Bangladesh-Korea bilateral trade hits historic high
- Korea fifth biggest source of Bangladesh’s FDI
- Bangladesh third largest recipient of Korean assistance
- Bangladesh can fully use duty-free, quota-free access
- Hyundai cars to be assembled locally from this year
The bilateral trade volume between Bangladesh and South Korea hit a historic high of $2.3 billion in 2021, and as a continuation, it saw a 40% rise year-on-year as of August.
Republic of Korea's Ambassador to Bangladesh Lee Jang-Keun considers this development a meaningful achievement as the bilateral trade volume has stagnated for almost ten years after reaching a peak of $1.8 billion in 2011.
In an exclusive interview with Dhaka Tribune on the eve of Monday's National Foundation Day of Korea, Ambassador Lee said: "Despite the excellent ties we have built together, however, there still is great potential which has not yet untapped. It was against this backdrop that, right after I arrived in Dhaka, I presented three goals or priorities which I planned to pursue during my term as Ambassador -- diversification, elevation and generation (DEG.)
"The first and foremost task we are tackling is diversifying our cooperation beyond the RMG sector. While RMG cooperation is the prime success story of our bilateral business ties, it has occupied too much of our cooperation for too long. More than 70% of Korean investment is still in the RMG sector. More than 80% of Bangladesh’s export to Korea is RMG."
Even though slow, the Korean envoy thinks some noticeable and meaningful developments towards diversification are in the making in recent years, including in the electronics and automobile sectors.
In cooperation with a Bangladeshi company, Samsung Electronics is assembling and manufacturing most of its gadgets locally -- from refrigerators, air conditioners, washing machines to television and mobile phones.
At the Kaliakair Hi-Tech Park, local company Fair Technology is now preparing an assembly plant for Hyundai Motors. By the end of this year, Hyundai cars would be assembled locally, the envoy hoped.
"Since Korea started allowing duty-free and quota-free access to the Korean market to the 95% of Bangladesh products in 2008, Bangladesh’s export to Korea has seen a steady increase and crossed $500 million in 2021," Ambassador Lee said.
He said, in 2021, the bilateral trade volume started to rise, recording a historic high of $2.3 billion.
Korea’s export to Bangladesh was $1.636 billion, 58% year-on-year increase, while Bangladesh’s export to Korea recorded $552 million, a 40% year-on-year increase.
"As of August this year, our trade volume has already reached $2.1 billion. Likely, it will even break the previous record again this year. Considering Korea and Bangladesh's solid continued economic growth, I expect the bilateral trade will further increase in the future."
Importance attached to product diversification
In order to tap the bilateral trade potential, diversifying export items to Korea is a major challenge, said Ambassador Lee.
He said that currently, garments and textiles account for 83% of Bangladesh’s exports to Korea.
"Bangladesh should make full use of duty-free and quota-free access to the Korean market. In this regard, the Bangladesh government can actively encourage its companies to make the full use of cash incentives for exporting to the Korean market. As Korea is regarded as the non-traditional market, companies exporting to Korea can get 4% of cash incentives."
Also, as the BGMEA has pointed out recently, there is even a large room for increasing garment exports to Korea.
The Korean envoy said: "Even though Bangladesh’s apparel export to Korea has been growing steadily, it only takes up 4.2% of Korea’s apparel import source, while China accounts for 33.6% and Vietnam 31.2%."
He thinks the establishment of direct cargo lines between Bangladesh and Korea, both maritime and air, will boost bilateral trade.
"Considering Korea is the world’s seventh largest trading country and Korea’s Busan Port is the second largest cargo transit port in Asia, establishing direct cargo lines should be considered with priority in increasing bilateral trade volume."
Korea fifth biggest source of Bangladesh’s FDI
Korea has continuously been one of the major foreign investors in Bangladesh, said Ambassador Lee, before adding: "The accumulated gross stock of Korean FDI was $1.1 billion in FY20, which grew to $1.4 billion in FY22. It means that there has been more than $100 million in Korean investment every year. Korea is also the biggest foreign investor in export processing zones with 75 companies operating in the zone."
He acknowledged that Bangladesh is providing attractive conditions for investment by Korean companies, particularly in terms of competitive labour forces, thriving domestic economy and large market.
For these reasons, more and more Korean companies are showing interest in establishing businesses in the country.
However, at the same time, there are still a number of factors that should be addressed to make the country more business and investment-friendly, Ambassador Lee said.
"The first and most important thing to attract more Korean investment will be addressing the difficulties and challenges that the existing investors are facing. Among them, the most frequent challenge I receive from many Korean companies is customs and tax-related matters. It is not the high tax or duty rate but the increasing complexity, lack of transparency and predictability of the related process and administration that make it difficult for Korean investors to run businesses. It is not only increasing the cost of business but negatively affecting the perception of Bangladesh’s investment environment," he elaborated.
Another major element, he thinks, is the discrimination of foreign investors.
In particular, foreign investors operating in the EPZs are not entitled to get cash incentives for exports that are accorded to the local companies.
According to the Bangladesh policy, local RMG companies exporting to Korea can get 4% of cash incentives.
If it is given to the Korean companies, it will significantly help increase Bangladesh’s RMG export to Korea.
Bangladesh third largest recipient of Korean assistance
Ambassador Lee says that Bangladesh has been one of the priority development partner countries of Korea. At present, Bangladesh is the third largest recipient of Korea’s development assistance.
He added that ICT and technology development have been the focus of Korea’s development cooperation with Bangladesh.
In addition to establishing the ICT Training and Education Center in 2015, the Korean government has provided various assistance for digitizing government services and administration, he said.
The envoy added: "In 2019, a group of Korean experts prepared an e-government master plan and presented it to the Bangladesh Government, which included various ideas and proposals. As a follow-up of the plan, Korea, through Koica -- the Korean development agency -- is implementing a project to digitize municipal administration across the country.
"We also helped the capacity building of Bangladesh Police by establishing a cyber and digital investigation center in Dhaka and Chittagong. In the ICT application of transportation management, the Intelligent Transportation System is now under installation along the N8 Expressway.
"We are also assisting the establishment of a digital land management system. The Korean Embassy is also investing in startup programs targeting the youth. Among others, the Youth Entrepreneurship Center, which will be established at Dhaka University through Koica project, will help promote youth startups with the support of Korean experts."