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Bangladesh’s economy braces for coronavirus fallout

  • Published at 11:56 pm February 5th, 2020
Bangladesh Economy
Rajib Dhar/Dhaka Tribune

According to Bangladesh Bank data, in FY2018-19, Bangladesh imported goods worth $13.64 billion from China and exported products worth $831.2 million to the East Asian country

The trade conflict between the US and China, two economic giants, had emerged as an opportunity and a boon for Bangladesh’s exports.

However, the deadly coronavirus outbreak from Chinese central city of Wuhan, which started late last year, now has become a bane for Bangladesh’s economy, with the supply chain of raw materials for the export-led industries here being already hit.

Although it depends on how long the epidemic will last and when businesses in China reopen, it has become apparent that Bangladesh, like many other countries, will face the economic fallout of the outbreak, say experts and people from the sectors concerned.

Of the impacts, one that is already visible is the prices of daily commodities, including onion, garlic and ginger, going up in the markets of Dhaka and Chittagong, threatening to push up the inflation.

China said the overall death toll from the coronavirus outbreak was 490 until on Wednesday. Across the country, a total of 24,324 people were confirmed infected, while nearly 230 cases were reported in some 27 other countries and regions.

The outbreak has come at a time when China’s economy has grown larger — 8.5 times bigger than it was in 2003 — and established greater connections around the world. As of now, China accounts for 17% of the global GDP these days, up from 4% in 2003.

The second largest economy in the world is also Bangladesh’s leading trading partner, with a $14.48 billion bilateral trade since last fiscal year.

According to Bangladesh Bank data, in FY2018-19, Bangladesh imported goods worth $13.64 billion from China and exported products worth $831.2 million to the East Asian country.

Over 40% textile and textile-related goods and 30% capital machinery come from China. Other things that Bangladesh imports from China include fabrics, agricultural machinery, mobile phones, electrical and electronics goods, fruits, and essential spices etc.

At present, China sends 26.1% of the total $56 billion worth of goods Bangladesh imports from around the world.

Manufacturing industry to suffer most

As a result of the coronavirus outbreak, Bangladesh’s manufacturing sector, especially readymade garments, textile, plastic and leather, is set to face a supply disruption as the outbreak has cut communications between the two countries to some extent.

Manufacturers have already felt the pinch as the supply chain has already started suffering, even though it’s in a small scale right now.

“It will definitely have big impact on the global supply chain and we are not out of it,” Sharif Zahir, a director at Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told Dhaka Tribune.

He said: “The coronavirus outbreak has created an uncertainty. Manufacturing factories are closed, the Chinese government extended the Lunar New Year holiday, and we don’t know when everything will be fully operational.

“Uncertainty in the manufacturing sector is a great threat to our economy.”

Sharif added: “We cannot start production unless the deliveries of accessories and fabrics are confirmed. The big concern is meeting the shipment deadline, because buyers do not cooperate if our deliveries are delayed.”

Demands from global buyers for apparel goods may also fall, he said.

The situation has also hit the sales of apparel goods there, which is likely to cast a negative impact on such imports from Bangladesh.

In FY19, Bangladesh had exported to China apparel products worth $506 million.

“The big impact of the coronavirus outbreak will be on Bangladesh’s export oriented manufacturing industry, especially the apparel sector, as delayed arrival of imported raw materials will affect the timely delivery of the shipments of manufactured goods,” said Zahid Hussain, the World Bank’s former lead economist in Dhaka.

This will cast a bigger shadow on the export earnings — which has already seen a 5.21% drop in the first seven months of FY20 — but the manufacturers will have to retain the buyers even after incurring losses, he added.

Inflation risks

The economic fallout is also set hit the lives of the consumers in a major way, with prices of onion, garlic and ginger imported from China already seeing a sharp rise — which will definitely push the inflation up.

On Wednesday, one kilogram of Chinese garlic was sold at Tk200 in Dhaka’s markets, which was TK160 just a week ago.

Also, ginger was sold at Tk160-TK170, against last week’s Tk130, and onion sold at Tk100, against last week’s Tk60.

The markets in Chittagong also saw similar hikes.

Besides, the prices of electronic products, smartphones and other gadgets will go up in Bangladesh’s markets, which the Chinese products dominate.

Over the past year, Bangladesh had imported nearly one million smartphones. Chinese brands Huawei and Xiaomi were the second and third largest suppliers, respectively.

New investments will take a hit too

Meanwhile, new investments and implementation of existing businesses in Bangladesh will also become sluggish because of the outbreak, as delivery of most of the capital machineries — which are imported from China — will be delayed.

“In the bilateral trade, there is already a temporary impact, as communication between the two countries has been reduced, including movement of goods,” ATM Azizul Akil, senior vice president of Bangladesh-China Chamber of Commerce and Industry, told Dhaka Tribune.

Economist Zahid also said that Bangladesh’s mega projects and both ongoing and new investments will take a big hit, as the Chinese workers who went home for the Lunar New Year vacation will not be able to return due to travel restrictions.

He added that if the Chinese government fails to completely control the virus or it manages to spread rapidly, that will also hinder the supply of machineries and equipments needed for those projects.

Assembling industry to suffer long-term

In the past two years, Bangladesh has entered the assembling industry, putting together smartphones, televisions, refrigerators, motorcycles and other home appliances. China supplies most of the parts and machinery used and needed by this industry.

This sector too will take a major hit from the disruption in supply caused by the coronavirus outbreak.

“Over 60% of the raw materials, parts and machinery for manufacturing and assembling refrigerators, motorcycles and other home appliances come from China. So, there will be an impact in the long run,” KMG Sohel Kibria, the head of Brand and Communication of Minister Hi-Tech Park Ltd, told Dhaka Tribune.

How to avoid the impact

BGMEA Director Sharif Zahir said: “China is very important for its ability to supply multiple items. It will be difficult to replace China as the source, but not impossible.”

“For the time being, Bangladesh has the option to source fabrics from India, Turkey and Indonesia for woven products, while we can look for sources of polyester.

“On the other hand, Bangladesh has the capacity to supply denim fabrics on its own,” he added.

Economist Zahid Hussain also said: “To avoid long-term impact on the manufacturing industry, the government and the manufacturers must come up with alternative sources for imports.”

The government should engage its commercial counsellors at the Bangladesh missions around the world to find new suppliers and provide information to the federations concerned, so that they can disseminate to the business community, added Zahid.

Meanwhile, in the midst of all doom and gloom, BGMEA President Rubana Huq is seeing a little bit of silver lining.

“Sales of big retailers are dropping because their stores are closed in mainland China. Sales are expected to drop more and, therefore, their sourcing of products may also decrease,” she told Dhaka Tribune.

“Some immediate orders from their China offices will shift, and major contenders for those include Vietnam and Cambodia, and maybe Bangladesh, if our luck favours,” she added, but warned: “This will be temporary.”