Terms of trade affecting Bangladeshi workers
Md. Serajul Islam Talukder | Wednesday, 18 June 2008
Favourable terms of trade gear up domestic economy and welfare of the workers engaged in export industries. It is essential to identify potential items from among our exports and explore new items to widen the list of export merchandises for correcting and reversing the current trends. It is also essential to assess the opportunity costs of some items that could be produced domestically as import substitutes for stopping the declining trends of terms of trade.
The terms of trade for Bangladesh have been becoming increasingly unfavourable in the recent past. Workers engaged in export-oriented industries are becoming financially insolvent due mainly to continuously falling trends of unit prices of merchandise in the overseas market for major commodities like garments, knitwear, jute and jute goods etc. Exchanges of higher and higher units of export merchandises with decreasing unit prices have been jeopardising the welfare of Bangladeshi labourers.
Terms of trade represent the economic strength of a country in the international market. The prices of goods in the international markets are determined according to the interactions of demand and supply. Trades take place when the terms of trade remain below the opportunity costs of producing the good domestically. Favourable terms of trade mean that the exports are enjoying supremacy over imports in terms of unit values. Improvement of the terms of trade in favour of a country drives national income to higher levels with the same amount of merchandise exports.
The development of terms of trade could be guessed from the trend of unit prices of exports and imports. Under a severely competitive market condition, there exists little room for earning more returns from the same quantity of exports when efficiency development could be a better approach. Sometimes, the questions of wage as well as job cuts could appear as one of the last resorts for surviving in the competition.
Export price index of Bangladesh declined by 6.0 per cent over the last five years (about 1.0 per cent annually) during fiscal years (FYs) 2002-07 as contrary to the import price index that increased by 19 per cent during the same period with an annual growth of about 3 per cent. For obvious reasons, the terms of trades of Bangladesh declined by 26 per cent over the period and annually by 5.0 per cent.
Exports: Export items of Bangladesh are extremely limited in numbers when woven garments and knitwear represent about 77 per cent of the total exports. Prime exports including garment have been facing severe competition in the overseas market in recent years. Skills and technological developments in industrial, agricultural and commercial sectors in Bangladesh are at the rudimentary stages. As capital and natural resources are limited, there exists little scope for exploring untapped potentials and bringing those under production for increasing exports proceeds. Attainment of scales of economies in production that are generally associated with the highly capital-intensive techniques are beyond the reach. Finding no easy alternative, the entrepreneurs of Bangladesh have probably turned their attention to using human labour, the only major available resource in favour of labour-intensive technologies. Although labour is cheaper in Bangladesh than many other countries, export enterprises are still facing cut-throat competitions for many other comparative disadvantages.
The garment industry has become the only major source of foreign exchange earnings of Bangladesh. Garments and knitwear fetched about 74 per cent -77 per cent foreign exchange and depicted a lucrative exports growth of 15 per cent annually during FYs 2002-07. However, the unit price of woven garments declined from 41 in FY2001-02 to 35 in FY2006-07 while that of knitwear declined from 24 in FY2002-03 to 23 in FY2006-07. Export growth in the garment sector has undoubtedly helped employment generation while decline in unit prices has negated the enterprisers to increase salaries and welfare of labourers. If, despite the declining returns, the labour payments had increased during the period, it might have happened partly due to reduction in cost and improvement in efficiency and partly due to sacrifice of the owners' shares. The frequent load-shedding of power has been one of the major impediments to the improvement in efficiency of the garment industries. So, uncertainties may haunt the fate of the garment labourers including the 2.0 million women who are passing their days well below the subsistence level in the face of falling unit prices.
