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Is Bangladesh's manufacturing sector fit to compete?

Black_cats

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Is Bangladesh's manufacturing sector fit to compete?​

Apparel, textiles, leather and leather goods, food and beverages contributed 97% of total industrial export in Bangladesh in 2020

Manufacturing Factory

Dhaka Tribune
Zaki Uz Zaman, René Van Berkel
October 11, 2022 7:33 AM

Bangladesh is the 39th largest economy in the world, in nominal terms, and 29th largest by purchasing power parity.

It is classified among the next eleven emerging market middle income economies and a frontier market.

Bangladesh is one of the world’s fastest growing economies.

Per capita GDP and per capita national income are continuing the upward trend.

According to the World Bank, in 2019, per capita Gross Domestic Product (GDP) of Bangladesh (at current US $) was $2,154, which grew to $2,503 in 2021, despite the global economic downturn caused by the Covid-19 pandemic.

Likewise, gross national income (GNI) per capita increased to $2,620 in 2021 from $2,250 in 2019.

GDP growth increased until 2019 (8.2%), but it declined to 3.5% in 2020 due to Covid-19.

Bangladesh has a well-established manufacturing sector with a contribution of manufacturing value added (MVA) of 20.6% to GDP and MVA per capita of $356 (2015 constant US$) in 2021.

Both MVA contribution to GDP and MVA per capita have increased steadily over the last 21 years.

While MVA contribution to GDP increased 1.72 times, MVA per capita increased by 4.62 times between 2000 and 2021.

Statistics

There is abundant empirical evidence to show that the manufacturing sector plays an important role in socio-economic growth globally, particularly when countries are at a relatively lower-income level.

Manufacturing offers the possibility of higher levels of productivity, more rapid productivity growth and greater technological change than agriculture, or below a certain income level, in many parts of services sectors.

In addition, it can create jobs that offer higher wages due to a higher level of productivity.

Hence, there is usually an association between the growth of an economy and the size and growth of its manufacturing sector.

This relationship is typically stronger in low to lower-middle-income economies than in middle to high-income economies, since the productivity and employment effects of manufacturing relative to other sectors are expected to be higher at lower income levels.

The manufacturing sector plays an important role in world trade.

According to the World Trade Organization, 80% of world trade among regions is merchandise trade of manufactured goods.

We set out to assess Bangladesh’s manufacturing sector and manufacturing performance in the main manufacturing economies of South and SouthEast Asia, particularly India, Indonesia, Malaysia, Thailand, Vietnam and China.

The assessment is based on the annual industrial statistics collected by countries and assessed and availed globally by the United Nations Industrial Development Organization (Unido) through its Industry Analytics Platform (https://iap.unido.org/).

The share of Manufacturing Value Added (MVA) in GDP, as well as per capita MVA, can be used to compare the importance of the manufacturing sector among countries.

The two indicators are important measures to analyse growth enhancing structural change within an economy.

They are key indicators to measure progress on Sustainable Development Goal 9 covering industry, infrastructure and innovation.

Additionally, manufacturing exports per capita can be used as the first indicator of the international competitiveness of the country’s manufacturing sector.

Bangladesh’s manufacturing sector plays a moderate role in the economy in terms of both the MVA as a percentage of GDP, as well as MVA per capita.

Its MVA as percentage of GDP stood at 20.6% in 2021.

This increased by about 8.6 percentage points from 2000.

Over a 21-year period, average MVA as a percentage of GDP was found higher compared to India (16.6%), Vietnam (18%) and Indonesia (20.1%).

But its MVA as a percentage of GDP was still lower than Malaysia (22.7%), Thailand (25.8%) and China (28.1%).

In the case of MVA per capita, Bangladesh reached the three-digit figures in 2007 and continuously maintained a three-digit figure until 2021.

In 2021, Bangladesh’s per capita MVA (constant 2015 USD) stood highest at $356.

This is higher than India ($331), but lower than Indonesia ($776), Malaysia ($2,459), Thailand ($1,623), China ($3,076) and Vietnam ($487).

Bangladesh’s per capita MVA is even below the regional average of developing Asia ($1,572).

This clearly reflects the intensity of the manufacturing sector as relatively low and indicates there is room for growth and increase the contribution from such an important sector.

Similarly, manufacturing exports per capita of Bangladesh in 2018, was $198, which is slightly lower than India ($208), but notably lower than Vietnam ($2,210), Thailand ($3,230), China ($1,690), Indonesia ($464) and Malaysia ($6,700).

