Feasibility of export earnings target

Distinguished Professor Nurul Islam who headed Bangladesh Planning Commission as Deputy Chairman at the infancy of the statehood furnished information on merchandise exports during the period 1972/73 to 1975/76 in his book ‘Development Planning in Bangladesh, A study in political Economy’ [1977]. The export basket was then confined only to a few commodities; raw jute, Jute goods and tea with average foreign exchange earnings [including invisibilities] was only USD 380 million.

The export earnings of over USD 5 billion in 1999/00; after fourteen years indicated substantial increase in constant prices. This phenomenal increase was due to the structural changes in the composition of exports with several manufacturing products in the basket besides the primary commodities.

With a secular declining trend in jute goods, the export earnings from leather, woven and knit- RMG and chemical products presents potentiality of growth in export earnings. Export earnings subsequently exceeded USD 16 billion in 2009/10 and crossed USD 40 billion mark in 2018/19 though with heavy reliance on woven and knit- RMG. The country fetched over $45 billion in 1920/21 compared to USD 34 billion in 2019/20, a growth of 32 percent. The pertaining issue is on the viability of the target of USD 51 billion [USD 43.5 billion from goods and USD 7.5 billion from services] in 2021/22 with appropriate strategies and imperatives for attainment of the target.

One of the protruding weaknesses and uncertainties inherent in the export earnings rests on clinging to a narrow export basket primarily on readymade garments. However, product diversification in leather products, ceramics, cement, ships, and light engineering products compatible with the comparative advantage may help in substantial export earnings augmentation. Export diversification helps in two ways; mitigate the volatility of export earnings with several export destination points and new potential export items helps development of skilled manpower in the long run accelerating growth process. The composition of the export basket over the past two decades measured through the Herfindahl-Hirschmann index is static and is about four times that of allied export-oriented economies such as Vietnam, Thailand and China.

One of the burgeoning avenues in export diversification is the light –engineering sector [LES] that witnessed 80 percent growth in shipments to overseas market in the last fiscal year. With global market worth of hefty USD 7 trillion, Bangladesh exported only USD 529 million worth of engineering products in FY 2020/21 from USD 292 in the FY 2019/20. LES possess immense potentialities in import substitution since 70 percent of the local demand is met by import. The sector may also be a vehicle in employment generation to the extent of 2 million. Bangladesh mainly exports bicycle, electrical equipment, construction-related equipment and machinery, spare parts for paper and cement mills, bicycle light fittings, cast-iron articles, carbon rods and automobile spares, train-and-rail-support equipment and marine spare parts. Various electrical products such as sockets, cables and electrical fans are manufactured in the light-engineering sector with domestic suppliers accounting for 48 to 52 per cent of the country's demand, which previously used to be met with imports.

The country now has 50,000 micro-enterprises and 10,000 Small and Medium Enterprises (SMEs) with employment closed to 1 million. Prime Minister Sheikh Hasina designated light engineering as the "product of the year" in an attempt to bring special attention with strategies to set up LES industrial parks in Dhaka, Narayanganj, Jashore, Bogura and Narsingdi to meet the domestic demand to its full potential. However, LES is currently saddled with problems of international-standard certification, infrastructure and branding that could be overcome with international cooperation and developing skilled manpower.

Another sector with potentialities in export earnings is agricultural products that includes vegetables, fruits, fish, and shrimp and prawns yet the shipment is often delayed owing to lack of international certification related to sanitary and phytosanitary measures. The government may facilitate exports through policy support in processing and packaging, appropriate infrastructure at airports and cargo facilities. Bangladesh export worth of USD 1 billion is considered to be paltry in comparison to the total global markets of about USD $ 10 trillion and the pie can be increased through the Global Value Chain [ GVC], now an important part of food and agricultural trade. “GVC unbundle the production process into stages in different countries to achieve efficiency gains.”

The considerable reliance on ready-made garments may be circumvented by at least 15 percent by product development in plastic and plastic products, pharmaceutical products, jute goods and leather manufactures; the share of each of them may be augmented by over 3 percent of the total export earnings given appropriate policy support. Again, relatively low wage in Bangladesh augurs a conducive environment for diversification in many potential products through duty –free import of essential inputs and financial incentives aligned to current leverages enjoyed in the ready-made garments. The long-term strategies should be “adherence to various technical and process quality standards, testing and accreditation mechanisms, and most importantly social and environmental standards”.

With higher export earnings; the country can finance an increasing share of imports reducing the current account deficit. The exchange rate plays a vital role; as relative appreciation vis- a- vis the competitor’s currency downgrades the export market. Bangladesh mission in abroad may play a catalytic role in expansion of export earnings as diplomacy and business move in tandem in this highly dynamic political and economic environment. Moreover, simplified export procedures facilitate in timely shipment and help in confidence building in the long run. Again there are issues that needs immediate attention such as the current unusual surge in yarn prices that may wreck the competitiveness of Bangladesh‘s ready-made garments. The recent data from World Trade organization confirms that ready-made garments export from Vietnam have narrowly overtaken Bangladesh.

A candid review during the past twenty years in export earnings demonstrates occasional declines in export earnings mainly owing to certain internal and external environment embedded in a few structural and systemic problems. An address to those problems may pave the way for attainment of the target given the derailment due to Covid-19 would be minimal.

The writer is the Treasurer and a Professor, School of Business and Economics, United International University.