5 years ago

No-deal Brexit, Europe's EBA & Bangladesh: Hitting home, fighting back

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Bangladesh stands to become the worst-hit less developed countries (LDCs) in a "no-deal" March 29 Brexit outcome. That calculation, made by the Centre for Global Development (CGD), is built upon the European Union's "everything-but-arms" (EBA) trading scheme evaporating for Britain: unless Britain recreates its own LDC trade agreements, with LDC concessions, LDC losses would be staggering. Yet building them involves lengthy negotiations.

Up to 49 LDC exporters to the European Union (EU) receive duty-free and quota-free privileges for almost every product shipped. Since almost two-thirds of Bangladesh's RMG (ready-made garments) exports go to Europe, without Great Britain's (GB's) EBA benefits, Bangladesh stands to lose $4.0 billion, according to the CGD forecast. For a country borrowing heavily and relying increasingly on exports and remittances to pay for its ambitious (but critically needed) infrastructural megaprojects, that matters. With a Brexit deal, Bangladesh would remain largely unaffected.

RMG exporters closely follow Prime Minister Theresa May's European negotiations. Yet, with less than six weeks before any Brexit "doomsday," May and Britons have far more to worry about than Bangladesh or the LDC bloc. The British Sterling keeps sliding, for instance, already losing 15 per cent of its value since the 2016 EU referendum; inflation keeps exceeding the 2.0 per cent Bank of England limit (reaching 2.4 per cent currently, for instance); and with East European immigrants suddenly thrown to the winds, upward unemployment figures dot the end of 2018.

Britain's business climate is also deteriorating: investments falling, property prices weakening, and retail sales plunging. From being the G7 growth-rate leader on the eve of the referendum, Britain is now at the bottom, tottering at about 1.0 per cent last year from a roughly 3.0 per cent previously. Of course, the ripple-effects of corporations leaving Britain for the European continent impose even more of a perilous picture than can be estimated currently.

Brexit negotiations have also overshadowed such global developments that typically elicit stern EU action, such as penalties or sanctions, for unacceptable (mostly political) behaviour. Cambodia's July 2018 election under the Hun Sen dictatorship is a case, as too Bangladesh's deadlocked labour reform against the Rana Plaza and Tazreen tragedies. Yet Cambodia may be fated to a far deeper malaise than Bangladesh, if the recent election warning is heeded. As the largest EBA beneficiary after Bangladesh, Cambodia's losses under a "no-deal" outcome include not just the $2.0 billion loss in exports to Great Britain, but also a sharp dip in its gross domestic product (GDP), to the tune of at least 1.0 per cent.

Bangladesh's less worrisome stakes still demand more than routine attention. As the 54th largest exporting country in 2017, about 90 per cent of its $40-odd billion of export earnings stem from RMG products, with a mere 2.4 per cent for footwear, 1.8 per cent for paper and paper-related products, 1.6 per cent for fish, and 1.1 per cent for hides/leather. Germany takes 16 per cent, Great Britain 9.1 per cent, France and Spain 7.0 per cent each, the Netherlands 3.6 per cent, Poland 3.3 per cent, Russia 2.3 per cent, Austria 2.0 per cent, Denmark 1.8 per cent, and so forth, of Bangladesh's exports, while the United States takes only 15 per cent, followed by Canada and Mexico 3.0 per cent each, Japan 2.9 per cent, China 2.2 per cent, Turkey 1.8 per cent, and India 1.4 per cent.

Against the $4.0 billion Bangladesh exports to Britain (three-quarters of which were RMG products), the 2016 Brexit referendum was followed by a 7.0 per cent overall decline (with a proportional RMG slump). Even remittance to Bangladesh from Britain also fell by an equivalent proportion. Remarkably, exports to the European Union climbed over 16 per cent to almost $20 billion in those two years. Cambodia's more dire case (against $1.4 billion worth of RMG exports to the United Kingdom) would sharply reduce net household consumption and income, according to the above studies. Should the European Union deepen the previous election-driven "warning," Cambodia's three-quarters of a million RMG workforce and $5.0 billion RMG exports to Europe would be too seriously threatened to easily ponder the ramifications.

Without a Brexit cloud or electoral hangover, Cambodia was well-poised to challenge Bangladesh as the world's second largest RMG-exporting country. Since it seems Hun Sen will not be making any electoral concessions or roll-backs, especially with massive Chinese largesse and a potentially large market in the wings, Cambodia will have to hope its impressive growth of the US market will compensate for any European RMG losses for EBA denials. This is an opportunity window Bangladesh can easily open, though neither Bangladesh nor Cambodia can do much about any Brexit outcome: as observed, a "no-deal" would hurt Cambodia more since Bangladesh's losses could, theoretically, be recouped by building alternate markets and exports.

Scopus has previously discussed opening Latin markets more aggressively and voluminously, suggesting the idea is in the pipeline given the opening of diplomatic relations and commercial explorations (not to mention conferences strategising most efficient outcomes). To those observations (in the April 4, 8, 12, 2016 issues), potentially new European markets may be added in case Cambodia gets sanctioned. Greater compensation may be sought by lubricating potentially new exports and expanding other neglected products. Pharmaceuticals and a recent revival of jute, our original "golden fibre," lead the list of tested and successfully tried ventures: new medicine markets in suddenly-blooming Africa for the former, and jute substituting plastic byproducts that had displaced jute, in the first place, would reincarnate the latter industry.

Leather, fish, and paper sectors need a catalyst. The promise of all three sectors was hitherto obscured by RMG domination. Any revival might need nothing more than mere encouragement, at most, a brief jumpstart stimulus. Bangladesh has all the options to survive by playing the same 'ole game differently; but the "magic" may lie in doing precisely what all the economic opportunities and threats have been doing: change.

Seeing the big picture, of which Brexit and "American First" are merely parts, is a giant start towards becoming that elusive "developed country" (DC): instead of splashing in export surpluses from largely primary products and low-wage population, Bangladesh must open new frontiers and thrive in low-tech software/high-end manufacture exports.

Without becoming a victim of idealism or giddiness, that there exists life for Bangladesh outside the RMG sector is an idea whose time for practical translation has come. Indeed, the most useful Brexit impact for the country is to speed such diversification. In other words, with all due respect to May and Britons, a "no-deal" Brexit would spur Bangladesh out of its RMG dreamland into equally dreamy higher-end new opportunities.

That "big picture" captures the global-level restructuration underway. It cannot be ignored nor suppressed anymore. Populism (of which Brexit and "America First" are the noisiest manifestations), emergent demographic threats, and affluence have combined to bring many developed countries, if not to their economic knees, then to face the ever-growing gaps in critical policy trade-offs that must be reconciled, the sooner the better: income-consumption, protectionism-competitiveness, as well as welfare-funding. No "emerging" or "frontier" country, especially those in the middle-income ranks with a "developed country" target, can be oblivious of these developments since their very growth once depended upon liberally accessing those DC markets. How they draw two lessons (then actualise them) will become keys to their own future: diversifying exports to spread the previous export-income boom; and preparing for their own, routine loss of comparative advantage another two generations down the road.

Dr Imtiaz A. Hussain is Professor & Head of the Department of Global Studies & Governance at Independent University, Bangladesh.

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