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Bangladesh Defense Forum
Export diversification still a far cry
Although the need to diversify Bangladesh’s export basket has been a subject of great discussion for more than two decades, there has been little progress in this regard.
Export diversification still a far cry
Although the need to diversify Bangladesh's export basket has been a subject of great discussion for more than two decades, there has been little progress in this regard.
In fact, there has been no reflection of diversification in exports. On the contrary, readymade garments (RMG) continue to dominate, accounting for around four-fifths of all of Bangladesh's exports.
Though garment exports surged from $1.18 billion in the early 1990s to $47 billion by 2023, non-RMG exports grew from $811 million to just over $8 billion.
Between FY02 and FY23, exports soared by 828 percent from $5.9 billion to $55.55 billion, buoyed by a 925 percent rise in apparel exports.
However, despite the overall growth, the ratio of non-RMG exports to total exports declined from 24.86 percent in FY02 to 15.42 percent in FY23.
Photo: Rajib Raihan
At present, Bangladesh's exports are largely made up of knitwear (44.6 percent) and woven garments (37.2 percent), with home textile (3.3 percent), footwear (2.3 percent), jute products (1.9 percent), and fish (1 percent) being other notable products.
Bangladesh's overwhelming dependence on RMG means that its export basket is among the world's least diversified.
Bangladesh's export basket is four times more concentrated than the developing-country average, according to a report by the Asian Development Bank (ADB) titled "Fostering Export Diversification in Bangladesh".
Along with product concentration, Bangladesh also suffers from a lack of export market diversification.
More than four-fifths of its exports are destined for North American and EU markets. Furthermore, Bangladesh's top-10 export destinations account for 72 percent of its total exports, while the corresponding figures for India and Sri Lanka are 52 percent and 64 percent.
Experts identified that policy and financing barriers and a lack of infrastructure development in the non-RMG sector had slowed export diversification.
"There were four major barriers in expansion of export diversification -- policy issues, financing barriers, lack of infrastructure, and weak bargaining power of non-RMG exporters," said Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM).
He also said that non-RMG and RMG exporters cannot practically avail the same benefits.
As an example, he said RMG exporters can import capital machinery at zero duty while non-RMG exporters have to pay high tariffs to import necessary equipment.
Non-RMG exporters cannot even avail bonded warehouse facilities as easily as RMG exporters, which is a significant barrier to expediting export diversity, he said.
He also said the agro-processing sector had been failing to live up to its potential to increase exports due to a lack of infrastructure and proper government support.
Ferdaus Ara Begum, CEO of Business Initiative Leading Development (BUILD), said: "Export diversification has not happened because of several reasons. Even within the RMG sector, little diversification has happened."
Bangladesh exports only four to five products in the RMG sector, which has given buyers the chance to bargain for the prices of cotton garments, she said, adding: "Prices are falling lower and lower."
The need is to invest in manmade fibre, which requires huge investment and utility support, she said.
She added that the gas crisis, which has been affecting industries in recent years, was preventing industries from running operations smoothly. This poses a significant barrier to large investments in the country.
According to her, financing support is another issue as the export development fund is used by limited entrepreneurs.
CHALLENGES FROM LDC GRADUATION
Intensifying its diversification initiatives in preparation for the country's graduation from least-developed country (LDC) status in 2026 is imperative for a smooth transition.
As an LDC, Bangladesh enjoys unilateral trade preferences in markets in Canada, the EU and the UK. Such duty-free market access has endowed Bangladesh with a significant competitive edge.
In fact, more than 70 percent of the country's merchandise exports enjoy some LDC-specific trade preferences, which is far higher than other LDCs in Asia and the Pacific.
However, these benefits will cease after graduation unless they are extended.
For example, Bangladesh's duty-free access to the EU is set to expire in 2029 given the EU's additional 3-year transition period for graduating LDCs.
Post-graduation market access provisions in the EU are not yet settled, but under currently proposed terms, the average tariff rate facing Bangladesh's garment exports to the EU would increase from zero percent to about 12 percent.
At the same time, Bangladesh's exporters could see average tariffs on exports rising from zero to 17 percent in Canada, 16 percent in China, 8.7 percent in Japan, and 8.6 percent in India.
"The post-LDC scenario will be grave. After the reduction of cash incentives, exports of almost all sectors will decline," Ferdaus Ara cautioned.
A mismatch in export figures between the Bangladesh Bank, Export Promotion Bureau, and National Board of Revenue has worsened the situation, she added.
She said large investment in the export sector as well as utility, financing and tax policy support must be extended for export diversification.
"RMG is our success. We need to diversify the RMG products with a view to achieving at least $150 billion in exports from this sector by the next 5 years, which is possible," she said.
"We also need a clear sector-specific strategy."
Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), said the RMG sector's faster rate of growth led to its dominance in Bangladesh's export basket.
However, he added that the growth of non-RMG sectors was very slow and, in some cases, even witnessed degrowth.
Rahman added that Bangladesh had received very little export-oriented foreign direct investment (FDI), which is one of the factors holding back export diversification. Another reason is that export-centric special economic zones are yet to be implemented.
He suggested mobilising export-oriented FDI and ensuring proper one-stop services would help export diversification efforts.
He added that a lack of technology and skilled human resources, particularly at the managerial level, was also restraining non-RMG sectors.
Although many studies have been conducted to identify the sectors with export diversification potential, practically the same sectors have been identified over time.
"The strategy of "picking winners" or targeting specific sectors for growth, such as the leather sector and information technology and IT-enabled services sector, has not succeeded as export targets have been consistently unmet," the ADB said.
"For the leather sector, the government had set an ambitious export target of $5 billion by 2021. Despite this focus and support, the sector's current exports are just above $1 billion, demonstrating the inability of the 'picking winners' strategy to produce the expected results."
M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, said non-RMGs' share in Bangladesh's export basket had declined due to a lack of policy reforms.
"We need to bring the right support for those sectors to build up efficiency, including logistical support and adoption of technology," he said.
He also said an initiative to bring in export-oriented FDI is imperative because it is very difficult to diversify exports without foreign investment.
Another barrier to export diversification was posed by significant differences in the income tax rates between the RMG and non-RMG sectors.
The RMG sector has historically benefitted from a relatively lower corporate tax rate, ranging from 10 percent to 12 percent.
In contrast, non-RMG sectors, such as textiles, leather and leather goods, agro-processing and home textiles, have faced higher tax rates ranging from 15 percent to 30 percent.
Only recently, in FY23, a uniform income tax rate of 12 percent for both services and goods exports was introduced. This move is expected to rectify the existing bias in income tax rates for export-oriented industries.
In its paper, the ADB recommended addressing policy-induced disincentives against exports, boosting export market responsiveness and accelerating diversification.
Although the need to diversify Bangladesh's export basket has been a subject of great discussion for more than two decades, there has been little progress in this regard.
In fact, there has been no reflection of diversification in exports. On the contrary, readymade garments (RMG) continue to dominate, accounting for around four-fifths of all of Bangladesh's exports.
Though garment exports surged from $1.18 billion in the early 1990s to $47 billion by 2023, non-RMG exports grew from $811 million to just over $8 billion.
Between FY02 and FY23, exports soared by 828 percent from $5.9 billion to $55.55 billion, buoyed by a 925 percent rise in apparel exports.
However, despite the overall growth, the ratio of non-RMG exports to total exports declined from 24.86 percent in FY02 to 15.42 percent in FY23.
Photo: Rajib Raihan
At present, Bangladesh's exports are largely made up of knitwear (44.6 percent) and woven garments (37.2 percent), with home textile (3.3 percent), footwear (2.3 percent), jute products (1.9 percent), and fish (1 percent) being other notable products.
Bangladesh's overwhelming dependence on RMG means that its export basket is among the world's least diversified.
Bangladesh's export basket is four times more concentrated than the developing-country average, according to a report by the Asian Development Bank (ADB) titled "Fostering Export Diversification in Bangladesh".
Along with product concentration, Bangladesh also suffers from a lack of export market diversification.
More than four-fifths of its exports are destined for North American and EU markets. Furthermore, Bangladesh's top-10 export destinations account for 72 percent of its total exports, while the corresponding figures for India and Sri Lanka are 52 percent and 64 percent.
Experts identified that policy and financing barriers and a lack of infrastructure development in the non-RMG sector had slowed export diversification.
"There were four major barriers in expansion of export diversification -- policy issues, financing barriers, lack of infrastructure, and weak bargaining power of non-RMG exporters," said Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM).
He also said that non-RMG and RMG exporters cannot practically avail the same benefits.
As an example, he said RMG exporters can import capital machinery at zero duty while non-RMG exporters have to pay high tariffs to import necessary equipment.
Non-RMG exporters cannot even avail bonded warehouse facilities as easily as RMG exporters, which is a significant barrier to expediting export diversity, he said.
He also said the agro-processing sector had been failing to live up to its potential to increase exports due to a lack of infrastructure and proper government support.
Ferdaus Ara Begum, CEO of Business Initiative Leading Development (BUILD), said: "Export diversification has not happened because of several reasons. Even within the RMG sector, little diversification has happened."
