• Tuesday, September 30, 2014

Abe visit as a catalyst for Bangladesh's “Look East Policy”

Ifty Islam

IT is difficult to overemphasise the economic significance and opportunity for Bangladesh presented by the upcoming State Visit to Dhaka by Japanese PM Shinzo Abe on September 6 and 7. The Honourable PM Hasina concluded a successful  trip to Japan in May and secured commitments from the Japanese Government for up to Y 600bn ($ 5.9bn) in economic assistance over the next 5 years that will be focused primarily on a number of high profile infrastructure projects. Indeed there have already been two high level Japanese delegations here already on Aug 18 and Aug 21 from the Ministry of Economy, Trade and Industry (METI) as well as more than 20 Japanese companies. They discussed potential modalities for large-scale energy projects such as the 1200MW proposed coal-fired power plant in Matabari 65 km south of Chittagong as well as a Ganges barrage, building multi-modal tunnels under the Jamuna River, a railway bridge over the Jamuna River, a multi-modal Dhaka eastern bypass, and the ecological restoration of four rivers around Dhaka.  With Bangladesh's infrastructure deficit estimated to be costing the country up to 1.5 % of GDP growth annually, Japanese technological expertise, project management as well as financing in infrastructure space is clearly extremely valuable.

However, it is in the area of export diversification, both by product and by region, that PM Abe's visit is perhaps equally important. Ready Made Garments (RMG) accounts for 80% of merchandise exports and there has been a broad consensus for the need to fast-track the development of “the next wave of RMGs” namely sectors that have substantial export growth potential and leverage the country's large pool of underutilised labour.

We are already seeing encouraging signs of growth in Leather Goods and Footwear, but in other sectors as diverse as shipbuilding, light electronic manufacturing/assembly, bicycles and even agro businesses, attracting Japanese companies to establish operations in Bangladesh would catalyse and accelerate the development of such industries and reduce time frame for such industries to reach critical mass not only in terms of introducing global best practices and innovation/Research and Development, but also access to many new markets. While we all admire South Korea's economic miracle and global dominant manufacturing giants such as Samsung and LG, Japanese companies also played an important role in technology transfer to Korea in the 1970s and 1980s, most notably in the auto sector as well as electronics. In the past decade Japan and South Korea have played a similar role in Vietnam with the result that one Samsung mobile assembly factory alone is producing almost $ 20bn of exports for Vietnam, almost as large as Bangladesh's total RMG exports.

The Japan visit can also help Bangladesh leverage its geographic position between China and Japan and adjacency to ASEAN. The Japanese government and corporate Japan have already committed to large scale investments in Bangladesh's neighbouring country Myanmar, including the Thilawa Special Economic Zone at a port near Yangon, although the $5bn debt forgiveness by Japan and proposed new investments still lag China's more than $14bn of investments.

Rather than seeing Myanmar as a competitor, Bangladesh's Government should seek closer relations as expanding economic opportunities for both countries. Indeed following PM Hasina's Tokyo visit in May, perhaps the most notable section of Prime Minister Abe's statement was that “Bangladesh has great economic potential. In order to realise its potential and expedite further growth, Japan has come up with the concept of the Bay of Bengal industrial growth belt …” or what he termed “The BIG-B.” Interestingly, China is thinking along similar lines with Chinese President Xi JinpingMr. Xi describing Bangladesh as an important country along the “Maritime Silk Road” (MSR) project that he has been championing, which envisages deepening connectivity, building ports and free trade zones, and boosting trade with other countries in the Indian Ocean region and in Southeast Asia.

India itself has recognised the importance of its relationship with Japan with PM Modi on a 5-day State Visit to Tokyo and Kyoto that began on Aug 30. The so-called “bromance” between PM Modi and Abe was evidenced by the former's series of communications on twitter to his Japanese counterpart ahead of his trip including a comment that “Am particularly excited to meetPM@AbeSinzo. I deeply respect his leadership and enjoy a warm relationship with him from previous meetings. “There is clearly a greater geopolitical importance to his trip as they try and counterbalance China's growing assertiveness in the past year in the South China Sea in the case of Japan or alleged incursions by China in the Himalayas in the case of India.  India looks also to seek a nuclear agreement along the lines of its 2008 deal with the US to import nuclear fuel and technology. Japan will look for reassurances on India's commitment not to use this for military purposes. India will also to double FDI from Japan and seek assistance in developing a high speed railway network. Japan conversely will want to reach agreement on the import of rare earth metals to diversify its reliance away from China.

Returning to the Bangladesh-Japan opportunity, the key to our ability to capitalise on the PM Abe State Visit is sensitivity to the objectives and interests of Japanese companies, finding solutions to their concerns in areas such as land procurement, energy supplies, and taxation problems for intermediate goods and business facilitation. Vietnam adopted its “DoiMoi” economic policies over the past two decades to transition to market economy and attract FDI. It is in Bangladesh's interest to develop a “Look East Policy” (LEP) that will accelerate our economic relations with other countries in Asia. The key elements of this are fourfold: 1) Investment: Including the right modalities for economic zones and engage in thorough research to do a sector mapping for each country to see which are the most likely sectors and indeed JV partners for FDI.; 2) Trade: an assessment should be made on our import and export mix. Do we produce the range/mix of products that for example are in demand in China, Japan or Korea? What is the tariff structure for import of their products? Perhaps reduced tariffs or duties on their imports can facilitate greater market access for our products?; 3) Regional Connectivity: Developing BCIM (Bangladesh, China, India Myanmar) economic corridor or likewise Japan's “Big-B” proposal. 4) Infrastructure.

The RMG sector has already benefitted massively from the China Relocation Trade as companies have been shifting factories from higher labour costs in China. The Bangladesh government should ensure effective follow up to the Abe visit to capitalise on Bangladesh's geographic position as a new re-export and logistics hub in the region for Japanese companies. This remains, in my view, the key to the economy achieving 7%+ growth on a sustained basis. Let's “Look East” and look forward to a new phase of Bangladesh's economic development.   

The writer is the Managing Partner at AT Capital and can be contacted at ifty.islam@at-capital.com

Published: 12:00 am Tuesday, September 02, 2014

TAGS: Shinzo Abe Look East Policy Japanese PM

Leave your comments | Comment Policy