Handing out equal government policy supports to all exporting sectors and flexible currency-exchange rate are among factors crucial for diversifying Bangladesh's slim export basket.
Policymakers, business leaders and experts agreed on these and other policy recasts at a function Wednesday in Dhaka.
They said an effective exchange rate and policy reform are a sine qua non to attract higher foreign direct investment in various productive sectors for export diversification
According to them, other exporting sectors are not getting the same benefits from the government as enjoyed by the readymade garment (RMG) sector. The benefits include bonded- warehouse facility (BWF), back-to-back LC (letter of credit) and financial support from Export Development Fund (EDF).
The observations and suggestions came at a roundtable on 'Trade and Exchange Rate Policies for Export Diversification' organized by the Policy Research Institute of Bangladesh (PRI) in the city.
Commerce Minister Tofail Ahmed and Bangladesh Investment Development Authority (BIDA) executive chairman Kazi M Aminul Islam were present as chief and special guests at the function, also addressed by a business leaders and experts.
PRI chairman Dr Zaidi Sattar moderated the roundtable while its executive director Dr Ahsan H Mansur delivered the address of welcome.
"Non-RMG exports have not done well on average. During FY 1990 to 2016, they grew at less than 8.0 per cent per year
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as compared with 16 per cent for RMG," PRI vice-chairman Dr Sadiq Ahmed said, adding lots of new products have entered the market but few have prospered with the exception of footwear.
Heavy concentration on one product-RMG-and reliance on a few large markets are among the challenges against diversification of exports, he explained and suggested local and foreign investment in export industry to remove supply-side constraint upon export diversification.
Learning from the positive experience of RMG, the government should offer BWF and back-to-back LC to all exports, Mr Sadiq said, adding the system of duty drawback does not work properly whereas the BWF has delivered very good results for the apparel sector.
The NBR concern over leakages can be resolved through proper technical solutions, he said.
The presentation showed that the local-currency taka appreciated by 47 per cent, 34 per cent and 25 per cent against euro, US dollar and Indian rupee since 2006, 2010 and 2008 to 2016.
Such substantial appreciation of the local currency in real terms against major global currencies that underlies Bangladesh exports and imports suggests a huge currency tax on exports and is a major factor why most exports have failed to fire after ignition, it added.
A large appreciation of the real exchange rate over a long period poses a serious incentive problem for export and needs correction, he said, recommending the lowering of domestic inflation to address it.
He termed use of tariffs and para-tariffs for revenue mobilization a highly inefficient and high-cost tax strategy that must be re-examined urgently and reformed.
The proposed introduction of the new VAT law will help reduce the anti-export bias by eliminating many supplementary duties (SDs) and keeping the remaining SDs as trade- neutral, he showed in his presentation.
He recommended customs duties as only instrument for long-term trade protection by eliminating SDs and regulatory duties.
The minister said local exporters are not taking advantages of trade benefit in many countries like Australia, New Zealand, Japan and China as they are confined to few markets, especially the US and the EU.
Stressing increased exports to countries that offer duty benefit, he said the government is providing cash incentives for many sectors and going to give such benefit to ICT sector.
Admitting that source tax is increasing annually, he also favoured doing something regarding exchange rate and easing the doing-business environment in the country.
The commerce minister also recommended increasing productivity to stay competitive on the global market.
The BIDA chairman recommended economic diversification that includes primary, manufacturing and services which would help in employment generation both in RMG and non-RMG sectors.
Dr Zahid Hussain, lead economist and country sector coordinator of the World Bank, said local market-based industries failed to grow in line with the support provided and common people pay for it buying products at a high rate.
While stressing protection for local industries, he suggested that protection should be time-bound and such support can be provided through generally depreciated currency.
He opined for withdrawing control over foreign-exchange market and suggested mid-term tax structure.
"The annual changes in decision hamper the investment environment," he told the meet.
There was so much talk including declaration of leather as product of the year regarding export diversification, but actually they did not work because of exchange rate, said Nihad Kabir, president of the Metropolitan Chamber of Commerce and Industry (MCCI).
Citing example, she said two years back exchange rate was Tk 110 which is now Tk 87 but cost of production did not decrease rather export cost went up.
Moreover, she said, due to infrastructure weakness, exporters have to use Dhaka airport instead of Chittagong sea port.
The chamber chief recommended keeping RMG sector where it is and giving other sectors the opportunity to flourish.
Abrar A Anwar, chief executive officer of Standard Chartered Bangladesh, listed footwear, toys, games, electronic and electrics, and ICT as the potential sectors after RMG.
Though ICT has problems like want of skilled manpower, he said foreign direct investment is needed for skills development and to go for high-end products.
Despite offering so many benefits, FDI is not coming, he said, suggesting policy reform in this regard.
He noted that RMG sector gets finance from the Export Development Fund (EDF) whereas other sectors don't.
President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Md Siddiqur Rahman demanded depreciation of the local currency, further lowering of bank rates and a raise in cash incentives for new market exploration.
Export growth in the country's garment sector has slowed down following a declining global demand, he said, adding that competitor countries are reaping more advantage as they depreciated their respective currencies.
Terming the policy set for RMG, Md Saiful Islam, president of Leathergoods and Footwear Manufacturers and Exporters Association (LFMEAB), demanded equal support and stressed innovation, research and development for product diversification.