This is an RFL-Walton story too!

Those who grew up watching Bangladesh Television (BTV) during the 1980s and 1990s can recall well the commercials BTV would run, in part because there was only a handful of them. Toiletries, batteries, jewellery, shoes, and garments would dominate the intervals of the TV programmes.

Now compare them with the TV commercials in 2021. The range of products that are being displayed is simply staggering. All types of household durables - electronic and non-electronic - are occupying the airtime of the channels, from a plastic bucket to a high definition smart TV. This layman observation about the changes in the composition of the types of TV commercials, I think, nicely sums up the transformation the manufacturing sector, serving the domestic market, has gone through over the last three decades.

The growth story of Bangladesh since the 1990s has been characterised by two major protagonists – apparels and remittances. Since they are labour-intensive in nature, they promote pro-poor growth, ushering in a more inclusive growth paradigm. While this simple story has been around for long, a few characters demand to be added to the story lately.

The rise in domestic demand, thanks largely to garment and remittances, has led to the growth of a wide range of manufacturing industries in Bangladesh, born particularly to cater the domestic market. Though these characters are yet to be influential enough to be called protagonists, they can still claim the role of 'confidant' in the current growth story of Bangladesh – like Horatio in Hamlet.

Over the last decade or so, the country has seen an astounding growth of consumer durables, riding on the back of the burgeoning middle class, even in the rural areas.

Household income and expenditure surveys by the Bangladesh Bureau of Statistics show that about 29 per cent of rural households had TV in 2016, a substantial increase from only 7 per cent in 2000. There were about 1 per cent households with refrigerators in 2000, and this figure went up to 10 per cent in 2016.

If one visits a household of a middle-class family or even an upper-middle-class today, one will hardly come across any household durables that are not produced in the country. A large number of import-substituting manufacturers have emerged, spearheaded largely by RFL, Walton and a few others, producing a wide range of consumer goods. Here, RFL and Walton are used as examples to represent the electronics and light engineering industries.

The emergence and growth of this consumer durable sector have some unique characteristics, unlike garment. First, this industry has sprung during the time when China remains omnipresent in the global manufacturing market. India, being the overarching neighbour, has always been a threat to the growth of local industries. Local industries have emerged and thrived competing with the cheap Chinese and Indian imports in a very liberal tariff regime.

Second, this sector had to challenge the natural comparative advantage of the country, which is the cheap unskilled labour, and invested in discovering the 'latent' comparative advantages.

Importantly, these apparent comparative-advantage-defying activities have not been the outcome of direct government's aspiration to create 'national champions' – the hyper-nationalistic drives that resulted in numerous failed cases in the past across the globe (e.g. China, Senegal and Zambia's failed experiments with automobiles during 1950-1970). The process of 'self-discovery' of the electronics sector, for example, has been completely a private sector-led initiative.

Third, unlike readymade garments, which were "born to export", a large number of the firms have followed the following full sequence of transformation or a part of it to become manufacturers and exporters.

Retailer  è Importer/wholesaler è Assembler è Manufacturer è Exporter

This path is painstakingly long and risky; only a few win the race and reach the last stage to become exporters. The transformation from assembler to the manufacturer is the hardest hurdle as it involves the creation of new value through technology and skill up-gradation.

Walton started its journey as a retailer under the name of "Rezvi and Brothers" in 1977 and went through all the steps of the full sequence of transformation to become a manufacturer in 1999 and exporter in 2010.

RFL started its journey in 1980, producing cast iron products and later diversified into plastics, electronics and a wide range of other consumer durables. In this case, the transformation from one stage to the next varies with product lines. This kind of up-gradation of products and processes at a mass scale is something that the country's manufacturing sector has not seen before.

Fourth, as we know, the success of readymade garment was due to a combination of luck, dynamic entrepreneurship, and government support. The imitative entries were possible due to the low tech nature of the industry. But this kind of imitation and replication are very unlikely to take place in more sophisticated industries such as light engineering and electronics. Hence, the strategic partnership with the government is more important to steer this industry to grow both horizontally and vertically.

Moreover, the participation in regional and global value chains will take place only when the country will have a large number of industries achieving a certain level of efficiency in producing these high value-added goods, even if it is only for the local market.

The history of industrialisation has never been a pure market-driven process. The government supported industrialisation in many forms depending on the stage of development and the structure of the economy. These include protection (England protected its manufacturing for more than 350 years, the US for about 100 years, and South Korea for 30 years), mass procurement by the government (e.g. Indian IT), and allowing a few industries to become large (e.g. South Korea's Chaebols).

The industrial policies in the neoclassical framework pioneered by Dani Rodrik, Justin Yifu Lin, and Joseph E Stiglitz suggest that the government should allow rooms for the first movers to fail so that they can take the risks of new ventures and undertake 'self-discovery'. Win or lose, such initiatives create externalities – other firms can learn from the failed cases too, and the whole society eventually benefits. This justifies supporting the first movers by the government and helping direct the paths of industrial upgrading and diversifications.

The consumer durable industry in our country is now populated by a few first movers, and their growth potentials critically depend on where the government wants to see them in the next 10 years.

The trying time of the pandemic also reminds us of the importance of the expansion of the technological base of the country. Light engineering and electronics sectors are surely the starters.

I hope the ensuing budget will uphold the aspiration of becoming an industrialised country by 2041. Only 20 years to go!

The author is a senior research fellow at the Bangladesh Institute of Development Studies. He can be reached at kiqbal@bids.org.bd.