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Galvanising global supply-chains


Imtiaz A Hussain | August 12, 2022 00:00:00

Supply-networks typically remain outside public conversations in normal times. When a crisis descends, we gulp everything we can find about them. Usually missing in this appraisal is how to structure them so they eventually disappear as a worry. Given the pandemic, Ukranian war effects, and the heat-wave consecutively smacking us since 2020, restructuration, once a distant subject, now demands urgent attention.

Due to the pandemic both global lockdowns and social distancing ensured factories, shipping, and transportation would close for a variable duration. When input supplies and output distribution networks were disrupted, every household got hit the world over. For us cotton did not reach the ready-made garment (RMG) factories, where weavers/spinners now have to function six-feet apart, wearing a mask no less: production fell, exports plunged, income plummeted, and headaches multiplied. Likewise with food not reaching our table: farmers functionally paralysed, wholesale agencies not picking up nor delivering goods, retailers without products or customers (if, indeed, they boldly opened the store), and so forth.

Then came the war, and with it both gas-price and wheat-price spirals. Profit-makers capitalised on the opportunity, meaning oil-prices and prices of many other unaffected food items also climbed imposing upon us a double whammy: inflationary food-prices and energy costs rallying upwards. What gougers began with the pandemic, now turned into an orgy.

If we add to that setting the heat-wave, now no longer a local phenomenon but global, a vicious circle unravels: energy cut-backs leaving households reeling, consumption being clipped, meaning production dipping with no immediate relief in sight. Unfortunately, the process just repeats itself ad infinitum.

Sanity must return even from this orgy. What do we do? Essentially, how do we stabilise commodity/labour markets? That means going beyond patchwork repairs and bandage treatments in just about every country: normalising the factory-distribution-market domain is a start.

Learning supply-networks lessons could help Bangladesh. Many lessons flood the global idea market, including Singapore KMPG's Rakesh Agarwal's. Like many others, he turns to the underlying problems, and identifies six reform arenas: logistics disruption; production delays; concentrating partnerships; resorting to technological upgrades; maintaining stable prices; and managing the workers. Let's make his 'global' appraisals resonate 'locally' in Bangladesh.

The very first item exposes Bangladesh's broadband handicap: infrastructural shortages. Although we have dived deep into various megaprojects to redress these, our port containers and storage facilities remain too woeful to pull us out of this quagmire. Added to this is the country's haphazard and unreliable transportation system. Constructing Dhaka Metro Rail, Karnaphuli Tunnel, or Padma Bridge, for example, hits the spot, though how efficiently we will only know when we tally final expenditures against initial estimates, the objective being to identify the gougers and emasculate their haven. A lot of dirty water will flow under our bridges until then.

Public funding has multiplied just as our financial culture shifted. From emphasising savings that our forebears taught us to be the best future foundation (replete as it was with high interest-rates, all symbolised by one key post-office function: selling bonds), we must now adjust to market-driven consumption (and with it borrowing, but unlike before, at plunging interest rates, letting materialism forge our identities). If we throw in the war consequences, we will see the inflation-recession ghost brewing. Once unleashed, it will be a long haul.

A few painful years could have helped us clear the debts under normal circumstances, yet all three villains (pandemic, war, and heat-wave), have made us hostage to our debts: fears from diminishing export, investment, and remittance incomes have left us hungrily biting the bullet. Cut-throat business has long been part of the game; but now it has taken a scavenging turn.

Restructuring the first Agarwal feature helps restructure the others, so ultimately workers can be substituted for automated contraptions. Though spottily attempted during the pandemic (some RMG firms plunging deeper into automation than others), the bottom-line is simply the cash inflow from low-wage production: the lower this gets, the higher the chances of shifting to automation. Yet two futures cannot but collide: becoming a developed country (DC) by the 2040s, in which a huge majority of workers should earn salaries, not wages; and fulfilling the elusive 50 billion USD RMG export target. One of them must yield for the other to progress. Any DC priority will more likely reduce private foreign cash transfers automatically (since our markets would be attractive enough by growing in size and customers, and diversifying commodities and sectors); and any RMG priority would simply fuel those foreign transfers.

Bangladesh could do itself a favour: institute labour protection and labour-training to coordinate the shift from low-wage to a hi-tech skill-base. It would expose the critical driver of escaping today's malaise, especially to be where we want to be in the 2040s: diversification.

Diversification entails more than a worker reformation. Building skills require training, and though educational institutions have exploded across the country, this has been at the expense of quality and adequate academic-industry collaboration. Bangladesh's University Grants Commission could mandate more practical, work-related curricula to buoy any diversification leap and nudge in the DC direction.

Diversification is also a medicine to soften production delays, paucity of trading partners, and price fluctuations?all of them Agarwal's features. Our free-trade negotiations have only netted a midget-sized Bhutan thus far. Converting ongoing negotiations with Southeast Asian countries into agreements would help us cross a critical Rubicon: it would automatically weaken RMG dominance in our exports and economy, and open fertile playgrounds for value-chain escalation exposing human welfare increments and inviting innovation too.

In-country supply-chains may be more expensive, but they are more reliable than any global supply-network. For Bangladesh to out-step the global triangulated constraints (pandemic, war, and climate-change-triggered heat-wave), some monumental decisions are due, akin to the U.S. New Deal of the 1930s. There will be greater light at the end of the production-consumption tunnel through this channel than with any other. After all, far more of today's G-20 countries climbed up the import-substitution than the export-led ladder. That is not a departure from multilateralism, just a temporary aberration similar to the creation of trade regionalism within that multilateral frame: the European Union would not have succeeded far more than competing regional rivals without this aberration, thus balancing the 'national' with the 'supranational'.

Ultimately both polar ends must be avoided to fit the changing circumstances. "When in Rome, live like the Romans," is an apt phrase to follow: when facing external threats (triple at this moment), strengthen internal off-setting conditions. In other words, nationalism was never meant to disappear with globalisation, multilateralism, or technological advances, just as these three largely external forces could never fully conquer (or even want to subdue) domestic forces.

How they blend (amid transitions and when times get tighter) may be the supply-chain call of the day: the global version will always crop up by hook or by crook, but it is only when the tides are too high or too low that domestic supply-chains can deliver. Having them neither reduces from the global, in fact, may arguably make international transactions more predictable and profitable.

Today's pathway to normalcy needs such outlets.

Dr Imtiaz A Hussain is Professor, Global Studies & Governance Department, Independent University, Bangladesh.

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