Export Trade Promotion: A Necessity

 

Cross border sales of goods and services are referred to exports. In simple sense, home production crossing borders can be said as exports. Is it easy to sell goods and services abroad? Definitely it is not easy. There are different parameters required to promote sales of goods and services abroad. In economic theory, competitive advantage is one of the parameters. It refers to the ways that an economy can produce goods and services outputs better than its counterparts. This is basically a position through which an economy can produce outputs at lower costs. In this context, input cost is a factor.

Bangladesh is a country moving forward with adequate growth. Agro based economy is to the path of industrialization. Agro outputs support essential consumption of mass population. But such outputs are not of use for industrial production. Cane can support sugar mills. But soybean oil cannot be produced through local contents. Changed situation requires imports of raw sugar for processing of finished sugar. The country is in lack of mineral resources resulting in dependency on input contents from external sources.

Bangladesh is itself a vast market considering population size. Industrialization is to focus to domestic market. Outputs of industries facilitate to develop services industries from retails to consultancy. Development of manufacturing industries sets living standards to reach a better level. As a result, the country has been graduated from LDC status.

As noted earlier, the country is in lack of different facilities to develop industries. Despite, the country is on right track. How it is possible is a question. As we know that economies cannot go alone. Supports are in need. Industries are run by skill manpower. It is true. But output is the outcome of inputs. These are arranged from external sources. Imports of input contents are subject to payments in foreign currency. There needs income in foreign currency by selling internal outputs abroad. In its absence, the economy is dependent on external grants and loans. At earlier stages of economies, grants and concessional loans are available. But these are rarely available for development stages, where trade is the only path to meet the needs of foreign money to settle liabilities. However, commercial borrowing is available depending on repayment capacity. Loan is a support but it is not a solution until foreign income is available from domestic outputs. This is a challenge for countries depending on input contents for industrial production.

Sustainability of an economy depends on equilibrium development both in internal and external sectors. Imbalances may be in either sector. Development of internal sector leads external sector to face challenges. This may result in liquidity problems in foreign currency. To contain the situation, local currency faces depreciation which brings price level changes. On the other hand, unexpected development of external sector results in influx of huge foreign currency. Local currency faces appreciation. This creates loss of external competitiveness of export trade. On the other hand, appreciated currency encourages imports at low costs leading local industries to face competition with imported goods. Imbalance is a situation of dilemma. Balancing is needed.

Of the both situations, imbalanced position in external sector compared to internal one is very much dangerous. It is a situation of huge exodus of foreign currency compared to influx. Continuation of the situation will lead to dependency on external borrowings. This results in increasing trend in external payments burden leading to worse situations. The ultimate consequence is to face liquidity crisis and this brings a question of insolvent situations before external world. End result is critical for local industries. Import transactions may stand halted due to illiquidity in foreign currency. In absence of imports, it is easily understandable what is to happen to manufacturing industries required input contents from external sources. In this point of view, attention is deserved to rewind the adverse position with regards to external sector.

In the rising economies, remittances income sent by home citizens working abroad is a support to balance the imbalances of external transactions. It is true. But there are some inherent challenges in remittances income. Capital transfer is normally restricted in these economies. Non-residents are not allowed to bring sales proceeds of assets in their present countries of residence. Even current transactions are limited within the items and limits specified by regulatory authorities. As a result, dark market for foreign currencies prevails in these economies where remittances income work as supply side. Authorities concerned try to increase remittances income through official channels for which local currency is set at depreciating path. 

But reality is that remittances income remains within a limit with insignificant changes over times. As such, local currency depreciation cannot suppress dark market. Rather depreciation in official exchange rate benefits dark market operators since the exchange rate becomes changed proportionately in their favor. With the depreciation of local currency, a little increase in remittances income can do no significant contribution. But it pains much to the economies for upward change in price level because of high price is needed to buy foreign currency. It is true that remittances income supports an economy. But it destabilizes the price of local currency as cited earlier.

Bangladesh economy is in trouble managing external sector. The description with regards to sectoral development phenomena noted earlier suits for our economy. It means that external sector is not at pace with internal one. As a result, local currency faced depreciation to a large extent. Market intervention did not work better, rather decreasing trend was observed in international reserve. It is said that external sector will remain manageable in case of sustained inflows from external income. Therefore, nothing but external income is necessary for the betterment of the economy.

Still Bangladesh is dependent on readymade garment export which is on sound strength. The specialty of readymade garment sector is that it is export oriented sector for which it enjoys duty free input contents. In case of local content usage, the sector is supported by cash incentive. Back to back LC facilities, among others, are in place. Garment sector since late eighties of last century is in better shape in respect of policy supports. Including this product, export basket is in income bracket of around sixty billion US dollar. The figure needs to be increased for the sustainable development of the country. Considering external vulnerabilities, export is the best alternative as income generator.

Access to market without duty and tax is a facility but it cannot ensure export diversification. Policy support is in need to diversify export basket. Products tradable in domestic market and international market cannot go beyond borders unless these are supported. How the sector is supported is a question. But it is not a rocket science. Simple tools can be applied with few mandatory requirements. Otherwise inputs payments are not easily adjustable. In this case, a portion of outputs (say 30 percent) needs to be exported mandatorily by manufacturing industries for which proportionate duty free inputs import should be allowed. This is the best alternative for export development. Otherwise upfront duty payments cannot make products viable for exports.

Export sector is always in competition for which low cost financing is necessary. Low cost funds should be available for sectors proportionately up to the size of previous year’s exports. In this case, refinancing facilities need to be established. Exporters are to declare to banks, central bank and customs authority. They face trouble in case of delayed payments or non-payments. Without creating problems, exporters should be guided appropriately by authorities concerned. No operation problems will be tolerated. The proposition can increase exports to a greater level which can resolve vulnerabilities in external transactions.

In addition to exports of goods, services should be encouraged through policy supports like waiver of tax against inward receipts and outward bonafide payments. A portion of foreign currency should be allowed for remittances irrespective of current and capital accounts.

Export trade is inevitable for maintaining a win-win situation for which it needs proper attention. This year should be declared as a year of export trade for which relevant authority should take the lead.
 

Mehdi Rahman works in the
development sector.