Facts need to be faced and complacency avoided at all costs
Friday, 28 November 2008
Syed Fattahul Alim
Both the government and a section of the trading community have been drawing a rather flattering picture for Bangladesh economy in the wake of the severe recession in the industrially advanced nations. The government, however, is still confident that the global recession will not have any serious impact on the trend of Gross Domestic Product (GDP) growth of the country which grew at 6.2 per cent in the fiscal 2007-08 and that it proved its resilience with the growth of 15 per cent in export and that of 30 per cent in remittance in the last fiscal despite the severe impacts of floods, cyclone Sidr, crop failure and anti-corruption drive by the Anti-corruption Commission. So, under no circumstances it will come down below 6 per cent, claimed the Finance Adviser contesting the recent World Bank warning that the GDP growth may come down between 5.4 and 4.8 per cent in the current fiscal.
But recently some negative prognostications are also coming from the local business community, especially the mainstay of our export, the Readymade Garments (RMG) sector.
Reports coming from the garments industry say that Bangladesh has been losing to the Chinese made garments products in the US market in particular. During the first nine months of the current calendar year, the volume of export of cotton woven shirt in the US market has dropped by 17 percent. The president of the Bangladesh Garments Manufacturers and Exporters' Association (BGMEA) has said that the situation has arisen because Bangladesh is handicapped by the fact that it has to import the major portion of the cotton fabric for making the shirts for export to the US market. This causes the delay in our export of the consignments to the US market.
But on the contrary, the Chinese exporters of the same cotton fabric made shirts have filled the gap through sending their consignments to the US market faster as they make their cotton garments like shirts with their homemade fabrics. This is a big disadvantage for Bangladesh. Moreover, the local cotton fabric is more expensive which makes the shirts made from it less competitive in the US market in comparison to those made from those of Chinese origin. The net result of it has been that Bangladesh could only export US$ 279 million worth of cotton shirts in the USA, while the Chinese earned US$450 million in the period under consideration. Again, this earning against the export of cotton shirts is less by US$50 million compared to the export of shirts in the same period in the previous year. What is interesting to note here is that the Chinese have stolen a march on the US market, despite the fact that the overall import of shirts have declined by 14 per cent in that country against the backdrop of the ongoing severe economic recession.
In fact, Bangladesh's garments export is facing an unfavourable condition in the US market compared to that of the European Union (EU). It is because, the US importers have to pay 16 per cent duty on the apparels of Bangladesh-origin.
However, Bangladesh's garment exporters are still optimistic, for they think the present reverse is temporary in nature given the fact that the Chinese will be fast losing its competitiveness in low-end products.
The question of concern about the present level of performance of the garment sector is that, on the one hand, garments is our lone export item that brings home about three-quarters of our total export earning. On the other hand, it is the selfsame leaders of the RMG sector who had contended that the ongoing economic downturn in the highly advanced economies might be a blessing in disguise for Bangladesh. Their argument is that falling purchasing power of the Western consumers will turn their attention to the low-end products in the apparel sector and in that case, Bangladesh will be gaining from that situation with the help of its cheaper RMG products.
However, the recent developments have reasons to leave a sobering impact on that kind of complacency as shown by our exporting community. In fact, as the upshots of the global recession are gradually unfolding, all quarters need to be very careful in their assessment of the situation. This is true not only of the business community in the export sector. The government, too, need to avoid overconfidence and has to be very circumspect in its assessment of the economy.
The warnings issued by the World Bank are a case in point. It has said that Bangladesh may not also escape the impacts of the global financial crunch. What are the recent prognostications about the still unfolding scenario on the global economic front? Firstly, it is being said that the crunch may grow further in intensity in spite of the bailout packages being provided by the US and the EU governments. The number of unemployed in those countries might register a further increase in the coming days. A report of the Organisation for Economic Cooperation and Development (OECD) has said that the number of the jobless in its 30 member countries will rise from its current level at 34 million to 42 million by 2010. In percentage figures, it will turn out to be 7.5 in 2010 compared to 5.5 per cent in 2008. Though the crisis first appeared in the banking system in the USA, it is now fast spreading to the shop floors of Europe, too.
