IDSA COMMENT

Bangladesh Beats Global Recession Through Exports

September 27, 2010

Bangladeshi exports have started this fiscal year with extra-ordinary growth. They have been helped in this process by three factors – the global recession, new markets and Chinese growth. It may appear surprising that the global recession which took the rest of the world towards an economic slide actually propelled the economic growth of Bangladesh.

In the export basket of Bangladesh, readymade garments (RMG) enjoy a prominent place. Clearly, if the exports of Bangladesh have done well, they could do so only if the RMG sector registered extraordinary growth. In fact, the growth of this sector has been so astounding that the overall export growth of Bangladesh increased by more than 26 per cent, despite a decline in some other sectors. The sectors which registered growth are frozen foods, tea, leather, leather products, raw jute, jute carpets, home textiles, footwear, ceramic products, bicycles and furniture. But the export of chemical products, handicrafts, pharmaceuticals and urea fertilizers experienced negative growth.

There are many reasons for this impressive performance. First, there has been a massive increase in export orders for Bangladeshi garment export companies because the labour cost in China has increased. Last year there were several protests, demonstrations and strikes in China, which resulted in the closure of many foreign owned garment factories there. After the labour unrest the Chinese government was forced to fix minimum wages, leading to increased labour cost. As a result, China is no longer an attractive production centre for low end garments. However, China is still attractive for the production of high end garments. In fact, China has also been consciously trying to move up the value chain, after the country has achieved significant progress over a period of time.

Labour has also become scarce in China as the country has a diversified economy unlike Bangladesh. In Bangladesh there is hardly any other opening other than the RMG sector for the labour force which is abundantly available at a very low cost. This helps keep wages low in that country. Besides, the government has also so far not fixed minimum wages.

Currently Bangladesh enjoys duty concessions from China under the Asia Pacific Trade Agreement on 757 products. Among these products figure 22 knitwear items and almost the same number of woven items. Besides, Bangladesh’s exports have also been helped by the appreciation of the Chinese currency.

Bangladeshi garment exporters have also been helped by the global recession in a curious way. The recession has led to a decline in the purchasing power of a significant section in western countries. As a result, people who were buying high end garments earlier have been forced to look for cheaper products. And Bangladesh being a major centre of production for low-end garments has been an obvious beneficiary.

Bangladeshi companies are now getting orders from even those countries which were earlier buying from China. These countries include Japan, Latin America and even China itself. Bangladeshi exporters are hoping that Japan would now become a hot export destination. Japan became a focus area for them since 2008 after the Japanese government announced the China+1 strategy. Through this policy Japan is eager to reduce its dependence on China, the largest supplier of apparel globally. This policy would also shift some factories from China to countries like Bangladesh. Being a least developed country, Bangladesh also enjoys duty free access to Japan under the generalized system of preference (GSP).

Bangladeshi garment manufacturers are also getting a good response from some Latin American countries like Brazil, Mexico and Chile. For instance, the Mexican government has agreed to allow any Bangladeshi holding a US visa to visit that country. But at present Bangladesh does not have missions in these countries. That would be a small hurdle which the country might think of overcoming in the future.

Bangladesh seems to have benefited in a curious way by both the global recession and the tremendous Chinese growth story. Besides, the country has also been able to explore some new markets for its most important RMG exports. China in recent times has become the largest export partner of Bangladesh, though the country is surrounded from all sides by another fast growing Asian economy, India. However, the trade balance for Bangladesh with China is very adverse. The increase in Bangladeshi exports to China may not change the pattern of trade between Bangladesh and China in a major way, but might turn out to be a morale booster in the short term.

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Bangaldesh’s Exports by Nilesh Kshirsagar