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Md. Abbas Uddin
Assistant Professor Guest Faculty BGMEA Institute of Fashion and Technology (BIFT)
1. A.H.M Ohidul Haque
ID # 082-E-020-52 MBA in APM BGMEA Institute of Fashion and Technology (BIFT)
2. Tapon Chandra Sarker
ID # 082-E-03-52 MBA in APM BGMEA Institute of Fashion and Technology (BIFT)
3. Md. Firuzzaman
ID # 082-E-037-52 MBA in APM BGMEA Institute of Fashion and Technology (BIFT)
Date of Submission: 31 August 2009
LETTER OF TRANSMITTAL June 31, 2009 To, Md. Abbas Uddin Assistant Professor Guest Faculty BGMEA Institute of Fashion and Technology (BIFT) Subject: Submission of Assignment. Dear Sir, Here is our term paper of Introduction to RMG Business on Effect of recession on RMG sector in Bangladesh and its future. It is a great pleasure for us to submit this term paper. We have tried our best to make it a good one within given time. Any sort of suggestion regarding this term paper would be gladly appreciated and we would be gratified if this paper serves its purpose. We are pleased to provide you this term paper with necessary notes, reference and we shall be available for any clarification, if required.
Sincerely, A.H.M Ohidul Haque Tapon Chandra Sarker Md. Firuzzaman
Table of Contents Particulars 02. 03. 04. 05. 06. 07. 08. 09. 10. 11 Executive Summary Introduction Background of RMG Contribution to GDP Causes of global recession Recession effect on GDP along with RMG Present situation of RMG Recommendation Conclusion Reference Page v vi vi vii viii ix x xii xiv xiv
The economy of Bangladesh is largely dependent on agriculture. However, in recent years, the Ready –Made Garments (RMG) sector has emerged as the biggest earner of foreign currency. The RMG sector has experienced an exponential growth since the 1980s. The sector contributes significantly to the GDP. It also provides employment to around 3.5 million Bangladeshis. An overwhelming number of workers in this sector are women. RMG fells victim to violence during 2007 and 2008. The worldwide financial crisis has greatly affected the economic, financial, social and even cultural sectors of the world and Bangladesh is going to fall victim to this global financial distress being largely dependent on its revenue from the garments’ industry. Though the economy of Bangladesh is not closely integrated with global economy, necessary steps should be taken immediately to combat the upcoming financial turmoil.
Introduction: According to the National Bureau of Economic Research (NBER), recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales. More specially, recession is defined as when business cease to expand, the GDP diminishes for two consecutive quarters, the rate of unemployment rises and housing prices decline. And it affects every country that is the US and hence in a chain effect, almost every other country in the world is affected. Since we, Bangladesh, are one of the leading readymade garments exporters in the world we are in effect as well, in a big scale. Origins of the Global Financial Crisis The global financial system has suffered a severe and virtually unprecedented blow, leading to the failure of a number of major financial institutions in developed countries and a worldwide economic slowdown with its accompanying job losses, erosion in consumer and business confidence, and a tightening of credit. This has forced government intervention on a massive scale in a number of countries, through expansionary monetary and fiscal policies. This crisis reflects the fallout from acute economic and fiscal imbalances that developed in the first half of the decade. An overly accommodative monetary policy in 2001 resulted in a dramatic increase in economic growth, which led to an increase in the available funds for loans and investments. It also resulted in a dramatic shift in the terms of trade balances between countries, illustrated by the growing current account surpluses in Asia and the increasing deficit in the USA. The world became awash with liquidity, with funds chasing any opportunity for good returns. Policy initiatives in 2004 further fuelled the liquidity bubble. In the USA, low-income earners were encouraged to buy homes with little or no equity and the banks moved to providing low-income mortgages. Investment banks benefited from less stringent rules that permitted them to increase their leverage ratios. Changes in international bank regulations opened opportunities for banks to accelerate their off-balance sheet activities. In many countries, this credit bubble translated into higher real estate prices and abnormally strong returns in equity
