The health of Bangladesh’s economy depends significantly on foreign trade. Almost 90% of exports are targeted to United States, European Union and other developed countries. Rising unemployment, the subsequent decline in disposable income and declining consumer confidence in these markets could have serious impacts on export potential. Although exports showed robust growth (19.4%) during July-December 2008, they registered negative growth (-1.4%) during October- December 2008, (Bangladesh Bank, 2009) – the worst figures in recent history. All other sectors also registered negative growth during this period. The World Bank forecasted that due to slower activity in the export sector services growth will fall to the range of 5.8% to 6.7% in FY2008.
In Bangladesh Ready Made Garments (RMG) makes up about three quarters of total exports. Other major exports include frozen foods and leather goods. Within the RMG sector predictions suggest that whilst overall RMG orders may decline it may not all be bad news. Consumer cost cutting in the developed countries may actually increase demand for lower priced products (the so-called Wal-Mart effect) – a section of the market well suited to Bangladesh producers.
Demand for workers has remained steady in the RMG sector because of the positive growth in the second half of last year. However stimulus packages in competing countries are beginning to impact the demand for labour in the textile sector. For example 12 spinning mills reportedly closed as manufacturers began procuring yarn from India at lower prices (CPD, 2009).
Policy makers and other institutions are being urged to consider the following measures to limit damage to the trade sector [BIDS, 2009 and CPD, 2009]:
- closely monitor the RMG sectors particularly order volume, export trends, export prices and composition of exported products
- provide cash subsidy and incentives to support affected industries and workers
- consider a low-interest credit facility to affected frozen food firms
- provide cash incentives for a limited period to finished leather producers in order to be competitive with China, Morocco and India
- withdraw duties and VAT (Value Added Tax) on inputs and machineries
- increase the efficiency of customs, ports, and infrastructure
