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Export diversification, as an economic strategy, has not yet been successful enough. Policy-level discrimination is often cited as a major cause for this. Exporters believe that supporting policies are more oriented towards textiles and ready-made garments (RMG). Recently, the government has announced a policy for VAT exemption and support services for RMG. Understandably, these will give a great relief to RMG exporters but similar facilities for other sectors are not available. In addition, while we compare tax benefits, including corporate tax, export incentives for new markets, VAT exemption for utilities, bond maintenance, export development funding, import of fire safety equipment etc., RMG has been benefiting from better facilities compared to other sectors.
It is becoming increasingly clear that bicycle industry is slowly expanding its export market. It is contributing about 12 per cent to the country's total engineering exports and 0.24 per cent to total export. The local market has also expanded substantially in recent years and grows at a 30-40 per cent year on. Only two local industries are engaged in export of bicycles. However, there are a number of assemblers and manufacturers of parts and spares.
Bangladesh exports bicycles mostly to the European Union (EU) market especially UK, Germany, Netherlands, Italy, Greece, Ireland, Belgium, Denmark, Australia, Portugal, Russia, and India.
Imposition of antidumping on China at 30.8 per cent in 1993 (presently 48.5 per cent) by the European Bicycle Manufacturing Association created an opportunity for Bangladesh to enter the EU market. The country is now the 3rd largest non-EU exporter of bicycles to the EU, and the 8th largest globally. Taiwan ranked first and Cambodia ranked second having 24 and18 per cent market share in the EU market while the Philippines is in the fourth position with 10 per cent share.
According to the Persistence Market Research (PMR), the global market for bicycles is anticipated to expand by 37.5 per cent during the period 2016 and 2024 and global market size is expected to reach $62bn by 2024.
Non-EU countries like USA import US$ 1.5 billion worth of bicycles annually. Bangladesh can take the opportunity to increase its share which was about 0.10 per cent in FY 2015-16. Presently, a couple of extensive production lines sent bikes as Original Equipment Manufacturer (OEM) for conspicuous European brands. Meghna Group, Pran RFL Group and Alita Bangladesh (Malaysian based) contribute in export mostly. Meghna Group, the largest bicycle manufacturer, started to export since 1999 and Pran-RFL Group is a new entrant with a manufacturing capacity of about five hundred thousand pieces of bicycles annually with plans for expansion. Currently, these companies export low-medium range bicycle. Bangladesh needs to go gradually for the high value-added bicycle to increase its share in the global market.
Bicycle manufacturing firms produce different types of bicycles such as Mountain Terrain Bicycles, City Bikes, Free Style, Trekking, Folding, Beach Cruisers, Road Bikes, Chopper, Tandem, etc. However, about 40 to 50 companies are engaged in assembling bicycles for meeting local demand.
It is to be noted here that parts and components that form the middle part of the bicycle manufacturing supply chain are not produced in the country. The lack of a local base of suppliers of quality parts and components has significant implications in producing and exporting to high-end bicycle markets.
Two supply chains are maintained in the bicycle sector. These are -- export-oriented original equipment manufacturers and the local small-scale bicycle and bicycle parts manufacturing industries. An established supply chain for both exporters and spare manufacturers could have benefited the industry.
Required inputs of this manufacturing sector are steel and alloy steel, aluminum, titanium, carbon fibres, paint etc. Other components are -- wheels, derailleurs, breaks, and chains usually made of stainless steel. Raw materials of many of the bicycle components are mostly imported which is around 60 per cent of export value. Local suppliers also depend on imported components. Integration of both the supply chains could contribute to expand export.
It is also to be noted that around 60 per cent demand of the local market is met by imported finished bicycle, especially from China. According to local producers, comparatively low-cost imported finished bicycle has huge demand. Local manufacturers of parts and spares say that they face uneven competition from imported products.
While conducting a study, Business Initiative Leading Development (BUILD) identified some specific issues. Value addition (VA) regarding substantial work transformation is one of the serious concerns of the sector. An EU team that visited Bangladesh also found some anomalies in value addition. If the industry fails to ensure required value addition through substantial transformation, this industry may not be able to benefit from the GSP-plus situation after the graduation effective in 2024.
Cash incentive was one of the policy incentives provided by the government in the past. Although bicycle sector is the single largest export earner of the light engineering sector, cash incentive is not available for complete bicycle or bicycle parts & spares. As per Export Promotion Bureau, in order to qualify for getting cash incentive, some criteria such as -- use of raw materials, labour intensiveness, capacity of expansion, market size and cost competitiveness (cost analysis) are considered.
During the study it was found that argon gas used for welding, which was imported fully in the past, is now produced locally by a single company. It is also found that the approval process of getting prior permission and licence for import of argon gas is a bit stringent. It takes more than sevendays for getting prior permission for opening an L/C, and another 15 to 30 days for issuing a licence by the explosives department.
BUILD also identified some duty anomalies while conducting the study. According to the SRO No.142-Act/2017/28/Customs, the tariff value of all bicycle and bicycle parts under the H. S Code 87.12-87.15 are US$ 1.5 per KG if these are of China/India origin. Other than China/India origin, tariff value of all bicycle and bicycle parts under the H.S Code 87.12-87.15 is US$ 2.75 per KG, which should be the same for all origin as Bangladesh is one of the signatories of World Trade Organisation (WTO) agreement. There are also some issues regarding the import of bicycle parts made of aluminum and steel under same H.S. Code and Frames & forks (87149100) & Handle Bar, Seat post, Mudguard, Chain cover (8714.99.00) that need to be addressed for reducing hassles of the stakeholders. Duties of these components need to be different under separate HS code.
As Bangladesh has high potential in bicycle export, a composite policy support to the bicycle industry is essential in order to establish a stable position in the global market.
Ferdaus Ara Begum is CEO of Business Initiative Leading Development (BUILD), a joint collaboration of DCCI, MCCI and CCCI.