Not taka devaluation, diversification is the answer

Bangladesh's exports have declined, while exports from Vietnam and Cambodia have seen a robust growth. 

Apparel makers said they are losing ground in the US market to competitors who are reaping benefits from the US-China trade war.

Clothing exports had a negative growth in the European market too, due to the slowdown of the economy and a looming uncertainty over Brexit. 

Bangladesh's export earnings in the first four months of the current fiscal year dropped by 6.82 percent due to the poor shipment of apparel items. 

The external factors are more or less same for all exporting countries, while destinations remain the same – the United States and the European Union. 

Then why does Bangladesh lag behind its competitors? 

Apparel exporters here linked the continuous negative growth to the appreciation of taka against the US dollar, the economic slowdown in Europe, and the ongoing trade tension between the United States and China.

The price negotiation was another major factor that held back the work order flow from buyers, they added.

They believe devaluation of local currencies helped their competitors stay afloat.

However, the reality is different.

Vietnam has devalued its currency, but it was not cited as a stimulus to exports.

US trade data shows American imports from Vietnam saw a 36 percent surge in the first five months of 2019, compared to only a single-digit increase in the same period of 2018.

Vietnam advanced four places to rank eighth in exports to the US, overtaking countries such as India. 

This happened even after the US slapped 456 percent tariffs on steel products shipped from Vietnam.

The export performance has been linked to companies rerouting goods through Vietnam to avoid American tariffs, as well as manufacturers moving production to the Southeast Asian country. 

Why are companies moving to Vietnam?

Multinationals are moving from China to use Vietnam as a "tax haven". They seek to produce and ship goods to the US without paying US tariffs.

Goods made in China are coming to Vietnam and shipped to US with "made in Vietnam" labels. 

The practice puts Vietnam on the currency manipulation watch-list of Washington, with Donald Trump calling the country "almost the single worst abuser". 

Even then, Vietnam has been able to keep its export growth up and attract foreign investment.

Vietnamese companies with limited production capacity are receiving requests from foreign companies for help to relocate production from China. 

Start-ups are getting their inboxes full of inquiries from foreign companies looking to set up factories in Vietnam.

Apart from cheaper labour, easy production and pro-investment policies, Vietnam has diversified beyond shoes and apparel to higher value products by attracting companies such as Samsung, Intel and Canon.

These helped the country to thwart any external factors and stay competitive.

US tariff threats led China to devalue its currency in September for the first time since 2008. yuan is now cheaper by 2 percent against the US dollar, which will give China certain benefits like widening trade surplus with the United States and making its exports more competitive. 

It will also help China expand trade in the region, including in Vietnam.

Vietnam depreciated its currency, the dong, against the US dollar by around 2.4 percent, mainly to stop illegal market sales of dollars by exporters and adjust with the weakening yuan.

How is Cambodia also gaining?

Devaluation does not matter much for Cambodia, which is highly dollarised, with locals and foreigners alike paying in dollars for coffee or car. 

The greenback accounts for 83 percent of total transactions and more than 90 percent of banking deposits in Cambodia, making the country an attractive foreign investment destination and protecting its global trade from external vulnerability.

The central bank there had to devise a strategy to urge Cambodians to use their local currency, riel, more. 

Cambodia's exports increased more than 15 percent in the first five months of this year, mainly on the back of strong demand in the US. The growth came offsetting the decline in EU, which represents 34 percent of Cambodia's exports.

Cambodia saw a surge in rice export to China, when the EU stopped importing rice from the country. Rubber exports from the country also increased.

The finance ministry attributed the export growth to "acceleration of business models, economic diversification and expansion of target markets."

So, it was export diversification that helped both Vietnam and Cambodia keep up export growth, not devaluation of local currencies, as cited by Bangladeshi apparel exporters.

"While external factors stand in the way, short-term measures like devaluation of taka would not help much," said Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue.

We have to see where Vietnam has gained better edges over us and then decide how we can improve, he suggested, adding, "We need to improve market intelligence and devise new strategies to diversify our basket."