6 years ago

Growth beyond RMG

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Sector-wise priorities have been identified in the national policies, especially in the industrial policy, export policy, 7th FYP but sector-specific constraints along with specific strategies have not been pinpointed so that remedies and reforms can be made to address the issues. It is, of course, true that a holistic approach is needed to attract private investment in diversified economic sectors, extend required support in identified priority areas and advocate an improved eco-system.

The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) highlighted in a recent presentation the specific challenges it was facing and remedies thereof. That is important as the sector still contributes 82 per cent of our total exports. According to the report, growth rate was all-time low at 0.2 per cent in 2016-17, which was also the lowest in last 15 years. The sector is now falling behind its target of US$50 billion by 2021 which would really be frustrating.

The country now actually needs RMG-plus growth as the sector has reached a mature stage. The government should take a sincere review of the policy options for this sector.  One of the points raised by the private sector is the overvaluation of the currency while countries, placed similarly as Bangladesh, have cleverly adjusted their own currencies. Chittagong port congestion, equipment deficiencies, inadequate facilities at the Shahjalal International Airport, etc., are some of the major hindrances. On top of all these issues, loss of prices in the major markets, ranging from 3.30-4.9 per cent, aggravated the situation further. Along with these, cost of electricity, gas, wages, accessories, packaging & washing, etc., at domestic level have been increasing making the sector uncompetitive.

It is apparent that the RMG sector is facing constraints both at domestic and external levels. Concerned policy makers would need to have an urgent look at the suggested remedial measures, otherwise the sector may face continuous slump which would be a serious blow to the export sector of the country.

For export diversification, a project has been undertaken by the Ministry of Commerce in collaboration with the World Bank. Some specific sector studies have been completed. These are on leather & leather goods including footwear, light engineering including electronics, machineries and plastics. All these sectors have been contributing immensely and some structured support can help them to move further.

In these three important sectors leather goods along with footwear have come up significantly with more than US$1.0 billion export. The sector has already been declared as the product of the year and a number of initiatives were taken up to bring this sector in the mainstream. The initial report of project studies reveals that there are about two hundred tanneries and three thousand five hundred leather goods manufacturers who generated about 0.85 million jobs of which 53 per cent are women. Volume exported was US$1.0 billion and there are 90 large exporting firms along with 51 large tanneries. It seems that the sector is growing further and moving ahead with export. The sector can stand beside RMG to contribute to export and thus help create more jobs for the country.

A significant amount of leathergoods exports are coming from footwear. There are about 2,500 leather and non-leather footwear manufacturers in the country generating employment of 0.75 million of which 50 per cent are women and total export from these industries is worth about US$562 million.

Similar is the case with light engineering. Bicycles and transformers are exported to Europe and some other countries of the world and some foreign venture enterprises have already been established in the country. There are about forty thousand small and micro producers in this sector and about two thousand five hundred electronics industries with seventy thousand formal jobs and earning US$67 million in exports. Local market is growing and already twenty export firms are engaged in exports with another significant number of potential exporters.

In the plastic sector, about 5,000 plastic goods manufacturers are in place, about six hundred thousand jobs have been created of which 28 per cent are women. At present export from this sector is about $482 million including direct and deemed, local market is growing and about 250 exporting firms engaged in exporting. It is presumed that these sectors can grow further if some hard and soft policy measures are adopted and infrastructural support is extended to this sector.

It is evident from the above that these three sectors combined contribute about US$3.0 billion in exports and generate 2.3 million jobs of which about 50 per cent are for women. Women's contribution to RMG sector is too well known, but further information reveals that women are contributing to other sectors as well and that export can contribute significantly towards more employment generation. Attaining export competitiveness is thus a priority as more than two million youths join the work force every year.

Similar to RMG, these sectors also deserve policy support including bonded warehouse from National Board of Revenue (NBR) and Back to Back LC support from Bangladesh Bank. Sadly, some sectors are being discriminated against others. Similar is the case with cash incentives, availability of export development fund etc. Productivity, product quality and price competitiveness are other concerns. There is lack of skill and limited capacity to use modern technology and extended lead time hampers export competitiveness. New and upcoming challenges concerning environment and social compliance are coming up. Bangladesh is a SME dominated country although most of the SMEs are not aware of it and thus linkage with foreign units has not been possible. Branding of local products has not been possible due to weak integration of local industries with global value chain. Low brand image hampered growth and market access. Because of the product quality of small and micro entrepreneurs they can not qualify as suppliers of components to the large ones, thus backward and forward linkages have not been possible.

Non-RMG growth was strong in FY17, and it thus helped keep overall export earnings growth positive. Non-RMG growth drivers are mainly pharmaceuticals (8.6 per cent), light engineering (35 per cent) and manufactured goods (13.4 per cent). Since RMG exports dominate, exports from non-RMG sectors were unable to achieve significant export growth. Exports from non-RMG sectors exceeded the given target of 7.4 percent, while that in RMG has been well below the target of 8.1 per cent as per information received from concerned agencies.

Export plays an important role and is directly linked with employment generation. That is why, to increase export in terms of value and employment generation, people associated in these sectors have to concentrate on value addition. High value items like pharmaceutical, shipbuilding and diversified jute products should be brought into consideration as they earn more than traditional and low cost products. Since there is sound growth in non-traditional markets, Bangladesh should identify what type of products is in demand globally and concentrate on producing those items.

The writer is the Chief Executive Officer, Business Initiative Leading Development (BUILD).

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