‘Bangladesh neither has nor is pursuing an export-led growth paradigm’

On 28 February 2022, the cabinet approved the draft of "Export Policy 2021-2024" with a target of $80 billion in exports for FY2024. Bangladesh recorded its highest ever single-month export earnings amounting to $4.91 billion in December last year, thanks to a strong rebound in demand for apparel in western markets even despite the Omicron outbreak.

The export receipts surpassed the $3.91 billion target set for the month, registering more than 48% year-on-year growth, according to the provisional data of the Export Promotion Bureau (EPB).

The government is now looking to create a circular economy by developing backwards and forward linkages with incentives and policy support as well as encouraging domestic and foreign investments in deemed exports. The Business Standard caught up with policy expert Dr MA Razzaque, Research Director of Policy Research Institute Bangladesh (PRI) to delve into his views on the policy and whether we can achieve the targeted goals.

The government recently published a gazette on the export policy for fiscal years 2021-24. What are your thoughts on the policy?

I do think that the challenges facing the export sector are well-identified. However, the support measures listed in the document to boost export supply response remain very broad. The time-bound action plan where various ministries and agencies' involvement is mentioned does not indicate well-defined indicators to measure progress. 

To develop this kind of national policy document, SMART (Specific, Measurable, Attainable, Relevant and Time-Bound) principles should have been followed. In its absence, it will be difficult to assess what this policy will achieve over the next three years. 

The Planning Commission undertakes regular reviews of the plan documents. The Ministry of Commerce should also consider commissioning an independent review of the export policy towards the end of its lifetime to analyse and see which areas of policy making can be improved.

The aim is to almost double Bangladesh's export earnings to $80 billion from $45 billion within the 2021-24 period. Is that goal realistic?

Following Covid-19 disruptions, this year we are experiencing a massive bounce back in export earnings. At the end of this fiscal year, our exports (merchandise and services together) will reach anywhere between $48 billion and $56 billion. Even after that, exports should have clocked at 20% yearly growth rate over the next two years to hit the target of $80 billion. 

It is unlikely that this strong trend in exports can be maintained. However, there are opportunities. China's share of global clothing exports is expected to fall significantly and given the political instability in Myanmar, it is almost certain that Bangladesh will be seen as a reliable and resilient supply source. 

There is competition as well. Vietnam has been a star performer for a long time but India is also doing extremely well having registered a growth rate of 37% in the last year. The inflationary pressure in the Western developed countries has helped developing country exporters receive improved prices. If the price level in those markets starts stabilising around their usual level, export prices will be under pressure again.

Can this policy cope with the upcoming challenges that will emerge after the country graduates from the Least Developed Country (LDC) category?

This policy is for 2021-24 while Bangladesh's LDC graduation will take place towards the end of 2026. If the current policies get implemented well, it will help prepare for the transition. It would have been a good idea to prepare a five-yearly export policy with specific and measurable targets to aid the country's LDC graduation preparation.

In the new export policy, the government has targeted diversifying the export basket, how difficult of a task will that be?

If diversification is to be measured as a share of non-garment items in total exports, it will be extremely difficult to achieve any significant progress. This is because, in readymade garments, Bangladesh has a genuine potential to expand its exports by another $50 billion or $100 billion within a short period. 

Growing at this pace for other sectors is challenging as they are not well-integrated into the global value chain. At this stage, Bangladesh should aim to build its non-garment export supply response and try to attract multinational enterprises to establish themselves within the global value chain network.

The industrial policy is designed to protect infant industries but it has been criticised for being too protectionist. Therefore, can it negate the ambitions of the export policy?

Indeed, it is a dilemma in our policy choices. Various policy documents, including the 8th Five Year Plan and the Export Policy 2021-24, refer to export-led growth, but in the past several years the share of exports in GDP has fallen. Bangladesh's overall trade policy regime has become more protectionist. 

Of course, there is a need to support the domestic industry but the extent and length of the high support measure, which causes disincentive for the entrepreneurs who want to invest in the export production need serious scrutiny. The domestic market is already attractive as our per capita income is rising. 

Furthermore, product quality and standards, environmental regulations, etc., are not effectively enforced in the domestic economy, while the exporters are subject to robust international standards on those accounts. In addition, high tariffs imposed on imports make the incentive structure even more heavily skewed in favour of domestic market-oriented production. 

In fact, Bangladesh neither has nor is pursuing an export-led growth paradigm. But we need to acknowledge that the current tariff and industrial policies are adversely impacting export competitiveness and there is room for a more balanced approach to promoting domestic industrialisation and export growth.