1. Bangladesh Economy and International Trade -An Overview _final

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Presented by:Dr. Md. Mozibur Rahman

Course : EIB 534/532: Bangladesh in International BusinessEMBA Program

Department of International Business Faculty of Business Studies

University of Dhaka

15 September 2015

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Bangladesh Economy and International trade: an overview

Objectives

Provide an overview of Bangladesh EconomyProvide an overview of historical transformation of Bangladesh EconomyProvide an overview of Bangladesh’s International trade performance

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Introduction

Bangladesh has posted a robust and resilient economic performance over the past decade, accompanied by a sustained decline in poverty.

The average annual real GDP growth of the Bangladesh economy during the last ten years was over 6%, aided by conducive macroeconomic policies, strong export growth and favourable weather. GDP growth was broad based with agriculture, industry and service sectors performing well.

Export-led growth, largely induced by increasing ready-made-garment (RMG) exports and remittances from overseas workers, have been the drivers for Bangladesh’s economic development in the past decades. Poverty declined from 57% of the population in 1990 to 31.5% in 2010 and estimated at 25.6% in 2014.

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Introduction

Bangladesh’s involvement in international trade has been increasing significantly in the past decades, with export values more than quadrupling in the period 2001/02 to 2014/15 and the ratio of total trade to GDP accounting now more than 50% of GDP.

However, comparing the trade to GDP ratio with other countries in the region, it shows that there is still room for improvement, which confirms Bangladesh’s strategy of accelerating economic growth by increased and diversified exports, including increased services exports, resulting in deeper integration into global trade.

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Structure of Bangladesh’s Economy

Trends in Bangladesh’s GDP and its sectoral Composition, 1970–2014 (constant 2005 US$ million)

Sector 1980 1990 2000 2010 2011 2012 2013 2014Total GDP 23,153 34,309 54,199 93,236 99,263 105,737 112,095 118,951

Agriculture 6,542 8,229 11,027 16,668 17,410 17,935 18,377 18,992

Manufacturing 2,333 3,808 7,426 15,315 16,849 18,526 20,436 22,210

Industry 3,304 5,868 11,556 23,723 25,863 28,303 31,031 33,635

Services 12,520 18,733 28,340 48,887 51,926 55,341 58,392 61,799

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

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Structure of Bangladesh’s Economy

Sectoral contribution in Bangladesh’s GDP, 1980–2014 (% of GDP)

Sector 1980 1990 2000 2010 2011 2012 2013 2014Agriculture 31.55 32.75 23.72 17.81 17.71 17.09 16.27 15.89

Industry 20.63 20.69 23.31 26.14 26.39 26.74 27.63 27.86Services 47.81 46.55 52.91 56.04 55.89 56.16 56.08 56.24


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Bangladesh’s Resilient Growth Performance

Resilient Growth Performance

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How did Bangladesh grow in such a sustained fashion?

Economic growth accelerated largely since the 1990s, because of the accumulation of physical capital, increase in the size of the labor force, and to a much smaller extent, an increase in total factor productivity.

Underpinning there were several economic reforms: sound macro-economic management, targeted trade policy reforms that enabled the garment sector to thrive and similarly-focused policies that facilitated take-offs in other specific sectors (e.g., as frozen foods in European markets), import and financial sector liberalization, and investment in human development and social protection.

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Remittances and garment exports were the twin drivers of growth in the economy—remittances through their effect on consumption and construction as well as easing the foreign exchange constraint, and garment exports through providing sustained direct and indirect employment for millions of workers in garments, input and ancillary suppliers, etc.

Also, the manufacturing sector has been the largest single contributor to growth in the past two decades. As a result, the share of manufacturing in total GDP increased from 10.8 percent in FY80 to 18.9 percent in FY13. Modest investment rates notwithstanding, capital deepening in both agriculture and industry played an important role.

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Bangladesh has also proven to be relatively resilient to global economic shocks.

Its growth continued to be resilient despite several external shocks that slowed exports, remittances, and investment growth, including the end of the Agreement on Textile and Clothing (ATC) in 2005 and the 2008-09 global financial crisis, thanks largely to strong fundamentals at the onset of the crisis, relatively under-developed and insulated financial markets as well as pre-emptive policy response.

The current account and balance of payments have been stable making huge foreign exchange reserve, thanks to remittances.

