Bangladesh Economy and International Trade - An Overview - Final

15 September 2015
Presented by:
Dr. Md. Mozibur Rahman
Course : EIB 534/532: Bangladesh in International Business

EMBA Program
Department of International Business
Faculty of Business Studies
University of Dhaka
ACJ Cl
Objectives
Provide an overview of Bangladesh Economy
Provide an overview of historical
transformation of Bangladesh Economy
Provide an overview of Bangladeshs
International trade performance
Bangladesh Economy and International trade: an overview
ACJ Cl
Introduction
Bangladesh has posted a robust and resilient economic performance

over the past decade, accompanied by a sustained decline in
poverty.
The average annual real GDP growth of the Bangladesh economy

during the last ten years was over 6%, aided by conducive
macroeconomic policies, strong export growth and favourable
weather. GDP growth was broad based with agriculture, industry
and service sectors performing well.
Export-led growth, largely induced by increasing ready-madegarment (RMG) exports and remittances from overseas workers,
have been the drivers for Bangladeshs economic development in
the past decades. Poverty declined from 57% of the population in
1990 to 31.5% in 2010 and estimated at 25.6% in 2014.
Introduction
Bangladeshs involvement in international trade has been

increasing significantly in the past decades, with export
values more than quadrupling in the period 2001/02 to
2014/15 and the ratio of total trade to GDP accounting
now more than 50% of GDP.
However, comparing the trade to GDP ratio with other

countries in the region, it shows that there is still room for
improvement, which confirms Bangladeshs strategy of
accelerating economic growth by increased and diversified
exports, including increased services exports, resulting in
deeper integration into global trade.
Structure of Bangladeshs Economy

Trends
in Bangladeshs GDP and its sectoral Composition, 19702014 (constant 2005

US$ million)
Sector
1980
1990
2000
2010
2011
2012
2013
2014
Total GDP
23,153 34,309 54,199 93,236 99,263 105,737 112,095 118,951
Agriculture
6,542
8,229 11,027 16,668 17,410
17,935 18,377
18,992
Manufacturing
2,333
3,808
7,426 15,315 16,849
18,526 20,436
22,210
Industry
3,304
5,868 11,556 23,723 25,863
28,303 31,031
33,635
12,520 18,733 28,340 48,887 51,926
55,341 58,392
61,799
Services
Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)
Structure of Bangladeshs Economy

Sectoral
contribution in Bangladeshs GDP, 19802014 (% of GDP)
Sector
1980
1990
2000
2010
2011
2012
2013
2014
Agriculture
31.55
32.75
23.72
17.81
17.71
17.09
16.27
15.89
Industry
20.63
20.69
23.31
26.14
26.39
26.74
27.63
27.86
Services
47.81
46.55
52.91
56.04
55.89
56.16
56.08
56.24
Bangladeshs Resilient Growth Performance

Resilient
Growth Performance
How did Bangladesh grow in such a sustained fashion?
Economic growth accelerated largely since the 1990s,

because of the accumulation of physical capital, increase
in the size of the labor force, and to a much smaller
extent, an increase in total factor productivity.
Underpinning there were several economic reforms: sound

macro-economic management, targeted trade policy
reforms that enabled the garment sector to thrive and
similarly-focused policies that facilitated take-offs in other
specific sectors (e.g., as frozen foods in European
markets), import and financial sector liberalization, and
investment in human development and social protection.
10
Remittances and garment exports were the twin drivers of

growth in the economyremittances through their effect on
consumption and construction as well as easing the foreign
exchange constraint, and garment exports through providing
sustained direct and indirect employment for millions of
workers in garments, input and ancillary suppliers, etc.
Also, the manufacturing sector has been the largest single

contributor to growth in the past two decades. As a result,
the share of manufacturing in total GDP increased from 10.8
percent in FY80 to 18.9 percent in FY13. Modest investment
rates notwithstanding, capital deepening in both agriculture
and industry played an important role.
11
Bangladesh has also proven to be relatively resilient to

global economic shocks.
Its growth continued to be resilient despite several external
shocks that slowed exports, remittances, and investment
growth, including the end of the Agreement on Textile and
Clothing (ATC) in 2005 and the 2008-09 global financial
crisis, thanks largely to strong fundamentals at the onset of
the crisis, relatively under-developed and insulated
financial markets as well as pre-emptive policy response.
The current account and balance of payments have been
stable making huge foreign exchange reserve, thanks to
remittances.
12
Key Macroeconomic Indicators

