• Thursday, Aug 06, 2020
  • Last Update : 07:07 pm

All eels in one basket?

  • Published at 05:13 pm March 4th, 2020
switzerland-swiss coronavirus
The economic impact of the virus has been unprecedented REUTERS

How the coronavirus crisis impacted an unlikely market

The panic set off at the news of the coronavirus (now named COVID-19) outbreak has been heard by the world. To add to the woes, the potential pandemic, which called for quarantine measures in China, has now been found to be spreading in other countries as well.

While the extent of China’s impact on the world economy needs no re-iteration, the impending repercussions of imbalanced dependence on a single economy seems to have been buried under the remarkable success of the Chinese economy over the last decade and a half.

Globalization and interdependence of economies is a reality forged by theories of optimum utilization of resources and competitive advantages. Today, the implications of these phenomena impact even the smallest of business operations across the world.

Bangladesh, for one, is a country that relies heavily on imports from Chinese firms and also gains greatly from consumption of its products in China. While concerns about the effect of a disrupted supply chain -- China being the source of 13% of global exports -- is troubling businesses of all sizes across the world, lost export revenue is an equally poignant issue.

Bangladesh is currently at a negative balance of trade with China, imports being almost 17 times as much as exports, and only the export of a select few products from the country to China is helping cover a little bit of the gap.

That these exports are of perishable products does not help at all, because any hope of storing them for future trade is non-existent.

One of these China-bound export items is the mud-eel. Almost all mud-eels (local: cuchia) produced in the country are exported, China being the recipient of more than a lion’s share. While the mud-eel from Bangladesh is also being exported to Vietnam, Philippines, Singapore, Japan and even to the US, shipments to China account for as much as 90% of the total export value.

When China’s neighbour Japan is the single largest eel-consuming country in the world, and Bangladesh enjoys favourable trade terms with the country, such continued dependence on China is baffling.

Now that trade with China is at a halt and irreversible losses have been made, members of trade bodies related to the sector are reported to be exploring alternative markets for the cuchia and crab. At a time when global competition is heating up and businesses and countries are proactively investing in exploring and developing innovative solutions to competitiveness challenges of the future, such reactive mindset of Bangladesh industries needs to be shed at the earliest.

As per the latest reports, the lockdown of the Chinese economy following the coronavirus has resulted in daily losses of $353,000 for the crab and cuchia industry. This situation serves as a glaring example of the consequences of over-dependence.

For many in the country, the existence of the cuchia export industry might as well be news. However, an industry that brought in as much as $16 million in fiscal year 2018-19, and one that has been in operation for decades, is important for the economy and cannot simply be ignored.

What might seem a very small contribution to the national export volume of $40.53bn, has in it lessons for the entire economy.

A significant portion of Bangladesh GDP is dependent on the inflow of foreign remittance, and a major source of inflow is export earnings. Even as Bangladesh continues to register very good GDP growth figures, the contribution of exports to the GDP is going down (15.98% in FY 14-15 to 13.37% in FY 17-18).

Struggling to maintain price competitiveness in RMG, and quality competitiveness in shrimp -- the two very important export basket items -- means that the country is hitting a roadblock in its run towards the middle-income status by 2041. Risks of EU lifting the GSP protection for imports from Bangladesh, following ILO’s expression of concerns about the work conditions, are likely to create greater concerns for the export sector.

Taking necessary steps to boost export volume and value is key to maintaining the GDP growth. While the country’s private consumption levels continue to rise, there will be a saturation point, and the rate of GDP growth will increasingly depend on the growth of exports.

In a bid to boost the export earnings, and having recognized the importance of export basket diversification, the government has been providing cash incentives to exporters of 35 products -- including the nine added in 2018.

The inclusion of cuchia in this list has had a significant, if not singular, contribution to more than doubling the cuchia export value to $16m in 2018-19 from the FY 2014-15 to FY 2017-18 average of $6.8m. Government policies such as lowering borrowing rates, and subsidizing or incentivizing exports have proven their efficacy in boosting exports. In addition, facilitation initiatives by various organizations, such as the LIFT project by PKSF, is encouraging engagement of more people in this sector, resulting in increased market activity.

It is time, then, to undertake measures that diversify the export destinations, in addition to export basket diversification. This will prevent over-dependence on specific economies, safeguard against black swan events such as the coronavirus, ensure risk diversification, and create potential for further export expansion through new market penetration.

Nabeel Khan is the co-founder of Market Insights -- a market research and consultancy firm. He specializes in market competitiveness and business development, and in the field of sustainable development.

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