Bangladesh Economy and International Trade - An Overview - Final

15 September 2015
Presented by:
Dr. Md. Mozibur Rahman
Course : EIB 534/532: Bangladesh in International Business
EMBA Program
Department of International Business
Faculty of Business Studies
University of Dhaka
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2
Objectives
Provide an overview of Bangladesh Economy

Provide an overview of historical
transformation of Bangladesh Economy
Provide an overview of Bangladeshs
International trade performance
Bangladesh Economy and International trade: an overview

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4
Introduction
Bangladesh has posted a robust and resilient economic performance

over the past decade, accompanied by a sustained decline in
poverty.
The average annual real GDP growth of the Bangladesh economy
during the last ten years was over 6%, aided by conducive
macroeconomic policies, strong export growth and favourable
weather. GDP growth was broad based with agriculture, industry
and service sectors performing well.
Export-led growth, largely induced by increasing ready-made-
garment (RMG) exports and remittances from overseas workers,
have been the drivers for Bangladeshs economic development in
the past decades. Poverty declined from 57% of the population in
1990 to 31.5% in 2010 and estimated at 25.6% in 2014.

5
Introduction
Bangladeshs involvement in international trade has been

increasing significantly in the past decades, with export
values more than quadrupling in the period 2001/02 to
2014/15 and the ratio of total trade to GDP accounting
now more than 50% of GDP.
However, comparing the trade to GDP ratio with other
countries in the region, it shows that there is still room for
improvement, which confirms Bangladeshs strategy of
accelerating economic growth by increased and diversified
exports, including increased services exports, resulting in
deeper integration into global trade.

6
Structure of Bangladeshs Economy
Trends
in Bangladeshs GDP and its sectoral Composition, 19702014 (constant 2005
US$ million)
Sector 1980 1990 2000 2010 2011 2012 2013 2014

Total GDP 23,153 34,309 54,199 93,236 99,263 105,737 112,095 118,951
Agriculture 6,542 8,229 11,027 16,668 17,410 17,935 18,377 18,992
Manufacturing 2,333 3,808 7,426 15,315 16,849 18,526 20,436 22,210
Industry 3,304 5,868 11,556 23,723 25,863 28,303 31,031 33,635
Services 12,520 18,733 28,340 48,887 51,926 55,341 58,392 61,799
Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

7
Structure of Bangladeshs Economy
Sectoral contribution in Bangladeshs GDP, 19802014 (% of GDP)
Sector 1980 1990 2000 2010 2011 2012 2013 2014

Agriculture 31.55 32.75 23.72 17.81 17.71 17.09 16.27 15.89
Industry 20.63 20.69 23.31 26.14 26.39 26.74 27.63 27.86
Services 47.81 46.55 52.91 56.04 55.89 56.16 56.08 56.24

8
Bangladeshs Resilient Growth Performance
Resilient Growth Performance

9
How did Bangladesh grow in such a sustained fashion?
Economic growth accelerated largely since the 1990s,

because of the accumulation of physical capital, increase
in the size of the labor force, and to a much smaller
extent, an increase in total factor productivity.
Underpinning there were several economic reforms: sound
macro-economic management, targeted trade policy
reforms that enabled the garment sector to thrive and
similarly-focused policies that facilitated take-offs in other
specific sectors (e.g., as frozen foods in European
markets), import and financial sector liberalization, and
investment in human development and social protection.

10
Remittances and garment exports were the twin drivers of

growth in the economyremittances through their effect on
consumption and construction as well as easing the foreign
exchange constraint, and garment exports through providing
sustained direct and indirect employment for millions of
workers in garments, input and ancillary suppliers, etc.
Also, the manufacturing sector has been the largest single
contributor to growth in the past two decades. As a result,
the share of manufacturing in total GDP increased from 10.8
percent in FY80 to 18.9 percent in FY13. Modest investment
rates notwithstanding, capital deepening in both agriculture
and industry played an important role.

