Importance Of Export Earnings And Remittance Inflow In The Economy Of Bangladesh
Without any doubt, the two major forces that are driving the economy of Bangladesh forward for the last couple of decades are export earnings and inward flow of remittance. Both export earnings and remittance inflow has suffered from some volatility in the recent past. Export earnings recorded the lowest growth in the current century in FY 2016-17 at 1. 72%. The second lowest growth was registered in the year before that. Fortunately, it gained some momentum in the last year as export earnings grew slightly better than previous year. In addition, remittance inflow has been registering negative growth for two consecutive years in 2017 and 2016. Though manpower export has risen rapidly previous year that was not reflected in the figures of remittance inflow. Several reports are emerging claiming that not the new migrant workers are finding it very difficult to find jobs abroad. This implies that the sharp increase in manpower export over the past few years did not convert into overseas employment as reflected in the remittance earning in the recent years. That means, increasing manpower export does not make us very optimistic that remittance inflow should increase in the coming years. Similarly export earnings is failing to keep its promise of growing continuously to keep the economy running. A large number of workers are dependent on this sector and atomization of the production process has already challenging them to survive. If this sector seizes to grow further then a huge number of workers, especially women workers, will be severely affected. Keeping that in mind, it is very urgent to understand the dynamics of export earnings and remittance inflow in the context of Bangladesh.
Both export and remittance continued to grow rapidly since 2000 which mainly drove the economy growth of the country. In contrast to general expectation, both remittance and export remained stagnant in the last 3-4 years. The central research question of this paper is to understand why such fluctuation took place in export earnings and remittance inflow, two most important economic variable of the country, during the same time.
Export Composition of Bangladesh
Readymade Garments (RMG) composes the biggest portion of the export basket of Bangladesh. 83% of Bangladesh’s total export earnings came from selling RMG to other countries in the world. While all experts are suggesting Bangladesh to diversify its export basket, concentration of RMG has actually increased in FY2017-18 compared to 2016 (RMG accounted for 81% of total export in 2016). Other major export items of Bangladesh include: jute and jute goods, leather items, frozen or live fish etc. Only four types of products accounts for more than 90% of total export of Bangladesh. In the same year, Bangladesh exported a total of 36, 668 million US$ worth of products to the world. The same condition appears when Bangladesh’s export destinations are analysed. Historically, European Union (EU) and United Sates of America (USA) have been the biggest buyers of Bangladeshi products. EU is an economic consortium of 28 European nations who granted duty free access for Bangladeshi products. More than 70% of her export goes to 10 countries only. Major importers of its products are: USA, Germany, UK, Canada etc.
Trend of Manpower Export and Remittance Inflow in Bangladesh
As BMET data suggests, Kingdom of Saudi Arabia (KSA) and United Arab Emirates used to be the biggest recruited of Bangladeshi workers in 2000s. However, later Oman, Singapore, and Malaysia became major destinations. In the last couple of years, KSA opened their market for Bangladesh again. Almost 86% of total migrant workers went to 5 countries. The figure of KSA is an abnormal figure in a sense that in the prior years it was very low. KSA opened up its market in 2016 for Bangladesh and the number jumped significantly. Though manpower export increased significantly, such growth was not reflected in remittance inflow. As can be seen, in the last five years, remittance inflow has fallen three times compared to its immediate past years. In the next section of this paper, the underlying reason of stagnant remittance inflow and export earnings is discussed.
Stagnant Remittance Inflow: A Price to Pay for Past Imbalanced Growth
Now, why has the ever-growing remittance inflow started to reduce suddenly? In 2008, 8, 75, 055 persons, highest ever in a single year before 2017, went abroad for employment out of which more than 63 per cent went to the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA). In 2017 also, almost 65% of total migrants went to KSA and Malaysia. We need to keep in mind that 2008 and 2017 are the two years that registered the highest number of migrant workers leaving the country. Unfortunately this trend was not observed during these two years only. Rather it has been the historical trend of our labour force migration.
At the beginning, the UAE and the KSA were the most desired destinations of our foreign workers. Available BMET data shows that in 1976, 36 per cent of total migrant workers went to the UAE and the KSA. In 1980, the ratio was 46 per cent, in 1990 it was 45 per cent and in 2000, it reached an unbelievable height of 80 per cent. And till 2012, on average more than 50 per cent of our yearly migrant workers were going to these two countries alone. These figures are enough to show how ridiculously the flow of Bangladeshi migrant workers was concentrated in these two markets. Bangladesh first suffered the consequences of this tremendously high market concentration in 2008 when suddenly the KSA imposed restriction on issuing Iqama (residence/work permit) transfer facility to Bangladeshi nationals. The action was based on the claims that they were involved in various criminal activities, illegal business and they were overstaying their visa period. Furthermore, though there was no official declaration, the KSA reduced recruiting Bangladeshi workers drastically in 2009. Since there was no official statement from the Saudi government, it is not possible to identify the main reason behind this radical fall in recruitment. From 2008 to 2009 within one year, the number of workers going to the KSA fell from 1, 32, 124 to 14, 666, accounting for a negative growth of 89 per cent. This fall, however, was not reflected in the remittance inflow, as, according to the sector insiders, a lot of workers had to come back from the KSA since the Iqama transfer facility was withdrawn and the returning workers might have brought all their savings with them which may have kept the remittance earnings from falling.