markets. It also fuelled growth in non-traditional financial products, such as financial derivatives and complex structured products. The complexity of these products made assessing risk and providing oversight more and more difficult, outstripping the ability of regulators and credit rating agencies to keep pace with developments. The traditional regulatory framework was structured to address conventional retail banking, not the new providers of credit: investment banks, hedge funds, pension funds and other non-retail bank entities. As with all financial bubbles, it was only a matter of time before events triggered a correction. That occurred when a rebalancing of monetary policy led to tighter credit conditions in late 2005 and early 2006. As a result, U.S. house prices peaked in 2006 and U.K. prices shortly after. However, it was only in mid 2007 that the true financial consequences began to be recognized. The resulting financial losses significantly impaired the balance sheets of many financial institutions, as assets were marked down but liabilities remained unchanged. This led to a shift in cash hoarding and the unwillingness to lend between financial firms. The combination of these developments caused credit to become less available and more costly. The value of stocks fell dramatically around the world, household wealth declined and in many industrialized countries and many advanced economies fell into recession. Central banks and governments responded aggressively by lowering interest rates, providing assistance to financial institutions, increasing public expenditures and reducing taxes. These policy actions should eventually restore stability to the financial system and spur economic growth. Cause of global recession: The truth is we are going through the most severe global financial crisis since the days of Great Depression. Originated in USA, economic recession is affecting all the major players of world economy. Governments and major policy makers of world economy have taken notice of the urgency of the situation and frantic steps are undertaken to stem the rot. At the core of the term 'recession', spirals of several financial mistakes are intermingled. The biggest problem with economic turmoil is; • It creates fear and panic amongst general people.
• Rumors are thick and they fly, resulting into even more fear amongst the households about their savings and hard earned income. • Economic problem of 2008 is of gigantic proportions. If we look closely at the problem, we find few fundamental causes: Foremost among them is, complacent regulatory norms in USA. USA has enjoyed sustainable economic development with cushion of low inflation rates over last two decades. This resulted into complete ignorance of essential business cycle of economy. The first signs of this problem were visible 20 months ago when America was struggling with excess liquidity in the market. That was an ample sign of coming of real estate bubble and asset price inflation. Another responsible factor is cushion enjoyed by private and investment banks. Taking their cue from good economic condition, most of these high flying banks took higher risks. Most of their business deals were highly leveraged transactions. The kind of risk undertaken by investment banks proved to be their nemesis as they failed to gather enough capital to support their risky investments. Third responsible factor is size of investment banks. Many of them witnessed huge growth when economy was on the rise. They made huge profits based on their high risk propensity ventures. These FIs (financial institutions) also contributed heavily to US corporate profits. Another important reason was failure of top echelons of management to provide sense of direction to their deal makers. Greed took over and the rest is history. However, USA has started taking serious policy decisions to control the worsening situation. The $ 700 billion bailout package was first step in helping the doomed institutions. Apart from that, taking over of AIG, orchestrating Bear Stearns' merger with JP Morgan, taking control of Fannie Mae and Freddie Mac, merging Merrill Lynch with Bank of America are other crucial steps. Though, all these steps won't prove to be of much help in the short term. It is being said that, it will take another one year to stabilize the market and credit flow.
Background of RMG: In the 1950s, labors in the Western World became highly organized; forming trade unions. This and other changes provided workers greater rights including higher pay; which resulted in higher cost of production. Retailers started searching for places where the cost of production was cheaper. Developing economies like Hong Kong, Taiwan and South Korea presented themselves as good destinations for relocations because they had open economic policies and had non-unionized and highly disciplined labor force that could produce high quality products at much cheaper costs. In order to control the level of imported RMG products from developing countries into developed countries, Multi Fiber Agreement (MFA) was made in 1974. The MFA agreement imposed an export rate 6 percent increase every year from a developing country to a developed country. It also allowed developed countries to impose quotas on countries that exported at a higher rate than the bilateral agreements. In the face of such restrictions, producers started searching for countries that were outside the umbrella of quotas and had cheap labor. This is when Bangladesh started receiving investment in the RMG sector. In the early 1980s, some Bangladeshis received free training from Korean Daewoo Company. After these workers came back to Bangladesh, many of them broke ties with the factory they were working for and started their own factories.
