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TRADE LIBERALISATION KILLS BANGLADESHI SMALL BUSINESSES
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.
By Tabibul Islam
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. - Third World Network Features/IPS
-ends-
About the writer: Tabibul Islam is a correspondent for Inter Press
Service, with whose permission the above article is reprinted.
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