The economy of Bangladesh (Part 2)

Prepared by:
Ayesha Siddika Arshi
Lecturer
Southeast Business School
Course- ECO 1124 (Socio-Economic Profile of BD)

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It has been widely recognized that foreign trade of Bangladesh side by side with agriculture and
industry plays an important role in order to make the country's economy solvent and strong. But
since we cannot keep pace with the increasing demand by the international, markets, our trade
deficit is gradually increasing. After independence, in spite of increasing the volume of our trade
and commerce; export did not increase to a significant magnitude.

Features of Foreign Trade

Bangladesh has developed trade relations with different countries of the world during the past
years and the same is going to be further expanded. But it is needless to say that our economy
like those of all developing nations has been facing different problems. Among others, the
notable one is savings-investment and import-export gap. It has become almost traditional in the
international trade that import includes industrial products and machinery; while export
agricultural products and raw materials. It is our national responsibility to produce commodities
or boosting export necessary for maintaining favorable environment in the external trade as well
as to continue efforts for exporting industrial products instead of raw materials. Features of
external trade of Bangladesh are discussed below:
1. Exporting raw materials: Export trade of Bangladesh is mainly agro-based. Bangladesh
could not yet advance in industrial enterprise. About 85 percent of our exportable items is
raw materials of these items, jute, tea, hides and skins, frozen fish, betel leaf, vegetables etc.
are notable
2. Import of industrial products: Bangladesh is not yet self- sufficient in industrial
establishment. Necessary industrial products are imported from abroad in order to meet the
increasing domestic demand. In order to help friendly relationship with the industrially
developed countries, in many cases such commodities are imported which are not at all
necessary for the country. We also have problem of fuel and therefore, we need to import
crude or refined oil, iron, and mineral products of different kinds, machinery, transport
vehicles and some other commodities.
3. Import of food stuff: Our country is regarded as agricultural one But we lost the heritage of
agricultural production and as such our agriculture has been facing many problems. The

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 situation, of course, is being changed in the recent years. It is expected that very soon we
shall he in a position to export food stuff instead of its import.
4. Unfavorable situation in commodity exchange: Demand for most of the commodities
exported to different countries is elastic. While demand for most of the imported items is
inelastic. Besides, our import always exceeds export. Therefore, Bangladesh has to undergo
adverse balance of payment in commodities exchange.
5. Communication system: Although Road and airways are very important for rapid
transportation and expansion of foreign trades, most of it is done through water ways. Some
commodities are now-a days are exported by airways. Trade link started by road with
neighboring countries India, Nepal and Bhutan. Lion's share of external trade is being carried
out by foreign ships in water ways.
6. Import of luxury commodities: It is an important feature of the import policy of the
government to discourage the import of some inelastic luxury commodities with a view to
making the country self- reliant in industry, strengthening the domestic industrial
organizations, stopping the wastage of foreign exchange etc.
7. Balance of payment: Since independence value of import of Bangladesh exceeded that of
export, and this is particularly happening due to importing excess volume of industrial
products including machinery and equipment. This trend is increasing day by day which led
our balance of payment to adverse one.
8. Export of manpower resources: A new era has been opened in the international trade of
Bangladesh and this has started with the export of manpower resources side by side with
limited quantity of industrial products and agricultural raw materials. The attempt of
including such new item with the traditional ones in the export list, has been appreciated.
Bangladesh earned remittance worth Tk. $4250.00 cores 2008-2009 by its 5.76 lakhi
immigrant laborers.
9. Export of readymade garments (RMG): We need more employment for our increasing
population. With this end in view, establishment of readymade garments industry has been
recognized as an important policy of export trade of Bangladesh. Garments and garments
related industry generated employment for about 2.5 million poor people, especially rural
women.

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10. Expansion of trade with the international economic communities: Our trade agreement
has been signed with different international economic associations like South Asian Regional
Co-operation (SARC), Association of South East Asian Nations (ASEAN), Organization of
Islamic Conference (OIC), European Economic Commission (EEC)etc. Successful
implementation of these Agreements would influence our external trade and in near future it
would emerge as an important feature of external trade.

