2nd-generation export challenges have to be met on a daily basis

One significant transformation in our history is Bangladesh evolving into a trade-dependent economy from a debt-dependent one since the '90s. In 1990, our annual foreign trade earnings equaled foreign debt, but today, income from exports and remittances is about eight times the foreign loans received, marking a ratio increase from 1:1 to 8:1. 

Despite the absence of natural resources post-independence and a food crisis with 75 million people, Bangladesh has navigated through numerous challenges. Compared with the post-independence era, foreign trade has played a pivotal role in propelling Bangladesh's progress.

Having effectively addressed the initial challenges in our development journey, we now confront the second generation of challenges. Overcoming these challenges stands as our primary responsibility, yet there are notable shortcomings in our preparedness for this task.

Among the first-generation challenges was the dilemma of identifying exportable goods due to the absence of natural resources. This predicament led to the entry of South Korean entrepreneurs, particularly in the ready-made garment (RMG) industry. During that period, stringent export quotas were established across major markets, including the US.

In response, these South Korean entrepreneurs capitalised on Bangladesh's quota, manufacturing garments locally. But being smart people, we quickly learned the RMG business.

Despite not producing cotton, we demonstrated strategic business acumen by transforming our comparative advantage into a competitive one through the importation of cotton and value addition in the ready-made garment business.

The government's significant contribution to our achievements often goes unnoticed. Ready-made garment entrepreneurs, crucial for our economic growth, benefited from unique advantages. They paid only for labour costs, with deferred payment for imported materials, thanks to the introduction of Master LC (letter of credit). 

Duty-free facilities via bonded warehouses and a 60% import duty exemption on cloth imports facilitated RMG businesses with minimal capital. Although the use of bonded warehouses was debated, it played a significant role in fostering entrepreneurship, particularly in the apparel industry. 

The government's policies, such as incentives for local materials and fabrics, initially at 25% which declined to 4%, were instrumental in the emergence of the export-oriented garment industry.

While emphasising the need for export diversification, it is crucial to recognise our strength in the $700 billion global apparel market. Despite the potential in other sectors with a combined market size of less than $100 billion, our competitive advantage lies in the $700 billion sector. 

Currently holding a 7% share in the global apparel market, compared to China's 31%, still there is much room for growth within and beyond the RMG industry. Addressing the dominance of cotton in our apparel exports and increasing our RMG share from 7% to 15% present substantial opportunities in this lucrative global market.

The anti-FDI (foreign direct investment) sentiment in Bangladesh is contributing to limited export diversity. Encouraging FDI, especially in technology-intensive sectors, is crucial for employment and export growth. 

Foreign investments in the RMG sector in areas outside export processing zones, faced discouragement until recent years. While it is not that there were complete restrictions, various obstacles, including utility declarations, existed.

We also have opportunities in leather, pharmaceuticals, assembling plants and API (active pharmaceutical ingredient) production. Despite plans for an API park in Gazaria (in Munshiganj district near Dhaka) since 2012, challenges persist. The pharmaceutical industry's potential remains untapped. 

Political-economic factors impede initiatives, reflecting in missed opportunities like establishing ETPs (effluent treatment plant) in the API Park in Gazaria and leather industrial area in Savar. Fear of inconveniencing beneficiaries may hinder necessary investments, necessitating a reevaluation of political-economic dynamics.

The trillion-dollar global pharmaceutical industry matches the combined size of the garment industry, textiles, and other sub-sectors. Bangladesh holds immense potential in three markets, each comparable to at least 100 other commodity markets. 

Leveraging these opportunities can enhance employment, increase income, and foster competitiveness in the labour market.

Ensuring decent wages is crucial, aligning with Sustainable Development Goals (SDGs) that emphasises quality employment. The notion that workers cannot meet basic needs in an eight-hour workday contradicts entrepreneurs' interests in a stable workforce.

Competitiveness does not thrive on low labour wages; enhancing wages, creating new job opportunities, and boosting competitiveness are interlinked. Importing labour-displacing technology poses risks, mirroring previous patterns of employment increase and decrease, especially affecting the ready-made garment industry. Gender implications arise as the female workforce in this sector declines from 90% to 62%, necessitating emphasis on women's training, advancement, and managerial roles.

