A slowdown in trade with the US and weakening demand from the UK would hit Bangladesh's exports in the near future as they are among the top destinations, HSBC said in its latest trade report.
The US is the single largest export destination for Bangladesh, while the UK is the third largest destination for the country. An imposition of proposed tariffs by the US would mean merchandise exports to the US from Bangladesh could be $3.8 billion (28.6 percent) below the potential exports in 2030, according to the HSBC report.
“This forces Bangladeshi exporters to pivot towards East and Southeast Asia, with exports to Indonesia, Malaysia, Singapore, Korea, China, and Japan growing relatively strongly over the forecast horizon,” the bank said.
In light of the growing political risks to globalisation, HSBC and Oxford Economics have collaborated to model the impact on trade flows and economic activity of a potential 'alternative scenario' for world trade.
This scenario is based on the UK enduring a 'hard' exit from the EU involving loss of access to the common market, and the new US president implementing a variety of protectionist policies that trigger retaliatory measures from emerging markets.
With no significant changes to the tariff and non-tariff barriers in services trade, the country composition of Bangladesh's service exports remains broadly unchanged from the baseline. But weaker global growth prospects dampen demand across the board.
In terms of destination, the US will continue to be the largest export partner for Bangladesh, although its share of total services export will fall back from 14 percent in 2015 to 10 percent in 2030. “However, we expect exports to the US market to recover, growing 7 percent a year in 2016-20. Other markets such as China, India and Malaysia will also provide strong opportunities for export growth over the medium term, with potential for even stronger expansion in light of various free-trade agreements under discussion.”
Germany follows closely behind the US with a 9 percent share in 2030, while the UK comes in third, accounting for 8 percent of total services exports in 2030. Following these three, India and China will be the next largest destinations for services exports among the countries covered in the HSBC Trade Forecast.
Regarding the outlook of the services trade in future, the report said as other economies such as Vietnam compete with Bangladesh for market share of garment exports, Bangladesh will need to diversify exports away from garment. To address these needs, the government adopted the Vision 2021 strategy, and the associated Outline Perspective Plan of Bangladesh 2010-2021.
In the Perspective Plan, Bangladesh recognised 'tourism' as one of the 'thrust sectors'. Moreover, to improve tourism exports, UNCTAD recommended Bangladesh take steps to attract investment and FDI in the sector and develop quality infrastructure and communication systems.
Unsurprisingly, tourism revenues are projected to grow at the fastest rate of 11 percent a year in 2016-30. Nonetheless, Bangladesh will still lag behind most other countries in South Asia in terms of both visitor numbers and tourism revenue.
Bangladesh is already becoming an active location for ICT services ranging from data entry to software development.
Having taken over from transport services exports in 2007, ICT will continue to dominate services exports, accounting for nearly 15 percent of total service exports in 2016-30. The sector is estimated to grow at an average of 7 percent between 2016 and 2030.
Bangladesh remains predominantly an exporter of clothing and apparel. In 2015, garment exports accounted for nearly 90 percent of total export revenues from Bangladesh.
Supported by increased global demand for low cost garments, we estimate the garment sector to record growth of 9 percent a year between 2016 and 2020, contributing __more than three quarters of the increase in total exports. Textile and wood manufactures sector contribute another 12 percent to the increase in exports over that period. Moving up the value chain, the government hopes to boost revenues from ICT exports to $1 billion by 2018.
In 2015, Bangladesh's top export destinations were US, Germany and the UK (among the 24 trade partners in the HSBC Trade Forecast) and these continue to be the largest export partners in 2030.
The export sector has benefited from the rise in global demand for affordable clothing. With a large population and low labour costs, Bangladesh will retain its position as one of the world's top exporters of garment. Clothing and apparel will continue to make the largest contribution to the projected increase in overall goods exports over the medium term.
Bangladesh has been surprisingly resilient, despite the uncertain global economy. Boosted by exports and domestic consumption, the economy grew by 7 percent in 2015.
“We expect annual output growth to remain around the 7 percent level in the coming years, supported by healthy private consumption, exports and investments.”
Central bank initiatives such as the Financial Sector Support Project are also helping to support the financing of projects in the manufacturing sector. Such initiatives will help to strengthen the efficient provision of credit in the economy, supporting investment and creating new sources of employment.
Meanwhile, to achieve the vision of the country reaching middle income economy status by 2021, the government has identified 32 thrust sectors, which will get preferential policy support to harness their high growth potential. “Against this backdrop, we expect Bangladesh to continue to record healthy growth through 2030.” The World Bank has identified job creation as Bangladesh's top development priority to achieve the goal of becoming a middle-income country by 2021.
But to do so, it will need to remove the barriers to faster growth posed by many structural factors including poor transportation infrastructure.
Underscoring the need for investment in infrastructure, in the latest WEF Global Competitiveness Report, Bangladesh ranks at 106 out of 138 economies.
As a result of these infrastructure needs, HSBC expects industrial machinery to contribute 15 percent of the increase in imports in 2021-30 and transport equipment to account for 7 percent.