Diversification of export remains a myth, still. Here is why

Though single-product dependence is said to be not enough to take the country's exports to the next level of growth, no other sector could so far sustain its performance to stand second to ready-made garment.

Leather and footwear, light engineering, and plastic have been among the sectors listed as potential to diversify the export basket.

But an analysis of monthly export data indicates none of these manufactured goods is anywhere near the number one. While RMG exports count in billions, others are still in millions.

Only leather could cross $1 billion in 11 months of the current fiscal year, while engineering goods fetched a little over half a billion and plastic could not even reach $200 million.

During the period, the ready-made garment alone brought home $42 billion during the July-May period of the outgoing fiscal year.

The ready-made garment's share in overall exports is over 84%, while leather and leather goods account for 2.2%, plastic for just 0.38% and engineering products 1%.

Miles to go

Why other sectors, dubbed potential by studies and placed prominently in the government's policy papers, are lagging so behind in export performance?

In the 8th Five-Year Plan, the government has attached top priority to diversified export sectors for sustainable graduation from an LDC. The plan envisages that industries like leather, engineering, shipbuilding, pharmaceuticals, ceramic and plastic will account for 25% of the country's total exports by 2025. The ratio is just 4%, as per the latest export data.

Industry insiders say major policy supports are still focused on the apparel sector, helping it to stay unbeaten and stymieing other potential sectors.

Export sectors had placed their demands and suggestions before the budget.

Infographic: TBS

Were those reflected in the proposed budget?

In the new budget presented in parliament on 1 June, Finance Minister AHM Mustafa Kamal put emphasis on export-oriented industries.

"To promote diversification of exports, we are encouraging the establishment of diversified industries that are information-technology-driven and environment-friendly," he said.

There were some waivers, incentives, either continued from the past or offered afresh in the budget speech, along with pledges of implementation of 100 new economic zones, improvement of one-stop service and logistics – all intended to promote investment.

The government has a project with a $40 million new fund under the Export Competitiveness for Jobs (EC4J) project for infrastructure investments in order to create around 90,000 fresh jobs and to boost export of leather and leather goods, footwear, and the plastics and light engineering sectors. On the other hand, once billion-dollar earner sectors – home textile, jute and jute goods, agricultural products – are facing challenges to keep their pace due to global economic slowdown and adequate policy support from the government.

Are those enough for driving export industries towards the next goal?

Export sector leaders do not think so.

Apex Footwear Managing Director Syed Nasim Manzur finds export incentives are discriminatory, still biased towards a single product.

"Allocation for RMG is Tk200 crore whilst so called diversified sectors like plastic and footwear are allocated Tk7 crore! Why should anyone diversify?" he asks about the central bank's Export Facilitation Fund.

Nasim Manzur, who is also president of the Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh, says the government should continue the existing supports including incentive for diversified export sectors including the leather industry to help them stay strong and expand their export market as well as contribute to the country's smooth LDC graduation.

Apex trade body FBCCI President Jashim Uddin, who himself is a plastic industry pioneer, says, "If we really want to diversify our export basket, we should sit with at least four potential sectors – light engineering, leather, footwear and plastic."

Not only these four sectors, a total of 12 sectors along with pharmaceuticals have potential to grow for export market, he believes.

"As this budget is still a proposal, we have scope to negotiate with the government to take some positive action for product diversification," says the FBCCI president.

Compliance, skills matter

The export industries need to comply with global environmental standards. They face skill shortages too.

The light engineering sector, declared the "product of the year" in 2022, faces 62% shortage in skilled manpower, the FBCCI chief points out. "Every sector has skilled manpower shortage."

He refers to compliance needs of his own sector – plastic – and stressed the sector needs a well-equipped industrial cluster to meet compliance and boost export.

Environmental standards are even more crucial for leather industries. Industry leaders stress that the government needs to make the central effluent treatment plant (CETP) at the Savar Tannery Industrial Estate fully operational and set up a new one.

Leather exporters use imported leather as none of the reputed brands wants to use local leather due to compliance issues, Jashim Uddin says. "The leather industry has the scope to use local leather as it requires allocation of a little amount of money for retrofitting the CETP or setting up a new one," he adds.

Or, the government should allow entrepreneurs and provide them with facilities to set up ETPs on their own, the apex trade body chief suggests.

"It's not rocket science. It just requires some money."

Shaheen Ahmed, president of the Bangladesh Tanners' Association, does not see any initiative particularly to help the leather sector for product diversification.

"If we are to capitalise on the local raw materials opportunity, first, we should address compliance issues," he says, urging the government to allow duty-free import of effluent treatment plant machinery for industries to set up ETPs on their own.

What other countries are doing

Governments are helping export industries generously to overcome the looming sloth in global demand.

• Vietnam has announced a special scheme, dubbed "Resolution 115", till 2030 for textiles, leather and electronic sectors
• India has taken a five-year Rs1,700 crore programme till 2026 for the leather sector
• Brazil announced a payroll exemption programme until 2023 to give industries a breathing space
• Pakistan announced an export finance scheme

Vietnam shows the way

Vietnam followed China's model of export-led growth strategy in the 1980s in its desperate bid to overcome war shocks and moved faster with its radical reform scheme, Doi Moi (Renovation). It saw quick gains. It now has a widely diversified market, spanning over 33 destinations with a turnover of over $1 billion, five markets with over $10 billion, and 11 markets with over $5 billion as of 2022.

The country's free trade with the European Union, bilateral trade agreement with the USA and other regional and bilateral deals have paved the way for further expansion.

It widened its basket with a lot of options – from coffee to rice, garment to electronics to automobiles.

Bangladesh's 2020 rank on the Economic Complexity Index based on the Harmonized System (HS) 1992 classification was 102nd, lower than its comparators Cambodia (92nd), Pakistan (89th), Vietnam (61st), India (45th) and the PRC (20th). Since 2005, Bangladesh has added only 10 products, and these products contributed to $2 per capita in 2020, according to The Growth Lab at Harvard University.

In comparison, Vietnam added 44 products, contributing to $1,254 per capita in 2020. Its transformation provides important lessons for Bangladesh; by targeting FDIs and regional production networks, Vietnam managed to successfully diversify away from agriculture into textiles, followed by electronics and/or machinery manufacturing. Bangladesh can achieve manufacturing export diversification through a similar strategy of targeting investments in specific high-potential sectors and products.

Comprehensive approach needed

Bangladesh assigns specific targets for each of its missions abroad every year and assesses their performance. The Export Promotion Bureau, the commerce ministry and trade associations arrange trade shows in different global locations.

But exports more or less remained limited to a few traditional markets.

The latest EPB report shows only four traditional markets – the EU, the USA, Canada and Japan – accounted for 69% of the export proceeds during July-April of the outgoing fiscal year.

Industry people say they need proper policy support in reality, not in paper, to turn their potentials into money.

"Our potential sectors need to work on compliance, skills, market or research and product development. They need to go to industrial parks. The government should provide facilities to meet these needs.

"We are talking for a long time about product diversification. Even our prime minister is also calling for product diversification. A comprehensive policy should be there, which is absent," says FBCCI President Jashim Uddin.