Bangladesh exports only four to five products in the RMG sector, which has given buyers the chance to bargain for the prices of cotton garments, she said, adding: "Prices are falling lower and lower."
The need is to invest in manmade fibre, which requires huge investment and utility support, she said.
She added that the gas crisis, which has been affecting industries in recent years, was preventing industries from running operations smoothly. This poses a significant barrier to large investments in the country.
According to her, financing support is another issue as the export development fund is used by limited entrepreneurs.
CHALLENGES FROM LDC GRADUATION
Intensifying its diversification initiatives in preparation for the country's graduation from least-developed country (LDC) status in 2026 is imperative for a smooth transition.
As an LDC, Bangladesh enjoys unilateral trade preferences in markets in Canada, the EU and the UK. Such duty-free market access has endowed Bangladesh with a significant competitive edge.
In fact, more than 70 percent of the country's merchandise exports enjoy some LDC-specific trade preferences, which is far higher than other LDCs in Asia and the Pacific.
However, these benefits will cease after graduation unless they are extended.
For example, Bangladesh's duty-free access to the EU is set to expire in 2029 given the EU's additional 3-year transition period for graduating LDCs.
Post-graduation market access provisions in the EU are not yet settled, but under currently proposed terms, the average tariff rate facing Bangladesh's garment exports to the EU would increase from zero percent to about 12 percent.
At the same time, Bangladesh's exporters could see average tariffs on exports rising from zero to 17 percent in Canada, 16 percent in China, 8.7 percent in Japan, and 8.6 percent in India.
"The post-LDC scenario will be grave. After the reduction of cash incentives, exports of almost all sectors will decline," Ferdaus Ara cautioned.
A mismatch in export figures between the Bangladesh Bank, Export Promotion Bureau, and National Board of Revenue has worsened the situation, she added.
She said large investment in the export sector as well as utility, financing and tax policy support must be extended for export diversification.
"RMG is our success. We need to diversify the RMG products with a view to achieving at least $150 billion in exports from this sector by the next 5 years, which is possible," she said.
"We also need a clear sector-specific strategy."
Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), said the RMG sector's faster rate of growth led to its dominance in Bangladesh's export basket.
However, he added that the growth of non-RMG sectors was very slow and, in some cases, even witnessed degrowth.
Rahman added that Bangladesh had received very little export-oriented foreign direct investment (FDI), which is one of the factors holding back export diversification. Another reason is that export-centric special economic zones are yet to be implemented.
He suggested mobilising export-oriented FDI and ensuring proper one-stop services would help export diversification efforts.
He added that a lack of technology and skilled human resources, particularly at the managerial level, was also restraining non-RMG sectors.
Although many studies have been conducted to identify the sectors with export diversification potential, practically the same sectors have been identified over time.
"The strategy of "picking winners" or targeting specific sectors for growth, such as the leather sector and information technology and IT-enabled services sector, has not succeeded as export targets have been consistently unmet," the ADB said.
"For the leather sector, the government had set an ambitious export target of $5 billion by 2021. Despite this focus and support, the sector's current exports are just above $1 billion, demonstrating the inability of the 'picking winners' strategy to produce the expected results."
M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, said non-RMGs' share in Bangladesh's export basket had declined due to a lack of policy reforms.
"We need to bring the right support for those sectors to build up efficiency, including logistical support and adoption of technology," he said.
He also said an initiative to bring in export-oriented FDI is imperative because it is very difficult to diversify exports without foreign investment.
Another barrier to export diversification was posed by significant differences in the income tax rates between the RMG and non-RMG sectors.
The RMG sector has historically benefitted from a relatively lower corporate tax rate, ranging from 10 percent to 12 percent.
In contrast, non-RMG sectors, such as textiles, leather and leather goods, agro-processing and home textiles, have faced higher tax rates ranging from 15 percent to 30 percent.
Only recently, in FY23, a uniform income tax rate of 12 percent for both services and goods exports was introduced. This move is expected to rectify the existing bias in income tax rates for export-oriented industries.
In its paper, the ADB recommended addressing policy-induced disincentives against exports, boosting export market responsiveness and accelerating diversification.
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Bangladesh’s path to export diversification
Assessing the opportunities and challenges in a time of change
https://www.dhakatribune.com/361929
Julia WesemannPublish : 15 Oct 2024, 12:47 PM
Update : 15 Oct 2024, 12:47 PM
Bangladesh has long been a global leader in the ready-made garment (RMG) sector, with textiles contributing around 84% of the country’s total exports. Yet, as the country faces shifting global dynamics and recent political changes, the urgency to diversify its exports has reached a critical juncture.
The student-led revolution has brought to light underlying social, political, and economic challenges that Bangladesh must now confront. As the new leadership charts a course forward, reducing the country’s overreliance on a single sector and building a more resilient and diversified economy will be paramount.
Bangladesh’s economy continues to be heavily dependent on the RMG industry. The sector’s rapid growth has driven the country’s economic development, created millions of jobs -- especially for women -- and significantly reduced poverty. However, the concentration of exports in one industry leaves the country vulnerable to external shocks, such as changing trade policies in major markets like the US and Europe, as well as growing scrutiny over labor rights and sustainability.
The recent political crisis, coupled with global economic uncertainties, makes it clear that Bangladesh must diversify its export base to sustain long-term growth. Export diversification not only strengthens economic resilience but also creates opportunities for new job creation, technological advancement, and investment in emerging industries.
Sectors with high potential
Bangladesh has several sectors beyond garments that show significant potential for growth and diversification. The new political climate offers an opportunity for the interim government to implement reforms and attract investment in these key areas.
- Information and Communication Technology (ICT): Bangladesh has made significant progress in developing its ICT sector. The country is now positioned to become a hub for IT outsourcing, software development, and tech startups. By improving digital infrastructure and education, Bangladesh can tap into the growing global demand for digital services and position itself as a regional leader in the tech industry.
- Pharmaceuticals: Bangladesh’s pharmaceutical industry has been expanding steadily, with the country already supplying affordable generic drugs to many developing nations. As demand for healthcare rises globally -- particularly after the Covid-19 pandemic -- Bangladesh has the potential to further grow its pharmaceutical exports. With investments in research, development, and quality control, the country could become a major player in the global pharmaceutical market.
- Leather and footwear: Bangladesh is one of the world’s largest producers of leather goods and footwear. However, environmental concerns, particularly related to the tannery industry, have limited the sector’s growth. By implementing stricter environmental standards and adopting sustainable practices, the leather and footwear industry could expand into high-value markets, such as luxury goods, further diversifying the country’s export base.
- Jute: Once known as the “golden fibre” of Bangladesh, jute has seen a resurgence in global demand due to its eco-friendly and biodegradable properties. As countries and companies move toward sustainable materials, Bangladesh has a unique opportunity to reclaim its position as a leading exporter of jute and jute products, catering to industries like packaging, textiles, and home goods.
- Agriculture and agro-processing: While Bangladesh has a rich agricultural heritage, its export potential in this sector remains underdeveloped. Investments in agro-processing and value-added agricultural products, such as frozen foods, spices, and seafood, could unlock new markets. Additionally, developing supply chains and logistics for agricultural exports could position Bangladesh as a significant player in global food production.
Challenges to diversification
While these sectors hold promising opportunities for diversification, several critical challenges must be addressed to unlock their full potential and sustain long-term growth. Inadequate infrastructure, particularly in transportation, logistics, and energy, remains a significant barrier to export diversification. Ports, roads, and supply chains must be upgraded to support the efficient movement of goods and reduce costs for exporters.
To move into higher-value industries like ICT and pharmaceuticals, Bangladesh needs to invest in education and vocational training. Building a skilled workforce that can meet the demands of emerging sectors is crucial to long-term success.
The recent political upheaval and transition to an interim government have introduced uncertainty into the business environment. Stability is essential for attracting foreign direct investment (FDI) and building confidence in the country’s economic future. A clear vision and long-term strategy for export diversification, supported by sound governance, will be critical to driving progress.
Bangladesh will face intense competition from emerging economies like Vietnam and India, which are also expanding into ICT, pharmaceuticals, and agro-processing. To stay ahead, Bangladesh must focus on innovation, sustainability, and high-quality production to carve out a competitive advantage.
How can we all contribute?
The student-led revolution has created both challenges and opportunities for Bangladesh. This pivotal moment provides a unique chance to reimagine Bangladesh’s economic future. However, building a more resilient and diversified economy is not solely the government’s responsibility. Active participation from all stakeholders is essential for long-term success. Here’s how various groups can contribute to this shared vision:
The new government: The interim government must prioritize reforms to improve the ease of doing business, invest in critical infrastructure, and foster innovation. Streamlining regulatory processes and providing incentives for industries beyond RMG will help attract both local and foreign investment. Policies that support small and medium-sized enterprises (SMEs) in emerging sectors such as ICT, pharmaceuticals, and sustainable agriculture will be crucial.
Exporters: Exporters need to diversify their product offerings and explore new international markets. Collaboration between exporters from different sectors can also lead to innovative cross-sector opportunities. By adopting sustainable practices and focusing on value addition, exporters can build resilience in a changing global market, positioning Bangladesh as a leader in new and high-value sectors like eco-friendly products, tech services, and pharmaceuticals.