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Key Macroeconomic IndicatorsKey Macroeconomic Indicators from 2010 to 2014Indicators 2010 2011 2012 2013 2014

GDP (current USD Billion ) 115.28 128.64 133.36 149.99 173.82

GDP Growth (%) 5.57 6.46 6.52 6.01 6.12GDP per Capita (Current USD) 762.8 841.5 862.1 957.8 1096.6

Inflation, GDP deflator (annual %) 7.14 7.86 8.16 7.17 6.18

Trade (%GDP) 37.80 47.42 48.11 46.30 44.99Foreign direct investment, net inflows (% of GDP) 0.75 0.92 1.11 1.00 --

Gross Domestic Savings (% of GDP) 20.49 19.84 20.47 21.17 23.21

Remittance (% of GDP) 9.79 10.08 10.68 9.24 --

Current Account Balance (% of GDP) 1.01 0.30 2.41 1.58 --


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Economic Liberalization

Bangladesh, after independence, like many other developing nations, adopted Import substitution (IS) as its economic strategy.

It did not work because of the inherent follies of IS strategy. Industrial activities were conducted by state owned enterprises.

IS strategy resulted in BOP disequilibrium, foreign exchange shortage, relatively low growth and micro-inefficiencies such as: uncompetitive enterprises.

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Since realizing the shortcomings of the IS strategy, Bangladesh gradually started liberalizing her economy in general, and her trade regime in particular

1982-1986: de-nationalization of the public enterprises, simplification of private investment procedure, reducing the level of QR Removal of import licensing

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1987-1991

Elimination of QR on imports

Reduction and rationalization of tariffs

Simplification of trade procedure

Simplification of other charges

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1991 and onwards

More intense liberalization including flexible exchange rate

Lowering maximum effective tariff rate

Removal of commodities from control list

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Initially, the main thrust of liberalization was more evident in the import regime

However, measures to enhance export were taken as well; such as

i. Duty drawback facilitiesii. Income tax rebateiii.Gradual removal of import-license fee for

export-oriented industries and import tariff for capital equipment imports

iv.Back-to-back LCsv. Credit facilities at a lower interest rate Positive outcomes of trade liberalization was

almost immediately evident

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Bangladesh’s Trade Scenario

Source: World Bank

Overview of Bangladesh Trade

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Overview of Bangladesh Trade (1970-2014)


Indicator Name 1970 1980 1990 2000 2010 2014

Imports of goods and services (current million US$)

1,124.76

3,239.43

4,076.61

9,060.86

25,106.32

43,853.97

Exports of goods and services (current million US$)

747.58

995.27

1,844.50

6,588.07

18,472.45

34,343.96

Trade (% of GDP) 20.82

23.38

18.97

29.32

37.80

44.99

GDP growth (annual %) 5.62

0.82

5.62

5.29

5.57

6.12

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Overview of Bangladesh Trade (in Crore Taka)

Source: Bangladesh Bureau of Statistics & Bangladesh Bank

Indicators FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15

GDP (At constant Price ) 6,46,340 6,88,490 7,29,897 7,74,136 8,24,532

GDP (At Current Price) 9,15,830 10,55,200 11,98,923 13,43,674 15,13,600

GDP Growth Rate (%) 6.46 6.52 6.01 6.06 6.51

Export 1,44,431 1,80,313 1,89,437 2,12,915 2,26,522

Import 2,40,028 2,80,963 2,72,328 3,04,185 3,14,209

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Overview of Trade Performance of Bangladesh (Import)

Source: Bangladesh Bank

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Overview of Trade Performance of Bangladesh (Export)

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Comparative Performance of Bangladesh’s Export vis-à-vis Import (Value in US $ Million)


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Balance of Trade of Bangladesh


Value in US $ Million

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Import Composition and Growth

Sl No.

