Duty-free access for RMG hinges on good ties with US: Mozena

The Daily Star, 29 July 2012

US Ambassador Dan W Mozena yesterday said Bangladesh should create a good climate in relationship with the US to get duty-free access for its readymade garment items to the US market.

Mozena also said getting such an access and the benefit of Generalised System of Preferences (GSP) from the US is a political process.

He suggested Bangladesh should lobby the US Congress, which decides on giving the duty-free market access to any country.

Mozena spoke at a discussion on ‘Bangladesh-US bilateral trade: the way forward’ organised by Dhaka Chamber of Commerce and Industry (DCCI) at its office in the capital.

Bangladesh has been lobbying the US for quite a long time to get the trade benefit, but the US has been delaying it.

Under the current customs rules of the US, 97 percent Bangladeshi products enjoy duty-free access to the US market, but the country’s key export item, garments, are excluded from the package.

Though Bangladesh is a least developed country, it has been exporting garment items to the US by paying an average duty at 15.3 percent, which is higher compared to what developed and developing countries pay.

Bangladesh paid more than $600 million in duty for exporting garments worth $5.10 billion in 2011, while China, world’s largest apparel supplier, pays 3 percent duty on garment exports to the US market.

“The good idea is to create a good climate in relationship between Bangladesh and the US,” Mozena said.

“Telling the ambassador (to give the duty-free access) is just wasting your time. It is the political process.”

The ambassador also said Bangladesh needs to deliver a powerful message to the US that the country ensures rights of its workers.

On labour rights grounds, the American Federation of Labour and Congress of Industrial Organisations (AFL-CIO) has already filed a petition to the United States Trade Representative (USTR) to cancel the GSP benefit that Bangladesh had earned earlier from the US.

However, after a hearing in January this year, the USTR decided to continue the GSP benefit for Bangladesh and review the country’s labour rights issues further.

The US government had earlier extended the GSP for Bangladesh up to July 31, 2013. Currently, GSP covers less than 1 percent of the total export to the US from Bangladesh.

The US ambassador advised Bangladesh to sign the Trade and Investment Cooperation Framework Agreement (TICFA) with the US to establish a good climate in bilateral relationship.

“The TICFA is needed to discuss and remove all obstacles. We should have this forum,” Mozena said.

Bangladesh has the opportunity to be the largest garment exporter worldwide as the country has a vibrant private sector business community.

Bangladesh can also be a good investment destination as the country has a good reserve of natural gas and human resources. “The people are great asset of the country. You have to invest in the people,” he said.

But, political instability and uncertainty, red-tapism, corruption, weak port management and the bad condition of roads and highways — especially the Dhaka-Chittagong highway — are the major obstacles to bringing more foreign direct investment in Bangladesh, Mozena said.

Bangladesh has the scope to be a communication hub like Singapore for its geographical location. Bangladesh is at the centre of Afghanistan, India, China and Nepal. “It’s a blessing,” he said.

On the Padma bridge project, Mozena expressed his disappointment as both the Bangladesh government and the World Bank (WB) are yet to resolve the issue.

“…that was deeply disappointing, because the Padma bridge is important to 15 million people of the south-west region of the country. This is bridge is also important for establishing communication with other South Asian countries,” he said.

Aftab ul Islam, president of American Chamber of Commerce in Bangladesh (AmCham), said the private sector is paying the penalty for any fault of the government.

“We should be more responsible while making comments,” he said. “We should learn more diplomatic words. Our advisers should also understand the political and diplomatic words. The advice should be given in a right direction,” Islam said.

While moderating the meeting, Dhaka Chamber President Asif Ibrahim said the TICFA issues should be discussed with the private sector.

Khondaker Golam Moazzem, senior research fellow of the Centre for Policy Dialogue, said, “Compliance has improved in Bangladesh and it is improving further. The US should not tag the labour related issues with market access.”

According to data from the DCCI, Bangladesh exported goods worth $3.75 billion to the US in July-March of the immediate past fiscal year, while imports were worth $0.57 billion.

In fiscal 2010-11, Bangladesh exported goods worth $5.10 billion to the US and imported products of $0.68 billion.

