9,000 job cuts a day

Posted: ফেব্রুয়ারি 3, 2009 in Uncategorized

In this day and age of gyrating markets, crashing consumer sentiment, failing banks and seemingly endless tales of greed and fraud, one number on the internet recently really hit home for me. In January 2009 the economies of the world shed 9,000 jobs per day on an average. The people lost their jobs in sectors ranging from electronics to telecom to pharmaceuticals to toys. On a single day alone January 26, there were 80,000 job cuts.

This is the fallout from Wall Street to Main Street as major corporations rocked by disappearing demand, dropping prices, drying up of liquidity and plummeting market capitalisation react to the changed scenario. British SMEs are slashing jobs at their fastest rate since the 1990s, Indian H-1B visa techies in the US are losing their jobs at Microsoft.

Today more than half of Bangladesh’s gross domestic product (GDP) is linked to the global economy through exports and imports of goods and services. Developed economies buy 85 percent of our total exports and sell us about 60percent of our total imports. If we include China, India and other emerging economies in this calculation, the percentages are almost cent percent. China is itself struggling with 6 million migrant workers returning from closed export factories to the rural economy and despite multi billion dollar local stimulus packages, curtailing growth forecasts. India has already announced downward revision of its growth target for the economy, although consumer spending has still not collapsed like the US or Europe.

What this means for countries like Bangladesh is decreasing demand. The Daily Star reported on February 2 how 20,000 contractual jute workers lost their jobs due to declining export demand.

To rephrase the old adage: When they get fired we go cold. This ballooning unemployment in the US and Europe means simply less consumption. Consumer spending has contracted for the first time in two consecutive quarters in the US since 1991. Rising unemployment dampens demand in two ways: one, the unemployed person consumes less and two, the remaining persons who are employed also scale back consumption since they fear they could be next. It is ridiculous to suggest that consumption will become zero but what is absolutely true is that they consume less. The spending will naturally be focused on essentials such as food, health, utilities and communication. Lifestyle expenditures such as travel, personal care, fashion will go down. And herein lies the danger for Bangladesh. I have read about the Walmart effects talked about by many garments exporters and government officials: How consumers will trade down to lower priced garments where we are strong and where China and India are losing share due to rising costs, and so Bangladesh exports will overall gain share. I believe we must be careful to avoid a false complacency for the fundamental reason that not all our export products are in this category. Bangladesh has many low cost producers of garments who may be competing purely as lowest cost vendor but we also have many exporters producing for international brands in knitwear, ceramics, jute products, golf shafts, bicycles, frozen seafood and home textiles. It is the demand for such products that is most affected. The propensity of a consumer who has lost his job to buy that next knit T-shirt, cargo pants, dinner sets, golf clubs or leather moccasins is severely reduced. Bear in mind the average European consumer already has 8 pairs of shoes so the 9th pair is not an essential purchase; in good times the 9th pair is an impulse buy or shopping “therapy”. But retailers are already reporting that the average number of items at the check out counter is less and the average price is dropping. This trading down by consumers is of course what is being called the ‘Walmart effect’ as consumers look for cheaper priced options. But there is also a contraction in demand as consumers defer any purchase that they do not deem essential. Before the howls of ‘compete or perish’ I would like to point out that our exporters already compete very effectively in different segments of the market, despite many handicaps and disadvantages. In many cases they have been able to overcome the ‘race to the bottom’ and build world-class capacity and increase the value of their exports. Just because every exporter in Bangladesh does not operate at the bottom rung of the market does not mean they are inefficient. But it is also true that a ceramics manufacturer catering for renowned English and Italian brands cannot transform itself into the cheapest ceramics source overnight. So what can be done to help?

Exporters in Bangladesh need timely and proactive help to reduce their cost of doing business.

Bank interest rates and charges in Bangladesh continue to be much higher than in competitor countries such as India where the rates have been revised three times already and the liquidity has been increased. Close watch must also be kept to avoid crowding out of credit to private sector by public borrowing.

Cost of fuel, mainly diesel, has not come down proportionately to the fall in global oil prices and this has a huge impact on operating costs directly through power generators as well as through the supply chain e.g., local transport.

The government should ensure that the exchange rates against the US dollar and the euro along with spreads do not put our exporters at a disadvantage viz-a-viz their competitors.

GOB can also re-examine its ADP and, if required, divert resources from non-priority sectors where implementation is anyway very low to support industry. At the same time, faster implementation of essential projects will stimulate the local economy.

Assist exporters face the liquidity crisis abroad as buyers defer payment terms and demand more credit. Recently the 1 billion USD per annum auto components export sector in India has received pre-shipment finance guarantees from the government when banks were unwilling to finance further.

President Obama has said yes we can, I believe Bangladesh must say: yes we must. We must work together through this unprecedented crisis to deliver the growth we need.

The writer is the managing director of Apex Adelchi Footwear Ltd.

The daily star 04.02.2009

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