequently in the December-January period.

“My company is 20 years old, and I never fired any of my employees – not even during the pandemic. But I had no option but to let go of 400 employees recently,” Rezwanul Mamun, managing director of steel-maker Steelmark, told The Business Standard.

Rezwanul said he used to open LCs worth $2 million to $3 million per month to import raw materials for his three factories. But he could not open letters of credit (LCs) worth $1 million in the last five months.

He said his current raw material stock will keep him running till the middle of this month.

The current situation is affecting not just the steel industry, but a wide range of sectors including garments, textile, pharma, and chemicals that heavily depend on imported raw materials.

Manwar Hossain, president of the Bangladesh Auto Re-Rolling and Steel Mills Association, said a number of small factories have already laid off workers while some others sent their employees on furlough.

According to the Bangladesh Ship Breakers Association (BSBA), some 40 shipbreaking yards out of a total of 90 have ceased operation as they could not import scrap vessels due to the dollar shortage. According to the association, each of the yards had 300 workers on average.  

“If the government does not act quickly, more than 20% of the steel sector workers may lose their jobs by the end of this month or March,” Manwar Hossain told The Business Standard.    

A shock awaiting March? 

Hit by the plummeting import and production, a number of industries trimmed their workforce in December. They were hopeful about recalling the employees once the situation improved.   

But the future does not look bright. Factories say they will run out of raw material stocks in February. The humming production lines will come to a grinding halt in March if the tight dollar market does not ease up.        

A top official of Rafiq Textile Ltd in Dhaka’s Malibagh told The Business Standard, “With the current cotton stock, our production lines can run up to early March. If the situation does not improve, there will be no option but to stop the factory”.   

Preferring anonymity, the official said slumping production due to import issues forced the textile miller to lay off 200 workers out of a total of 1,500.

Monsoor Ahmed, the additional director & CEO of Bangladesh Textile Mills Association (BTMA), said, the input shortage due to the dollar crunch has turned quite severe with no end in sight, forcing many of the mills to limit production. 

One of Monsoor’s colleagues in the BTMA claimed the industry has already laid off 10% of the workers. 

In conditions of anonymity, he said, “If the situation does not improve, more workers may be laid off in March and upcoming months.”

A business group operating four garment factories in Ashulia and Gazipur, Bangladesh laid off 2,700 workers in January and plans to cut another 8,000 jobs by March. 

The factories are facing capacity issues due to a decrease in export orders. To stay afloat, the group is looking to reduce its monthly operating expenses from Tk30 crore to Tk15 crore.

A senior executive of the group, who preferred to remain anonymous, attributed the job losses to external factors such as the prolonged Russia-Ukraine war and slumping demands in the Western market and stated that the job cuts were for survival. 

Job hits where it hurts the most 

The Business Standard talked to people of least one dozen sectors. They said the job cuts evolved mostly in the low-skilled segment. The white-collar workers are safe so far. 

Small and medium enterprises led the job cuts, while big ventures and established conglomerates were found stable. Besides, in sharp contrast to the West, the country’s IT sector was still found stable. 

According to recent stock market data, 30% of the listed firms reported double-digit growth in the first half of the current fiscal year while more than 40% of companies said they managed to stay afloat in terms of profitability retention over the July-December period.

Tareq Ibrahim, CEO of CWT Asset Management, told The Business Standard that companies that are not heavily dependent on energy consumption or imports did not face a significant drop in business in the July-December period of FY23.

Tareq Ibrahim’s comment explains the layoff of 300 workers of Tongi’s Azam PVC Pipe in January. Managing Director of the pipe-maker Molla Nesar Uddin said they could not import plastic raw materials since October last year, and may have to shut down in June if the situation does not improve.        

White goods is an anomaly

However, Bangladesh’s home appliance sector, which heavily depends on imported raw materials, did not face notable job retrenchment. 

As the sales drop amid pinching inflation, the firms witness sales plummeting and pressure weighing on the balance sheet, but still, sit on “quite full inventories”.

Some 150 companies assemble and manufacture home appliance items after importing components, according to Khurshed Ali Mollah, chairman of the Bangladesh Electronics Manufacturers Association.       

“But if the situation lingers, things can get painful,” he told The Business Standard on Thursday. 

The readymade garment sector, the top employer of unskilled and semi-skilled labour in Bangladesh, also looks steady so far.     

Referring to slumping orders, Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said the garment local industry is yet to feel the import shock as factories are now clearing their raw material inventories.    

But if the situation persists, garments will be affected and owners will be forced to lay off workers, Faruque Hassan commented. 

Unpaid salaries, painful separation 

Anwar Hossain, owner of Mawla Traders in Dhaka’s Gulshan, asked his 42 employees to search for jobs elsewhere. 

“The employees are like my family. I feel bad for them. But what else could I do if I had to shutter the business,” he told The Business Standard.   

The consumer goods importer said he used to open 6-7 LCs per month at regular times, but could not open a single one since November last year. His popular products like imported sausages, fruits, medicines, and food supplements that he now has in stock will be sold out by this month.      

“After that, there will be no means to pay office rent, employee salaries or bank loan instalments from next month,” Anwar notes the upcoming hurdles in addition to the painful separation from his workers.      

The workers at Mawla at least had time to prepare for the job loss but Rashedul Haque, a machine operator at Rafiq Textile Ltd who lost his job in December, said his termination was abrupt. Some 200 workers including him were notified on 30 November that they were being terminated in December.  

Rashedul returned to his village in Taraganj, Rangpur and took to farming.  

Although the company has promised to call back its workers once the situation improves, the workers are yet to get the legally mandated severance package.

Bay Tanneries (Unit-2) Limited, located in the Savar tannery estate, notified its workers of layoff in December as the tanner bid farewell to 60 workers after clearing their dues. 

Kazi Shahjahan, assistant manager (HR & Admin) of the company, said all the Savar tanners were in trouble as they were struggling to get foreign orders. 

Worry over spiking unemployment 

Layoffs spark fear that Bangladesh’s unemployment rate may spike further as it hit 6.47% in June, the last month of fiscal 2021-22, and it accelerated to this new high in November. 

The rise comes after comparatively tamer ranges of 4.2% to 4.5% in the previous two decades. 

Amid the unemployment worries, bankers say belt-tightening is not good for their business and this cannot go on for an indefinite period.      

A private bank MD, who preferred to remain anonymous, said that the reduced LC openings would not be good in the long run.  

His concern included the economic impact of the retrenchment of workers and the deterioration of bank-client relationships. “There is no solution if the dollar situation does not normalise.”

Selim RF Hussain, chairman of the Association of Bankers, Bangladesh (ABB), said the situation is such that not everything can be imported as before. To ride it out, the dollar market needs to return to its comfort zone first.

GM Abul Kalam Azad, Bangladesh Bank spokesperson and also an executive director, said on November 15 last year the central bank had no ban on LC opening. Banks are opening LCs as per their capacity.

According to the central bank’s July-December data, imports of consumer goods, capital machinery, intermediate goods, industrial raw materials, and other products decreased.

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