In the presence of dominating garment sector, the contribution of raw jute to total exports struggled to grow at about 1.0 per cent level during FYs2002-07 while the unit price declined annually by about 2.0 per cent. The contribution of jute goods to total exports showed marginally a declining trend and ranged between 3.0 and 4.0 per cents during FYs2002-07 while the unit price grew annually by less than 1.0 per cent. Though prospects of jute goods looked better in terms of unit price compared with that of raw jute, the later has many more diversified domestic uses. Therefore, the above two traditional items could manage little scope to make any lucrative payments to the labourers out of export proceeds. The weak growth of unit price for jute goods has added to the sick industries in recent years. Raw jute, the erstwhile golden fibre and the jute products, which previously dominated the world market, might regain some strength if power supplies are ensured and necessary development in research takes place. The International Jute Research Organisation that stimulated hope and aspiration in many at the outset could help little to bring back the life of the golden fibre of Bangladesh.
The contributions of frozen shrimp and fish showed marginal decline in total export as did raw jute and jute goods and ranged between 4.0 and 5.0 per cent during FYs2002-07. On the contrary, unit prices of shrimp and fish showed an attractive annual growth of 6.0 per cent and 17 per cent respectively. Exports of fish, though low in quantity, have provided better returns than frozen shrimps. Bangladesh, crisscrossed by many rivers, has ample scope for developing this sector further.
Leather and leather goods depicted a marginal declining trend from 2.0 per cent to 3.0 per cent in total export during the period. The significant increase in unit price at an annual rate of 35 per cent has established a record as the most promising export item of Bangladesh during FYs2002-07. The leather and leather goods have recorded its potentialities in fetching higher returns during the last five years in spite of a fall in quantities of exports. The scope for developing this sector seems clearly promising in Bangladesh.
Fertilisers though have been fetching about 1.0 per cent annually to total exports; the unit price has recorded an outstanding growth of 17 per cent annually during FYs2002-07 followed by leather. Exports could be developed significantly if more natural gas could be allocated for producing fertiliser. It may be mentioned here that natural gas is being used in many less productive purposes in Bangladesh.
Imports: Bangladesh is heavily dependent on merchandise imports; and imports were on an average 30 per cent higher than exports during FYs 2002-07. Both the exports and imports, however, depicted the same level of growth at 15 per cent annually during the period. Merchandise imports of Bangladesh have been large in numbers and containing generally higher unit price than those of exports. Bangladesh imports, among many items, rice, wheat, pulse, baby food, oil seeds and edible oils, crude petroleum, Petroleum, Oil & Lubricants (POL), fertilisers, motor vehicles, machineries, electric and electronic goods, dyes and chemicals, raw cotton and yarns, textile articles and so on. Characteristically, most of these items have been claiming increasingly higher unit price in the global markets due mainly to supply constraints. Prices of essential items like edible oil and oil seeds, petroleum oil, wheat, and rice etc., have also been soaring in recent years. Ever-increasing prices of gasoline and petroleum in the world market have been the cause for increasing costs of many import items resulting in unfavourable terms of trade for Bangladesh. Besides, continuous upgrading of technologies and large-scale investment in the developed countries are helping cost reductions for reaping higher returns. As a result, terms of trade for Bangladesh have been remaining increasingly unfavourable.
Identifying items for improving terms of trade: Bangladesh urgently requires identifying new items for exports and selecting potential items from among traditional and non-traditional exports for stopping the current avalanche of unfavourable trends in terms of trade, improving national income and providing more income to poor labourers engaged in export industries. Exports of jute goods, leather and fertiliser, and medicines etc., among others, have prospects to play more important roles if proper cares are taken. Medium and small shipbuilding and other agricultural and non-agricultural industries, for example, might play mighty roles to improve terms of trades and welfare of poor labourers working for foreign markets. Tariff and taxation on exportable merchandises could be reviewed on regular basis focusing on the prospects to improve the terms of trade.
On the other hand, it is essential to assess the opportunity costs of some items that could be produced as import substitutes. For example, plantations of palm and coconut trees in hilly and coastal areas on a massive scale could save import costs to a notable extent. Growing agricultural crops like corns, maize, vegetable, fruits and citrus fruits, nuts, etc. in sandy areas of the river-sides of Bangladesh has substantial potential. Similarly, indigenous tools and small engineering products might be produced in small and cottage industries as import substitutes.
