It stresses product diversification to fit in competitive market

Bangladesh has recorded sustained growth over the decades following restructuring but the structure of the country’s economy remains concentrated on a few sectors and products that may prove counterproductive when its trade preferences go.

A UN agency rings the alarm that such narrow focus or concentration may adversely affect Bangladesh when it graduates from the LDC category, currently scheduled for 2026, that leaves it to play in an open field of international trade.

The United Nations Conference on Trade and Development (UNCTAD) made the observations in the Least Developed Countries Report 2021, released on Monday evening in Geneva.

“Despite dispiriting picture of the impact of international and domestic policies to boost the development of Least Developed Countries (LDCs), some successful cases indicate that the paths to development can be differentiated,” says the report.

“As of the 1970s, Bangladesh accelerated its development as it undertook trade liberalization and started developing an export-oriented garment industry,” it noted, indicating structural adjustments carried out as per donor recipes in a shift from the country’s journey with state-controlled economy.

While mentioning that Bangladesh also invested in other economic sectors, such as the pharmaceutical industry, by creating a conducive national innovation system, the report sounds a note of caution about fallout from less diversification of the country’s export basket as well as overall economic activities.

“However, Senegal, by contrast, has followed a different development strategy path, and has achieved a diversified economic structure between agriculture, industry and services,” the UN trade body mentions in its report as a case of virtues of diversity.

“It also has a correspondingly more diversified export structure, which is less vulnerable to the consequences of graduation.”

The report, however, adds that despite a poorly diversified export structure, largely hinging on ready-made garments, Bangladesh recorded ‘steady and sustained growth’.

The theme of the latest UNCTAD report on world trade situation is ‘The least developed countries in the post-COVID world: Learning from 50 years of experience’.

The United Nations established the LDC category 50 years ago. The grouping of the world’s weakest economies has expanded from an initial 25 countries in 1971, peaking at 52 in 1991, and stands at 46 today, with only six countries having graduated — stopped being an LDC — to date.

UNCTAD also says that the merchandise-export structure of LDCs differs substantially as some countries can better take advantage of available international preferences than others.

“Bangladesh is an example of an LDC that has exercised its state capacity to substantially benefit from ISMs,” it adds.

ISMs means International Support Measures, developed for the LDCs.

The UN agency also points out that usually rapidly growing LDCs increased their total wealth more substantially than other LDCs, as occurred in Bangladesh, Cambodia, Ethiopia, Lao People’s Democratic Republic, or Rwanda.

It especially focused on two LDCs -Bangladesh and Senegal- currently engaged in the process of graduation out of the LDC category, which largely ‘reflects the success that they have achieved in their development policies.’

According to UNCTAD, “These countries have adopted contrasting development strategies, but which each has shown success (though to different extent) in overcoming some of the major structural barriers to LDC development.”

Both countries were recommended for graduation in 2021 and expected to no longer be an LDC in 2026.

Senegal is in an earlier phase of the graduation process, as it pre-qualified for graduation in the 2021 review of the LDCs.

The report further shows that structural transformation and economic growth in Bangladesh have taken the form of expansion of the manufacturing and services sectors.

“The development of global value chains (GVCs) in Bangladesh has been somewhat limited, especially when compared to the progress made by Cambodia and Lao People’s Democratic Republic, as well as other Asian countries, such as China and Vietnam,” it added.

“Bangladesh stands out for having relatively high backward participation and low forward participation in its GVC, driven by a textile and clothing industry accounting for 83 per cent of domestic value added in exports,” it forecasts.

The report praises the country’s effort on poverty reduction, despite gaping inequality.

“Economic growth, driven by export and remittance expansion, has accelerated since 2002,” it said, pointing out a downside facet of the growth –– gaping inequality.

“Bangladesh’s growth over the period 1983-2016 occurred in the midst of worsening inequality; a period in which the Gini index rose from 25.6 to 32.4, before plateauing again as rural development and employment creation made growth more inclusive.