Investment Climate: The Facts Which Are Not Pronounced So Much

It was end of December last year, I had an opportunity to visit some industries of the country (both local and foreign). While on that time our team visited some famous foreign company who have invested in Dhaka Export Processing Zone at Savar, Dhaka. The visit was organized by Dhaka EPZ authority. On the visit we interacted with world famous Japanese zipper company widely known as YKK. We talked to their management about their experience, expectation, satisfaction and plan about doing business in Bangladesh. It was really wonderful experience to know about their satisfaction about doing business in this country. While on our discussion, Mr. Masud Karim, the company manager told us the market size for their product is really large so that they need to expand their factory. But at present their factory has almost no area for expansion in Dhaka EPZ so that they are planning to set up new factory in other area. I asked “have you finalized your location”. “Yes almost, may be in “Comilla” or “Chittagong” and of coerce it will be on EPZ area”. “Why do you prefer these two locations?”- I asked. The manager said “it is not only the business environment but also the living environment”. Then suddenly the director of the company Mr. Yuji Yamase replied “the decision was taken by me”. “As a foreign investor I really want to stay in this country but to do so I need to have the environment”- he mentioned, “on Mongla EPZ there is no custom facility, banking facility is also very poor”. “Other areas are also poor in terms of facility. Beside of this housing, medical, schooling for foreign people, shopping centre- these are also absent in many places. Many foreign people may adjust in this place but if you really wish to invite Japanese people then you must remember that these people are very choosy. May be they are the choosiest nation in the world. So they are extremely serious about environment. Japanese people also need playground to play after noon time, they like quiet place like golf court and environment for safe-comfortable and free movement”. The conversation was not so long but it made remarkable image inside of myself. I also felt we need to create some places so that foreign people can celebrate on their cultural and national program. In the country our business people as well as our government make many statements to improve investment climate. But “how to improve it” is the question. May be government has many idea but I do not think they really think about creation of social infrastructure really fit for the foreigners. I also remember YKK and many investors clamed about weak infrastructure of the country specially the condition of roads, rail and weak and slow process of handling of goods in depot and ports. But even after all these condition foreign investors really want to expand their business specially to expand their manufacturing units here. To get these investments we really need to listen to the investors’ view otherwise the opportunity will never remain the same in our country.

Bangladesh: Flourishing Market and Investment Climate

Introduction

Bangladesh, a country with mass population and limited land area, may not be considered as a rich country but its economy is changing gradually. Income level of people both in urban and rural area is shifting to upward level in some extent. Change of its economy is evident by considering the country’s outlook in capital and even district areas. People are also getting familiar with hi-tech equipments and fashionable materials. As a result market growth as well as world market leader’s interest for more investment is also increasing remarkably.

Change of People’s Life Style (Newspaper report also reflect the fact)

Change of Bangladeshi people’s life style is evident from facts evident around us. It can be noted that the number of mobile phone subscribers recorded a significant increase of 1.103 million in January (2012) last reaching the total to 86.558 million in the country¹.(Official figure on March 2011 was 72.8 million⁸) These mobile phone users definitely use mobile sets and many of them frequently change phone sets after some interval- which reflects the size of market of mobile set in the country. Due to improvement of purchasing power of this country’s middle class people, sell of expensive, hi-tech and fashionable sets is getting higher.

Transport use is also getting higher day bay day. From 2003 to June 2010, about 220,000 motor cars, jeeps and micro-buses were registered with Bangladesh Road Transport Authority (BRTA) in Dhaka. Fast rising fuel cost, grid-locked roads and import duties could not limit the number of privately owned vehicles despite the government’s implicit discouragement toward private transport sector².

To book an expensive venue for social or cultural program someone need to book the venue at least three to four month before.

Now in Eid vacation it is difficult to find airline ticket to visit tourist spots, business purpose or for emergency need around the country.

Multi storied shopping malls are growing urban cities to upazillas. Many people come from outside districts to expensive markets on Eid season for marketing.

