How feasible is it to achieve an ambitious export target

The Cabinet Committee on Economic Affairs has given in-principle approval to the draft of the National Export Policy for a three-year term (fiscal years 2024-2025 to 2026-2027). This approved draft of the export policy is extremely significant by any measure. The policy mentions providing subsidies and special benefits in sectors such as electricity, water, and gas, as well as offering loans at comparatively low interest rates for the highest priority and special development sectors. However, these benefits will be provided in accordance with the guidelines of the World Trade Organization (WTO).

The most significant aspect of the approved draft export policy is that it sets a target for increasing export earnings at a progressively higher rate each year. The policy aims to achieve a total export earnings target of $11 thousand crore by the final year of implementation, the fiscal year 2026-2027.

The current export policy will expire on June 30. The new export policy will come into effect on July 1. According to the Export Promotion Bureau, Bangladesh earned a total of $6 thousand 305 crore from goods and services exports in the fiscal year 2022-2023. Of this, $5 thousand 556 crore came from goods exports. Therefore, to achieve the proposed export earnings target, the current export earnings will need to almost double over the next three years.

The approved draft export policy is being widely discussed and criticized for various reasons. Many economists and those involved in exports believe that the export policy approved for the next three fiscal years does not reflect reality at all. Therefore, they think the likelihood of achieving these targets is very low. Given the realities of the international economy and the current situation in Bangladesh, it will not be possible to nearly double export earnings within just three years. The current growth trend in export trade is not satisfactory. While the approved new export policy might provide a sense of complacency, achieving the set targets will be impossible.

The trade of goods and services plays an extremely important role in the economic development of a country. Since independence, Bangladesh has made various efforts at different times to increase its export earnings. There has been no lack of visible initiatives in this regard. However, despite these efforts, our export earnings have not reached the expected level. There doesn't seem to be any significant concern from the authorities regarding this issue. At one time, Bangladesh's economy heavily relied on the agricultural sector. In the decade following independence, the country's economy predominantly revolved around agriculture. We held a prominent position in the global market with jute as our leading export product. Bangladesh used to export a considerable amount of raw jute and some processed jute products. However, the emergence of alternative products made from other global sources and widespread use of those alternatives led to a decline in the demand for jute-based products. As a result, the heyday of jute didn't last long. Bangladesh used to export some jute-based products, but due to the higher production costs compared to competing countries, it started facing challenges in the international market.

In subsequent years, alongside jute or similar primary products, Bangladesh started exporting products from the manufacturing sector. Currently, over 84% of Bangladesh's export earnings come from the ready-made garment sector. However, one of the major vulnerabilities in this sector is its heavy reliance on imported raw materials, capital machinery, and intermediate goods. As a result, a significant portion of the foreign currency earned in this sector is spent on importing these goods, leading to substantial outflows of foreign currency. A few years ago, a statistic mentioned that at least 35 to 40 percent of the substantial amount of foreign currency earned annually from the ready-made garment sector is spent on importing raw materials, capital machinery, and intermediate goods, leading to their subsequent outflow back to foreign countries. As a result, the value-added ratio of this sector in the national economy is between 60 to 65 percent. Bangladesh may not excel in jute production, but with effort, alternative uses for jute fibers can be developed. Although attempts have been made to create synthetic fibers from jute, they are not being effectively utilized. One of the major constraints in Bangladesh's import trade is its dependence on foreign countries for raw materials. Despite economists' prolonged recommendations to take extensive and planned initiatives to increase the import of locally raw materials dependent products, no action has been taken. However, Bangladesh has many products with local raw materials dependence and significant demand in the international market.

Bangladesh's export product list is heavily dependent on a few items. The potential of export trade cannot be fully exploited unless initiatives are taken to produce and export products based on local raw materials.

In our country, exporters generally focus on exporting primary products. However, if we could export more finished products, our export revenue would significantly increase. In Bangladesh's economy, the export account for foreign currency acquisition is at the forefront, but we are not effectively harnessing the potential of this account.

Most of Bangladesh's export account is dominated by ready-made garment materials. However, the value addition rate in this account is comparatively low, as has been mentioned before. Nevertheless, if items such as leather and leather goods, jute and jute goods, fish, tea, and agricultural products were exported in increased quantities, export revenue could increase significantly. Moreover, local farmers and producers at the grassroots level could benefit. They could receive fair prices for their products. Bangladesh's export trade is highly reliant on a limited number of products.

