Export performance is something to write home about
Monday, 10 August 2009
Zaidi Sattar
Since December 2008, it was a roller-coaster ride for our exports. Following a phenomenal start with a 40% growth in the first quarter despite a global environment of doom and gloom, exports eventually lost steam by the end of 2008, as most analysts had predicted. The slide, which began about December, has lasted through June 2009, ending the year with a decline of 3.4% in the last month.
Nevertheless, for the entire fiscal year 2008-09, exports posted double digit growth of 10.3 per cent. With total exports of $15.6 billion, this was 5.2% short of an optimistic target set at 15.5% growth for the year. Yet, this was no mean feat at a time when exports across the world got clobbered by plummeting consumer demand on the back of the worst recession since the Great Depression of 1930s. This seemingly stellar performance hides the fact that the last six months of FY2008-09 saw exports eke out a miserly 2.0% growth. If economic predictions are to be trusted, the outlook for the first six months of the current fiscal looks bleak indeed, with a forecast of only 3.0%-5.0% growth, compiled by the Policy Research Institute (PRI).
That said, putting this performance in global perspective gives cause for some relief. Few, if any, non-oil exporting developing countries could show such resilience in the face of the current global meltdown. Countries like China, India, Pakistan, Vietnam, Malaysia, and Thailand, were desperately looking for ways to prevent the free fall in export shipments. China, the export and manufacturing powerhouse of the world for decades, saw its exports tumble 22% during the first half of this year, resulting in widespread plant closures and massive job losses. To stem the tide, it had to put much of its $587 billion stimulus package to bolstering domestic demand in order to compensate for the loss of export markets. India, an emerging market economy that was showing signs of exporting its way into high middle income status, saw its exports slump 29% for the first half of 2009, without any sign of recovery as yet. Export declines were also experienced by Malaysia (-23%), Thailand (-22%), Vietnam (-24%), and Pakistan (-21%), until June this year. Germany and Japan, the two leading export surplus developed countries, saw their exports squeezed by falling consumer demand for automobiles and electronic goods in the developed markets.
In 2008 or 2009, double digit export growth has been a rarity. In terms of numbers, Bangladesh could make the grade because of the robust headstart in the first quarter; that enabled a 19.3% export growth for the first half of the fiscal year (July-Dec). On the whole, the second half (January-June) saw exports pretty much stagnant, growing only by 2.0%, something that should not be lost sight of, in figuring out where our weaknesses or strengths lie. Reflecting on the past year's export results gives one a sense of relief as well as some food for thought. Certainly, there is no room for complacency. The strengths and vulnerabilities of our export basket must be kept squarely in view in facing the challenge of the coming year -- as the recession unwinds, albeit gradually - as well as for the longer term.
It is important to analyze the double digit growth performance for what it is. Once again, readymade garments (RMG) saved the day, posting a growth rate of 15.4% for the year - knitwear with 16.2%, and woven garments at 14.5%. It was the non-RMG exports, making up 21% of total exports in FY2009, which registered a decline of 6.0% for the year, thus pulling down the growth rate substantially.
What explains the resilience of RMG exports in a global environment of collapsing consumer demand? Among the many arguments put forth by analysts, I find two that appear highly plausible. Bangladesh RMG products largely serve the low end of the US and European markets, giving it the benefit of the "Walmart effect" - i.e. consumers switching to low-priced clothing from cheaper outlets like Walmart chains in the current recession. As sales of Walmart bucked the declining trend in other high-priced stores, so did the demand for Bangladeshi readymade garments. A second proposition that has gained currency is that Bangladesh has become a preferred supplier of choice. As wages in China keep pace with income growth, Chinese apparels are becoming less competitive, giving Bangladesh the competitive edge. Of course, this would not be possible if there were no improvement in quality and productivity in Bangladeshi enterprises. Also, it must be the case that Bangladeshi entrepreneurs have improved on their record of delivery commitments to make up for long lead times. This hypothesis is still based more on anecdotal evidence than confirmed by hard statistical data. It is a fact that in the past eight years or so, Bangladesh has made a definite mark on the world stage as one of the five or six most dependable and affordable supplier of quality RMG products - sporadic violence and unrest in the sector notwithstanding. That should augur well for the long haul as millions of more jobs could still be created in this sector as Bangladesh so far has captured only a miniscule share of the current global textile and apparel market of $410 billion.