11
Bangladesh has also proven to be relatively resilient to

global economic shocks.
Its growth continued to be resilient despite several external
shocks that slowed exports, remittances, and investment
growth, including the end of the Agreement on Textile and
Clothing (ATC) in 2005 and the 2008-09 global financial
crisis, thanks largely to strong fundamentals at the onset of
the crisis, relatively under-developed and insulated
financial markets as well as pre-emptive policy response.
The current account and balance of payments have been
stable making huge foreign exchange reserve, thanks to
remittances.

12
Key Macroeconomic Indicators

Key Macroeconomic Indicators from 2010 to 2014
Indicators 2010 2011 2012 2013 2014
GDP (current USD Billion ) 115.28 128.64 133.36 149.99 173.82

GDP Growth (%) 5.57 6.46 6.52 6.01 6.12
GDP per Capita (Current USD) 762.8 841.5 862.1 957.8 1096.6
Inflation, GDP deflator
7.14 7.86 8.16 7.17 6.18
(annual %)
Trade (%GDP) 37.80 47.42 48.11 46.30 44.99
Foreign direct investment, net
0.75 0.92 1.11 1.00 --
inflows (% of GDP)
Gross Domestic Savings (%
20.49 19.84 20.47 21.17 23.21
of GDP)
Remittance (% of GDP) 9.79 10.08 10.68 9.24 --
Current Account Balance (%
1.01 0.30 2.41 1.58 --
of GDP)

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Economic Liberalization
Bangladesh, after independence, like many other

developing nations, adopted Import substitution (IS) as
its economic strategy.
It did not work because of the inherent follies of IS

strategy. Industrial activities were conducted by state
owned enterprises.
IS strategy resulted in BOP disequilibrium, foreign

exchange shortage, relatively low growth and micro-
inefficiencies such as: uncompetitive enterprises.

15
Since realizing the shortcomings of the IS strategy,

Bangladesh gradually started liberalizing her economy in
general, and her trade regime in particular
1982-1986:
de-nationalization of the public enterprises,
simplification of private investment procedure,
reducing the level of QR
Removal of import licensing

16
1987-1991
Elimination of QR on imports
Reduction and rationalization of tariffs
Simplification of trade procedure
Simplification of other charges

17
1991 and onwards
More intense liberalization including flexible

exchange rate
Lowering maximum effective tariff rate
Removal of commodities from control list

18
Initially, the main thrust of liberalization was more evident in
the import regime
However, measures to enhance export were taken as well; such
as
i. Duty drawback facilities
ii. Income tax rebate
iii. Gradual removal of import-license fee for export-oriented
industries and import tariff for capital equipment imports
iv. Back-to-back LCs
v. Credit facilities at a lower interest rate
Positive outcomes of trade liberalization was almost
immediately evident

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Bangladeshs Trade Scenario

Overview of Bangladesh Trade
Source: World Bank

21
Overview of Bangladesh Trade (1970-2014)

Indicator Name 1970 1980 1990 2000 2010 2014
Imports of goods
and services
1,124. 3,239. 4,076. 9,060. 25,106. 43,853
(current million
76 43 61 86 32 .97
US$)
Exports of goods
and services
1,844. 6,588. 18,472. 34,343
(current million 747.58 995.27
50 07 45 .96
US$)
Trade (% of GDP)
20.82 23.38 18.97 29.32 37.80 44.99
GDP growth
(annual %) 5.62 0.82 5.62 5.29 5.57 6.12

22
Overview of Bangladesh Trade (in Crore Taka)

Indicators FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15
GDP (At constant Price ) 6,46,340 6,88,490 7,29,897 7,74,136 8,24,532
GDP (At Current Price) 9,15,830 10,55,200 11,98,923 13,43,674 15,13,600
GDP Growth Rate (%) 6.46 6.52 6.01 6.06 6.51
Export 1,44,431 1,80,313 1,89,437 2,12,915 2,26,522
Import 2,40,028 2,80,963 2,72,328 3,04,185 3,14,209
Source: Bangladesh Bureau of Statistics & Bangladesh Bank

23
Overview of Trade Performance of Bangladesh (Import)
Source: Bangladesh Bank

24
Overview of Trade Performance of Bangladesh (Export)

25
Comparative Performance of Bangladeshs Export

vis--vis Import (Value in US $ Million)