Contribution to GDP:
In the 1980s, there were only 50 factories employing only a few thousand people. Currently, there are 4490 manufacturing units. The RMG sector contributes around 75 percent to the total export earnings. In 2007 it earned $9.35 billion. This sector also contributes around 13 percent to the GDP, which was only around 3 percent in 1991. Of the estimated 2 million people employed in this sector, about 70 percent of them are women from rural areas. USA is the largest importer of Bangladeshi RMG (98%) products, followed by Germany, U.K, France and other E.U countries. Garment sector is the largest employer of women in Bangladesh about 3.5 million. The garment sector has provided employment opportunities to women from the rural
areas that previously did not have any opportunity to be part of the formal workforce. This has given women the chance to be financially independent and have a voice in the family because now they contribute financially. RMG export performance for the Month of July-June, 2008-09.
Figure: US million $ Pr odu ct s Ex po rt tar get for 2008- 09 Ex po rt pe rf orm an ce for July -June, 2008- 09 % Cha nge o f exp or t pe rf orm an ce ov er expo rt tar get Ex po rt pe rf orm an ce for July -June, 2007- 08 % Cha nge o f exp or t pe rf orm an ce July - June, 2008- 09 Ov er July -June, 2007- 08 8
Products recorded growth over last year’s performance & also over target
Woven garments Terry towel Handicrafts 5684.00 124.17 6.04 5918.51 132.57 6.44 +4.13 +6.76 +6.62 5167.28 112.88 5.49 +14.54 +17.44 +17.30
Products recorded growth over last year’s performance but not over target
Knitwear Foot wear Home textile Textile fabrics 6583.70 211.58 343.84 79.88 6429.26 186.93 313.51 76.32 -2.35 -11.65 -8.82 -4.46 5532.52 169.60 291.39 66.57 +16.21 +10.22 +7.59 +14.65
Source: Export Promotion Bureau, Bangladesh
Recession effect on GDP along with RMG: The RMG sector is expected to grow despite the global financial crisis of 2009. As China is finding it challenging to make textile and foot wear items at cheap price, due to rising labor costs, many foreign investors, are coming to Bangladesh to take advantage of the low labor cost. According to the Asian Development Bank (ADB) Bangladesh may face slowing economic growth in fiscal 2008-2009, hurt by a slowdown in the export-based industry and decline in remittance as the financial crisis is panning out across the world. The first wave of the world recession raced to Bangladesh with good intentions for the RMG sector or so it seemed at the time, as more and more buyers were moving away from china. However after six months, the effects started to go bankrupt or faced
financial/economic problems due to the recession led to canceling of ongoing production and other reacts. This resulted in stacking up of stocks worth of millions of US dollars in the local factories, many of which to be closed down or trimmed to fit the demand meanwhile the Chinese government prepared packages to keep the prices from going over the top as they were facing circumstances similar to us, and the price from going over the top as they were facing circumstances similar to us and by now they have been able to control the prices, hence the buyers are now going back to china. The companies in Bangladesh, who have been lucky enough to see through the first blow, now have other problems to take care of such as buyers becoming more aggressive and unsettling, as they are also frightened of being wiped out of existence. So they are becoming very aggressive with prices, quality and time of delivery. The quality which was sought for even six months ago has become unacceptable to some of the buyers and which has caused companies to ship the orders at discount prices and short shipments, causing the companies huge losses. Hence many cannot pay off their loans to the Banks in time or the LC is not being respected, either by the buyer or supplier which is happening for many reasons. These instances altogether has a knockdown effect on the Bank’s mentality for which they are not ready to help out a lot of business in this sector, which are in dire need of loans with low or no interest. Present situation of RMG: The RMG industry is highly dependent on imported raw materials and accessories because Bangladesh does not have enough capacity to produce export quality fabrics and accessories. About 90% of woven fabrics and 60% of knit fabrics are imported to make garments for export. The industry is based primarily on sub-contracting, under which Bangladeshi entrepreneurs work as sub-contractors of foreign buyers. It has grown by responding to orders placed by foreign buyers on C-M (Cut and Make) basis. During its early years, the buyers supplied all the fabrics and accessories or recommended the sources of supply from which Bangladeshi sub-contractors were required to import the fabrics. However, situation has improved. At present, there are many large firms, which do their own sourcing. The RMG sector is the leading foreign exchange earner, one of the leading employers and one of the trainers of unskilled workers of Bangladesh, if the govt. does not
