Achieving growth in the year ahead
Indicators in 2016 demonstrate that we have made reasonable progress in
various sectors- export, infrastructure
development, power generation, export diversification, containing inflation
Muhammad Zamir
The first week of 2017 has seen several analytical reports about how the country has moved forward within the socio-economic matrix because of relative stability within the political paradigm. There have also been comments about how the dynamics might have been better had the relevant agencies concerned with different sectors been more careful in managing diverse facets.
Optimism about potential movement forward within our trading framework has particularly risen because of Prime Minister Hasinas comments on 21 December while addressing representatives from the private sector in the meeting organized by the Dhaka Chamber of Commerce and Industry to identify how we can move forward faster towards our economic goals meant to be achieved by 2030. She assured that the private sector was the driving force of the economy and that the government would continue supporting this sector by overcoming existing challenges through a transparent management. In this context she also highlighted the role that is expected to be played by the Private Sector Development Policy Coordination Committee, the Bangladesh Economic Zones Authority and the Bangladesh Investment Development Authority. It was also explained that these institutions were constituted to assist in the growth of industrialization and also attract more foreign direct investment. In this context she also highlighted that a high-tech park was being constructed at Kaliakoir with a target of employing 1 million persons within the IT sector by 2021. This, it was believed would eventually enable Bangladesh to achieve exports in the IT sector worth US $ 5 billion a year. It was also reiterated that in keeping with our sustainable development goals, efforts would be made to upgrade infrastructure, improve functional literacy and promote healthcare.
It may be mentioned in this context that the government, consistent with its belief that transportation needs to be improved has recently signed a US$ 369 million financing agreement with the World Bank to improve navigability of 900-kilometer inland waterways along the Chittagong-Dhaka- Ashuganj corridor and connecting routes. This project is expected to also ensure year-round safe transport for passengers and cargo along the countrys busiest waterways. This project will also build one new general cargo terminal in Pangaon and improve the existing cargo terminal in Ashuganj.
These factors were particularly stressed upon in view of the Global Enabling Trade Report, 2016 which had indicated that Bangladesh had dropped three places to 123rd in this years Index. It was highlighted that Bangladesh had slipped downwards with regard to three pillars- domestic market access, foreign market access and operating environment. This had influenced our ranking despite having moved forward pertaining to three other pillars- availability and quality of transport infrastructure, availability and quality of transport services and availability and use of ICT. It would be important to note here that this Report also highlighted in general one common element with regard to South Asia- access to imported inputs at competitive price and trade finance, high cost or delays caused by international transportation technical requirements and standards abroad, tariff and para-tariff barriers existing abroad, rules of origin requirements applicable abroad and burdensome procedures at foreign borders.
The last week of December also saw the visit to Dhaka of Rushanara Ali, British MP, also UKs trade envoy to Bangladesh. Of Bangladesh origin, she reiterated that British companies were keen to widen their presence in our country and increase their investment in view of Bangladeshs growing potential. It may be recalled here that Britain is the largest foreign investor in Bangladesh and our third largest export destination. At present over 249 British companies are operating in sectors ranging from retail, banking, energy, infrastructure, consultancy and education. During her comments given to the media she singled out particularly the insurance sector as a potential area for inter-active engagement. One presumes that association of UK in insurance options in Bangladesh would reduce hesitation among foreign investors, particularly those interested in associating themselves in our trade and manufacturing sectors. Rushanara also discussed, quite correctly, various aspects pertaining to bilateral trade that would come into play after Britain would leave the EU because of BREXIT. It may be mentioned that there is some degree of anxiety among Bangladesh exporters as to how Britains departure from the EU would affect their exports to that country (which have since the last fourteen years benefited from the existing EBA principle that permits duty-free and quota-free entry). It was important that our Commerce Ministry could convey to her the need for discussion in this regard. This will help us to avert difficulties in the future.
Indicators in 2016 demonstrate that we have made reasonable progress in various sectors- export, infrastructure development, power generation, export diversification, containing inflation (December 2016 was the lowest in 53 months at 5.03 per cent- according to the consumer price index), adding to our foreign exchange reserve and reducing poverty. We have also been one of the top performers in the world in ensuring nutrition and basic medical care. Juxtaposed together these elements should contribute towards a healthy economy.