Importance of Foreign Trade

The international trade is the trade between nations. Nation means states. International trade,
therefore, is the trade between different states. The states are sovereign with definite territory and
government. International trade thus is very important for any country. The following discussion
will depict the importance of foreign trade of Bangladesh.
1. Import of machinery and equipment: It is essential to establish industrial enterprises in the
country for economically transforming the natural resources of Bangladesh. Since our country
lags far behind in science and technological know-how, we are to import most of our required
machinery and equipment. We also do not possess adequate fund necessary for importing this
machinery and equipment. For this reason, we need to develop harmonious relationship with
different foreign nations for necessary foreign exchange.
2. Import of necessary raw materials for industry: We have to depend on external trade for
procurement of necessary raw materials for some industries. For example, import of crude oil to
be used as industrial fuel. Besides, foreign trade bears immense importance for import of special
type of yarn for the textile industry and procurement of other commodities.
3. Mobility of capital: Foreign trade is also very important for mobility of capital. With the
expansion of trade and its volume, capital moves very fast and transactions increase. For this
expanded trade payment of our external debt becomes easier.
4. Export of surplus products: Agriculture in Bangladesh is considered to be an industry for its
being the largest area of the economy as a whole. It is, therefore, possible to export surplus
products to earn foreign exchange after meeting domestic requirement and thus to import
necessary commodities. Jute, tea, raw hides and skins of Bangladesh are very familiar in the

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word market. Revenue to be earned out of surplus quantity of these items is very important for
the economic stability.
5. Prevention of monopoly: As a result of open competition, rise of monopoly in the developing
countries can be held in cheek. Both the countries can supply commodities as per their demand
on mutual understanding. No country can create monopoly market on her counterpart due to
agreement between other countries. Trade expansion, therefore, plays a vital role in curbing
monopoly.
6. Expansion of market: Limited marketing is one of the problems of the developing countries.
Steady and optimum interaction of demand and supply is an essential pre-requisite of stable
economy. But purchasing power of our buyers is low and therefore, it is necessary to expand the
scope of our market for establishment of large-scale industries.
7. Import of technology: Foreign trade plays an important role for importing appropriate
technology. There is no difference of opinion as to making the economy science and technology-
based. Introduction and culture of science in our country has recently started. Expansion of
agriculture and industry is quite desirable. Many developed countries like Japan and Korea have
gone a long way in evolving different kinds of new technologies. Therefore, it is possible to
produce expert technicians even in our country by acquiring the knowledge of practical know-
how with the help of imported appliances from these countries.
8. Combating inflation: Expansion of trade both at home and abroad helps combat inflation
because mobility of commodities and their distribution etc. brings mobility of trade and
commerce. This helps rapid transfer of money thereby increasing its purchasing power. Foreign
exchange earned through external trade, on the contrary, plays a significant role for
establishment of industrial enterprises.
9. Import of bare necessaries of life: No country of the world can independently produce all
commodities necessary for her. This is due lo variation of production capacity and opportunities
for commodities of day-to-day consumption. Considering the cost of production; many countries,
therefore, resort to importing those items than producing locally. Bangladesh too faces this
problem. Production cost of some commodities like cotton is always higher than import and
therefore, we need to give attention to the external trade.
10. Development of international relations: Foreign trade occupies all important place in
developing international relations. By exporting its products to other countries, a nation can earn

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goodwill and identity which raises its dignity and prestige. Bangladesh, therefore, should try to
raise production in all possible sectors and thus export surplus products to different countries of
the world.
It is evident from the above discussion that foreign trade is very important for the economic
development of Bangladesh. Fund required for industrial development needs be procured
through external trade. It may be mentioned that extent and volume of foreign trade of
Bangladesh is gradually expanding day by day.

Main exportable commodities of Bangladesh

Principal 10 export items of Bangladesh as of 2021 are described as under:

1. Knit or crochet clothing, accessories: US$25 billion (47.7% of total exports)

2. Clothing, accessories (not knit or crochet): $19.3 billion (36.8% of total exports)
3. Miscellaneous textiles, worn clothing: $1.5 billion (2.8% of total exports)
4. Footwear: $1.3 billion (2.4% of total exports)
5. Paper yarn, woven fabric: $798.4 million (1.5% of total exports)
6. Fish: $481.1 million (0.9% of total exports)
7. Headgear: $467.7 million (0.9% of total exports)
8. Leather/animal gut articles: $405.8 million (0.8% of total exports)
9. Animal/vegetable fats, oils, waxes: $237 million (0.5% of total exports)
10. Feathers, artificial flowers, hair: $204.8 million (0.4% of total exports)

Main Imported commodities of Bangladesh

The demand for necessary consumption goods cannot be met by domestically produced
commodities in the country due to gradually increasing population. Local demand for these
commodities are therefore, being met through import. We are also to undergo with trade deficit
due to continuous natural calamities in agriculture, industrial backwardness, scarce mineral

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resources etc. Moreover, as a result of adoption of trade policy commensurate to globalization;
we need to import such volume of commodities which bears burdensome effects to
our economy. Major 10 Import trade items of Bangladesh as of 2019 is discussed below:
1. Machinery including computers: US$5.8 billion (11.5% of total imports)
2. Cotton: $5.4 billion (10.8% of total imports)
3. Mineral fuels including oil: $4.4 billion (8.7% of total imports)
4. Electrical machinery, equipment: $3.2 billion (6.4% of total imports)
5. Iron, steel: $2.9 billion (5.8% of total imports)
6. Plastics, plastic articles: $2.2 billion (4.4% of total imports)
7. Vehicles: $1.7 billion (3.5% of total imports)
8. Manmade staple fibers: $1.6 billion (3.2% of total imports)
9. Manmade filaments: $1.42 billion (2.8% of total imports)
10. Knit or crochet fabric: $1.35 billion (2.7% of total imports)

