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Exports: Sailing against the wind

Mohammad Razzaque | Published: July 23, 2017 20:00:42 | Updated: October 24, 2017 05:23:04

Exports: Sailing against the wind

Bangladesh's merchandise exports in the last fiscal year (2016-17) grew by just 1.7 per cent to $34.8 billion. This was one of the slowest rates of expansion, resulting in a more than $2.0 billion shortfall from the export target of $37 billion for the same year.
This dip in export growth is a matter of grave concern. Analysts and commentators have offered a variety of reasoning behind this dismal performance. These include, increased apparel exports from Africa eating into Bangladesh's market share, lower export orders due to weak compliance and factory safety issues in the country, under-reporting of earnings by exporters, economic recession in the Western world, Brexit-related consequences, unfavourable exchange rate movements involving various currencies, declining consumption of apparel items vis-à-vis rising spending for electronic gadgets, unhealthy price competition, etc. 
Surely, there can be arguments over relevance and relative significance of these specific factors. But, the overarching reason has barely received any attention. This is the worrying sluggishness - an unprecedented prolonged one - in global trade flows. 
Estimates by the International Monetary Fund (IMF) show world trade in real terms (i.e. in volume) expanded by just 2.1 per cent last year. And, for the last five years (2012-16) trade volume growth was less than half the average growth of about 6.0 per cent recorded for 1980-2008. If the available projections for the next five years turn out to be correct, 2012-21 will be the slowest decade of global trade expansion since the World War II.
The growth rates in 'real terms' greatly masks the true depth of trade slowdown. Measured in value terms - using current US dollars - world merchandise exports declined by a staggering $2.5 trillion in 2015 (from the previous year), and then again fell by more than $500 billion in 2016.
That is, world exports in US dollars declined by more than 13 per cent  in 2015 followed by another 3.3 per cent  drop in 2016. Quite strikingly, as United Nations Conference on Trade and Development (UNCTAD) data shows, world goods exports in 2016 stood at $15.9 trillion, lower than that of 2008 ($16.1 trillion). 
As many as 183 countries had experienced reduced export earnings in 2015 (compared to the previous year) while for 112 countries export earnings declined similarly in 2016. Given such a gloomy global landscape, Bangladesh actually did much better by securing a modest export growth in both the year. 
Why is world trade in such an appalling state? A combination of cyclical and structural factors is thought to be responsible. Cyclical factors are those that are known due to their past or regular occurrences. Weak economic recovery in Western developed nations after a prolonged recession triggered by the global financial crisis of 2008 is considered one such factor. Weakness in export prices, particularly those of primary commodities, is another.
Structural factors, on the other hand, are new developments leading to fundamental and permanent changes in trade trends and patterns. China's settling to a lower economic growth rate is one major factor. Having maintained an average yearly economic expansion rate of about 10 per cent over three decades of 1980s, 1990s and 2000s, China has slowed to a more sustainable level of annual growth of 6-7 per cent with adverse implications for its import demand and thus exports of many countries. In addition, China is rebalancing its economic activities away from investment and manufacturing to consumption with much more domestic content. This transition also has negative effects on its trading partners. 
Rapid trade expansion in the 1990s and 2000s was facilitated by cross-border fragmentation of production processes, resulting in several countries' participation in the supply chain of a single product. Bangladesh's garment sector is an excellent example of the so-called global value chains, as raw materials for this industry, and services associated with product development and marketing are supplied by several other countries. There is now some signs of value chain activities being consolidated particularly in two major economies, the USA and China, resulting in more local sourcing of intermediate inputs and hence less trade. 
Trade protectionism triggered by the financial crisis of 2008 has also stifled trade flows. There has been a steady increase in the stockpile of trade-restrictive measures with the G20 countries imposing on average about 17 new measures per month during 2015-16. According to an estimate by economists Simon Evenett and Johannes Fritz, the least developed countries (LDCs) have incurred a loss of $264 billion due to these protectionist measures. Growing prevalence of protectionism, widespread discontent about globalisation and trade liberalisation, Brexit-related developments and policy reversals in the USA are causing heightened uncertainty, which is not conducive to trade-related investment flows.
Can increased exports from African countries explain weak export performance, especially in the USA where Bangladesh does not have tariff-free market access? Sub-Saharan Africa's combined merchandise exports since the global financial crisis has declined by more than $100 billion: from $355 billion in 2008 to $250 billion. Their apparel exports to the USA grew by 1.3 per cent in 2016, but since 2013 these exports have hovered around just above $1.0 billion. In recent years some countries, such as Ethiopia, Madagascar and Tanzania have shown high growth in apparel exporting, nonetheless their export base remains quite small. 
On the other hand, overall imports of clothing in the USA declined by 6.5 per cent in 2016. All major suppliers, including China, Bangladesh, India, Indonesia, Mexico, Pakistan, Cambodia, etc. saw their US-bound exports fall. Vietnam, now perhaps the most dynamic apparel exporter, managed a negligible growth of just 0.3 per cent.
This great trade slowdown appears to be much deeper and more fundamental in nature than that to be merely explained by economic recessions in the West. Although still subdued, economic activities in the USA and European developed countries picked up, registering growth of 1.7 per cent in 2016. Yet, its impact on trade has not been encouraging. 
It is worth pointing out that a profound change in the relationship between trade and gross domestic product (GDP) at the global level has been observed. During 1980-2007, world GDP grew, on average, 3.0 per cent  per annum accompanied by a corresponding trade growth of 6.0 per cent. This became a rule of thumb that a one per cent GDP growth would go hand-in-hand with a 2.0 per cent growth in trade. However, since the global financial crisis, the yearly average global GDP growth of 2.6 per cent  has been associated with just about the same rate of trade growth: that is, there is now just about a one-to-one relationship between trade and economic growth. 
Over the past decades, international trade as a driver of economic growth became established in development strategies of many low-income countries. The unprecedented slowdown in global trade however puts a new spotlight on the trade-development nexus. Furthermore, as the future of global production is likely to be reshaped by such technological breakthroughs as automation, digital trade, 3D printing, many analysts think the upcoming waves of the so-called fourth industrial revolution could have a depressing impact on global trade or at least the way goods' trade has been organised across the globe.   
It is extremely difficult for any sizeable exporter to sustain its export growth when world trade is not growing or even declining. Indeed, compared to many other countries Bangladesh has so far shown an incredible resilience by preventing its export receipts from falling. But, if world trading activities are not picking up, things can go far worse. The IMF and the World Trade Organisation (WTO) predict global trade growth this year to be higher than the past several years. It is rather worrying that the export data for the latest fiscal year, which has already included six (6) months' export earnings for 2017, is not showing encouraging prospects for Bangladesh. 
Dr. Mohammad Razzaque, an economist, most recently held the position of Adviser & Head of International Trade Policy at Commonwealth Secretariat, London. 
m.a.razzaque@gmail.com

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