CHAPTER XIV

 INDUSTRIES

14.1 Introduction

14.1.1 Manufacturing combines human ingenuity - science, technology and innovations with natural endowments of a nation. The fountain of the wealth of today's developed nations receives the perennial flow from trade in manufactures which lie at the back of their highly remunerative employment, high level of income and the high standard of living. This is why international trade is dominated by manufactures which accounted for around 75 per cent of the world merchandise exports of US$ 4,880 billion in 1995. Primary products comprised the rest in which the shares of food, fuel, minerals and metals and agricultural raw materials were 9.1 per cent, 7.1 per cent, 6.3 per cent and 2.8 per cent, respectively. It is, therefore, no wonder that the demolition of the tariff wall against trade in manufactures had been at the top of the agenda of all multilateral and plurilateral trade negotiations conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), the predecessor institution of the present World Trade Organisation (WTO), and that the developed countries, who are the greatest beneficiaries of trade in manufactures, have brought down the tariffs on manufactured goods traded amongst themselves to a level as low as 4 per cent only.

14.1.2 Failure of most of the developing economies, excepting the newly industrialised countries, to generate adequate purchasing power in their respective domestic market led them to look for purchasing power outside the national boundaries and pursue the export-led growth strategy. The bulk of exports from these countries, however, still comprises of primary commodities and historically, world prices of primary commodities have been volatile, unstable and least rewarding. Besides, these countries, more often than not, suffer from adverse terms of trade. As a result, trade has been neither a source of resource flow nor an 'engine of growth' for these countries. These stark realities, combined with the overwhelming weight of manufactures in the global export trade, make the success of the export-led development strategy contingent on the development of a viable manufacturing sector.

14.2 Past Industrial Development

14.2.1 Bangladesh is a late starter in the process of industrialisation. Before liberation, some simple process industries like jute, textiles and sugar mills, two pulp and paper mills, a small urea fertiliser plant, a cement factory, a 'mini' steel making plant with imbalanced downstream rolling facilities for making mild steel bars, sheets and plates, a few pharmaceutical units with capacities for formulation, bottling and packaging and several minor dockyards and light engineering workshops comprised the industrial base of the country. After liberation, within the overall objective of attaining a self-reliant economy, the First Five Year Plan (1973-78) of the country adopted an import-substitution strategy for industrialisation with emphasis on domestic production of basic needs and investment goods. However, with the unfortunate change in the government that was brought about in August 1975 a perceptible shift in the self-reliant economic goals and objectives occurred, making the country increasingly dependent on foreign aid and aid-financed imports covering all types of commodities - food, consumer goods, consumer durables, raw materials, intermediate inputs and of course, investment goods.

 

14.2.2 During the last twenty five years, the nation's industrialisation efforts were channelled mainly through the public sector. A major portion of public investment was devoted to new capacity creation in chemical fertilisers and in the establishment of several basic engineering industries, while both the public and private sectors invested in textiles and clothing. Some investments were also made in balancing, modernisation and expansion of some of the existing jute and textile mills. Besides, significant promotional investments were made by the government by way of setting up a large number of industrial estates for small and medium sized industrial units as well as two export processing zones (EPZs) to provide infrastructural facilities, utilities and other services for the entrepreneurs - both foreign and local. However, most of the industrial estates remained under-utilised and the strategy for labour-intensive industrialisation as well as spatial dispersal of industries, by and large, ended in a failure. With the exception of export-oriented ready made garments industries (RMGs), which achieved a commendable growth over a relatively short span of time, the country's industrialisation efforts in other areas, particularly in producing consumer goods, RMG-linkage inputs and high value added consumer durables and producer goods, did not bear much fruit. The vast potential that exists for development and diversification of agro-based and agro-support industries remains to be tapped. Indeed, even the existing industrial units gradually lost operational viability due to lack of investments in balancing and modernisation as well as loss of protective domestic markets due to liberalisation of the trade regime at a pace which did not permit necessary adjustments and relocations. Industrial units awaiting privatisation also have landed in the same situation as uncertainty and apprehension about job losses have besieged both the management and the labour equally as a result of which they have lost interest in running these units. On the contrary, in the context of conscious policy decisions to allow progressive erosion of the public sector's role in the country's industrialisation efforts, a standstill position has been reached with respect to any significant investment by the public sector in the establishment of any new production capacity.

