Trade liberalisation kills Bangladeshi small business

By Tabibul Islam, Third World Network/InterPress Service, 2 May 1998

Trade liberalisation—removal of non-tariff barriers and reduction of import duties—is said to have adversely affected some 7,000 businesses in Bangladesh, mainly small and medium enterprises, with many closing or on the verge of collapse.

Dhaka: Stiff competition from cheaper imports and smuggled goods has slowed down industrial growth of small and medium enterprises in Bangladesh, forcing closure of several factories in various parts of the country.

The textile industry, on which the economy was pegged to take off, has been pushed close to collapse by competition from cheaper imports. Heavily taxed raw materials like dyes, chemicals and yarn have pushed up prices of locally manufactured fabric.

The situation has worsened because of rampant corruption at all levels. For instance, customs officials can be bribed to turn a blind eye to the illegal flow of goods over the border.

An ailing textile industry, which is the biggest employer after agriculture, has been laying off workers, and shutting down units. There are more than 10,000 hosiery mills alone across the country, and thousands of people work on hand- and power-looms.

Yusuf Abdullah Harun, president, Federation of the Bangladesh Chambers of Commerce and Industry, said trade liberalisation - removal of non-tariff barriers and reduction of import duties—has adversely affected some 7,000 businesses, mainly small and medium enterprises.

A large number of loss-making detergent and biscuit factories are on the verge of closure. Even transnational corporations like Lever Brothers, which dominates the local market here, have switched to marketing Indian-made products.

Similarly, British-based GEC has substantially reduced its local manufacturing activities, retrenching thousands of people. Fans made in India, China, Pakistan, Taiwan and Malaysia are available in shops everywhere, while popular local brands like ’Millat’, ‘Jumana’ and ‘Hira’ have all but vanished from the shelves.

The labour-intensive electric fittings industry is in the doldrums. The industry had grown in 1992-93, exporting products to Middle Eastern and European markets, but the lifting of tariff restrictions has been a death blow.

The imposition of 15% value-added tax (VAT) on local production has also added to the burden of manufacturers, who are unable to compete with the imported goods in so far as price competitiveness is concerned. Smuggled products at lower prices have entered the market in a big way, analysts said.

Enayet Hossain Chowdhury, former president of the Electrical Manufacturers Association, said foreign goods have invaded the local market. Our products can compete only if duty on raw materials was lowered, and locally manufactured items exempted from VAT, he added.

Economist Abdullah Harun warned of mounting losses of small and medium enterprises, which are up against unequal global competition. The government has to improve infrastructure—power supply, transportation, port facilities, customs clearance—if local industry was to compete, he advised.

Illegal cross-border trade has been frustrating industrial revival plans. What the government needed to do was to rationalise trade and taxation policies to enable Bangladeshi business to take on international competitors.

Dr Muzaffar Ahmed, a well-known economist, however, advised the need for controls on liberalisation, arguing that mere adoption of a liberal trade policy and the opening up of the economy would be counter-productive. For instance, the gap between the poor and the rich has widened in Bangladesh with the new rich lacking even a social conscience, Dr Ahmed observed.

The trend was new for Bangladesh, which, despite having the highest concentration of poverty, is not so inequitable. The lowest 40% of the population command around 23% of national wealth, according to Human Development in South Asia 1997, a report prepared by an Islamabad-based NGO. Income disparities between the 65 districts of Bangladesh are not as wide as in the various regions of India and Pakistan.

Normally the income disparity is between 10% and 25%, the report states. According to Dr Qazi Kholiquzzaman Ahmed, an economist, the government must not remove all state controls on the economy, because investments in the country's human capital were essential.

Currently Bangladesh only invests $5 a year per person on providing education and health services, very low compared to Pakistan's $10, India's $14 and Malaysia's $150.

‘Wherever Bangladesh has invested in skill-training, as in the garments industry, it has made tremendous progress. However, such investments in human capital have been very limited and need to be greatly accelerated,’ the Human Development report states.

‘Reliance on market forces is not a panacea for all economic ills… the dogmatic reliance on market forces is unjustified and misplaced,’ asserted Dr Kholiquzzaman.

He questioned the right of Bangladesh's donors like the United States, European Commission and the World Bank to insist on ’unfettered market mechanisms', when they themselves set aside billions of dollars for agricultural subsidies in their own countries.