Key
Macroeconomic Indicators from 2010 to 2014
Indicators
2010
2011
2012
2013
2014
115.28
128.64
133.36
149.99
173.82
GDP Growth (%)
5.57
6.46
6.52
6.01
6.12
GDP per Capita (Current USD)
762.8
841.5
862.1
957.8
1096.6
7.14
7.86
8.16
7.17
6.18
37.80
47.42
48.11
46.30
44.99
0.75
0.92
1.11
1.00
--
20.49
19.84
20.47
21.17
23.21
Remittance (% of GDP)
9.79
10.08
10.68
9.24
--
Current Account Balance (%

of GDP)
1.01
0.30
2.41
1.58
--
GDP (current USD Billion )
Inflation, GDP deflator

(annual %)
Trade (%GDP)
Foreign direct investment, net
inflows (% of GDP)
Gross Domestic Savings (%
of GDP)
ACJ Cl
14
Economic Liberalization
Bangladesh, after independence, like many other

developing nations, adopted Import substitution (IS) as
its economic strategy.
It did not work because of the inherent follies of IS

strategy. Industrial activities were conducted by state
owned enterprises.
IS strategy resulted in BOP disequilibrium, foreign

exchange shortage, relatively low growth and microinefficiencies such as: uncompetitive enterprises.
15
Since realizing the shortcomings of the IS strategy,

Bangladesh gradually started liberalizing her economy in
general, and her trade regime in particular
1982-1986:
de-nationalization of the public enterprises,
simplification of private investment procedure,
reducing the level of QR
Removal of import licensing
16
1987-1991
Elimination of QR on imports
Reduction and rationalization of tariffs
Simplification of trade procedure
Simplification of other charges
17
1991
and onwards
More intense liberalization including flexible

exchange rate
Lowering maximum effective tariff rate
Removal of commodities from control list
18
Initially,
the main thrust of liberalization was more evident in

the import regime
However, measures to enhance export were taken as well; such
as
i. Duty drawback facilities
ii. Income tax rebate
iii. Gradual removal of import-license fee for export-oriented
industries and import tariff for capital equipment imports
iv. Back-to-back LCs
v. Credit facilities at a lower interest rate
Positive outcomes of trade liberalization was almost
immediately evident
ACJ Cl
20
Bangladeshs Trade Scenario

Overview
of Bangladesh Trade
Source: World Bank
21

Overview of Bangladesh Trade (1970-2014)
Indicator Name
Imports of goods
and services
(current million
US$)
Exports of goods
and services
(current million
US$)
Trade (% of GDP)
GDP growth
(annual %)
1970
1980
1990
2000
2010
2014
1,124. 3,239. 4,076. 9,060. 25,106. 43,853

76
43
61
86
32
.97
747.58 995.27
20.82 23.38
5.62
0.82
1,844. 6,588. 18,472. 34,343

50
07
45
.96
18.97
29.32
37.80
44.99
5.62
5.29
5.57
6.12
22

Overview of Bangladesh Trade (in Crore Taka)
Indicators
FY 2010-11 FY 2011-12
FY 2012-13
FY 2013-14
FY 2014-15
GDP (At constant Price )
6,46,340
6,88,490
7,29,897
7,74,136
8,24,532
GDP (At Current Price)
9,15,830
10,55,200
11,98,923
13,43,674
15,13,600
6.01
6.06
6.51
GDP Growth Rate (%)
6.46
6.52
Export
1,44,431
1,80,313
1,89,437
2,12,915
2,26,522
Import
2,40,028
2,80,963
2,72,328
3,04,185
3,14,209
Source: Bangladesh Bureau of Statistics & Bangladesh Bank
23
Overview of Trade Performance of Bangladesh (Import)
Source: Bangladesh Bank
24
Overview of Trade Performance of Bangladesh (Export)
Comparative Performance of Bangladeshs Export

vis--vis Import (Value in US $ Million)
25
26
Balance of Trade of Bangladesh

Value in US $ Million
27
Import Composition and Growth

Sl
No.
Name
1 Food (Rice & Wheat)

