#Title

BEYOND RMG:

paths to industrialisation
A view of the Chattogram port that accounts for more than 90 per cent of Bangladesh export-import business. Riding on the back of apparel exports, the country has managed to grow at about 7 per cent rate for the last one decade.
PHOTO: STAR/FILE
KAZI IQBAL
The conventional textbook approach of export-led growth models rooted in export-oriented manufacturing and climbing up the value chain has been the canonical models for growth for the East Asian countries (e.g., Japan, S. Korea, Taiwan, and China). This model is widely advocated for other developing countries for both enhancing growth and reduction of poverty.
Bangladesh is also not an exception. Riding on the back of apparel exports, the country has managed to grow at about 7 per cent rate for the last one decade. However, eminent economists such as Joseph Stiglitz and Dany Rodrik casted doubt on the effectiveness of such models for the countries outside East Asia.
The fear is that pre-mature deindustrialisation may occur where developing countries will experience the contraction of the industrial labour force well before the point what the current industrialisedcountries experienced much later about a century ago.
While manufacturing sector generally follows an inverted U-shaped path over the course of development, the turning points seem to have arrived much sooner at lower level of income for a large number of middle-income countries, particularly the Latin American countries.
Rapid globalisation, emergence of China as the global manufacturing hub, and the wholesale automation of the production process are argued to dent the comparative advantage in manufacturing and be responsible for such deindustrialisation process. More labours are being absorbed in the low productive service sector than the high productive manufacturing sector from agriculture and this has slowed down the overall growth of the economy in the developing countries.
Hence, the effectiveness of the strategies relying solely on the export-led growth has been questioned, particularly for the economy with large consumer base. The thrust of the growth strategies should lie in both export-oriented strategies and domestic demand-led growth for the country like Bangladesh.
While the export-oriented large industries remain the main engine for growth, industries serving the local burgeoning market will also play an instrumental role for growth as well as for poverty reduction. In fact, this two-pronged approach has been the underlying mantra for growth in Bangladesh for the last one decade or so, knowingly or unknowingly. The emergence of Walton-RFL is a testament to such strategies.
Bangladesh experienced a slow emergence but rapid growth of the consumer durable sector targeting the local market in just one decade. Unlike RMG, these industries have some unique characteristics worth noting.
First, these industries have emerged and thrived in a very competitive environment when China remained omnipresent in the global manufacturing market.
Second, it seems they have defied natural competitive advantage which is the cheap unskilled labour, and invested in discovering the ‘latent’ comparative advantages.
Third, these industries grew through step by step transformation from retailer, to importer/wholesaler to assembler to manufacturer, unlike RMGs which were “born to export”.
However, the growth of the domestic demand catering manufacturing sector can be stymied due to two major reasons. First, the size of the domestic market of a product may not be large enough to take the advantage of economies of scale and hence can’t compete with the imports. Second, these industries can be subject to high protection and this may lead to the product quality below the global standard due to high inefficiencies.
In order to overcome such challenges, it requires industrial policies with carrots and sticks. Performance-based incentives instead of wholesale benefits across the board will help ensure competition among the local industries and facilitate the transformation from the domestic demand catering manufacturing to export-oriented manufacturing.
While it is argued that local competition can also result in product quality closer to the international level, it is important to sustain threat of international competition with specific sunset clause.
This transformation from local to global can take place in two major ways. First, foreign direct investment in such industries, which are ready to enter global market, can take them to the technological frontier and help achieve the global standard.
Second, incentives and targeted policies for the potential non-RMG industries can help upgrade technology and up-skill labour force to attain the similar goals.
While the export-oriented large industries remain the main engine for growth, industries serving the local burgeoning market will also play an instrumental role for growth as well as for poverty reduction
Rapid globalisation, emergence of China as the global manufacturing hub, and the wholesale automation of the production process are argued to dent the comparative advantage in manufacturing