Paradoxically, it was the debacle in non-RMG exports that proved to be the Achille's heel in this year's export performance. Whereas export concentration should have made us more vulnerable in the ensuing recession, it proved to be the saving grace this time around as it was the non-RMG exports that atrophied (-5.8%) in the face of a slump in consumer demand. Frozen food, footwear and leather, raw jute and jute goods, and ceramics, all suffered sharp declines in exports.
However, the silver lining here is that there are a host of smaller exports, adding up to some two billion US dollars which managed a modest growth of 2.0 per cent in this adverse climate. This group that includes pharmaceutical, home textile, electronics, light engineering products, tableware and agro-processed products, is something to keep a close watch on for potential RMGs of the future, provided the policy environment is right for them. These smaller volume exports, numbering perhaps in the hundreds - the list is pretty large, and, thankfully, growing larger -- do not enjoy the free trade channel that RMG exports get: they face a cumbersome import regime riddled with tariffs and taxes and lack bonded facilities for duty free imports of inputs. A strategy for export diversification should be looking at ways to promote these exports, not through subsidies and special grants, but by providing them with a free trade environment modeled after RMG.
In all fairness, it must be said that our export-oriented entrepreneurs have done commendably in the face of heavy odds. Surprisingly, for now, what was considered a weakness in our export basket - export concentration in RMG - proved to be the saving grace, thanks to the "Walmart effect", among other things. But this should not lull us into complacency about the compelling need for diversification of our export basket. What if the next global shock consumes a particular sector? (Dr. Sattar is Chairman, Policy Research Institute of Bangladesh. Research support was provided by PRI's Nurul Hoque zaidisattar@gmail.com)
Since December 2008, it was a roller-coaster ride for our exports. Following a phenomenal start with a 40% growth in the first quarter despite a global environment of doom and gloom, exports eventually lost steam by the end of 2008, as most analysts had predicted. The slide, which began about December, has lasted through June 2009, ending the year with a decline of 3.4% in the last month.
Nevertheless, for the entire fiscal year 2008-09, exports posted double digit growth of 10.3 per cent. With total exports of $15.6 billion, this was 5.2% short of an optimistic target set at 15.5% growth for the year. Yet, this was no mean feat at a time when exports across the world got clobbered by plummeting consumer demand on the back of the worst recession since the Great Depression of 1930s. This seemingly stellar performance hides the fact that the last six months of FY2008-09 saw exports eke out a miserly 2.0% growth. If economic predictions are to be trusted, the outlook for the first six months of the current fiscal looks bleak indeed, with a forecast of only 3.0%-5.0% growth, compiled by the Policy Research Institute (PRI).
That said, putting this performance in global perspective gives cause for some relief. Few, if any, non-oil exporting developing countries could show such resilience in the face of the current global meltdown. Countries like China, India, Pakistan, Vietnam, Malaysia, and Thailand, were desperately looking for ways to prevent the free fall in export shipments. China, the export and manufacturing powerhouse of the world for decades, saw its exports tumble 22% during the first half of this year, resulting in widespread plant closures and massive job losses. To stem the tide, it had to put much of its $587 billion stimulus package to bolstering domestic demand in order to compensate for the loss of export markets. India, an emerging market economy that was showing signs of exporting its way into high middle income status, saw its exports slump 29% for the first half of 2009, without any sign of recovery as yet. Export declines were also experienced by Malaysia (-23%), Thailand (-22%), Vietnam (-24%), and Pakistan (-21%), until June this year. Germany and Japan, the two leading export surplus developed countries, saw their exports squeezed by falling consumer demand for automobiles and electronic goods in the developed markets.
In 2008 or 2009, double digit export growth has been a rarity. In terms of numbers, Bangladesh could make the grade because of the robust headstart in the first quarter; that enabled a 19.3% export growth for the first half of the fiscal year (July-Dec). On the whole, the second half (January-June) saw exports pretty much stagnant, growing only by 2.0%, something that should not be lost sight of, in figuring out where our weaknesses or strengths lie. Reflecting on the past year's export results gives one a sense of relief as well as some food for thought. Certainly, there is no room for complacency. The strengths and vulnerabilities of our export basket must be kept squarely in view in facing the challenge of the coming year -- as the recession unwinds, albeit gradually - as well as for the longer term.
