As Bangladesh prepares to advance to the next level of economic development, our policymakers have to start thinking about how to remain internationally competitive as well as ensure greater economic activity — more jobs, greater output — and higher average incomes.
\nIn order to achieve that, Bangladesh desperately needs to upgrade and expand its export sector, from our export composition to value, volume, and range.
\nThe success of our readymade garments (RMG) industry provided a much-needed momentum over the past three decades or so, making the country an exemplary export success-story among many low-income economies and least developed countries (LDCs).
\nNevertheless, for a country our size, we are far behind most of our Asian competitors.
\nWith a population of 160 million, Bangladesh\u2019s current export volume of $35 billion is rather small in comparison with countries like Vietnam ($170bn in exports and a population of 91 million), Indonesia ($220bn in exports and a population of 258 million), or the Philippines ($74bn in exports and a population of 101 million).
\nBangladesh\u2019s current export volume of $35 billion is rather small in comparison with countries like Vietnam, Indonesia, or the Philippines
\nAgain, much smaller countries in East Asia such as Malaysia ($200bn in exports, with a population of 28 million) and Singapore ($500bn in exports with a population of 5.7 million) are extremely successful exporting nations.
\nTherefore, Bangladesh must vigorously expand its range, value, and volume of exports while, at the same time, try to generate enhanced export response from non-RMG sectors.
\nA promising industry
\nWhen it comes to export expansion while promoting export diversification, the industry that holds a great promise is leather and leather goods (LLGs) — the second largest exporters in our economy.
\nThe export policy of 2015-18 aims to take target-oriented steps to raise export earnings to $60 billion exports by 2021, of which $5 billion is expected from LLGs. However, both targets now seem like daunting prospects.
\nIn 2017, the total value of leather and leather goods exports from Bangladesh stood at $1.2bn, accounting for 3.54% of the country\u2019s total merchandise exports. The industry\u2019s contribution to total output or gross domestic product (GDP) is estimated to be 0.35%. Total employment in the industry in 2016 was 129,000 — up from 91,000 in 2013. During the same period, the industry\u2019s share in total employment rose from 0.16% to 0.22%.
\nThe leather export sector has a strong backward linkage in terms of its using mostly locally sourced raw materials. The estimated domestic value addition is as high as 80-95%.
\nThe global experience shows that successful garment manufacturing countries tend to find it easier to develop specialization in leather products and footwear (and vice versa). The leather sector should thus be a natural driver of export diversification in Bangladesh.
\nOpportunities for expansion
\nThe global LLGs market expanded from $75bn in 2000 to $167bn in 2015 \u2013 indicating growing demand around the world and, thus, lucrative prospects for exporting countries.
\nDuring the same period, Banlgadesh\u2019s exports expanded by about $1bn (from $200 million to $1.2 billion).
\nCompare that with China\u2019s expansion of $46bn, India\u2019s $5.4bn, and Indonesia\u2019s $2.7bn in leather exports. In 2015, Vietnam\u2019s leather and leather goods exports reached almost $8bn — up from a very negligible amount in 2000.
\nThese countries were able to cash in on growing opportunities by investing to further develop their domsetic LLG industries.
\nThere has also been a shift in the export composition of the leading exporters. The average share of raw leather in total LLGs declined from 33% in 2000 to 18% in 2015. That is, most leading exporters have shifted from raw leather to higher value-added and more sophisticated finished leather products.
\nIn 2015, the share of raw leather in Bangladesh\u2019s total LLG exports was 28%. Although it has declined considerably over the years, the share of raw leather in Bangladesh\u2019s total leather exports is still very high.
\nBangladesh\u2019s LLG exports are highly concentrated in a few markets. It exports 44 leather products (at the HS 6-digit level) to 84 destinations. In comparison, Vietnam exports 59 items to 122 markets and China sends 65 products to 209 foreign markets.
\nThe share of Bangladesh\u2019s exports to the USA, the largest importer of LLGs, is substantially lower than that of its competitors. While China, India, and Vietnam export 24%, 19%, and 41%, respectively, of their export sales of finished leather articles to the USA, the corresponding figure for Bangladesh is only 7%.
\nA comparative analysis shows that Bangladesh exports very high quality raw leather. Although some Bangladeshi leather articles and finished products are also of good quality, for these products there exists a substantial scope of overall quality improvement, which will help us to grab more market share and sell at higher prices.
\nParticularly in leather footwear, Bangladesh\u2019s quality is rather mediocre, as revealed by the unit value prices.
\nGiven the availability of local raw materials, know-how of the supply management within the export industry, and expressed policy support, the leather industry has a huge potential for transformation, generating billions of dollars in additional export earnings. The realization of this potential however depends on several factors.
\nThe second part of this article will discuss those factors and the challenges we have to overcome.
\nDr Mohammad A Razzaque is an economist. This article is an outgrowth of a project of the Bangladesh Enterprise Institute (BEI).<\/p>\n","protected":false},"excerpt":{"rendered":"
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