Jute sector : Down but not out
Saturday, 20 October 2007
THE situation in the country's problem-ridden jute sector merits close attention in view of the move that has lately been taken by the government for its revival. Hence, this leader closely follows the one that this paper carried in its issue last Thursday. We had all but given up hope on jute -- once known as the 'golden fibre' -- whose production and exports provided the lifeline for the Bangladesh economy at independence when jute and jute goods comprised over 75% of our export basket. Yet, after thirty five years of independence and a host of misguided policies, and contrary to many populist notions about its demise, the jute sector is alive, with a promise of renaissance no less.
Over the past six years or so, export of raw jute and jute products from Bangladesh rose by 119 per cent and 40 per cent, respectively. There is also substantial untapped potential for high value-added and price competitive jute products, e.g. speciality jute-mixed fabric for car doors with an unlimited global market. Bangladesh produces superior grades of jute and continues to be its largest exporter in the world market. In short, here is one product in which Bangladesh's international comparative advantage is beyond doubt.
But let us not under-estimate the problems that our jute industry is faced with. Topmost among them is the existence and operation of some 22 public sector jute mills run by Bangladesh Jute Mills Corporation (BJMC) losing Taka 2.5 billion annually and accounting for over 50% of the losses of state-owned enterprises (SOEs). Poor management -- universally true for SOEs -- is not the only factor for these losses. Not driven by incentives for profit maximisation, they are reputed to pay relatively higher prices for inputs (e.g. raw jute) and sell or export at lower prices undercutting competitors from the private sector.
Next, there are 54 private jute mills under BJMA producing and exporting the traditional products -- hessian, CBC, jute bags. These mills, owned by Bangladeshi entrepreneurs, were de-nationalised in 1982-83 but left with huge burden of debt incurred while they were managed (or mismanaged) by public officials. Most of the BJMA mills still owe hefty sums to the banks as a result of which they are restrained from full-scale operation. BJMC and BJMA are mainly tied to the export of traditional jute products whose demand in the world market has been dwindling due to emergence of synthetic substitutes.
The success story in the jute industry lies with a group of private jute mills producing jute yarn and twine and exporting all of it. This group, assembled under Bangladesh Jute Spinners Association (BJSA), now comprise 51 mills in place of only six at independence. Interestingly, some of these mills were set up with machineries bought from the closed Adamjee Jute Mills. The entire growth of this sub-sector has taken place since the mid-1980s. These private jute entrepreneurs seized the opportunity of growing demand for jute yarn and twine in the world market and expanded capacity in response. BJSA mills now account for about 60% of the $300 million exports of jute manufactures. In fact, growth of exports of jute yarn and twine has more than compensated for the decline in the traditional exports of Hessian, CBC and jute bags.
This paper believes there is a future for the jute industry -- but in private hands. In this context, the recent decision of the government to lease out eight BJMC jute mills -- short of outright sale -- is pragmatic and in the right direction. This is a practical way out of the dire straits and unsustainable situation that the public jute mills are in.
Over the past six years or so, export of raw jute and jute products from Bangladesh rose by 119 per cent and 40 per cent, respectively. There is also substantial untapped potential for high value-added and price competitive jute products, e.g. speciality jute-mixed fabric for car doors with an unlimited global market. Bangladesh produces superior grades of jute and continues to be its largest exporter in the world market. In short, here is one product in which Bangladesh's international comparative advantage is beyond doubt.
But let us not under-estimate the problems that our jute industry is faced with. Topmost among them is the existence and operation of some 22 public sector jute mills run by Bangladesh Jute Mills Corporation (BJMC) losing Taka 2.5 billion annually and accounting for over 50% of the losses of state-owned enterprises (SOEs). Poor management -- universally true for SOEs -- is not the only factor for these losses. Not driven by incentives for profit maximisation, they are reputed to pay relatively higher prices for inputs (e.g. raw jute) and sell or export at lower prices undercutting competitors from the private sector.
Next, there are 54 private jute mills under BJMA producing and exporting the traditional products -- hessian, CBC, jute bags. These mills, owned by Bangladeshi entrepreneurs, were de-nationalised in 1982-83 but left with huge burden of debt incurred while they were managed (or mismanaged) by public officials. Most of the BJMA mills still owe hefty sums to the banks as a result of which they are restrained from full-scale operation. BJMC and BJMA are mainly tied to the export of traditional jute products whose demand in the world market has been dwindling due to emergence of synthetic substitutes.
The success story in the jute industry lies with a group of private jute mills producing jute yarn and twine and exporting all of it. This group, assembled under Bangladesh Jute Spinners Association (BJSA), now comprise 51 mills in place of only six at independence. Interestingly, some of these mills were set up with machineries bought from the closed Adamjee Jute Mills. The entire growth of this sub-sector has taken place since the mid-1980s. These private jute entrepreneurs seized the opportunity of growing demand for jute yarn and twine in the world market and expanded capacity in response. BJSA mills now account for about 60% of the $300 million exports of jute manufactures. In fact, growth of exports of jute yarn and twine has more than compensated for the decline in the traditional exports of Hessian, CBC and jute bags.
This paper believes there is a future for the jute industry -- but in private hands. In this context, the recent decision of the government to lease out eight BJMC jute mills -- short of outright sale -- is pragmatic and in the right direction. This is a practical way out of the dire straits and unsustainable situation that the public jute mills are in.