 

14.2.3 Bangladesh is a densely populated country, with a narrow natural resource base, an extremely limited per capita availability of arable land and very low purchasing power of the population. The low purchasing power of the population is responsible for the small size of the domestic market which has shrunk further, particularly in the 1990s, due to opening up of the economy with attendant liberalisation of the trade regime. Given the small size of the domestic market, Bangladesh has to pursue an export-led development strategy with emphasis on industrialisation for sustained economic growth and social development. Such a strategy holds out the potential for eventual solution of problems like acute unemployment, abject poverty, low rate of savings and investment as well as high dependence on foreign aid.

 

14.2.4 The country has a vast pool of easily trainable manpower resources. It also has the advantage of relatively low wage level. But its technological base is weak and it lacks dynamic entrepreneurship, managerial expertise and efficiency, work forces with requisite skills and above all, adequate investible surplus. To raise the manufactures' share from the present 9.28 per cent level to 12.70 per cent of GDP by the terminal year of the Fifth Plan obviously is a challenging task. This will not only call for the necessary enabling environment, but also require an upbeat efficiency of the private sector with ability to compete in a globalised market economy and liberalised trade regime. It is, nevertheless, achievable as has been demonstrated by a number of East and Southeast Asian countries.

 

14.2.5 The crucial and logical transformation of the Bangladesh economy that is needed for an accelerated pace of industrialisation, is yet to take place. Over the last quarter of a century, the economy of Bangladesh has gone through a slow and rather erratic structural transformation. It defied the classical relationship between the structural composition of an economy and its stage of development. The share of her agricultural sector, though dropped from about 58 per cent in 1972 to about 33 per cent in 1995, the share of the manufacturing sector limped from 9.0 per cent in 1973 to a mere 11.4 per cent in 1994/95. The services sector, on the other hand, jumped from 26 per cent to about 48 per cent over the same period. To bring about a visible improvement in the quality of life of the people, the pivotal role that the manufacturing sector has to play in the desired transformation of the economy, still remains to be displayed.

 

14.2.6 The sector's share in GDP for some selected years, including benchmark years of the past Plans, and its growth over the periods under discussion are shown in the Table 14.1.

 

Table 14.1

Manufacturing Sector's Share in GDP and Past Growth Rates

(at constant prices)

 

Year

Share in GDP

(per cent)

Period

Annual Compound

Growth Rate Over

Period (per cent)

1972/73

9.00

1973 - 1978

7.35

1979/80

11.22

1978 - 1980

6.21

1984/85

9.86

1973 - 1980

7.02

1989/90

9.91

1980 - 1985

0.93

1994/95

11.36

1985 - 1990

4.22

1995/96

11.37

1990 - 1995

7.00

1996/97

11.08

1995/96

5.33

    1996/97

3.31

Source: BBS

 

14.2.7 Despite its potential for growth, the manufacturing sector in the past failed to meet expectations. In 1994/95 this sector achieved a growth rate of 8.6 per cent compared to 7.2 per cent in 1989/90. Over the period from 1990/91 to 1995/96, the manufacturing sector grew at an average annual rate of 6.3 per cent and there have been fluctuations also. The first year of the Fourth Plan registered the lowest growth rate (2.39 per cent), while the highest growth rate (9.1 percent) was achieved during the year 1992/93. The growth rates during 1995/96 and 1996/97 were 5.3 per cent and 3.3 per cent, respectively. Among the industrial sub-sectors, ready-made garments (RMG) and pharmaceuticals recorded the highest growth performances (greater than 10 percent), while growth rates of jute and cotton textiles declined.

 

14.2.8 The total investment during the period 1990/91-1994/95 stood at Tk.131,457 million, at current prices, in which the share of the private sector was 85.89 per cent, including foreign direct investment (FDI) of 10.54 per cent. Investment in the years 1995/96 and 1996/97 stood at Tk.34,919 million and Tk.34,513 million, in which the share of the private sector was 95 per cent and 97 per cent, respectively. Major portion of the investment went into fertiliser and pharmaceuticals as well as export production. Ready-made garments and knitwears jointly accounted for over 70 per cent of the total investment in the manufacturing sector. Details of year wise total investment as well as agency wise public sector expenditure in the manufacturing sector for the period under review are given in Tables 14.2 and 14.3.