Bangladesh: Foreign Trade

Since independence, Bangladesh's largest customer for jute products has been the United States; the bulk of sales has been divided fairly evenly between burlap and carpet backing. But, consistent with the global pattern, the United States market has eroded fairly steadily over the years. Sales to the United States reached a low of US $81.8 million in 1986 but increased again to US $104.5 million in 1987, when both prices and volume rose. The market for jute sacking was assisted by the fact that some recipient countries of American food aid specified burlap for their United States imports because they had a secondary market for the bags.

Export Sectors: SeaFood

In the 1980s, Bangladesh emerged suddenly and dramatically as a major producer of shrimp, frog legs, and fish for export. The seafood industry's sudden success resulted primarily from private entrepreneurial initiatives, in response to a hospitable international market. The natural resources to support a growing fisheries sector are abundant, including enormous potential to develop inland water bodies, as well as even greater productive areas of coastal and offshore waters. Coastal brackish-water shrimp farming was more developed and was likely to grow further as investment increased, higher technology was brought to the activity, and the world market continued buoyant.

The pace of fishery development was impressive in the 1980s. At the beginning of the 1970s, frozen seafood was responsible for less than 1 percent of exports or US $3.4 million per year. The figure rose to US $40 million in FY 1981, US $113 million in FY 1986, and US $86 million in the first 6 months of FY 1987. At that point, it was suddenly second only to jute as Bangladesh's most valuable export.

Fresh and frozen shrimp accounted for two-thirds of Bangladesh's seafood exports in the mid-1980s; Japan purchased more than half. The United States, Belgium, and Britain were the other major buyers; the United States was the prime customer for frog legs, the largest category after shrimp.

Export Sectors: Garments

The first ready-made garment factories in Bangladesh aimed at the export market were opened in the late 1970s by investors from other Asian countries whose exports had been restrained by quotas imposed by importing nations. By the mid-1980s, the ready-made garment industry had become a strong export earner. Garment exports brought receipts of only US $3 million in FY 1981, but by 1984 exports had risen to US $32 million, and the following year revenue soared to US $116 million. For FY 1985 and FY 1986, ready- made garments were the second biggest foreign exchange earner for Bangladesh after jute.

The surge in Bangladeshi exports eventually caused a reaction among some industrial nations. Canada, the European Economic Community, and the United States expressed concern that inexpensive Bangladeshi garments were flooding their markets. In 1985, after a series of notices as called for by multilateral agreements, the United States--which was the destination of about 25 percent of Bangladesh's garment exports--began imposing quotas on Bangladeshi garments, one category at a time.

Bangladeshi manufacturers, working with the government, organized with remarkable speed and efficiency to adapt to changing conditions. They policed themselves to stay within quotas, allocating production quotas according to equitable criteria, and began diversifying their production into categories where there were not yet quotas: for example, cotton trousers, knitwear, dresses, and gloves. After a period of adjustment, during which some of the least well-established firms closed and workers were laid off, the industry began stabilizing, and growth continued at a more moderate pace. Exports in FY 1986 rose another 14 percent, to US $131 million, and prospects were good for continued growth at about that rate.

Other Export Industries

The quality of Bangladesh's tea, grown in the Sylhet hills area, is not competitive with tea grown elsewhere in Asia, and during the Pakistan period sales were increasingly restricted to West Pakistan. The war of independence raised a question about whether alternative markets could be found for Bangladesh's tea. Production in FY 1973 was 24 million kilograms, down from 31 million kilograms in FY 1970. Pakistan remained interested in Bangladeshi tea and again became the chief customer, followed by several Arab countries. In the 1980s, production returned to the pre-1971 level and was relatively stable from year to year, but prices were not. Bangladesh received less than half the value in FY 1986 for virtually the same amount sold in FY 1984 (US $33 million versus US $69 million). As with jute, Bangladesh could hope for little more than to preserve--but not expand--its small niche in the world's tea trade.

Bangladesh also holds a small place in the international leather trade. World prices were somewhat less volatile than for tea, and in the 1980s Bangladesh could count on annual earnings of between US $56 million and US $90 million, primarily because of the high quality and premium prices of skins from Bangladesh. There was little scope for increasing production because competition over land and feed kept down the population of cattle and goats.