26
Balance of Trade of Bangladesh
Value in US $ Million

27
Import Composition and Growth
Sl Name 2011-2012 2012-2013 Growth (%) 2013-2014 Growth

No. (%)
901 726 -19% 1,465 102%
1 Food (Rice & Wheat)
3,600 3,128 -13% 4,098 31%
2 Other Food Items
Consumer and 16,783 16,694 -1% 18,601 11%

3
Intermediate Goods
12,118 11,031 -9% 13,593 23%
5 Capital Goods
2,114 2,505 18% 2,975 19%
6 Others (Import in EPZ)
Grand Total 35,516 34,084 -4% 40,732 20%

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Share in total Import

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Import of Food Grains and Other Essential Commodities (US $ Million)

Financial Year
Sl.No. Commodities
2010-11 2011-12 2012-13 2013-14
1 Edible Oil 1,067 1,644 1,402 1,761
2 Food Grain 1,911 901 726 1,465
i. Rice 830 288 30 347
ii. Wheat 1,081 613 696 1,118
3 Sugar 654 1,177 731 902
4 Oil Seeds 103 177 241 508
5 Pulse all sorts 292 243 422 455
6 Milk & Cream 161 221 214 289
7 Spices 127 138 118 183

30
Sources of Bangladeshs Imports
Sl. No Country 2012-2013 2013-2014 Growth (%)
1 China 6,308 7,541 20%

3 India 4,741 6,036 28%
9 Singapore 1,079 2,290 11%
8 Malaysia 1,492 2,042 37%
5 Japan 1,180 1,284 9%
6 South Korea 1,296 1,199 -7%
4 Indonesia 1,054 1,104 4%
7 Kuwait 545 915 68%
2 608 759 25%
Hong Kong
10 Thailand 689 741 7%

31
Export Composition and Growth
Sl
Name 2011-12 2012-13 Share (%) Growth (%) 2013-14 Share (%) Growth (%)
No.
Primary
1 Commodities 1,001.13 1,079.58 4% 8% 1,253.28 4% 16%
(Chapter 1-24)
Manufactured
2 Commodities 23,229.96 25,846.15 96% 11% 28,808.65 96% 12%
(Chapter 25-97)
All products 24,231.09 26,925.73 100% 11% 30,061.93 100% 12%
Source: Export Promotion Bureau

32
Export: Composition and Performance

Sl Growth Growth
Name 2011-2012 2012-2013 Share (%) 2013-2014 Share (%)
No. (%) (%)
1 Knitwear 9,486.39 10,475.88 39% 10% 12,442.07 41% 19%
Woven
2 9,603.34 11,039.85 41% 15% 12,049.81 40% 9%
Garments
3 Others 3,019.75 3,221.06 12% 7% 3,550.65 12% 10%
4 Jute Goods 701.1 800.69 3% 14% 698.1 2% -13%
5 Frozen Food 598.42 543.84 2% -9% 638.19 2% 17%
6 Leather 330.16 399.73 1% 21% 505.54 2% 26%
Petroleum By
7 275.44 313.95 1% 14% 162.34 1% -48%
Products
8 Raw Jute 266.28 229.92 1% -14% 126.39 0% -45%
9 Tea 3.38 2.44 0% -28% 3.71 0% 52%
Chemical
10 17.64 0 0% -100% 0 0% 0%
Fertilizer
11 Total 24,301.90 27,027.36 100% 11% 30,176.80 100% 12%
Source: Export Promotion Bureau, Bangladesh

33
Export Destination
As in the export basket of the country, destination

markets are also largely similar, e.g. the USA (19%)
and the EU (54%) major export destination.
Some new destinations such as Japan (15%), Korea

(38%), China (63%), Turkey(34%), Russia (36%) shows
the higher growth and potentiality of the exports in
the new markets.

