EXPORT DIVERSIFICATION OF BANGLADESH

POLICY MEASURES

26TH October 2021

BACKGROUND: SHORTFALLS OF CURRENT POLICIES

As RMG sector concentration in exports exceeds 80%, export diversification has become a
pressing concern for Bangladesh (Refer to Appendix). Notably, the current policies aimed at
diversification have failed to attract enough Foreign-direct Investments and forecast proper
demand structures. Since garment factories are run by local owners, low FDI only affects
other sectors, resulting in higher concentration of RMG in the export basket.

Source: Export Promotion Bureau, Bangladesh

Source: Faiz and Maitra (2020)

Currently, subsidies and incentives account for 12.6% of our 2021-22 budget with an
additional 1% increase in cash incentive to garment exporters along with the existing 4%
(Mirdha, 2020), whereas Industrial and economic services account for only 0.6% and
transport and communication a mere 2.7% (Bangladesh Ministry of Finance, 2021). The
RMG sector has gained enough reputation and has a comparative advantage, as opposed to
the other industries. Another major area that requires attention is port and transport
infrastructure development. The World Bank (2007) found that Chittagong port is devoid of
private sector participation. Tongzon and Heng (2005) found that private sector participation
results in improvement of port operational efficiency and financial management.

Source: Islam, 2018

Among the agro-based products in the case study, the tannery industry is highly related to
environmental damage and lack of strict regulations. Firms having fully-functioning CETP
(and environmental clearance certificates are the ones allowed to operate in the market. But
sadly, firm owners and the government lack the seriousness required to prevent pollution on a
large scale. Nonetheless, it should be made mandatory by the government for firms in Savar
to have fully functioning CETP. For the leather sector to be sustainable, developing a positive
brand image is crucial for Bangladesh. Current goals imply that 28% of Savar‟s tannery site
is to have fully functioning CETP, disposal yard, drainage, electricity sub-station, and more.
In fact, about 49,300 tonnes of solid waste are generated every year which can be reused to
produce something useful, for example, a by-product energy generation unit. On the other
hand, 40% of total employees have not received any formal education.
Source: Akter et al. (2021)
As for jute, the growing demand of bio-degradable materials world-wide and new
innovations within the country, the industry has the potential to flourish. Attempts by the
government to enact policies has been notably the “National Jute Policy 2011” which
emphasized on jute production attributes such as quality of seeds, type of products, quality of
machineries, and technologically update the sector (Rahman et al., 2017), following by
potential draft policies. In the National Budget Speech 2021-2022, the government plan of
research and marketing is highlighted. Moreover, it is stated that the public mills have been
closed with the idea of re-opening them under private ownership. Bangladesh also has the
potential to become a dominant shrimp exporter in the global market by embracing strategic
planning and having a clear-cut vision (Refer to Appendix). Despite frozen food being the
largest export item of Bangladesh where 80 percent contains shrimp, it only contributes to
3.78 percent in GDP. Bangladesh could only capture 2.5 percent of the global shrimp market.

Furthermore, the neglect of other detrimental flaws of the industries such as incomplete
implementation of research initiatives is also a crucial policy failure. Even though the policies
recognize crucial factors, the consuming and producing sides of the industries are not being
equally matched. The enormous debt accrued by buyers of raw jute is also a vicious cycle
that is preventing expansion of that industry (Moazzem, Rahman & Sobhan, 2009).
Additionally, there has been little to no attempt to induce employee incentives that motivate
training and skill development and attract significantly better management personnel. Such
efforts could both improve productivity through efficient output and lower instances of
corruptive activities. According to Ahmed (2018), BJMC can easily acquire loans and
manipulate prices, which has been in no way minimized to introduce autonomy and better
decision making into the industry. In Kabeer et al. (2013), female participation in agriculture
showed an increase of 37% whereas that of males fell by 10%, but this valuable human
resource is yet to be utilized.