In the meantime, Oman gradually emerged as a new destination for our migrant workers. As in 2011, 1, 70, 328 workers went there which was 217 per cent higher than previous year. The next major blow hit our remittance inflow when the UAE suspended issuance of visa for Bangladeshi workers in August, 2012. In the next year, manpower export to the UAE fell by 93 per cent from 2, 15, 452 to only 14, 241. This huge fall was ultimately reflected in the remittance inflow as it dropped by 1. 6 per cent in FY 2014 for the first time since FY 2002. Though in the later years, Bangladesh was able to recover some momentum of it, it again dropped 2016 and 2017 consecutively. However, the remittance inflow in the first 8 months of 2018 suggests that it might record a positive growth this year. This has mainly happened because KSA reopened its market for Bangladeshi workers in 2016 and almost 8. 5 lac workers went there since then whereas only around 65-70 thousands of workers went to KSA in during the period of 2011-14. However, such a sharp increase could not lift remittance inflow as expected because though people are going there but they are finding it very difficult to get a job. So it is clear from the above analysis that whenever, the major destinations stopped taking Bangladeshi workers, remittance inflow was affected negatively. At present, Malaysia is the second largest destination for migrant workers of this country. And lately Malaysian government has also expressed their concerns regarding the monopoly in recruitment procedure. It seems Bangladesh will have to pay the price dearly for making its manpower export heavily concentrated on two countries only until and unless new markets for our manpower export are identified or the traditional markets are revived through diplomatic negotiations.
Fluctuations in Export Growth: A Signal to Take Precautionary Measures
Traditionally, our export has been highly concentrated on a few goods. Till the late nineties, major portion of our export earnings came from jute and jute goods which was above 50 per cent on average. Since then, our export earnings started to be more dependent on garments industry and in the last fiscal (FY 2017-18), almost 83% of our total export earnings came from readymade garments (RMG) as indicated in table 1. Definitely it is a good sign that Bangladesh has developed so much expertise in this sector that several setbacks in recent time could not affect the growth of RMG export. But still it is never good for a country to be dependent on a single industry so intensely.
Another alarming feature of our export basket is that it is even more concentrated on a few markets. Since all the 28 countries of the European Union (EU) follow the same rules and regulations, we can consider them as a single market for our export and in FY 2018, Bangladesh earned around US$ 27 billion or 75% of its total export revenue from the EU and the USA markets. And RMG constitutes almost 90% per cent of Bangladesh’s total export to the EU and the USA. Bangladesh has been exporting RMG to the USA without any concessionary benefits. In the EU, Bangladesh enjoys generalised system of preferences (GSP), namely the Everything But Arms (EBA) arrangement, under which facility Bangladesh gets duty-free quota-free access for all products except arms and ammunitions for being one of the 48 LDCs in the world. Since Bangladesh has been exporting garment items to the USA based on its competitive strength, the suspension of GSP by the USA in June 2013 did not have any visible negative impact on our export. The step taken by the USA was also a symbolic response since our major export items (i. e. RMG) were not covered by the scheme in view of the two deadly incidents that took place in our RMG industry: Rana Plaza collapse and Tazreen Fire incident.
However, it is the EU GSP that actually matters for Bangladesh since Bangladesh gets duty-free access for RMG whereas its competitors like China, Vietnam, Cambodia and others do not. Though the GSP facility is still in place for Bangladesh in the EU market, they expressed their concerns in a strong voice regarding the working environment in the garments industry of Bangladesh. It is not guaranteed that another major accident in our RMG sector will not result into suspension of the GSP facility in the EU market too. The EU also wants Bangladesh to improve the safety of the RMG industry significantly as soon as possible and failing to do so may result in GSP suspension too.
In addition, the EU has reformed its GSP policy that has come into effect from January 01, 2014. Under this reformed policy that is under the GSP Plus facility developing countries may be granted duty and quota-free market access if they are identified as vulnerable nations. Till now, there are 13 beneficiaries of the GSP Plus scheme most of which do not pose any substantial threat for Bangladesh. However, inclusion of Pakistan in the GSP Plus scheme is an alarming news for us since Pakistan possesses a bit of expertise in the RMG sector as is proven by the fact that it exported US$ 8. 79 billion worth of RMG in the first eight months of FY2018. One should note that Pakistan exported only USD 4 billion worth of RMG in 2013. That means Pakistan is gradually taking the benefits of the GSP Plus scheme. Furthermore, Pakistan has a sustainable backward linkage industry for RMG as it is one of the biggest cotton-producing countries of the world. Bangladesh will definitely suffer from Preference Erosion in the EU market as Pakistan will have more market share.
