Diversifying exports: Non-RMG sectors face 11 challenges  

Key challenges include 

• Inadequate infrastructure
• High logistics costs
• Limited access to finance
• Bureaucratic red tape
• Exchange rate instability
• Stringent regulatory compliance
• Insufficient support for SMEs in marketing and branding

Entrepreneurs seeking to diversify their export basket face 11 key challenges, such as inadequate infrastructure, high logistics costs, a shortage of skilled labour, and slow technology adoption, according to the draft of the White Paper on the state of the Bangladesh economy.

Other significant challenges identified include limited access to finance, bureaucratic red tape, exchange rate instability, stringent regulatory compliance, lack of product diversification, and insufficient support for small and medium enterprises (SMEs) in marketing and branding.

At the same time, the White Paper advises that the government should undertake targeted policy interventions for the development of non-RMG sectors.

This may involve reducing tariffs on imported capital goods, offering tax incentives, and supporting technology upgrading efforts to raise productivity and competitiveness.

To enhance the readymade garment (RMG) sector's resilience, the paper suggests promoting diversification into non-cotton and man-made fibre (MMF) textiles and providing financial incentives for compliance with international standards.

It also calls for investments in technology upgrades and the establishment of a green finance fund to support sustainable practices. Additionally, enforcing labour standards and collaborating with global organisations to ensure ethical practices and improve buyer confidence are recommended.

The White Paper, which was handed over to Chief Adviser Muhammad Yunus today (1 December), elaborates on the challenges, including poor transportation, inadequate port facilities, and power shortages, which increase logistics costs and cause delays. Limited shipping options and high transportation costs reduce competitiveness in the global market.

Additionally, entrepreneurs face difficulties in securing loans, high interest rates, limited access to financial instruments, and heavy reliance on a few sectors, making them vulnerable to market fluctuations and limiting growth potential.

"Lengthy administrative processes, excessive paperwork, and delays in obtaining necessary permits; small and medium enterprises struggle with limited resources, lack of incentives, and insufficient government support; a shortage of skilled labour in certain industries affects production quality and efficiency; and compliance with international standards and regulations is challenging and costly," it said.

On the other hand, exchange rate mismanagement impacts export earnings, making it difficult to plan and price products competitively. Limited use of advanced technology and innovation hinders productivity and efficiency, and difficulty in establishing a strong international presence due to limited branding and marketing capabilities remains a challenge for non-RMG exporters, according to the White Paper.

The paper further mentioned, "Despite initiatives to promote sectors like leather, agro-processing, and light engineering, these industries have faced challenges and remained underdeveloped. The leather industry, contributing 3-4% of exports, struggled with environmental compliance and skilled labour shortages."

"Similarly, the agro-processing sector was hindered by supply chain inefficiencies, insufficient technology adoption, and high tariffs on capital machinery, restricting growth."

The paper also noted that, despite numerous diversification projects undertaken in the past decade, the outcomes have largely remained unsatisfactory.

Other suggestions for export diversification 

The government must remove the relatively "anti-export bias" by reforming the current high-tariff regime, particularly for raw materials and intermediate goods.

Additionally, it is important to note that a more strategic rather than wholesale tariff liberalisation policy should be promoted.

"The reinforcement of institutional capacity in data accuracy requires further coordination and integration of technology at the EPB and Bangladesh Bank to reduce discrepancies in reporting related to exports," the White Paper mentioned.

"In this respect, digitalised mechanisms may be implemented for real-time tracking of exports, along with training in data collection and validation to enhance accuracy and transparency."

To prevent capital flight through strengthened trade monitoring, the paper suggests strengthening trade monitoring mechanisms to reduce capital flight through trade mis-invoicing.

This could involve closer collaboration between the National Board of Revenue (NBR), the Bangladesh Bank, and customs authorities to enhance data validation processes, implement advanced digital tracking systems, and regularly audit trade transactions for accuracy.

The White Paper recommends that Bangladesh negotiate strategic free trade agreements (FTAs) with its key trading partners in preparation for the possible loss of LDC trade benefits in 2026.

These negotiations should be sectoral, focusing on comparative advantages, with the government building negotiation capacity and strategy to secure favourable terms of trade.

To attract foreign direct investment (FDI), the government should improve the investment climate by addressing infrastructural impediments, reducing red tape, and offering appropriate incentives in high-potential sectors.

Additionally, providing economic zones for diversified industries, aside from the RMG sector, will contribute to making Bangladesh a more attractive destination for FDI and spur sectoral diversification, the White Paper added.