Farmers and agro-entrepreneurs: Adopting sustainable practices and improving supply chains will help with untapped export potential, positioning Bangladesh’s agriculture as a key player in global markets.
Industry associations and chambers of commerce: Industry bodies, such as trade associations and chambers of commerce, play a vital role in building bridges between the private sector, government, and international investors. By offering support to new industries, providing market insights, and advocating for policies that encourage export diversification, these associations can help businesses toward sustainable growth.
Investors and venture capitalists: Both local and international investors will play a critical role in supporting emerging sectors. Venture capitalists and private equity firms should focus on funding startups and SMEs in industries like ICT, pharmaceuticals, and sustainable agriculture.
Educational institutions and vocational training centers: As Bangladesh seeks to diversify into higher-value industries, building a skilled workforce is essential. Educational institutions must provide the technical skills needed in sectors like ICT, biotech, and renewable energy.
Civil society and NGOs: Civil society organizations and NGOs must advocate for inclusive growth, sustainability, and equitable policies. They can work to ensure that marginalized groups, such as women and rural communities, benefit from new economic opportunities.
Julia Wesemann is Director of Growing Together and Founder of Co-creation lab.
Worker rights should be ensured to protect export earnings
THE structural safety of factories has significantly improved after the Rana Plaza collapse that left more than a thousand apparel workers dead, but labour practices have largely...
www.newagebd.net
Worker rights should be ensured to protect export earnings
19 October, 2024, 00:00
THE structural safety of factories has significantly improved after the Rana Plaza collapse that left more than a thousand apparel workers dead, but labour practices have largely remained unfriendly for workers. A leading supply chain compliance provider, QIMA, reports a significant increase in worker rights violations regarding working hours and wages in the apparel sector. The organisation observes that 37 per cent of audited factories have made workers work beyond legal hours and failed to pay wages in time in January–September, which is more than double the rate reported in 2023. Bangladesh’s compliance score is lower than other apparel manufacturing countries’ and it is gradually declining. The global incidence of critical violations in working hours and wages identified in factory audits was 16 per cent, with rates of 20 per cent in China and 11 per cent in Vietnam. The compliance providers report is consistent with the claims of trade union leaders and labour organisations in Bangladesh that policymakers have since the Rana Plaza collapse been especially concerned about improved structural safety issues but left everyday labour rights violations unattended.
Apparel workers taking to the streets over wage disputes is common. In the changed political context, after the fall of the Awami League government in August, many workers were injured and at least two workers were killed when they protested against the sudden closure of factories without clearing worker’s due wages or demanded an increase in the minimum wage. Trade union activists in Dhaka and Gazipur report that at least 2,000 workers of 20 apparel factories lost their job in September. Many studies have already documented how workers had to work longer than the legal workday, partly because the minimum wage is far too low for them to survive at a time when food inflation has reached an unprecedented high. It is also because factory management often compels workers to work overtime to complete work orders. The apparel sector also has the tendency to deny workers severance or maternity benefits. There are reports that pregnant women are asked to quit the job so that the factories can avoid paying the maternity benefits. Worker’s trade union rights, as QIMA observes, are also regularly violated. Firing workers for their participation in movements for wage increase was widely reported in 2023.
The apparel sector is the largest export-earning source for Bangladesh and working-class women constitute the major part of the labour force. A progressive decline in compliance score, as reported in the QIMA report, could, therefore, risk Bangladesh’s export earnings and it may lose the competitive edge on the global market. Considering the significance of the apparel sector for the economy, the government should abandon any policy bias towards the factory-owning elite and sincerely address worker grievances. A routine delay in wage payment, denial of severance benefits, arbitrary job termination and rampant violation of trade union rights are among long-standing concerns that the government should sincerely address to ensure a steady growth in the sector.
19 October, 2024, 00:00
THE structural safety of factories has significantly improved after the Rana Plaza collapse that left more than a thousand apparel workers dead, but labour practices have largely remained unfriendly for workers. A leading supply chain compliance provider, QIMA, reports a significant increase in worker rights violations regarding working hours and wages in the apparel sector. The organisation observes that 37 per cent of audited factories have made workers work beyond legal hours and failed to pay wages in time in January–September, which is more than double the rate reported in 2023. Bangladesh’s compliance score is lower than other apparel manufacturing countries’ and it is gradually declining. The global incidence of critical violations in working hours and wages identified in factory audits was 16 per cent, with rates of 20 per cent in China and 11 per cent in Vietnam. The compliance providers report is consistent with the claims of trade union leaders and labour organisations in Bangladesh that policymakers have since the Rana Plaza collapse been especially concerned about improved structural safety issues but left everyday labour rights violations unattended.
Apparel workers taking to the streets over wage disputes is common. In the changed political context, after the fall of the Awami League government in August, many workers were injured and at least two workers were killed when they protested against the sudden closure of factories without clearing worker’s due wages or demanded an increase in the minimum wage. Trade union activists in Dhaka and Gazipur report that at least 2,000 workers of 20 apparel factories lost their job in September. Many studies have already documented how workers had to work longer than the legal workday, partly because the minimum wage is far too low for them to survive at a time when food inflation has reached an unprecedented high. It is also because factory management often compels workers to work overtime to complete work orders. The apparel sector also has the tendency to deny workers severance or maternity benefits. There are reports that pregnant women are asked to quit the job so that the factories can avoid paying the maternity benefits. Worker’s trade union rights, as QIMA observes, are also regularly violated. Firing workers for their participation in movements for wage increase was widely reported in 2023.
The apparel sector is the largest export-earning source for Bangladesh and working-class women constitute the major part of the labour force. A progressive decline in compliance score, as reported in the QIMA report, could, therefore, risk Bangladesh’s export earnings and it may lose the competitive edge on the global market. Considering the significance of the apparel sector for the economy, the government should abandon any policy bias towards the factory-owning elite and sincerely address worker grievances. A routine delay in wage payment, denial of severance benefits, arbitrary job termination and rampant violation of trade union rights are among long-standing concerns that the government should sincerely address to ensure a steady growth in the sector.
Challenges in export diversification
To sustain the upward trajectory of exports, expanding the range of products in our export basket is essential. The country's foreign exchange reserves are under significant pressure due to inconsistencies in export earnings, which have a ripple effect on import payments and broader macroeconomic f
Challenges in export diversification
Abu Mukhles Alamgir Hossain
Published :
Oct 24, 2024 21:27
Updated :
Oct 24, 2024 21:27
To sustain the upward trajectory of exports, expanding the range of products in our export basket is essential. The country's foreign exchange reserves are under significant pressure due to inconsistencies in export earnings, which have a ripple effect on import payments and broader macroeconomic factors. Over the years, leading economists, think-tanks and industry experts have consistently emphasised the need for export diversification to ensure sustainable international trade. However, little progress has been made on this much-discussed issue. The reasons behind the lack of diversification are well-known.
DEPENDENCY ON A SINGLE SECTOR: Bangladesh's export trade is heavily dependent on the apparel sector, which contributes 84 per cent of the country's export earnings. This sector receives substantial support from the government, including cash incentives, bonded warehouse facilities, easy bank financing, and policy interventions during times of difficulty. The ready-made garments (RMG) sector benefits from lower production costs and large-scale employment, creating a disincentive for exploring and developing other sectors. The sector's contribution over the last five years is as follows:
EXPORT DESTINATIONS VULNERABILITY: The United States and the European Union are the two primary export destinations for Bangladeshi products. Collectively, the EU represents the largest export market, followed by the USA as the second largest. These two destinations account for 44 per cent and 17 per cent of Bangladesh's total exports, respectively, while the rest of the world makes up 39.02 per cent. The following graph highlight the concern:
Bangladesh's excessive dependence on the USA and EU makes its exports highly vulnerable. To reduce this over-reliance, it is crucial to explore and expand into new markets, such as Southeast Asia, the Middle East, Africa, Eastern Europe, Latin America, and other regions of North America.
POTENTIAL SECTORS NOT RECEIVING THE SAME SUPPORT AS RMG: Other potential sectors, such as Leather and Leather Goods, Jute and Jute Goods, Agricultural and Processed Products, Handicrafts, Pharmaceuticals, ICT and ICT-enabled services, and Light Engineering Products do not receive the same level of support as the RMG sector. Sector-specific policy papers are needed to evaluate the pros and cons of their impact on the economy, while also considering the approaches of competing countries. The export performance of the Non-RMG products are as follows:
POLICY-INDUCED ANTI-EXPORT BIAS: Domestic manufacturers enjoy government-imposed protectionism through higher import duties, which diminishes the competitiveness of local industries against foreign products. Due to the domestic market's convenience, manufacturers are often disincentivised to export as they avoid the compliance and standards required for the global market. Dependency on import tariffs for revenue collection is another crucial factor hindering export diversification. Bangladesh is going to be graduating in November 2026 to a middle-income country, so to sustain growth and expand export destinations, there is the crucial need to liberalise international trade by considering the signing of Economic Partnership Agreements (EPA) or Free Trade Agreements (FTA) with potential countries and economic blocs.
