Looking at Graduation from LDC and way forward
Bangladesh has made phenomenal progress in its economic development. It has emerged as a ‘development surprise’ from a fragile socio-economic set up at independence almost 50 years ago. Particularly, over the past three decades,a $35-billion economy of the mid-1990s has grown to a sizeable one of more than $300 billion and the per capita gross national income has registered a more than six-foldrise from just $300 to above $1,900. In the mid-1990s, while more than half of Bangladeshi households lived on less than the nationally determined poverty line income, which is now just about 21 per cent (pre-Covid 19 pandemic).
Furthermore, Bangladesh has achieved remarkable progress in various MDG indicators such as health, demographic and gender equality outcomes than many other countries at similar level of development. Bangladesh will likely to be the 28th largest economy, measured by the gross domestic product in purchasing power parity dollars by 2030. It has elevated to ‘lower-middle-income’ countries from the ‘low-income’ category in 2015 as classified by WB and set for graduation from LDC to status of developing country in 2024.
The above impressive success story has been possible because of a very strong performance of Bangladesh’s export sector as merchandise exports expanded rapidly from less than $2 billion in 1990 to above $40 billion in 2018–19 with an average yearly export growth twice as fast as the world average export growth. It is the RMG replacing the dependence on primary products like jute and tea.
After a success story of few decades, Bangladesh must continue to maintain robust growth of exports as the country’s current export volume remains modest in comparison with most countries of comparable size. Unfortunately, export growth has also slowed down in recent years causing uncertainty to achieve $60 billion export earnings by 2021. It has major challenge to diversify its export from RMG to other items.
Apart from an unprecedented slowdown in world trade and investment due to trade tensions between the United States and China, weak economic activities in Europe and slowing down of China’s economic growth, the domestic factors inhibiting the export supply response and weakened competitiveness relative to comparator countries have also contributed to it. These are reflected in the various research study and national policy documents such as the 7th Five-Year plan etc. The supply-side issues (such as infrastructural bottlenecks) as well as policy factors (such as export incentives) have been identified as areas for improvement for promoting export competitiveness and supply response.
The competitiveness of Bangladesh export will face further challenge due to withdrawal of various trade preferences and incentive availed as LDC from other countries. The process of withdrawal of preferences such as GSP will take place from the year 2023. Bangladesh must now prepare for navigating through the changed circumstances of the post-graduation trade regime.
It is worth noting that international trading arrangements are quite complex and thus assessing implications arising from LDC graduation is quite an involved task. It is in this context that a recent major research publication undertaken by the Bangladesh Enterprise Institute (BEI). BEI asked one of the county’s leading economists Dr Abdur Razzaque to look into the issues and fresh perspectives on the longstanding issues affecting the export sector including challenges faced in export diversification attempts and policy options that can be considered further. One interesting feature of this research has been to examine the micro level or sector-specific issues in providing export potential and market prospect assessment.Dr Razzaque teamed up with a number of other researchers – drawn from various institutions – to combine state-of-the-art number crunching exercises with insightful industry perspectives culminating in a major volume, quite appropriate titled as, Navigating new waters – Unleashing Bangladesh’s export potential for smooth LDC graduation.
The 478-pages volume, comprising 13 chapters, in my view comes as a tremendous resource particularly when Bangladesh will now have to prepare fast if graduation takes place in 2024. In different chapters, the authors identify major issues that now require urgent attention. Rather than making criticisms of what went wrong, the volume has taken a constructive approach charting forward looking options.
The richness of the volume for its intended purpose of contributing to policy discourse, in my view, has partly been possible because of academic background and hands-on professional experience of its lead author. Dr Razzaque is a highly regarded trade economist who taught economics at Dhaka University. He also spent many years with the Commonwealth Secretariat in dealing with trade problems of developing countries and advising governments on trade policy, negotiation, and implementation related issues. One can thus see a good mixture of involved quantitative analysis complemented by practical recommendations developed through stakeholder consultations. The book offers comprehensive assessments of export competitiveness, major changes in export market access provisions after graduation, possible measures that can be undertaken to secure the best possible options for exporters, options for engaging with major trade partners, and export trends and market prospects of several individual sectors and support measures needed to boost the export response from these sectors for ensuring a smooth graduation process.
The first part highlighting some of the longstanding challenges facing the export sector of Bangladesh and focusing on the likely implications of graduation from the perspectives of the private sector. In the second part described Bangladesh’s trade relationships with four major trading partners viz. the European Union, the United States, India, and China etc. These markets have immense potential for Bangladesh. The other chapters identify engagement scopes with these partners in the light of LDC graduation realties. Finally, the part three presents export potentials of six selected sectors and the policy support needed to expand exports from those sectors. The selected sectors are leather, plastic, furniture, pharmaceutical, jute, and services. The reviving of export of diversified jute products and service are not widely analysed yet and this study has given due preferences to these two sectors. The researchers have given due attention to the opinion of different stakeholders, regulators and academia.
The analysis has cautioned that the free trade negotiation need expert knowledge and supported by internal reforms and capacity building in legal regime, infrastructure and trade facilitation. A smooth graduation process will also involve negotiating some selected bilateral and regional free trade arrangements. It should be keep in mind that meaningful free trade agreements will also imply opening up a country’s own domestic market to its trading partners with whom bilateral and/or regional trading arrangements will have to be undertaken. This is where again the role of trade policy will be critical in tackling excessively high trade diversion costs and so-called loss of revenue. Due care should be given to the right level of support to the domestic sectors. It cannot be overemphasized that conducting trade negotiations and securing preferred trading arrangements are very demanding tasks.
Another dimension of the research is that the study is sponsored by the Bangladesh Enterprise Institute, a local think tank with support from a by local bank – the IFIC. In recent times, only the major external donors were sponsors of such studies. The standard practice of donors is to invite the policymakers for foreign tour for gaining knowledge and experience, seminar followed by hefty dinner and expensive vehicles for the advocacy projects etc. BEI cannot afford for such expensive persuasion but it has created an admirable example that this kind of high quality policy work can be undertaken through 100-percent home-grown and locally owned initiatives. As Bangladesh graduates, more of such initiatives will be needed in many different areas. Of course, the BEI now has the responsibility to draw the attention of the policy makers to make the research work impactful.
The book is a must reading to know the challenge and opportunity of economic development of Bangladesh after graduation from the group of LDCs. The policymakers must pay due attention to each of the recommendations that has been so carefully crafted in the volume.
Bangladesh should immediately boost export competitiveness. It can retain its competitiveness despite withdrawal of trade preferences through reducing cost of doing business and ease of doing business. A due attention should be given to trade facilitation by addressing weak and inadequate infrastructural facilities through improving internal transportation other trade logistics and efficient customs and port facilities. The competitiveness is also depend upon efficient procedures for licensing and clearances, accessing serviced land and declared benefits for investors and exporters, property registration, foreign currency transactions and tax payments, contract enforcement, and strengthening institutions for trade and industry.
It will be important to look for competitiveness and retention of market through bilateral and regional free trade agreements. Unfortunately, Bangladesh has a limited negotiation capacities and learning opportunities in dealing with trade negotiation objectives while managing effective trade policy mechanisms. It is time to pay serious attention to the need for developing negotiating and trade policy-making capacities. She has fear of loss of revenue from customs, protection of domestic industries and weakness in bureaucracy such as fear of losing of control over the economic activities.
Navigating new waters- Unleashing Bangladesh’s Export Potential for smooth LDC Graduation, Edited by: Dr Mohammad Abdur Razzaque, Publisher: Bangladesh Enterprise Institute
The writer is Legal Economist