Export Product Diversification Boosting Bangladesh’s Economic Growth

According to a recent report by the International Finance Corporation (IFC), some of the promising sectors for export diversification in Bangladesh are leather and footwear, plastics, and light engineering. These sectors have strong backward and forward linkages, high value addition, and large domestic and international markets.

Bangladesh is one of the fastest-growing economies in the world, with an average annual GDP growth rate of 6.8% in the last decade. The country has achieved remarkable progress in poverty reduction, human development, and social indicators. However, Bangladesh also faces some major challenges, such as vulnerability to climate change, political instability, and low productivity. One of the most pressing issues is the lack of export diversification, which makes the economy dependent on a few sectors and markets.

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According to the World Bank, export diversification is the process of expanding the range of products and destinations for a country’s exports. It can help reduce the exposure to external shocks, enhance competitiveness, and create more jobs and income opportunities. Export diversification is especially important for developing countries like Bangladesh, which need to find new sources of growth and employment in the face of global competition and changing consumer preferences.

Expert Opinion

Bangladesh’s export sector is dominated by the ready-made garments (RMG) industry, which accounts for about 84% of the total export earnings. The RMG sector has been the main driver of the country’s export success, providing employment to over four million workers, mostly women, and contributing to social and economic development. However, the RMG sector also faces some serious challenges, such as rising labor costs, environmental compliance, quality standards, and market access. Moreover, the RMG sector is vulnerable to external shocks, such as the Covid-19 pandemic, which disrupted the global supply chains and demand for apparel products. Fuel price hikes such from the recent Red Sea Crisis and the Russo Ukrainian war can have also adversely affected the RMG sector. 

REDUCING FRAGILITY

Fragility rating, used by USAID, is a measure of a state’s ability to maintain stability and its vulnerability to conflict and collapse. It is calculated using 12 indicators that span across cohesion, political, economic, and social dimensions. Fragility Rating is a tool that helps assess a state’s resilience to internal and external pressures. It is a composite index that takes into account various factors that contribute to a state’s stability. The higher the fragility rating, the more vulnerable a state is to conflict and collapse. Conversely, a lower fragility rating indicates a state’s greater ability to maintain stability and withstand pressures. Bangladesh’s Fragility index rating has been going down over the years and the government must ensure this trend continues. A diverse export market and product diversification can lead to a reduction in Bangladesh’s Fragility rating by reducing the overall risk of the economy from the collapse of a single export industry.

DIVERSIFICATION OPTIONS AND DESTINATIONS

Bangladesh needs to diversify its export basket and explore new sectors and markets that have high potential and comparative advantage. According to a recent report by the International Finance Corporation (IFC), some of the promising sectors for export diversification in Bangladesh are leather and footwear, plastics, and light engineering. These sectors have strong backward and forward linkages, high value addition, and large domestic and international markets. The report also identifies some of the policy priorities for enhancing the competitiveness and export performance of these sectors, such as improving infrastructure, reducing trade barriers, facilitating access to finance, and promoting innovation and skills development.

In addition to diversifying the export products, Bangladesh also needs to diversify the export destinations and tap into new and emerging markets. Currently, Bangladesh’s exports are concentrated in a few markets, such as the US, the EU, and Canada, which account for about 75% of the total export earnings. However, these markets are also saturated and highly competitive, and may not offer much scope for further expansion. Therefore, Bangladesh should explore new opportunities in other regions, such as Asia, Africa, and Latin America, which have high population, income, and demand growth. Bangladesh can also leverage its regional and bilateral trade agreements, such as the South Asian Free Trade Area (SAFTA), the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), and the Bangladesh-China Free Trade Agreement (BCFTA), to increase its market access and diversification.

Export product diversification is crucial for Bangladesh’s economic growth and resilience. It can help the country reduce its dependence on a few sectors and markets, enhance its competitiveness and productivity, and create more jobs and income for its people. However, export diversification is not an easy task, and requires concerted efforts from the government, the private sector, and the development partners. Bangladesh should adopt a comprehensive and coherent strategy for export diversification, addressing the supply-side and demand-side constraints, and fostering a conducive business environment and trade policy framework. By doing so, Bangladesh can achieve its vision of becoming a middle-income country by 2030 and a developed country by 2041.