Remittance flow to the country touched 10 billion dollar in fiscal year 2009-10 and in 2010-11 it reached to 10,987.4 million dollar which is 13.4 percent higher than previous year. According to world remittance Data base, position of Bangladesh was 8^th and in 2011 (predicted by Migration and remittance Fact book 2011) it came to 7^th position⁷. This remittance flow is strengthening purchasing power of people of this country.

Although officially the number of people with greater than Tk.10 million wealth has been reported at 13,000 plus, the real number is estimated to be much larger. The flourishing number of private schools, private universities, private medical facilities, expensive restaurants and parlors all support the assumption².

The market size is remarkably big also. Statistics show that 30 million people make up the middle income bracket; this is more than the population of Sweden, Norway, and Denmark combined³. Atiur Rahman, the governor of the Bangladesh Bank, told in an interview with foreign television Al Jazeera, “In a decade or so we will be one of the 30 largest economies of the world, and one should keep that in mind. It is not the size of the country that matters, it’s the population and it’s a very entrepreneurial population, and there lies our strength.” Despite only one per cent direct foreign investment, the country’s GDP is growing more than six per cent a year. The rising middle class is investing heavily in the stock market and in domestic businesses. It is they who are behind the economic growth³.

Impact on Hospitality Industry 

The economic growth and people’s life style is also evident from the growth of tourism and hospitality industry. The capital’s hospitality industry has almost doubled in size and earnings over the last four years [2004 to 2007]. The luxury hotels in Dhaka have earned Tk 1.18 billion revenue as room rent in calendar year 2007 while it was Tk 577.29 million four years back in 2004¹⁰. Foreign businessmen, ready-made garment buyers in particular, have contributed to the growth of the hospitality industry. Optimistic ideas says that the hospitality industry in Bangladesh will flourish further in the coming days as the country’s economy is growing fast with the increased flow of tourists and businessmen to the country.

Improvement on Health Consciousness

Due to the rise of middle class as well as improvement on health consciousness people is getting careful on quality of health and medicine. Which is directly and indirectly improving Pharmaceutical industrial sector.  In this regard, quality of products, packaging on medicine are also improving. So that total sell is also growing.

Potential segment of the pharma market is now 130 billion US dollars. Presently, a good number of local firms meet 97 per cent of the demand of the local market that stood at Taka 7,000 crore. Export earnings from pharmaceuticals totalled $44.27 million in the last fiscal surpassing $ 40.97 million earned in 2009-10 fiscal, Export Promotion Bureau (EPB) data shows ¹².

In an interview with a news paper General Secretary of Bangladesh Oushod Shilpo Somity said 5 percent GDP growth helps the pharma industry grow at 15 percent, and 6 percent and 7 percent growth makes it 20 percent and 25 percent respectively ¹³.

Investment by Market Giants

On Automobile Industry

The attractiveness of Bangladesh market may be not largely pronounced in many countries but even though companies with huge investment are considering seriously to get in and its not only for trading but also for manufacturing. Newspaper report shows interest of market leaders like Mitsubishi Motors is interested to assembling project in the country. There we saw- Mr. Osamu Masuko, global president of Mitsubishi Motors visited Bangladesh on February, last year (2011); on his visit he strongly mentioned “It is an easy target to sell 200,000 units of (sedan) a year in the next five to 10 years, considering the country’s population size and growing economy”⁴. These are defiantly encouraging news for investment climate of the country.

Due to rappid market growth and also having potential manpower market leaders are considering for technology transfer to the country. Which was also reflected from the statement of Mr. Osamu Masuko, global president of Mitsubishi Motors. It need to be noted that Mitsubishi Motors explained Hyundai Motor, a Korean automaker, that has become a global player due to transfer of technology. But it took 39 years for to transfer technology. Mr. Mauko thinks, for the case of Bangladesh it may take only 10 to 15 years for the same task and it is just because of lot of potential in the automobile sector with its huge number of educated young people of Bangladesh⁴.

Similar investment news has been learned from Intraco-Hindustan motors company, who invested $10 million to build an assembly plant in Savar to assemble 5,000 cars on first two years⁵.

It need to be mentioned that presently, Bangladesh’s annual car market is around 30,000 units, dominated by reconditioned Japanese cars⁴. It automatically explains the huge opportunity of investment for Japanese automobile industry in the country.

