Chasing diversification, losing momentum

For all the talk of diversification and the policies formulated in its name, Bangladesh's export basket looks hardly any different than it did five years ago. The country remains tied to a single engine of export growth, with readymade garments contributing more than four-fifths of merchandise export earnings. The combined share of everything else has remained unchanged at around 19 per cent for the past five years. Data from the Export Promotion Bureau show that four of the country's five largest non-RMG export sectors, namely home textiles, jute, agricultural products and engineering products, still earn less than they did in financial year 2021-22. Only leather and leather products have come close to recovering their earlier level. Even that recovery has hovered within a narrow band for years, well short of the breakthrough long promised in what is widely regarded as the country's second biggest export prospect. Obviously, the real concern is not that Bangladesh depends excessively on garments sector. It is that the country has had ample time to prepare alternative export pillars but has instead allowed most of them to drift in place while competitors moved ahead. Such dependence is becoming even more dangerous as Bangladesh prepares for life after graduation from the LDC category when preferential trade benefits will diminish and international competition will become even tougher.
Part of the reason other sectors have drifted rather than grown is that policy incentives have continued to tilt toward the RMG sector. One clear example is the bonded warehouse facility which lets garment factories import yarn duty-free beyond what they actually need. In 2022, that allowance, known as the wastage rate, was doubled from 16 per cent to 32 per cent. The change has come at the direct expense of the domestic textile sector, since garment manufacturers can now import considerably more yarn than production actually requires. The surplus, much of it originating in India, finds its way into the domestic market at prices local spinners cannot match, as duty-free imports carry a cost advantage that domestic mills producing the same counts of yarn simply cannot offer. Bangladesh Textile Mills Association (BTMA) had repeatedly warned that the arrangement threatened the $25 billion textile industry built on precisely those yarn counts. Spinning mills unable to compete on price have since shut down or cut production, and home textile exports, which depend on that same domestic yarn supply, have posted the steepest decline among all five major non-apparel sectors.
The textile sector is not alone in bearing the cost of neglect. Other non-RMG industries such as leather continue to face obstacles of their own. Leather for years has been described as capable of earning as much as $10 billion annually, yet actual exports remain confined to roughly $1 billion. This is because the relocation of tanneries to Savar was left incomplete and the central effluent treatment plant has still not delivered the environmental compliance demanded by major international buyers. And without internationally recognised certification, producers stay locked out of premium markets no matter how competitive their products might otherwise be. This is not a new problem. Successive governments have acknowledged it for years without resolving it. Similarly, the agricultural processing sector is repeatedly barred from lucrative Western markets due to the absolute lack of internationally recognised systems for livestock traceability disease control and veterinary oversight. Exporters are capable of producing high quality goods but entirely unable to prove their compliance to stringent global buyers.
The readymade garment sector demonstrated what is possible to achieve with determined policy support. The question now is whether that same commitment will ever reach the rest of the export economy before dependence on a single sector becomes the country's greatest vulnerability.