Cut cost of doing business to compete in post-LDC era
Bangladesh needs to reduce the cost of doing business locally to be more competitive globally in the post-LDC era as the country will face duties on exports because of the erosion of trade privileges, said a noted economist yesterday.
"Local businessmen will have to be facilitated by offsetting costs in the domestic markets so that they can remain competitive in the international markets even after graduation from the LDC," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD).
As immediate measures, Bangladesh should also make a partnership with some major trading partners such as Canada, Japan, China and India to extend preferential market access similar to the EU, both bilaterally and as a member of the graduating least-developed countries, he said.
The EU will continue duty privileges for three years more after 2026.
China is giving a similar kind of duty privilege to Samoa even after its graduation as Beijing has a special agreement with the island country, according to Rahman.
Bangladesh should negotiate with the major trading partners for extending the tenure at least for five years. If it is not possible, the tenure should be for at least three years like that offered by the EU, he said.
"Similarly, Bangladesh should aggressively pursue signing of Comprehensive Economic Partnership Agreement with India to receive and give duty privileges," Rahman said.
Rahman was presenting a keynote paper at a virtual dialogue on "Moving out from the LDC group: Strategies for graduation with momentum", organised by the CPD. It was attended by a minister, government high-ups, researchers, policy-makers, exporters, and business people.
He called for taking measures, including making active pharmaceuticals ingredient (API) parks functional soon so that Bangladesh can keep producing cheap life-saving drugs after graduation.
Locals will have to buy insulin at eight times higher prices from the current level after the expiry of the agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPs). Prices of medicines will also go up in the local markets after graduation, he said.
Bangladesh took a Tk 100-crore project to develop an API park in 2008. The park is expected to be operational from 2023.
"The completion of the API park is very important. Otherwise, the pharmaceuticals industry will be in big trouble along with the local people," Rahman said.
Local pharmaceuticals companies need to import $1 billion worth of raw materials in the absence of an API park.
The Tk25,000-crore local pharmaceuticals industry meets more than 95 per cent local demand and exports medicines worth $130 million annually.
The trade expert called for opening a negotiation cell under the commerce ministry to make the country competitive.
"Preparations should start now so that after 2026, we don't find one fine morning that nothing has been done to compete after graduation."
Some 70 per cent of Bangladesh's global exports are covered by preferential access, one of the highest in the world. So, Bangladesh is going to face the highest rise in tariffs among the 12 graduating LDCs.
Rehman Sobhan, chairman of the CPD, said Bangladesh had been celebrating pre-matured graduation as the final graduation did not take place yet.
The United Nations Committee for Development Policy (UN CDP) recommended Bangladesh for graduation as the country has fulfilled all three criteria.
"Bangladesh has statistically graduated. But the country needs to be graduated in the real world," said Prof Sobhan.
After graduation, Bangladesh is going to compete with Vietnam, China and India. "But, the question remains how much Bangladesh would be able to compete with these countries?" he said.
The pharmaceuticals industry will face a big challenge as Bangladesh will lose the TRIPs facility after graduation, Prof Sobhan said.
He suggested diversification of the economy and technological upgradation.
An extension of the Everything but Arms (EBA) scheme of the EU is required at least for 7-10 years to sustain the desired growth, said Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
The EU accounts for 61 per cent of Bangladesh's exports. The country does not have to pay any duty.
The impact of Covid-19 and Bangladesh's endeavour towards global peace-keeping and humanitarian response measures like sheltering of Rohingya refugees, women empowerment and combating terrorism should be considered with due importance, Huq said.
Bangladesh's economic growth has been suffering a sharp downturn following the outbreak of Covid-19, which has reversed years of economic development and has made Bangladesh's businesses heavily dependent on the EBA to survive, she also said.
"The EBA is critical for Bangladesh to promote economic and societal progress, and devote resources to achieve significant policy objectives praised by the EU, including advancing human and labour rights."
Terminating the EBA without taking into account the vulnerabilities of the country and the detrimental effects it will have on the economy and people runs contrary to EU fundamental principles, the BGMEA chief said.
Huq said extending Bangladesh's access to the EBA scheme was consistent with the prior practice of both the EU and other major economies, which made sure the countries graduating from the LDC group had adequate time to transition and adjust to the new trade landscape without suffering from any significant export losses.
A Matin Chowdhury, a former president of the Bangladesh Textile Mills Association, said Bangladesh faced various challenges earlier.
For instance, the textile and garment industry faced the Multi-Fibre Arrangement (MFA) in 2005 when the quota system phased out. After the MFA, Bangladesh started investing in backward linkage industries heavily and had overcome the difficulties, he said.
Chowdhury, also the managing director of Malek Spinning Mills Ltd, called for opening up foreign investment in the high-end textile and garment sector for bringing technology knowhow and ensuring greater market access in the post-LDC period.
"We also need to improve labour relations," he added.
Md Shahriar Alam, state minister for foreign affairs, said some new opportunities such as more foreign loans at affordable rates and more foreign direct investment would come to Bangladesh as graduation would improve the country's image.
The government has formed a high-powered team to formulate a strong strategy roadmap for the transition period and to face challenges in the post–LDC period, he said.
Tuomo Poutiainen, country director of the International Labour Organisation, Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bangladesh, and Kazi Nabil Ahmed, a member of the parliamentary standing committee on the ministry of foreign affairs, also spoke.