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PF/3521/DISSERTATION/2002

THE CHALLENGES OF GLOBALIZATION ON THE

INDUSTRIAL SECTOR OF BANGLADESH

“Whether we like it or not, we are part of international community which is becoming

increasingly global. As the economic and social map takes shape for the next century, we all fall
into one of two camps. You are either a globaphobe or a globaphile. This is the great political
dichotomy of our age, as fundamental as the old conflict between capital and labour. But
whether people fear globalization or not they can not escape it.”
- A Downer

INTRODUCTION

1. The term “Globalization” is one of the most buzzwords today. It refers to the
increasing interconnectedness of nations and peoples around the world through trade,
investment, travel and other forms of interaction. Many historians have identified
globalization as a 20th Century phenomenon connected to the rise of the western-
dominated international economy. However, extensive interaction between widespread
peoples, as well as travel over vast distances across regions of the world, has existed
for many centuries. By 1000 AD, the seeds of globalization had already taken root in
the Eastern Hemisphere, particularly in the lands bordering the Indian Ocean and
South China Sea. These were the most dynamic regions in the world at that time, and
their interactions were extensive.1

2. The economic and social philosophies influenced the human life in their social
and national aspects throughout the ages. The industrial revolution occurred in the 18th
century, created a new horizon in the field of mechanical production growth. Today at
the beginning of 21st century, we discover the appearance of versatile and strong
phenomenon called ‘globalization’. The leading developed countries like USA, UK,
Canada, France, Italy, Germany and Japan enjoined themselves in the stream of this
phenomenon and emerged as the top industrially developed nations. A statistics shows
that above-mentioned countries control 80-85% of world trade 2. They claimed
globalization as the key to their success. But it may not be equally applicable to the
developing or least developed countries (LDC) where the same phenomenon
endangers the very limited market of their small and weak industries.

3. Industrialization refers to an increase in the share of the gross domestic product

(GDP) contributed by the manufacturing sector. The process of industrialization is, in its
broadest sense, a process of societal transformation, involving economic, political,
social and cultural changes. Industrialization implies greater economic specialization in
production geared to national and international markets and a significant increase in the
share of manufacturing in the total output of a country and in the absorption of

1
1. Seeds of Globalization, Microsoft® Encarta® Encyclopedia 2001, (C) 1993-2000
Microsoft Corporation.

2
2. Hafizur Rahman, Globalization ebong Bangladesher Shilpa Samparko, TheDaily Janakontho,
( Dhaka: 1.5.2002), p 9.

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resources.3 In the realm of globalization, the relationship between industrialization and

development is surprisingly varied and many reasons may be put forward to explain
why Third World countries are so committed to industrialization. One principal argument
may be the manufacturing, which is favoured as a development strategy because of its
efficient use of land resources. Bangladesh has limited land space for agriculture in
relation to her population. Indeed, the amount of land available to a society provides
reasonable productivity. Manufacturing becomes attractive because of its more efficient
use of land. Thus, for small countries, such as Hong Kong and Singapore, they had no
alternative but to industrialise. 4 Bangladesh being a small country with large population
is not an exception to that.

4. The economy of Bangladesh bears the mixed identity of private and public
industries. She has adopted the policies and philosophies of globalization as the model
for her development strategy. Most of these are the outcome of the conditions and
recommendations posed by the donor countries and international aid agencies. The
privatization of industries, encouragement of private and foreign direct investment (FDI)
and liberalising import and export by reducing taxes and tariffs show how much
committed the government is to find the ways and means to improve her economy. This
wholehearted involvement with the process of globalization is not beyond criticism.
Some fears imminent danger of destroying home industries. But it is an undeniable fact
that the small and weak industries now face more competitive market than ever before
causing many of them to fade away. Yet, there are industries, although very few in
numbers showed remarkably good performance in the racetrack of globalization.
Readymade garments (RMG) industry is one of them. Today Bangladesh earns
maximum of her foreign currency from RMG.

5. The end of cold war has made the United States only super power and the other
dominant nations in today’s world are the European Union and the G-7 countries. It is
apparent that these powerful nations would have their influence on the global politics for
their interests. So, riding the global train by the rest of the world is not going to be an
easy task. It is against such a circumstance that Bangladesh will have to ride the global
train. As one of the LDC of the world, Bangladesh needs to address the process of
globalization in a manner so that she can successfully meet the opportunities and
challenges of globalization.

6. “Globalization” may have a lot of controversies but the fact remains that it is
inevitable and none can live without that. The recent access of China in World Trade
Organisation (WTO) is the burning example. So, it is important that how we integrate
and interconnect ourselves with the aspect of globalization to prosper our economy
where effects of globalization on our industrial sector will remain to be a focal point. This
paper gives an overview of the effects of globalization on the industrial sector in the
present day world. Thereafter, it would identify the challenges posed on the industrial
sector to evolve the ways ahead and finally recommends few measures.

