Policy support required to boost Bangladesh's furniture exports

The furniture industry, following ready-made garments, stands out as one of the most labour-intensive sectors in the country, engaging 25 lakh people across more than 40,000 small and large organisations nationwide.

With an annual turnover exceeding Tk35,000 crore in the domestic market, significant strides have been made, leading to the development of major brands within the country's furniture industry and unlocking substantial potential in the export market.

A recent study by the Bangladesh Investment Development Authority (BIDA) underscores the considerable prospects for furniture exports. Factors such as the abundance and availability of labour, capital inflows, technological advantages, and global market demand are identified as potential catalysts for growth. Additionally, the study highlights tariff reductions and policy support, including provisions for bonded warehouse facilities for raw material imports.

According to the BIDA study, the current global trade volume of furniture stands at $650 billion, with exports amounting to $328.64 billion. China leads in furniture exports, with a value of about $139.48 billion, while Bangladesh ranks 36th, exporting furniture worth $110.36 million per year.

Selim H Rahman, president of the Bangladesh Furniture Industry Owners Association and chairman and managing director of HATIL, shared with TBS that 95% of the country's furniture demand is being met by domestically produced furniture. 

"Our current objective is to penetrate the international market. It requires cooperation from the government," he added.

Rahman noted that the industry's dependence on imported raw materials, such as hardware, lacquer, and fabrics, and challenges arising from combined duty, tax, and VAT exceeding 100%, are holding the industry back. 

He stressed the need for a bonded warehouse facility to enhance furniture exports, advocating for government policy support. Rahman also highlighted the absence of formal education focused on the furniture industry, urging an expedited process to develop skilled manpower.

Expressing optimism, he pointed to Vietnam's success in furniture exports, "If Vietnam can, why not us? With government support through short-term, medium-term, and long-term plans, Bangladesh could aspire to become one of the top 5 exporting countries globally within the next decade."

Furniture exports from Bangladesh to 61 countries

As per BIDA, the furniture industry in Bangladesh took a significant step forward when Otobi, established in 1975, started producing branded furniture in the country. Currently, there are over 100 small and large furniture manufacturing companies, including notable brands like HATIL, Partex, Navana, Akhtar, Nadia, Regal, and others. Additionally, about 40,000 small and large companies contribute to the country's vibrant furniture manufacturing landscape.

In the last fiscal year, Bangladesh successfully exported furniture products worth $110 million to 61 countries. The US emerged as the top importer of furniture from Bangladesh, accounting for more than 50% of export earnings in the 2021-22 fiscal year. Following the US, Japan constituted 16%, France 9%, India 4%, South Kararia 3%, Canada 2%, and the remaining products were exported to Saudi Arabia, Spain, and other countries.

Commerce Minister Tipu Munshi, recently speaking at the National Furniture Fair's inauguration, pledged the government's comprehensive assistance to identify and overcome obstacles in the field of exports. Munshi acknowledged the country's success in meeting domestic market needs. "We have been able to meet the market needs of the country. Now we have to focus on exporting furniture. We are working on providing a bonded warehouse for furniture for export," he said.

Highlighting the purchasing power of the country's 4 crore people, comparable to that of European nations, Minister Tipu Munshi noted that the middle to upper-class demographic could afford quality products at reasonable prices. 

Consequently, there is a growing demand for furniture within the country. "The cross section, between middle-class and upper-class, can buy good products at affordable prices. As a result, the demand for furniture is also increasing in the country," Munshi expressed confidence in the expanding market. 

Bonded warehouse facility to speed up export

Industries exclusively geared towards 100% export benefit from duty-free imports of raw materials through bond facilities. While exporting companies in the furniture sector fulfil both domestic and international demands, they currently lack access to bonded warehouse facilities.

Given that this sector falls short of the 100% export-oriented criteria, it is deprived of essential policy support, including bonded warehouse facilities. To propel the advancement of this industry, BIDA advocates for the provision of bond facilities, specifically for the import of raw materials by partial exporters.

"We conveyed the industry's challenges to BIDA, emphasising the need to simplify the bonding process," said Selim H Rahman. He articulated the industry's request for bonded facilities corresponding to the quantity of exportable products manufactured from the imported raw materials. 

The Bangladesh Furniture Industries Owners Association (BFIOA) has formally proposed to the National Board of Revenue (NBR) the inclusion of bond facilities in the national budget for the fiscal year 2023-24. The proposal suggests a duty bond facility for partially export-oriented industries, aligned with an equivalent bank guarantee.

The Vietnamese way

BIDA's examination of the tariff structure on the import of raw materials for furniture production in Bangladesh and that in Vietnam reveals a significant contrast. The Vietnamese government's imposition of low tariffs on raw material imports has been a key factor in the growth of their furniture industry. In contrast, Bangladesh faces challenges in furniture exports due to the elevated costs of raw materials.

The report highlights Vietnam's remarkable progress, with furniture exports surging from $3.06 billion in 2010 to $19.19 billion in 2021, attributable in part to duty-free facilities offered by the government. The majority of Bangladesh's furniture sector relies on imported raw materials, subject to varying import duties ranging from 10% to 127.72% — in stark contrast to Vietnam's total import duty of 0% to 45% for various raw materials.

High import duties on wood, a primary material for wooden furniture in Bangladesh, ranging from 10% to 37%, compared to Vietnam's 0% to 5%, contribute to the disparity. Bangladesh also contends with elevated import duties on chemicals, hindering furniture exports. 

Rahman advocates for industry-friendly import taxes to stimulate entrepreneurship and enhance the sector's role in furniture exports.

The report underscores the non-FSC certification of Bangladesh's wood, necessitating the import of FSC certified wood from abroad for export-oriented furniture production. Despite these challenges, Bangladesh faces higher tariff rates for timber imports compared to Vietnam, ranging from 10% to 37%. 

Besides, the total duty rate for the import of foam chemicals used in furniture manufacturing is currently 37% in Bangladesh, significantly higher than Vietnam's range of 0% to 7.5%. Similarly, various chemicals essential to the furniture industry, such as lacquer and dye, incur import duties ranging from 31% to 89.39% in Bangladesh. In contrast, exporting countries to Vietnam face duty rates ranging from 0% to 15%, depending on the specific country.

To enhance the country's furniture sector exports, in line with the successful model implemented by Vietnam, BIDA's report recommends a reduction in duty rates to a reasonable level or even the consideration of duty-free imports for raw materials intended for the exportable furniture sector.