Bangladesh seeks to grow through its export industry
Bangladesh has set economic goals that are so big, its problems pale in comparison. With goals of achieving middle-income status by 2021, Bangladesh needs to ramp up its economic growth rate to double digits. The country has been boosting growth rates of 7 percent for almost a decade now, with the World Bank and Asian Development Bank predicting 7.2 and 8.0 percent economic growth respectively for the current fiscal year. This prompted the Metropolitan Chamber of Commerce and Industry (MCCI), a leading trade body, to urge the government to focus more on an export-led growth strategy.
What is an export-led growth strategy? In matters of economic development, the last 40 or so years have been dominated by what has come to be known as export-led growth or if you want to sound impressive, you can describe it as export promotion strategies for industrialization. Export-led growth occurs when a country seeks economic development by engaging in international trade.
A nation pursuing export-led growth seeks to expand its economy by producing goods for sale overseas. Successfully executed, an export-led growth strategy generates a flow of money from abroad that the country can then use to strengthen its domestic economy and raise living standards. While this strategy has helped some nations develop rapidly-China, for example-it does come with significant risks.
Should a country’s development strategy pay special attention to exports? After all, exports have nothing to do with satisfying their people’s basic needs, such as education, health care, housing, power, water, telecoms, security, the rule of law, and recreation. So why give precedence to satisfying the needs of distant foreign consumers?
That, in a nutshell, is what many opponents of free trade and economic globalization – as well as many on the right who believe that all industries should be treated equally – want to know. But there are no right answers to wrong questions. It is precise because governments care about their own people that they should focus on exports.
More From MCCI
Outlining multiple challenges facing the country on business and fiscal fronts, the MCCI, suggested that the government take steps to overcome those and help achieve the desired economic growth. Blaming the global economy, in its October-December economic review, the chamber said most local economic indicators were ‘facing an uncomfortable ride’. Figures such as remittances, inflation, foreign exchange reserves fared well in December 2019.
The same couldn’t be said for the local business sectors which recorded one of the slowest growth rates in recent times owing to the shaky condition of the banking sector. According to the MCCI, the challenges that need to be addressed properly are inflationary pressure, slower growth in export and import, the shortfall in tax collection. Slow private-sector credit growth, a fall in the key indexes of the capital market, lack of investors’ confidence and a lower rate of foreign investment are among other challenges listed by the MCCI. They went on to say that Infrastructure deficits and gas and power supply problems along with faulty transmission capacity have also been undermining the performance of all productive sectors of the economy.
Export Sectors in Bangladesh
Bangladesh earned $3.52 billion in December 2019 which was $3.43 billion in December 2018 in export earnings. The nation’s exports earnings have risen by 2.89% to $3.52 billion in last December, breaking the negative growth for the fourth consecutive months. According to Export Promotion Bureau data, Bangladesh earned $3.52 billion in December 2019, up by 2.89%, which was $3.43 billion in December 2018.
Export-led growth in Bangladesh has been largely fueled by an abundant supply of low-cost labour and duty-free access to the EU and US markets. In fact, out of the top 5 items that are exported from Bangladesh, apparel and knitwear items hold the top two positions, earning $18.9 billion and $17.7 billion respectively for the country in the year of 2018.
However, Bangladesh’s export earnings during July-December of the current fiscal year have registered a 5.84% negative growth to $19.30 billion, which was $20.50 billion in the same period of the previous fiscal year.
The apparel sector, which accounts for 84.21% of total exports, witnessed a 6.21% decline to $16.02 billion in the first half of the current fiscal year, which was $17.08 billion in the same period in 2018. As per the data, knitwear products earned $8.20 billion, down by 5.126%, which was $8.65 billion the previous year.
Although merchandise exports have grown rapidly over the years, the country has been slow in diversifying its export basket and export destinations. The country is highly dependent on readymade garments for export earnings. Bangladesh’s heavy reliance on the apparel sector for attaining target growth rates exposes the country to a number of external shocks. Therefore, price hikes of cotton may affect exports adversely thus making it hard to compete globally. The readymade garments sector may also be affected by automation since the fourth industrial revolution is underway. Since the export basket, as well as export destinations, are highly concentrated there is a pressing need for diversification of both the export basket and export destinations.
Speaking of diversification, the footwear industry can also be a target for Bangladesh. With USD 626.57 million export performance, footwear was one of the top export sectors of Bangladesh in the 2018-19 fiscal year. As nearly 90 per cent of raw materials needed for the footwear sector is available locally, the sector has the potential to be the next “Thrust Sector” after RMG. Low production cost is one of the driving factors that has been an advantage for the footwear industries since inception. Japan and Germany are the leading export destinations for this sector, Bangladesh also supplies leather goods and footwear to China, Italy, USA, UK, Sweden and Taiwan. Nevertheless, adoption of new and improved technologies, automation, skilled labour force, the advancement of port facilities, maintaining compliance and quality, more emphasis on R&D should be taken if Bangladesh wants to reduce the overwhelming dependency on the RMG sector.
Bangladesh earned $3.52 billion in December, 2019 which was $3.43 billion in December, 2018 in export earnings.
Call for Diversification
The lion’s share of Bangladesh’s export is limited to only 10 countries, leaving the country highly dependent on these markets in the absence of initiatives to explore new destinations.
The ten countries imported over 71% or $28.89 billion of Bangladesh’s total exported goods in the just-concluded fiscal year, with the United States of America taking the lead with 17% exports share.
According to Export Promotion Bureau data, in the fiscal year 2018-19, Bangladesh earned $40.53 billion, of which $28.89 billion or 71.27% of the total exports came from the USA, Germany, the United Kingdom, Spain, France, Italy, Canada, Japan, the Netherlands and Poland. Of the total amount, $25.53 billion came from the apparel goods.
Once, 65% of Bangladesh’s total export was limited to the US, which is now 17%. While this is good news, exploring more markets to reduce dependency is the need of the times. Former BGMEA Vice President Faruque Hassan has repeatedly urged the government to seek bilateral trade agreement to avail duty-free market access to new counties such as the Russian Federation and South Africa.
To Sum It Up:
Fueling growth by expanding export and relying on an aggressive export strategy has paid off for many of the Asian Tiger countries. India is another prime and upcoming example of that.
Bangladesh certainly has the capacity to pursue a similar strategy by investing in improving its infrastructure sector, stabilizing its banking sector and seeking to build trade relations with other upcoming nations. The benefits of such investment will surely be followed by the double-digit growth rate that has been sought after by the government for a very long time.