3
3. Rajesh Chandra, Industrialization and Development in the Third World (London : Routledge,
1992), p 4.
4
4. Ibid, p 2.
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AIM

7. The aim of this paper is to examine the challenges of globalization on the

industrial sector of Bangladesh and make necessary recommendations to derive the
best in the present context.

INDUSTRIALIZATION IN BANGLADESH: AN OUTLOOK

8. General. Bangladesh has been striding towards the free market economy taking
it to be the model for economic emancipation and development. Following the
suggestions and guidelines of different donor countries and aid agencies, the country
has taken up different steps like privatization of different industries, encouraging FDI,
reducing taxes to simplify both imports and exports. The question remains - despite so
many steps, why then the industrial sector of Bangladesh failing to gain pace to cope up
with rest of the developing world. Hence the subsequent discussions would touch
certain aspects identifying the reasons for such state of industrialization for the country.

9. Industrial Policy Reforms. Bangladesh inherited its industrial policy framework

from Pakistan that had focussed on a bureaucratic control of a largely private industrial
sector with emphasis on import substitution. Around this control grew a complex system
of licensing, exchange rationing, and quantitative restrictions on imports which affected
every aspect of the behaviour of private sector industrial firms. The pattern of
industrialization that had emerged was characterised by over capitalisation, widespread
under utilisation of capacity and very high private profits at the expense of productive
efficiency5. The latest industrial policy announcement was made in July 1991 which
reiterated the objectives of the previous industrial policies of achieving a rapid
expansion of the private sector and for its transformation into a more competitive market
economy. A major goal of the 1991 industrial policy was to increase efficiency and
productivity in the industrial sector through deregulation, privatization, trade policy
reforms, and development of the export sector. The policy also envisaged a number of
measures to improve the operational efficiency and economic viability of the public
sector enterprises (PSEs). Investment incentives, in particular for the export-oriented
and export linkage industries, were expanded and simplified without any discrimination
between domestic and foreign investors. To assist in the establishment of export
oriented industries, more export processing zones (EPZs) would be established. 6

10. Liberalization of Economy. Free market economy in the country is

considered by many to be the aggression of the capitalist countries. Many take it as the
creation of market for the products of the western countries in poor countries like
Bangladesh. If implemented fully, some observers feel that the country will have an
influx of foreign goods from other countries. In the 1990s, when the process of opening
up gathered momentum, the economy maintained a growth of about 4.5 percent on an
average. A large number of industrial enterprises have become sick, and many have
gone out of existence. According to Baroi (1999), from 1990-1996, employment

5
5. Ayubur Rahman Bhuiyan, Impact of Globalization on Growth, Employment and Industrial
Relations in Bangladesh, SSR, vol.XV, No.2 (Dhaka: UPL,1998), p 3.
6
6. Draft Fifth Five Year Plan 1997-2000, Bangladesh Planning Commission.

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opportunities in the manufacturing sector have declined by 6.2 percent and those in the
business and finance sectors by 5.6 percent annually 7. The country is not expected to
receive a substantial amount of FDI since the profit margin will be much less than other
regions of the world. Moreover, local industries will collapse in failing to compete with
the foreign goods in the domestic markets. So without acquiring adequate
manufacturing skills, such policy measures may not give rich dividends. Moreover,
certain protectionism is required for the nascent and smaller industries to grow and
flourish.

11. Impact of Liberalization. The manufacturing sector of Bangladesh experienced

very little growth during 1980s and early 1990s. The estimated trend growth rate in
manufacturing value added during the 1980s varied between 3-4 percent. The average
annual growth in the first half of the 1990s was about 5 percent but it decelerated to 3.3
percent in fiscal 1996-97. The sector’s share in GDP remained virtually unchanged
throughout the eighties and the nineties. 8 A major cause of low growth of manufacturing
output was the stagnant level of manufacturing investment at around 3 percent of GDP
during the entire decade of the 1980s. Public investment declined because fiscal deficit
was reduced largely by slashing public development expenditure, which also affected
private investment. The Government’s policy of attracting new private investment in the
industrial sector through privatization achieved only limited success despite offering
generous financial and fiscal incentives. With the level of manufacturing investment
remaining stagnant, the manufacturing employment in large and medium scale industry
also remained more or less stagnant throughout. 9 Overall the evidence is that most of
the dominant industries of the country have either stagnated or declined. Some of the
non traditional exporting industries registered high growth rates but their weight in the
total manufacturing sector being very small, their high growth could not have any
perceptible influence on the overall performance of the manufacturing sector. These
industries are RMG, fertiliser, processed food and seafood, tannery, and leather
finishing.

