Basic industries like steel need protection
Friday, 21 March 2008
Syed Fattahul Alim
BANGLADESH like all other least developed countries (LDCs) is recently passing through the worst of the times. For being a LDC implies that the country bearing such appellation has a weak industrial base, for in modern parlance the concept of development and the level of industrial growth of a country are organically linked. Of late, the added problem for Bangladesh is its agriculture cannot feed its entire population all the year round. So, it has to import food grains and other agricultural products to meet the deficit.
So, Bangladesh is constrained on both the industrial and agricultural fronts. The steeply rising price index in the industrially developed countries has thrown Bangladesh into a serious predicament. It is being forced to pay heavily for keeping its economy running. Even if one for the time being forgets the import of food grain, whose main use is consumption, it will be found that Bangladesh has a rather very long list of goods and services to import to keep its economy running. Industrial raw materials, machinery, chemicals, etc., are but a few of such items to mention. So in the face of spiralling price of those goods in the developed countries, Bangladesh has to import them in greater quantities, even though its economy is in a dire straits. For otherwise, the industrial units that provide jobs and add values to raw materials they use will have to be shut down.
So, the price spiral is a two-edged sword that cuts Bangladesh and other LDCs both ways. But there are some who still want to draw a rosier picture in spite of this tight spot we are in. They want to argue that Bangladesh can take advantage of certain developments in the international financial market to enhance its exports. For example, the stronger Chinese currency Yuan against falling price of dollar has become a blessing in disguise for Bangladesh. For a stronger currency puts an economy at a disadvantage, when it is an exporter. Since China is Bangladesh's competitor regarding the export of garment-related products, stronger Yuan against dollar will certainly impact negatively on that country's export of apparel in the North American and other markets where US dollar still dominates the forex market. So, Bangladesh with its weaker Taka can grab the additional chunk of the market that China will lose as a result of costlier Yuan. Similarly, a stronger value of Indian Rupee against US dollar does also hold out an additional opportunity before Bangladesh to even grab the garments market left open by the stronger Indian Rupee.
This argument sounds interesting, though here the capacity of Bangladesh's garment industry to fill that market still remains an open question. What is more, it is a big bet when one is talking of competing with global giants like China and India, who have a hundred and one option before them when faced with such disadvantages. So, how far this prospect is a feasible one remains a wild guess, unless put to real test. One would love to see that Bangladesh's garment is beating two international super heavyweights to snatch a patch of their share in the global market. While such prospect remains a subject of interesting speculation, let us see what is happening at one of the sectors of the economy that creates employment and supply the necessary material to the house and infrastructure building sectors.
Though Bangladesh has a very small export basket to earn foreign currencies from to pay its huge import bills, it cannot risk lowering import of industrial raw materials in certain sectors including the building sector. For that would have a very serious consequence on the economy.
Take the case of scrap steel import for the re-rolling mills that produce mild steel (MS) rods. A recent statistics will show what dire straits the steel mills and ship breakers of the country are in. Needless to say, they are finding it harder to keep their factories in operation due to sharp fall in import of the necessary raw materials. The ship beakers imported around 300,000 tons worth of scrap vessels during the months between July and February during the current fiscal, which is the lowest in recent history. For just in the previous fiscal, the volume of scrap vessel import was 1.12 million tons. The volume of import was more or less around the same figure at 1.01 million tonnes in fiscal 2005-06 and 1.76 million tonnes in the fiscal 2001-02.
In comparison to the previous records of import, one must say that the steel industry of the country is passing through one of its worst times in history. Steel is a basic sector of any industrial economy. Except re-rolling of the scrap steel, Bangladesh lacks this very basic ingredient of heavy industry. And without heavy industry, the slogan of industrialisation sounds hollow. The idea of developing a viable steel sector appears implausible seeing that Bangladesh has no iron ore as one of its mineral resources. But absence of ore does not disqualify a country from becoming a producer of steel and steel-based commodities. The classic example before us in this respect is Japan. That Japan has surpassed even Europe and in some respects America in its industrial superiority is due to the fact that its industry stands on a very strong base of steel. What Japan did was it imported the iron ores and converted those into steel in its own factories. Does this sound like a distant dream for Bangladesh?
No dream is distant if one has the necessary will to materialise it. For Bangladesh cannot forget the fact the fact that neighbouring India is an emerging steel giant in the world. So, if Bangladesh is intent on developing a strong steel base for its industry, it can import its iron ores various sources.
However, leaving such prospect of building a basic steel industry to the hands of the future, we can at least do something for the existing industrial units of the country that add value to the imported scrap steel and keep our building industry afloat. As mentioned in the foregoing, the local steel industry is in the doldrums due to skyrocketing price of the necessary raw materials in the global market. The government needs to come in a big way to help it out.
Steel makers of the country say, to save the industry, the government will have to first withdraw all the duties on the import of scrap steel. That includes both scrap vessel and melting scrap. The importers have cited the example of India, which has already done the same. There is also an anomaly in the tariff structure that needs to be rationalised. The tariff on the scrap vessel is Tk 1000 per tonne for the ship breakers whereas for the operators of steel and re-rolling mills the amount is about four times as high at Tk. 38,00 per tonne. So, to save the local steel industry, the government may follow the footstep of India by withdrawing the duties on scrap steel import until the price for the same comes down to a tolerable level in the future.
Though the local steel industry in its present form may not look as glamorous as the garments, who knows, given the necessary patronage, one day it may also turn into a formidable industry and earn foreign currencies. Steel industry, however small, cannot under any circumstances be ignored, for it is the mother of all industries.