provide a bailout soon, it will be hard to survive in these conditions, as it is becoming harder day by day to meet the coasts of the factories. In the next few months circumstances will become even worse as many top buyers have already have already slowed down and are delaying order bookings. The very existence of the RMG sector now hangs in the balance of receiving help from the Government to be able to see this downturn through. Most of the renowned companies in Bangladesh have stopped or postponed their investments due to the current situation, with the help from the govt. these investments could go through and employ and train more unskilled workers, contributing to the employment rate of the country. These businesses in Bangladesh are very scared now, of what is going to happen as there is no net to protect them, the orders are falling through short shipments and discount prices as they are being retracted, but the expenses are getting higher. In the last 3 years we have had a 30% rise in overheads (i.e. wages, expenses, prices etc), but the income has stayed the same, as for the last 5 years the dollar rate has pretty much stayed the same hence the RMG sector’s incomes are the same but coasts are a lot higher, as prices of raw materials are getting higher. So the business rights now are running on thin ice, which will not hold for long, as incomes are becoming smaller every day. Electricity load shedding is another contributing factor of the RMG sector’s rising overheads as load shedding is occurring 4 to 5 times everyday which costs each factory about tk.10000 to tk.30000 everyday on generator oil alone. Leaders of BGMEA apprehend 15 or 30 percent fall in orders and face unending pressure to cut prices. If this goes on for any longer it will become very hard for factories to function efficiently, the govt. should be pressed to come out with a solution as soon as possible, as this a huge force working against the development of the Bangladesh The RMG sector is enraged and de-motivated by another grave threat, in the from of the recent demands from the RMG worker’s organization, to almost triple their minimum wages which would definitely close down 90% of the wages and other benefits are already making choice very hard for the factories and business, let alone their demand. If no solution is provided very shortly a lot of business will not see the day of new budget, where allegedly a package will be present for the RMG sector. Recently the govt. has decided not to provide any bailout for the RMG sector. As the govt. seem to be more concerned about the other sectors. This could be the result of
the common misconception of the govt. and some important people, that the garment factories are able to be as big as they are, because they are very lucrative. But they do not bother to go in detail and actually find out that most of it exists due to huge loans from the banks. And the garment factories have to have certain facilities which might look like stature symbol to the people out side are in fact there for the workers to meet international compliance requirements put forward by the buyers who otherwise will not place orders with those factories. Because of this misconception there is a lack of concern for this sector. Nearly about half of Bangladesh’s population is connected to The RMG sector either directly or indirectly, and this sector has been built in the last two decades based on trust, confidence and personal relationships with the foreign companies/ buyers. If there is any disruption to the RMG sector the chain breakdown would be massive and almost impossible to fix. The economic state of the country will be in a mess GDP will fall and inflation will rise. A move back from those circumstances to even the state we are now will be almost impossible. The US and UK are already closing down several hundred clothing stores which will have a knockdown effect on the RMG sector of Bangladesh is a few months as there a lag before the balance. The other European buyers are also showing sings of slowing down sales which will be in full effect in a few months time. So presumably the orders will become scarce for our RMG sector and many more factories and organizations will take a fall. The next one year will be vital for business all over the world and governments around the world are preparing packages and bailouts, this should be a queue for government to do the same in order to survive and replenish the economy. Recommendation: • BGMEA lobbying must be more directive and effective and with facts and figures
In the last 3 years there has been huge investments in this sector the total figure should be collected and passed on to the government. So that the government can have a clearer picture of the situation. Out of the whole investment at last 70% is bank loans and rest is entrepreneur’s earnings from the last 10 years. This 70% of the bank loan is supposed to be paid back to the banks in the next
10 years or so. But for the current situation and receiving no bailout from the government, it will be impossible to repay the banks resulting in entrepreneurs filling bankruptcy.
Also these investments would provide the population of this country with more job opportunities which will also fade away with the current job opportunities. We have in this sector. These facts along with export opportunity that will be missed if these investments were to stop should be collected and documented to the government to stress the matter further.