34
Directions of Bangladeshs Exports

Sl. Share Growth Share Growth
Country 2011-2012 2012-2013 2013-2014
No (%) (%) (%) (%)
1 EUROPEAN UNION 12,743.35 13,983.92 52% 10% 16,399.81 54% 17%
2 UNITED STATES 5,100.91 5,419.60 20% 6% 5,583.62 19% 3%
3 OTHER COUNTRIES 1,746.93 1,929.43 7% 10% 1,954.71 6% 1%
4 CANADA 993.67 1,090.02 4% 10% 1,099.63 4% 1%
5 JAPAN 600.53 750.26 3% 25% 862.08 3% 15%
6 TURKEY 551.88 637.81 2% 16% 856.20 3% 34%
7 CHINA 401.94 458.12 2% 14% 746.20 2% 63%
8 AUSTRALIA 347.14 461.90 2% 33% 479.38 2% 4%
9 SAINT BARTHLEMY 436.71 555.82 2% 27% 460.03 2% -17%
10 INDIA 498.42 563.96 2% 13% 456.63 2% -19%
11 KOREA, REPUBLIC OF 209.71 250.49 1% 19% 344.81 1% 38%
12 RUSSIAN FEDERATION 133.25 208.29 1% 56% 283.35 1% 36%
13 HONG KONG 245.43 345.11 1% 41% 280.51 1% -19%
UNITED ARAB
14 170.17 251.25 1% 48% 245.35 1% -2%
EMIRATES
15 SWITZERLAND 121.87 121.38 0% 0% 124.49 0% 3%
Total 24,301.90 27,027.36 100% 11% 30,176.80 100% 12%

35
Trade In Services: Current Scenario

Service sector is increasingly becoming the core of Bangladesh
economy. The contribution of Service sector in its GDP
increased from 47.81 percent in 1980 to 56.24 percent in 2014,
although generating only 35 percent of total employment.
However, services export contributed merely 10 percent of its
total export. This reflects that service sector is less integrated
and the potentials in services export are rather underutilized.
Bangladesh intends to expand the horizon of services activities
and to strengthen the sectors contribution to the countrys
economic performance. Hence, Bangladesh is very active in
operationalizing the LDC Services Waiver under WTO to explore
its potential service export in developed and developing
countries.

36
Contribution of different services sub-sector in

Bangladesh's GDP
Contribution of different services sub-sector in Bangladesh's GDP(%)
Sectors Share in GDP Share in service Annual average growth
(2012-13) sector GDP (2012-13) rate (2001-2013)
Electricity, gas and water supply 1.73 2.86 7.5
a) Electricity 1.45 2.40 7.4
b) Gas 0.19 0.31 7.2
c) Water 0.10 0.16 9.4
Construction 9.37 15.52 7.3
Wholesale &retail trade 14.05 23.27 6.4
Hotel and restaurants 0.75 1.24 7.3
Transport, storage & communication 10.80 17.88 7.2
a) Land Transport 6.10 10.09 5.2
b) Water transport 0.65 1.08 1.3
c) Air transport 0.14 0.23 4.0
d) Support transport services, storage 0.36 0.59 4.8
e) Post and Tele communications 3.56 5.89 17.7
Financial intermediations 2.16 3.57 8.8
Real estate, renting and business activities 6.73
Public administration and defence 2.88 4.77 7.0
Education 2.90 4.80 8.3
Health and social works 2.49 4.12 7.1
Community, social and personal services 6.54 10.83 4.3
37
Trade In Services: Current Scenario

Merchandise and Services Trade of Bangladesh 2000-2013 (US$ at current prices in Million)
Source: UNCTADSTAT, accessed on 26 April 2014

38
Trade In Services: Services Export

Bangladeshs services exports have increased by more than three fold
over the past decade, from a little over $1 billion in 2003 to around $3.7
billion in 2013. However, the contribution of services export in its total
export remains around 10 per cent over the last decade.
The contribution of traditional services such as transport and travel has
declined over the decades from around 50 percent to about 20 percent of
total services exports while that of other services, in particular,
communication, other business services and to some extent, computer
and information services has grown over this period.
In value terms, other business services constitute the largest segment
within other services and have grown almost six fold in value and
increased their share in total services exports by around 33 percent
between 2000 and 2010.
Likewise, communication services have grown more than tenfold in value
terms over this period and have significantly increased their contribution
to total services exports.

