Bangladesh Trade Forecast Report - HSBC Global Connections

March 2014


Bangladesh’s economy has benefited from its growing share of the global ready-made garments market. The Eurozone is the largest buyer of Bangladeshi textiles, so stronger European growth this year should boost economic growth in Bangladesh despite the dampening effects of political unrest on domestic activity.

  • The Trade Confidence Index (TCI) was 103 in H2 2013, slightly below many of Bangladesh’s neighbours but still in positive territory.
  • Exports will grow at a double-digit pace to Asia (excluding Japan) and the Middle East in 2014-16, helped by stronger global growth. Over the next twenty years the US and Germany will remain the key buyers of Bangladeshi textiles and clothing.
  • Importsofhigh-techgoodsareexpectedtogrow slightly faster than total trade flows in coming years. Bangladesh runs a trade deficit in high-tech goods, importing most of its high-tech inputs and final products.
Top five export destinations*
Rank 2012 2030
1 USA USA
2 Germany Germany
3 UK UK
4 France India
5 Canada Turkey

*The table considers goods exports between the 25 countries in the sample.

Conditions are gradually improving for Bangladeshi exporters. Over 35% of businesses surveyed expect an improvement in trade volumes over the next six months. Demand for textiles, clothing and apparel, key Bangladeshi exports, has picked up over the past six months, helped by stronger European demand.

Equipping for growth

Spotlight: Technology

With emerging markets targeting Research & Development (R&D) investment to scale the value chain in the high-tech sector, this illustrates the need for developed economies to invest in innovation to remain competitive.

Why technology is important

Technology is essential for maintaining and enhancing standards of living, promoting business investment and supporting economic developments.

Advances in Information Communication Technology (ICT) have boosted growth in Bangladesh by freeing the vast land mass from some of the difficulties caused by a lack of physical infrastructure. Mobile phone penetration is now around two-thirds of the population, up from less than a third in 2008. This has opened up access to financial markets.

Global trade by sector for Bangladesh (2014-30) - Growth (% year)

“Whilst we are seeing a contrasting short-term trade outlook, the longer-term trend for emerging markets remains one of growth and businesses need to consider now how best to capitalise on long-term trade opportunities. An important element of this is investing in research and development, which will allow emerging markets to scale the global value chain. Importantly, developed economies need to enhance their research and development spend to remain competitive.”

James Emmett, HSBC Global Head of Trade and Receivables Finance

Key findings

  • High-tech goods account for just 2% of Bangladeshi exports, but we expect shipments of these goods to grow strongly in coming years. Bangladesh is also one of the fastest growing importers of high-tech goods, both finished products for the rapidly growing consumer market and inputs into the global supply chain for tech goods. In 2012, high-tech goods accounted for 7% of Bangladesh’s imports.
  • Imports of high-tech goods are expected to grow slightly faster than total trade flows in coming years. Bangladesh runs a trade deficit in high- tech goods and this will persist, contributing to the economy running a small but sustained current account deficit over the medium term.

Short-term snapshot

Despite the modest pace of global growth in 2013, Bangladeshi goods exports grew around 12% on the year in the first nine months of 2013 in US$ terms. The economy has a trade surplus which, together with a more stable macro policy, should support growth as the global economy gradually recovers.

HSBC Trade Confidence Index (TCI)

Bangladesh was included in this survey for the first time in H2 2013, and scored 103. This indicates a marginally positive outlook for trade, slightly below that for China, India, Indonesia and Vietnam. Exports to Asia, the Middle East and North Africa are expected to grow around 15% a year in 2014-16, helped by stronger global growth and Bangladesh’s location within the Asian trading region.

Cross border business

More than half of respondents to the TCI survey cited Asia as the most promising region for trade over the next six months. Europe was chosen by a third of survey respondents, reflecting the return to growth in the Eurozone and the strength of European demand for Bangladeshi clothing and apparel. Around 10% cited North America as the most promising region to trade with over the next six months.

