Outlook for exports brightens

From left, Rashed Maqsood, Citi country officer for Bangladesh; Arshad Jamal Dipu, chairman of Tusuka Group and BGMEA director; Thomas Nelson, managing director of VF Corporation Asia; Hassan Zaman, senior adviser to the governor of Bangladesh Bank; Christophe Bataille, finance director of Tesco International Sourcing Ltd, and Carmen Ling, head of Citi Hong Kong Transaction Services, attend a roundtable on "The outlook of sourcing in Bangladesh, potential for growth, key opportunities and requirements" organised by the bank in Hong Kong recently. Photo: CITI

Bangladesh is taking a growing share of the global export market of textiles, footwear and many hard goods, said a senior official of a globally-reputed professional services firm.
While China remains the leading exporter of such products, other large Asian markets such as India and Indonesia are taking a growing share of the market, said Nick Debnam, regional chairman for consumer markets practice of KPMG Asia Pacific.
Rising costs and a tightening labour market are leading global consumer markets executives to reassess their sourcing strategies and explore new locations across Asia, he said at a roundtable on the outlook of sourcing in Bangladesh: potential for growth, key opportunities and requirements.
Citi has recently organised the event in Hong Kong to create a platform for brainstorming the issues that the country and the industry face, according to a statement of the bank.
The increasingly complex requirements of supporting supply chains mean that established sourcing locations, including those in China, will still have an advantage in certain product categories, Debnam said.
Many sourcing executives recognise that they must accept and manage their continued reliance on China through closer collaboration and automation.
Some sourcing activity has moved closer to end-markets over the past three years driven by high transportation costs, concerns over further carbon taxes, and the development of centralised approaches to inventory, he said.
However, the overall volumes sourced from Asia are unlikely to diminish, particularly as Asia's domestic consumer markets are growing rapidly.
While letters of credit have largely been eclipsed by open account trading as a means of financing trade out of Asia, the global financial crisis did expose some counterparty issues which are now being addressed through new trade settlement mechanisms.
Sustainability is a particularly high priority for consumer markets organisations, as evidenced by the relatively high proportion that has adopted a sustainability reporting mechanism or strategy, Debnam said.
"It is now a principal driver for greater visibility across the supply chain."
He stressed the need for managing more savings opportunities and compliance risks, as consumer organisations look to source from a greater number of countries, and interact with a growing number of customs authorities and regulations.
The growth or change of scope of sourcing activity in certain markets could alter tax exposures, especially where there is more value being added through product development and testing at the source, Debnam said.
He said many organisations have invested significantly in technology to enable their procurement process and lighten their inventory burden, while some have reached the appropriate balance on cost, return and risks.
Debnam said others are still facing the challenge of aligning their technology investment with the overall procurement strategy.
Hassan Zaman, senior adviser to the governor of Bangladesh Bank, said Bangladesh outperforms most of its regional peers with an average growth rate of 6.2 percent over the past five years.
Economic growth remained strong despite the global economic slowdown, he said.
Zaman said the last decade (fiscal year 2000-10) witnessed strong growth, more than doubling in per capita income and a 572 percent increase in forex reserves.
The decade also experienced steady expansion in lending to the private sector, massive consolidation of external government debt and a material decline in the fiscal deficit, he said.
Rapid GDP (gross domestic product) growth and urbanisation led to rising returns to human and physical assets.
This has also resulted in rising labour productivity and wages, shift from low return agricultural labour to non-farm employment and growth in export industries, according to Zaman.
Bangladesh also witnessed increasing flow of remittances and increases in labour force participation and educational attainment, particularly among women.
The country has not defaulted on its internal or external debt obligations despite the Asian and global financial crises, numerous political upheavals and countless natural disasters.
Bangladesh government recognises the crucial role of infrastructure in supporting economic development. The government has taken a number of steps to address the current gaps, including allocation of close to 35 percent of budget to physical infrastructure -- energy and communication -- in fiscal 2012.
Power and energy sector received allocation of Tk 8,311 crore -- 5.1 percent of the total budget of FY12 -- a 36 percent increase over the previous year's allocation, he said.
The economy continues to achieve broad-based, robust economic growth expanding by 6.8 percent in FY11, Zaman said.
New data shows poverty declined by nearly 50 percent in the last two decades, he said.
"Although, inflation has been an issue, our monetary policy was restrained enough to tackle inflation but leaves adequate room for growth-enhancing private sector credit," he said.
"Our fiscal policy remained prudent with budget deficit projected around 4.5 percent in FY12. The government's debt servicing indicators are also improving."
Zaman said policy initiatives continue to focus on expanding infrastructure for medium run growth.
Arshad Jamal Dipu, chairman of Tusuka Group and director for research and policy of Bangladesh Garment Manufacturers and Exporters Association, presented a snapshot of progresses, opportunities and challenges faced by the garments industry.
Bangladesh's garment export market has been growing steadily over the last 10 years, he said.
Growth of exports has led to growth of garment factories and growth in employment, Dipu said, adding that apparel exports contributed to 16.03 percent of GDP in FY 2010-11.
The sector is contributing significantly to achieving the millennium development goals, and enhanced trade has helped the country move out from the dependence on aid, he said.
There are also positive social impacts in promoting gender equality -- increased participation of women in the labour force -- and eradicating extreme poverty and hunger, he said.
According to a SWOT (strengths, weaknesses, opportunities and threats) analysis, key strengths of the garment industry include competitive pricing, an international standard quality control process, 30 years of experience in garment manufacturing and a rapidly developing backward linkage industry.
Major weaknesses include shortage of skilled workforce and a lack of adequate training facilities, high migration of workers, infrastructural bottlenecks and power and energy inadequacy.
Opportunities of the garment sector are global sourcing reconfiguration and market growth, functional upgradation in the value chain, market diversification, product diversification, and better market access.
A key threat is that apparel imports are falling in major markets, including the US and the EU.
Apparel import prices are declining in the US markets and Bangladesh's exports may suffer due to export market concentration in the US and the EU.
Growing bilateral and regional trade agreements may also erode Bangladesh's preference margin.
There are also growing concerns over cotton security and negative propaganda in international NGOs and news media regarding the state of labour in Bangladesh.
Rashed Maqsood, managing director and country officer of for Bangladesh, said Bangladesh was identified as one of the 11 countries which have the most promising growth prospects over the next few decades.
Bangladesh is likely to thrive in a globally integrated economy, with high growth rates and high returns to investment during the coming decades, he said.
"This forecast also incorporates some key features critical to sustained rapid growth, such as very young population with low median age," Maqsood said, adding that there is a wide consensus of adopting market-based policies across political and social spectrum.
One of the most glaring examples of the entrepreneurial private sector is the RMG industry in Bangladesh, he said.
Over the last three decades, the industry has blossomed and survived several challenges, including the removal of quota system and the recent global financial crisis, he said.
"This has made Bangladesh currently the second largest producer in this sector."
There are challenges related to infrastructure and capacity development, corporate governance, labour relations and many others, Maqsood said.
"To meet these challenges, we need to think with panoramic view to address long-term issues integrating various stakeholders' views."
Maqsood and Carmen Ling, head of Citi Hong Kong Transaction Services, moderated the discussion.
Christophe Bataille, finance director of Tesco International Sourcing Ltd, and Thomas Nelson, managing director of VF Corporation Asia, were also present.