“Despite these increases, the Gini index remains relatively low by international standards. Bangladesh has reduced income-poverty rates and incidence. Between 2000 and 2016 the incidence of poverty halved 24.6 percentage points.”

The UNCTAD report further says Bangladesh needs to maintain the momentum in structural transformation with focus on economic diversification and execution of bold industrial policies for sustainable LDC graduation.

At the virtual launch of the report, global experts termed Bangladesh’s economic growth resilient one but that resilience is highly dependent on international support measures or ISMs.

But the economy needs to mainstream the graduation into industrial policy framework building its competitiveness to avert any shock when the path of ISMs will be getting thin soon after its graduation, they said.

They also suggested putting more investment in targeted areas like human capital, social protection, revenue mobilisation and reform in the financial sector. At the same time, they also called upon international communities to come up with their investment in facilitating Bangladesh’s economic progress in a sustainable way.

Economist at UNRC Office Mazedul Islam moderated the country event where Secretary of the Ministry of Commerce Tapan Kanti Ghosh was the chief guest.

Sharing the summary of the report, UNCTAD Economic Affairs Officer Giovanni Valensisi said the agency found Bangladesh’s growth performance relatively resilient. The country even in the time of the pandemic maintained some positive level of GDP growth.

“What is critical is to maintain investment, not only physical investment but human capital as well because we know that the education sector is badly affected by the pandemic. Vulnerable groups also need to be protected,” he said.

Highlighting the importance of maintaining the momentum of structural transformation, he said it is important to focus on economic diversification and adopt and implement bold industrial policies.

Sharing his third thoughts for sustainability of the economy, he said Bangladesh’s progress relied heavily on ISMs, especially preferential market access.

He suggested mainstreaming graduation into the industrial policy framework by trying to gradually build up the competitiveness, which will be a key to absorbing the phasing out of the ISMs in the coming days.

Chief of UNCTAD’s LDC section Rolf Traeger noted that LDCs need to spend 40 per cent of the GDP on meeting SDGs areas like health, education, social protection and biodiversity conservation.

“Currently, LDCs spend only 10 per cent of the GDP. So, enormous investment will be needed and this shows how tall the challenge is,” he said.

Bangladesh like of other LDCs that are set to graduate to developing nations needs to transfer labour force to more productive sectors, which have higher incomes.

Terming domestic efforts for economic sustainability a key, he said domestic efforts will not be enough. So, ISMs will also be essential in the areas of trade, finance and technology.

CPD Distinguished Fellow Professor Mustafizur Rahman pointed out that Bangladesh economy is shifting from agriculture to non-agriculture sectors, mainly services, while manufacturing is still a nominal contributor to GDP.

“If we look at agriculture, 43 per cent of the labour are contributing 13 per cent of the GDP. So we can understand what the labour productivity in agriculture is. We will have to have structural transformation,” he said.

After the graduation beyond 2026, he said, Bangladesh will have to make a transition from predominantly preferential market-driven competitiveness to productivity-and skill-driven competitiveness.

“If we want to do that, we will have to have more investment on productivity enhancement and skill upgradation,” he said.

Speaking as chief guest, Commerce Secretary Tapan Kanti Ghosh said the country will have to face multiple challenges ahead like pandemic fallout, climate change-related events and the loss of ISMs after the graduation.

“We’re aware of that and the government already formed six committees to successfully identify the challenges and turn them into opportunities. Bangladesh is actively working with UN bodies concerned to make a holistic plan to ride a graduation journey smoothly,” he told the meet.

UN Resident Coordinator in Bangladesh Mia Seppo said LDCs, including Bangladesh, have faced many challenges because of adverse impact of Covid-19 pandemic and climate crisis.

She suggests that Bangladesh diversify exports alongside mproving private-sector competitiveness, business climate to get over the hurdles.

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