2 Other Food Items
3
Consumer and
Intermediate Goods
5 Capital Goods
6 Others (Import in EPZ)
Grand Total
2011-2012
2012-2013 Growth (%) 2013-2014 Growth

(%)
901
726
-19%
1,465
102%
3,600
3,128
-13%
4,098
31%
16,783
16,694
-1%
18,601
11%
12,118
11,031
-9%
13,593
23%
2,114
2,505
18%
2,975
19%
35,516
34,084
-4%
40,732
20%
28

Share in total Import
29

Import of Food Grains and Other Essential Commodities (US $ Million)
Sl.No.
Commodities
Financial Year
2010-11
2011-12
2012-13
2013-14
Edible Oil
1,067
1,644
1,402
1,761
Food Grain
1,911
901
726
1,465
830
288
30
347
1,081
613
696
1,118
i. Rice
ii. Wheat
3
Sugar
654
1,177
731
902
Oil Seeds
103
177
241
508
Pulse all sorts
292
243
422
455
Milk & Cream
161
221
214
289
Spices
127
138
118
183
30
Sources of Bangladeshs Imports

Sl. No
1
3
9
8
5
6
4
7
2
Country
2012-2013
2013-2014
Growth (%)
6,308
4,741
1,079
1,492
1,180
1,296
1,054
7,541
6,036
2,290
2,042
1,284
1,199
1,104
20%
28%
11%
37%
9%
-7%
4%
Kuwait
545
915
68%
Hong Kong
608
759
25%
689
741
7%
China
India
Singapore
Malaysia
Japan
South Korea
Indonesia
10 Thailand
31
Export Composition and Growth

Sl
No.
Name
2011-12
2012-13 Share (%) Growth (%) 2013-14 Share (%) Growth (%)
1,001.13
1,079.58
4%
8%
1,253.28
4%
16%
Manufactured
2 Commodities
23,229.96 25,846.15
(Chapter 25-97)
96%
11%
28,808.65
96%
12%
100%
11%
30,061.93
100%
12%
Primary
1 Commodities
(Chapter 1-24)
All products
24,231.09 26,925.73
Source: Export Promotion Bureau
32
Export: Composition and Performance

Sl
No.
Name
1 Knitwear
Woven
2
Garments
3 Others
4 Jute Goods
5 Frozen Food
6 Leather
Petroleum By
7
Products
2011-2012 2012-2013 Share (%)
Growth
(%)
2013-2014 Share (%)
Growth
(%)
9,486.39
10,475.88
39%
10%
12,442.07
41%
19%
9,603.34
11,039.85
41%
15%
12,049.81
40%
9%
3,019.75
701.1
598.42
330.16
3,221.06
800.69
543.84
399.73
12%
3%
2%
1%
7%
14%
-9%
21%
3,550.65
698.1
638.19
505.54
12%
2%
2%
2%
10%
-13%
17%
26%
275.44
313.95
1%
14%
162.34
1%
-48%
8 Raw Jute
266.28
229.92
1%
-14%
126.39
0%
-45%
9 Tea
Chemical
10
Fertilizer
11 Total
3.38
2.44
0%
-28%
3.71
0%
52%
17.64
0%
-100%
0%
0%
24,301.90
27,027.36
100%
11%
30,176.80
100%
12%
Source: Export Promotion Bureau, Bangladesh
33
Export Destination
As
in the export basket of the country, destination
markets are also largely similar, e.g. the USA (19%)

and the EU (54%) major export destination.
Some
new destinations such as Japan (15%), Korea
(38%), China (63%), Turkey(34%), Russia (36%) shows

the higher growth and potentiality of the exports in
the new markets.
34
Directions of Bangladeshs Exports

