ADB Recommends Strategic Reforms for Export Diversification in Bangladesh

Author: SRCO Business Insights | May 31, 2024

The Asian Development Bank (ADB) has issued a policy brief with crucial recommendations to promote export diversification in Bangladesh. Emphasizing the urgency of the current economic situation, the ADB suggests that focusing on trade policy issues and improving export competitiveness should be central to Bangladesh’s reform agenda.

Context and Current Challenges

As Bangladesh approaches its graduation from Least Developed Country (LDC) status in 2026, there is a growing recognition of the need for policy reforms to boost export competitiveness. Despite recommendations in the 6th, 7th, and 8th Five-Year Plans, these reforms have not been adequately prioritized for implementation.

While the garments sector has achieved significant success, Bangladesh’s overall export volume remains modest and highly concentrated. Recent macroeconomic challenges and the impending LDC graduation underscore the importance of expanding and diversifying exports. High tariff protection for import-competing sectors and weak domestic product standards have created disincentives for non-readymade garments (non-RMG) exports.

Key Policy Recommendations

  1. Addressing Policy-Induced Export Disincentives:
    • Tariff Rationalization: High tariffs and para-tariffs create an anti-export bias by encouraging a focus on the domestic market. Rationalizing tariffs can stimulate domestic manufacturing and balance revenue losses from reduced import tariffs.
    • Equal Access to Incentives: Non-RMG sectors should have equal access to policy incentives, such as bonded warehouse facilities and subsidized loans. Firms serving both domestic and international markets should have streamlined access to bonded warehouses, with duties adjusted based on the proportion of goods for domestic and export use.
  2. Enhancing Product Quality and Standards:
    • Invest in Capacity Building: Non-RMG sectors need to meet international quality and safety standards to expand market reach. Investing in acquiring relevant certifications and establishing accessible testing and certification facilities is essential.
    • Strengthening Institutions: Enhance institutions responsible for quality control and compliance by investing in laboratories, equipment, and skilled personnel.
  3. Attracting Foreign Direct Investment (FDI):
    • Improve Investment Climate: Streamline investment procedures and promote sustainable practices to attract FDI. This can facilitate knowledge and technology transfers, integrating Bangladesh into global value chains.
  4. Reducing the Cost of Doing Business:
    • Infrastructure and Logistics: Address inefficiencies in infrastructure, inland transport, customs procedures, port facilities, and trade logistics to reduce lead times and costs, thereby improving international competitiveness.
  5. Prudent Exchange Rate Management:
    • Maintain Competitive Rates: A competitive and stable exchange rate ensures that exports remain attractively priced in international markets, benefiting sectors beyond the RMG industry.
  6. Sector-Specific Supply-Side Interventions:
    • Action Plan for Key Sectors: Implement a time-bound action plan based on constraints identified in studies like the Diagnostic Trade Integration Study. This targeted approach will enhance productivity and competitiveness in key sectors.
  7. WTO-Consistent Export-Incentive Mechanisms:
    • Learn from Non-LDC Countries: Formulate effective support measures within WTO guidelines, drawing lessons from countries like China and Vietnam.
  8. Securing Trade Preferences Post-LDC Graduation:
    • Engage with Trade Partners: Proactively seek trade preferences from partners like the EU and UK. Bangladesh should aim to retain preferential treatment through initiatives such as the UK’s Developing Countries Trading Scheme and seek similar arrangements with other trading partners.

Strengthening Trade Policy and Negotiation Capabilities

In preparation for LDC graduation, enhancing the capabilities of trade officials, negotiators, and policymakers is crucial. A comprehensive capacity-building strategy will ensure that both the public and private sectors understand the changes in trade preferences and policy space, allowing them to take measures to improve firm-level competitiveness.

Conclusion

The ADB’s recommendations highlight the need for a strategic approach to reforming Bangladesh’s trade policies and enhancing export competitiveness. By addressing policy-induced disincentives, improving product standards, attracting FDI, and reducing business costs, Bangladesh can better prepare for its upcoming LDC graduation and strengthen its position in the global market.

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