Global economy is going through a precarious stage. Different countries around the world are grinding to inflation, economic recession etc. Such economic shocks are affecting Bangladesh too. From July to October, it was observed that export growth was disrupted consequently. However, Bangladesh accomplished highest merchandise export record in November overpowering the shocks. But sustaining this trend in future and accelerating this growth are vital and it’s going to be very difficult and challenging. Export-oriented small industries can be a boon in this case. For that, modernisation with proper management is a prerequisite. Only then, Bangladesh can manage to sustain export growth.
The world is currently passing through a very fragile and critical phase, when global economy is witnessing an obvious downturn due predominantly to the apparent impacts of Covid pandemic and Ukraine-Russia war. Due to this, inflation, economic crisis, food and energy crisis occurred in different countries around the world. Being a developing country, Bangladesh has also been badly affected by this. Not long ago, there was a nationwide controversy over the foreign reserve crisis, which was prejudiced further by power crisis. Bangladesh’s export earnings, too, have passed through a perilous phase amidst the ongoing global economic slowdown, which has accentuated the need for reforms. The country’s export earnings have seen a decline not long ago during the global economic predicament during last year.
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The Export Promotion Bureau (EPB) of Bangladesh said export income amidst the crisis period in October last was only $4.35 billion, which is 8% less than the previous year’s October. Earlier, there was a negative growth in last year’s September export income as well, as it fell by 6.25%. The negative growth in exports since July 2022 gave a stern warning of uncertainty. Besides, remittance being one of the country’s main sources of foreign exchange earnings, also marked fall. The nation still made a swift recovery by exporting a record $5.09 billion in November alone, thanks largely to the country’s high-flying ready-made garment (RMG) industries. However, the continuation and expansion of this upright trend is now the call of time, as anything can happen in the midst of the global economic breakdown.
Amid such a scenario, the government is focusing on increasing export earnings as the national elections are around the corner. Additionally, the government is emphasising on increasing export earnings to overcome the emerging foreign exchange crisis. In this regard, economic analysts and experts have suggested mainly concentrating on the export-oriented minor industries – generally known as the Small and Medium Enterprises (SME) and broadly known as the Micro, Small and Medium Enterprises (MSME) sector, addressing the sector’s inadequacies and taking immediate actions for its reformation. They are of the view that Bangladesh can be extensively protected from further economic risks if it can develop the SMEs and make sufficient export earnings from the sector. Hence, the questions appearing in public minds are: Will the country be able to face the obstacles and up the export income? What steps should be taken to overcome the challenges? And, how can export-oriented small industries contribute hereof?
BANGLADESH’S SME SECTOR IN A NUTSHELL
There’s a vibrant SME sector, which can be divided into 33 sub-sectors based on products and services. Available data shows that SMEs constitute 50.91% of the microeconomic sector, and employs 35.41% of countrywide workers. The latest industrial policy of Bangladesh stipulates that the enterprises with 16 to 300 employees are classified as MSME and SME. According to the Industrial Sector Survey of 2019, there are about 8 million SMEs in the country, of which 83% are micro-industries.
In addition, according to estimates from the Bangladesh Bureau of Statistics (BBS), the SME sector contributed 21.36% of gross domestic product (GDP) in fiscal year (FY) 2017, followed by 21.98% in FY18 and 22.86% in FY19. How- ever, this sector’s contribution declined to 22.40% in FY20 and 20.25% in FY21, which is very low in comparison to other emerging economies. Basically, the SME sector accounts for over 50% of the GDP in most of the developed countries in the world.
The ratio is 60% in neighbouring India, and 45% in Vietnam. No country can achieve sustainable economic growth if its SME sector remains underdeveloped. This is because the growth of SMEs helps improve the economic conditions at the very marginal level of society. In Bangladesh, even if SMEs contribute less to the GDP, the sector still holds 80% of total industrial jobs. So, there is no doubt that the SME sector is a vital part of the economy and if nurtured, can be the biggest contributor to the country’s burgeoning GDP.
WHY IS SMALL INDUSTRIES’ DEVELOPMENT VITAL?