BGMEA should also prepare a data sheet for the total number of people working in this sector. With an additional data sheet to show the number of supporting business/factories involved with this sector and the total number of people employed
BGMEA should prepare a fact sheet to point how many small businesses became bigger as direct result of garments factory workers buying power such as cheap cosmetics sarees, clothing etc.
• There should be a fact sheet containing the total number of insurance companies and banks involved with this sector which will not be able to survive outside competition without the RMG sector
Also a fact sheet showing, the rise of business such as transport, C&F agents etc because of the RMG sector and the total number of people working in this business.
• We should also collect the total amount of income tax paid by RMG sector to the government each year
And we should also highlight a few points such as Bangladesh’s recognition all over the world is owed to the RMG sector. The top hotels in Bangladesh are occupied mostly by business delegates coming to this country for the RMG sector all year around. In turn these facts earned Bangladesh foreign currency, world recognition and foreign investments. A data sheet should be arranged containing detail of the foreign investments made in the last ten years in this sector.
• Govt. to allow private power plants for bulk consumers.
NBR not to levy tax at source during recession.
BGMEA spells out 8 point stimulus for overcoming from recession which are given below • 10 taka add up in dollar retaining exchange rate • Special exchange rate • Less than 7 pc bank interest rate • Reschedule of term-loans payment with 3-year extension • Removal of VAT on textile industries • Subsidized diesel for generators • Captive power plants • Implementation of rationing system for workers
Conclusion: All these above data should be collected and presented to the government as soon as possible. The govt. previously did not pay attention to the notion of the RMG sector’s clash with the recession. But now it is absolutely vital that the govt. lends out a helping hand in all the areas we touched in the article to help us survive and prosper to a better future for the RMG sector and of Bangladesh. These are very harsh times and if we do not act quickly and efficiently we might face a very different future.
Reference: Bangladesh’s Current Export Debacle in the Context of the Ongoing Global Recession by Dr. Mustafizur Rahman Professor, Department of Accounting, Dhaka University and Research Director, Centre for Policy Dialogue The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders said the global financial crisis has already started to impact apparel industry and the very gloomy forecast for the apparel market will continue at least for the year 2009. Though Bangladesh's RMG export figure showed growth till February 2009, but according to our Utilization Declaration (UD) Statistics, export order has dropped by 18 percent in February and 5 percent in March and the consequent reflection will be visible at our April and May export.
Ba ng lad es h’ s Cu rr ent Ex po rt D eb ac le i n th e Co nt ext of t he Ong oi ng Gl ob al Rec essi on
by Dr. Mustafizur Rahman Professor, Department of Accounting, Dhaka University and Research Director, Centre for Policy Dialogue The world economy is currently passing through yet another phase of recession. Though there is sharp difference of opinion as regards the beginning of the recession, its depth and severity, contributing factors, and projections about its end, most analysts agree that the recession has by now crossed the critical threshold of eleven months which has been the average period of longevity for the six major post-war recessions. In the beginning it was hard for many to accept that there was at all a downturn in the global economy - after all following the last global recession of the early 1990s the world economy has been performing rather well for almost a decade and, as a matter of fact, has attained its highest growth rate for over a decade in the year 2000. However, the world economy started to experience a sharp downturn in the last quarter of 2000 which subsequently continued, sustained and deepened in 2001. Some experts were hoping that there would be an upturn in the global economy by the beginning of the last quarter of 2001. This, however, was shattered by the September 11 terrorist attacks in the USA. US growth forecast by the IMF for 2002 has now been
revised from 2.2% to a lowly 0.7%. The projections of growth of the world economy for 2002 was cut back from 2.4% to 1.5%. It is to be noted here that such a low growth rate would make 2002 the second consecutive year when economic growth would fail to keep pace with the expansion of the world population. An obvious consequence of this is that the world per capita GDP would continue to remain static in 2002. OECD growth forecast for 2002 for the 30 member countries, at 1%, is the most gloomy since 1982. Investments have come down significantly and OECD manufacturing production index has already declined by 2%. The recession in the global economy could not but have severe negative implications for the world trade, a consequence which have had important consequences for Bangladesh’s export sector performance in recent months. World trade, which registered a robust growth of 12.5% in 2000, began to slow down in tandem as recession strengthened its grip on the economies of the major trading blocs and countries. Overall growth rate of world trade in 2001 was a paltry 0.8% and though the UN forecast for 2002 is somewhat higher, at 3%, it is still far off the trend line. Following the September 11 attacks the growth in world trade during the last quarter was almost zero. The combined impact of the recession and the September 11 terrorist attack on the US economy which is the singlemost important export destination of Bangladesh, has been specially severe. The US economy is expected to grow by only 0.7% in 2002; nationally the unemployment rate was 5.8% in December 2001; more than 1.2 million jobs were lost because of the recession. Total unemployment figure in USA has reached 7.0 million and it is to be noted that this exclude millions of workers who lost part time jobs. The state of the economy obviously had a dampening impact on consumer confidence - consumer expenditure index in the USA is down by 1.8%, the fastest drop since the late 1980s and all time low since the early 1990s. A report prepared by the WTO projects that the strong slowdown in consumer demand in Western Europe will continue in 2002. Evidence suggests that the current stagnation in imports to the US have deepened further during the fourth quarter of 2001 (OctoberDecember, 2001).