LOW TECHNOLOGICAL ADVANCEMENT: Limited technological know-how and poor integration of technology hinder the growth of high-tech industries. Bangladesh's reliance on labour-intensive manufacturing restricts its ability to compete in technology-driven sectors, such as electronics. To diversify exports into the high-tech industry, Bangladesh must invest in ICT (bridging the digital divide), skill upgrading, STEM (Science, Technology, Engineering, and Mathematics) education, innovation hubs, and intellectual property protection. A prompt action plan should be formulated by relevant authorities, with a focus on timely implementation to maximise benefits.
INCONSISTENT TRADE POLICIES: Trade policies are often inconsistent and overly complex, creating a challenging environment for businesses to invest in new sectors. Delays in implementing reforms and a lack of long-term policy support for non-RMG sectors discourage investment.
ENVIRONMENTAL AND COMPLIANCE ISSUES: Sustainable production and compliance with global environmental standards are becoming increasingly important, especially in sectors like textiles, leather, and agriculture products. The lack of compliance makes it harder for Bangladesh to tap into eco-friendly markets or export to countries with strict regulations. Despite its significant potential, the leather sector in Bangladesh faces challenges hindering its growth. The CETP in the Saver Leather Industrial Park is not operating effectively, hindering environmental sustainability. LWG certification, essential for attracting reputable buyers, is difficult to obtain due to the park's environmental issues. Sourcing rawhide from slaughterhouses is another challenge, as the skin is often handled by unskilled or semiskilled butchers. The plastic sector also struggles to meet global standards for recycling. Despite its vast potential, it faces limitations in capturing a substantial share of the world market. Similarly, the agriculture and textile sectors encounter obstacles in tapping into international markets due to compliance challenges.
SKILL SHORTAGES: Diversifying exports requires a workforce with specialised skills in various industries. Leather, Jute, Handicrafts, Home décor, Cosmetics, Light Engineering, and ICT sectors need skills and expertise in which we are struggling. Investing in training and development programmes is crucial to equip the workforce with the necessary skills.
LIMITED INNOVATION AND RESEARCH & DEVELOPMENT (R&D): There is a limited focus on R&D, which is crucial for product and process innovation in non-traditional export sectors. Investment in innovation is low, and there is little collaboration between the private sector, academic institutions, and government bodies which needs to be enhanced. High Tech Industry needs Research and Development (R&D) with the utmost priority. To overcome these challenges, Bangladesh must increase investment in R&D, fortify intellectual property protection, invest in human capital development, streamline regulatory processes, and improve market access. By fostering a more supportive environment for innovation, Bangladesh can diversify its exports and become a more competitive player in the global economy.
LACK OF LOGISTICS: Insufficient facilities across the three modes of export shipments-air, sea, and land-are lagging compared to other competing countries. Ports in Bangladesh face issues such as inefficient cargo handling, insufficient Explosive Detection Scanners (EDS), fluctuating spot air freight prices, inadequate warehouse and cargo village facilities, and a shortage of skilled and semi-skilled manpower. As a result, exporters are unable to fully capitalise on opportunities to diversify their exports.
GLOBAL COMPETITION: Bangladesh faces stiff competition from countries like Vietnam, India, and Cambodia in diversified sectors such as electronics, leather goods, and IT services. Low brand recognition and a lack of quality standards make it hard for Bangladeshi products to penetrate new international markets. In addition, after graduating to a middle-income country in 2026, Bangladesh will no longer be able to utilise unilateral preferential market access facilities, which will further weaken our competitiveness.
LIMITED ACCESS TO FINANCE SMALL AND MEDIUM-SIZED ENTERPRISES (SMES): SMEs often face difficulties in accessing affordable credit. High interest rates, lack of required collateral discourage entrepreneurs from expanding into new sectors. As the lifeblood of the economy, SMEs must be prioritised if Bangladesh is determined to diversify its export basket. In this case, Japan's lesson/success story can be followed by Bangladesh.
Export diversification cannot happen overnight, and there is no shortcut to achieving it. Long-term strategies, sector-specific policies, business-friendly customs procedures, and efficient logistics must be ensured to diversify our export sector.
Abu Mukhles Alamgir Hossain, Director (Policy and Planning), Export Promotion Bureau (EPB).
Abu Mukhles Alamgir Hossain
Published :
Oct 24, 2024 21:27
Updated :
Oct 24, 2024 21:27
To sustain the upward trajectory of exports, expanding the range of products in our export basket is essential. The country's foreign exchange reserves are under significant pressure due to inconsistencies in export earnings, which have a ripple effect on import payments and broader macroeconomic factors. Over the years, leading economists, think-tanks and industry experts have consistently emphasised the need for export diversification to ensure sustainable international trade. However, little progress has been made on this much-discussed issue. The reasons behind the lack of diversification are well-known.
DEPENDENCY ON A SINGLE SECTOR: Bangladesh's export trade is heavily dependent on the apparel sector, which contributes 84 per cent of the country's export earnings. This sector receives substantial support from the government, including cash incentives, bonded warehouse facilities, easy bank financing, and policy interventions during times of difficulty. The ready-made garments (RMG) sector benefits from lower production costs and large-scale employment, creating a disincentive for exploring and developing other sectors. The sector's contribution over the last five years is as follows:
EXPORT DESTINATIONS VULNERABILITY: The United States and the European Union are the two primary export destinations for Bangladeshi products. Collectively, the EU represents the largest export market, followed by the USA as the second largest. These two destinations account for 44 per cent and 17 per cent of Bangladesh's total exports, respectively, while the rest of the world makes up 39.02 per cent. The following graph highlight the concern:
Bangladesh's excessive dependence on the USA and EU makes its exports highly vulnerable. To reduce this over-reliance, it is crucial to explore and expand into new markets, such as Southeast Asia, the Middle East, Africa, Eastern Europe, Latin America, and other regions of North America.
POTENTIAL SECTORS NOT RECEIVING THE SAME SUPPORT AS RMG: Other potential sectors, such as Leather and Leather Goods, Jute and Jute Goods, Agricultural and Processed Products, Handicrafts, Pharmaceuticals, ICT and ICT-enabled services, and Light Engineering Products do not receive the same level of support as the RMG sector. Sector-specific policy papers are needed to evaluate the pros and cons of their impact on the economy, while also considering the approaches of competing countries. The export performance of the Non-RMG products are as follows:
POLICY-INDUCED ANTI-EXPORT BIAS: Domestic manufacturers enjoy government-imposed protectionism through higher import duties, which diminishes the competitiveness of local industries against foreign products. Due to the domestic market's convenience, manufacturers are often disincentivised to export as they avoid the compliance and standards required for the global market. Dependency on import tariffs for revenue collection is another crucial factor hindering export diversification. Bangladesh is going to be graduating in November 2026 to a middle-income country, so to sustain growth and expand export destinations, there is the crucial need to liberalise international trade by considering the signing of Economic Partnership Agreements (EPA) or Free Trade Agreements (FTA) with potential countries and economic blocs.
LOW TECHNOLOGICAL ADVANCEMENT: Limited technological know-how and poor integration of technology hinder the growth of high-tech industries. Bangladesh's reliance on labour-intensive manufacturing restricts its ability to compete in technology-driven sectors, such as electronics. To diversify exports into the high-tech industry, Bangladesh must invest in ICT (bridging the digital divide), skill upgrading, STEM (Science, Technology, Engineering, and Mathematics) education, innovation hubs, and intellectual property protection. A prompt action plan should be formulated by relevant authorities, with a focus on timely implementation to maximise benefits.
INCONSISTENT TRADE POLICIES: Trade policies are often inconsistent and overly complex, creating a challenging environment for businesses to invest in new sectors. Delays in implementing reforms and a lack of long-term policy support for non-RMG sectors discourage investment.
ENVIRONMENTAL AND COMPLIANCE ISSUES: Sustainable production and compliance with global environmental standards are becoming increasingly important, especially in sectors like textiles, leather, and agriculture products. The lack of compliance makes it harder for Bangladesh to tap into eco-friendly markets or export to countries with strict regulations. Despite its significant potential, the leather sector in Bangladesh faces challenges hindering its growth. The CETP in the Saver Leather Industrial Park is not operating effectively, hindering environmental sustainability. LWG certification, essential for attracting reputable buyers, is difficult to obtain due to the park's environmental issues. Sourcing rawhide from slaughterhouses is another challenge, as the skin is often handled by unskilled or semiskilled butchers. The plastic sector also struggles to meet global standards for recycling. Despite its vast potential, it faces limitations in capturing a substantial share of the world market. Similarly, the agriculture and textile sectors encounter obstacles in tapping into international markets due to compliance challenges.
SKILL SHORTAGES: Diversifying exports requires a workforce with specialised skills in various industries. Leather, Jute, Handicrafts, Home décor, Cosmetics, Light Engineering, and ICT sectors need skills and expertise in which we are struggling. Investing in training and development programmes is crucial to equip the workforce with the necessary skills.
