Drishtipat Blog

Economic issues don’t always get a hearing on this forum, so wearing the occasional economist’s hat, I will highlight a few positive items from the recent news headlines. In spite of the dreadful political instability that constrains our entrepreneurs, the economy seems to keep growing at a 6% rate, which makes one wonder what our true growth potential would be if we could just get rid of the political and institutional bottlenecks. I reckon we would manage 9-10% just like India and China. Even from a rights perspective, there can be few things more conducive to human dignity than a good day’s work which feeds and clothes the family. Of course, we still need to get the question of redistribution right… it’s a continual work in progress.

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Booming exports

The first item is the excellent news regarding our export sector, which grew at a blistering 31% over the last 12 months. Double-digit growth is pretty good going, but 31% is just amazing. The star performers are Knitwear & Woven, Frozen Foods, and Light Industrial.

Anyone who’s walked over to the “fish” section of a supermarket in east London will be perfectly familiar with the Frozen Foods success story. However, the real surprise is Light Industrial. Apparently, items like motor parts and iron chains – Made in Bangladesh – are gaining a foothold in the foreign markets. Their sales nearly doubled last year.

To me, this seems to be solid good news. It shows that our exporters are ready to move up the value chain. Every country that became rich by selling cheap mass-manufactured goods, beginning with Japan and Korea in the 1950s, started by selling textiles. RMG is traditionally one of the lowest value-added sectors, the first rung on the export ladder for those countries with a large, unskilled population and no export base to speak of.

Climbing up the value ladder

The trick is to graduate to the next rung of the ladder. To quote an ADB paper, “All countries started with a focus on technologically simple, labour-intensive goods – clothing, sports goods, toys, processed foods and so forth. Although the speed of graduation from these has varied, moves into a range of more capital-intensive, technologically sophisticated items have always followed.”

What usually follows therefore are light industrial goods, heavy industrial like autos, also chemicals and pharmaceuticals, electronics and computer equipment, and then on to IT- and knowledge-based exports at the very top rung. (Remarkably, India seems to be making money at both ends of the value chain just now.)

It is heartening that our exporters are gradually moving into light industrial, pharma and other exports. As it is, we have something of an excessive reliance on the RMG sector which leaves us vulnerable to shifting trade winds. For example, certain categories of Chinese RMG products are still banned from the Western markets until 2008; the MFA repeal of 2005 did not cover the full range of products. Diversification and value-addition make good economic sense for our industry, as more investment pours into Bangladesh and workers become more skilled and experienced.

Don’t forget the shoes

Staying on the topic of exports for just a moment longer, our shoemakers are suddenly getting a big boost from the EU. Two weeks ago, the Europeans imposed steep anti-dumping duties on Chinese and Vietnamese footwear firms. Such ‘penalty’ duties are usually imposed when the guilty party is deemed to have flooded the foreign market with goods at cost or even below cost. Obviously, our Asian cousins have been rather naughty in this regard!

The penalty has been imposed for two years. This is a great opportunity for Bangladeshi firms to increase their market share in Europe. Indeed, market-watchers are expecting our sales there to increase by as much as 30%. However, this is also an opportunity for our exporters to upgrade their facilities and to train their staff so that they can reach the same level of competitiveness and productivity as the East Asians. We don’t have to go back to square one in 2008. The Financial Express editorial page urges our domestic banking sector to work together with the footwear industry in terms of extending credit facilities over this period.

So those of you in Europe, if you’re planning to buy shoes between now and summer 2008, please check the label. Buy Bangladeshi!

(To be continued)