12. Privatization. In order to encourage investment in private sector, many

observers are highly critical regarding privatization. Many studies have shown that
privatization in our country did not really enhance either the manufacturing efficiency or
the profits for the government exchequer. In the plea of sick industries, many private
entrepreneurs have taken millions from the banks only not to return the same and thus
putting strain on the banks. Many private industries survive only to allow the owners to
draw more loans from the banks in the name of sick industries despite the suspended
production. Thus the banks show loan disbursement in the industrial sector of a
substantial degree whereas there are growth of a very few industries but industrialists of
large numbers.

7
7. M.A.Obaydullah, Globalisation and Bangladesh, The Daily Independent, Dhaka, 18 February
2000, p 6.
8
8. Ibid p 6.
9
9. Selected Issues in External Competitiveness and Economic Efficiency World Bank, Bangladesh,
Report No.10265-BD, (Dhaka: 16 March 1992).

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13. Barriers in Industrialization. Bangladesh has faced multi-faceted barriers like

child labour, labour standards, and governance. A number of garment importing
countries are phasing out quotas, following the WTO agreement, in a way that does not
allow the country to derive the full benefits of preferential markets 10. Being an LDC, the
country suffers considerable setbacks in terms of infrastructure development,
mobilization of resources and capital management. Moreover, the unstable political
situation and corruption in the country remain as the major barriers for the industries to
grow and flourish. Government policies change with the change of government thus
failing to maintain continuity of policy implementation.

14. Foreign Investment Opportunities. Very often it is argued that worldwide

liberalization will divert adequate resources in the poor economies thereby benefiting
the LDCs. The country is actually offering a large number of incentives in order to attract
foreign investment. Despite all these efforts since Bangladesh have failed to receive
substantial foreign resources for investment it can be inferred that mere globalization
will not divert foreign investment into Bangladesh. However, in recent times the
enormous inflow of foreign resources in the country’s gas sector has brought new
optimism regarding the country’s prospect of attracting foreign investment. It is expected
that such huge investment by the world’s largest companies will help in boosting the
rate of investment essential to achieve higher growth and is likely to ease pressures on
foreign exchange reserves of the country.

15. Creation of EPZs. One of the important additions to the industrialization effort in
Bangladesh was the establishment of two EPZs under the Bangladesh Export
Processing Zones Authority Act, 1980. The enactment of the Foreign Private Investment
(Promotion and Protection) Act, 1990 gave the legal base for the foreign investors to
come and invest in various industries in Bangladesh. Now 100 percent foreign owned
enterprises are permitted in the selected areas and in the EPZs. There were some other
fiscal incentives and promotional measures taken by Bangladesh to entice local and
foreign investments in different industries. Important amongst those are cent percent
ownership of enterprises by expatriates and foreigners, generous tax holidays for 5 to 7
years, granting of citizenship to foreign investors who will invest in Bangladesh at least
US$ 5,00,000, etc. With all these policies and measures, Bangladesh emerged as one
of the most liberal developing countries in Asia for private and foreign investments. By
1995-96, the scope of investment in terms of number of industries were wide open
except only a few areas those are related to security.

GLOBALIZATION AND INDUSTRIAL SECTOR : AN OVERVIEW

16. General. International trade plays an important role in accelerating economic

development of a country. Through international trade a country can acquire various
resources including wealth, raw materials, technology, industrial products, consumer
goods, technical services, etc, which help the trading partners develop economically.
The importance of trade has increased phenomenally with globalization of trade. The
10
10. Ibid.
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process of globalization has influenced both quality and quantity of global, regional and
bilateral trade. In the 1985-95 period, the total world trade experienced a growth rate
that was on average 6% higher than global output growth. The world trading system as
it operates under the GATT/ WTO rules has made the trading partners increasingly
interdependent on each other through exchange of goods, services, capital, technology,
etc. An LDC like Bangladesh is experiencing increasing trade intensity, that is, the total
value of export and import as a percentage of GDP of Bangladesh has increased over
time. As a result, international trade has become a powerful engine of growth for
Bangladesh. In other words, trade policies to a great extent determine the road map of
its development.

