Diversification can meet post-LDC challenges

The government's initiative to speed up export diversification in preparation for post-LDC challenges is a complex task requiring both persistent efforts and innovative approaches. A FE report says the relevant authorities are developing a strategy to maintain the competitiveness of four major export products-excluding ready-made garments (RMG)-after Bangladesh graduates from its Least Developed Country (LDC) status in 2026. These include leather and leather goods, jute goods, agricultural and agro-processed products, and pharmaceuticals. Upon graduation, Bangladesh will no longer be permitted to provide export subsidies under the World Trade Organisation (WTO) regulations. In anticipation of this transition, the government has been gradually phasing out cash incentives to mitigate the impact of subsidy withdrawal. Currently, leather and leather goods sector benefits from a 10 per cent cash incentive, jute products receive 10 per cent, agricultural and agro-processed goods enjoy 10 per cent, and pharmaceutical products receive 6.0 per cent. Last year, the government reduced cash incentives for nearly all sectors, signalling the gradual elimination of these benefits. However, a complete withdrawal of subsidies will significantly impact competitiveness of industries here, necessitating strategic interventions to sustain export growth.

 Export diversification is a package comprising scores of issues from product development, adaptation, quality assurance, market demand analysis, compliance fulfilment, competitive pricing and so on. So, when it comes to diversification of exportable products, it must not be seen as a remedy readily available. It has to be worked on, in a planned manner taking into account all relevant factors as a package. In the past, the Export Promotion Bureau undertook many foreign-aided export diversification projects. However, as many of the projects approached the aforementioned package only partially, the outcome was far from satisfactory.

 The reason why diversification figures so prominently is because of its many tangible benefits. Diversification of export composition protects a country from the risk of an unpredictable declining trend in international prices of exportable commodities that, in turn, leads to unstable export earnings. Export diversification could, therefore, help stabilise export earnings in the long run. Diversification provides the opportunities to extend investment risks over a wider portfolio of the economic sector which eventually increases income. It can also be seen as an input factor that has the effect of increasing the productivity of other factors of production. Furthermore, economic growth and structural change depend upon the type of products that are being traded. Thus export diversification allows an economy to achieve some of its macroeconomic objectives namely sustainable economic growth, satisfactory balance of payment situation, employment, and redistribution of income.

    The four selected sectors are well-chosen given their strong growth potential and market demand. However, two additional sectors, light engineering and plastics, also warrant consideration. These have demonstrated remarkable potential and could further contribute to export diversification efforts. As the government develops its strategic framework, it is crucial to engage all stakeholders, including industry representatives, exporters, and policymakers, in order to build a comprehensive and consensus-driven approach to remain competitive in the post-LDC era.