The export industry of Bangladesh has long stood on just one pillar - apparel. The sector has changed the country's economic landscape by providing employment to millions of people and has helped the country become the second largest apparel exporter worldwide. In fact, the apparel or readymade garments export sector accounts for more than 84 per cent of the country's overall export revenues. This achievement deserves appreciation. However, there exists a risk associated with this single-sector achievement.
The fact that a country may become vulnerable to risks posed by a highly uncertain global economy due to its over-reliance on a single export industry is not just a theory. There are several reasons why a country may become vulnerable -- uncertainty about global economic affairs, automation, changing behaviour of consumers, trade policies, and geopolitical events.
Despite all the talks and debates about export diversification, there has been no significant development on this front yet. The composition of the export basket of the country has remained very limited, and attempts to create alternative export sectors have moved at a snail's pace. Bangladesh is aiming big, with a goal of earning $100 billion annually through exports by 2030 from the existing level of roughly $50 billion a year. Reaching this goal without diversifying the exports will be a Herculean task.
The real issue here, thus, is not about diversification in need; it is rather about how this can be done. There is no easy way out of this puzzle. Export diversification needs coordinated actions from all concerned parties --- from government departments, regulators, entrepreneurs, banks and workers.
Successive governments have boasted the 'favourable' business environment and government incentives available in Bangladesh. But many, particularly the business community, consider the government's statement just rhetoric. Entrepreneurs often observe they do not feel encouraged to carry on or expand their businesses and cite factors --- bureaucratic red tape, policy shifts, underdeveloped infrastructure and harassment from the revenue department - as a deterrent. The unwillingness of the new generations of many successful business families to run businesses owned by their parents and their choice of new careers or even migration overseas justify their concern. It suggests the general distrust regarding the future business atmosphere. If even members of successful business families are unable to continue with the legacy, there must be problems with the business environment itself.
All these structural problems need to be resolved if export diversification is to take place. As long as bureaucracy cannot be streamlined and as long as consistent policies cannot be followed, nothing much can be done to ease the way of entrepreneurs.
In the same light, the issue of targeted incentives is crucial. The apparel sector has thrived and reached the present state not only because of low-cost manpower but also because the of successive governments' support for decades. Starting from the emergence of the industry in late 70s of the past millennium, the governments have used various incentives to facilitate development of the sector. The incentives included duty-free import of raw materials through bonded warehouses, cash incentives, back-to-back letters of credit, low-interest loans and tax exemptions.
The message is clear -- no industry will thrive just on rhetoric. Industries need to be sustained by a supportive policy framework and proper mechanisms.
There are several industries in Bangladesh that have great export prospects and have the potential to serve as major pillars of an export-led economy. Light engineering, leather and leather goods, pharmaceuticals and active pharmaceutical ingredients (APIs), agro-processing and food products, software and IT-enabled services (ITES), jute products, bicycles and motorcycles, and electronics and electrical goods are a few to name.
Diversification is more than just recognising those sectors. Diversification should aim at creating an environment where such industries would prosper. It means developing the infrastructure related to transportation, ports, energy, etc, making regulations more efficient, decreasing costs of doing business, and providing cash and policy incentives where necessary.
The future of Bangladesh economy should not entirely depend on one sector - apparel that is- no matter how successful it might be. The garment industry will certainly continue to be a key element of the national economy for years and play a major role in achieving the $100 billion annual export target. Yet, for sustainable and resilient growth, there is no alternative to export basket diversification.
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