The new export target in view of a circular economy is attainable. But to go the extra mile, Bangladesh needs to broaden its export basket through product diversification, lower interest rates on working capital loans, and create skilled manpower. The government should also take measures to control inflation through fiscal and monetary support, reports SK MEHBUB HASSAN
The government in Bangladesh has taken a bold initiative to create a circular economy of late by developing backward and forward linkages with incentives and policy support as well as encouraging domestic and foreign investments in deemed exports – all for reaching a target of $80 billion in export earnings by FY24, which was 57% higher than the current fiscal year’s expected amount.
The country recorded its highest ever single-month export earnings amounting to $4.91 billion only in the last month (December-2021), thanks to a strong rebound in demand for apparel in western markets even amid the Omicron surge.
Export receipts surpassed the $3.91 billion target set for the month, registering more than 48% year-on-year growth, according to provisional data of the Export Promotion Bureau (EPB).
However, Bangladesh will have to boost exports by 76% in FY22, FY23 and FY24, to achieve the target. The 2018-21 export policy had targeted a $60 billion in exports but fell short of it by 25% owing to the pandemic onslaughts. In FY21, Bangladesh exported products and services to the tune of $45.39 billion.
Economists and businesses say the new export target is attainable. But to go the extra mile, the country needs to broaden its export basket through product diversification, lower interest rates on working capital loans, and create skilled manpower, they add.
Besides, they have emphasised increasing Chattogram Port’s handling capacity and increasing container train services on the Dhaka-Chattogram route.
The government should also take measures to control inflation through fiscal and monetary support, they point out.
They say Bangladesh’s per capita income will rise to $3,000 in 2024, so will domestic consumption. By that time, the government has set a goal of double-digit gross domestic product (GDP) growth.
Mentioning that the new export target set by the government is ambitious but achievable, Dhaka-based Policy Research Institute (PRI) has laid importance to cashing in on the existing duty-free facilities before it graduates to a developing nation.
It said since Bangladesh’s export sector is dependent on imports of raw materials, import costs will reach about $100 billion in order to earn $80 billion in export earnings.
So, the goal of building backward and forward linkages to keep in check import expenditure needs to be taken seriously, he also said, adding that the country also have to focus on exports of high-value garments, he added.
In Bangladesh, the difference between the interbank exchange rate and the open market rate is about Tk 5, which is very high. The Bangladesh Bank (BB) is now trying to minimise this difference by selling dollars.
“But before devaluing taka, we have to analyse its impacts on the economy,” a former BB governor noted.
Centre for Policy Dialogue’s distinguished fellow Professor Dr Mustafizur Rahman said the annual growth has to be 20% for attaining the $80 billion export target within 2024.
The proposed export policy advocates for providing similar benefits, which the apparel sector is enjoying, to non-RMG export sectors, such as food processing, leather and leather goods, light engineering, pharmaceuticals, agricultural Products, jute products, halal products and others.
Manmade fibres, halal products, halal fashion, recycled products, freelancing, software and IT-enabled services sectors have been added to the list of priorities in achieving the target of export earnings.
The policy suggested offering all kinds of support to exporters in manufacturing green and organic products.
The government will set up an international standard testing certification and accreditation system to ensure that investments in these sectors are tax-exempt for a fixed period, to provide them with soft loan facilities and to ensure product quality.
Demand for manmade fibre-based products has grown significantly, but Bangladesh does not produce such fibre. A special economic zone will be set up to increase domestic and foreign investments. VAT on man-made fibres will be fixed at the same rate as cotton yarns, according to the policy.
The commerce will formulate a minimum standardized unified code of compliance for all export-oriented readymade garment factories in the country in keeping with the needs of different countries and buyers.
The government will assist in research and development to enhance product standards and maintain a future competitive edge as per tastes and needs, and design and fashion trends of continental buyers.
The government will build a business-friendly banking system, reduce interest rates on loans further for the export sector and facilitate access to credit, and encourage factoring services in financing export trade.
The export policy has also committed to do necessary reforms to facilitate doing business.
However, there is no indication in the proposed export policy of raising the interbank exchange rate by devaluing the local currency, considering currency values of competitor countries, such as China, Vietnam, India and Pakistan.
The policy has suggested providing low-interest collateral free loans to women entrepreneurs.
The size of the Technology Development Fund/ Upgradation Fund for the export sector will be further increased. And, the NBR will take necessary steps to provide bonded warehouse facilities for all export-oriented industries. The government will adopt a 3R strategy – reduce, reuse and recycle – to build a circular economy.
To boost exports of the pharmaceutical industry, there is a plan to establish another Active Pharmaceutical Ingredients (API) Industrial Park in Chattogram to attract foreign investments.
In addition, the government will enter into mutual recognition agreements with the relevant quality regulatory authorities of potential markets to increase drug exports.
The proposed policy also recommended a long-term tax break alongside reducing tariffs on raw material imports for the light engineering sector. Besides, a quality packaging system will be ensured to increase exports of agricultural products.
A sustainable export policy and facilitating ICT and freelancing, and the involvement of women entrepreneurs in export business are other import issues the new draft policy has focused on.
Besides, the government will provide special facilities for extraction, processing and export of marine resources.
Exports through e-commerce will be identified as direct exports by ensuring policy support. E-commerce and freelancing will get an efficient banking system to bring home export earnings directly through banking channels.
Under the existing export policy, subject to approval from the BB, the 100% export-oriented garment factories could export samples of readymade garments amounting up to $20,000 per year, which has now been increased to $30,000 under the new policy.
As is the case, a circular economy ensures the optimization of resources, reduce the consumption of raw materials, and recover wastes by recycling or giving it a second life as a new product. Hence, the application of a circular economy within the Bangladeshi manufacturing industry, especially the apparel sector, is in a progressive stage. Many even think circular economy is not merely a concept – it’s the future! It is thus believed widely that banking hope on the much-touted circular economy for greater volume of export earnings, no doubt, will yield better result – thereby taking the country’s march further forward.