17. Policy Changes and Effects. The relative importance of industrial sector in
an economy is well established. Its role in the economic growth as well as productive
employment generation needs little discussion. Keeping this in mind, successive
governments in Bangladesh wanted to give necessary boost to this sector by
incorporating a wider set of reforms and promotional measures. This effort was being
reflected in the changes made in the Industrial Policies of 1974, 1982, 1986, 1992 and
1999. A major shift has been there to put more emphasis on development of private
sector and to make the role of the government more promotional than regulatory. The
reform measures pursued in the industrial sector, in three ways - reorganisation,
privatization of the public sector and liberalization of the sector to the outside investors.
In Bangladesh, the globalization efforts have pushed forward major changes in the
industrial policy, import and export policies, exchange rate, and institutional changes in
the financial sector and taxation. The measures underlying the changes included
dismantling of various regulation in industrial sector, massive reduction of tariffs and
non tariff barriers to trade, more market oriented determination of exchange rate,
restructuring of banking sector, reductions in the rate of customs duties, excise tax and
income tax and definitely a more incentive loaded open environment for foreign
investment. The objectives of such reorientation of economic policies were to attain a
sustainable macroeconomic development and to accelerate growth and more generally
to raise living standards by generating employment and increasing purchasing power of
her vast pool of poor people. Growth based on global market forces was presumed to
be rapid and high in the process.

18. Trade Barriers for Bangladesh. In the post British colonial Pakistani era and
the post independence decade of the seventies and the early eighties, Bangladesh
pursued a relatively protective import regime on the plea of providing a protective
domestic market for the nascent industrial enterprises. Those were patronised by the
state under the strategy of import-substituting industrialization, which was prescribed by
the World Bank and other donor agencies and countries. Along with this, the
bureaucratic state of the Pakistani era built up, and their post-independence inheritors
maintained an elaborate regulatory edifice in Bangladesh, which bred and sustained a
system of institutional rent-seeking that became more and more pervasive as well as
extortionate throughout the period of more than 31 years of Bangladesh’s independent
existence as a state. Beside these, tariffs and taxation in the external trade sector were
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continually used as the prime sources of government revenue collection as convenient

and easy policy alternative without sufficient consideration of the economic rationale of
imposing and/or changing the tariffs and taxes concerned. Non-tariff barriers to trade
were also erected frequently without sufficient consideration of their effects and often as
tools of extorting rents for the political and bureaucratic functionaries. A distinct anti-
export inclination could be discerned in the policy regime concerned with external trade.
Thus this remained as a deregulatory factor for the road to industrialization.

19. Import Liberalization – Gradual Strengthening of Export Drive. Bangladesh

launched a vigorous process of import liberalization in the beginning of mid-eighties, as
a step toward implementing the structural adjustment programme prescribed by the twin
Bretton Woods Institutions (BWIs), the IMF and the World Bank. It coincided with the
gradual strengthening of the export drive of Bangladesh concentrated in some hitherto
non-traditional items like RMG, knitwear and shrimp. During the last two decades,
Bangladesh has undergone a profound political and economic transformation. The
process of import liberalization was carried forward by the three successive
governments, thereby giving Bangladesh the distinction of being one of the pioneers
among the LDCs of Asia pursuing the process of globalization. Within the context of
increased macro-economic and political stability, Bangladesh has begun to prosper
from increased regional and global trade. In addition to the transition to democracy, the
country now boasts an unprecedented level of economic openness and co-operation,
having moved towards unilateral liberalization over the last two decades.

20. Trade Liberalization - A Challenge for Domestic Industries. The rapidity

of the pace of Bangladesh’s on-going liberalization of import regime is not beyond
arguments. It should be noted that the escalating phenomenon of smuggling, the ‘sick
industry syndrome’ afflicting the traditional industries. The problem of bank loan default
and capital flight and the continued stagnation in Bangladesh’s investment scene are
believed to have some casual relation with the uneven pace of liberalization of
Bangladesh’s external trade and its neighbours, specially India. The other dimensions of
the structural adjustment programme like denationalisation and privatization or
deregulation could not be pursued with the same sort of zeal because of the political
sensitivities of the issues concerned. Therefore, it can be summarised that in spite of
the continuous pressures from our international development partners, the
achievements of the successive Bangladesh governments of the late eighties and the
nineties are remarkable. The economic growth coincides to the satisfaction of the
dominant capitalist countries somewhat to the standards of the countries as well as
those of the BWIs and WTO. The effect of trade liberalization has put tremendous
pressure on the domestic industries to stay on the race for survival.

21. Lack of Diversification. The RMG remained to be a major export product in

the 1990s and till to date. However the other sectors could not flourish as much due to
lack of patronisation by the government and lack of foresight. With the implementation
of the MFA in 2005, the RMG sector may not earn as much foreign currency like that of
the previous years. As such diversification remains one of the few options available to
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the government. Table 1 in the next page shows the details of the trends in export
receipts.

