To boost export growth and help the economy rebound from the Covid-19 pandemic impacts, improving the manufacturing sector's productivity will be crucial for Bangladesh, says a new World Bank report launched on Thursday.
Productivity improvement through adoption of technology is also going to be crucial for Bangladesh's post-LDC life as the manufacturing sector here would face more pressure for competitiveness, experts added at a webinar to publish a report titled "Gearing up for the Future of Manufacturing in Bangladesh".
The report suggests that by strengthening innovation and technology adoption in firms, the manufacturing sector can improve productivity.
For this, the report has identified three pillars – capabilities of managers and workers, connectivity to international markets, and complementary markets and institutions. Adopting new technologies and business practices will also help firms recover faster from the pandemic-led crisis.
"Bangladesh's success in the readymade garment (RMG) export has created about four million jobs and driven economic growth. But, in recent years, job creation in the sector has slowed due to automation, and the trend will likely accelerate in the post-pandemic world," said Mercy Tembon, World Bank country director for Bangladesh and Bhutan.
"This creates the urgent need for Bangladeshi manufacturers to shift gears from competing on low labor-intensive productivity to competing on higher productivity. For this to happen, firms will need to adopt better technologies across business functions and production processes."
The report finds that in Bangladesh, most firms still use basic or near-basic technologies. For example, more than 40% of firms still use handwritten documents for business administration, while three-fourth of them practise manual quality inspections.
Managerial and technical capabilities are crucial for a turnaround. About half of the manufacturing firms are run by people without college degrees. Compared to these firms, those with college-educated managers have a 10% higher level of technology. Hence, building human capital remains an important agenda, as well as enabling firms to access advisory services in cost-effective ways.
International connectivity also contributes to the spread of technology. Firms doing business with multinational companies use more advanced technology than those working only in the local market. Export diversification beyond the RMG sector will be crucial.
Reducing restrictions on international trade and foreign direct investment, making the duty-free import of raw materials more accessible to firms outside the RMG sector and modernising special economic zones will help diversify export-led growth.
Strong financial institutions and regulatory frameworks underpin the importance of complementary markets for technology adoption. About half of the surveyed small and medium enterprises identified a lack of financing as the main barrier to adopting technology.
To help firms borrow for their technology needs easily, a stronger financial sector will be needed. Continuing with regulatory reforms to reduce the cost of doing business too remains vital.
"Creating more and better jobs is a development priority for Bangladesh. An export-led manufacturing sector can create sustainable and better-paying jobs by adopting better technologies," said
Siddharth Sharma, World Bank senior economist and a co-author of the report. As Bangladesh seeks to diversify its export base, move up the value chain, and create better-paying jobs, improving the productivity of firms remains central to preparing for the future of manufacturing."
Commerce Minister Tipu Munshi spoke as the chief guest at the webinar, while Commerce Secretary Tapan Kanti Ghosh chaired the session moderated by the World Bank's Regional Director for Equitable Growth, Finance and Institutions Zoubida Kherous Allaoua.
Mustafizur Rahman, distinguished fellow of Centre for Policy Dialogue, Mushfiq Mobarak, economics professor at Yale University, Dr Nazneen Ahmed, senior research fellow at the Bangladesh Institute of Development Studies, Faruque Hassan, president of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA), Saiful Islam, president of Leather Goods and
Footwear Manufacturers and Exporters Association of Bangladesh, SM Shafiuzzaman, secretary general at Bangladesh Association of Pharmaceutical Industries, participated in the panel discussion that stressed the need for technological upgradation in the country's manufacturing.
Prominent World Bank economists also commented on the event, mentioning the urgency to respond to the call to take manufacturing to the next level.