LIMITED INNOVATION AND RESEARCH & DEVELOPMENT (R&D): There is a limited focus on R&D, which is crucial for product and process innovation in non-traditional export sectors. Investment in innovation is low, and there is little collaboration between the private sector, academic institutions, and government bodies which needs to be enhanced. High Tech Industry needs Research and Development (R&D) with the utmost priority. To overcome these challenges, Bangladesh must increase investment in R&D, fortify intellectual property protection, invest in human capital development, streamline regulatory processes, and improve market access. By fostering a more supportive environment for innovation, Bangladesh can diversify its exports and become a more competitive player in the global economy.
LACK OF LOGISTICS: Insufficient facilities across the three modes of export shipments-air, sea, and land-are lagging compared to other competing countries. Ports in Bangladesh face issues such as inefficient cargo handling, insufficient Explosive Detection Scanners (EDS), fluctuating spot air freight prices, inadequate warehouse and cargo village facilities, and a shortage of skilled and semi-skilled manpower. As a result, exporters are unable to fully capitalise on opportunities to diversify their exports.
GLOBAL COMPETITION: Bangladesh faces stiff competition from countries like Vietnam, India, and Cambodia in diversified sectors such as electronics, leather goods, and IT services. Low brand recognition and a lack of quality standards make it hard for Bangladeshi products to penetrate new international markets. In addition, after graduating to a middle-income country in 2026, Bangladesh will no longer be able to utilise unilateral preferential market access facilities, which will further weaken our competitiveness.
LIMITED ACCESS TO FINANCE SMALL AND MEDIUM-SIZED ENTERPRISES (SMES): SMEs often face difficulties in accessing affordable credit. High interest rates, lack of required collateral discourage entrepreneurs from expanding into new sectors. As the lifeblood of the economy, SMEs must be prioritised if Bangladesh is determined to diversify its export basket. In this case, Japan's lesson/success story can be followed by Bangladesh.
Export diversification cannot happen overnight, and there is no shortcut to achieving it. Long-term strategies, sector-specific policies, business-friendly customs procedures, and efficient logistics must be ensured to diversify our export sector.
Abu Mukhles Alamgir Hossain, Director (Policy and Planning), Export Promotion Bureau (EPB).
Looking beyond RMG-diversifying exports
Bangladesh's economy has seen remarkable growth over recent decades, largely driven by the ready-made garment (RMG) industry. This sector alone accounts for well over 80 per cent of the country's export earnings, employs millions, and has established Bangladesh as a global manufacturing hub. Howev
Looking beyond RMG-diversifying exports
Matiur Rahman
Published :
Oct 31, 2024 21:43
Updated :
Oct 31, 2024 21:43
Workers at a RMG unit in Dhaka Photo : FE File
Bangladesh's economy has seen remarkable growth over recent decades, largely driven by the ready-made garment (RMG) industry. This sector alone accounts for well over 80 per cent of the country's export earnings, employs millions, and has established Bangladesh as a global manufacturing hub.
However, Bangladesh's heavy reliance on RMG poses several risks, including fluctuations in global demand, increased competition from other low-cost producers, and pressure to improve labour conditions and environmental standards. For sustained growth and resilience, Bangladesh must look beyond RMG and explore diversification strategies that open new export and economic expansion avenues.
The RMG sector has undeniably played a central role in Bangladesh's development. It has provided significant employment opportunities, especially for women, lifted millions of families out of poverty, and contributed to improved social indicators across the country. However, the overwhelming reliance on a single industry has also created vulnerabilities. Bangladesh's economy remains exposed to global economic shifts, as seen during the COVID-19 pandemic when demand for apparel plummeted, and many factories faced closures.
Additionally, increased automation and technological advancements in garment manufacturing pose challenges as developed countries and competitors like Vietnam and Cambodia continue to invest in robotics, artificial intelligence, and more efficient manufacturing technologies. These advancements could diminish Bangladesh's cost advantage in the coming years, pushing the country to rethink its economic strategy.
To reduce its dependence on the RMG industry, Bangladesh must diversify its export basket and explore other sectors that can drive future economic growth. One potential area is the information technology and digital services sector, which holds considerable promise.
The IT sector, including software development, business process outsourcing (BPO), and freelancing has already demonstrated its growth potential, with annual revenue increasing steadily. Expanding and investing in IT and digital services could create high-paying jobs, bring in valuable foreign exchange, and reduce the economy's vulnerability to fluctuations in global manufacturing demand.
Another promising sector for Bangladesh is agriculture and agro-processing. Although agriculture has historically been one of the country's primary industries, it has yet to fully exploit its potential in the international market. Agricultural products like jute, fish, vegetables, and spices are in substantial demand globally. Bangladesh can expand its export base in this sector by investing in modern farming techniques, ensuring product quality, and promoting agro-processing industries.
Additionally, increased focus on organic and sustainable farming could attract new markets, especially in Europe and North America, where consumers are increasingly drawn to sustainable and ethically sourced products. Developing the agro-processing industry would diversify exports, create jobs, especially in rural areas, and enhance food security.
The pharmaceutical industry in Bangladesh is another sector that shows significant potential. Bangladesh's well-established pharmaceutical industry already meets most of the domestic drug demand and has begun exporting to various countries. With the impending patent expirations on a range of drugs globally, Bangladeshi pharmaceutical companies can capture a larger share of the global market by producing generic medicines.
Investments in research and development, quality control, and regulatory compliance are essential to seize this opportunity. If developed effectively, the pharmaceutical sector could become a significant economic growth and export revenue driver, further decreasing reliance on RMG.
The electronics and light engineering sectors could also be crucial in diversifying Bangladesh's export base. The local demand for electronics, such as smartphones, televisions, and home appliances, has surged in recent years, leading to the establishment of several domestic electronics manufacturers. With sufficient investment, these companies could also target export markets. Bangladesh could emerge as a regional electronics and light engineering player by focusing on quality improvement, branding, and cost competitiveness. Furthermore, establishing a robust supply chain within the country would reduce dependency on imported raw materials and support domestic industries.
Bangladesh's geographic location also presents opportunities to establish itself as a regional trade and logistics hub. Positioned between India and China, with access to the Bay of Bengal, Bangladesh is ideally situated for trade with South and Southeast Asia.
Investing in ports, airports, and road infrastructure could turn Bangladesh into a critical logistics and transhipment centre, facilitating regional and global trade. Enhanced trade connectivity would promote export diversification, support local businesses, and foster regional economic integration.
Bangladesh will need a strategic policy shift to achieve export diversification and sustainable growth. Government support in the form of incentives, subsidies, and regulatory reforms will be crucial to encouraging investment in new sectors. Educational reforms that align with the needs of emerging industries are also essential. This will ensure a skilled workforce that adapts to and supports a diversified economy. Building strong public-private partnerships, encouraging foreign direct investment, and streamlining bureaucratic processes will be necessary to create a conducive environment for new industries.
Environmental considerations must also guide future economic development. Industries like RMG have had significant ecological impacts, including pollution and high water usage.
Moving forward, Bangladesh should prioritise sustainable practices and invest in green technologies to reduce environmental damage and enhance the appeal of its products in environmentally conscious markets. Integrating sustainability into the diversification strategy will protect natural resources and align Bangladesh's economy with global trends toward sustainable development.
This transition will require economic investment and social and environmental commitments that reflect a sustainable and inclusive growth model. A diversified export sector will reduce the country's exposure to global market shifts, create new employment opportunities, and improve citizens' overall quality of life. With the right approach, Bangladesh can look forward to a future not defined by one industry but recognised for its innovation, sustainability, and economic resilience.
Dr Matiur Rahman is a researcher and development worker.
Matiur Rahman
Published :
Oct 31, 2024 21:43
Updated :
Oct 31, 2024 21:43
Workers at a RMG unit in Dhaka Photo : FE File
Bangladesh's economy has seen remarkable growth over recent decades, largely driven by the ready-made garment (RMG) industry. This sector alone accounts for well over 80 per cent of the country's export earnings, employs millions, and has established Bangladesh as a global manufacturing hub.
However, Bangladesh's heavy reliance on RMG poses several risks, including fluctuations in global demand, increased competition from other low-cost producers, and pressure to improve labour conditions and environmental standards. For sustained growth and resilience, Bangladesh must look beyond RMG and explore diversification strategies that open new export and economic expansion avenues.
The RMG sector has undeniably played a central role in Bangladesh's development. It has provided significant employment opportunities, especially for women, lifted millions of families out of poverty, and contributed to improved social indicators across the country. However, the overwhelming reliance on a single industry has also created vulnerabilities. Bangladesh's economy remains exposed to global economic shifts, as seen during the COVID-19 pandemic when demand for apparel plummeted, and many factories faced closures.
Additionally, increased automation and technological advancements in garment manufacturing pose challenges as developed countries and competitors like Vietnam and Cambodia continue to invest in robotics, artificial intelligence, and more efficient manufacturing technologies. These advancements could diminish Bangladesh's cost advantage in the coming years, pushing the country to rethink its economic strategy.
To reduce its dependence on the RMG industry, Bangladesh must diversify its export basket and explore other sectors that can drive future economic growth. One potential area is the information technology and digital services sector, which holds considerable promise.