Sl.
Country
No
1
2
3
4
5
6
7
8
9
10
11
12
13
EUROPEAN UNION
UNITED STATES
OTHER COUNTRIES
CANADA
JAPAN
TURKEY
CHINA
AUSTRALIA
SAINT BARTHLEMY
INDIA
KOREA, REPUBLIC OF
RUSSIAN FEDERATION
HONG KONG
UNITED ARAB
14
EMIRATES
15 SWITZERLAND
Total
2011-2012
2012-2013
Share
(%)
12,743.35 13,983.92 52%

5,100.91 5,419.60 20%
1,746.93 1,929.43 7%
993.67 1,090.02 4%
600.53
750.26 3%
551.88
637.81 2%
401.94
458.12 2%
347.14
461.90 2%
436.71
555.82 2%
498.42
563.96 2%
209.71
250.49 1%
133.25
208.29 1%
245.43
345.11 1%
170.17
251.25
1%
121.87
121.38 0%
24,301.90 27,027.36 100%
Growth
(%)
2013-2014
Share
(%)
Growth
(%)
10%
6%
10%
10%
25%
16%
14%
33%
27%
13%
19%
56%
41%
16,399.81
5,583.62
1,954.71
1,099.63
862.08
856.20
746.20
479.38
460.03
456.63
344.81
283.35
280.51
54%
19%
6%
4%
3%
3%
2%
2%
2%
2%
1%
1%
1%
17%
3%
1%
1%
15%
34%
63%
4%
-17%
-19%
38%
36%
-19%
48%
245.35
1%
-2%
0%
11%
124.49
30,176.80
0%
100%
3%
12%
Trade In Services: Current Scenario
35
Service sector is increasingly becoming the core of Bangladesh

economy. The contribution of Service sector in its GDP
increased from 47.81 percent in 1980 to 56.24 percent in 2014,
although generating only 35 percent of total employment.
However, services export contributed merely 10 percent of its
total export. This reflects that service sector is less integrated
and the potentials in services export are rather underutilized.
Bangladesh intends to expand the horizon of services activities
and to strengthen the sectors contribution to the countrys
economic performance. Hence, Bangladesh is very active in
operationalizing the LDC Services Waiver under WTO to explore
its potential service export in developed and developing
countries.
Contribution of different services sub-sector in

Bangladesh's GDP
36
Contribution of different services sub-sector in Bangladesh's GDP(%)

Sectors
Electricity, gas and water supply
a) Electricity
b) Gas
c) Water
Construction
Wholesale &retail trade
Hotel and restaurants
Transport, storage & communication
a) Land Transport
b) Water transport
c) Air transport
d) Support transport services, storage
e) Post and Tele communications
Financial intermediations
Real estate, renting and business activities
Public administration and defence
Education
Health and social works
Community, social and personal services
Share in GDP
(2012-13)
1.73
1.45
0.19
0.10
9.37
14.05
0.75
10.80
6.10
0.65
0.14
0.36
3.56
2.16
6.73
Share in service
sector GDP (2012-13)
2.86
2.40
0.31
0.16
15.52
23.27
1.24
17.88
10.09
1.08
0.23
0.59
5.89
3.57
Annual average growth

rate (2001-2013)
7.5
7.4
7.2
9.4
7.3
6.4
7.3
7.2
5.2
1.3
4.0
4.8
17.7
8.8
2.88
2.90
2.49
6.54
4.77
4.80
4.12
10.83
7.0
8.3
7.1
4.3
37
Trade In Services: Current Scenario

Merchandise and Services Trade of Bangladesh 2000-2013 (US$ at current prices in Million)
Source: UNCTADSTAT, accessed on 26 April 2014
Trade In Services: Services Export

Bangladeshs
38
services exports have increased by more than three fold

over the past decade, from a little over $1 billion in 2003 to around $3.7
billion in 2013. However, the contribution of services export in its total
export remains around 10 per cent over the last decade.
The contribution of traditional services such as transport and travel has
declined over the decades from around 50 percent to about 20 percent of
total services exports while that of other services, in particular,
communication, other business services and to some extent, computer
and information services has grown over this period.
In value terms, other business services constitute the largest segment
within other services and have grown almost six fold in value and
increased their share in total services exports by around 33 percent
between 2000 and 2010.
Likewise, communication services have grown more than tenfold in value
terms over this period and have significantly increased their contribution
to total services exports.
39