TABLE – 1. TRENDS IN EXPORT RECEIPTS OF BANGLADESH IN SELECTED

YEARS OF THE NINETIES BY MAJOR PRODUCT GROUPS11

Year 1990- 1995- 1998- 2000- 2001-02

Items 91 96 99 01 (Partial)
(a) (b) (c) (d) (e) (f) (g)
1. RMG including Knitwear 2812 8195 12975 26731 23188
2. Jute Manufactures 1008 1240 1168 1267 1719
3. Fish & Prawns 609 1311 1463 1998 1506
4. Hides, Skins & Leather 492 897 766 1396 896
5. Raw Jute & Meshta 429 294 270 370 336
6. Tea 144 115 150 119 105
7. Fertilizer 156 12 59 - -
8. Others 475 1782 3982 2498 2403
Total Export Receipts 6125 13846 20853 34379 30153
(In crores of Taka)

A look at the figures presented in the above table reveals the spectacular performance
of the RMG and knitwear sectors in terms of export earnings. But the table also brings
out the lack of dynamism or outright decline in other major export sectors like jute, jute
goods, tea and fertiliser. Even the fish or prawns exports seem to have lost momentum
in the recent years. So is the case with hides, skins and leather exports. The only other
silver lining is provided by the category lumped as ‘others’, which reflects the trend of
some diversification of export items in recent years. The RMG and knitwear sector
remains a ‘footloose’ endeavour, where enterprises are born or discontinued too easily
to suit the convenience of some unscrupulous businessmen thriving on various
government policy favours.

22. Outcome of GATT. As a GATT member, Bangladesh ratified the Uruguay

Round Agreement in Morocco in March 1994, which took effect in 1995. The GATT is
generally given high praise for its success in lowering tariffs on a wide range of goods
over the past 50 years. In the Uruguay Round, GATT negotiators made significant
progress in addressing subsidies, trade in services and protection of intellectual
property rights. The eight rounds of multilateral trade negotiations under GATT have
substantially reduced tariffs. Tariffs imposed by the developed countries have fallen on
an average of over 40 percent in 1948 to approximately 3 percent in 1995. Due to
lowering tariffs, people have plenty of opportunities to select products of good quality at
a reasonable price – does not matter whether these are produced locally or abroad. The
expansion of world trade and output are expected to accelerate in the coming years.
Under this international trading system, Bangladesh has to strengthen its competitive
edge so as to successfully adjust with other WTO member states. Without competitive
strength, Bangladesh will not only fail to attract foreign markets for its products, but also
lose its local market implying weak industrialization.
11
11. Bangladesh’s Monthly Economic Review, MCCI, (Dhaka: 2002), p 17.
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CHALLENGES ON THE INDUSTRIAL SECTORS OF

BANGLADESH: AN OVERVIEW

23. General. At present Bangladesh is constrained by two types of problems. During

the finalisation of the Uruguay Round of Agreements, the developed world led by US
and France staged a social clause to be included in the WTO Charter. This clause
would allow restrictions to be placed on the import of products originating from countries
not complying with a specific set of minimum standards. The demand for minimum
standards included among other things freedom of association, prohibition of forced
labour, elimination of child labour and non-discrimination 12. While the WTO charter is yet
to include the ‘social clause’. Many developed countries have already put pressure on
the LDCs to maintain certain norms in the overall labour standards. Some of them have
caused severe problems for a number of LDCs including Bangladesh. Another cause of
concern that has recently come up, is the issue of the product for export. The developed
countries have now set very stringent conditions in this regard. Very recently
Bangladesh’s frozen fish export has come under a great threat as the importing
countries (mainly EU and US) are not satisfied with the standard and the quality of the
product. It goes without saying that since export earning from frozen fish is about 8-10
of the total export receipts of the country such restriction may squeeze the source of
foreign exchange earning for the country. The country also faces major obstacles in its
attempts to industrialize because of its acute dependence on developed countries in
most major areas. The dependency can be seen in technology, trade, foreign
investment and aid, human resources and information flows and technology.

24. Textiles Export in Post-MFA Era. The phasing out of the MFA is likely to have
mixed results for Bangladesh and a good number of researches have been carried out
to assess the prospect of Bangladesh in a quota free environment. The lifting of MFA
quota restrictions will provide opportunities for additional exports but that will also result
in tougher competition from the more efficient producers in the relatively more advanced
developing countries. Besides, at present the backward linkages of the garments
industry is minimal as 95-96 percent of the total fabric needs and 50 percent of the
required accessories are being imported. 13 Since all the intermediate inputs are
imported the net foreign exchange earnings from the RMG is only about 25-30 percent
of the total export receipts from this sector. Moreover, even in the post MFA era some
countries may get preferential treatment over others regarding the tariff barriers. For
example, according to the NAFTA agreement Mexican export of textile items to the US
and Canada will be duty free which implies that a large part of Bangladesh’s
comparative advantage in terms of lower labour cost will be eroded due to the
preferential and discriminatory treatment given to Mexico 14. Thus it is clear that post-
MFA era will pose some new challenges to the domestic textiles industry 15. And it is for
sure that the process of globalization will not readily bring good results for the country.
12
12. A. Krueger, Labour Standards and International Trade, Paper presented at the Annual Bank
Conference on Development Economies, (Washington, D.C: World Bank, 25-26 April 1996), p 7.
13
13. Mustafizur Rahman and Rehman Sobhan, Growth or Stagnation? A Review of Bangladesh’s
Development 1996 (Dhaka: CPD and UPL, 1997), p 5.
14
14. Rahman, M. and Razzaque, MA, Regional Integration: Formation of NAFTA and Potential
Implications for Bangladesh, Journal of Business Studies, Vol. XVII, No.2( December 1996), p 29.