Regional export flows - Growth (% year)

Corridors of choice

  • The US, UK, Germany and France are Bangladesh’s biggest export partners, but goods exports will grow at a double-digit pace to Asia (excluding Japan), the Middle East, Africa and Latin America in 2014-2016, reflecting strong growth in these markets.
  • Around 75% of Bangladesh’s export growthw ill come from textiles and other manufactures, and clothing and apparel.
  • The currency of choice for trade is overwhelmingly the US dollar, identified by 96% of respondents. As a result, currency volatility is a concern for a quarter of survey respondents. Almost half are worried about rising interest rates.
  • The cost of essential services such as shipping, logistics and storage is an issue for over half of survey respondents, reflecting Bangladesh’s ranking outside the world’s top 100 for the ease of doing business according to the World Bank.

Opportunities for business

In the long term, rising Foreign Direct Investment (FDI) inflows should support investment in Bangladesh. Growing household incomes should open up the market for consumer goods, including high-tech products.

Long-term outlook

The economic growth rate is set to settle at around 5.5% in the medium term, helped by stronger FDI as companies seek access to Bangladesh’s domestic market and expertise in low-cost manufacturing. Bangladesh has made progress in recent years to improve its infrastructure and ease the cost of doing business in order to encourage investment.

Corridors to watch

The US and Germany will remain Bangladesh’s largest trading partners out to 2030. But rising incomes across emerging markets will help to drive strong trade flows from Bangladesh to these markets too. By 2030, India and Turkey will have overtaken France and Canada in terms of importance as export destinations.

Textiles, wood manufactures, clothing and apparel will contribute around three-quarters of Bangladeshi export growth from 2017-30, reflecting its expertise and low labour costs.

Industrial machinery and transport equipment are expected to account for more than 25% of total goods imports in 2030, indicating Bangladesh’s substantial infrastructure needs. Last year Japan was Bangladesh’s largest import supplier but by 2030 China and India will be more important sources. Bangladesh’s imports from these countries are forecast to grow more than 10% a year in 2017-30.

Bangladesh’s projected sector contribution increase in merchandise exports

Focus on technology

  • Bangladesh imports more high-tech goods than it exports, both manufacturing inputs from neighbouring Asian countries and final consumer goods. This pattern is expected to continue as Bangladesh’s demand for high-tech goods grows.
  • Of the countries covered in these reports, around 95% of Bangladesh’s high-tech imports are from China, Hong Kong, Singapore, Korea, Malaysia or Japan. Intra-Asian trade is expected to grow in the coming years, helped by free trade agreements.
  • Almost 30% of Bangladesh’s population now live in cities. The rapid pace of urbanisation has boosted education prospects, with almost 60% of the population now literate, up from less than a third in 1980. As only 6% of the population use the internet, according to the World Bank, there are opportunities for the rapid expansion of trade in high-tech goods.

Conclusion

While the economy is likely to retain its competitive advantage in producing clothing and apparel, rising incomes, better regulation and improved infrastructure will encourage a move towards higher value-added sectors. This could include the assembly of high-tech goods, boosting trade in this sector.

About the HSBC Trade Forecast – 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, as well as 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. The analysis also includes trade with Japan and Korea for a total sample of 25 key trading nations.

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 2014-16, 2017-20 and 2021-30. Sectors are classified according to the UN’s Standard International Trade Classifications (SITC) system at the two-digit level and grouped into 30 sector headings. More information about the sector modelling can be found on http://www.globalconnections.hsbc.com/

About the HSBC Trade Confidence Index:

The HSBC Trade Confidence Index is conducted by TNS on behalf of HSBC in a total of 23 markets, and is the largest trade confidence survey globally. The current survey comprises six- month views of 5,550 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 November – December 2013 and gauges sentiment and expectations on trade activity and business growth in the next six months.

Technology Focus – Methodology

This report focuses on how emerging markets are targeting R&D investment to scale the value chain in the high-tech sector, illustrating the need for developed economies to invest in innovation to remain competitive. For this analysis, we collected together four key high-tech sub-sectors into one group:

  • Office machines and automatic data-processing machines (SITC code 75)
  • Telecommunications equipment (SITC code 76).
  • Electrical machinery and appliances (SITC code 77)
  • Photographic apparatus and optical goods (SITC code 88)

Based on the same underlying forecasts used for the existing analysis of trends in bilateral trade flows, the report examines how exports/imports of this group of products are expected to evolve over time.

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