In 2008, when the seemingly 'invincible' economies became hostage of the global economic downturn, Bangladesh emerged as a dark horse and rode the storm out admirably. While the superpowers barely managed to bring about any economic growth (with some falling into recession), Bangladesh produced its trademark above-6.0 per cent gross domestic product (GDP) growth rate. This should not raise eyebrows.
The country's economy is barely integrated with global trade. The only major trade it relies on comprises, basically, the ready-made garment (RMG) product, which is relatively inelastic to downturns in global purchasing power. The economy benefits from low labour costs and a growing young population - a large portion of which works as overseas migrants and remits huge amounts of money every year. In fiscal year (FY) 2013 alone, RMG exports and overseas remittance inflow totalled approximately USD 35.5 billion or around 30 per cent of our GDP! If we look back at the past five years, we will find that RMG exports have grown at the Compound Annual Growth Rate (CAGR) of approximately 13 per cent, while remittance has grown at a CAGR of 12 per cent.
It is evident that these twin engines of Bangladesh have played an invaluable role in propelling the country's economy. Naturally, we should ensure that these two economic drivers can keep sustaining long-term growth if Bangladesh is to achieve a middle-income status within 2021.
ARE OUR DUAL DRIVERS SAFE?
In the current fiscal year, the story has been slightly different for our twin engines. While exports have sustained 13 per cent growth in the July-April period of 2014, compared to the same period in the previous year, remittance has experienced an alarming decline. After bringing in USD 14.5 billion in FY `13 with a 12.7 per cent growth rate, Bangladesh was all set to see a USD 15 billion in remittance this year. But with a negative growth of 4.8 per cent in the first 10 months of the fiscal year, that dream is all but shattered. The question comes up as to what went wrong here after around a decade of consecutive year-on-year growth.
The general consensus is two-fold. Firstly, Bangladesh is failing to send more workers to traditional markets abroad. According to Bangladesh Bank, around 450,000 migrants managed overseas jobs in 2013, down by more than 33 per cent from 680,000 in 2012. Secondly, the number of migrant workers returning to Bangladesh has also increased because the government could not resolve the problems related to the legal status of Bangladeshi migrant workers in Saudi Arabia, the United Arab Emirates and Kuwait through diplomatic channels. These three destinations accounted for approximately 54 per cent to 56 per cent of our total remittance inflow over the last two years. It does not take a genius to identify that overdependence on a few countries has brought about this disappointing performance in remittance earning this year. In other words, lack of diversification in our manpower export destinations is the real root of this problem. With diversification turning out to be such a pivotal factor in the growth of one of our core economic propellers, we need to realise if our other growth engine - RMG exports - runs the same 'risk' or not.
According to Bangladesh Bank statistics, the United States, the United Kingdom and France have accounted for around 40 per cent of total RMG exports for much of the last five years. Here again, we have a situation where only four countries account for two-fifth of our RMG exports. Can we say that the lack of diversification which has hurt remittance inflow this year will not do the same to RMG exports in the future? Barely a year ago, before data on the falling manpower exports were available economists, analysts, and virtually everyone, would put all their focus on remittance predicting its rapid rise. That was until a fundamental risk finally began casting its shadow.
In a completely similar manner, such 'shocks' may be seen in the RMG sector as well if proper diversification initiatives are not taken. Policies by major destinations discouraging our exports can cripple our biggest economic driver. A simple example would be the loss of the generalised system of preferences (GSP) facility in the EU. While losing the same status in the United States has not hurt us, one cannot say our exports will remain strong if the same thing is to happen in the EU.
DIVERSIFICATION COULD BE THE KEY TO SUSTAINABLE GROWTH
It has now become imperative for the government, the regulatory authorities and leading export houses to continually work together to find newer export destinations and reduce risks that result from the dependence on a few countries. It is high time we looked to destinations like in South America, several countries in Africa as well as Australia to export our RMG products. While one may argue that building substantial markets in such areas will take considerable amount of time, the initiatives need to be taken at one point of time or another. It is always better to start sooner than later.
Similar initiatives need to be taken in order to revive remittance inflows. Yes, certain initiatives have been taken since the disastrous slide started - the results of which have been evident in the marginally better remittance figures since February in 2014. But to return to the double-digit growth rates of the previous years, a massive collaboration is needed between the government of Bangladesh and potential destinations for manpower export. The effort, of course, is necessary if the USD 14 billion of virtually 'cost-free' supply of income is to be protected.
For Bangladesh to meet its goal of rising to the middle-income status by 2021, the steady growth, arguably, of its strong economic drivers is a must. Any further disruptions will push us back a long way. Thus it is imperative that we do what it takes to make sure the future is bright for our economy.
The writer is investment analyst, LR Global Bangladesh Asset Management. [email protected]
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