New cash incentives offered to nine new potential export oriented products will encourage new investments in the sectors, and help generate employment opportunities in the economy, sector people and analysts said.
However, the privilege will take time to bring the desired outcome in export earnings as theircontribution to the total merchandise export isnow very insignificant, they added.
In enlarging the export baskets as well as earnings, the government last month offered a10% cash incentive for nine new items considering their potential and demand in the global market.
As per the Bangladesh Bank circular, the nine new export products are pharmaceuticals, photo voltaic, motorcycles, chemical products including chlorine, hydrochloric acid, caustic soda, hydrogen peroxide, razors and razor blades, ceramics, hats, fish - crabs and eel, galvanized sheet/coils (coated with zinc, aluminum and zinc and color).
The products will get 10% cash incentivesagainst their export receipts.
With the new inclusion the number of incentive-eligible products stood at 35.The government provides nearly Tk3,500 crore to Tk4,000 crore per annum against the incentive or export subsidy, a top official at the Ministry of Finance(MoF) said.
Why cash incentivesare needed
In an effort to diversify products the government has been providing cash incentives to promote emerging and new sectors having export potential. In addition, it provides the fiscal incentives to large industrial sectors like the apparel industry.
“In diversifying export products, the government has been promoting potential and emerging sectors. As a part of the initiative, we have announced the provision of 10% cash incentives to nine new products,” Commerce Minister Tofail Ahmed told the Dhaka Tribune.
As a result, export earnings are expected to be bigger in future, and investment in the sectors would be lured to a great extent, he added.
“The cash incentive is a way of promoting exports especially the potential and under privileged ones. In Bangladesh, the RMG sectorcontributes over 83% of the national exports. While leather, the second highest export earner, earns nearly one billion US dollar per annum,”former caretaker government finance advisor AB Mirza Md Azizul Islam told the Dhaka Tribune.
To encourage and to diversify products, a cash incentive is a tool to help manufacturers to remain competitive in the global market, said Islam.
He said businesses would be interested to invest more to the newly included sector as the incentive works as a booster.
Incentives to lure new investment
Incentives will maximize the profit margin of exporters and encourage new investments to grab the market share in export destinations, a top exporter said.
“Since the new cash incentives will encourage exporters to produce more ,it would gradually bring more investment in the respective sector,” Runner Group Chairman Hafizur Rahman Khan said.
Runner Group is a leading local motorcycle manufacturer and exporter.He said more investment means creation of more jobs.
“The new cash incentive targeting new sectors will encourage the potential sector to further invest to augment their production capacities,” Exporters Association of Bangladesh (EAB) President Abdus Salam Murshedy told the Dhaka Tribune.
He said the government is now in the course of establishing 100 Special Economic Zones (SEZs) countrywide. The government should select potential sectors and developthe infrastructure to help such sectors to grow.
“Ifready infrastructure is given to industries, including those of the newly included export-oriented sectors it would attract new investment from home and abroad,”said Salam.
Will incentives diversify products?
Talking to the Dhaka Tribune business people as well as trade analysts opined that the incentive would not have much impact on the export in the shortest possible time as their contribution to the national export is very small. In the long run, fiscal stimulus like cash incentives would encourage many to invest, they added.
According to Export Promotion Bureau (EPB) data, in the 2017-18 fiscal year Bangladesh earned $103 million from exporting pharmaceuticals products followed by $52 million from the ceramic sector, chemical products $47 million, crab $17.38 million and $1.47 million was fetched from motorcycle exports.
The total export earnings in the previous fiscal year was $36.66 billion, according to EPB figures.
“There is logic in giving cash incentives against export. But in providing cash incentives, the government should consider the sectors’ contribution to national exports as well as the demands and prospect of the item in the global market,” Centre for Policy Dialogue (CPD) research director Khondaker Golam Moazzem told the Dhaka Tribune.
As the sectors’ contributions in export is not much except the high potential pharmaceuticals sector, it would not help diversify the product list and would have no immediate impact on the export value , said Moazzem.
On the other hand the government should set tenure for the incentives and should have a review on performance for further continuation of incentives, he added.
Experts also suggested offering cash incentives to sectorsthat have high growth potential.
“In the Export Policy 2015-18, the government has included garment accessories in thecategory of the highest priority sectors. But the sector did not get government attention regarding the cash incentives,” Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA) president Abdul Kader khan told the Dhaka Tribune.
Garment accessories are now totally an export sector as it has started direct export and the earnings rose to nearly $1 billion. So, as an emerging export sector, the government should offer cash incentives against the direct export garment accessories and packaging products, said Kader.