Improving the trade competence

Of the top 10 low-income countries, Bangladesh has been placed at the last position when it comes to trading in goods, according to the report "Connecting to Compete, 2014: Trade Logistics in the Global Economy." Bangladesh has been ranked 108th among 160 countries on the logistics performance index (LPI) for 2014, according to a World Bank report. Of the South Asian nations, Bangladesh is above Bhutan placed at 143, but below India at 54, followed by Pakistan at 72, the Maldives at 82, Sri Lanka 89 and Nepal 105.
Bangladesh was not included in the 2012 LPI, but was ranked 79th in 2010, far above many South Asian countries. The WB Group's International Trade Unit has been preparing the LPI every two years since 2007. In the 2014 LPI report, Germany came up with the world's best overall logistics performance. Somalia had the lowest score. The LPI is trying to capture a rather complex reality: attributes of the supply chain.
Bangladesh is improving in some areas of trade competence but that is not that much commensurate with the volume of trade growth. That's why our country is falling behind others.
Bangladesh scored low in a number of areas of trade - including customs performance, infrastructure quality and timeliness of shipments. It has been placed at 138th position in terms of customs performance as against 90th in 2010, at 138th for infrastructure as against 72nd, at 80th for international shipments as against 61st, at 122nd for tracking and tracing as against 92nd, and at 75th for timeliness as against 70th. However, it has made an insignificant improvement in the area of logistics quality and competence. Its ranking has improved to 93rd from 96th during the time.
The gap between the countries that perform best and worst in trade logistics is still quite large, despite a slow convergence since 2007. This gap persists because of the complexity of logistics-related reforms and investment in developing countries and despite the almost universal recognition that poor supply-chain efficiency is the main barrier to trade integration in the modern world.
In countries with high logistics costs, it is often not the distance between trading partners, but the reliability of the supply chain that is the most important contributor to those costs. The 2014 report finds that low-income, middle-income and high-income countries will need to take different strategies to improve their standings in the area of logistics performance.
In low-income countries, the biggest gains typically come from improvements of infrastructure and basic border management. Middle-income countries, by contrast, usually have fairly well-functioning infrastructure and border control. They generally see the biggest gains from improving logistics services and particularly outsourcing specialised functions, such as transportation, freight-forwarding and warehousing. In high-income countries, there is a growing awareness of - and a demand for - "green logistics," or logistics services that are environmentally friendly.
The LPI is a concrete tool for raising awareness and spurring improvements. Our country has some risks towards achieving 7.2 per cent GDP growth target in the current fiscal year. In just over two decades, Bangladesh progressed from an aid-dependent economy to a vibrant outward-oriented one. This can be attributed to domestic policies such as market-oriented reforms, tariff liberalisation and pursuance of an export-oriented growth strategy in general. Despite commendable export growth backed by supportive policy measures, the export basket has not been diversified.
Exports are disproportionately dependent on garments, which constitute more than 80 per cent of the total export earnings. The country has not been able to realise its full export potential because of serious lacunae, especially in areas such as institutional, technological and human capabilities. The most problematic factors for doing business have been inadequate infrastructure and inefficient governance.
There have been various trade-related technical assistance and capacity building initiatives in Bangladesh to expedite the growth in exports. However, the contribution of those initiatives has been limited. The shortcomings in those programmes led to the launch of the Aid for Trade (AfT) initiative at the Sixth Ministerial Conference of the World Trade Organisation (WTO) in Hong Kong in December, 2005 to help the developing countries especially least developed countries, overcome supply-side constraints and improve their trade capacity.
A WTO Task Force on AfT recommends that the initiative should cover six broad categories. These are: (i) trade policy and regulation, (ii) trade development, (iii) trade-related infrastructure, (iv) building productive capacity, (v) trade-related adjustment, and (vi) other trade-related needs. AfT is a sub-set of official development assistance (ODA).
Economists identified high lead time, less productivity compared to other competing nations despite relatively low wages, poor law and order situation and infrastructure bottleneck as the major impediments to industrial growth. The governments should make sure that access to infrastructure is extended to the people who need it most - women, the poor and marginalised groups - and move away from a "build, neglect, and rebuild" mindset by investing in rehabilitation and maintenance of infrastructure assets. According to businesses in South Asia, the lack of better logistic performance is the biggest barrier to growth. China and Japan are desperately seeking a suitable destination for their investments and Bangladesh remains on their radar as a possible destination.
Finally, capable and competent human resource is essential for formulating, implementing and increasing the logistics performance effectively. The absorptive capacity of the ministries and departments should be improved by improving skills of relevant officials. The private sector also needs to improve its capacity to design and implement the LPI. For, good governance requires improved logistics performance and the government of Bangladesh should ensure it.
Bangladesh must act now to articulate and enforce improved logistics performance so that our industry can continue to grow and other countries can follow the example. To encapsulate, Bangladesh has to absorb nearly a million young people in its manufacturing sector annually to maintain stability in the labour market as well as accelerate structural transformation. Otherwise, new entrants in the job market will either be absorbed by the low-paid service sector or the country will continue to lose skills permanently in the process of brain drain. This could leave Bangladesh in a 'low income trap' or make it a remittance-dependent economy jeopardising the country's long-term industrialisation. As discussed, both short-term and long-term policies are required to transform Bangladesh into a manufacturing powerhouse by this decade. This could also help seize the emerging export opportunities in China, which could be as high as $20 trillion by 2020.
The writer is assistant research                 secretary at Bangladesh Knitwear Manufacturers and                        Exporters Association (BKMEA).     [email protected]