It is against this backdrop that the World Bank has come up with its warnings for the Bangladesh economy. Though the fears expressed by the WB have been promptly contested by our Finance Adviser, the fact remains that the basis of our fragile foreign exchange reserve still lies in the rich economies of the USA, Europe and the oil rich nations of the Middle East. So, whether it is our export dollars or the remittances from wage earners, it all depends on the economic conditions obtaining in those countries. If the economic crunch, which is fast widening its maw in the very advanced economies in the northern hemisphere, leads to further job cuts in those countries, how can we remain complacent that it may not also affect the volume of remittance sent home by the wage earners? And how can we even expect that their jobs will not be affected because they are generally engaged in low-end economic activities in those countries? Lastly, should we continue to hope that the flow of foreign aid, which is still a significant contributor to our development budget, will not shrink as fallout of the developments in the donor countries?
Such anxieties are not at all baseless. In effect, the government leaders and the experts of even the advanced economies have not been able to come up with a firm view about what is really going to happen in the coming days. Neither have they been able to devise a foolproof prescription to tide over the crisis which is behaving very unpredictably so far.
Without being an alarmist, that would create unnecessary panic in society, it is also not fair to draw a rosy picture for the future in spite of everything. Both the extremes are unadvisable for a fragile economy of our kind. The best option in such a situation is to keep people updated about the developments taking place all around, while at the same time keep their preparedness level at a high level to face any calamity befalling us with courage and patience.
Most importantly, any kind of complacency or optimism, that is not well-substantiated, will only weaken our preparedness against the global economic crisis that is getting only worse by the day.
Under the circumstances, cautiousness, moderation and a more conservative approach towards the management of the economy in the face of the ever-unfolding crisis is the wisest option available before us. As suggested by the WB economist at a recent workshop, the present caretaker government will also have to properly brief the political government to be, hopefully, taking office through the next polls about the overall situation and the best practices in hand to live through the uncertain days lying ahead.
Both the government and a section of the trading community have been drawing a rather flattering picture for Bangladesh economy in the wake of the severe recession in the industrially advanced nations. The government, however, is still confident that the global recession will not have any serious impact on the trend of Gross Domestic Product (GDP) growth of the country which grew at 6.2 per cent in the fiscal 2007-08 and that it proved its resilience with the growth of 15 per cent in export and that of 30 per cent in remittance in the last fiscal despite the severe impacts of floods, cyclone Sidr, crop failure and anti-corruption drive by the Anti-corruption Commission. So, under no circumstances it will come down below 6 per cent, claimed the Finance Adviser contesting the recent World Bank warning that the GDP growth may come down between 5.4 and 4.8 per cent in the current fiscal.
But recently some negative prognostications are also coming from the local business community, especially the mainstay of our export, the Readymade Garments (RMG) sector.
Reports coming from the garments industry say that Bangladesh has been losing to the Chinese made garments products in the US market in particular. During the first nine months of the current calendar year, the volume of export of cotton woven shirt in the US market has dropped by 17 percent. The president of the Bangladesh Garments Manufacturers and Exporters' Association (BGMEA) has said that the situation has arisen because Bangladesh is handicapped by the fact that it has to import the major portion of the cotton fabric for making the shirts for export to the US market. This causes the delay in our export of the consignments to the US market.
But on the contrary, the Chinese exporters of the same cotton fabric made shirts have filled the gap through sending their consignments to the US market faster as they make their cotton garments like shirts with their homemade fabrics. This is a big disadvantage for Bangladesh. Moreover, the local cotton fabric is more expensive which makes the shirts made from it less competitive in the US market in comparison to those made from those of Chinese origin. The net result of it has been that Bangladesh could only export US$ 279 million worth of cotton shirts in the USA, while the Chinese earned US$450 million in the period under consideration. Again, this earning against the export of cotton shirts is less by US$50 million compared to the export of shirts in the same period in the previous year. What is interesting to note here is that the Chinese have stolen a march on the US market, despite the fact that the overall import of shirts have declined by 14 per cent in that country against the backdrop of the ongoing severe economic recession.
