Resource constraints hinder export diversification

Resource constraints, including shortage of capital, required policy support and failure to attract desired foreign direct investment (FDI) in the country's potential sectors, are the major obstacles in diversifying export baskets over the years, experts and economists said on Thursday.

Moreover, absence of integrated trade and sector strategies and follow-on support programmes, inadequate FDI, trailing infrastructure, low labour productivity and availability of skills, barriers to market access, complex border clearance and tariff regime are among the broader challenges that hinder diversification, they said.

Therefore, they called for sector-based specific and long-term policy support, modernisation of the National Board of Revenue and simplification of procedures of business activities, in order to attract FDI and facilitate export diversification.

The experts made the observations and recommendations at a seminar, titled 'Export Diversification Imperative: Key Sectoral Opportunities and Policy Priorities for Bangladesh', organised by Policy Exchange Bangladesh (PEB) at Pan Pacific Sonargaon Dhaka.

Senior Commerce Secretary Tapan Kanti Ghosh was the chief guest at the event, chaired by Executive Director of Policy Research Institute of Bangladesh (PRI) Dr Ahsan H Mansur.

Dr Mansur attributed shortage of capital to not succeeding in diversifying export products despite knowing the challenges and their way-outs.

"We don't have sufficient savings. To grab the global manmade fibre market, Bangladesh needs US$24 billion while it needs about $5 billion for recycling jhut (fabric scraps)," he said.

That is why the country needs FDI which is very important for export diversification, he explained.

"But we can't bring any flagship investment in the country," he said, citing the example of Vietnam that succeeded in bringing flagship FDI of Samsung company and thus increasing the export volume in the particular sector.

Bangladesh has a huge potential in the IT sector and there is investment too - but the majority is done by Indian companies, said Dr Mansur, suggesting that the government take a policy that ensures joint venture industry.

Speaking on the occasion, Commerce Secretary Tapan Kanti Ghosh said why diversification had not been taking place at a desired level was a complex question as many issues were involved with the process.

It is difficult for the government to make balance as it has to protect the local industry while at the same time offer duty benefits to export-oriented companies, Mr Ghosh said, while speaking on anti-export biasness.

Bigger companies somehow overcome any obstacles they face while the smaller ones cannot as they lack market competitiveness, he noted.

Mr Ghosh said, "We all talk about the market economy and at the same time expect that the government will do all the required things."

The secretary underscored the need for self-dependency despite it raises a question whether such self-dependency is possible without FDI.

The government has to provide a huge subsidy to ensure energy security and to meet demand for fertiliser, he said, citing an example that the government had to subsidise about TK 52.80 billion a year for providing food to some 10 million poor people.

There have been many developments during the last 10 years, and despite that, there exists discussion about deficit, said Mr Ghosh. "It is because people's aspiration has also increased with the developments."

While presenting the findings of a study, PEB Chairman Dr M Masrur Reaz said shifting trends in factor efficiencies and global markets including gradual erosion of low labour costs advantage and tariff preferences especially after LDC graduation, over concentration in few garment items and structural shifts in consumers demands had made diversification critical for Bangladesh.

Key drivers of export competitiveness including customs, infrastructure and logistic competence are yet to catch up with comparator countries, he said, adding that trade facilitation required significant improvement to attain export competitiveness.

Bangladesh ranked 105th in 2019 global competitiveness index while India 68th, China 28th and Vietnam 67th, said Mr Reaz, referring to the study.

In the 2018 logistics Index, Bangladesh ranked 100th, India 42nd and Vietnam 45th, while average tariff in Bangladesh is the highest 26.6 per cent, as per the study.

Bangladesh needs longer clearance time compared to South and East Asian comparators, as many as 39 government agencies issuing certificates, licenses and permits (CLPIAs) for trade while 35 per cent of the products get damaged in ports due to port infrastructure deficiency, it noted.

Logistics cost is higher in Bangladesh ranging from 4.5 per cent to 49.5 per cent of total sales, Mr Reaz said, adding that reducing domestic logistics costs by 17 per cent would increase exports by 7.4 per cent.

The study identified three potential sectors: agribusiness, IT, and synthetic footwear - based on their domestic market potential, sectors' readiness in terms of skills, technology and strength in value chain; feasibility reforms, SME linkage possibility and global market potentials.

Explaining the potential of the digital economy, Mr Reaz said by 2030, it was estimated that the rise in technology could create 20-50 million jobs globally.

By 2025, 138 million people from Bangladesh will be using smartphones, enabling rapid digitalisation of services, he added.

Addressing the seminar, Nihad Kabir, chairperson of BUILD (Business Initiative Leading Development), stressed the importance of long-term policy support and modernisation of NBR.

She also suggested removing trust deficiency between private and public sectors.

Shahadat Ullah, executive director of Maf Shoes Ltd, said Bangladesh had a huge potential to increase synthetic footwear exports as China - the largest exporter of such items - was shifting towards high-tech industry.

India is one of the biggest consumers of synthetic footwear and will knock Bangladesh due to China shifting, he said, adding that it was high time for Bangladesh to prepare itself in order to grab the opportunity.

"Bangladesh needs both short and long term policy support in this regard," he said, adding that Bangladesh's footwear exports could reach US$1.5 billion within one to two years from the existing US$450 million - if provided with required policy assistance.

Explaining the agro industry's future opportunity, Ahmad Asif, chief executive officer of Bengal Meat Processing Industries Ltd, said they export halal meat or food only to countries having Bangladeshis.

He recommended ensuring compliance in the local market first to meet global compliance requirements.

Wahid Sharif, president of the Bangladesh Association of Contact Center and Outsourcing, said despite having potential, the country's IT sector lacks required policy.

"Foreign investors are not coming here in the country due to its volatile policy which is being changed every year," he noted.

Metropolitan Chamber of Commerce and Industry (MCCI) Vice President Habibullah Karim stressed the importance of non-RMG sector-based preferential policy and import substitutes, saying developing import alternatives could raise IT export by 50 per cent.

Former president of Dhaka Chamber of Commerce and Industry (DCCI) Asif Ibrahim told the seminar that intellectual property rights (IPR) was important for developing the digital economy.

He also suggested reforming foreign exchange regulations in this regard.

Abul Kasem Khan, former DCCI president, said Bangladesh could not attract FDI despite the fact that the opportunity emerged due to China shift.

On the other hand, Vietnam is getting FDI, he said, adding that only one Japanese company out of 40 that were shifting from China invested here.

He recommended enhancing regional connectivity to attract FDI.

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