Name 2011-2012 2012-2013 Growth (%) 2013-2014 Growth (%)

1 Food (Rice & Wheat)901 726 -19% 1,465 102%

2 Other Food Items 3,600 3,128 -13% 4,098 31%

3 Consumer and Intermediate Goods

16,783 16,694 -1% 18,601 11%

5 Capital Goods12,118 11,031 -9% 13,593 23%

6 Others (Import in EPZ) 2,114 2,505 18% 2,975 19%

Grand Total 35,516 34,084 -4% 40,732 20%



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Share in total Import

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Import of Food Grains and Other Essential Commodities (US $ Million)

Sl.No. CommoditiesFinancial Year

2010-11 2011-12 2012-13 2013-14

1 Edible Oil 1,067 1,644 1,402 1,761

2 Food Grain 1,911 901 726 1,465

i. Rice 830 288 30 347

ii. Wheat 1,081 613 696 1,118

3 Sugar 654 1,177 731 902

4 Oil Seeds 103 177 241 508

5 Pulse all sorts 292 243 422 455

6 Milk & Cream 161 221 214 289

7 Spices 127 138 118 183

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Sources of Bangladesh’s Imports



Sl. No Country 2012-2013 2013-2014 Growth (%)

1 China 6,308 7,541 20%3 India 4,741 6,036 28%9 Singapore 1,079 2,290 11%8 Malaysia 1,492 2,042 37%5 Japan 1,180 1,284 9%6 South Korea 1,296 1,199 -7%4 Indonesia 1,054 1,104 4%7 Kuwait 545 915 68%2 Hong Kong 608 759 25%10 Thailand 689 741 7%

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Export Composition and Growth


Source: Export Promotion Bureau

Sl No. Name 2011-12 2012-13 Share (%) Growth (%) 2013-14 Share (%) Growth (%)

1Primary Commodities (Chapter 1-24)

1,001.13 1,079.58 4% 8% 1,253.28 4% 16%

2Manufactured Commodities (Chapter 25-97)

23,229.96 25,846.15 96% 11% 28,808.65 96% 12%

All products 24,231.09 26,925.73 100% 11% 30,061.93 100% 12%

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Export: Composition and PerformanceValue in US $ Million

Source: Export Promotion Bureau, Bangladesh

Sl No. Name 2011-2012 2012-2013 Share (%) Growth

(%) 2013-2014 Share (%) Growth (%)

1 Knitwear 9,486.39 10,475.88 39% 10% 12,442.07 41% 19%

2 Woven Garments 9,603.34 11,039.85 41% 15% 12,049.81 40% 9%

3 Others 3,019.75 3,221.06 12% 7% 3,550.65 12% 10%4 Jute Goods 701.1 800.69 3% 14% 698.1 2% -13%5 Frozen Food 598.42 543.84 2% -9% 638.19 2% 17%6 Leather 330.16 399.73 1% 21% 505.54 2% 26%

7 Petroleum By Products 275.44 313.95 1% 14% 162.34 1% -48%

8 Raw Jute 266.28 229.92 1% -14% 126.39 0% -45%9 Tea 3.38 2.44 0% -28% 3.71 0% 52%

10 Chemical Fertilizer 17.64 0 0% -100% 0 0% 0%

11 Total 24,301.90 27,027.36 100% 11% 30,176.80 100% 12%

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Export Destination

As in the export basket of the country, destination markets are also largely similar, e.g. the USA (19%) and the EU (54%) major export destination.

Some new destinations such as Japan (15%), Korea (38%), China (63%), Turkey(34%), Russia (36%) shows the higher growth and potentiality of the exports in the new markets.

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Directions of Bangladesh’s Exports

Value in US $ MillionSl. No Country 2011-2012 2012-2013 Share

(%)Growth

(%) 2013-2014 Share (%)

Growth (%)

1 EUROPEAN UNION 12,743.35 13,983.92 52% 10% 16,399.81 54% 17%2 UNITED STATES 5,100.91 5,419.60 20% 6% 5,583.62 19% 3%3 OTHER COUNTRIES 1,746.93 1,929.43 7% 10% 1,954.71 6% 1%4 CANADA 993.67 1,090.02 4% 10% 1,099.63 4% 1%5 JAPAN 600.53 750.26 3% 25% 862.08 3% 15%6 TURKEY 551.88 637.81 2% 16% 856.20 3% 34%7 CHINA 401.94 458.12 2% 14% 746.20 2% 63%8 AUSTRALIA 347.14 461.90 2% 33% 479.38 2% 4%9 SAINT BARTHÉLEMY 436.71 555.82 2% 27% 460.03 2% -17%10 INDIA 498.42 563.96 2% 13% 456.63 2% -19%11 KOREA, REPUBLIC OF 209.71 250.49 1% 19% 344.81 1% 38%12 RUSSIAN FEDERATION 133.25 208.29 1% 56% 283.35 1% 36%13 HONG KONG 245.43 345.11 1% 41% 280.51 1% -19%

