Post-MFA era and Bangladesh

Reports prepared by the United Nations Development Programme (UNDP) and the International Monetary Fund (IMF) suggested that Bangladesh ran the risk of losing about one and half million jobs, mostly women. They also pointed out that there was serious possibility that uneven competition from China would suffocate demand from Bangladesh.

The Cassandras however appear to have modified themselves somewhat now. Second thoughts, a month into the new year, are projecting more realistic assumptions. The UNDP has prepared a report entitled 'Potential Human Development Implications of MFA' which deals with Bangladesh from an integrated modelling approach. It suggests that 'Bangladesh may lose income or value addition of Tk. 8,000 crore in RMG sector of export demand declines due to the MFA phase-out, but income may rise by Tk 2,800 crore if export demand increases'.

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This Report points out that the export demand variations might have more impact on the forward-linked sectors than on the backward-linked sectors. It also estimates that the total income losses for forward and backward linkage sectors would be around Tk.

31.9 billion and Tk. 12.2 billion respectively. These predictions and the dire connotations are also balanced by prospects on the other side of the coin. It asserts that in case of rise in export, the total income gains of forward and backward-linkage sectors may reach Tk. 11.9 billion and Tk. 4.3 billion respectively.

Readers will say that this is like betting on both sides of the coin. Others will say that the UNDP is hedging its bets. Such prognosis can be confusing.

It is true that the industry leaders belonging to the BGMEA have been exhibiting quiet confidence. They appear to be buoyant with regard to short-term predictions. The general consensus appears to be that the transition to the post-MFA period will be 'smooth and progressing well and will continue to be so, at least in 2005 and 2006'. They believe that after this, continuing market share will depend on future internal policies (regarding indirect support) of the Government and political stability ahead of the next general elections. These are points I would tend to agree with.

Mixed signals have emanated because of greater interest in Bangladeshi products by foreign buyers in the past few months. There are signs of increase of orders in terms of volume. Two major daily newspapers in the United States, the Christian Science Monitor and the New York Times have both separately reported that the US based Wal-Mart, the world's largest retailing company, has stepped up its presence in Dhaka and increased its apparel imports from Bangladesh by 18 per cent during 2003. It has also been suggested that this Company which imported goods of about US dollar 900 million during 2003 is planning to increase its imports by additional 30 per cent during 2005. Wal-Mart executives have been quoted as saying that Bangladesh is very competitive because labour cost here is less by a third than what it is in China and also compares favourably with Fiji, Brunei, Macedonia and Turkmenistan.

This is indeed good news. This optimism was also shared by Mr. Michael U Klein, Vice President of the World Bank, during his recent visit to Dhaka. Speaking to reporters, he commented that the World Bank was happy to see that the abolition of the MFA had not, as yet, led to any adverse impact on the industry and that the Bank was willing to support Bangladesh's ready-made garment industry.

There is however a flip side to this situation. One swallow does not a summer make. Most of the industrial units are getting higher orders by volume but that is not necessarily being translated into better profit. Foreign buyers, taking advantage of the sensitive situation are forcing local producers to reduce even further their price quotations. Such competition is marginalising many producers and affecting those who are burdened with loans.

Fortunately, Bangladeshi textile products have been able to find a growing niche in the European Union. European countries imported products worth US$ 4,278 million in the 2003-04 fiscal year which was almost US dollar one billion more than the previous year. Zero-tariff, a stronger euro and quota-free access alongwith economic upturn in major importing countries within the EU- Germany, UK, France and Italy have been the main reasons for this increase in exports. Knitwear exports also went up in the EU because of the GSP (generalised system of preference) facility for LDC products. The stronger euro also translated into higher export figures in US dollars.

We however have very little room for complacency. One thing is very clear. The post-MFA period demands that the RMG sector improves not only its competitive edge in the global market but also the quality of its products by moving into the higher designer niche.

Fresh challenges require that apparel producers reduce the cost of production even further. This assumes particular importance given the edge enjoyed by some other countries who have better backward linkage facilities at their disposal. Producers will also have to improve efficiency, reduce lead time and improve handling capacity at the Chittagong Port.

The government has announced that it is planning to undertake a comprehensive improvement in facilities in the Chittagong Port. One hopes that time is not lost in looking for investment partners. It has to be undertaken urgently, if necessary with local private sector capital. This assumes importance, given the fact, that more likely than not, there will be higher volume in exports because of more competitive prices.

Expansion, development and upgrading needs to take place with regard to the Port's loading and unloading efficiency, safety and security of the cargo, and its quick disposal to different destinations. Steps also need to be taken about improving the navigational channel and placement of ships in various docks without losing time. The turn-around factor is vital.

Relevant Port authorities also need to heighten efficiency through computerisation. This will enable the Port to interface different departments. Exporters can then get clearance of their documents within a few hours instead of days. Use of computers will also ease cargo identification in containers, location of ships at anchorage and the nature of their cargo. This will also reduce corruption, help security, placement of shipments at the Port and their loading and unloading without wastage of time. These areas will have to be addressed successfully if we are to overcome post-MFA challenges.

The BGMEA, on their own have also been doing their homework. They have made certain suggestions and drawn the attention of the Government to certain demands. They have been stressing on the need for relaxation of rules of origin (for export to the EU) and the withdrawal on the ban imposed on the import of yarn through land ports. They have claimed that the latter factor in particular is necessary to reduce lead time and to make them more competitive. The BGMEA also wants the Government to provide 15 per cent cash incentives for encouraging backward linkages. There is some merit in their proposals and they deserve further scrutiny.

There is some merit in their proposals, but one should not agree without further scrutiny. The Government should set up a technical committee, consisting of both private sector representation as well as government representatives and carefully judge the financial implications.

The Government may also fully support the BGMEA initiative to persuade the US Congress to accord duty-free access to Bangladeshi products (as has been provided to 33 other sub-Saharan and Caribbean LDCs). Intense lobbying needs to be undertaken to point out that the USA cannot discriminate between LDCs. Bangladesh agreed with US demand to allow trade union activities in the EPZs. I believe it is now their turn to give Bangladeshi entrepreneurs a helping hand in the post-MFA era.

Strengthening the RMG sector in Bangladesh will ensure greater stability, gender empowerment and economic opportunities. These are the best weapons in the global fight against terrorists and terrorism. It is also cheaper and more effective.

Muhammad Zamir is a former Secretary and Ambassador any response to mzamir@dhaka.net