Giant local and foreign Motor cycle industries including Walton, Runner are also expanding manufacturing of motor bike factory in the country. Honda is on the process to set up their factory soon in Tongi area.

Expanded Electronic Market

Due to the rise of middle class people consumption of electronic product has also increased, which is also evident by steps of famous companies’ steps. We have seen the news that ACI Limited plans to set up a plant in Bangladesh to assemble Panasonic-branded products after embarking on electronics business with distributorship of the Japanese company’s audiovisual items¹¹.

The company [ACI] had projected to sell 5,600 pieces of Panasonic audiovisual products worth Tk 128 million in the first year [after 2009], which will be 2.5 percent value share of the audiovisual product market².The product profile comprises colour television, flat panel television (LCD and Plasma), DVD home theatre, DVD player, mini hi-fi system, digital still camera and video camera¹¹. Among the product profile, liquid crystal display (LCD) and plasma-televisions are premium products that targeted high-end customers, corporate houses and hotels and motels. The company’s target is not only selling the premium products, but also regular or common items for middle income group to upper level¹¹.

ACI Consumer Brands, a strategic business unit of ACI, has already sold four 50’’ plasma televisions each at Tk 3.82 lakh, eight 42’’ plasma televisions each at Tk 2.30 lakh and eight 42’’ LCD televisions each at Tk 1.51 lakh¹¹.

( It need to be noted that the company is superior in manufacturing television with hi-definition plasma and LCD).

It need to be noted that Colour television is the biggest segment of the Tk 1,330 crore electronics market, with 15 percent annual growth, according to industry sources. Around 400,000 television sets worth Tk 440 crore were sold in 2008¹¹.

News paper reports expressed that among the television brands, Chinese Konka is the top player with 21 percent market share, followed by TCL with 18 percent, Singer with 12 percent, LG with 11.25 percent and Samsung with 10 percent in 2009¹¹. So that it is a place where many Japanese industries can easily come with investment to expand their business.

Electronic Industry for Home Appliance

News also published about intention of World famous electronic company LG-Butterfly’s plan for investment of $500 million to assemble electronics products in Bangladesh⁶. It is likely that the company will start assembling refrigerator in first stage and gradually produce other electronic items including television, microwave oven, air-conditioner, washing machine and other home appliances at their factory at Bhaluka in Mymensingh. The factory will be able to create job opportunity for 5000 people⁶.

Investment by domestic investors was recorded as 8,806 crore taka in 2001-02 which increased to 17,117.49 crore taka in 2008-09 fiscal year, it increased to 27,413.69 crore taka in 2009-10 and finally on nine month of 2010-11 it improved to 39,976.41 crore taka. At the same time direct foreign investment and joint venture investment with foreign companies’ record shows in 2007-08 it was 4,356.99 crore taka which increased to 14,457.72 crore taka in 2008-09 and finally on nine month of 2010-11 it increased to 26,519.37 crore taka⁹.

If investment climate continuously move with this positive trend than automatically lot of supporting industry, technology improvement, business environment will develop in this country.

^{1. Financial Express, March 26, 2012}

^{2. The Daily star, November 12, 2010}

^{3. Aljazeera news, http://www.aljazeera.com/video/asia/2011/09/20119411515723874.html}

^{4. The Daily star, February 10, 2011}

^{5. The Daily Star, November 20, 2011}

^{6. The Daily Star, December 16, 2011}

^{7. Bangladesh Economic Review 2011.}

^{8. Bangladesh Economic Review 2011,  p-218.}

^{9.Bangladesh Economic Review 2011, p-207 to210.}

^{10.  Financial Express, November 1, 2008; http://www.thefinancialexpressbd.com/more.php?page=detail_news&date=2008-11-01&news_id=49576}

^{11. The Daily Star, April 21, 2009; http://www.thedailystar.net/newDesign/news-details.php?nid=84890}

^{12. http://bangladesheconomy.wordpress.com/category/pharmaceutical-industryhealthcare/}

^{13.  The Daily Star, January 16, 2011; http://www.thedailystar.net/newDesign/news-details.php?nid=170187}