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In fact, future of Bangladesh’s textiles industry much depends on how fast the country
can increase its value addition, improve quality of the products and enhance productivity
of labour.

25. Policy Restrictions. At the national level a major constraint faced by the
country is that often the donor-driven reforms fail to take into cognisance the real cause
and consequences of economic problems. Very recently it has been categorically
argued that the reform prescriptions of the donors have been “free size” irrespective of
the size and need of the countries across the board. As such Bangladesh would require
reforms suiting her own requirement instead of the ones prescribed by the west or other
donor organisations.

26. Information Technology (IT) and Technological Dependence. Although

Bangladesh has an access to IT and is already earning from the sector 16 but she has
been dependant on the developed world and to her neighbour for most of her
technology, especially for leading edge technology. As a part of development strategy
the integration of modern technology in industrial sector is very important but it should
be executed in stages to allow the unemployed alternatives.

27. Non Diversified Markets. Bangladesh exports the bulk of her manufactured
goods to developed countries, particularly to the USA and European Community. She is
yet to find access to other markets. This non-diversified dependency towards few
markets is likely to face challenges if they slowly close their markets to the imports from
developing countries because of domestic unemployment and pressure from domestic
manufacturers and politicians or for any other reason.

28. Foreign Investment . Foreign investment to speed up development and

access to gain new markets often represented by multinational corporations. This may
displace national corporations and exert extensive economic and political pressure. The
gas sector of the country may be mentioned in this regard.

29. Skilled Human Resources. LDCs are dependent on developed countries

for the skilled training and higher education of their specialist manpower. This inspires
them to follow theories, and models when they are employed but often finds those to be
inappropriate to the environment of homeland.

30. IT and Flows. Due to globalization, Bangladesh has become very much
dependant to developed countries in the area of IT. This is very important because of
the very strong and direct link IT has all facets of a country’s performance.

31. India Factor. India is Bangladesh’s largest trading partner, and policy-
makers and the business community alike are concerned about the growing bilateral
trade deficit in India’s favour. Bangladesh’s over all trade deficits with India grew from $

15
15. Dr. Bazlul Haque Khondker and Mohammad Abdur Razzaque, ‘The Era of Globalization and the
Emerging Issues’, The Dhaka University Studies, Part D, Volume XV, Number 2 (December 1998), p 112.
16
16. MA Obaydullah, ‘Globalisation and Bangladesh: Impact on Economy’, The Daily Independent,
Editorial, 18 February 2000.
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888 million in 1994 to 2.7 billion in 1999. 17 A large and growing trade deficit with a
single partner in legitimate, particularly when the partner does not reciprocate
Bangladesh’s unilateral trade liberalization. India’s trade regime continues to be highly
protectionist, with high barriers to potential exports from Bangladesh.

WAYS AHEAD FOR BANGLADESH

32. General. “Globalizing ones economy may be more important for smaller
countries than for larger ones: But if India was hardly successful with its policy of swaraj
and self-reliance, Bangladesh certainly has to go global: the country cannot hope to
produce the range of industrial products it needs and also does not have a developed
financial market that could provide the necessary financial means. And as one of
probable victims of global warming it depends on international action” 18. The world now
is moving on a fast track of globalization and no matter developed or developing
countries have to integrate themselves into the process and find out ways to derive the
maximum benefits out of it. As discussed above, outcomes of globalization may not be
good for the industrial sector of Bangladesh, but there remains all the possibilities to
face the challenges and maximise the benefits thereof. The following discussion would
only highlight few of the ways to such an endeavour.

33. Diversification. Diversification is a must in products the country exports, so

is diversification required in case of markets. The entrepreneurs of the country need to
look for non-traditional markets. This will need new knowledge, new networks, new
contacts and new approaches towards dealing with unfamiliar laws, rules and
regulations of the different countries. “Reliance to export-led growth still remains the key
to rapid growth for a country” 19. As discussed earlier that the RMG sector would face
tougher challenges in post MFA era, policy makers failed to look for diversification in
terms of export items and markets which might prove to be a silver lining in the midst of
the competitive world market.

