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Its time we diversified our export trade

Published : Sunday, 31 December, 2023 at 12:00 AM  Count : 562

Exports are nothing but sales of goods and services to customers living beyond borders. What is the benefit of selling abroad? The answer is well known. Exports bring income in foreign currency which helps to meet payments against imports of goods and services. There comes a question whether exports are required to settle payments obligations. This is definitely right, but it is not the only reason for exports of goods and services.

In calculation of domestic products, production is, whoever it is consumed, considered. There are different components in national income accounts from both sides of private and public sectors such consumption, investment, and export on adjustment of import. In absence of external sector, savings are found on deductions of consumption from income. This figure is equal to investment. But savings can be either equal to, or greater than, or less than investment in case of external sectors in presence.

It is true that import is a cost but a necessity for countries like ours. Whether it is mandatory to depend on imports is an issue. In a simple point of view, no one is self sufficient. In the primitive ages, everyone would need to arrange what was needed. With the invention of money as a medium of exchange, a single output can support a human being to arrange all necessities. Money is a magical tool facilitating the modern economies. It can create both demand and supply. It is also a secular tool which can do good and bad to people in case of mismanagement of monetary philosophy.  

Output cannot tower a community as a whole. The living standard remains as usual without visible changes. In case of inflows from other communities, changes become visible. It means that sales of outputs of a community to other areas can bring visibility in changes. It becomes visible since the income can purchase different items from other communities. If this is the reason, communities may go for bartering through what they have with what they are in need. It was present in earlier ages before invention of monetary system. Own output can rarely bring changes in standard of living.

An example can be cited here in this context. Our economy cannot produce transport facilitation which is a necessity. It is bought from different countries in finished from or knock-down state. Until it can be produced internally, dependency on others will continue for which different other own production in excess needs to be sold abroad. This resonates the concept of competitive advantages - an economy will produce those items which are in advantages to them and buy from others the items which are not cost effective in production.

In addition to transports, many items are in need for imports without limiting to consumer goods. With the changes in living standard, nothing are luxuries. Everything is essential, including imported water for star hotels. Competitive advantages are, in many cases, bookish issues. In practice, different scenarios are observed. Developed world is now in the category of services industries including financial ones.

Manufacturing industries are rare in operation there. Factories are found shifting to least developed and developing countries. Even high tech industries of developed countries outsource production at different locations depending on low cost labor. Final product is assembled in home countries.

With regards to competitive advantages, cost is a factor. It is true. But importers take advantages in calculation of price taking product cost and a thin margin. In this context, advantages are enjoyed by importers. Exporters are price takers. Since the price contains thin margin, export industries are not employers of white color jobs. Mid level management is very weak. Industries in most cases are run by owners and workers with few low paid mid level officials. If the situation is, there comes a question how export trade will go to a height.

Developing stages need imports. There are different sources to pay off liabilities. External borrowing, inward investment, grant and donations, etc. are sources; other than export proceeds. Except few, all are cost bearing. But grants and donations are in true sense not transfer receipts. Rather they are loans containing grant elements. It means that loans include concessional interest and grace periods. But economy in a stage particularly at graduation from LDC status cannot avail concessional loans. Commercial loans are available but there need income sources to repay. Exports are the suitable alternative in this context.

Countries like ours have sources of income from people working abroad. This is a better option. But the remittances are not bound to come home. This is the challenge. Considering this, exports are the facilitator to support external transactions. But how a source earning small margin becomes a facilitator is a question. The answer is that the sector is facilitated otherwise. The ways are of different.

Readymade garment is basically supported by different factors such as duty free inputs imports, back to back LCs, low cost finance, cash incentives, etc. Currently Bangladesh exports are dependent on readymade garments. But there are challenges of this product. It needs imports of input contents. Due to development of background linkage industries, value addition of garment industries exceeds 40 percent as per business insiders. But single product cannot sustain export sector. There need more products in the basket to enhance the earning from exports. How it can be materialized is a matter of issue.

Readymade garment is export oriented product. There are other products which can be brought under export basket. All products are not export oriented. As per export policy of the country, 80 percent of the goods need to be sold abroad for being qualified as export oriented sector. As per business insiders, duty exemption is rarely available for input contents imported to produce outputs which are sold in both markets - home and abroad. As said earlier, export price depicts fair price consisting of product cost and a thin margin. It does not contain duties, levies, etc. Garment exports is claimed to have been highly supported. It deserves analysis. However, it enjoys operational advantages. Import is not required in bulk quantities, rather on the basis of production. The process is conducive for policy support. Whatever the proposition is, other export items need relevant facilities.

Exports are the economic activities executed within the country. Exports in our economy are based on labor. The economy is not in a position to go for capital intensive exports. In this situation, non-durable exports can help to bring steady flows of foreign currency. Export incentive is reported to be in operation for more than 40 items but exports are still confined to a few goods. As a bottleneck, easy access to international market is blamed. Access to market means that foreign importers can import goods from exporters with duty free quota free facilities. Maybe this can facilitate exports. But it is not damn true. US is the single most export destination for Bangladesh. But exports to US do not enjoy such facilities. As such, there are other factors required to promote exports.

As said earlier, exports are executed at fair price. Exporters are price takers; they are not able to export by competitive price. We need to survive in the export market at fair price. In this case, cost effectiveness is a factor for which policy support is needed in the form of imports under duty exemption, financing arrangements at reasonable cost both for pre-shipment and post shipment stages, exports under consignment basis with authorization for warehousing in recognized trade hubs, etc.

Bangladesh is going to be the worlds 20th largest economy by 2038 owing to continued economic growth, according to recent forecast by a London-based think-tank. It is expected to reach the level because of development of manufacturing sectors in the country. But manufacturing sectors need foreign currency supports since they are dependent on imports. External sectors are in mismatch due to imbalances in inflows and outflows. For the sustained development, external sectors are to be set at resilient path through which exports can reach a new height. Policy ecosystem needs to be fine tuned so as to promote exports smoothly at fair price.

The writer is teaching in a business school

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