IN BRIEF

  • We expect Bangladesh to continue to grow robustly over the medium term, with GDP expanding by 5.5% a year on average in the decade to 2030. Trade prospects are bright, particularly in the textiles sector, and trade liberalisation efforts with its neighbours in Asia should boost prospects further, encouraging more diversification of the export base.
  • The potential to attract more FDI inflows is large and Bangladesh has made good progress towards greater macroeconomic stability in recent years. Reflecting the large infrastructure development needs, we expect industrial machinery and transport equipment to contribute a quarter of import growth from 2015-30.
  • We expect the economy to retain its competitive advantage in producing clothing and apparel over the forecast period but rising incomes will encourage a gradual move towards higher value sectors, which could include the assembly of electronic products.

Bangladesh has made good progress towards liberalising trade flows with its neighbours in recent years and this should help it maintain its competitive advantage in clothing and apparel, as well as encouraging diversification into other higher value sectors such as electronics. The economy is expected to grow by 5.5% pa on average in the decade to 2030 and the potential to attract more FDI inflows is large.

LONG-TERM OUTLOOK

Economic Outlook – Bangladesh has grown by around 6% pa over the past decade and we expect it to continue to grow at a similar rate over the next ten years.

Trade prospects are bright, particularly in the textiles sector - Bangladesh has the fourth largest population in East Asia and its low wage level relative to China has supported the rapid growth of the sector. Investor confidence in the sector will also be supported by the recent Accord on Fire and Building Safety, a five-year agreement between textile retailers to set minimum standards in Bangladesh’s textiles sector. More than one hundred and seventy retailers have signed up, but to sustain strong growth the sector must also gradually raise productivity and move into higher-value lines. Indeed, rising incomes, better regulation and improved infrastructure should gradually open up the market for consumer goods and encourage a move towards higher value sectors. This could include the assembly of various electronic parts and products, boosting trade in the electronics sector.

The potential to attract more FDI inflows is large - inward FDI was less than 1% of GDP in 2013, compared to about 2% in India and 5% in Vietnam. In recent years, Bangladesh has made good progress towards macroeconomic stability under IMF guidance but major infrastructure investment remains essential. The lower fuel price environment is also a good opportunity for the government to implement much-needed power sector reforms to encourage investment.

Export Corridors to watch – Bangladesh has a strong foothold in the global market for ready-made garments and we expect this to continue, with around 80% of export growth from 2015-30 coming from clothing and apparel. Although the importance of agriculture to the economy will gradually decline as more of the population moves into urban areas, agriculture will continue to be Bangladesh’s second largest export sector out to 2030, contributing around 7% of the forecast increase in exports in 2015-30.

Sector contribution to increase in exports

Bangladesh and the US enjoy historically strong commercial linkages. Until June 2013, Bangladesh had duty free access to the US market under the generalised system of preferences (GSP) but the US suspended this after a number of disasters at clothing factories. Nevertheless, exports of ready-made garments to the US still rose at a double-digit pace in US$ terms in both 2013 and 2014 and the US remains Bangladesh’s largest export partner, accounting for around 15% of total exports in 2013 (a position it is expected to retain out to 2030). Investor confidence should benefit from the introduction of a number of new safety laws for textile factories. Indeed, trade between Bangladesh and the US will be further boosted if these new laws encourage the US to reinstate the trade preferences scheme. A recent GSP review acknowledged progress on worker safety issues but advised further improvements before the agreement would be reinstated.

The Eurozone as a whole accounts for more of Bangladesh’s exports than the US and we expect Germany to remain Bangladesh’s second largest export market over the forecast period. But Bangladesh is also exporting to a number of fast-growing emerging markets, which will increase in importance as export destinations. In particular, exports to Turkey will grow by 13% a year in 2021-30, propelling it past France into fourth position by 2030.

India and China will also be fast growing export markets for Bangladesh. Exports to India are forecast to grow by 18% a year from 2015-20, assisted by the South Asia free trade agreement which first came into force in 2006. Under the terms of the agreement, there will be no customs duties on goods traded between South Asian countries by 2016.