34. Trade Liberalization. This would subject our local companies to the full force of
international competition. This is a challenge the country has to accept not simply
because the domestic market is too small but because in the long run it will actually
enrich our domestic market and reduce our dependence on export. Trade liberalization
must be undertaken responsibly and in stages so as not to create economic uncertainty
and impose excessive pressure on the local industries and burden on the government,
imposing enormous structural costs. Government must fully understand the capacity of
the country to accept the extent of liberalization. Following may be done before
implementing free market economy in the country:

a. Ensuring a stable macro economic system.

b. Reducing the gap between the income and assets.

17
17. Frederick T Temple, Evidence Shows Globalization HasBenefited the Poor, World Bank Review.
(Dhaka: 2001), p 129.
18
18. Wolfgang-Peter Zingel ,’Policy Options for Bangladesh: Regionalization, Globalization,
Localization’, paper presented on a seminar on Bangladesh at Berlin on 1 July 2000, p 5.
19
19. Dr Mahathir Mohamad, Vision 2020, (Kuala Lumpur: ISIS, 1991), p 15.
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c. Implementation of business rules and regulations.

d. Development of infrastructure in the country.

e. Making the laws more conducive for setting up export-oriented

industries.

f. Attracting FDI.

35. Protectionism. However, an extent of protectionism for the small industries

is required in order to save these industries from demise. The reduction of taxes may be
done with utmost caution. The domestic markets may be flooded with foreign goods
because of liberal import policy of the government. This may result in closure of local
sick, weak and small industries. Keeping this into consideration, certain protection is
required for these industries. Only those goods may be imported which have
domestically attained international standards so that they may sustain despite their
imports. Import of car batteries from India remains to be an example where government
allowed it once local batteries attained international standard.

36. FDI. For obvious reasons, the Government will continue to foster the inflow of
FDI. This is essential for country’s drive for industrialization. However, the government
should never lose sight of the winning strategy of keeping her well being above
everything. Fine-tuning of the government policies is required to maximise the net
benefit from the inflow of FDI in order to create new industries and allow existing
industries to survive.

37. Service Trade Liberalization. Liberalization of service trade in some sectors

has benefited the country like Bangladesh. Particularly, in the telecommunications, the
achievement is quite remarkable. It is also expected that the service trade will also act
as a medium of technology transfer and through the process of learning by doing the
domestic sector will be able to operate efficiently. There are some sectors in which
Bangladesh has comparative advantage and provided that the country can bring in
high-brow and state-of-the-art technology, she can do well in the service trade. The
construction sector is an example that can be cited in this regard. But for that matter
adequate steps must be taken to train the domestic workers as techniques of
construction works are changing rapidly.

38. Policy Reforms. In the era of globalization, Bangladesh is likely to face some
major problems concerning its industrialization. In conformity with the trading system the
country will have to carry out a number of policy reforms in a wide range of sectors.
Policy making effort has to be indigenous taking into consideration the fact that the
vision for the future has to be designed at the national level and must not be imported,
along with foreign aid from abroad.

39. Gradual Transformation into Self Dependancy. Bangladesh often accept

model and expertise advisers from the donor country or organisation which are mostly
not indigenous thus lacks effectiveness in the industrialization. The is due to the
shortage of skilled manpower and lack of training system. Although we have a few
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training and research centre but those are not enough to formulate indigenous model
and expertise to meet the challenges. As such necessary training and research
institution should be established at all level patronised by government.

40. Exploit Industrial Geographical Advantage. Mexico with their cheap labour
and geographical proximity had tremendous potentials to make an access to US
market. Different multi-national company from European Community exploited the
advantages and gained economic success and Mexico achieved tremendous economic
growth. Bangladesh is located in an area of approximately 150 billion people’s market.
She has cheap labour, good communication facilities and democratic political
environment.. Likely raw materials are also cheap and available in neighbouring
countries. Above all, she has a very attractive foreign investment policy. if properly
exploited, she can earn tremendous growth in the industrial sector. La Farge - a French
company which is otherwise one of the biggest cement factory in the world has already
established their factory at Sylhet to export its goods to India though raw materials will
be collected from India20.

CONCLUSION

41. Bangladesh, being an LDC faces numerous challenges in the era of

globalization. There is no way out but to face the threshold of the free market economy,
liberalise the markets and so forth. Moreover aid dependence means being subjected to
numerous policy restrictions and reforms imposed by the donor countries and
organisations. Even if those are not fully suitable for the country, Policy makers at all
times realised that industrialization remains the path for growth of economy and hence
took up different measures to this end. Policy reforms befitting to the country’s
industrialization have been undertaken at different occasions. The latest reform took
place in 1991 with the aim of increasing efficiency and productivity in the industrial
sector through deregulation, privatization, trade policy reforms and development of the
export sector. One of the more important of the all was the establishment of more EPZs.
Liberalization of economy has been inevitable but probably was done at a much faster
pace than should have been. In this regard, an extent of protectionism by imposed by
the government might save many domestic industries. Amongst the many measures
adopted, attracting private investment through privatization remained to be a noteworthy
effort though with limited success. This allowed opportunities for many industrialists to
draw more loans only. Shifts in policies with change of government remains a barrier for
the industrialization and remains to be a setback in this sector. Foreign investment
opportunities may not be very encouraging even in the era of globalization. However,
there seems to be an increase in the investment in the gas sector easing pressures on
foreign exchange reserves. Finally creation of EPZs with other related favourable policy
reforms has given a considerable boost in the effort of country for industrialization.
(Paragraph 8-15)