One major constraint in Bangladesh's export trade is its reliance on a limited number of countries and regions for importing goods. Specifically, Bangladesh's export trade heavily relies on the United States and the European Union. If there are any disruptions in exports from these two regions for any reason, the entire export process will be severely affected. International business can never afford to rest on laurels. To stay competitive in international trade, it's essential to ensure the inclusion of products that are both competitively capable and cost-effective compared to others. If we say that Bangladesh's export trade has achieved almost complete dependency on others for its success so far, would it be a significant mistake? Until 2005, the United States provided Bangladesh with quota facilities, meaning the country could annually import a specified amount of goods. Subsequently, in line with World Trade Organization policies, all types of quota facilities were abolished. At that time, the United States provided Bangladesh with duty-free access under the Generalized System of Preferences (GSP) scheme. Subsequently, in response to some of the government's policy decisions, the United States announced the suspension of GSP benefits. The quota and GSP facilities played a significant role in placing Bangladeshi products prominently in the US market at the primary level.

Currently, the European Union stands as the largest market for Bangladeshi products, being treated as a single region. Approximately 62% of Bangladesh's export products are destined for the 27 EU member countries. Has Bangladesh been able to establish its position in the EU market unhindered through fair competition? No, Bangladesh has been receiving GSP benefits as a Least Developed Country (LDC) from the European Union since 1976. In the realm of importing goods from Bangladesh, no importer from the European Union is required to pay any kind of import duty. Competing countries that do not enjoy GSP benefits must pay at least a 12% duty to import their products into the European Union market. Vietnam is Bangladesh's biggest competitor in exporting garments to the international market. They did not have GSP benefits in the European Union market for a long time. However, recently Vietnam has signed a comprehensive agreement with the European Union to receive GSP benefits. On the other hand, Bangladesh is set to graduate from the list of least developed countries in 2026. The European Union will then consider providing GSP benefits to Bangladesh until 2029.

Afterward, the GSP benefits will cease, and they will introduce a new trade scheme called GSP+. However, Bangladesh will not be able to comply with the conditions required for GSP+. Therefore, after 2029, Bangladesh's access to the European Union market will undoubtedly be restricted. Are we making any preparations to meet the challenges at that time?

One significant imbalance in Bangladesh's export trade is that we import very little from countries from which we export large quantities of goods. Conversely, we import extensively from countries from which we export very little. This disparity is evident and creates an imbalance in our export trade. Most of Bangladesh's imports come from China and India. However, despite the high demand for Bangladeshi products in these two countries, they do not import our products in significant quantities. If Bangladesh could convey the message to China and India that if they do not import our products, we will not import theirs either, then both countries would be compelled to increase imports from Bangladesh. However, we are not taking such actions. At the same time, in Bangladesh's embassies abroad, there are economic desks. It is necessary to evaluate the role of those working there in increasing exports.

The exchange rate of foreign currency also plays a significant role in increasing exports. If the local currency is undervalued, exports increase. However, if the local currency is overvalued, export earnings decrease. If the exchange rate of the local currency is undervalued, exporters receive more money in local currency for the same amount in foreign currency. For this reason, they don't need to incur any additional expenses. This can be explained with an example. An exporter might earn $100 by exporting a product. If the exchange rate of the local currency depreciates by 10 percent, he will get 110 Taka in the local currency against that 100 US dollars.

When the topic of setting the exchange rate of foreign currency in our country based on the market arises, there's often a heated debate. Some argue that devaluing the local currency will increase import costs, leading to higher expenses for the general public. In theory, their argument seems valid. However, what does reality suggest? Due to the overvaluation of the local currency against the US dollar, has import expenses decreased? The exchange rate of the local currency against the US dollar has been fixed at 110 taka for a long time. Has this led to a reduction in import expenses? The initiative could have been successful if the Bangladesh Bank could provide an adequate supply of US dollars to meet the demand of importers. Importers, unable to source their desired US dollars through banking channels, are resorting to obtaining dollars from the curb market. This is resulting in increased import expenses. The biggest contribution to the rise in market prices comes from politically supported market syndicates. If these syndicates are not controlled, discipline in the market will never return.

One major reason for China's extensive success in international trade is their deliberate undervaluation of the local currency exchange rate. As a result, they can produce and market goods at relatively lower costs. The United States has been accusing China of deliberately keeping its local currency undervalued for a long time. This allegedly results in Chinese products gaining an unfair advantage in the US market, hurting local producers. If Bangladesh were to follow China's approach, it could benefit in international trade.

M. A. Khalek: Retired General Manager, Bangladesh Development Bank PLC, and Author on Economics.