39

Bangladesh's Export and Import in Commercial Services (2011)
Source: Source: ITC (2014)

Note: Value for the export and import of education and health unavailable for 2011. 2008
data is used instead.
40

The Evolution of Bangladesh's Services Exports (2000-2011)
Source: ITC (2014)

41

Value and Share of Exports for Different Service Subsectors in Bangladesh, Selected Years
(US$ million and percent))
2000 2005 2010
Value Value
Value (US$ Share Share Share
Sector (US$ (US$
million) (%) (%) (%)
million) million)
Commercial services 283.192 100.00 474.21 100.00 1,209.41 100.00
Transport 91.368 32.26 113.009 23.83 173.591 14.35
Travel 50.421 17.80 70.009 14.76 81.221 6.72
Other commercial services 141.403 49.93 291.192 61.41 954.598 78.93
Communications 21.532 7.60 23.906 5.04 277.67 22.96
Construction 0.194 0.07 14.156 2.99 6.909 0.57
Insurance 3.513 1.24 5.027 1.06 6.841 0.57
Financial services 13.083 4.62 17.972 3.79 40.841 3.38
Computer and information 3.243 1.15 18.713 3.95 37.756 3.12
Royalties and license fees 0.058 0.02 0.261 0.06 0.517 0.04
Other business services 99.253 35.05 210.013 44.29 582.147 48.13
Personal, cultural, and recreational
services 0.527 0.19 1.144 0.24 1.925 0.16
Source: UNCTADSTAT database accessed on April 26, 2014.

42
Trade In Services: Services Import

Bangladeshs services imports have also recorded almost four fold
increase over the past decade, from $1.7 billion in 2003 to $ 6.5
billion in 2013.
The share of traditional services such as transport has actually
increased, more than tripling from $1 billion in 2000 to $3.4 billion in
2010 and its share of total services imports has risen from 66 percent
to over 80 percent over this period.
This growing dependence on imports of transport services in part
reflects the demand from the ready-made garment sector and
Bangladeshs reliance on foreign transport carriers given its capacity
constraints in transport and logistics (as also highlighted by many
experts and in many reports).
There has also been a more than trebling of imports of other business
services in value terms reflecting the growing importance of these
supporting services to the economy.

43
Trade In Services: Services Import

Value and Share of Imports for Different Service Subsectors in Bangladesh, Selected Years
(US$ million and percent))
2000 2005 2010

Value (US$ Value (US$ Value (US$
Share (%) Share (%) Share (%)
Sector million) million) million)
Commercial services 1,523.35 100.00 2,011.36 100.00 4,128.30 100.00
Transport 1,012.76 66.48 1,544.73 76.80 3,440.64 83.34
Travel 289.91 19.03 136.27 6.77 260.60 6.31
Other commercial services 220.68 14.49 330.36 16.42 427.06 10.34
Communications 7.39 0.48 20.62 1.03 20.23 0.49
Construction 2.15 0.14 1.07 0.05 6.29 0.15
Insurance 91.07 5.98 150.65 7.49 26.32 0.64
Financial services 30.75 2.02 13.27 0.66 45.35 1.10
Computer and information 1.52 0.10 4.26 0.21 5.42 0.13
Royalties and license fees 4.42 0.29 2.75 0.14 17.64 0.43
Other business services 83.29 5.47 137.72 6.85 305.70 7.40
Personal, cultural, and recreational
services 0.10 0.01 0.03 0.00 0.13 0.00
Source: UNCTADSTAT database accessed on April 26, 2014.

44
Concluding Remarks
Bangladeshs unique manufacturing performance raises a puzzle.
Although
growing over time, the role of trade in the overall
economy is still low. Trade could play a more significant role in
promoting faster GDP growth and poverty reduction.
The positive current account in a low income economy speaks to
the lack of investment opportunities.
Themacro-economy is stable, but institutional weaknesses and
several vulnerabilities loom large.
The energy shortage is an overarching constraint affecting
virtually all segments of the economy.
Theoverall low use of labor in the economy is a concern, and
increasing labor-intensive, export-oriented manufacturing will
need to be part of the solution.

