Bangladesh
5 years ago

Tracking subsidy trail-ii

Export performance of many sectors falls short of expectations

Photo courtesy: ADB
Photo courtesy: ADB

Published :

Updated :

Exports from many sectors in the economy either took slow lane of growth or swung between their highs and lows despite subsidies doled out over the years.

The sectors putting on this lacklustre show include jute and jute goods, plastic products, agro-products including potato, meat, animal bones and horn-cores, and some frozen foods.

In the meantime, people familiar with the subsidy regime, were found dubious about the impact of cash incentives on the export-oriented RMG industry.

And many of them argued that the RMG will not require right at this moment such cash subsidy rather they need regulatory supports.

The time series data of a number of exportable products suggest that there were volatility in export receipts over the years although the main objective of the incentives has been to raise the same.

The proceeds from export of jute and jute goods, once the country's mainstay of foreign exchange earnings, had fluctuated highly during the fiscal years from 2012 to 2018, according to Export Promotion Bureau (EPB), the country's export promotion organisation.

The jute and jute goods fetched on an average $928 million a year in the last seven years ending fiscal year 2018.

During the period, the export receipts exceeded the $1.0 billion mark twice before climbing down to $824 million in the last fiscal year.

People familiar with the matters at the Ministry of Finance (MoF) told the FE that the government had doled out Tk 13.76 billion in subsidy to the jute sector in the last three years to 2017-18.

Yet there had been no significant growth in export receipts from the sector, they said.

"The export earnings from the jute sector swung highly both upwards and downwards over the years, although our objective is to boost the shipments," said an official at the MoF referring to jute goods.

The jute and jute goods get around 11 per cent of the total cash subsidy each year.

Export earnings from frozen fish and live animals swung both ways heavily during the last seven years beginning fiscal year 2012.

It had been on the slide since the fiscal year 2015. The export receipts were so volatile that it even reached as low as $508 million in the last fiscal year.

The export of agro-products also witnessed almost a similar trend. Its shipments grew fast in three years since the fiscal year 2012.

But in the next three years since the fiscal year 2015, the export curve headed downward. However, it rebounded in the fiscal year 2018 to $673 million.

Potato is the most subsidised product. It gets the highest 20 per cent of the subsidy. Still its export fell by more than 13 per cent in the last fiscal year to US$ 11.3 million.

Similarly, animal bone and horn-core export also fell by more than 73 per cent in the fiscal year 2017-18.

Many experts have underlined the urgency of reforming or rationalising the cash incentive regime, as the sectors have continued to put on a poor show on the export front.

However, the Ministry of Commerce (MoC), an ardent advocate of incentives for these sectors, said they never did the cost-benefit analysis.

This FE correspondent found no study either in public or private sector on the performance vis-à-vis the amounts of subsidy given to various sectors.

Tapan Kanti Ghosh, an additional secretary at the MoC, told the FE: "If any product sees the higher value addition, we consider it for cash incentives."

"Yes, we come under tremendous pressure to include products for incentive packages," Mr Ghosh, who is very familiar with the matters, told the FE at his Secretariat office recently.

On the other hand, exporters also cited a number of reasons for the poor export performance.

Shamsuddin Khan, chairman at the country's one of the oldest fish exporting companies -- AK Khan & Co -- told the FE: "We need policy supports to expand our business which remained largely neglected for long."

"We need a support on how to bring more sophisticated vessels to net the seafish at the Bay," Mr Khan said.

There is some sort of restrictions to bring new vessels.

Another exporter Mr Enamul Haque Patwary, president of Bangladesh Jute Goods Exporters Association, told the FE: "The demand for jute and jute goods has declined across the globe due to volatility in foreign exchange rates in the export destination countries."

"We're also facing a challenge from the US-China trade tensions," he said with a tinge of annoyance in his voice.

Mr Patwary said both China and India emerged as Bangladesh's rivals and India imposed extra duty or took anti-dumping measures in a bid to "discourage our exports."

Iran, Iraq, Egypt and Turkey were once the main markets. They cut back on their imports following the recent political movement known as Arab Spring and the weakening of their economies on the back of fall in oil prices.

Incense, locally known as agar, and attar were comparatively new products added to the export basket. The Muslim countries are their main export destinations. But their export growth fell in the recent years.

Ansarul Hoque, president of Bangladesh Agar and Attar Association, a platform of around 200 exporters based in greater Sylhet, said their exports had been growing well. But recently the instability in many Muslim countries squeezed their exports hard.

The vegetable export also came up with poor showing.

The vegetable exporters targeted the Bangladeshi expatriates living abroad. But the export volume remained almost poor, partly due to restrictions on the products in the highly-regulated European markets because of a lack of good agriculture practices.

Jamal Uddin Sikdar, who heads a group of exporters under the banner of Betel Leaf Exporters Association, said there had been restrictions on their products in many countries, including the European Union, for long.

Experts, however, have raised their eyebrows over the way the cash subsidy is being paid. Some suggest greater transparency in spending the public money.

Dr Zaidi Sattar, chairman of Policy Research Institute of Bangladesh (PRI), said there was a problem with the incentive system.

"Consumers are paying subsidies on import substitute production for domestic sales. Non-RMG exports are not growing as rapidly as RMG, because they suffer from an anti-export bias of the trade policy regime," he said.

Domestic sales were far more profitable than exports due to the high protection, he observed.

Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank, told the FE that there should be transparency in such spending of the taxpayers' money, especially in the way they disburse it.

"Transparency promotes accountability and accountability is the key to making sure that policies, as implemented on the ground, are consistent with what they were intended to achieve," he said.

"Instituting a credible mechanism for monitoring at regular intervals will greatly enhance transparency of the policy regime on the ground and help the policymakers learn what has worked out, what has not and hence what reforms are needed," Dr Hussain went on.

Dr Nazneen Ahmed, a senior research fellow at the Bangladesh Institute of Development Studies (BIDS), a public sector think-tank, said that the new and promising sectors should be given priority instead of RMGs.

She said: "Textiles belonging to the SME (small and medium enterprise) category get around 3.0 per cent of the total export incentives, they should have been given a chance to grow by increasing the volume of cash incentives [for them]," said Ms Ahmed, an economist and expert on the country's clothing sector.

She questioned: "Do the big RMG and textile plants need now cash supports?"

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