How can Bangladesh take advantage of its growing demographic, increasing education levels and help its firms compete in the global market? A new World Bank report launched jointly with the Policy Research Institute today in Dhaka says that the country has the potential to become an export powerhouse at the level of its East Asian neighbors by improving its business competitiveness and trade regime.
The report, “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse,” identified four policy levers that can help Bangladesh enable its firms to boost productivity and become more globally competitive: improving business environment, connecting firms to the Global Value Chain, maximize agglomeration benefits, and strengthening firm capabilities.
1. Improving the Business Environment: Bangladesh ranks 176 out of 190 countries in the 2017 Doing Business report and 107 out of 140 countries in the Global Competitiveness Index. These rankings underscore the need for improving the business climate in order to attract foreign and domestic private investment.
2. Connecting firms to the Global Value Chain: By facilitating access to imports for exporters beyond the apparel sector, improving infrastructure and trade logistics, the country can help reduce transaction costs for exporting firms. For example, export of bicycles hold bright prospects for Bangladesh. However, the country’s largest bicycle exporter faces 10-20% higher export price and 50% more lead time compared to China due to very limited availability of intermediate parts and components from local sources.
3. Maximize agglomeration benefits: The lack of readily available industrial land has forced Bangladesh to turn down export oriented Foreign Direct Investment. By developing more economic zones, Bangladesh can offer the much needed serviced land with adequate infrastructure to investors, and create more employment opportunities.
4. Improving firm capabilities: The firms in South Asia, including Bangladesh needs to improve productivity to compete globally. The government can promote linkages between Small and Medium Enterprises (SMEs) and FDI, as well as promote innovation through public-private partnerships in Research & Development (R&D). The provision of vocational training and computer literacy at all levels will ensure the required technology skills.
By activating these policy levers, Bangladesh could see a great positive impact on exports and employment. It would enable the country to continue to grow its apparel export by improving the mix and quality of its products as well as diversify in new labor intensive industries (e.g. footwear) and skill intensive industries (e.g. electronics). Since more than 80% of Bangladesh’s export is concentrated on low end readymade garments, it is high time that the country focuses on diversification and develop an investment ecosystem around these priority sectors.
“With rising labor costs in East Asian countries, and investors and buyers are now turning to South Asia, including Bangladesh,” said Vincent Palmade, Lead Economist in Trade & Competitiveness Global Practice of the World Bank Group, and author of the report. “With over two million youths entering the job market every year, Bangladesh needs to act now to seize the opportunity and create more jobs.”
Similar policies have enabled Vietnam (which share many of the same characteristics as Bangladesh) to become an export powerhouse – Vietnam exports six times more than Bangladesh (on a per capita basis).
The World Bank Group is helping Bangladesh realize its full competitiveness potential through a Private Sector Development Support Project which will help to expand economic zones and hi-tech parks in Bangladesh. The Bangladesh Investment Climate Fund 2 is providing technical assistance to address regulatory constraints that affect the private sector in Bangladesh. The Bank is also working with the government to develop new competiveness support program for Export Competitiveness through sector diversification, and to enhance regional trade and investment opportunities.