Export growth should pick up in 2013-15, helping to lift GDP growth back above 6%. The USA will remain the top market for Bangladeshi exports in 2030, but buoyant intra-Asian trade flows will prove more dynamic in terms of growth.
- Exports rose by 7.2% on the year in January-May 2013, having grown by 6.2% last year and we expect them to continue to improve, helped by a gradual recovery in demand from the USA and Europe.
- The authorities are committed to modernising the economy and improving its infrastructure and over the next twenty years the proportion of imports related to infrastructure will rise to more than a third.
- And the longer-term outlook is bright. We forecast long term growth of 5% pa, helped by the strong foothold Bangladesh has in the clothing and apparel market, although further reform is essential.
The top three markets for Bangladeshi exports are the USA, Germany and the UK, and the largest sectors are clothing and apparel, textiles and wood manufactures, and animal products. Last year, Bangladesh was the second largest exporter of garments to the EU and so its exports should rise as the Eurozone gradually moves out of recession in coming months.
Equipping for growth
Why infrastructure is important
In Bangladesh, infrastructure is in urgent need of improvement and upgrading. In particular, expansion of the transport and communications network is essential to supporting long-term growth in excess of 5% pa.
Bangladesh needs to improve its infrastructure, especially its transportation network and power generation capacity. The infrastructure ranking from the World Economic Forum has actually fallen in recent years. But progress is being made and over the next twenty years the proportion of imports related to infrastructure will rise to more than a third.
The government’s aim is to more than double electricity generation within the next few years. If these developments take place, they will encourage investment in industry.
Financing public projects is a challenge as the government relies on public-private partnerships in this area. Until tax reforms enable more government-funded projects, progress will be slow.
“The investment countries are making in infrastructure is phenomenal and provides a huge opportunity for businesses looking to grow and develop.
Rising middle classes across Asia’s rapidly emerging markets will drive significant infrastructure demand in the region. And as China looks to scale the value chain in terms of the goods it manufactures, there is a strong opportunity for developed economies to supply sophisticated investment equipment to the country’s producers.
We expect infrastructure-related goods to increase their share of rising global trade, providing strong opportunities across both developed and emerging economies for exporters and importers of those goods and the merchandise that can be manufactured as a result.”
James Emmett, HSBC Global Head of Trade and Receivables Finance
Trade flows are expected to be stable over the next six months with 41.7% of respondents expecting trade volumes to be unchanged. Although respondents have become less pessimistic about the outlook for the global economy, slower growth in Asia in recent months has dimmed their view of growth prospects in these key trading markets.
Last year, 8% of Bangladeshi exports went to Asia whilst nearly 20% went to North America and more than 40% went to Europe. Wages are lower in Bangladesh than in many Chinese regions and South-East Asian countries, and this competitive advantage has enabled low-cost manufacturing industries such as textiles to grow rapidly over the past decade. Bangladesh now has a share of more than 10% of the world market for clothing and apparel.
Trade within Asia has been boosted by greater regional cooperation with a proliferation of free trade agreements having been signed in recent years. Although emerging market growth has slowed in recent months, it will still support an expansion of trade and by 2020 we expect the share of Bangladeshi exports going to Asia to have more than doubled to 15%.
Corridors of choice
- Clothing and apparel is Bangladesh’s largest export sector, helped by wage competitiveness. Although wages will gradually rise, Bangladesh will remain internationally competitive, with the clothing sector contributing almost a quarter of the increase in exports out to 2015.
- The second largest sector is textiles and wood manufactures and this sector will contribute almost a third of the increase in exports out to 2015.
- Animal products are Bangladesh’s third largest export sector and animal products and animal and plant materials will contribute 15% of the increase in exports from 2013 to 2015.
- Exports to emerging Asia will grow by more than 15% from 2013 to 2020, particularly in clothing, other manufacturing and animal products to meet the growing demand for these products from the rapidly increasing middle classes in China and the rest of East Asia. Exports to Latin America will also grow strongly with growth averaging more than 10% out to 2020, largely reflecting trade in clothing and textiles.
Opportunities for business
There have been a number of major incidents at clothing factories including a fire in April that killed over 1000 people. Workers’ safety is an important issue for the multinational clothing buyers and in the near-term, the uncertainty surrounding this might discourage investment (FDI inflows were less than 1% of GDP in 2012). But over the medium to longer-term we expect rising FDI inflows to support investment as foreign companies seek to access Bangladesh’s large domestic market and substantial infrastructure development needs.
Bangladesh is located in the world’s most dynamic trading region and has established a strong foothold in clothing and apparel. The demographic trend is very favourable and Bangladesh is seeking to boost its trade prospects further by setting up free trade with many of its neighbours, hoping to broaden its export base and encourage FDI.
Corridors to watch
A rising middle class across Asia will help to drive strong trade flows from Bangladesh to the rest of Emerging Asia and by 2030 India will be Bangladesh’s third largest export destination. Over the next twenty years China, India, Vietnam and Malaysia will be the fastest growing export destinations.
Exports to Turkey, notably of clothing, apparel, textiles and wood manufactures will grow strongly out to 2030 and within twenty years Turkey will be Bangladesh’s fourth largest export destination.