Import and export policy of Bangladesh

EXPORT IMPORT STRUCTURE

➢ Total yearly international trade stands more than $100 billion (exp --$ 47 billion, imp --$
62 billion).
➢ RMG accounts for over 80% of exports while leather and leather goods, Jute & jute
goods, Pharmaceutical and agricultural products play significant role.
➢ Bangladesh mainly imports from Asia and exports to Europe and North America
➢ China and India are dominant import source comprising about 42 % of total imports
➢ The EU and USA are main export destination sourcing 57% and 17% of total exports
➢ So, product diversification and market diversification main challenge to boost exports

EXPORT POLICY 2018 21

Objective:
➢ Achieve exports of $60 billion by 2021, $50 billion from RMG;
➢ Ensure product and market diversification with a view to achieve MIC status by 2021;

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 ➢ Ensure compliance and best practices to enhance exports;
➢ Assist exporters in different forms;
➢ Promotion of Bangladeshi goods worldwide
➢ Attract FDI in export sector for high value products;

Strategies:
➢ Policy support including bonded warehouse, duty draw back, low-cost capital for raw
material imports etc;
➢ Improve ease of doing business ranking; One stop shop (OSS) system for investors;
➢ Capacity building and automation of trade related bodies to ensure better and faster
services;
➢ National single Window for customs clearance;
➢ Encouraging exporters CIP, Export Trophy,
➢ Participating in International trade fairs, exchange business delegation;
➢ Economic diplomacy negotiation for market access and Free trade agreements/PTA

EXPORT PROHIBITED PRODUCTS

i. Firearms, ammunition, radioactive products;
ii. Petroleum and petroleum products;
iii. Rice (except aromatic rice);
iv. Wild animals, human blood, plasma etc;
v. Archeological relics
vi. Pulse, garlic, onion, ginger etc;
vii. All species of frogs, endangered animals;
viii. Raw and wet blue leather

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 IMPORT POLICY ORDER

IPO is issued under the provision of ‘Imports and Exports (control) Act 1950’. Except the
prohibited/controlled goods, all other goods are importable freely subject to payment of customs
and other duties.

IMPORT PROHIBITED PRODUCTS

• Products from Israel or produced by Israel;
• Books, magazines, publications containing indecent and subversive contents;
• Products and equipment of substandard quality;
• All types of scraps;
• Live boar and pork meat;
• Chemicals like Endrine, DDT, Di eldrine, Mirex, Toxaphen, PCB

IMPORT RESTRICTED COMMODITIES

• Shrimps, Opium;
• Sodium Cyclamate (Ghono chini);
• Acids, formalin, formaldehyde etc;
• Petroleum, gas, hydro carbon and recycled lube oil;
• Cynthetic Pyrithroid;
• Two stroke engines, automobile of more than 5yrs old, auto parts etc;
• All types of arms and ammunition revolver, pistol, air gun etc;

GENERAL REQUIREMENTS FOR IMPORTS

• Imports through Letter of Credit (LCs);
• Payments of Customs Duty, Supplementary Duty, regulatory duty, Advanced Income tax
etc;
• Pre shipment inspection/assessment of duty/ customs clearance;
• IPR related relevant regulations are applicable and certification required;(IPO 5(6));
• Country of origin has to be mentioned and certification needed;

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 • Imports of raw materials and machineries under bonded warehouse system for export-
oriented industries. In such import of raw materials under confirmed agreement is
allowed even if no L/C is opened (IPO 24(18))

SPECIAL REQUIREMENT FOR IMPORT OF SOME PRODUCTS

• Quarantine is applicable for animal, plant and plant products, and SPS certificate
required;
• Fumigation is mandatory for cotton imported from Western Hemisphere;
• Pre shipment Inspection certificate from internationally reputed surveyors for importation
of coal/hard core billets/M.S. billets etc;
• Reconditioned or second-hand capital machinery with certification of 10 years life are
allowed to be imported, for generator five years life expectancy is required;
• Bonafede industrial unit can import copper scrap, iron & steel scrap, aluminum scrap for
using in own factory provided these are free from toxicity and radio-active particles;

Foreign Direct Investment (FDI)

FDI stands for Foreign Direct Investment. Foreign direct investment (FDI) refers to long term
participation by country A into country B. It usually involves participation in management, joint-
venture, transfer of technology and expertise. Foreign direct investment is investment of foreign
assets into domestic structures, equipment, and organizations. Foreign investment can be a
significant driver of development in poor nations. It provides an inflow of foreign capital and
funds, in addition to an increase in the transfer of skills, technology, and job opportunities. Many
of the East Asian tigers such as China, South Korea, Malaysia, and Singapore benefited from
investment abroad. The Commitment to Development Index ranks the "development-
friendliness" of rich country investment policies. The foreign direct investor may acquire
voting power of an enterprise in an economy through any of the following methods:
• by incorporating a wholly owned subsidiary or company
• by acquiring shares in an associated enterprise
• through a merger or an acquisition of an unrelated enterprise
• Participating in an equity joint venture with another investor or enterprise.