In fact, Bangladesh's garments export is facing an unfavourable condition in the US market compared to that of the European Union (EU). It is because, the US importers have to pay 16 per cent duty on the apparels of Bangladesh-origin.
However, Bangladesh's garment exporters are still optimistic, for they think the present reverse is temporary in nature given the fact that the Chinese will be fast losing its competitiveness in low-end products.
The question of concern about the present level of performance of the garment sector is that, on the one hand, garments is our lone export item that brings home about three-quarters of our total export earning. On the other hand, it is the selfsame leaders of the RMG sector who had contended that the ongoing economic downturn in the highly advanced economies might be a blessing in disguise for Bangladesh. Their argument is that falling purchasing power of the Western consumers will turn their attention to the low-end products in the apparel sector and in that case, Bangladesh will be gaining from that situation with the help of its cheaper RMG products.
However, the recent developments have reasons to leave a sobering impact on that kind of complacency as shown by our exporting community. In fact, as the upshots of the global recession are gradually unfolding, all quarters need to be very careful in their assessment of the situation. This is true not only of the business community in the export sector. The government, too, need to avoid overconfidence and has to be very circumspect in its assessment of the economy.
The warnings issued by the World Bank are a case in point. It has said that Bangladesh may not also escape the impacts of the global financial crunch. What are the recent prognostications about the still unfolding scenario on the global economic front? Firstly, it is being said that the crunch may grow further in intensity in spite of the bailout packages being provided by the US and the EU governments. The number of unemployed in those countries might register a further increase in the coming days. A report of the Organisation for Economic Cooperation and Development (OECD) has said that the number of the jobless in its 30 member countries will rise from its current level at 34 million to 42 million by 2010. In percentage figures, it will turn out to be 7.5 in 2010 compared to 5.5 per cent in 2008. Though the crisis first appeared in the banking system in the USA, it is now fast spreading to the shop floors of Europe, too.
It is against this backdrop that the World Bank has come up with its warnings for the Bangladesh economy. Though the fears expressed by the WB have been promptly contested by our Finance Adviser, the fact remains that the basis of our fragile foreign exchange reserve still lies in the rich economies of the USA, Europe and the oil rich nations of the Middle East. So, whether it is our export dollars or the remittances from wage earners, it all depends on the economic conditions obtaining in those countries. If the economic crunch, which is fast widening its maw in the very advanced economies in the northern hemisphere, leads to further job cuts in those countries, how can we remain complacent that it may not also affect the volume of remittance sent home by the wage earners? And how can we even expect that their jobs will not be affected because they are generally engaged in low-end economic activities in those countries? Lastly, should we continue to hope that the flow of foreign aid, which is still a significant contributor to our development budget, will not shrink as fallout of the developments in the donor countries?
Such anxieties are not at all baseless. In effect, the government leaders and the experts of even the advanced economies have not been able to come up with a firm view about what is really going to happen in the coming days. Neither have they been able to devise a foolproof prescription to tide over the crisis which is behaving very unpredictably so far.
Without being an alarmist, that would create unnecessary panic in society, it is also not fair to draw a rosy picture for the future in spite of everything. Both the extremes are unadvisable for a fragile economy of our kind. The best option in such a situation is to keep people updated about the developments taking place all around, while at the same time keep their preparedness level at a high level to face any calamity befalling us with courage and patience.
Most importantly, any kind of complacency or optimism, that is not well-substantiated, will only weaken our preparedness against the global economic crisis that is getting only worse by the day.
Under the circumstances, cautiousness, moderation and a more conservative approach towards the management of the economy in the face of the ever-unfolding crisis is the wisest option available before us. As suggested by the WB economist at a recent workshop, the present caretaker government will also have to properly brief the political government to be, hopefully, taking office through the next polls about the overall situation and the best practices in hand to live through the uncertain days lying ahead.