India, China, Vietnam and Turkey will be Bangladesh’s fastest growing import partners with industrial machinery, textiles and wood manufactures and transport equipment the fastest growing import sectors. By size animal products, cereals, sugars, coffee, tea, spices and beverages will be the largest import sectors, reflecting the basic needs of Bangladesh’s large population.
Focus on infrastructure
- Bangladesh is ranked 118th in the world for its infrastructure according to the World Economic Forum. This is the lowest of any country in our sample and its infrastructure rating has actually fallen in recent years. Particular attention needs to be paid to the transportation network and capacity and reliability of power generation.
- But progress is being made and over the next twenty years the proportion of imports related to infrastructure will rise to more than a third. The government’s aim is to more than double electricity generation within the next few years, at a cost of around USD 15bn. If these developments take place, they will encourage investment in industry and improve growth prospects.
- But the World Economic Forum has expressed concerns about the honesty and transparency of public funding decisions and financing projects is a major challenge as a high level of bureaucracy deters private funding. The government relies on public-private partnerships in this area and, until tax reforms enable more government-funded projects, progress will be slow.
Bangladesh has a firm foothold in the global market for clothing and apparel and although the near-term outlook for this sector is clouded by safety concerns, once reforms are implemented this should strongly boost FDI. Exports of animal products are also key and Bangladesh should be able to take advantage of the favourable demographic trends and rapidly growing middle classes in emerging Asia to expand and modernise its agricultural sector.
About the HSBC Global Connections report — Modelled by Oxford Economics
Oxford Economics has tailored a unique service for HSBC which forecasts bilateral trade for total exports/imports of goods, based on HSBC’s own analysis and forecasts of the world economy to generate a full bilateral set of trade flows for total imports and exports of goods, and balances between 180 pairs of countries. Oxford Economics produces a global report for HSBC, plus regional reports and country specific reports on the following 23 countries: Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore, Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina, UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, and Egypt.
Oxford Economics employs a global modelling framework that ensures full consistency between all economies, in part driven by trade linkages. The forecasts take into account factors such as the rate of demand growth in the destination market and the exporter’s competitiveness. Exports, imports and trade balances are identified, with both historical estimates and forecasts for the periods 2013 15, 2016 20 and 2021 30.
The model looks at two-digit classifications from the COMTRADE database, grouped in to a set of thirty headings. The sector data has been tracked by country, to give an insight in to the primary drivers of trade between the 25 countries and territories in the sample. The sector data has been calculated to show growth as a percentage of the overall contribution to growth, to ensure that the model highlights the sectors which are representing the biggest drivers of growth. More information about the sector modelling can be found on: www.globalconnections.hsbc.com
Oxford Economics formerly Oxford Economic Forecasting was founded in 1981 to provide independent forecasting and analysis tailored to the needs of economists and planners in government and business. It is now one of the world’s leading providers of economic analysis, advice and models, with over 500 clients. Oxford Economics commands a high degree of professional and technical expertise, both in its own staff of over 70 professionals based in Oxford, London, Belfast, Paris, the UAE, Singapore, Philadelphia and New York, and through its close links with Oxford University and a range of partner institutions in Europe and the USA.
About the HSBC Trade Confidence Index:
The HSBC Trade Confidence Index is conducted by TNS on behalf of HSBC in a total of 20 markets, and is the largest trade confidence survey globally. The current survey comprises six-month views of 5,800 exporters, importers and traders from small and mid-market enterprises on: trade volume; buyer and supplier risks; the need for trade finance; access to trade finance; and the impact of foreign exchange on their businesses. The fieldwork for the current survey was conducted between May June 2013 and gauges sentiment and expectations on trade activity and business growth in the next six months.
Equipping for growth Methodology:
This report looks at the key industry sectors that contribute to an economy’s productive capacity. This will include not only trade in the intermediate goods required for infrastructure projects, but also trade in the investment equipment required by businesses to boost production.
It collects key investment-related sub-sectors into two groups, defined as “intermediate goods for infrastructure” and “investment equipment”. As the sectoral trade forecasts are based on the UN’s Standard International Trade Classifications at the two-digit level, this does present some issues in accurately defining the sub-sectors that contribute to investment, due to broad sectoral definitions.
Intermediate goods for infrastructure:
66 Non-metallic mineral manufactures
67 Iron and steel
68 Non-ferrous metals
69 Manufactures of metals
76 Telecoms equipment
81 Prefabricated buildings
79 Other transport equipment
71 Power-generating machinery and equipment
72 Machinery specialised for particular industries
73 Metalworking machinery
74 General industrial machinery and equipment
75 Office machines and automatic data-processing machines
77 Electrical machinery, apparatus and appliances
87 Professional and scientific instruments
Based on the same underlying forecasts used for the existing analysis of trends in bilateral trade flows, the report examines how exports/imports of these two aggregates are expected to evolve over time. The import forecasts for these aggregates will be linked to the underlying investment requirements of the economy, while the export forecasts will be linked to the economy’s ability to produce the investment goods required by other nations.
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