The IT sector, including software development, business process outsourcing (BPO), and freelancing has already demonstrated its growth potential, with annual revenue increasing steadily. Expanding and investing in IT and digital services could create high-paying jobs, bring in valuable foreign exchange, and reduce the economy's vulnerability to fluctuations in global manufacturing demand.
Another promising sector for Bangladesh is agriculture and agro-processing. Although agriculture has historically been one of the country's primary industries, it has yet to fully exploit its potential in the international market. Agricultural products like jute, fish, vegetables, and spices are in substantial demand globally. Bangladesh can expand its export base in this sector by investing in modern farming techniques, ensuring product quality, and promoting agro-processing industries.
Additionally, increased focus on organic and sustainable farming could attract new markets, especially in Europe and North America, where consumers are increasingly drawn to sustainable and ethically sourced products. Developing the agro-processing industry would diversify exports, create jobs, especially in rural areas, and enhance food security.
The pharmaceutical industry in Bangladesh is another sector that shows significant potential. Bangladesh's well-established pharmaceutical industry already meets most of the domestic drug demand and has begun exporting to various countries. With the impending patent expirations on a range of drugs globally, Bangladeshi pharmaceutical companies can capture a larger share of the global market by producing generic medicines.
Investments in research and development, quality control, and regulatory compliance are essential to seize this opportunity. If developed effectively, the pharmaceutical sector could become a significant economic growth and export revenue driver, further decreasing reliance on RMG.
The electronics and light engineering sectors could also be crucial in diversifying Bangladesh's export base. The local demand for electronics, such as smartphones, televisions, and home appliances, has surged in recent years, leading to the establishment of several domestic electronics manufacturers. With sufficient investment, these companies could also target export markets. Bangladesh could emerge as a regional electronics and light engineering player by focusing on quality improvement, branding, and cost competitiveness. Furthermore, establishing a robust supply chain within the country would reduce dependency on imported raw materials and support domestic industries.
Bangladesh's geographic location also presents opportunities to establish itself as a regional trade and logistics hub. Positioned between India and China, with access to the Bay of Bengal, Bangladesh is ideally situated for trade with South and Southeast Asia.
Investing in ports, airports, and road infrastructure could turn Bangladesh into a critical logistics and transhipment centre, facilitating regional and global trade. Enhanced trade connectivity would promote export diversification, support local businesses, and foster regional economic integration.
Bangladesh will need a strategic policy shift to achieve export diversification and sustainable growth. Government support in the form of incentives, subsidies, and regulatory reforms will be crucial to encouraging investment in new sectors. Educational reforms that align with the needs of emerging industries are also essential. This will ensure a skilled workforce that adapts to and supports a diversified economy. Building strong public-private partnerships, encouraging foreign direct investment, and streamlining bureaucratic processes will be necessary to create a conducive environment for new industries.
Environmental considerations must also guide future economic development. Industries like RMG have had significant ecological impacts, including pollution and high water usage.
Moving forward, Bangladesh should prioritise sustainable practices and invest in green technologies to reduce environmental damage and enhance the appeal of its products in environmentally conscious markets. Integrating sustainability into the diversification strategy will protect natural resources and align Bangladesh's economy with global trends toward sustainable development.
This transition will require economic investment and social and environmental commitments that reflect a sustainable and inclusive growth model. A diversified export sector will reduce the country's exposure to global market shifts, create new employment opportunities, and improve citizens' overall quality of life. With the right approach, Bangladesh can look forward to a future not defined by one industry but recognised for its innovation, sustainability, and economic resilience.
Dr Matiur Rahman is a researcher and development worker.
US election: What is at stake for Bangladesh’s export
As millions of Americans head to the polls on November 5 to vote for either Democratic Vice President Kamala Harris or her Republican rival Donald Trump, apparel business communities in Bangladesh, more than 13,119 kilometres away from Washington, will be watching the results of the presidential...
US election: What is at stake for Bangladesh’s export
As millions of Americans head to the polls on November 5 to vote for either Democratic Vice President Kamala Harris or her Republican rival Donald Trump, apparel business communities in Bangladesh, more than 13,119 kilometres away from Washington, will be watching the results of the presidential election closely.
The reason is largely related to trade, as the US is the single largest buyer of ready-made garments made in Bangladesh -- the world's second-largest apparel manufacturer after China.
Local RMG makers believe US trade policy toward China, a major competitor in the global apparel market, will be crucial for their business in the coming years.
Besides, the role of the World Trade Organization (WTO) and other global trade organisations will be important as Bangladesh transitions to a developing country in 2026.
Apparel exporters say Republican Candidate Trump's plan to impose higher tariffs on imports from China could boost Bangladesh's garment exports.
But, they fear that a Trump presidency could also lead to challenges for multilateral trading institutions like the WTO and intensified global export competition.
Last year, Bangladesh exported $8.27 billion worth of garment items to the US, facing a 15.62 percent tariff.
Under both Democratic and Republican administrations, garment exports from Bangladesh to the US have remained relatively stable.
During Trump's presidency from 2017 to 2021, Bangladesh's share of garment exports to the US fluctuated between 17 percent and 18.90 percent, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Under Democratic President Joe Biden, the share has not increased too much, varying between 21.15 percent and 18.12 percent.
Asking not to be named, a renowned garment exporter to the USA from Bangladesh said Trump's anti-China move could eventually benefit Bangladesh. If he imposes more tariffs on Chinese products, there is a possibility of work orders shifting to Bangladesh.
Khandoker Rafiqul Islam, immediate president of the BGMEA, said Trump's additional tariff on Chinese goods plan has already prompted many US-based clothing retailers and brands to look for alternative sourcing destinations such as Bangladesh and Vietnam.
"If Harris is elected, it is expected that the existing US tariff will continue for China. In this case, Bangladesh's business may not be affected negatively but the possibility of an export jump is thin," he said.
However, Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID), a private research organisation, said there could be a significant change in approaches between Trump and Harris.
For instance, if Trump is elected, multilateral institutions and organisations like the WTO may face challenges.
"Trump may adopt a more anti-China policy and impose more tariffs on import of Chinese goods to the USA," Razzaque said, "In this case, Bangladesh may be benefited indirectly as there is a possibility of shifting of work orders from China to Bangladesh."
However, an identified geo-political rivalry and undermining the fundamental multilateral trading system may result in a demand slump, he said.
The RAPID chairman said demand for garment items has been declining over the past three to four years and most G-20 countries, including the US, have adopted protectionist trade policies.
He said Bangladesh may face additional challenges when it graduates from a Least Developed Country (LDC) to a developing nation in 2026. Rules-based trade may be affected.
According to Razzaque, a Democratic administration could lead to less intense geopolitical tensions, possibly benefiting Bangladesh through the maintenance of the multilateral trading system.
However, he reminded that the US's main interest remains containing China.
Masrur Reaz, chairman of the Policy Exchange Bangladesh, echoed Razzaque's views.
Reaz said Donald Trump was aggressive in imposing tariffs on Chinese imports during his previous term. If re-elected, he may adopt an even more aggressive stance toward Chinese imports.
Bangladesh should also restart negotiations with the US to revive the Generalized System of Preferences (GSP) for US markets, as the relationship between the two countries is improving, said Reaz.
Since the expiration of the Multi-Fibre Arrangement in 2004, Bangladesh has not enjoyed any tariff preferences on garment exports to the US.
Before the Trump administration imposed a 25 percent tariff on Chinese goods in January 2018, Chinese exporters faced a 3.08 percent duty on garment exports to the US.
According to the Hong Kong Ministerial Declaration of the World Trade Organization (WTO), the US was supposed to provide duty-free market access for all products from LDCs. However, the US government granted duty-free access to only 97 percent of products.
As an LDC, Bangladesh's garment exports were expected to be included in the 97 percent duty-free category, but apparel products were excluded from this package.
As millions of Americans head to the polls on November 5 to vote for either Democratic Vice President Kamala Harris or her Republican rival Donald Trump, apparel business communities in Bangladesh, more than 13,119 kilometres away from Washington, will be watching the results of the presidential election closely.
The reason is largely related to trade, as the US is the single largest buyer of ready-made garments made in Bangladesh -- the world's second-largest apparel manufacturer after China.
Local RMG makers believe US trade policy toward China, a major competitor in the global apparel market, will be crucial for their business in the coming years.
Besides, the role of the World Trade Organization (WTO) and other global trade organisations will be important as Bangladesh transitions to a developing country in 2026.
Apparel exporters say Republican Candidate Trump's plan to impose higher tariffs on imports from China could boost Bangladesh's garment exports.
But, they fear that a Trump presidency could also lead to challenges for multilateral trading institutions like the WTO and intensified global export competition.
Last year, Bangladesh exported $8.27 billion worth of garment items to the US, facing a 15.62 percent tariff.
Under both Democratic and Republican administrations, garment exports from Bangladesh to the US have remained relatively stable.
During Trump's presidency from 2017 to 2021, Bangladesh's share of garment exports to the US fluctuated between 17 percent and 18.90 percent, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Under Democratic President Joe Biden, the share has not increased too much, varying between 21.15 percent and 18.12 percent.
