Export diversification prospects
Syed Mansur Hashim
Encouraging it is to note that Bangladesh is showing some signs of diversification of its export basket that has long been dominated by readymade garments (RMG) and apparels. According to the latest data published by the Export Promotion Bureau covering July to September, 2011 period, the non-RMG sector grew by an approximate 26.1 per cent. The two principal items that drew attention was the massive jump of exports of raw jute by some 53.8 per cent, followed by leather exports growing on an average of 42.2 per cent.
With no end to the economic slowdown in the developed world in sight, it is hardly surprising to note a decline in RMG exports. Given the current global economic gloom slated to sustain over the foreseeable future that will inevitably lead to reduced consumer spending, Bangladesh can hardly afford to remain overly dependent on the sector to bring in the lion’s share of export earnings
Export diversification, thus, has become a matter of policy initiative and there are sectors that show a lot of promise. Jute, the ‘golden fibre’ has long been exported, but primarily in its raw form. Jute products have not been developed sufficiently to take on more established players in the global market, such as India, due to lack of a number of factors. Lack of design facilities, skilled manpower, and dearth in marketing skills has long held back this sector. While Bangladesh has concentrated primarily on producing carpets and handicrafts, there exists nonetheless a high demand for ‘value added’ jute products. Such as geo-textiles for land erosion control, jute-reinforced plastics, jute laminates, pulp and paper, and decorative fabrics.
However, for any non-traditional export sector to bear fruition, effective government policies and promotional efforts are a must. Only State patronage can help create a necessary skilled workforce to make a transformation of the jute industry from a supplier of raw jute to value-added products. Significant investments need to be made in research and development should Bangladesh wish to move out of jute bags and into the more versatile applications of the natural fibre, which include jute geo-textiles and composites.
The other sector that has been making headlines over the last couple of years is the emergence of a private domestic shipbuilding industry that has successfully penetrated the export market in Europe. With exports worth over US$100 million since 2007 by the private shipbuilders, Bangladesh could potentially become a low-cost alternative to the big names in Asia that include such heavyweights as Hyundai of South Korea and Chinese builders. According to the Export Promotion Bureau, the country’s private shipyards have confirmed order for foreign vessels up to 2013 worth US$478 million. Against this backdrop, the country is well-positioned to take a significant chunk out of the projected replacement of some half of the world’s maritime vessels that will require replacement over the next five years due to aging problems. With smaller vessels constituting 55 per cent of the projected 10,000 new vessels that will be required, the country is in a unique position to take advantage of this prospective market.
Yet significant problems hamper this nascent industry from reaching its full potential. The problems concerning putting in place a supply line of sufficient pool of skilled workforce trained along international standards will become obvious as orders start pouring in the coming years.
Ensuring access to affordable raw materials will entail the setting up of an import-friendly regime coupled with storage facilities and transportation networks. The government must make available significant funds to upgrade the infrastructure and financial incentives the industry will need. Existing problems of bank financing, where at present companies have to pay anywhere between 6.0 – 7.0 per cent interest rates, will have to be redressed while poor inland water transport facility serves as another impediment.
The future prospects of this emerging industry are not lost on the administration. Some steps have already been taken to facilitate its growth. Withdrawal of duties payable on import of raw materials and components is a step in the right direction. Allowing the sector the privileges enjoyed by export processing zones would also prove immensely helpful. A recent study by the Danish government came up with some interesting facts. Danish companies have shown interest in setting up joint ventures to help develop deck equipment, windows, generators, hydraulic systems and marine electrical equipment. In addition, Danish naval architect firms are also toying with the idea of helping Bangladeshi shipyards setup their own design houses which could translate into shaving off as much as 10 per cent of production costs. Similarly German interests expressed willingness to setting up production facilities for heavy engine and generator facilities. These are all welcome news, provided it is met with a favourable response from the government in its outlook towards making shipbuilding a thrust-sector.
With a dual push in jute and shipbuilding, Bangladesh could significantly lessen its overall dependence on the RMG sector and help boost exports over the next decade. Both sectors promise hope of creating hundreds of thousands of new jobs. Given right policy guidelines, the shipbuilding industry and to a lesser extent jute in all its diversified forms could help pave a more secure future for Bangladesh.