14 UNITED ARAB EMIRATES 170.17 251.25 1% 48% 245.35 1% -2%

15 SWITZERLAND 121.87 121.38 0% 0% 124.49 0% 3% Total 24,301.90 27,027.36 100% 11% 30,176.80 100% 12%

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Trade In Services: Current Scenario

Service sector is increasingly becoming the core of Bangladesh economy. The contribution of Service sector in its GDP increased from 47.81 percent in 1980 to 56.24 percent in 2014, although generating only 35 percent of total employment.

However, services export contributed merely 10 percent of its total export. This reflects that service sector is less integrated and the potentials in services export are rather underutilized.

Bangladesh intends to expand the horizon of services activities and to strengthen the sector’s contribution to the country’s economic performance. Hence, Bangladesh is very active in operationalizing the LDC Services Waiver under WTO to explore its potential service export in developed and developing countries.

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Contribution of different services sub-sector in Bangladesh's GDP

Contribution of different services sub-sector in Bangladesh's GDP(%)Sectors Share in GDP

(2012-13)Share in service

sector GDP (2012-13)Annual average growth

rate (2001-2013)Electricity, gas and water supply 1.73 2.86 7.5

a) Electricity 1.45 2.40 7.4b) Gas 0.19 0.31 7.2c) Water 0.10 0.16 9.4

Construction 9.37 15.52 7.3Wholesale &retail trade 14.05 23.27 6.4Hotel and restaurants 0.75 1.24 7.3Transport, storage & communication 10.80 17.88 7.2

a) Land Transport 6.10 10.09 5.2b) Water transport 0.65 1.08 1.3c) Air transport 0.14 0.23 4.0d) Support transport services, storage 0.36 0.59 4.8e) Post and Tele communications 3.56 5.89 17.7

Financial intermediations 2.16 3.57 8.8Real estate, renting and business activities 6.73Public administration and defence 2.88 4.77 7.0Education 2.90 4.80 8.3Health and social works 2.49 4.12 7.1Community, social and personal services 6.54 10.83 4.3

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Trade In Services: Current ScenarioMerchandise and Services Trade of Bangladesh 2000-2013 (US$ at current prices in Million)

Source: UNCTADSTAT, accessed on 26 April 2014

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Trade In Services: Services ExportBangladesh’s services exports have increased by more than three fold over the past decade, from a little over $1 billion in 2003 to around $3.7 billion in 2013. However, the contribution of services export in its total export remains around 10 per cent over the last decade.

The contribution of traditional services such as transport and travel has declined over the decades from around 50 percent to about 20 percent of total services exports while that of other services, in particular, communication, other business services and to some extent, computer and information services has grown over this period.

In value terms, other business services constitute the largest segment within other services and have grown almost six fold in value and increased their share in total services exports by around 33 percent between 2000 and 2010.

Likewise, communication services have grown more than tenfold in value terms over this period and have significantly increased their contribution to total services exports.

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Trade In Services: Services Export

Bangladesh's Export and Import in Commercial Services (2011)

Source: Source: ITC (2014)Note: Value for the export and import of education and health unavailable for 2011. 2008 data is used instead.

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Trade In Services: Services Export

The Evolution of Bangladesh's Services Exports (2000-2011)

Source: ITC (2014)

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Trade In Services: Services ExportValue and Share of Exports for Different Service Subsectors in Bangladesh, Selected Years (US$ million and percent))

2000 2005 2010

Sector Value (US$ million)

Share (%)

Value (US$

million)

Share (%)

Value (US$

million)

Share (%)

Commercial services 283.192 100.00 474.21 100.00 1,209.41 100.00 Transport 91.368 32.26 113.009 23.83 173.591 14.35Travel 50.421 17.80 70.009 14.76 81.221 6.72Other commercial services 141.403 49.93 291.192 61.41 954.598 78.93Communications 21.532 7.60 23.906 5.04 277.67 22.96Construction 0.194 0.07 14.156 2.99 6.909 0.57 Insurance 3.513 1.24 5.027 1.06 6.841 0.57 Financial services 13.083 4.62 17.972 3.79 40.841 3.38 Computer and information 3.243 1.15 18.713 3.95 37.756 3.12 Royalties and license fees 0.058 0.02 0.261 0.06 0.517 0.04 Other business services 99.253 35.05 210.013 44.29 582.147 48.13 Personal, cultural, and recreational services 0.527 0.19 1.144 0.24 1.925 0.16Source: UNCTADSTAT database accessed on April 26, 2014.