Bangladesh's Export and Import in Commercial Services (2011)
Source: Source: ITC (2014)

Note: Value for the export and import of education and health unavailable for 2011. 2008
data is used instead.
40

The Evolution of Bangladesh's Services Exports (2000-2011)
Source: ITC (2014)
41

Value and Share of Exports for Different Service Subsectors in Bangladesh, Selected Years
(US$ million and percent))
2000
Sector
Value (US$
million)
Share
(%)
2005
Value
Share
(US$
(%)
million)
Commercial services
283.192 100.00
474.21
Transport
91.368
32.26 113.009
Travel
50.421
17.80
70.009
Other commercial services
141.403
49.93 291.192
Communications
21.532
7.60
23.906
Construction
0.194
0.07
14.156
Insurance
3.513
1.24
5.027
Financial services
13.083
4.62
17.972
Computer and information
3.243
1.15
18.713
Royalties and license fees
0.058
0.02
0.261
Other business services
99.253
35.05 210.013
Personal, cultural, and recreational
services
0.527
0.19
1.144
Source: UNCTADSTAT database accessed on April 26, 2014.
2010
Value
Share
(US$
(%)
million)
100.00
23.83
14.76
61.41
5.04
2.99
1.06
3.79
3.95
0.06
44.29
1,209.41
173.591
81.221
954.598
277.67
6.909
6.841
40.841
37.756
0.517
582.147
100.00
14.35
6.72
78.93
22.96
0.57
0.57
3.38
3.12
0.04
48.13
0.24
1.925
0.16
Trade In Services: Services Import

Bangladeshs
42
services imports have also recorded almost four fold

increase over the past decade, from $1.7 billion in 2003 to $ 6.5
billion in 2013.
The share of traditional services such as transport has actually
increased, more than tripling from $1 billion in 2000 to $3.4 billion in
2010 and its share of total services imports has risen from 66 percent
to over 80 percent over this period.
This growing dependence on imports of transport services in part
reflects the demand from the ready-made garment sector and
Bangladeshs reliance on foreign transport carriers given its capacity
constraints in transport and logistics (as also highlighted by many
experts and in many reports).
There has also been a more than trebling of imports of other business
services in value terms reflecting the growing importance of these
supporting services to the economy.
43
Trade In Services: Services Import

Value and Share of Imports for Different Service Subsectors in Bangladesh, Selected Years
(US$ million and percent))
Sector
Commercial services
Transport
Travel
Other commercial services
Communications
Construction
Insurance
Financial services
Computer and information
Royalties and license fees
Other business services
Personal, cultural, and recreational
services
2000
Value (US$
Share (%)
million)
2005
Value (US$
Share (%)
million)
2010
Value (US$
Share (%)
million)
1,523.35
1,012.76
289.91
220.68
7.39
2.15
91.07
30.75
1.52
4.42
83.29
100.00
66.48
19.03
14.49
0.48
0.14
5.98
2.02
0.10
0.29
5.47
2,011.36
1,544.73
136.27
330.36
20.62
1.07
150.65
13.27
4.26
2.75
137.72
100.00
76.80
6.77
16.42
1.03
0.05
7.49
0.66
0.21
0.14
6.85
4,128.30
3,440.64
260.60
427.06
20.23
6.29
26.32
45.35
5.42
17.64
305.70
100.00
83.34
6.31
10.34
0.49
0.15
0.64
1.10
0.13
0.43
7.40
0.10
0.01
0.03
0.00
0.13
0.00
Source: UNCTADSTAT database accessed on April 26, 2014.
44
Concluding Remarks
Bangladeshs
unique manufacturing performance raises a puzzle.
Although
growing over time, the role of trade in the overall

economy is still low. Trade could play a more significant role in
promoting faster GDP growth and poverty reduction.
The
positive current account in a low income economy speaks to

the lack of investment opportunities.
The
macro-economy is stable, but institutional weaknesses and

several vulnerabilities loom large.
The
energy shortage is an overarching constraint affecting

virtually all segments of the economy.
The
overall low use of labor in the economy is a concern, and

