Bangladesh was conventionally known as importdependent economy due to economic nature and resource landscape. In the recent years, economy has been performing consistently and major indicator of economy export gained momentum. Due to upswing in export trend, government also prioritized the economic orientation on export led industrialization and economic growth.
The entire world has been badly victim of pandemic stress while Bangladesh has smoothly contained the vulnerability through resilient economic policies and management. As a result, our export trade has outperformed other economic actors and facets amidst the COVID and import have heavily surged ending up our foreign trade $145 billion in FY2022. While Bangladesh has been undergoing the pandemic recovery process and flourishing the industrial investment, the war led geopolitical and geo-economic shockwave have somewhat squeezed our economic spree. The global trading system and economic system have been shocked immensely.
The regional economies were hit shrinking their export base especially some South Asian economies were badly crippled. Because of COVID outbreak, the global economy collapsed and revealed vulnerabilities in many dimensions. Despite having all challenges, our economy gained huge trade momentum and become a centre of attraction regionally being branded as the top resilient economy in the Asia and 5th resilient economy in the world.
Earlier, the global trade has declined by 5.5% in 2020 but slightly recovered in 2021 but again faced downfall due to widespread global crisis. Currently, World economy has plunged due to multiple crises including inflation, energy supply crunch and price shock. As a result, IMF revised downward global growth estimation to 3.6% in 2022.
This inconsistency in world trade has shaken the spirit of revival of many economies. Against this dwindling global context, $67 billion export earning enshrining both good sand service in FY2023 has been targeted. Apparently, this target is exciting but there are some despairs and glooms which may overshadow the brightness of the trade growth. Some of the core challenges which may hold back our desired export target are briefly elicited.
The effects of the Russia-Ukraine conflict became apparently widespread when the export industry started to recover from the pandemic. The Europe and the US markets have already experienced a sharp decline in purchasing power due to staggering inflation. Inflation in the US and UK reached over 9 percent as one of the highest rates in the world in their economic history of last 4 decades.
Taka has declined by 10% in last 3 months against USD which tightens our foreign exchange reserve. Though Bangladesh still hoards healthy reserve to manage minimum the import cost equivalent to 6 months’ time, the relentless decline in exchange rate of USD and Taka is alarming to large extent.
- Average Gas price hike by 22.78% and 7.6% in industry gas will be detrimental because they will significantly increase production cost of export-oriented manufacturing declining export competitiveness. The liquid fuel supply crunch and decision of rationing Diesel supply would affect local industrial power supply and smooth local transport network resulting into delay in supply chain related to port. Thus, our lead time may reduce and cost of doing business may hike. RMG export order tends to decline by double digit and raw material import is getting dearer. Exporters have been struggling with the global economy for increased shipping cost.
- Cargo shipping freight cost has gone up from 400% to 500%. A Twenty-feet container shipment used to cost about $3,000 to the USA and $2,500 to the Europe. However, due to disruption in the supply chain and increased fuel price, the freight cost has increased to $18,000 to the USA and $15,000. Though government has taken a commendable step in this budget by exempting taxation from earning of oceangoing vessels, more cost-effective shipping is still required for easing export.
- Our recent import status shows capital machinery import is 7% and industrial raw materials shares 36%. However, the recent restriction on import of luxury and non-essential product, LC margin hike and monitoring on import may enhance our net foreign exchange reserve retention. This restriction may discourage foreign investment and successive fall of exchange rate will not attract new investment. However, the gap of exchange rate in USD-Taka in open market and LC needs to be rationalized for bringing order in FOREX market and economy.
- Taka is devaluating against the US Dollar. We need to ensure the utmost benefit of devaluation process. Therefore, to ensure the maximum benefit from devaluation, we must concentrate on export diversification strategies adding new products to export basket in no time. On the other hand, ongoing currency devaluation poses a serious threat to importers, making businesses less competitive in the long run which may reduce the net retention of export-oriented industries.
- The trade and order loss in Vietnam, Pakistan and Sri Lanka added premium to our sudden export hike in FY2022. As soon as the regional economic context fixes, our unusual growth of 35% may not be sustainable.
- 12% flat rate of corporate tax for all export items is a good move for export diversification. Additionally, expanding the export portfolio with promising products will assist Bangladesh go far and beyond accomplishing $80 billion export target by 2024. However, other nonfiscal benefits like bond and industrial infrastructure are needed to gain the benefit of it.
It’s high time to expand the service sector to increase export revenue due to its various dimensions. Creating a national image of quality service provider with diversity can be one of the crucial trade promotion initiatives to boost service export. The target of service market needs larger endeavors to offset the risk of product market loss due to unpredictable market.
Economic diplomacy effort needs to be deepened in regions where export is small in Africa and Middle East, Asia Pacific regions for export market diversification keeping the new market development. We need to diversify our product basket portfolio to manage any export market shock. Taking into account the changing and unstable geo-economic ambiance, the path to realize this ambitious target is not as easy as thought.
The bumpy and ragged world economic state and outlook can cause new concerns to our planned export earnings. In addition, this target has not been made based on any forecast and trend assessment considering local, regional and global economic dynamics. The planned and research-backed target always remain close to reality and achievable containing the pressing concerns in foreign trade. The foreign trade performance is not linear rather subject to critical and diversified world economic atmosphere.
Since Bangladesh is immensely integrated in the global world with the footprint in 190 economies, this global economic context often shapes our economic trend. Export is instrumental in our relentless economic journey. We need to consider our integrated export target taking into account the contemporary economic condition, performance and other allied actors influencing our economic competitiveness.
LDC graduation led transition already changes our economic ecosystem, pattern and this transition will erode many supports and require separate preparedness and strategic actions for sustainable and seamless economic regime. Healing the global economic ailment through concerted effort should be our agenda for a shared, prosperous and inclusive global economy.
Therefore, an ambitious export should not be the main objective at the current context rather building a serene, friendly and compliant industrial base implementation need attention for long-standing and meaningfully objective export business culture towards long-cherished economic transformation for the best interest of all.