Exports of both goods and services have been increasing gradually for the last couple of years. But as a percentage of the Gross Domestic Product (GDP), exports have been declining. Provisional estimate of national income shows that the export-GDP ratio may reach 14.36 per cent in the current fiscal year (FY18) which was 15.04 per cent in the past fiscal year. The ratio reached its highest -- 20.16 per cent of GDP, in FY 12. Since then, it has been slowly declining, though exports maintained an average growth of 7 per cent annually during the period.
Export-GDP ratio is a major indicator of the country's openness to the world. Another related indicator is import-GDP ratio. These two ratios indicate the importance of international trade in an economy. Again, overall trade-GDP ratio can be determined by adding these two ratios. This ratio also refers to the level of globalisation of an economy. The greater the trade-GDP ratio, the higher is the country's exposure to global trade. The estimated trade-GDP ratio is 36.7 per cent in the current fiscal year while import-GDP ratio is 22.34 per cent.
Generally, decline in export-GDP ratio indicates that the country's dependence on export is decreasing or export is contributing less to GDP. It isn't necessarily bad. But the underlining reasons behind the decline need to be identified before drawing any conclusion in this regard.
Being heavily dependent on export of clothing is a weakness of the country's overall trade structure. The clothing sector now accounts for around 80 per cent of the country's total export. So, any setback in this sector affects the overall export performance. The sector has been absorbing a large chunk of fiscal incentives for the last three decades. The industry owners also have big influence on the country's policymakers. As a result, the sector is a highly 'privileged one' at the expense of some other potentially prospective sectors.
The Asian Development Bank (ADB), in its latest Asian Development Outlook (ADO-2018) released last week, also focused on the issue. It pointed out that contribution of exports and remittances, the two traditional growth drivers of Bangladesh economy, has weakened in recent years. It also suggested diversifying exports away from readymade garments to widen the 'export basket, enhance resilience, and underpin continued high economic growth.'
ADB also identified good potential in several industries like leather and footwear, light engineering, electronics, pharmaceuticals, furniture, shipbuilding, jute products, food processing, automobiles and rubber goods. Diagnostic Trade Integration Study (DTIS) of Bangladesh, conducted by the World Bank three years back, also named shipbuilding, jute, bicycle, pharmaceuticals and information technology (IT) as potential sectors to spur export growth in the near future. Already some of these products are enjoying a reasonable domestic market.
The call for export diversification by both the ADB and WB is not new. In fact, diversifying the export basket is always a key agenda of the trade policy of the country. But little progress has been made so far in this regard. Decline in export-GDP ratio is a reflection of this failure.
The decline in export-GDP ratio also goes against the projection made in the 7FYP. The medium-term development policy document sets to enhance the export-GDP ratio at 16.2 per cent by the end of FY20. While the targets for FY16, FY17 and FY18 are 15.70 per cent, 15.60 per cent and 15.70 per cent respectively, the latest data shows that the targets were not achieved in the last two years.
In Bangladesh, export is highly dominated by primary and manufacturing commodities. Export of services is around one-tenth of the country's total export. This is not uncommon in the developing countries. But service sector is now contributing half of the GDP in Bangladesh followed by industry and agriculture. There are also some opportunities to enhance export of the service sector. The Seventh Five-Year Plan (7FYP) rightly pointed out the issue and stressed on the export of non-factor services like tourism. Income from remittance is considered as a factor income as it is generated from the export of manpower or labour which is a factor of production.
The trend of the export earnings of service sector is represented by the credit or receipts in services account of the Balance of Payment (BoP). But the BoP statistics generally capture 'trade in commercial services.' It covers mode-one (cross-border trade) and mode-two (consumption abroad) of services trade and also mode-four (presence of natural persons) partially but not mode-three (commercial presence). Commercial presence is a supply of services by a services provider of a country through opening an affiliation or office in the territory of another country. There is no precise data or information on Foreign Affiliates Trade in Services (FATS) in Bangladesh. FATS statistics measures the commercial presence of service suppliers in other countries through affiliates in foreign markets.
To enhance the contribution of export in the economy and in turn enhance the export-GDP ratio in near future, more attention to services sector is required. At the same time, it should be noted that export is half of the story and there is import also. In the accounting of GDP, export is added with consumption, investment and government spending, while import is deducted (GDP=C+I+G+X-M). Without import, export can't be sustained.
Import-GDP ratio has also been declining for the last couple of years but is estimated to makes an upturn in FY18. BBS estimation shows that it may reach 22.34 per cent in the current fiscal year which was 20.27 per cent in the past fiscal. Unlike export-GDP ratio, import-GDP ratio is in line with the projection made in the 7FYP. The trend thus suggests that more attention should be on the export front.
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