Problems however still remain in different sectors- attracting private investment, reducing non-performing bank loans, improving skill of our migrant labor force and stabilizing exchange rates by narrowing current double exchange rates in the market. The scenario has been made more complex through drop in foreign aid disbursement by nearly 10 per cent to US $903.18 million in the July-November period of the current fiscal year. In addition, despite serious efforts of the National Board of Revenue the government earnings fell short of target by Taka 17,149 crore in the first quarter of this fiscal year due to slow growth in collection of income tax and customs duty. Concern has also been evoked over depleting gas reserves and the crisis resulting out of rising gas shortage (partially due to illegal use of gas by tens of thousands of consumers) that is affecting cities as well certain rural areas. The fact that we generate less than 3 per cent of our energy requirement from renewable energy has only exacerbated the situation.
They need to be addressed sooner the better.
Sharp reduction in remittance inflow in 2016 has drawn particular attention of economists. It slumped by US$ 1.71 billion to US$ 13.61 billion compared to US$ 15.32 billion received in 2015. This happened despite an almost 35 per cent increase in migrant outflow during this period. Some analysts have pointed out that this figure of receiving remittance through formal banking channels appear to have also suffered because of prevailing difference in the average US Dollar- Taka exchange rate between the formal and the informal channels. A survey carried out recently indicated that in January 2016, each US Dollar in official terms was exchanged for Taka 78.50 and in informal arrangement at about Taka 8o. 50. This had however changed sharply by the end of the year. In December the exchange rate in formal Bank channels for each US Dollar was Taka 78.70. However, in informal channels, through hundi, it was Taka 83.50. This is quite a bit of difference. The Bangladesh Bank needs to sit down with all the banking and the financial institutions and find a way through which migrant workers can be dissuaded from using the illegal and irregular channel. This effort has apparently already started and its usefulness has been reflected in remittance inflow going up comparatively in the month of December, 2016. We received US$ 958.73 million as opposed to US$ 951.37 received for that month in 2015. This is a marginal improvement. We need to tackle this issue with seriousness given the fact that double exchange rates can affect us seriously.
It would be remiss of me, if at this point, I did not also mention the need of our relevant authorities to take necessary steps to expedite specialized training to enhance the skill of our migrant workers in the field of electronics, construction, plumbing and air-conditioning. We also need to have at the District level, facilities so that those intending to go abroad to work can learn foreign languages- Arabic, Malaysian, Korean, English and Japanese. This will improve their chance of recruitment. Similarly, women migrant workers need to learn if possible, use of electrical household appliances (required for the kitchen or washing clothes), healthcare and nursing facilities. Sri Lanka and Philippines women migrant workers have specially benefitted from this in the Middle Eastern countries and also in certain parts of the Far East. We can do the same.
The last point of interest that has emerged in the media in the last few days is that the gap in service trade has registered a record 33.6 per cent growth during the first five months of the current fiscal year- 2016-17. This has led to a service trade deficit of US$ 1.46 billion as compared to US$ 1-09 billion for the same period during fiscal 2015-2016. At the same time payments on importing services registered 16.2 per cent growth and reached US$ 2.88 billion. This was US$ 2.48 billion during July-November period of the last fiscal year. It may be mentioned here that services like travel and tourism, transportation, financial facilitation, telecommunication, computer and information services are the main components of the service trade. Such a negative increase in this sector is also having a multiplier effect as during the same period, the merchandise trade gap has also increased. One can only hope that the relevant authorities are taking necessary steps to contain this high trend of growth in the services trade matrix.
Prime Minister Hasina thankfully has continued to take a hands-on interest with regard to expanding the potential horizon of our trade sector. This time, while inaugurating the 22nd Dhaka International Trade Fair on 1 January, she advised businessmen and manufacturers to seek new markets for Bangladeshi products rather than running after GSP. In this context she identified leather as the product of the year 2017. That makes sense given the fact that leather export has increased by 71 times over the last four decades. During the last fiscal we earned US$ 1.16 billion through export of this product. We are now producing leather goods for top international brands. We have similarly gained ground in the field of export of pharmaceutical products- not only in terms of variety but also in the number of countries who are now buying them from us.
The horizon is slowly but gradually opening up. Bangladeshi manufacturers however also need to remember that they have to ensure that our products maintain the required global standard to sustain themselves in the competitive world market.
Muhammad Zamir, a former ambassador, is an analyst specialised in foreign affairs,right to information and goodgovernance. He can be reached at [email protected]