As was mentioned earlier, the recession which was officially recognized to have started in March 2001, has now been there for almost 11 months, the average period of post-World War II recession. If the downturn continues in the coming months, the recession is likely to get more severe, with attendant negative consequences and implications for exports of countries such as Bangladesh. As is well known, Bangladesh economy has passed through a heightened pace of global integration in the 1990s. The degree of openness of the Bangladesh economy is now higher than most of the LDCs and many developing countries – exports and imports of goods and services currently account for about a-third of the country’s GDP. Thus, by definition, the state of the global economy is likely to have a stronger impact on the Bangladesh economy now than at any time in the past. The impact of the state of the global economy would continue to be increasingly felt in terms of the country’s macroeconomic performance, GDP growth rate, external sector performance, foreign exchange reserves, and health of the financial institutions. This is perhaps one of the most important legacies that the Bangladesh economy has inherited through its developmental practice and reforms of the 1990s. It is now widely recognized that, as far as developing countries and LDCs such as Bangladesh are concerned, global integration has both its opportunities and risks. Policy makers, therefore, can not afford to ignore this new reality in the governance of the country, both in terms of preparedness to address the attendant risks, and taking initiatives to access the emerging opportunities. As global experience shows, increased global integration does not necessarily mean strengthened global integration and it is in times of recessions such as the current one that this dichotomy exposes the inherent challenges for a globalising developing economy such as ours. It also perhaps provides an opportunity to take on, with due urgency, the task of designing the short and medium to long-term policy initiatives and reforms to address the attendant risk factors in order to make globalisation work for the economy and the people of the country. As is known, Bangladesh’s export sector registered double-digit real growth rate throughout the 1990s. As a matter of fact, real export sector growth rate was almost
three times the real GDP growth rate during this period. Even during FY 1990 and FY 1991, a period which coincided with the last major global recession, Bangladesh’s export sector posted robust growth rates of 17.9% and 12.7% respectively. The structure of export was different, though, at the time. Raw jute, jute goods and leather were some of the major export commodities in the early 1990s, their combined share being equal to the share of RMG in total exports of Bangladesh. A relatively diversified base and market provided some sort of a cushion against sudden fluctuations of the global market. As was mentioned, the context of the current recession contrasts significantly when compared to the period of the earlier recession. Bangladesh economy at present is more globally integrated than at any time in the past. At the same time the export base has also become increasingly concentrated, both market wise and product wise – for example, share of RMG export is now about eight times high compared to the combined contribution of abovementioned three products; markets have also become more concentrated with the USA and EU accounting for about four-fifths of Bangladesh’s total exports. Bangladesh does not have a captive market; she has to compete in an increasingly competitive global environment. On the other hand, as was pointed out in a recent study conducted by the CPD, Bangladesh’s exports are, in general, more income elastic, rather than price elastic. This would mean that exports remain highly susceptible to fluctuations in the income levels in the major developed market economies. Consequently, any recession is likely to have, and in future will continue to have, increasingly negative consequence for Bangladesh’s export sector. Thus, the current deceleration experienced by Bangladesh’s export sector needs to be seen in the context of the ongoing recession. For the first time in recent history, over the past few months export sector of Bangladesh has been consistently posting a negative growth rate. Export earnings during the first five months of the current FY2002 (July-November, 2002) have come down by about 11% compared to the matched period of FY 2001. Between January-October 2001, a period which coincides with the current global recession, Bangladesh’s export earning was $5089 million, down from the $5236 million registered during January-October, 2000, a fall of almost $180 million. What is of interest to note here is that during January-July
