Constraints of export diversification

Zahid Hossain

Photo: A.M.Ahad/Driknews

THERE is no denying the fact that the export basket of Bangladesh has continued to remain relatively undiversified and the country has not been able to translate her comparative advantage into competitive advantage although this sector has registered commendable successes in the recent past particularly in this July-November period when the export earnings crossed $ 8.27 billion mark registering nearly 36 percent growth over the same period a year earlier.

The whole world is now moving towards economic globalization encouraging the countries to pursue the policy of free and open market economy. And in such a globalized trading environment, a country like Bangladesh cannot afford to remain isolated and keep her export trade and business confined to only a few items and with only a few countries or group of countries.

Practically, the export businesses of Bangladesh are more or less dependent on a few products and selected markets. Most of the products have low-income elasticity of demand. At the same time, it is also true that the country's export sector has undergone substantial structural changes during the last two decades. A close study of the sector indicates that a significant shift occurred in this area from the erstwhile jute-centric export to readymade garments centric one, with consequent dominance of the non-traditional manufactured commodities as against traditional primary ones.

This significant shift in the structure of country's export trade from primary commodities to manufacture and from traditional to non-traditional products has been possible due to the realization of different policy supports as well as few well-organised efforts by both the public and the private sectors. Moreover, the realization of the government that there are critical needs to fully support and invest in export development in order to have the presence of the Bangladeshi goods in the highly competitive world market worked positively and had a good impact on the country's export sector.

Bangladesh earned only US dollar 348 million by exporting commodities during the financial year 1972-73. This small amount reached a sizeable US dollar 16204.65 million in the last financial year ending in June increasing the export volume to near about four thousand percent. Despite this commendable growth it has remained very narrow and is susceptible to possible sharp variation as a result of external shocks.

According to Export Promotion Bureau, Bangladesh exports 173 products but its export is still mainly dependent on six products which contribute almost 88 percent of the total export of which readymade garments alone contributes about 76 percent. The contribution of these six products are woven garments 37.11 percent, knit wear 40.01 percent, frozen food 2.73 percent, jute goods 4.86 percent, leather 1.40 percent and fertilizer and chemical products 1.26 percent.

The EPB source also informs that Bangladeshi products have markets in 186 countries with only four markets such as USA (26 percent), EU (53 percent), Canada (4 percent) and Japan (2 percent) having a contribution of about 85 percent of country's export earnings. The other 182 markets contribute only 15 percent. Among the four major markets, two markets-USA and EU together contribute almost 79 percent. A senior FBCCI official who has been involved in the study of country's export sector is of the view that heavy dependence on these two markets is not a very comfortable situation for a developing country like Bangladesh. “We should seriously think about fixing a new export strategy for this sector”, he added.

According to a study conducted on three European markets, problems like dated products, uninspiring designs, poor quality, slow production times, unreliable suppliers, lack of professionalism, lack of market awareness, lack of marketing skills and lack of customer service have been faced in export diversification. Constraints faced by the exporters are multifarious including lack of adequate infrastructure. Infrastructural constraints include limited electricity, water, inadequate telecommunications, transport and freight facilities.

It is true that there have been various attempts in the past to diversify country's products for development of supply side to respond to the market challenges and global competition, but the successes have not been very encouraging and significant. However, the recent government step to form a few products-specific business promotion councils with both the government and non-government initiatives under the company Act 1994 for the purpose of export diversification, improving and ensuring the product quality, acquiring appropriate technology, maintenance of compliance requirements, product marketing etc is expected to be effective in the long run for achieving the targets.

The key to successful marketing of products is creating both a confidence in one's ability to deliver the particular product and an interest in the product itself. For firms interested in exporting many of the products, the single biggest barrier is not the regulatory trade regime, but a lack of contacts in the export market. Products are seldom purchased from foreign strangers. When it comes to actually winning business abroad, partnering a suitable local firm can significantly lower market entry time and costs.

Generally speaking, the major constraints that hinder the export diversification are dearth of skilled human resources, lack of capacity of the exports to access international markets, various market access problems like tariff, non-tariff and para-tariff barriers, absence of appropriate entrepreneurship development initiatives, political unrest, adverse law and order situation, lack of marketing information and knowledge and compliance-related issues etc. Some of the chamber leaders are of the view that priority measures like appropriate training programmes for the skill development of the workers, low interest loan facilities for the exporters, establishment of backward and forward industries, establishment of modern laboratories for controlling the quality of products, ensuring easy access to the raw materials for export products and the overall development of port facilities including the simplification of loading and unloading procedures for goods will be very helpful to the exporters.

Moreover, the exporters should always keep in mind that in order to expand the market share and survive in the free global competition in the international market, product, market and method diversification are considered to be an indispensable strategy. The more filled and stretched is the product line and range, the better is the competitive strength.

The political unrest, as it hampers the normal economic activities, trade and commerce of the country, is also a big constraint for export promotion. Work stoppages in the name of political programmes like strikes and hartals have become almost a regular phenomenon in the country. The opposition political parties and trade unions call hartal and gherao programmes quite often on flimsy grounds which hinder the performances and operation of the export oriented factories seriously disturbing the productions and thereby the supply schedules which sometimes force the buyers to go for alternative suppliers. More importantly, the country's political unrest and activities like hartal and gherao hamper the image of the country before the foreign buyers.

In Bangladesh, the law and order situation is not normally satisfactory, although sound law and order situation is a pre-condition for the development of export business. Deterioration of law and order is often cited as an impediment to increasing export business.

Moreover, today's economy is a knowledge-based economy, especially in the developed countries. Technological innovation is considered as a critical determinant of economic prosperity and at the same time technology is essential for having skilled manpower to promote and diversify the exports. But unfortunately, our technology infrastructure is fragmented and un-coordinated and has not yet satisfactorily advanced to serve our purpose in this respect. As a result, the country has a shortage of quality professionals in the technology market including pharmaceuticals and garment industries--both holding a lot of prospect for export.

Our Embassies and High Commissions can play an effective role in promoting our products in their respective areas. As such sincere and dedicated initiatives and efforts by all our 44 missions abroad in finding out markets for many of our quality products will hopefully change the country's export scenario. For this a close and coordinated action programme jointly undertaken by the Ministry of Foreign Affairs and the Commerce Ministry in collaboration with different chamber bodies and trade associations is needed without further delay.

Finally, the exporters have a general complaint that the attitude of the government officials in some cases is not conducive to export promotion and business development activities. Rules and regulations pertaining to export promotion have not yet been fully updated and made positive and business-friendly. Too much paper work in some cases makes delivery procedure complicated and time consuming. It takes more time to obtain export clearance. Corruption also prevails there. Procedural delays and corruption create strain on exporters and thereby hamper exports.

Zahid Hossain was Acting Executive Chairman, Board of Investment and now Chairman, Society for Projection and Advocacy for Awareness Programme.