The micro, small and medium enterprises are considered as the backbone of socio-economic development in various countries – irrespective of the developed, developing and the underdeveloped ones. The role and contribution of SMEs in industrialisation, creation of employment opportunities, poverty alleviation and economic development is recognised worldwide these days. They can be very much useful in Bangladesh’s economic development for several reasons:
For curbing inflation, there is no alternative to increasing local production. When the supply of goods in the market rises, the price of the same start decreasing. Small industries need to be encouraged for producing daily necessities through comprehensive planning. In such industry, time gap between the start of production and the final consumption is pretty short, which is why, curbing the country’s inflation is of immense significance. What’s more, the country can have greater volume of income from impending foreign trade if appropriate measures are taken in time to export these products.
REDUCING CAPITAL SCARCITY:
Scarcity of capital is the main obstacle to the path of Bangladesh’s economic development. Due to the limited sources of people’s income, it’s not always possible for them to arrange necessary capital for heavy industries. Moreover, sources of loan are very limited nowadays. Hence the need to focus on small industries is huge as it’ll open the door of investment for many with limited capital. Thus, the number of entrepreneurs, export-oriented industries and production will rise thereby boosting export earnings.
UTILISING HUMAN RESOURCES:
Bangladesh’s economy is vulnerable as it mostly depends on agriculture, which has only just begun to modernise. The timing of labour investment in agriculture sector is seasonal. After working in the fields for about six months of a year, the farmers mostly spend the rest of their days in unemployment. To turn their half-unemployed life, proper initiatives for and expansion of small industries are required. If these human resources can be utilised through engaging them in SMEs, many people will be employed as well as enough labour can be utilised, which will increase both production and income.
UTILISATION OF RAW MATERIALS:
Fair utilisation of rural resources is possible through the SMEs. Various raw materials lying idle around the country can be used to produce useful products. If it can be utilised through the SMEs, products made from these materials can be exported abroad in many cases. If these products are exported, domestic raw materials will not be wasted, and the export income will increase to a large extent.
Almost half of Bangladesh’s total population is women. Due to religious reasons, family problems, social and security issues, and lack of opportunities, many of these women remain unemployed. MSMEs can play a major role by employing them.
For this, required actions are needed to be taken first. This will increase manpower capacity, production output, and obviously the earnings. In addition, empowered women can bring financial security to themselves and their families by producing goods at home or through cooperatives.
ELIMINATION OF INEQUALITY:
Most of the production facilities in Bangladesh are presently in urban areas. To build a healthy and prosperous economy, production should be holistic. Therefore, SMEs can play a major role in developing the rural economy – thereby increasing countrywide production. But to do that, appropriate policies and their implementation are needed.
REDUCTION IN PRESSURE ON AGRICULTURE:
When compared with the growth of population, rate of employment generation is pretty sluggish in Bangladesh. Small industries contribute the most to employment outside agriculture. But as our industrial growth rate is low, the jobless youths in rural areas get engaged in farming following their predecessors and they are thus added to the number of hidden unemployment. SME sector can be of great importance to protect them against this latent unemployment. If it is possible to transfer this excess population from agriculture to small industries, equality will be restored in the distribution of employment.
OBSTACLES TO SME SECTOR’S DEVELOPMENT AND WAY-OUTS
It is clear that the world is passing through a crucial period, with risks to the global economy rising. To deal with that risk, various countries, World Bank, European Commission and other international bodies have announced various economic incentives/ emergency funds or stimulus packages. Time has come to take urgent action to secure future health of national economy too. In this regard, SMEs, needing special attention, can be boon. After the 2013 Rana Plaza tragedy, the RMG sector has been able to make turnaround through the facilities that were given to protect big industries. The economic impact of the Covid pandemic has hit the SMEs brutally. Now if SMEs are given opportunities, success will come from here too.
The sector is beset with many limitations that need to be sorted out. Despite the shortcomings, we have seen in the EPB data that the SMEs have had a significant impact on exports this year. Growth in exports is noticeable in all sectors except for fisheries. This growing trend will sustain and increase if opportunities are available. SMEs and MSMEs mainly produce for the domestic market of a country. Hence, their income is largely dependent on the domestic market demand. Now that the pandemic is over, the demand for SME-produced outputs are also increasing globally.