period, export was still somewhat higher in 2001 ($3084 million) compared to 2000 ($3007); export sector was feeling the burden of the emerging pressure emanating from the onslaught of recession, but continued to show some resilience. However, with the deepening of global recession there was significant deceleration during the next four months – exports during July-October, 2001 was only $2005 million, down from $2230 million registered over the corresponding period of 2000. Exports of all major items suffered a setback: woven and knit-RMG, principal exports of the country, posted growth rates of –9.5% and –3.3% respectively; exports of shrimp came down by 32.8%. What is also of interest to note here is that if the growth rate of –10.06% during the first four months is decomposed, it is seen that most of it originated from a decline in the volume of export (-9.74%), rather than fall in unit price of export (-0.32%), underscoring the importance of the income effect in the deceleration of the export earnings. It is to be noted here that L/C opening figures for imports of fabrics under b/b L/Cs during July-November, 2001 is also showing a negative growth of - 5.5%. This would indicate a fall in export orders which would mature during the first quarter of 2002 with consequent expected fall in earnings from export of RMG over the corresponding period. As was mentioned earlier, the forecast for the growth of world trade in 2002 is rather bleak and obviously Bangladesh is not the only country whose export sector has suffered a setback. Pakistan had to revise downward by about 10% its export target of $10.1 bln for 2002; India’s export of some of the major items in FY 2002 (AprilOctober) is also showing negative growth trends. Consequently, India’s growth projection for the current year was scaled down from 6.4% to 5.2%; China, which registered a significantly high export growth rate of 29.8% in 2000 was able to attain only a 3% growth in 2001. Increasing product and market concentration, weak domestic linkage of exportoriented industries and shallow domestic market of goods that are exported make Bangladesh’s export sector specially vulnerable to external shocks. Recent global initiatives such as USTDA 2000 and special preferential treatment accorded by EU and USA to Pakistan are in all likelihood having adverse impact on Bangladesh’s exports and accentuating the negative consequences of the ongoing recession. The
recently introduced initiative of EU’s everything but arms initiative providing LDCs zero-quota zero-tariff access to EU market is not expected to benefit Bangladesh much either – a recent study conducted by the Commonwealth Secretariat showed that from a static perspective, Bangladesh’s gain is expected to be very negligible, about $8.0 million. Bangladesh, however, stands to gain substantively if such a treatment was accorded globally in which case the gains for Bangladesh are estimated to be $1200 million annually. However, as is known, the recently held fourth WTO Ministerial Meeting in Doha failed to come up with such an initiative. Thus, there is hardly any cushion available to Bangladesh to mitigate the adverse impact of the ongoing recession. The purpose of this write up, however, is not to come up with policy suggestions for addressing the current debacle. This would call for a separate and serious professional exercise. As a matter of fact, a number of areas requiring policy interventions towards raising the competitiveness of domestic exportoriented sector and enhancing trade related capacity building have already been identified and put on the table. The task now is to seriously get on with the business of implementing the agendas. The upshot of the above discussion is to reemphasise that in the coming months and years Bangladesh’s increasingly globalised economy will, of necessity, have to be adequately prepared to face the consequences of the fluctuating fortunes of the global economy. The current debacle suffered by Bangladesh’s export sector should transmit appropriate signals to the country’s policy makers to the effect that it is only from strengthened global integration that Bangladesh stands to benefit in the context of her increasingly globalised economy; failing this, the price to be paid will rise in direct proportion to the degree of the country’s lack of preparedness. The ongoing global recession should thus serve Bangladesh both as a wake-up call, and as an warning bell.