That there is no unresolved miracle behind Bangladesh's spectacular economic performance over the past three decades is now evident to all. Earning the epithet of 'economic role model' has not been easy but it has been achieved, belying the spectre of 'basket case' that was thought by many to be stalking the new-born country. Bangladesh economy broke through the stagnation, even the regression in economic growth riding on mainly two factors, both based on private sector initiative. These star performers in the economy were and still are, exports of garments and remittances sent by Bangladeshi wage earners from the middle east and south Asian countries. Both made foreign exchange available for accelerated economic growth overcoming the foreign exchange-investment gap. If wage earners remittance is considered as export that brings in foreign exchange then very justifiably the 'engine of growth' in Bangladesh economy can be said to be export-led strategy spearheaded by the private sector.
Unlike in the East Asian countries (Korea, Taiwan, Singapore) this strategy was not devised by the government nor supported with an array of fiscal and monetary policies. It was spontaneous, based on the initiative of the nascent private sector. While the number of migrant workers multiplied at a geometric rate through demonstration effect of encouraging new migrants to follow in the footsteps of first generation migrants, the export sector dominated by garments has seen new entrance like leather and leather goods and products from other sectors. Over time the export basket became diversified, though not to a great extent and with speed. From ocean-going ships to cut flowers, the private sectors has seized opportunities to enter foreign markets with confidence, even with a dash of bravado.
But the performance of the 'engine of growth' represented by exports and remittance has not been even and steady. There have been ups and downs in the performance of the leading sectors earning foreign exchange, including remittances by wage earners. Garment industries have faced setbacks when buyers reacted critically after accidents in factories that resulted in deaths of workers. Failing to meet the safety standard and other conditions imposed by buyers many garment industries had to close their operations. According to latest information about 62 (sixty two) factories closed down in 2018. Among the structural problems, failure to move up the value chain has led to loss of market for low end products to competitors like Vietnam which have taken advantage of their depreciated currency. As regards foreign exchange earnings by wage earners, there has been decrease in the volume from time to time as a result of fluctuating employment policies of host countries. Lack of skills by majority of migrant workers has, on the other hand, meant low paid jobs offer to them.
The above are, more or less, known factors that have beleaguered the two main sectors, garment and migrant workers, that contributed to the spectacular performance of Bangladesh economy. But recent data showing sluggish exports of garments and leather goods is worrying because it seems to be due to structural problem of the two sectors. According to data from Export Promotion Bureau (EPB) export earnings from these two sectors continued to show declining trend until January this year, frustrated by slumping export of apparel and leather goods, the two sectors that account for 85 per cent of total exports. Exports fell 5.21 per cent year-on-year to $22.42 billion during July-January of the current fiscal according to EPB. In January exports bucked the recovery train seen in December, 2019. Garment manufacturers exported $3.61 billion worth of goods abroad in January, 2020 which is 1.7 per cent less than that last year. The reason for this is exporters are getting less in value from buyers although the volume of exports remained almost the same as before. The problem has risen because Bangladesh garment industries have now over-capacity in making basic items in the lower-end category. This has led to exporters cutting prices for apparel to stay afloat. Failure to catch up with competing countries in terms of productivity has also forced many exporters to cut back on production and settle for low prices for their products. Moving up the value chain to make up market loss could be a solution but Bangladesh garment industries is lagging behind in this respect, as pointed out earlier. Unless this structural problem is resolved the garment industries will continue to suffer from over-capacity and production of low end items.
The shipment of leather and leather goods, which were showing great promises, has also continued to remain in a downward curve, for lack of demand from consumers who are turning to substitute of leather because of change in fashion. Imposition of 10 per cent advance Income Tax on cash incentives has reportedly acted as a disincentive to leather exporters. According to EPB, between July and January of current fiscal, leather and leather goods fell 1078 percent year-on-year to $559 million.
Among traditional exports, frozen and live fish, including shrimp, has also decline the only silver lining in the export sector has been inching up of jute and jute goods, agricultural products and vegetables.
Apart from resolving the structural problem of garment industries, the urgent need now is to diversify exports, both by items and destinations. For this incentive is to be given to the export sector in addition to the ones being enjoyed by them. Many in the business and industry circle are of the opinion that the facility of bonded warehouse should be provided to all export items.
On the remittance front, the news at present is very encouraging. It has registered a significant increase in volume following the 2.0 per cent cash subsidy given on the amount remitted, which has acted like a depreciation of Taka. This policy is seen as a perfect foil to the sliding exports of other items including garments. The seven months' remittance during the current fiscal has registered a rise up 21.43 per cent year-on-year, according to Bangladesh Bank. If this trend continues remittance will deliver about $20 billion at the end of current fiscal, according to Bangladesh Bank.
Export and remittance will continue to be the main contributing factors to growth of Bangladesh economy in the foreseeable future. The contribution of public sector may have gone up in recent years and at present because of implementation of number of mega projects. But this can not be expected to continue indefinitely. Consumer expenditures supporting economic growth as in developed countries will also be unthinkable in the medium term. The export-led strategy spear-headed by the private sector in conjunction with wage earners remittance will remain as the backbone of the economy for a long time to come. As such all assistance in the form of incentives should be given to the private sector to go ahead with the strategy with renewed vigour.