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CPD’s stance on Bangladesh’s GSP privilege cited

Despite the negative vibes of the USTR, it has been pointed out by the civil society, including the Centre for Policy Dialogue (CPD), that the whole process needs to be viewed by the USTR holistically. It has been indicated that though there would be no immediate impact of continued GSP suspension, Bangladesh would face competition from other countries that are availing of this facility.

Published in The Financial Express on Monday, 7 September 2015.

Needed: Greater coordination to move forward

Muhammad Zamir

The last few weeks have seen our economic sector take a roller-coaster ride. As we have seen hopes dashed with regard to the renewal of GSP (Generalised System of Preferences) by the USA, we have, on the other hand, have made comparatively satisfactory performances in different sectors.

US President Barack Obama signed into law a Bill – H.R. 1295 that re-authorises GSP through to December 31, 2017. The GSP is a trade scheme under which the US allows import of more than 5,000 goods from 122 least developed and developing countries with lower or zero-duty benefit. Bangladesh was bracketed with a few other countries that were excluded from the paradigm of GSP. It was also reported that the Office of the United States Trade Representative (USTR) had carried out a review in this regard in January this year and had concluded that more needed to be done on worker safety and rights in Bangladesh. It was suggested that while the country had made progress over the last year to address fire and building safety issues in the ready-made garment (RMG) sector, further progress was needed, including addressing worker rights issues, before the re-instatement of trade benefits under GSP could be considered. It may be recalled that Obama suspended the GSP facility on 27 June 27, 2013.

US Ambassador in Dhaka, Ms. Bernicat, in the meantime, has refuted observations made by our Commerce Minister that this ‘unfortunate decision’ might have had political reasons. It is also being hoped that this matter will be resolved through further discussions within the Trade and Investment Cooperation Forum Agreement (TICFA) parameter, through exchange of views at the ground level and appreciation of the steps already taken by Bangladesh with regard to fighting violent extremism and in the empowerment of women within the democratic dispensation.

Despite the negative vibes of the USTR, it has been pointed out by the civil society, including the Centre for Policy Dialogue (CPD), that the whole process needs to be viewed by the USTR holistically. It has been indicated that though there would be no immediate impact of continued GSP suspension, Bangladesh would face competition from other countries that are availing of this facility.

It has been pointed out by some analysts that Bangladeshi entrepreneurs in the RMG sector in particular, do not enjoy certain built-in facilities that are enjoyed by their competitors in China, Vietnam and Mexico – low interest rates, developed infrastructure, skilled labour force, semi-automated production processes, financial incentives, higher labour efficiency and low cost of raw materials. In order to overcome this challenge, Bangladeshi manufacturers, suffering from higher middle-men profits, will have to further trim down production costs and lower their already very minimal profit margin. This in turn would affect higher wage rates for the workers.

CURRENT-ACCOUNT BALANCE: The second disquieting news has been the report in the middle of August that higher trade deficit has sent the country’s current-account balance into negative territory in the just-concluded financial year 2014-15.  The current account deficit stood at US $ 1.65 billion in a slide from a surplus amount of US$ 1.4 billion a year before. Higher import payments and lower export receipts created a gap in the two-way trade. It would be pertinent at this point to mention that the merchandise trade deficit in FY 2014 was US $ 6794 million and in FY 2015, US $ 9917 million. The service trade deficit in FY 2014 was US $ 4099 million and in FY 2015, US $ 4628 million. The net FDI inflow in FY 2014 was US $1432 million and in FY 2015, nearly US $ 1700 million. However, imports in FY 2015 grew to US $ 40.68 billion from US $ 36.57 billion in FY 2014.

Economists have termed this development as not very worrying. They have pointed out that due to slight increase in our remittance during FY 2015, the economy still managed to post an overall balance of payment surplus of US $ 4372 million. They have, though, overlooked that it had been US $ 5483 million in the preceding financial year. To support their assumption, they have noted that Bangladesh’s current account deficit was still less than 1.0 per cent of the GDP (gross domestic product) and as such was still comfortably manageable and that it did not pose any serious risk at this moment. It has also been noted that our foreign exchange reserve has continued to rise despite the existing challenges and that our exchange rate vis-a-vis the US Dollar was strong unlike in other countries across the region.