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 The positive and negative aspects of FDI in host country

Positive aspects: The important arguments in favor the FDI are mentioned here. It is claimed
help the host countries in the following manner.
1. FDI help to increase the investment level and thereby the income and employment in host
country.
2. The transnational corporations have become vehicles for the transfer of technology,
especially to the developing country.
3. They kindle a managerial revolution in the host countries through professional
management of high sophisticated management technique.
4. The FDI enable the host countries to increase their export and decrease their import
requirement.
5. They work to equalize the cost factor of production around the world.
6. FDI provide an efficient means of integrating national economics.
7. The enormous resources enable them to have efficient research and development systems.
Thus, they make a commendable contribution to invention and innovations.
8. FDI helps to increase competition and break domestic monopolies.

Negative aspects: The FDI have, however, been subject to number of criticisms such as those
mentioned here-
1. Their technology is designed for world-wide profit maximization.
2. Through their power and flexibility, can evade or undermine national economic
autonomy and control.
3. They destroy competition and acquire monopoly power.
4. The tremendous powers of the global company pose the risk that they may threaten
the sovereignty of the nations in which they do business.
5. They cause fast depletion of some of the non-renewable natural resources in the host
country.
6. Transfer pricing enables MNCs to avoid taxes by manipulating prices on
intercompany transaction.

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 Foreign investment in the industries of Bangladesh

As a developing country, Bangladesh needs FDI for its ongoing development process. Since
independence, Bangladesh is trying to be a suitable location for FDI. Special zones have been set
up and lucrative incentive packages have been provided to attract FDI. However, the total inflow
of FDI has been increasing over the years. The FDI can undoubtedly play an important role in
the economic development of Bangladesh in terms of capital formation, output growth,
technological progress, exports and employment. Nevertheless, concerns remain about the
possible negative effects of FDI, including the question of market power, technological
dependence, capital flight and profit outflow.

The government of Bangladesh provides incentives for foreign investment. This type of
investment will take place either independently or jointly on the basis of mutual understanding.
The Foreign Private Investment Development and Preservation Act, 1980 will remain in
practice as a means of legal frame work of foreign investment. Industrial policy 1991 provides
scope for investment in almost all the industries by local and foreign investors except a few ones
relating to national security. Government controlled industrial sectors are arms and defense
equipment, nuclear power, minting and printing of currency notes, forestation in the reserved
forest areas and private airs and railway services. The government has adopted privatization
program of some industries under industrial policy. The foreign investment in the industrial
sector has been encouraged under unilateral or joint venture both in the public and private
sectors. Different facilities like tax holiday, depreciation in the increase rate, liberalization of
import duty on imported machinery, rationalization of import duty, incentives for Bangladeshi
who locate in abroad for investment etc. are being provided to encourage the local and foreign
entrepreneurs.

The Chittagong EPZ and Dhaka EPZ have started working from 1083 and 1993 respectively with
a view to attracting direct foreign investment. A number of 96 industrial units are in operation in
these two EPZs, while another 81 are in the process of implementation. Besides this, the
government has required 599 acres of land in Gazipur nearer to Dhaka for establishing another
EPZ. For this purpose, about 200 acres of land has been initially developed. In addition, 214.34

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acres has been required for further expansion of Dhaka EPZ. The government is further planning
to establish Export Processing Zone in other areas of the country. Necessary act has been
promulgated to establish private Export Processing Zones for the private sector to expedite
industrialization.

The industrial units of this private Export Processing Zone will enjoy same facilities like the
industrial enterprises of the government sector including exemption of duties for a period of 10
(ten) years, duty free import of 3 (three) vehicles, duty free export etc.

Areas of foreign in investment in Bangladesh

o Export oriented industries.
o Industries in export processing zone.
o Industries will be based on improved technology.
o Industries based on natural resources with diversified use.
o Existing public and private sector industries for raising productivity and improved quality of
product.
Foreign investment will be encouraged in the following areas
o Export oriented industry;
o Industries located in the export processing zone;
o Industries based on improved technology which would either be import-substitute or export
oriented;
o Industries based on local raw materials; and
o foreign investment for improvement of quality of product, its marketing and raising
productivity of existing industries.

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