Top 5 Hotlist Export Destinations

Rank

2013

2030

1

USA

USA

2

Germany

Germany

3

UK

UK

4

France

Turkey

5

Canada

China

Import Corridors to watch – Textiles make up Bangladesh’s largest import sector, reflecting the importance of the domestic clothing and apparel industry to the economy which requires imports of some essential raw inputs. Over the period 2015-30, textiles are expected to contribute around a quarter of total import growth.

According to the 2014/15 World Economic Forum Global Competitiveness report, Bangladesh is ranked just 127th out of 144 countries for its infrastructure. But there are a number of large infrastructure projects underway, including the construction of a four-lane highway between Chittagong and Dhaka. Reflecting the large infrastructure development needs and ongoing construction efforts, we expect industrial machinery and transport equipment to contribute a quarter of import growth in the decade to 2030.

Sector contribution to increase in imports

China and India will retain their positions as Bangladesh’s largest import partners by 2030, reflecting the rapid growth of these economies, both of which are forecast to grow by at least 5.5% in the decade to 2030. The liberalisation of trade flows between these countries in recent years is also set to continue. India and Bangladesh already have a free trade agreement in place while China allows Bangladesh some preferential trade access and has recently suggested entering into negotiations on a possible free trade agreement between the two countries.

Top 5 Hotlist Import Origins

Rank

2013

2030

1

China

China

2

India

India

3

Singapore

Singapore

4

Malaysia

Malaysia

5

Korea

Indonesia

FOCUS ON ELECTRONICS

  • Bangladesh is ranked 109th out of 143 countries in the world for its network readiness by the World Economic Forum. Partly reflecting the paucity of infrastructure, and also driven by concerns of political instability, the World Bank ranks the country as 173rd out of 189 countries for the ease of doing business. But progress is being made. The number of mobile subscribers rose to 74 per 100 people in 2013 according to the World Bank, up from less than 1 in 100 ten years previously. This has the potential to boost growth in Bangladesh by freeing the vast land mass from some of the difficulties caused by a lack of physical infrastructure and opening up access to financial markets .
  • We expect the economy to retain its competitive advantage in producing clothing and apparel over the forecast period but rising incomes, and improvements to infrastructure and regulation will gradually encourage a move towards higher value sectors. Given that one of Bangladesh’s key advantages is its large, young and relatively low cost workforce, this could include the assembly of electronics, boosting trade in this sector.
  • Indeed, we expect export growth of electronics to outpace total exports, partly reflecting rising household incomes and greater demand for consumer goods. The import needs of the electronics sector will also increase as Bangladesh diversifies its export base, but we expect the economy to continue to run a trade deficit in electronics over the forecast period.
  • Bangladesh is not a signatory to the WTO’s Information Technology Agreement (ITA) but is involved in a number of negotiations aimed at securing free trade with many of its neighbours. We expect this to continue, boosting Bangladesh’s intra-regional trade over the forecast period and helping it to move into higher value sectors.

Trade in electronic goods

About the HSBC Trade Forecast – Modelled by Oxford Economics

Oxford Economics has tailored a unique service for HSBC which forecasts bilateral trade in goods, based on HSBC’s own analysis and forecasts of the world economy. A top-down approach is employed, with Oxford Economics’ suite of models used to ensure consistency between HSBC’s forecasts for economic growth and exchange rates in key countries and the more granular projections for bilateral trade flows presented here.

Oxford Economics employs a global modelling framework, with headline bilateral trade forecasts constructed as a function of final demand in the destination market and the exporter’s competitiveness (as measured by relative unit labour costs). Exports, imports and trade balances are identified, with both historical estimates and forecasts for the periods 2015-20 and 2021-30.

These headline bilateral trade forecasts are also disaggregated by sector, using Oxford Economics’ Industry forecasts to inform future production trends. 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.

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.

All trade flows data are reported in nominal US-dollar value terms (using market exchange rates) unless otherwise specified. This means that fluctuations in a country’s terms-of-trade due to relative price and exchange rate effects are reflected in the data.

Sector Focus – Methodology This report also includes a special section on the electronics industry. 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 products are expected to evolve over time. The definition used in the report for the electronics sector is below:

  • SITC 75 – Office machines and automatic data-processing machines
  • SITC 76 – Telecommunications equipment
  • SITC 77 – Electrical machinery
  • SITC 87 – Professional, scientific and controlling instruments
  • SITC 88 – Photographic apparatus, equipment and supplies and optical goods

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