Strategising export diversification

For decades 'export diversification' has been a buzzword whenever the issue of the country's exports comes up for deliberations. Clearly, it is the overwhelming reliance on readymade garment (RMG) which accounts for more than 76 per cent of the country's total exports that makes the buzzword a compelling choice for expanding the export basket. The underlying argument here is: the export basket has hundreds of products but as most of them suffer from poor performance, diversifying the basket means adding vigour and strength to the products so that the export sector can rid itself of over-reliance on a single product.

Keeping this in view, the government has been framing policies from time to time with special emphasis on prospective products by way of various incentives and supports. To say that these have not at all worked is not true, but there is no visible momentum in exports, except for a few core products, including the RMG. Actually, diversification is a package comprising scores of issues from product development, product adaptation, quality assurance, market demand, compliance fulfilment, competitive pricing and so on.

So, when one speaks about diversification, it must not be seen as a remedy readily available. It has to be worked on, in a planned manner taking into account all relevant factors as a package. In the past the Export Promotion Bureau undertook many foreign aided export development projects. However, as many of the projects approached the aforementioned package only partially, the outcome was far from satisfactory. Recently, it has been reported that a multi-donor funded export diversification project of the government is languishing with very little works done so far. The Tk 9.95 crore project aimed at providing assistance to export diversification and expanding export capacity of select product areas, namely garment, food-processing and active pharmaceutical ingredients. Scheduled to be completed by 2021, the project extended subsequently to July 2022, has reportedly been able to complete only 11 per cent of the work programme. No doubt a pathetic case, but had the project been completed in due time, could we say its goal was accomplished? Unfortunately, No. This is because such projects can at best disseminate information on various relevant issues including training the manpower with required knowledge. But there is a lot more to the job, and these can only be taken up by a comprehensive medium-term plan with sufficient fund allocation and development of required infrastructural facilities.

The reason why diversification figures so prominently in public discussions on export is because of its many tangible benefits. Diversifying the export composition protects a country from the risk of an unpredictable declining trend in international prices of exportable commodities that, in turn, leads to unstable export earnings. Export diversification could therefore help out to stabilise export earnings in the long run. Due to an absence of export diversification in developing countries, decline in and fluctuations of export earnings have negatively influenced income, investment, and employment. Diversification provides the opportunities to extend investment risks over a wider portfolio of the economic sector which eventually increases income. Diversification can also be seen as an input factor that has the effect of increasing the productivity of other factors of production. Furthermore, economic growth and structural change depend upon the type of products that are being traded. Thus export diversification allows an economy to achieve some of its macroeconomic objectives namely sustainable economic growth, satisfactory balance of payment situation, employment, and redistribution of income.

There are different strategies adopted by different countries, depending on the country-specific situations. In the Asian region, Thailand is a good example of pursuing diversification in keeping with the resources and infrastructures the country could make use of. It was a two-pronged strategy involving thrust on natural and agricultural resources on the one hand, and on the other, upgrading labour-intensive manufacturing. China, along with some East Asian countries, benefited from the rise in regional economic integration through the development of cross-country production networks through vertical integration of production chains.

It is strategising that is the most important issue, and to do that, intensive research is required to identify which model to stick to. Also this would require product and market-specific studies to be able to tell the strengths and weaknesses in respective areas. However, considering the trends of Bangladesh's exports, it is not too difficult to identify some potential and prospective products, and although there are provisions of fiscal and other incentives for them, the fact remains that these supports are of little use in the absence of a medium-to-long-term strategy to stimulate the products with a robust supply chain. That is to say, facilitation does not mean incentives alone but also drawing up and working on a roadmap for product development and putting in place institutional and infrastructural support in an appropriate manner.

For quite sometime, Bangladesh's export basket comprises a core group of products besides RMG. These include: jute and jute goods, leather and leather goods, frozen foods including shrimp, agro-processed foods, cement, pharmaceuticals etc. Over a decade or so, few other products have demonstrated great potential, such as-- shipbuilding, ICT, light engineering, plastic. The government does recognise the importance of the emerging items, but whatever facilities they received remained confined to fiscal incentives.

It is thus strategising the roadmap that must be at a focal point when it comes to export diversification.

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