increasing labor-intensive, export-oriented manufacturing will
need to be part of the solution.
45
Concluding Remarks
Bangladesh
will need to focus more attention on skills

development: skills are emerging as a major constraint, even in
the garments sector, let alone other, more skill-intensive sectors.
The
low level of literacy and years of schooling of the labor force

make skill acquisition more difficult.
Labor
issues (i.e., wages, workplace safety, and compliance with

labor standards) can generate major reputational risk for
Bangladeshs overall garment exports, and will need to be
carefully managed.
Bangladesh
needs to not just raise the rate of growth of exports,

but also move beyond the low-wage paradigm.
Bangladesh
needs to identify other sources of competitiveness so

that low wage labor is not the only comparative advantage of
Bangladesh.
46
Concluding Remarks
Product
and market diversification is a desirable goal for exports.

However, such diversification will not be easy, since it involves
developing capabilities that revolve around product types.
Prioritization
of the agenda is essential.
An
initial focus on market diversification as well as worker safety issues,

both in partnership with the private sector, may provide high payoffs.
Product
diversification may face higher fixed costs and will require

overcoming potential resistance, and policy moves here are likely to be
gradual.
Other
elements of the agenda include building a supportive

macroeconomic environment, easing energy constraints and improving
worker and consumer welfare, and these are mostly part of ongoing
efforts.
To
implement this agenda, leadership will be critical and should be part

of immediate priorities.
Thank you !
ACJ Cl

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15 September 2015

Dr. Md. Mozibur Rahman

Course : EIB 534/532: Bangladesh in International Business

Bangladesh Economy and International trade: an overview

Bangladesh has posted a robust and resilient economic performance

The average annual real GDP growth of the Bangladesh economy

Bangladeshs involvement in international trade has been

However, comparing the trade to GDP ratio with other

Bangladesh Economy and International trade: an overview

Structure of Bangladeshs Economy

in Bangladeshs GDP and its sectoral Composition, 19702014 (constant 2005

23,153 34,309 54,199 93,236 99,263 105,737 112,095 118,951

8,229 11,027 16,668 17,410

7,426 15,315 16,849

5,868 11,556 23,723 25,863

12,520 18,733 28,340 48,887 51,926

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

Bangladesh Economy and International trade: an overview

Structure of Bangladeshs Economy

contribution in Bangladeshs GDP, 19802014 (% of GDP)

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

Bangladesh Economy and International trade: an overview

Bangladeshs Resilient Growth Performance

Bangladesh Economy and International trade: an overview

How did Bangladesh grow in such a sustained fashion?

Economic growth accelerated largely since the 1990s,

Underpinning there were several economic reforms: sound

Bangladesh Economy and International trade: an overview

How did Bangladesh grow in such a sustained fashion?

Remittances and garment exports were the twin drivers of

Also, the manufacturing sector has been the largest single

Bangladesh Economy and International trade: an overview

How did Bangladesh grow in such a sustained fashion?

Bangladesh has also proven to be relatively resilient to

Key Macroeconomic Indicators

Macroeconomic Indicators from 2010 to 2014

GDP Growth (%)

GDP per Capita (Current USD)

Current Account Balance (%

GDP (current USD Billion )

Inflation, GDP deflator

Source: World Development Indicators, World Bank (http://data.worldbank.org/country/bangladesh)

Bangladesh Economy and International trade: an overview

Bangladesh, after independence, like many other

It did not work because of the inherent follies of IS

IS strategy resulted in BOP disequilibrium, foreign

Bangladesh Economy and International trade: an overview

Since realizing the shortcomings of the IS strategy,

de-nationalization of the public enterprises,

simplification of private investment procedure,

reducing the level of QR

Removal of import licensing

Bangladesh Economy and International trade: an overview

Reduction and rationalization of tariffs

Simplification of trade procedure

Simplification of other charges

Bangladesh Economy and International trade: an overview

More intense liberalization including flexible

Lowering maximum effective tariff rate

Removal of commodities from control list

Bangladesh Economy and International trade: an overview

the main thrust of liberalization was more evident in

Bangladesh Economy and International trade: an overview