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Trade In Services: Services ImportBangladesh’s services imports have also recorded almost four fold increase over the past decade, from $1.7 billion in 2003 to $ 6.5 billion in 2013.

The share of traditional services such as transport has actually increased, more than tripling from $1 billion in 2000 to $3.4 billion in 2010 and its share of total services imports has risen from 66 percent to over 80 percent over this period.

This growing dependence on imports of transport services in part reflects the demand from the ready-made garment sector and Bangladesh’s reliance on foreign transport carriers given its capacity constraints in transport and logistics (as also highlighted by many experts and in many reports).

There has also been a more than trebling of imports of other business services in value terms reflecting the growing importance of these supporting services to the economy.

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Trade In Services: Services ImportValue and Share of Imports for Different Service Subsectors in Bangladesh, Selected Years (US$ million and percent))

Source: UNCTADSTAT database accessed on April 26, 2014.

2000 2005 2010

Sector Value (US$

million)Share (%)

Value (US$ million)

Share (%)Value (US$

million)Share (%)

Commercial services 1,523.35 100.00 2,011.36 100.00 4,128.30 100.00Transport 1,012.76 66.48 1,544.73 76.80 3,440.64 83.34 Travel 289.91 19.03 136.27 6.77 260.60 6.31 Other commercial services 220.68 14.49 330.36 16.42 427.06 10.34 Communications 7.39 0.48 20.62 1.03 20.23 0.49 Construction 2.15 0.14 1.07 0.05 6.29 0.15 Insurance 91.07 5.98 150.65 7.49 26.32 0.64 Financial services 30.75 2.02 13.27 0.66 45.35 1.10 Computer and information 1.52 0.10 4.26 0.21 5.42 0.13 Royalties and license fees 4.42 0.29 2.75 0.14 17.64 0.43 Other business services 83.29 5.47 137.72 6.85 305.70 7.40 Personal, cultural, and recreational

services 0.10 0.01 0.03 0.00 0.13 0.00

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Concluding RemarksBangladesh’s unique manufacturing performance raises a puzzle.

Although growing over time, the role of trade in the overall economy is still low. Trade could play a more significant role in promoting faster GDP growth and poverty reduction.

The positive current account in a low income economy speaks to the lack of investment opportunities.

The macro-economy is stable, but institutional weaknesses and several vulnerabilities loom large.

The energy shortage is an overarching constraint affecting virtually all segments of the economy.

The overall low use of labor in the economy is a concern, and increasing labor-intensive, export-oriented manufacturing will need to be part of the solution.

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Concluding RemarksBangladesh will need to focus more attention on skills development: skills are emerging as a major constraint, even in the garments sector, let alone other, more skill-intensive sectors.

The low level of literacy and years of schooling of the labor force make skill acquisition more difficult.

Labor issues (i.e., wages, workplace safety, and compliance with labor standards) can generate major reputational risk for Bangladesh’s overall garment exports, and will need to be carefully managed.

Bangladesh needs to not just raise the rate of growth of exports, but also move beyond the low-wage paradigm.

Bangladesh needs to identify other sources of competitiveness so that low wage labor is not the only comparative advantage of Bangladesh.

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Concluding RemarksProduct and market diversification is a desirable goal for

exports. However, such diversification will not be easy, since it involves developing capabilities that revolve around product types.

Prioritization of the agenda is essential.An initial focus on market diversification as well as worker

safety issues, both in partnership with the private sector, may provide high payoffs.

Product diversification may face higher fixed costs and will require overcoming potential resistance, and policy moves here are likely to be gradual.

Other elements of the agenda include building a supportive macroeconomic environment, easing energy constraints and improving worker and consumer welfare, and these are mostly part of ongoing efforts.

To implement this agenda, leadership will be critical and should be part of immediate priorities.

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Thank you !

Documents

1. Bangladesh Economy and International Trade -An Overview _final