42. Trade is the output of industrialization in a country and the importance of trade
has been the result of globalization of trade. Even an LDC like Bangladesh is
experiencing trade intensity resulting into a powerful engine of growth for the country. In
the initial days of the country, Bangladesh had a relatively protective import regime in
20
20. Sobhan, Rehman,’Economic cooperation in South Asian sub-region’, a lecture in Mirpur Hall on 8 July
2002.
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order to protect her nascent industries. On the other hand, the government collected
revenues from imposing taxation and tariffs on external trade sectors without proper
evaluation of its effects on the industrial sector. The objectives of such reorientation of
economic policies were to attain a sustainable macroeconomic development and to
accelerate growth and more generally to raise living standards by generating
employment and increasing purchasing power of her vast pool of poor people. Growth
based on global market forces was presumed to be rapid and high in the process. But
from mid-eighties the country launched vigorous trade liberalization. With three
subsequent governments encouraging the same and with a more stable political
situation during that period, the country now boasts of an unprecedented level of
openness and co-operation for industrialization. Side by side, the increased pace of
liberalization also meant greater pressure on the domestic industries for survival. The
pressure seemed more on the RMG sector and with MFA being implemented in 2005,
diversification in industrial sector is considered to be one of the few options available to
the country. (Paragraph 16-22)

43. WTO remains to be a powerful financial regulatory body in the world where most
of policy reforms favours the rich countries than they do to the poor counties like
Bangladesh. Many of the policy proposals that are yet to be adopted have now become
source of barriers for poor counties including Bangladesh. The rich countries look for
the implementation of the same even thought those are yet to be adopted causing a
shrink in the major export sector like RMG. Moreover, post-MFA era would cause
severe pressure on the RMG sector necessitating quick adoption of policy reforms and
remedial measures to this end. In the wake of globalisation, the country faces a major
obstacle in its attempts to industrialize because of its acute dependence on developed
countries in most major areas. The dependency can be seen in technology, trade,
foreign investment and aid, human resources and information flows and technology
which always remain challenges to her development strategy. In this regard, country
might find it more rewarding to adopt measures and reforms suiting to her perspective
than being donor-driven. (Paragraph 23-31)

44. In so many ways it has been implied that there remains no other options but to
face the challenges of globalization. There is no other option left for a small and poor
country but to go global in the present world stage. Quicker integration and faster
implementation remain the key points for survival. This leads the ways ahead for her.
Diversification in products and markets are one of the few options viable. While a
product remains competitive in the market, the country should look for other products to
export and similar is the case for exploring new markets for different products. Similarly
liberalization is also a sine qua non for the country while certain degree of protectionism
would minimise the ill effects of it. For increasing the inflow of FDIs in the country, fine-
tuning of the government policies might be considered. Sectors that showed the light of
success might be explored in order to maintain and at the same time enhance the
benefits. Telecommunication sector is a burning example. The construction sector is
another where bringing in state-of-the-art technology can make miracles happen. In
fact, there are now some strong reasons to believe that appropriate measures both at
the local and global level must be taken in order to mitigate the problems faced by the
country. Globalization has, of course, brought challenges as well as opportunities for a
country like Bangladesh. How far these challenges will be converted into opportunities
will much depend on how well the country can restructure its domestic economy, design
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pragmatic policy measures, and bargain with the world community in general and
developed countries in particular. (Paragraph 32-40)

RECOMMNEDATIONS

45. To meet the challenges of globalization on the industrial sector of Bangladesh,

followings are recommended:

a. Diversification of products in terms of export items and markets should be

planned and executed at all level to cope up the competitive world market.

b. The attractive price of the products along with the quality and availability
should be given due consideration prior to marketing.

c. The government should undertake trade liberalization responsibly and in

stages so as not to create economic uncertainty and impose excessive pressure
on the local industries and burden the government.

d. Only those goods may be imported which have domestically attained

international standard and can sustain despite their imports.

(Total Words: 6938)

Mirpur Cantonment EJAZ HAKIM AFRIECQ

Major
November 2002 Student Officer

Distribution:

Commandant
Defence Services Command and Staff College
Mirpur Cantonment

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