Cut in costs, need for cheaper solutions, and shortage of labour might have contributed to this end. Experts say that such opportunity should be grabbed so that the country can move forward towards exporting in bigger volume to the world market. As income and savings of entrepreneurs in MSME sector are limited, their ability to deal with risks is relatively low. The government, therefore, needs to think not only about the growth, but also about survival of these industries – thereby taking into account the overall risk factors. Economist Dr Nazneen Ahmed said the government should think about extending period of loans, considering to extend the deadline for the borrowers of this sector by one year. In addition or alternatively, a fund can be created from which risk-adjusted loans to the SMEs at low-interest rates will be given.
SHINING BEACON OF HOPE
Even though the country’s economy has seen a sort of ruthless phase, it has recovered and moving upwards faster than expected. For the first time in history, Bangladesh’s export earnings crossed $5 billion mark in last November. As per the EPB data, Bangladesh exported goods worth $5.09 billion, which was 26% higher than the corresponding period of the previous fiscal year. The surge in export earnings comes at a time when the Western countries, the main buyers of Bangladeshi apparels, are fighting a depressed demand.
This achievement raised hope of easing the growing foreign exchange crisis the country has been suffering since July last. Bangladesh is surely facing trouble as the European countries are experiencing an economic recession that led to lack of orders ending in export loophole. But analysts and exporters believe the continued growth in exports to the US market is a silver lining for the country amid the ongoing recession. They hope increased business in the US would make up for any possible export losses in Europe. Also, while exports of apparel and luxury goods were affected by global recession, the opposite picture was seen in exports of food products, produced mainly by the SMEs. Bangladesh Vegetable Exporters Association President SM Jahangir Alam said, “Our sector is doing well with regard to exports.
There is no negative impact yet, and we don’t see any possibility of that.” Analysts to this effect feel that an alternative way to increase export earnings could be diversification of export products. In this case, experts think that it is now very important to focus on export-oriented small industries. Father of the Nation Bangabandhu Sheikh Mujibur Rahman realised the importance of small and cottage industries and established the East Pakistan Cottage Industries Corporation (IPSIC) in 1957, which was later known as BSCIC. Subsequently, the SME Foundation was established in 2007 to further accelerate the development of small and medium industries. They are, being the shining beacon of hope, working towards the betterment of the SME sector.
The current government is also compassionate. Emphasis is being given on exports of products such as light engineering, software, nursing and midwifery, processed food, fisheries and livestock, among others. The United Nations (UN) declared June 27 as the ‘International Micro, Small and Medium-sized Enterprises (MSME) Day’ in 2017 to promote the sector in creating employment and improving livelihoods. In line with this, ‘International MSME Day 2022’ was celebrated in Bangladesh for the second time under the initiative of SME Foundation.
This is a reflection of the state’s patronage in the development of the sector. The SME Foundation is also working to raise the sector’s contribution to the country’s GDP to more than 35% by 2030, as part of the government’s endeavour to achieve the global agenda of sustainable development goals (SDGs). Additionally, the new National SME Policy 2019 encompasses strategies to promote policy and regulatory reforms in order to create a permitting environment for SME development and support the creation and strengthening of formal institutions that provide business development and financial services to the SMEs on a sustainable basis.
The strategy takes inputs from ongoing reforms and policies to improve the general business environment with targeted interventions to support innovative enterprises, startups and export-oriented enterprises. The strategy also includes a set of actions to be undertaken by the government in order to create a level playing field for all the SMEs through regulatory reform and administrative simplification with provisions for investment in human capital, business development services, better access to finance and fostering technology transfer. As a note of conclusion, there should be a focus on the creation of new ventures, apart from enhancing the existing SMEs and MSMEs, through promotion of entrepreneurship and entrepreneurial mindset among the conscious citizens. Apart from workshops and training for potential entrepreneurs, entrepreneurial skills need to be infused also as part of formal curriculum. As the SMEs and MSMEs can be the engine for economic growth and employment generation during the looming crisis period, it all depends on effective and visionary initiatives by the incumbent government. And it goes well with Bangladesh’s longterm aspirations too.