The writer is former Deputy General Manager of Bangladesh Bank and at present works as a consultant to the Asian Development Bank. He can be reached at Email:[email protected]
The terms of trade for Bangladesh have been becoming increasingly unfavourable in the recent past. Workers engaged in export-oriented industries are becoming financially insolvent due mainly to continuously falling trends of unit prices of merchandise in the overseas market for major commodities like garments, knitwear, jute and jute goods etc. Exchanges of higher and higher units of export merchandises with decreasing unit prices have been jeopardising the welfare of Bangladeshi labourers.
Terms of trade represent the economic strength of a country in the international market. The prices of goods in the international markets are determined according to the interactions of demand and supply. Trades take place when the terms of trade remain below the opportunity costs of producing the good domestically. Favourable terms of trade mean that the exports are enjoying supremacy over imports in terms of unit values. Improvement of the terms of trade in favour of a country drives national income to higher levels with the same amount of merchandise exports.
The development of terms of trade could be guessed from the trend of unit prices of exports and imports. Under a severely competitive market condition, there exists little room for earning more returns from the same quantity of exports when efficiency development could be a better approach. Sometimes, the questions of wage as well as job cuts could appear as one of the last resorts for surviving in the competition.
Export price index of Bangladesh declined by 6.0 per cent over the last five years (about 1.0 per cent annually) during fiscal years (FYs) 2002-07 as contrary to the import price index that increased by 19 per cent during the same period with an annual growth of about 3 per cent. For obvious reasons, the terms of trades of Bangladesh declined by 26 per cent over the period and annually by 5.0 per cent.
Exports: Export items of Bangladesh are extremely limited in numbers when woven garments and knitwear represent about 77 per cent of the total exports. Prime exports including garment have been facing severe competition in the overseas market in recent years. Skills and technological developments in industrial, agricultural and commercial sectors in Bangladesh are at the rudimentary stages. As capital and natural resources are limited, there exists little scope for exploring untapped potentials and bringing those under production for increasing exports proceeds. Attainment of scales of economies in production that are generally associated with the highly capital-intensive techniques are beyond the reach. Finding no easy alternative, the entrepreneurs of Bangladesh have probably turned their attention to using human labour, the only major available resource in favour of labour-intensive technologies. Although labour is cheaper in Bangladesh than many other countries, export enterprises are still facing cut-throat competitions for many other comparative disadvantages.
The garment industry has become the only major source of foreign exchange earnings of Bangladesh. Garments and knitwear fetched about 74 per cent -77 per cent foreign exchange and depicted a lucrative exports growth of 15 per cent annually during FYs 2002-07. However, the unit price of woven garments declined from 41 in FY2001-02 to 35 in FY2006-07 while that of knitwear declined from 24 in FY2002-03 to 23 in FY2006-07. Export growth in the garment sector has undoubtedly helped employment generation while decline in unit prices has negated the enterprisers to increase salaries and welfare of labourers. If, despite the declining returns, the labour payments had increased during the period, it might have happened partly due to reduction in cost and improvement in efficiency and partly due to sacrifice of the owners' shares. The frequent load-shedding of power has been one of the major impediments to the improvement in efficiency of the garment industries. So, uncertainties may haunt the fate of the garment labourers including the 2.0 million women who are passing their days well below the subsistence level in the face of falling unit prices.
In the presence of dominating garment sector, the contribution of raw jute to total exports struggled to grow at about 1.0 per cent level during FYs2002-07 while the unit price declined annually by about 2.0 per cent. The contribution of jute goods to total exports showed marginally a declining trend and ranged between 3.0 and 4.0 per cents during FYs2002-07 while the unit price grew annually by less than 1.0 per cent. Though prospects of jute goods looked better in terms of unit price compared with that of raw jute, the later has many more diversified domestic uses. Therefore, the above two traditional items could manage little scope to make any lucrative payments to the labourers out of export proceeds. The weak growth of unit price for jute goods has added to the sick industries in recent years. Raw jute, the erstwhile golden fibre and the jute products, which previously dominated the world market, might regain some strength if power supplies are ensured and necessary development in research takes place. The International Jute Research Organisation that stimulated hope and aspiration in many at the outset could help little to bring back the life of the golden fibre of Bangladesh.