Close competitor To Bangladesh RMG
Recently Vietnam is consider as a close competitor to Bangladesh RMG. Some statistics are saying that Vietnam will be a great threat for Bangladesh in future.
According to Sadiq Ahmed the vice-chairman of policy research institute – “Vietnam is surely a major competitor for Bangladesh in the global readymade garments business as its performance is going strong. Still Bangladesh is in an advantageous position compared to Vietnam, thanks to lower labor costs. Vietnam’s textiles and garments industry has developed rapidly in recent years and has become a vital activity within the country’s economy. It could attract large sums of foreign direct investment, mainly from China and South Korea, as the nation has flexible policies and good infrastructure. ”
Vietnam has been enjoying a lower tariff rate on apparel exports to the US since 2001 when the American government gave Vietnam the Most Favored Nation status. On the other hand, Bangladesh has been paying a 15. 3 percent duty on apparel exports to the US as the country has been kept away from any duty-benefit. In 2012, Bangladeshi garment makers paid $746 million to US customs as duty for exporting garment items worth a little over $5 billion.
Challenges for Bangladesh after LDG graduation
Amongst the five challenges of Bangladesh economy in 2018 growth of exports and remittance is one of them. A goal was drawn by BGMEA by 2021 annual increase of readymade garments will be 50 billion US dollar. Roadmap also drawn up for the target by the experts. The international trade unions have continued their efforts to pressurize the importing countries for substantive progress on the commitments made by Bangladesh during the launching of ‘Sustainability Compact’ in 2013 between Bangladesh, the USA, EU and the ILO, with inclusion of Canada in 2016. The trade union rights focused in the factories inside and outside of EPZs. EU has already warned Bangladesh about the duty free access. Bangladesh has sent a draft to the ILO which contains some positive changes in the Labor Act as suggested by the ILO Expert Committee. There may be some initial feedback from ILO on that draft by the end of November 2017. Not only RMG all Bangladeshi exports are having duty free access under GSP in EU. But after 2021 when Bangladesh will graduate from LDC that time it will face big challenges.
At a first go it will lose EBA and be bracketed as a beneficiary of general GSP. Secondly, Bangladesh will miss the relax rule enjoyed so far as LDC.
Another immediate challenge the Bangladesh RMG export will face is the new GSP administration in export to the EU. Presently, Export Promotion Bureau (EPB) is the only competent authority to issue GSP certificate for RMG. From 2017 or 2020, depending on the decision of Bangladesh, all the GSP certificates for the EU will be issued by the exporters. EPB will only work as overseeing body for the registered exporters whenever verification on an export is asked by the customs authority of the importing country of the EU. The new system of GSP certification will require appropriate preparation for individual exporters as well as for BGMEA/BKMEA. This is a vital requirement as knit and woven products account for about 90 per cent of Bangladesh export to the EU.
Bangladesh does not enjoy any preferential access under GSP or any other system in the USA for apparel products. But losing out to Vietnam in respect to export to the USA and the EU under FTA is unlikely to happen in the short term. The “Yarn forward Rules of Origin” in the TPP will be a major impediment for Vietnam to enjoying duty-free access for its apparel products. It means all products in a garment from the yarn stage forward must be made in one of the countries that is party to the TPP agreement.
After graduating from LDC status and missing the ‘one-stage transformation’ of RMG in the EU, the result will be increased dependence on inputs originating from primary textile sector (PTS) from within the country. So FDI is important to boost the export of the future for both textile and clothing. So far we have understood that Bangladesh is having so much challenges regarding RMG sector and all the problems are not same categories. Some are related to infrastructural sector and some are labor issues. So Bangladesh has to maintain a good connection with the global market and also with the competitor like Vietnam, Cambodia, and India. Also need to improve the occupational safety and the rights of the workers.
So, it is obvious that just like our remittance sector, our export sector is heavily dependent on two markets only. And it is not confirmed that our export sector will not face hurdles in the EU and the USA just as our manpower export did in the UAE and the KSA. If the EU cancels GSP facility of Bangladesh or if it grants GSP Plus facility to new developing countries which are competitors of Bangladesh in global RMG trading then, our export earnings will face a huge blow right where it hurts because almost half of our total export earnings comes from RMG export to the EU. We have already observed the consequences of over concentration on a few markets in our remittance inflow and we should not take the same risk with our export sector. The economic growth of our country is largely dependent on export earnings and all the stakeholders of this sector should work together to ensure sustainability of this life line of our economy.
There is no alternative of exploring new markets and promoting non-traditional potential export items. The government has already taken several steps to diversify our export but those steps have not resulted in any significant reduction of market and product concentration. Export diversification requires much more attention than it is getting now. Otherwise, time may come when export earnings will experience negative growth like remittance inflow.
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