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    Toward New Sources of Competitiveness in Bangladesh: Key Insights of the Diagnostic Trade Integration Study
    Toward New Sources of Competitiveness in Bangladesh: Key Insights of the Diagnostic Trade Integration Study
    Toward New Sources of Competitiveness in Bangladesh: Key Insights of the Diagnostic Trade Integration Study
    Ebook287 pages3 hours

    Toward New Sources of Competitiveness in Bangladesh: Key Insights of the Diagnostic Trade Integration Study

    By Sanjay Kathuria and Mariem Mezghenni Malouche

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    Bangladesh's ambition is to build on its very solid growth and poverty reduction achievements, and accelerate growth to become a middle income country by 2021, and share prosperity more widely amongst its citizens. This includes one of its greatest development challenges: to provide gainful employment to the over 2 million people that will join the labor force each year over the next decade. Moreover, only 54.1 million of its 94 million working age people are employed. Bangladesh needs to use its labor endowment even more intensively to increase growth and, in turn, to absorb the incoming labor. The Diagnostic Trade Integration Study identifies the following actions centered around four pillars to sustain and accelerate export growth: (1) breaking into new markets through a) better trade logistics to reduce delivery lags; as world markets become more competitive and newer products demand shorter lead times, to generate new sources of competitiveness and thereby enable market diversification; and b) better exploitation of regional trading opportunities in nearby growing and dynamic markets, especially East and South Asia; (2) breaking into new products through a) more neutral and rational trade policy and taxation and bonded warehouse schemes; b) concerted efforts to spur domestic investment and attract foreign direct investment, to contribute to export promotion and diversification, including by easing the energy and land constraints; and c) strategic development and promotion of services trade; (3) improving worker and consumer welfare by a) improving skills and literacy; b) implementing labor and work safety guidelines; and c) making safety nets more effective in dealing with trade shocks; and (4) building a supportive environment, including a) sustaining sound macroeconomic fundamentals; and b) strengthening the institutional capacity for strategic policy making aimed at the objective of international competitiveness to help bring focus and coherence to the government's reform efforts.
    LanguageEnglish
    PublisherWorld Bank Publications
    Release dateNov 4, 2015
    ISBN9781464806483
    Toward New Sources of Competitiveness in Bangladesh: Key Insights of the Diagnostic Trade Integration Study

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      Toward New Sources of Competitiveness in Bangladesh - Sanjay Kathuria

      CHAPTER 1

      Overview

      This Diagnostic Trade Integration Study (DTIS), prepared at the request of the Government of Bangladesh, analyzes the internal and external constraints to further integration with the world economy, keeping in view the end goals of job creation and poverty reduction, as well as enhancement of citizens’ welfare. The DTIS seeks to identify policies as well as gaps in physical and institutional infrastructure that need to be overcome to consolidate Bangladesh’s strengths in existing markets as well as help diversify export products and export markets. At the same time, it spells out the links between these policies and consumer and worker welfare, focusing additional attention on import policies, skill enhancement, and labor safety. To illustrate and anchor these policy constraints to further integration, the DTIS includes industry and service sector studies.¹ Although the DTIS is comprehensive in its coverage of issues and sectors, as requested by the Government of Bangladesh, it is not intended to be an exhaustive study of industries and services. The identified policies and constraints are summarized at the end of this chapter, as well as in the Action Matrix presented in appendix A.

      Bangladesh aims to accelerate growth to become a middle-income country by 2021, continue its high pace of poverty reduction, and share prosperity more widely among its citizens. It seeks to increase the growth rate of its economy to about 7.3 percent per year over the Sixth Plan period, fiscal year 2011 to fiscal year 2015 (FY2011–FY2015), and reduce the poverty headcount by about 10 percentage points. It also seeks to pay closer attention to the wider prosperity of its citizens and improve access to and quality of health, education, and nutrition services.

      One of the country’s greatest development challenges is to provide gainful employment to the 2.1 million people who will join the labor force each year over the next decade and to improve the utilization of existing labor. Although Bangladesh has the eighth largest population in the world and the third largest in South Asia after India and Pakistan, only 58.1 million of its 103.3 million working-age people are employed. Moreover, the working-age population is growing at a higher rate than the overall population, at 2.5–2.8 and 1.4 percent per year, respectively. This presents a potentially major demographic dividend, but it also represents a major challenge to lift incomes and citizens’ welfare. Bangladesh needs to use its labor endowment even more intensively to increase growth and, in turn, to absorb the incoming labor. In this context, the emphasis of the Sixth Five-Year Plan (6FYP) on export-oriented manufactures, with their job potential, seems appropriate.

      Imperative to Engage with the World Economy

      The Government of Bangladesh recognizes that export-led growth and a broadening of the country’s export structure are pivotal to its growth ambitions. In the 6FYP, trade is considered a strong source to accelerate growth and provide high-productivity and high-income jobs. The government recognizes that a dynamic manufacturing sector will benefit from greater outward orientation, particularly based on the experience of other successful Asian exporters, such as China, India, the Republic of Korea, Thailand, and Vietnam. The government has emphasized product and market diversification and regional and global integration. The 6FYP projects …the share of exports in relation to gross domestic product (GDP) to rise by 7.7 percentage points to 23.9 percent of GDP by the end of the 6FYP, reflecting a leading role that [the] export sector is envisaged to play in increasing domestic activity (General Economics Division 2011, volume 2, 85). This strategy recognizes the pivotal role that higher export orientation has already played in the impressive export and job creation of the garment export sector.

      But current policies place limits on the extent of labor-intensive growth. At present, policies are heavily skewed toward favoring production for the domestic market, which limits growth because the market is limited. Because of protection, production is not necessarily competitive: many sectors have high effective rates of protection. Production for exports, by contrast, is necessarily competitive, usually implying in the Bangladeshi context that it is highly labor-intensive and the potential market, in practical terms, is immense.

      Addressing Bangladesh’s prime development objective of more and better jobs will require the following:

      • A neutral trade policy that seeks to exploit the world market and favors exports as much as domestically oriented production

      • A regime that proactively encourages foreign direct investment (FDI)

      • Infrastructure improvement, especially relating to energy and trade logistics

      Ensuring consumer and worker welfare is not only an end in itself, but will also help sustain export growth and better jobs. It would entail the following:

      • Improving skills and literacy to allow a move up the quality ladder and enable higher productivity and wages

      • Implementing labor and work safety guidelines

      • Taking into account consumer interests in trade policy, balancing issues such as food safety and animal health with efficient access to imports

      The Growth Commission Report (Commission on Growth and Development 2008) highlights the deep link between sustained growth and the world market. It finds that all 13 country cases of sustained high growth over the postwar period were marked by full exploitation of the knowledge, resources, and deep and elastic demand that the global economy offered. Thus, if Bangladesh were to capture 20 percent of China’s current garment exports, Bangladesh’s total exports would more than double, increasing by US$29 billion and, based on current parameters, creating 5.4 million new jobs and 13.5 million new indirect jobs. These jobs would be virtually enough to absorb all the new entrants into the labor force over the next decade. It is certainly doable, given the strengths that Bangladesh has, but would need sustained implementation of the agenda highlighted in this

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