It is important to analyze the double digit growth performance for what it is. Once again, readymade garments (RMG) saved the day, posting a growth rate of 15.4% for the year - knitwear with 16.2%, and woven garments at 14.5%. It was the non-RMG exports, making up 21% of total exports in FY2009, which registered a decline of 6.0% for the year, thus pulling down the growth rate substantially.
| Summary Table of export performance 2008-09(Figures in $billion) | |||
| Exports | FY2007-08 | FY2008-09 | Growth (%) |
| RMG of which knitwear woven garments | 10.7 5.55.2 | 12.3 6.45.9 | 15.4 16.214.5 |
| Non-RMG of which frozen foods footwear and leather raw jute/jute gds other | 3.4 0.5340.4540.4831.941 | 3.2 0.4550.3640.4171.981 | - 5.8 -14.9-19.8-13.7+2.1 |
| Total exports | 14.1 | 15.6 | 10.3 |
| Source: Export Promotion Bureau | |||
What explains the resilience of RMG exports in a global environment of collapsing consumer demand? Among the many arguments put forth by analysts, I find two that appear highly plausible. Bangladesh RMG products largely serve the low end of the US and European markets, giving it the benefit of the "Walmart effect" - i.e. consumers switching to low-priced clothing from cheaper outlets like Walmart chains in the current recession. As sales of Walmart bucked the declining trend in other high-priced stores, so did the demand for Bangladeshi readymade garments. A second proposition that has gained currency is that Bangladesh has become a preferred supplier of choice. As wages in China keep pace with income growth, Chinese apparels are becoming less competitive, giving Bangladesh the competitive edge. Of course, this would not be possible if there were no improvement in quality and productivity in Bangladeshi enterprises. Also, it must be the case that Bangladeshi entrepreneurs have improved on their record of delivery commitments to make up for long lead times. This hypothesis is still based more on anecdotal evidence than confirmed by hard statistical data. It is a fact that in the past eight years or so, Bangladesh has made a definite mark on the world stage as one of the five or six most dependable and affordable supplier of quality RMG products - sporadic violence and unrest in the sector notwithstanding. That should augur well for the long haul as millions of more jobs could still be created in this sector as Bangladesh so far has captured only a miniscule share of the current global textile and apparel market of $410 billion.
Paradoxically, it was the debacle in non-RMG exports that proved to be the Achille's heel in this year's export performance. Whereas export concentration should have made us more vulnerable in the ensuing recession, it proved to be the saving grace this time around as it was the non-RMG exports that atrophied (-5.8%) in the face of a slump in consumer demand. Frozen food, footwear and leather, raw jute and jute goods, and ceramics, all suffered sharp declines in exports.
However, the silver lining here is that there are a host of smaller exports, adding up to some two billion US dollars which managed a modest growth of 2.0 per cent in this adverse climate. This group that includes pharmaceutical, home textile, electronics, light engineering products, tableware and agro-processed products, is something to keep a close watch on for potential RMGs of the future, provided the policy environment is right for them. These smaller volume exports, numbering perhaps in the hundreds - the list is pretty large, and, thankfully, growing larger -- do not enjoy the free trade channel that RMG exports get: they face a cumbersome import regime riddled with tariffs and taxes and lack bonded facilities for duty free imports of inputs. A strategy for export diversification should be looking at ways to promote these exports, not through subsidies and special grants, but by providing them with a free trade environment modeled after RMG.
In all fairness, it must be said that our export-oriented entrepreneurs have done commendably in the face of heavy odds. Surprisingly, for now, what was considered a weakness in our export basket - export concentration in RMG - proved to be the saving grace, thanks to the "Walmart effect", among other things. But this should not lull us into complacency about the compelling need for diversification of our export basket. What if the next global shock consumes a particular sector? (Dr. Sattar is Chairman, Policy Research Institute of Bangladesh. Research support was provided by PRI's Nurul Hoque zaidisattar@gmail.com)