Honorable Finance Minister, A M A Muhith, Ladies and Gentlemen,
Let me also extend a warm welcome to you all to the launch of the World Bank Group’s latest South Asia Flagship Report that looks at the competitiveness of the region – “South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse”. I would like to thank the Policy Research Institute for co-hosting the launch of this very timely report for Bangladesh.
This report is timely. With rising labor costs in East Asia, international investors are looking increasingly elsewhere to relocate their investment, including to South Asia, particularly Bangladesh. And there lies a huge opportunity for countries in South Asia including Bangladesh. The question is whether South Asia, in particular, Bangladesh, is ready and able to seize the opportunity and to become the next global export powerhouse.
The South Asia region, home to more than 1.7 billion people, is a land of opportunity. With a vibrant workforce, emerging consumer market and a competitive labor force, South Asia is increasingly improving its competitiveness and has become the fast growing region in the past year. Indeed, the region’s strong growth has translated into declining poverty and improvement in human development. However, amid these impressive stories, significant challenges to the region’s economic competitiveness remain.
The region’s overall integration and connectivity to each other is amongst the lowest in the world; poor performance in investment climate indicators continue to hamper tremendous opportunities to boost trade and create jobs; and poor integration into the global value chain and low adoption of technology are affecting overall firm and labor productivity in the region.
With its labor-intensive manufacturing and service exports growing at double digits on a sustained basis, Bangladesh has the potential to become an export powerhouse. At the same time, Bangladesh ranked 176 out of 190 countries in the World Bank Group’s 2017 Doing Business report and 107 out of 140 countries in the Global Competitiveness Index of the World Economic Forum. These rankings underscore the need for improving the business environment in Bangladesh in order to realize its potential.
This report combines a critical mass of quantitative analysis using the latest data and tools available with a rich set of industry and company case studies to shed new insights into what the region needs to do to realize and sustain its great competitiveness potential. It has identified four policy levers that can help Bangladesh become more integrated and globally competitive: 1) improve the business environment; 2) better connect to Global Value Chain; 3) maximize agglomeration benefits; and 4) strengthen firm capabilities.
To realize its full competitiveness potential, Bangladesh will first need to focus on improving its trade policy regime and the broad investment climate, in particular by expanding its successful bonded warehouse regime and other measures that were key to the success of the apparel industry to the rest of the economy and by improving trade logistics for faster transport of all export goods. This will help expand the “islands of excellence” into “a sea of excellence”.
Bangladesh should seek to become a stronger part of global value chain by addressing several competitiveness issues. Let’s take the example of bicycles. The country’s largest bicycle exporter currently faces 10-20% higher export prices and 50% more lead time compared to, say, China, due to very limited availability of intermediate parts and components from local sources. Absence of a local base of suppliers makes the exporter solely depend on imported parts and components, increasing production cost and delivery time. Bicycle exports from Bangladesh could become significantly more competitive with development of linkages to domestic economy which in turn will require upgrade of technology and quality and facilitation of higher quality investment for technology and skill transfers.
Given the scarcity of land, Bangladesh is also in dire need of well-located and readily available industrial land for not only large investors but also their suppliers, many of whom are small and medium-sized enterprises (SMEs). The government can and should play an active role to facilitate access to industrial land by all investors, both domestic and foreign.
The country also needs programs that support improvement of firm capabilities. The government can promote linkages between SMEs and foreign direct investment (FDI), for example, by facilitating SME access to industrial zones through standardized “plug and play” industrial buildings like in China, technology extension and access to consulting services; government can also promote innovation by facilitating public private partnerships in research and development (R&D); provision of vocational training and computer literacy at all level will help ensure the required soft skills for firms.
Activating these policy levers will help Bangladesh enhance exports and employment. They would enable Bangladesh to continue to grow its apparel export by improving the mix, quality and value of its products as well as to diversify into new labor-intensive industries, such as footwear, and skill-intensive industries, such as electronics. Similar policies have enabled countries like Vietnam, which share many of the same characteristics as Bangladesh, to become an export powerhouse. Today, Vietnam exports six times as much as Bangladesh on a per capita basis. With the right set of reforms, there is no reason why Bangladesh cannot be the next Asian tiger. And the good news is that most of these measures do not require significant financial investment and can be done relatively quickly.
As Bangladesh’s long-term development partner, the World Bank Group is helping Bangladesh realize its full competitiveness potential through a number of projects and programs. We are supporting the government to crowd in private participation to expand economic zones and hi-tech parks; we are providing financing to both public and private sector to build more and better infrastructure; we are providing advice, technical assistance and capacity building to address regulatory constraints that affect the private sector; we are also working with the government to develop new support program for export competitiveness through sector diversification, and to enhance regional trade and investment opportunities.
Before closing, please allow me to tell you a short, borrowed story. On a beautiful, golden autumn day, an economist and his friend went to the mountains for a leisurely hike. As they were happily walking and chatting, all over a sudden, a hungry tiger appeared a couple of hundred meters ahead of them. The economist immediately put down his bulky hiking bag, took off his heavy hiking boots and put on a pair of light running shoes. His friend, puzzled, asked: “What is the point of changing your shoes now? There is no way that you can run faster than the tiger.” The economist answered: “My friend, I do not need to over-run the tiger; all I need to do is to over-run you.”
Ladies and gentlemen, that is what competitiveness is all about: it is not just about doing better than what you used to do; it is about doing better than others!