In the mid-1980s, fruits, vegetables, and spices also began to become important export items. Previously negligible in export accounts, in FY 1986 this category brought in nearly US $15 million, chiefly from Middle Eastern and British customers. Prospects were bright for continued growth of this diversification of Bangladeshi agriculture, as external demand was expected to remain lively.

Balance and Terms of Trade

Bangladesh has had a negative trade balance since independence in 1971. In the mid-1980s, the annual pattern was for exports to cover only around 30 percent of the cost of imports (see table 14, Appendix). Merchandise exports reached the value of US $1 billion in FY 1987 for the first time, and in that year import payments were US $2.6 billion, leaving a trade deficit of over US $1.5 billion, about average throughout the 1980s. The annual deficit was limited by government controls to between US $600 and US $700 million on capital goods and US $500 million on nonagricultural industrial commodities. The largest component in the latter category was crude oil and petroleum products. In addition, Bangladesh incurred a debt each year for grain and other food needs, always higher than US $200 million, and sometimes going to double or even more (at least US $607 million in FY 1985). The country had a positive balance on nonfood agricultural production, because jute and ready-made garment exports eliminated the deficit in fibers, textiles, and garments.

One way the society has been able to turn its economic problems and overpopulation to some advantage is by exporting workers to wealthy, Islamic countries, chiefly in the Persian Gulf. The remittances from these workers have come to constitute one of Bangladesh's greatest sources of foreign exchange. In FY 1986 remittances were nearly US $575 million, covering 23.5 percent of import financing requirements and substantially exceeding the total receipts from jute, the chief export. The government maintained records only of new recruits working abroad each year- -a peak of 77,694 in 1985--but knowledgeable observers believed that possibly as many as 450,000 were overseas at any one time. Throughout the 1980s, more than a third went annually to Saudi Arabia with a peak of 39,350 new recruits in 1987. Other countries receiving large number of Bangladeshi workers in 1987 included the United Arab Emirates (9,953), Kuwait (9,559), Qatar (5,831), and Iraq (3,847). Such workers normally contracted to remain abroad three years and often stayed several years longer. They worked as laborers, under terms negotiated government to government, and generally lived under segregated conditions that effectively prevented Bangladeshi men (who cannot bring their families with them) from assimilating with the local population or experiencing non-Bangladeshi ways of life. When they have returned to Bangladesh with savings and material acquisitions, they generally have had no difficulty fitting back into their society.

Other remittances have come from the more highly educated elite who are able to take advantage of educational resources at home or overseas and who advance to high positions in business, the professions, the civil service, or even the military. Some have gone abroad--mostly to Britain, the United States, and Canada-- and many remit savings to relatives in Bangladesh. The government extends incentives to all expatriate Bangladeshis to send back some of their savings. They are granted a preferential exchange rate, and a portion of their remittances can be turned back into foreign currency for purchases from abroad. Including remittances as a form of export revenue still left Bangladesh with a deficit ranging between US $1.5 billion and US $1.8 billion each year during the 1980s. Foreign aid was the essential element allowing Bangladesh to steer clear of a critical shortage of foreign exchange.

In FY 1986, the United States was the leading buyer of Bangladeshi exports, taking some 25 percent of the total. The American portion had increased from 16 percent the year before and 12 percent the year before that. The dynamic new element was ready-made garments; the United States purchased over 80 percent of this new industry's production, adding to Bangladesh's traditional base of jute manufactures (mostly carpet backing) and seafood. The next biggest customer for Bangladesh (but with only 28 percent of the American volume) was Japan, which chiefly purchased frozen seafood. Other important customers in FY 1986 were Britain, Italy, Pakistan, Singapore, and Belgium. Trade with communist countries was also significant. Almost 10 percent of exports were under barter terms with the Soviet Union, China, Bulgaria, Hungary, and Czechoslovakia.

The list of suppliers to Bangladesh is eclectic. In FY 1986, Singapore was the leading supplier, with 14 percent of the total (up from 12 percent the previous year). Major supplies were petroleum and petroleum products and also vegetable oils and fats. Next was Japan, with 13 percent of the total, selling iron and steel, transportation equipment, and machinery. In third place was the United States with 8 percent (food grains and machinery), followed by South Korea (textiles), the United Arab Emirates (petroleum), India (textiles and machinery), West Germany (machinery and transportation equipment), China (assorted products), and Britain (machinery, equipment, and sugar products). Other major suppliers were Canada, Pakistan, Saudi Arabia, Malaysia, the Netherlands, and Iran (see table 15, Appendix).