Asking not to be named, a renowned garment exporter to the USA from Bangladesh said Trump's anti-China move could eventually benefit Bangladesh. If he imposes more tariffs on Chinese products, there is a possibility of work orders shifting to Bangladesh.
Khandoker Rafiqul Islam, immediate president of the BGMEA, said Trump's additional tariff on Chinese goods plan has already prompted many US-based clothing retailers and brands to look for alternative sourcing destinations such as Bangladesh and Vietnam.
"If Harris is elected, it is expected that the existing US tariff will continue for China. In this case, Bangladesh's business may not be affected negatively but the possibility of an export jump is thin," he said.
However, Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID), a private research organisation, said there could be a significant change in approaches between Trump and Harris.
For instance, if Trump is elected, multilateral institutions and organisations like the WTO may face challenges.
"Trump may adopt a more anti-China policy and impose more tariffs on import of Chinese goods to the USA," Razzaque said, "In this case, Bangladesh may be benefited indirectly as there is a possibility of shifting of work orders from China to Bangladesh."
However, an identified geo-political rivalry and undermining the fundamental multilateral trading system may result in a demand slump, he said.
The RAPID chairman said demand for garment items has been declining over the past three to four years and most G-20 countries, including the US, have adopted protectionist trade policies.
He said Bangladesh may face additional challenges when it graduates from a Least Developed Country (LDC) to a developing nation in 2026. Rules-based trade may be affected.
According to Razzaque, a Democratic administration could lead to less intense geopolitical tensions, possibly benefiting Bangladesh through the maintenance of the multilateral trading system.
However, he reminded that the US's main interest remains containing China.
Masrur Reaz, chairman of the Policy Exchange Bangladesh, echoed Razzaque's views.
Reaz said Donald Trump was aggressive in imposing tariffs on Chinese imports during his previous term. If re-elected, he may adopt an even more aggressive stance toward Chinese imports.
Bangladesh should also restart negotiations with the US to revive the Generalized System of Preferences (GSP) for US markets, as the relationship between the two countries is improving, said Reaz.
Since the expiration of the Multi-Fibre Arrangement in 2004, Bangladesh has not enjoyed any tariff preferences on garment exports to the US.
Before the Trump administration imposed a 25 percent tariff on Chinese goods in January 2018, Chinese exporters faced a 3.08 percent duty on garment exports to the US.
According to the Hong Kong Ministerial Declaration of the World Trade Organization (WTO), the US was supposed to provide duty-free market access for all products from LDCs. However, the US government granted duty-free access to only 97 percent of products.
As an LDC, Bangladesh's garment exports were expected to be included in the 97 percent duty-free category, but apparel products were excluded from this package.
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US election: What is at stake for Bangladesh’s export
As millions of Americans head to the polls on November 5 to vote for either Democratic Vice President Kamala Harris or her Republican rival Donald Trump, apparel business communities in Bangladesh, more than 13,119 kilometres away from Washington, will be watching the results of the presidential...www.thedailystar.net
US election: What is at stake for Bangladesh’s export
View attachment 10233
As millions of Americans head to the polls on November 5 to vote for either Democratic Vice President Kamala Harris or her Republican rival Donald Trump, apparel business communities in Bangladesh, more than 13,119 kilometres away from Washington, will be watching the results of the presidential election closely.
The reason is largely related to trade, as the US is the single largest buyer of ready-made garments made in Bangladesh -- the world's second-largest apparel manufacturer after China.
Local RMG makers believe US trade policy toward China, a major competitor in the global apparel market, will be crucial for their business in the coming years.
Besides, the role of the World Trade Organization (WTO) and other global trade organisations will be important as Bangladesh transitions to a developing country in 2026.
Apparel exporters say Republican Candidate Trump's plan to impose higher tariffs on imports from China could boost Bangladesh's garment exports.
But, they fear that a Trump presidency could also lead to challenges for multilateral trading institutions like the WTO and intensified global export competition.
Last year, Bangladesh exported $8.27 billion worth of garment items to the US, facing a 15.62 percent tariff.
Under both Democratic and Republican administrations, garment exports from Bangladesh to the US have remained relatively stable.
During Trump's presidency from 2017 to 2021, Bangladesh's share of garment exports to the US fluctuated between 17 percent and 18.90 percent, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Under Democratic President Joe Biden, the share has not increased too much, varying between 21.15 percent and 18.12 percent.
Asking not to be named, a renowned garment exporter to the USA from Bangladesh said Trump's anti-China move could eventually benefit Bangladesh. If he imposes more tariffs on Chinese products, there is a possibility of work orders shifting to Bangladesh.
Khandoker Rafiqul Islam, immediate president of the BGMEA, said Trump's additional tariff on Chinese goods plan has already prompted many US-based clothing retailers and brands to look for alternative sourcing destinations such as Bangladesh and Vietnam.
"If Harris is elected, it is expected that the existing US tariff will continue for China. In this case, Bangladesh's business may not be affected negatively but the possibility of an export jump is thin," he said.
However, Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID), a private research organisation, said there could be a significant change in approaches between Trump and Harris.
For instance, if Trump is elected, multilateral institutions and organisations like the WTO may face challenges.
"Trump may adopt a more anti-China policy and impose more tariffs on import of Chinese goods to the USA," Razzaque said, "In this case, Bangladesh may be benefited indirectly as there is a possibility of shifting of work orders from China to Bangladesh."
However, an identified geo-political rivalry and undermining the fundamental multilateral trading system may result in a demand slump, he said.
The RAPID chairman said demand for garment items has been declining over the past three to four years and most G-20 countries, including the US, have adopted protectionist trade policies.
He said Bangladesh may face additional challenges when it graduates from a Least Developed Country (LDC) to a developing nation in 2026. Rules-based trade may be affected.
According to Razzaque, a Democratic administration could lead to less intense geopolitical tensions, possibly benefiting Bangladesh through the maintenance of the multilateral trading system.
However, he reminded that the US's main interest remains containing China.
Masrur Reaz, chairman of the Policy Exchange Bangladesh, echoed Razzaque's views.
Reaz said Donald Trump was aggressive in imposing tariffs on Chinese imports during his previous term. If re-elected, he may adopt an even more aggressive stance toward Chinese imports.
Bangladesh should also restart negotiations with the US to revive the Generalized System of Preferences (GSP) for US markets, as the relationship between the two countries is improving, said Reaz.
Since the expiration of the Multi-Fibre Arrangement in 2004, Bangladesh has not enjoyed any tariff preferences on garment exports to the US.
Before the Trump administration imposed a 25 percent tariff on Chinese goods in January 2018, Chinese exporters faced a 3.08 percent duty on garment exports to the US.
According to the Hong Kong Ministerial Declaration of the World Trade Organization (WTO), the US was supposed to provide duty-free market access for all products from LDCs. However, the US government granted duty-free access to only 97 percent of products.
As an LDC, Bangladesh's garment exports were expected to be included in the 97 percent duty-free category, but apparel products were excluded from this package.
Trump was importing Bangladesh-made dress shirts through one of his companies sometime ago, he mentioned this during a visit to the Letterman Show on one occasion. He was quite impressed with the quality.
But we should negotiate GSP privileges with whichever administration comes to power.
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Exports see 19pc growth in October
Many exporters could not ship goods on time in July-September due to quota reform movement, political changeover in the student-led uprising and unrest in industrial areas. Many of these stalled goods were shipped last month.Staff Correspondent
Dhaka
Published: 06 Nov 2024, 20: 15
Workers are seen handling a container at Chattogram sea port . Prothom Alo file photo
After major shocks in the production sector of the country in July-August, the exports have started to bounce back rapidly. In October, the country saw 18.5 per cent growth in exports.
Exports rose 16 per cent in the previous month, September, as well. The export growths were around 3 and 5.5 per cent in July and August respectively, the first two months of the current fiscal year.
National Board of Revenue (NBR) data shows that Bangladesh exported goods worth USD 4.13 billion in October, posting an 18.68 per cent (USD 650 million) year-on-year rise.
Bangladesh exported USD 3.82 billion, 4.07 billion and 3.86 billion respectively in July, August and September.
NBR's account of exports of these commodities also includes information on Export Processing Zone’s (EPZ) deemed exports and sample exports. However, the amount is not much.
Several exporters said many exporters could not ship goods on time in July-September due to quota reform movement, political changeover in the student-led uprising and unrest in industrial areas. Many of these stalled goods were shipped last month. Apart from this, exports are increasing as shipment of goods increases ahead of winter and Christmas.
According to the NBR data, goods worth USD 15.88 billion were exported in the first four months of the current fiscal year, which is USD 1.51 billion more than the corresponding period of the previous year. Besides the amount of money exports have also increased in terms of quantity.
The quantity of export was 530 million kilogram in last July, 570 kilogram in August and 580 million kilogram in September. The exports rose to 590 million in October. In total, 2.23 billion kilograms of goods were exported in the first four months of the current fiscal year, which was 2.19 billion in the same period the previous year.
Bangladesh Bank released the balance of payments data on the basis of actual commodity exports last July resulting in disclosure of a huge discrepancy in the exports.
