SE Asian markets next frontier for Bangladesh: CPD

South East Asian export markets – which remain largely untapped – would be the next frontier for Bangladesh during transition to a developing nation, if effective policy measures are taken to diversify products and ink more trade deals, says the Centre for Policy Dialogue.

CPD’s Distinguished Fellow Mustafizur Rahman made the comment while presenting a keynote paper at an international conference titled “50 Years of Bangladesh: Retrospect and Prospect,” organised virtually by the CPD.

He continued, “Markets in Bangladesh’s neighborhood regions have remained largely unaccessed, although countries in the South Asia, ASEAN and East Asia regions are the drivers of the Asian Century.

“Countries in the three regions import goods worth around $4,921 billion, which is 28 per cent of the global imports. Accessing the regional market will be our next frontier.”

The economist continued, “Bangladesh’s exports to these regions have however remained almost stagnant over the last decade – increasing from 10 per cent to only 12 per cent. Bangladesh’s share in the import of the three regions is a mere 0.1 per cent.

“On the other hand, countries such as India and Vietnam have been targeting these markets in a strategic way. Export shares of these countries have been rising in a consistent manner in recent years.”

Regional countries have been able to increase their share in Bangladesh’s imports in a significant manner, with more than two-thirds share in the country’s global imports leading to growing trade deficits with the regional countries, Mustafizur said.

Why are regional markets unaccessed?

According to the CPD research, Bangladesh’s share in the imports of South Asia, ASEAN and East Asia regions is a mere 0.1 per cent. In ASEAN region, Bangladesh’s exports is 0.81 billion, followed by $1.3 billion in South Asia and $3.11 billion in East Asia, which is 11% or $5.22 billion of total exports.

Addressing the issue, Mustafizur said, “One reason is the lack of export diversification as reflected in the high export concentration. Bangladesh’s export concentration index, at 0.41, is significantly higher than some of its competitors.

“Export product concentration is closely associated with export market concentration. Besides, one of the reasons for not being able to access the regional market for apparels is high concentration in cotton based products against synthetic, non-cotton based products for which the demand in that region is rising.”

As per the data, 70.74 per cent of Bangladesh’s RMG exports are cotton, which is 30.74 per cent in Vietnam, a close competitor of Bangladesh. Bangladesh produces 22.55 per cent synthetic products of its total apparel goods. 

Other reasons why Bangladesh is unable to access the regional markets is the lack of ability to diversify into medium to high technology embedded products. Particularly, Vietnam and China have been able to do this and get into the markets for products for which demand is growing in the region, said the think-tank.

On top of that, Bangladesh’s backward and forward Global Value Chain (GVC) linkages are way lower than its competitors. One of the reasons is the lack of connectivity through production networks and RVCs.

Except RMG-Textiles, for other products, Bangladesh’s GVC share is dismally low, the CPD added.

But Bangladesh’s competitors such as Vietnam have established a range of RVCs and GVCs through production networks and supply chains, a large part through backward and forward linkages within the region, said the researcher.

How to access regional markets?

The CPD estimated what will be the loss in terms of export earnings if preferential market access is no longer available in the region. To recover the trade benefit losses eroded by the graduation status, it recommended focusing on free trade deals with the regional partners.

Mustafizur said, “We have also estimated what could be the gains in terms of additional exports if Bangladesh goes for FTA with selected countries. We have carried out export potential mapping which shows significant untapped export potentials in the regional markets and untapped export potentials.

“There are strong arguments to go for Free Trade Agreement, Comprehensive Economic Partnership Agreement (CEPA), and Regional Trade Agreement (RTA) with countries in the region.”

However, this will call for identifying trade-related offensive and defensive interests, as well as opening up own markets since trade deals will be based on a high degree of reciprocity, he added.

Bangladesh’s apparels, leather, footwear cluster shows significant export opportunities based on the track record, but this will call for diversification within product groups, said Mustafizur.

The economist continued, “On the other hand, light engineering, assembling, production of equipment and machineries – depicting a different cluster – have significant export potentials for Bangladesh in the region where demand for such products are on the rise.

“Priority should be given to building supply side capacities for producing these products, where FDI will play an important role.”