INTERVIEW DR HELAL AHAMMAD*

An expert in trade and development, he pointed out the major flaws in the Bangladesh export
sector. The government is overlooking the necessity of connecting these agro-industries to
export destinations. Only the RMG sector has benefited from numerous subsidies and
diversifications of products, making other industries less competitive. From knowledge of
other countries and existing research, he mentions the necessity of creating a competitive,
fair, and viable environment as a policy solution and equitably distributing the government
funds to different industries. These keen insights, combined with the hefty secondary research
form the evidence and foundation of the policy measures recommended in this paper.

*PhD in Economics, Australian National University- Dr Helal Ahammad has worked for the Australian government for 15
years and has publications in reputed journals. His expertise lies in development studies and related topics. Currently he is a
professor at North South University, Dhaka, Bangladesh. LinkedIn: www.linkedin.com/in/dr-helal-ahammad-5b506375/

RECOMMENDED FEASIBLE POLICY MEASURES

 From the experience of developed countries like Japan, it has to be ensured that
policies work together and have sufficient transparency to achieve public support.
Moreover, government involvement has to be reduced to its minimal by utilizing
FDIs and private investments [Use Investment Promotion Agencies (IPAs)].
 In some instances, like waste management (CETP) and environmental controls a
public-private partnership is recommended as the most feasible solution. The passing
of new laws targeting pollution is also necessary (such as pollution limits).
 A policy solution that is the efficient management of research and development to
target growth and diversification in all of the agro-based industries is also essential.
For this, we propose a country-wide collaboration of universities and existing
research facilities. The vast wealth of young minds can be used to solve the majority
of issues raised in this study.
 Due to fragmented land for production, farmers should be incentivized to form
groups and work on rented lands to produce goods like jute. In return, they should be
micro-credited on the condition of building better quality storage facilities, increasing
high quality jute production, and absorbing the training and advices established by
„National Skill Development‟ programs
 Additionally, marginalized women in agriculture and in informal sectors should be
encouraged to be in communities that provide accommodation and collaborate with
trusted transport facilities, as it inspires and motivates them (Rubin et al., 2018). In
combination, the production regions closer to urban areas should be targeted for
development as it can take in an influx of informal sector workers.
 It is also recommended that separate regional divisions connected to government
offices be initiated to allow easier transfer of funds to both local farmers,
manufacturers and exporters and also monitor the finances of local companies. It may
also become necessary to forgive past loans that hinder efficacy of policies like the
loans accumulated by BJMC.
 Most importantly, we recommend a policy measure suited to the modern market
conditions. For diverse exports to reach their potential, large and politically stable
markets such as the US and Europe have to be targeted. Therefore, the policy should
include “SOCIAL MEDIA” marketing for agro-based products that is intricately
designed and employs experts to cause the idea of new-age agro products to become
popular among wide age groups. The media coverage is also necessary to promote
products such as „SONALI‟ jute and induce demand in foreign markets for these
innovations.
 The development policy measures can be simultaneously used to relocate
unemployed expertise from engineering backgrounds who can work on the technical
parts of the industry and infrastructure. These policy measures should be aimed to
introduce new industries that address the numerous gaps in the supply chain, product
innovation and marketing. A long-term effect can be the reduction of the youth in
informal sectors.
 Quality-control departments for all agro-based products with training for low skilled
workers. This policy has to ensure the bio-security of production plans. A substantial
budget should be allocated to „MODERNIZING‟ product packaging (Ahammad,
2021). This can help Bangladesh target foreign markets better
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 APPENDIX

Figure: 1

Source: Lightcastle Partners

Figure: 2

Source: Lightcastle Partners

 Figure: 3

Source: Lightcastle Partners

Figure: 4

Source: Akter (2020)

 Figure: 5

Source: Akter (2020)

Figure: 6

Source: Marina Fresh Bangladesh

 Figure: 7

Source: Marine Fresh Bangladesh

Figure: 8

Source: Lightcastle Partners (2019)

 Figure: 9

Source: Islaqm (2018)