The contributions of frozen shrimp and fish showed marginal decline in total export as did raw jute and jute goods and ranged between 4.0 and 5.0 per cent during FYs2002-07. On the contrary, unit prices of shrimp and fish showed an attractive annual growth of 6.0 per cent and 17 per cent respectively. Exports of fish, though low in quantity, have provided better returns than frozen shrimps. Bangladesh, crisscrossed by many rivers, has ample scope for developing this sector further.
Leather and leather goods depicted a marginal declining trend from 2.0 per cent to 3.0 per cent in total export during the period. The significant increase in unit price at an annual rate of 35 per cent has established a record as the most promising export item of Bangladesh during FYs2002-07. The leather and leather goods have recorded its potentialities in fetching higher returns during the last five years in spite of a fall in quantities of exports. The scope for developing this sector seems clearly promising in Bangladesh.
Fertilisers though have been fetching about 1.0 per cent annually to total exports; the unit price has recorded an outstanding growth of 17 per cent annually during FYs2002-07 followed by leather. Exports could be developed significantly if more natural gas could be allocated for producing fertiliser. It may be mentioned here that natural gas is being used in many less productive purposes in Bangladesh.
Imports: Bangladesh is heavily dependent on merchandise imports; and imports were on an average 30 per cent higher than exports during FYs 2002-07. Both the exports and imports, however, depicted the same level of growth at 15 per cent annually during the period. Merchandise imports of Bangladesh have been large in numbers and containing generally higher unit price than those of exports. Bangladesh imports, among many items, rice, wheat, pulse, baby food, oil seeds and edible oils, crude petroleum, Petroleum, Oil & Lubricants (POL), fertilisers, motor vehicles, machineries, electric and electronic goods, dyes and chemicals, raw cotton and yarns, textile articles and so on. Characteristically, most of these items have been claiming increasingly higher unit price in the global markets due mainly to supply constraints. Prices of essential items like edible oil and oil seeds, petroleum oil, wheat, and rice etc., have also been soaring in recent years. Ever-increasing prices of gasoline and petroleum in the world market have been the cause for increasing costs of many import items resulting in unfavourable terms of trade for Bangladesh. Besides, continuous upgrading of technologies and large-scale investment in the developed countries are helping cost reductions for reaping higher returns. As a result, terms of trade for Bangladesh have been remaining increasingly unfavourable.
Identifying items for improving terms of trade: Bangladesh urgently requires identifying new items for exports and selecting potential items from among traditional and non-traditional exports for stopping the current avalanche of unfavourable trends in terms of trade, improving national income and providing more income to poor labourers engaged in export industries. Exports of jute goods, leather and fertiliser, and medicines etc., among others, have prospects to play more important roles if proper cares are taken. Medium and small shipbuilding and other agricultural and non-agricultural industries, for example, might play mighty roles to improve terms of trades and welfare of poor labourers working for foreign markets. Tariff and taxation on exportable merchandises could be reviewed on regular basis focusing on the prospects to improve the terms of trade.
On the other hand, it is essential to assess the opportunity costs of some items that could be produced as import substitutes. For example, plantations of palm and coconut trees in hilly and coastal areas on a massive scale could save import costs to a notable extent. Growing agricultural crops like corns, maize, vegetable, fruits and citrus fruits, nuts, etc. in sandy areas of the river-sides of Bangladesh has substantial potential. Similarly, indigenous tools and small engineering products might be produced in small and cottage industries as import substitutes.
The writer is former Deputy General Manager of Bangladesh Bank and at present works as a consultant to the Asian Development Bank. He can be reached at Email:[email protected]