BANGLADESH like all other least developed countries (LDCs) is recently passing through the worst of the times. For being a LDC implies that the country bearing such appellation has a weak industrial base, for in modern parlance the concept of development and the level of industrial growth of a country are organically linked. Of late, the added problem for Bangladesh is its agriculture cannot feed its entire population all the year round. So, it has to import food grains and other agricultural products to meet the deficit.
So, Bangladesh is constrained on both the industrial and agricultural fronts. The steeply rising price index in the industrially developed countries has thrown Bangladesh into a serious predicament. It is being forced to pay heavily for keeping its economy running. Even if one for the time being forgets the import of food grain, whose main use is consumption, it will be found that Bangladesh has a rather very long list of goods and services to import to keep its economy running. Industrial raw materials, machinery, chemicals, etc., are but a few of such items to mention. So in the face of spiralling price of those goods in the developed countries, Bangladesh has to import them in greater quantities, even though its economy is in a dire straits. For otherwise, the industrial units that provide jobs and add values to raw materials they use will have to be shut down.
So, the price spiral is a two-edged sword that cuts Bangladesh and other LDCs both ways. But there are some who still want to draw a rosier picture in spite of this tight spot we are in. They want to argue that Bangladesh can take advantage of certain developments in the international financial market to enhance its exports. For example, the stronger Chinese currency Yuan against falling price of dollar has become a blessing in disguise for Bangladesh. For a stronger currency puts an economy at a disadvantage, when it is an exporter. Since China is Bangladesh's competitor regarding the export of garment-related products, stronger Yuan against dollar will certainly impact negatively on that country's export of apparel in the North American and other markets where US dollar still dominates the forex market. So, Bangladesh with its weaker Taka can grab the additional chunk of the market that China will lose as a result of costlier Yuan. Similarly, a stronger value of Indian Rupee against US dollar does also hold out an additional opportunity before Bangladesh to even grab the garments market left open by the stronger Indian Rupee.
This argument sounds interesting, though here the capacity of Bangladesh's garment industry to fill that market still remains an open question. What is more, it is a big bet when one is talking of competing with global giants like China and India, who have a hundred and one option before them when faced with such disadvantages. So, how far this prospect is a feasible one remains a wild guess, unless put to real test. One would love to see that Bangladesh's garment is beating two international super heavyweights to snatch a patch of their share in the global market. While such prospect remains a subject of interesting speculation, let us see what is happening at one of the sectors of the economy that creates employment and supply the necessary material to the house and infrastructure building sectors.
Though Bangladesh has a very small export basket to earn foreign currencies from to pay its huge import bills, it cannot risk lowering import of industrial raw materials in certain sectors including the building sector. For that would have a very serious consequence on the economy.
Take the case of scrap steel import for the re-rolling mills that produce mild steel (MS) rods. A recent statistics will show what dire straits the steel mills and ship breakers of the country are in. Needless to say, they are finding it harder to keep their factories in operation due to sharp fall in import of the necessary raw materials. The ship beakers imported around 300,000 tons worth of scrap vessels during the months between July and February during the current fiscal, which is the lowest in recent history. For just in the previous fiscal, the volume of scrap vessel import was 1.12 million tons. The volume of import was more or less around the same figure at 1.01 million tonnes in fiscal 2005-06 and 1.76 million tonnes in the fiscal 2001-02.
In comparison to the previous records of import, one must say that the steel industry of the country is passing through one of its worst times in history. Steel is a basic sector of any industrial economy. Except re-rolling of the scrap steel, Bangladesh lacks this very basic ingredient of heavy industry. And without heavy industry, the slogan of industrialisation sounds hollow. The idea of developing a viable steel sector appears implausible seeing that Bangladesh has no iron ore as one of its mineral resources. But absence of ore does not disqualify a country from becoming a producer of steel and steel-based commodities. The classic example before us in this respect is Japan. That Japan has surpassed even Europe and in some respects America in its industrial superiority is due to the fact that its industry stands on a very strong base of steel. What Japan did was it imported the iron ores and converted those into steel in its own factories. Does this sound like a distant dream for Bangladesh?
No dream is distant if one has the necessary will to materialise it. For Bangladesh cannot forget the fact the fact that neighbouring India is an emerging steel giant in the world. So, if Bangladesh is intent on developing a strong steel base for its industry, it can import its iron ores various sources.
However, leaving such prospect of building a basic steel industry to the hands of the future, we can at least do something for the existing industrial units of the country that add value to the imported scrap steel and keep our building industry afloat. As mentioned in the foregoing, the local steel industry is in the doldrums due to skyrocketing price of the necessary raw materials in the global market. The government needs to come in a big way to help it out.
Steel makers of the country say, to save the industry, the government will have to first withdraw all the duties on the import of scrap steel. That includes both scrap vessel and melting scrap. The importers have cited the example of India, which has already done the same. There is also an anomaly in the tariff structure that needs to be rationalised. The tariff on the scrap vessel is Tk 1000 per tonne for the ship breakers whereas for the operators of steel and re-rolling mills the amount is about four times as high at Tk. 38,00 per tonne. So, to save the local steel industry, the government may follow the footstep of India by withdrawing the duties on scrap steel import until the price for the same comes down to a tolerable level in the future.
Though the local steel industry in its present form may not look as glamorous as the garments, who knows, given the necessary patronage, one day it may also turn into a formidable industry and earn foreign currencies. Steel industry, however small, cannot under any circumstances be ignored, for it is the mother of all industries.