At that time, the central Bank stated that Export Promotion Bureau (EPB) had been publishing export data for a long time, but the income was not coming to the country.
This discrepancy raised questions among local and foreign organizations. An assessment found that the export data was shown inflated. A decision was made to prepare export data based on actual earnings.
Following the revelation of significant discrepancies, EPB paused publishing the data. Last month, the EPB revealed that goods worth USD 11.37 billion were exported from the country in the first three months of the current fiscal year while the amount was USD 10.82 in the corresponding period of the last year.
https://news.google.com/publications/CAAqBwgKMOC2lwsw09-uAw?hl=en-US&gl=US&ceid=US:en
Strategising export diversification
Export diversification has long figured prominently in discussions about the country's export strategy, driven primarily by the overwhelming reliance on ready-made garments (RMG). The push for diversification stems from the need to strengthen the overall export sector by reducing dependence on a si
Strategising export diversification
Wasi Ahmed
Published :
Nov 19, 2024 22:36
Updated :
Nov 19, 2024 22:36
Export diversification has long figured prominently in discussions about the country's export strategy, driven primarily by the overwhelming reliance on ready-made garments (RMG). The push for diversification stems from the need to strengthen the overall export sector by reducing dependence on a single product and enhancing the performance of other products in the export basket. The underlying argument here is: the export basket has hundreds of products but as most of them suffer from poor performance, diversifying the basket means adding vigour and strength to the products so that the export sector can rid itself of over-reliance on a single product. Keeping this in view, the government has been framing policies from time to time with special emphasis on prospective products by way of various incentives and supports. To say that these have not at all worked is not true, but there is no visible momentum in exports, except in respect of only a few core products, including the RMG. Actually, diversifying is a package comprising scores of issues from product development, product adaptation, quality assurance, market demand, compliance, competitive pricing and so on.
So, when one speaks about diversification, it must not be seen as a remedy readily available. It has to be worked on, in a planned manner taking into account all relevant factors as a package. In the past the Export Promotion Bureau undertook many foreign aided export development projects. However, as many of the projects approached the aforementioned package only partially, the outcome was far from satisfactory.
Recently, it has been reported that a multi-donor funded export diversification project of the government is languishing with very little works done so far. No doubt a pathetic case, it needs to be brought under the scanner to see if the project had been completed in due time, could we say its goal was accomplished? Unfortunately, No. This is because such projects can at best disseminate information on various relevant issues including training the manpower with required knowledge. But there is a lot more to the job, and these can only be taken up by a comprehensive medium-term plan with sufficient fund allocation and required infrastructural facilities.
The reason diversification figures so prominently in public discussions on export is because of its many tangible benefits.
Diversifying the export composition protects a country from the risk of an unpredictable declining trend in international prices of exportable commodities that, in turn, leads to unstable export earnings. Export diversification could, therefore, help out to stabilise export earnings in the long run.
Due to the absence of export diversification in developing countries, decline and fluctuations in export earnings have negatively influenced income, investment, and employment. Diversification provides the opportunities to extend investment risks over a wider portfolio of the economic sector which eventually increases income. Diversification can also be seen as an input factor that has the effect of increasing the productivity of sub-sectors or what is called backward linkage industries. Furthermore, economic growth and structural change depend upon the type of products that are being traded. Thus export diversification allows an economy to achieve some of its macroeconomic objectives namely sustainable economic growth, satisfactory balance of payment situation, employment, and redistribution of income.
There are different strategies adopted by different countries, depending on the country-specific situations. In the Asian region, Thailand is a good example of pursuing diversification in keeping with the resources and infrastructure the country could make use of. It was a two-pronged strategy involving thrust on natural and agricultural resources on the one hand, and on the other, upgrading labour-intensive manufacturing. China, along with some East Asian countries, benefited from the rise in regional economic integration through the development of cross-country production networks courtesy of vertical integration of production chains.
Strategising is what really matters most, and to do that, intensive research is required to identify which model to stick to. Also this would require product and market-specific studies to be able to tell the strengths and weaknesses in respective areas. However, considering the trends of Bangladesh's exports, it is not too difficult to identify some potential and prospective products, and although there are provisions of fiscal and other incentives for them, the fact remains these supports are of little use in the absence of a medium-to-long term strategy to stimulate the products with a robust supply chain. That is to say, facilitation does not mean incentives alone but drawing up and working on a roadmap for product development and putting in place institutional and infrastructural support in a smart manner.
For quite sometime, Bangladesh's export basket comprises a core group of products besides RMG, the number one product. These include: jute and jute goods, leather and leather goods, frozen foods including shrimp, agro-processed foods, cement, pharmaceuticals etc. In around a decade or so, a handful of other products have demonstrated great potential, such as-- shipbuilding, ICT, light engineering, plastic. The government does recognise the importance of the emerging items, but whatever facilities they received remained confined to fiscal incentives.
No doubt, confronting the post-LDC challenges requires a robust export sector reinforced by policy reforms in order to provide impetus to diversification. Strategising a proper roadmap must be at the focal point to move in that direction.
Wasi Ahmed
Published :
Nov 19, 2024 22:36
Updated :
Nov 19, 2024 22:36
Export diversification has long figured prominently in discussions about the country's export strategy, driven primarily by the overwhelming reliance on ready-made garments (RMG). The push for diversification stems from the need to strengthen the overall export sector by reducing dependence on a single product and enhancing the performance of other products in the export basket. The underlying argument here is: the export basket has hundreds of products but as most of them suffer from poor performance, diversifying the basket means adding vigour and strength to the products so that the export sector can rid itself of over-reliance on a single product. Keeping this in view, the government has been framing policies from time to time with special emphasis on prospective products by way of various incentives and supports. To say that these have not at all worked is not true, but there is no visible momentum in exports, except in respect of only a few core products, including the RMG. Actually, diversifying is a package comprising scores of issues from product development, product adaptation, quality assurance, market demand, compliance, competitive pricing and so on.
So, when one speaks about diversification, it must not be seen as a remedy readily available. It has to be worked on, in a planned manner taking into account all relevant factors as a package. In the past the Export Promotion Bureau undertook many foreign aided export development projects. However, as many of the projects approached the aforementioned package only partially, the outcome was far from satisfactory.
Recently, it has been reported that a multi-donor funded export diversification project of the government is languishing with very little works done so far. No doubt a pathetic case, it needs to be brought under the scanner to see if the project had been completed in due time, could we say its goal was accomplished? Unfortunately, No. This is because such projects can at best disseminate information on various relevant issues including training the manpower with required knowledge. But there is a lot more to the job, and these can only be taken up by a comprehensive medium-term plan with sufficient fund allocation and required infrastructural facilities.
The reason diversification figures so prominently in public discussions on export is because of its many tangible benefits.
Diversifying the export composition protects a country from the risk of an unpredictable declining trend in international prices of exportable commodities that, in turn, leads to unstable export earnings. Export diversification could, therefore, help out to stabilise export earnings in the long run.
Due to the absence of export diversification in developing countries, decline and fluctuations in export earnings have negatively influenced income, investment, and employment. Diversification provides the opportunities to extend investment risks over a wider portfolio of the economic sector which eventually increases income. Diversification can also be seen as an input factor that has the effect of increasing the productivity of sub-sectors or what is called backward linkage industries. Furthermore, economic growth and structural change depend upon the type of products that are being traded. Thus export diversification allows an economy to achieve some of its macroeconomic objectives namely sustainable economic growth, satisfactory balance of payment situation, employment, and redistribution of income.
There are different strategies adopted by different countries, depending on the country-specific situations. In the Asian region, Thailand is a good example of pursuing diversification in keeping with the resources and infrastructure the country could make use of. It was a two-pronged strategy involving thrust on natural and agricultural resources on the one hand, and on the other, upgrading labour-intensive manufacturing. China, along with some East Asian countries, benefited from the rise in regional economic integration through the development of cross-country production networks courtesy of vertical integration of production chains.
Strategising is what really matters most, and to do that, intensive research is required to identify which model to stick to. Also this would require product and market-specific studies to be able to tell the strengths and weaknesses in respective areas. However, considering the trends of Bangladesh's exports, it is not too difficult to identify some potential and prospective products, and although there are provisions of fiscal and other incentives for them, the fact remains these supports are of little use in the absence of a medium-to-long term strategy to stimulate the products with a robust supply chain. That is to say, facilitation does not mean incentives alone but drawing up and working on a roadmap for product development and putting in place institutional and infrastructural support in a smart manner.
For quite sometime, Bangladesh's export basket comprises a core group of products besides RMG, the number one product. These include: jute and jute goods, leather and leather goods, frozen foods including shrimp, agro-processed foods, cement, pharmaceuticals etc. In around a decade or so, a handful of other products have demonstrated great potential, such as-- shipbuilding, ICT, light engineering, plastic. The government does recognise the importance of the emerging items, but whatever facilities they received remained confined to fiscal incentives.
No doubt, confronting the post-LDC challenges requires a robust export sector reinforced by policy reforms in order to provide impetus to diversification. Strategising a proper roadmap must be at the focal point to move in that direction.
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