Strengths

Bangladesh mainly exports readymade garments that have a lower price than electronics, automotives, performance wear, travel goods and other higher valued exports from e.g. Thailand, Malaysia, China and Vietnam.

The manufacturing exports per capita of Bangladesh and India increased between 1999 and 2018.

But, the rate of increase in other countries was much higher.

Apparel, textiles, leather and leather goods, food and beverages contributed 97% of total industrial export in Bangladesh in 2020, while 18 other industry sectors contributed only 3% in total export.

On the other hand, these four industries contributed 22.3%, 34.6%, 9.7%, 15.5%, 26.9% and 14.8% of total exports in India, Indonesia, Malaysia, Thailand, Vietnam and China, respectively.

It is clearly evident that Bangladeshi export basket is mainly dependent on few items compared to other countries in South Asia and Southeast Asia.

This shows that Bangladesh can learn from other countries and aim to increase and diversify its manufacturing exports.

Industrialization is only beneficial when it is inclusive and sustainable so that it contributes to the economy, to the wellbeing of people and communities, and protection of the environment and climate.

The creation of employment opportunities in the formal economy is a prerequisite for inclusive industrial development.

This can be captured by the SDG indicator on manufacturing employment, calculated by the number of people employed in the manufacturing sector.

However, simply bringing more people into formal employment is not a sufficient condition for inclusive development.

Inclusiveness also implies that all people, irrespective of their gender, religion and abilities, have equal access to jobs and women and men are equally represented in all sectors and at all levels.

Female employment in the manufacturing sector in Bangladesh, India, Indonesia, Malaysia, Thailand, and China was 15%, 13%, 16%, 17%, 18% and 28% respectively.

In 2019, the share of manufacturing employment as a proportion of total employment in Bangladesh was 14.8%, which was higher than India (12.1%) and Indonesia (14.4%), but lower than Vietnam (18.4%), Malaysia (16.8%), Thailand (16.3%), and China (19.5%).

Goals

The government has targeted to increase manufacturing employment to 22% by 2025 and 25% by 2030.

Recently published Survey of Manufacturing Industry (SMI)-2019 showed that in Bangladesh, jobs declined by 1.23% between 2011 and 2018.

The relatively low level of manufacturing employment foremost stems from the low level of manufacturing activities.

Understanding the structure of the manufacturing sector can give useful insights into why employment in the manufacturing sector is still lower in Bangladesh than Vietnam, Thailand, Malaysia and China.

Unido has been measuring manufacturing performance in 131 economies by using the SDG-9 industry index.

The SDG-9 industry index represents a comprehensive yet straightforward approach to assess the extent of countries’ level of industrialization.

Values of the SDG-9 industry index are normalized between 0 (bottom) and 1 (top).

The SDG-9 Industry Index’s scores indicate the dimensions in which countries lead or lag behind other economies.

Bangladesh ranked 89th in the SDG-9 industry index, well behind Sri Lanka (74th) and India (81st), just marginally ahead of Pakistan (92nd).

This is largely because of low MVA contributions, low share of medium and high technology industries and high CO2 intensity.

South Asia is miles behind East and South-East Asia with China 16th, Malaysia 19th, Thailand 24th, Indonesia 44th and Vietnam 64th.

Although CO2 emissions per unit of manufacturing value added (kilograms of CO2 per constant 2015 United States dollars) in Bangladesh is 0.48, but low MVA contributions, low share of medium and high technology industries (7.8%) ranked Bangladesh below Sri Lanka, India and Southeast Asian countries in this SDG-9 industry index.

Bangladesh’s manufacturing sector relies, to a large degree, on the apparel sector.

About 84% of export earning is generated from the apparel sector.

Diversifying away to other potential sectors, such as leather, food processing, jute, light engineering and plastic, is therefore, not only a vital way for strengthening the manufacturing sector in terms of MVA, per capita export and competitiveness, but could also increase employment in manufacturing.

This would improve inclusiveness by strengthening a middle-class employed in the manufacturing sector.


Zaki Uz Zaman is country representative of the United Nations Industrial Development Organization (UNIDO)'s country office in Bangladesh. René Van Berkel is representative and head of regional office in India of Unido

 

mb444

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There is absolutely no reason why BD can not compete with correct government policy descisions to cultivate and nurture the manufacturing sector.

There are green shoots everywhere from automobile assembly, bike manufacturing, white goods, mobiles, peddle bikes, toys, ship building to name just a few. As with everything first we need to work on import substitution and the with home market secured we need to progress to exports.

Our greatest strength is a large home market and inexhaustible supply of industrious people. But we need to up our education and training and our banking sector needs to offer support to the sector.
 

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