We should, nevertheless, carefully examine why there has been this downturn and then address the issues that will enable us to stop this slide in our current account balance in trade. This assumes importance given the fact that on August 12 the media reported that there had been a fall in our exports in July 2015, the first month in fiscal 2016. Compared to July 2014, when there was export worth US$ 2.98 billion, this year in July, Bangladesh earned US$ 2.52 billion. The woven sector earnings dropped by nearly 10 per cent, while the knitwear exports saw a fall of around 11 per cent.  It may be underlined here that the RMG sector plays a crucial role in the context of our export earnings. It earned US $ 25.49 billion in FY 2015 out of a total of US $ 31.2 billion. Representatives from the Exporters’ Association of Bangladesh have identified the causes for this: political instability in the beginning of this year affecting orders; the compliance issue (causing a fall in production capacity of factories), and fluctuation of the exchange rate between Taka and Euro.

The above data assume greater importance because the Bangladesh Bank (BB) revealed on August 07 that remittance inflow dropped by 7.0 per cent in the first month of the current fiscal (2015-16). We received US $ 1.38 billion during the month of the Eid festival compared to US $ 1.42 billion for the same month in the previous year. This was contrary to what was predicted by the Bangladesh Bank and its projected 10 per cent growth of remittance for the current fiscal year. BB also mentioned that they hoped to reach foreign exchange reserve figure of US $ 26 billion in FY 16. This objective has been attained in mid-August. This may however be difficult to maintain if the balance of trade continues to deteriorate and remittance figures also slip.

GOOD NEWS: Nevertheless, there has also been some good news.

It appears that export of leather and leather goods crossed US $1.0 billion for the second year in fiscal 2014-15. This has been a good trend. One wishes that this can continue despite the sharp reduction of movement of cattle from India to Bangladesh.

The second was the report that investment in export zones has grown despite plot shortage. Data revealed in the first week of August indicated that investments in the Bangladesh Export Processing Zones Authority (BEPZA) amounted to US $ 406.35 million in FY 2014-15, up by about 1.0 per cent compared to the previous fiscal. The BEPZA signed investment agreements with 19 new companies in the last fiscal year. These companies will invest US $ 205.48 million in setting up their industrial units which will create employment opportunities for 36,042 persons.

There was however the other side of the coin which also grabbed attention. A report on the ease of doing business in Bangladesh, prepared by an agency of the British government, was published in the second half of July, 2015. It was suggested that corruption affects many aspects of daily life in Bangladesh and that politicians, bureaucrats and law-enforcement officials often wield significant discretionary power. Bangladesh, 173rd in the World Bank’s ease of doing business ranking, was identified as often lacking transparency in its decision making process and also having a significant bureaucratic burden in its terms of procurement practices.

A NEW INVESTMENT REGIME: This report had obviously caught the notice of Bangladeshi business and this was reflected in the underlining of the need for second-generation reforms in the economic sector. In a meeting held in Dhaka on August 01, the Metropolitan Chamber of Commerce and Industry (MCCI) reiterated the need for the government to create a new investment regime and to implement requisite reforms for this purpose. They also demanded that the Board of Investment (BoI) should allocate at least 2.0 per cent of available electricity for additional investors. The government, also justifiably, was asked to immediately settle the on-going dispute with regard to land transfer and land ownership with the Korean Export Processing Zone (KEPZ).  It was pointed out by Dr. M. Farashuddin, former Governor of Bangladesh Bank, that this continuing imbroglio had brought bad name for the country. I totally agree with him that Dr. S.A. Samad, Executive Chairman of the Board of Investment, should try to be more pro-active in this regard and help to resolve this impasse.

The participants in the MCCI meeting also suggested that efforts should be made to increase collection of tax revenue by setting up tax offices in every Upazila. This would increase the number of tax-payers. It was similarly pointed out by the participants that underdeveloped road infrastructure be improved into an integrated multi-mode transport system with better rail and riverine facilities including superior loading and unloading conveniences. The meeting generally also agreed that delayed implementation of infrastructure projects is increasing cost of doing business. I share their view that this has to be avoided.

Meanwhile, the government has announced a decision on August 31 that the Bangladesh Investment Development Authority (BIDA) will be established by abolishing the Board of Investment (BoI) and the Privatisation Commission. It is being hoped that this will accelerate the investment process.  Solving the KEPZ imbroglio will also act as a catalyst.

We have to move forward and have faith in ourselves and nurture the dream that we all saw in 1971. To achieve the desired end and our growth target, the investment-GDP ratio has to increase and this will be possible only if we can generate confidence among ourselves and bring about greater coordination and partnership among the stakeholders – the private and the public sectors and the financial institutions. This will be possible if we can usher in transparency, remove corruption, create accountability, ensure good governance at all tiers, improve infrastructure, diversify export products and export destinations, increase skill of the labour force and assist in the creation of a larger number of entrepreneurs both at the urban and rural sectors. This will then also enable us to cut our upper and lower poverty rates by 2020 and bring down hardcore poverty to zero level by 2030.

The writer, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.

muhammadzamir0@gmail.com

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