Although not widely reported in the global media, the south east Asian country of Bangladesh is undergoing a period of national unrest with student-led demonstrations forcing out long term Prime Minister Sheikh Hasina who has been forced to resign and flee to India. The trigger for what has been called by many a ‘coup’ was the imposition of a quota-system for government jobs, although discontent over increased autocratic government has been simmering for many years.
Hasina was widely credited with turning Bangladesh into a global textile manufacturing hub although rising oil prices – caused by Russia’s invasion of Ukraine –led to a financial crisis which resulted in a $4.7bn bail out from the International Monetary Fund.
The combination of the political and economic crisis has major implications for a range of supply chains, especially those related to the fashion industry. The chaos has caused severe security issues which have prevented the export of goods due to the closure of factories and the unwillingness of business to dispatch boxes to ports and airports. Inland distribution of containers has also been disrupted and many imports remain in port yards leading to high levels of congestion. Chittagong, Bangladesh’s main port was shut for five days and the main rail link with the capital Dhaka was also closed.
In an update to customers, shipping line Maersk commented that, several weeks after the violent clashes started and a week after Hasina had fled the country, some factories had started to open up with limited staffing and truck movements were gradually increasing.
It is not only the export of clothing which has been affected. It has been reported that there is a major shortage of foreign currency which is impacting on imports of capital goods from India such as machinery used in the textile sector. On top of this, many Indian manufacturers use Bangladeshi companies as vital components of regional value chains, out-sourcing production processes to the country. High inflation has also depressed the Bangladeshi consumer goods market impact on Indian exporters, limiting consumers’ ability to purchase foreign goods.
The crisis has been developing for some time. In the summer of 2023, a union official was beaten to death when trying to negotiate a wage settlement at a garment factory. This raised ethical issues for global manufacturers sourcing goods from the country, raising a red flag for investors.
The upheaval which has gripped Bangladesh indicates many of the problems involved in doing business with emerging markets. Political instability, caused by or resulting from financial volatility, is a consistent source of supply chain risk. This will be evident in Western markets over the coming weeks as shipments from Bangladesh are delayed causing headaches to retail sourcing managers. Having said that, although there will be significant effects on the textile sector, the contagion should be contained. Bangladesh is not as embedded in global value chains as many other countries across Asia, such as Vietnam. Bangladesh’s dependence on the export of low value finished products has held back the development of the economy but at the same time will limit the impact of the disruption to wider supply chain networks.
Author: John Manners-Bell
Source: Ti Insight / Foundation for Future Supply Chain
