Bangladesh's export trade is vulnerable as its major merchandise export earnings depend on a few exportable products. This trend in export trade is slowing down the progress of the overall economy. The Covid-19 impacted the world economy with enormous shock and the Russia-Ukraine war has turned the global economic downturn from bad to worse. Since Bangladesh is not isolated from the world economic system, it has had an adverse effect on the overall economy of Bangladesh. Rising inflation has fueled fuel and food crises worldwide. As a result, the economically prosperous developed countries of the world are in dire straits. Due to the increase in economic activity in the post-corona situation, the country's imports for pent-up demand have increased and pressure has been created on our foreign reserves. During August 2021, Bangladesh's foreign exchange reserve was US$ 48 billion, which is an all-time high. Foreign exchange reserves stood at US$ 33.86 billion as of November 2022 due to surging import costs. Import expenditure is financed mainly from export earnings and remittances remitted by Bangladeshis working abroad. The bulk of import expenditure is met through export earnings. In the fiscal year 2021-22, the export earnings of goods and service together earned US$ 60.97 billion, on the other hand, US$ 89.33 billion was spent on imports during the period. 46.52 per cent of import expenditure was paid by export earnings of FY 2021-22. In FY22, Bangladesh spent $82.50 billion for imports as exports fetched $49.24 billion, registering a $33.24 billion trade deficit. A review of import and export income/expenditure of the last ten years shows that in the financial year 2015-16, the highest 85.34 per cent of the import expenditure was financed through export earnings (Source: EPB). A month-wise analysis of import expenditure shows that during October 2022-23, imports were worth USD 25.50 billion which was 6.72 per cent more than the same period last year (Source: Bangladesh Bank). With a view to controlling the surging import expenditure, the government has taken the initiative to impose higher tariffs on 330 non-essential goods. With the aim of increasing foreign exchange reserves, two options such as export growth and remittance through formal channels have been a much-talked issue.
Policymakers, economists, and trade analysts have been suggesting measures to diversify exports and increase remittances to prevent the depletion of foreign exchange reserves. The Prime Minister is also repeatedly mentioning the issue of diversification of export products in her various speeches and giving instructions to all concerned to take appropriate measures in this regard. Bangladesh government's Future Plan - (2021-2041) and the Eighth Five Year Plan (2020-25) have also laid special emphasis on the diversification of products and markets.
It has been noticed that Bangladesh's export income is highly dependent on a limited number of products and the share of dominating exportable, ready-made garments/apparel, in total exports is more than 81 per cent. Besides, other major exportable products such as home textiles, leather and leather products, agriculture and agro-processed products, jute and jute products, light engineering products, and frozen and fresh fish have an export share of 3.11 per cent, 2.39 per cent, 2.23 per cent, 2.17 per cent, 1.53 per cent, and 1.02 per cent respectively. The contribution of the garment sector to the export income is 81.16 per cent and the contribution of the non-garment sector is 18.84 per cent. As the export of Bangladesh is highly dependent on apparel, it is indispensable to take initiatives to increase the participation of other potential products through product diversification.
From the review of export statistics, it can be seen that there is a wide gap between the global product market size and our actual export income. If the sales and growth of a product are less than the desired level considering the market size of a product, it is called Strategic Planning Gap. Initiatives should be taken to reduce this strategic planning gap. We can follow an intensive growth strategy to reduce the strategic planning gap. It is possible to keep the foreign exchange reserve in an advantageous situation by continuing the export growth through market penetration and market development strategy. In the case of market penetration, it is necessary to take efforts to capture new market share of the existing export market. There is an opportunity to increase the export earnings of our readymade garments to Bangladesh's traditional export destinations (USA and European Union). The global readymade garment market size is US$ 432.56 billion (ITC Trade Map, Knit and Woven HS Chap-61&62). The market size of the United States and the European Union is $ 87.34 and $177.35 billion respectively of the global market. In the financial year 2021-22, the combined export earnings from knit and woven garment were $42.61 billion. Further market share of these two traditional markets can be increased by participating in the iconic trade fairs and strengthening relationship with the existing buyers.
Apart from this, it is necessary to adopt an effective plan to expand export through the development/exploration of new markets. In this case, measures can be taken to explore and expand the market in the MERCOSUR (the free trade area of Latin America in which Brazil, Argentina, Paraguay, and Uruguay are full members), Mexico, South Africa, Turkey, CIS countries, Japan, and South African Developing Countries (SADC). To materialise this strategic planning, participation in international trade fairs and sending trade missions abroad can be appropriate steps. Bangladesh Foreign Missions can play an effective role in making this initiative fruitful.
Product diversification is one of the pivotal issues to ride economic downturn. So far, several initiatives have been undertaken by the government to diversify export products. The Business Promotion Council (BPC) has been created to implement the product diversification plan of the government. Seven Business Promotion Councils have been created by the Ministry of Commerce to develop, promote and explore the international market for ICT, leather and leather goods, fisheries, agro products, light engineering products, medicinal plants and herbal products, and plastic products through capacity building of those selected sectors players.
Six-year long Export Competitiveness for Jobs (EC4J) project has been in progress right now by the Ministry of Commerce with the finance of the World Bank to help build the capacity and explore the international market for leather and leather goods, footwear, elastic, and light engineering. The prime objective of the project is to ensure the product diversification plan of the government through generating employment. To accelerate export growth under EC4J project, in line with the export policy (2021-24) and the 8th Five year Plan of the government, the sector-wise export framework has been formulated through government policy support and a comprehensive plan to achieve export-led growth through concerted initiatives of relevant sector players.
One District One Product (ODOP) programme was adopted by identifying 14 (fourteen) district-wise products for product development using local resources in accordance with the Japanese concept of One Village One Product (OVOP) for product diversification. Due to a lack of proper initiatives and patronage, the identified sectors have not achieved the desired level of success in export trade. As a result, considering product diversification as a priority, it is necessary to take the initiative to implement this initiative in the form of a project with the technical and financial support of a foreign trade development organisation. In this case, JICA (Japan International Cooperation Agency) can be a good partner.
The Export Coaching Project on Home Decoration and Home Textiles has been undertaken with the technical support of CBI (Centre for Promotion of Imports from Developing Countries), a trade promotion organisation based in the Netherlands. Under the said project, 24 organisations have been selected to build up their capacity and create an international platform for them. Besides, Canada-based TFOC (Trade Facilitation Office Canada) undertook a capacity-building project to increase the capacity of SMEs. Besides, the Bangladesh Quality Support Programme (BQSP) has been implemented with the technical support of the European Union (EU) for improving the product quality of herbs and herbal medicine, light engineering products, ICT, horticulture, and agricultural and agro-processed products. These initiatives are also part of a product diversification plan.
From the above scenario, it appears that the all-out plan was taken to implement the export-led growth through capacity building, quality improvement, and market development of other products beyond the garment/apparel sector. But the benefits of product diversification have not been effectively reflected in our export trade as the road map obtained from the project programme is confined only to paper. There is no alternative but to implement the guidelines and recommendations from our various projects and programmes to augment export earnings through product diversification and continue the growth trend with the policy support of the government. The initiative to increase export income through the diversification of products needs to be implemented through policy cooperation of the government and coordinated initiatives of business support institutions/organisations at the government and private levels including the related trade associations and leading chambers.
Abu Mukhles Alamgir Hossain is Director (Fair and Display), Export Promotion Bureau (EPB).