45
Concluding Remarks
Bangladesh will need to focus more attention on skills
development: skills are emerging as a major constraint, even in
the garments sector, let alone other, more skill-intensive sectors.
The
low level of literacy and years of schooling of the labor force
make skill acquisition more difficult.
Laborissues (i.e., wages, workplace safety, and compliance with
labor standards) can generate major reputational risk for
Bangladeshs overall garment exports, and will need to be
carefully managed.
Bangladeshneeds to not just raise the rate of growth of exports,
but also move beyond the low-wage paradigm.
Bangladeshneeds to identify other sources of competitiveness so
that low wage labor is not the only comparative advantage of
Bangladesh.

46
Concluding Remarks
Product and market diversification is a desirable goal for exports.
However, such diversification will not be easy, since it involves
developing capabilities that revolve around product types.
Prioritization of the agenda is essential.
Aninitial focus on market diversification as well as worker safety issues,
both in partnership with the private sector, may provide high payoffs.
Product diversification may face higher fixed costs and will require
overcoming potential resistance, and policy moves here are likely to be
gradual.
Other elements of the agenda include building a supportive
macroeconomic environment, easing energy constraints and improving
worker and consumer welfare, and these are mostly part of ongoing
efforts.
To implement this agenda, leadership will be critical and should be part
of immediate priorities.

Thank you !
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15 September 2015

Provide an overview of Bangladesh Economy

Bangladesh Economy and International trade: an overview

Bangladesh has posted a robust and resilient economic performance

Bangladesh Economy and International trade: an overview

Bangladeshs involvement in international trade has been

Bangladesh Economy and International trade: an overview

Structure of Bangladeshs Economy

Sector 1980 1990 2000 2010 2011 2012 2013 2014

Agriculture 6,542 8,229 11,027 16,668 17,410 17,935 18,377 18,992

Manufacturing 2,333 3,808 7,426 15,315 16,849 18,526 20,436 22,210

Industry 3,304 5,868 11,556 23,723 25,863 28,303 31,031 33,635

Services 12,520 18,733 28,340 48,887 51,926 55,341 58,392 61,799

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

Bangladesh Economy and International trade: an overview

Structure of Bangladeshs Economy

Sectoral contribution in Bangladeshs GDP, 19802014 (% of GDP)

Sector 1980 1990 2000 2010 2011 2012 2013 2014

Industry 20.63 20.69 23.31 26.14 26.39 26.74 27.63 27.86

Services 47.81 46.55 52.91 56.04 55.89 56.16 56.08 56.24

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

Bangladesh Economy and International trade: an overview

Bangladeshs Resilient Growth Performance

Resilient Growth Performance

Bangladesh Economy and International trade: an overview

How did Bangladesh grow in such a sustained fashion?

Economic growth accelerated largely since the 1990s,

Bangladesh Economy and International trade: an overview

How did Bangladesh grow in such a sustained fashion?

Remittances and garment exports were the twin drivers of

Bangladesh Economy and International trade: an overview

How did Bangladesh grow in such a sustained fashion?

Bangladesh has also proven to be relatively resilient to

Bangladesh Economy and International trade: an overview

Key Macroeconomic Indicators

GDP (current USD Billion ) 115.28 128.64 133.36 149.99 173.82

Bangladesh Economy and International trade: an overview

Bangladesh, after independence, like many other

It did not work because of the inherent follies of IS

IS strategy resulted in BOP disequilibrium, foreign

Bangladesh Economy and International trade: an overview

Since realizing the shortcomings of the IS strategy,

Bangladesh Economy and International trade: an overview

Reduction and rationalization of tariffs

Simplification of trade procedure

Simplification of other charges

Bangladesh Economy and International trade: an overview

1991 and onwards

More intense liberalization including flexible

Lowering maximum effective tariff rate

Removal of commodities from control list

Bangladesh Economy and International trade: an overview

Bangladesh Economy and International trade: an overview

Bangladeshs Trade Scenario

Source: World Bank

Bangladesh Economy and International trade: an overview

Bangladeshs Trade Scenario

Overview of Bangladesh Trade (1970-2014)

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

Bangladesh Economy and International trade: an overview

Bangladeshs Trade Scenario

Overview of Bangladesh Trade (in Crore Taka)

GDP (At constant Price ) 6,46,340 6,88,490 7,29,897 7,74,136 8,24,532