Amid infrastructure development, Bangladesh has a golden opportunity to convert comparative advantage into a competitive one. While only 12% of total export earnings are from South Asia, East Asia, and ASEAN countries, the Asian Century offers strategic possibilities for investment, communication, and trade, focusing on infrastructure.

Implementing an effective one-stop service in Special Economic Zones can be a game-changer, reducing delays in various approvals. Upgraded transport corridors, like the Padma Bridge, can evolve into economic corridors, potentially sustaining maintenance costs through vehicle tolls.

While the issue of foreign debt arises, investment in infrastructure is expected to spur private sector investment, alleviating debt concerns. However, caution is urged to avoid challenges observed in other countries where debt servicing has become a major issue.

With foreign exchange reserves worth below $20 billion, careful management is essential to meet debt obligations and import needs. Despite challenges, existing infrastructure offers significant business growth opportunities, particularly with neighbouring countries like Nepal, Bhutan, and the western and eastern regions of India, emphasising the potential of sub-regional cooperation.

Bangladesh's strategic decision to join the Least Developed Countries (LDCs) group in 1975, influenced by Bangabandhu's vision, proved to be a game-changer. Despite concerns, the move provided duty exemptions and access to technical support, aiding economic benefits and export opportunities. This decision, officially implemented in December 1975, has significantly contributed to Bangladesh's export growth, offsetting a slightly higher production cost with the advantage of duty-free facilities.

Prior to graduating from the LDC status, foreign investments gained from duty-free and quota-free benefits, but challenges will arise after the graduation with compliance issues, meeting requirements for the European Union's GSP plus. Beyond governments of the buying countries, consumers, brands, and buyers impose varying conditions, including carbon emission considerations for exports to the EU.

Dealing with anti-dumping and countervailing duties exposes inadequate accounting practices in various sectors. Emerging challenges include addressing carbon emissions, ensuring fair wages, and meeting environmental standards. Engaging with the WTO is crucial for leveraging existing facilities as LDCs, exploring extended benefits after graduation, with discussions likely at the 13th Ministerial meeting in Abu Dhabi.

Navigating intricate trade rules as a developing country involves considerations of subsidies, credit, and compliance standards. The trading system is increasingly perceived as a political extension, evident in developed countries adopting protectionist measures during crises, such as restricting vaccine exports and ingredients amid the Covid pandemic.

Various countries are issuing warnings on labour and trade union rights, which cannot be overlooked. Ignoring them may lead to significant issues, especially in terms of reverse exports. To address these concerns, it is essential to proactively handle them rather than dismissing them as insignificant.

While some may argue that these issues are not substantial problems, it is crucial to recognize that they constitute challenges requiring thoughtful consideration. For instance, trade union rights are an ongoing process, involving decisions on overtime benefits and maternity leave.

Maintaining engagement with these matters is a prudent approach. Merely asserting that there are no problems is insufficient, as unforeseen sanctions could have severe consequences for the country's economy. The example of the US-China trade dispute, where substantial tax duties were imposed on Chinese imports, serves as a cautionary tale.

It is advisable to accept and address these issues systematically, demonstrating progress step by step. Instead of treating them solely as market access concerns, the focus should be on safeguarding the rights of workers. 

The economy has come to such a place that the challenges of the day have to be met on a daily basis. We have no chance of procrastination. Some reforms have to be taken which are very painful.

Large sums are being syphoned from our banking sector. Applying existing bankruptcy laws could bring many offenders to justice. While visible sick industrialists are addressed, there is a need to uncover and deal with those who exploit the system. Zero tolerance is crucial, even though the government struggles to collect revenue from these illicit activities, depriving our reserves.

The macro economy faces pressure evident in inflation, reduced reserves, and import capacity. Overcoming these challenges requires the implementation of a reform program. The imperative is to pursue reforms for our benefit, not just in response to IMF advice. 

Political leadership is crucial to address second-generation challenges, requiring collective initiative and acceptance of the necessary reforms, even if they involve some immediate discomfort.

Illustration: TBS

Professor Mustafizur Rahman is a Distinguished Fellow at the Centre for Policy Dialogue (CPD). The write-up is based on a conversation with TBS Senior Staff Correspondent Jahidul Islam.