Partnership for developing capital goods industry | The Daily Star
12:00 AM, May 24, 2012 / LAST MODIFIED: 12:00 AM, May 24, 2012

Partnership for developing capital goods industry

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The capital goods industry is the backbone of the industrial base in a nation. Every developed country invariably has a well-established domestic capital goods industry, complete with product design and analysis capabilities. Bangladesh should also attempt to develop its capital goods industry that would include product conceptualisation, analysis, prototype design, product strength and fatigue life testing, manufacturing, and product sustenance and maintenance provisions.
However, at this stage of “late industrialization,” Bangladesh cannot possibly adopt a “go alone” strategy in developing its capital goods industry. Forming partnership with industrialised countries may be the best option open. We recall Malaysia's recent success in achieving economic development under the patronage of and by partnering with Japan.
That partnership benefitted both Japan and Malaysia. A partnership like this creates and enhances the demand for the capital goods from the advanced partner country while the junior partner engages in the domestic production of goods using intermediate-level technology.
Japan benefited because Malaysia, especially since 1987, started importing increasing amounts of machinery and transport equipment from Japan, including various manufactured products such as general machinery, electric machinery, metalworking machinery, construction and mining machinery, transport equipment including motor vehicles and parts, and electronic products. During the period 1987-1991, Malaysia's capital goods portion of the total import from Japan accounted for more than 60%. The imports of intermediate goods decreased proportionately from 46.8% in the year 1970 to 24.1% in the year 1991. Furthermore, in just a decade (1980-1990), the yen appreciated by 95.8% in nominal terms, by 70.3% in real terms and by 51.9% in terms of the real trade weighted exchange rate.
Malaysia benefited from the partnership because it allowed Malaysia to successfully launch its “Look East” policy with the goal of heavy industrialisation and renewed export-oriented industrialisation with foreign investments, dominated by East Asian investors, especially Japan. Malaysian industrialisation initiatives relied on intermediate and capital goods and technology imports as well as direct foreign investment (DFI) from Japan. The Japanese foreign direct investment in Malaysia increased significantly since 1988.
Malaysia-Japan partnership fostered the chemistry for the growth opportunity of Malaysia, the junior partner, into a vibrant middle-income country within a short period of time. Japan allowed technology transfer to Malaysia to a sufficient degree, which allowed Malaysia to sow the seed of domestic product design and analysis capabilities with intermediate-level technology.
Bangladesh can follow Japan-Malaysia type economic symbiosis model in partnering with a suitable senior partner country such as India, Singapore, Malaysia, South Korea, USA, European countries, Canada, and so on. The opportunity of such partnership has increased in recent years. For example, according to news reports, a number of organisations from USA, Canada and Japan asked Bangladesh Industry Technical Assistance Center (BITAC) in 2010 whether they could get automotive parts produced by the machinery manufacturing factories in Dholaikhal and Bhaluka. In April 2010, Dotcom online newspaper ran a story entitled “Automobiles with parts manufactured in Dholaikhal and Bhaluka will be driven in the USA.” Can this possibility be formalised and what steps must be taken to institutionalise the relationship?
Every developing country should exercise caution in entering into this type of relationship involving economic development. Often the relationship is one-sided, in which only the senior partner benefits while the junior partner engages in dead-end assembly-type tasks without any provision for accelerated economic growth. The junior partner must ensure that the relationship allows it to create “local product design and analysis centres,” which are the key to securing high value addition and thus higher GDP growth, growth and sustenance of institutions of higher education and ultimately overall national well-being.
For the last several years there have been discussions on the prospects of establishing shipbuilding industry in Bangladesh. In 2008, Bangladesh shipbuilders had built and handed over one ship (Stella Morris) to a Danish company. Bangladesh shipbuilding companies have orders for another 45 medium and small size ships. The Bangladesh government is providing assistance for the development of this industry in various ways, such as cash and import incentive, tax holidays, creation of special shipbuilding zones, etc.
However, is the design work for these ships being conducted outside Bangladesh? Are Bangladeshi engineers currently getting an opportunity, or will they get an opportunity in the future to perform design-related work for shipbuilding? According to Dr. Abdur Rahim, retired professor of Naval Architecture of Buet and an expert on shipbuilding, Bangladeshi companies are confined to merely assembly work with no provision for design and analysis tasks to be performed in Bangladesh.
As such, whether conducted under mutual partnership or not, it is certain that shipbuilding in its current form will not contribute towards the development of “real” shipbuilding or capital goods industry in Bangladesh. The true development of the shipbuilding or the capital goods industry will have to ensure that product design and analysis are done domestically.
We agree that Bangladesh should establish partnership with willing industrialised nations and start the domestic production of capital goods parts and components with in-house product design and analysis provisions. This would enable Bangladesh to achieve a gross GDP growth rate in the desired range of 7% to 10% per year and will thus enable it to take national per capita income to a respectable level. Bangladesh is ready, more than ever, to enter into such a partnership and initiate product design and analysis work using intermediate-level technology.

The writers are Executive Members of Board of Investment, Prime Minister's Office
(E-mail: em2@boi.gov.bd), and Founder and Treasurer, BDI (E-mail: e-sas@msn.com), respectively.

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