Improving Export Capabilities

of SMEs: Succeeding Globally

upon LDC Graduation
Dr Selim Raihan
Professor, Department of Economics, University of Dhaka
Executive Director, SANEM
Member of the Board of Directors, GDN
Editor, Thinking Aloud

7 October 2023
Graduation from low-income
lower-middle-income An upper-middle-income
country country

2015 2031

2026 2041

Graduation from the LDC A developed country

status

2
LDC graduation

LDC graduation in 2 years from now

Challenges of LDC graduation are automatic

Opportunities have to be realized

3
SMEs in Bangladesh

80% of
25% of the total employment in
GDP the country's
industrial sector

4
 Capacity

1
constraints

Policy and
2
regulatory issues

Financing
3
Challenges for SMEs

Infrastructure
4

Skill
5

5
 1
Capacity constraints
6
Bangladesh’s productive
capacities index remains low
Components of
Productive Capacity
Index:
• Structural change
• Energy
• Human capital
• Institutions
• Natural capital
• Transport
• Private sector
• ICT

7
SMEs’ export capabilities
Internal economies of scale: Size, Technology,
Informality

External economies of scale: Absence of organized

clustering for SMEs

Different NTMs: Lack of capacity to comply with

SPS, TBT and other NTMS; Lack of knowledge about
product and market opportunities

8
 2
Policy and regulatory
issues
9
 The need for improvement in the quality of formal
institutions, and in particular, regulatory quality
Percentile rank of Bangladesh and comparators in
terms of institutional indicators in 2021

BANGLADESH INDIA CHINA MALAYSIA THAILAND VIETNAM

Voice and Accountability 28.02 51.69 5.31 39.13 27.05 13.04

Political Stability 16.04 24.53 29.25 50.94 27.36 44.81

Government Effectiveness 28.85 62.50 76.44 81.25 60.58 62.02

Regulatory Quality 20.67 49.52 41.35 72.60 56.73 37.98
Rule of Law 28.85 51.92 53.85 70.19 55.77 48.56
Control of Corruption 18.27 46.63 58.17 61.06 35.10 47.12
Note: Percentile rank among 214 countries (ranges from 0 (lowest) to 100 (highest) rank). Higher values mean
better quality of institutions.
Source: World Bank, World Governance Indicators
10
 Ease of paying taxes in 2020
Bangladesh India China Malaysia Thailand Vietnam
Overall ranking 151 115 105 80 68 109
Ease of paying
taxes score 56 67.6 70.1 76 77.7 69
Time to comply
(hours) 435 252 138 174 229 384
Number of
payments 33 11 7 9 21 6

Source: PwC, Paying Taxes 2020. https://www.pwc.com/gx/en/services/tax/publications/paying-taxes-

2020.html

11
Import tariff remains high in Bangladesh

Source: Authors’ estimation based on WDI data 12

Share of tariffs lines with international
peaks in Bangladesh is high

Source: Authors’ estimation based on WDI data 13

 Concentrated export basket- a key concern

Source: UNCTAD’s export product diversification index; the higher the value, the higher the level of export
concentration (or less product diversification). ASEAN+ includes ASEAN and China. OECD stands for The
Organization for Economic Cooperation and Development and is comprised of developed countries. 14
Need for reform in tax and trade
policies and better implementation
Lack of coordination among
Lengthy customs and trade
the line ministries often
regulations impede business
stretches the bureaucratic
prospects
red tapes

The tax system in Inconsistent tax rates lower

Bangladesh lacks proper investors’ forecasting
policy reform and is not predictability and trust in the
private investment friendly policy regimes

Current macroeconomic
The tariff regime is not instability exerts
investment-friendly unproportionate challenges
for SMEs

15
 3
Financing
16
 Domestic credit to the private sector by banks (% of
GDP) in 2022 and position in the global ranking

Note: The ranking is done out of 175 countries

Source: Data from World Bank, World Development Indicators 17
Challenges for SMEs

A high rate of NPLs

Weak capital market

High operational cost of SME financing

SMEs’ weak integration with financial system

18
Financing SMEs
Need for the development of specialized financing programs,
simplified loan application processes, and
credit guarantee schemes to mitigate risk for lenders.

So far, the utilization of credit guarantee schemes for SMEs is low.

In order to reach out to SMEs, banks should think of ways to cut extra
administrative costs.

19
 4
Infrastructure
20
 Infrastructural bottlenecks
Bangladesh's progress on LPI (overall) in the global context

Components of Logistic
Performance Index
(LPI):
• Customs
• Infrastructure
• International
shipments
• Logistics quality and
competence
• Tracking and tracing
• Timeliness

Source: World Bank, Logistic Performance Index 21

Entitlement failure in
infrastructure for SMEs

The problems of Broad

sector-specific infrastructure vs.
infrastructural sector-specific
deficits for SMEs infrastructure

22
 5
Skill and Labour Productivity
23
Comparison of labour
productivity

Skill gap exists

in almost all
sectors of the
economy

Data source: Labour productivity (GDP per person employed at constant

2017 PPP $) in 2021, data from the World Bank, World Development
Indicators

24
An Agenda for enhancing SMEs’
export capabilities
1. Effective skill development program
2. Specialized financing programs
3. Development of capacity to meet product quality and market
demand
4. Make SEZs the Game Changer
5. Reform of labour laws for EU’s GSP Plus regime
6. FTA as a strategy to secure market access in the post-LDC era
7. Reform of tax policies and tax infrastructure
8. A sustainable and long-term solution to utility services such as
gas and electricity.
9. Timely and cost-effective implementation of the mega
infrastructural projects.
10. Sector-specific trade facilitation-related challenges

25