Bangladesh has demonstrated remarkable development performance over the past few decades, with consistent growth averaging 6% a year since 2000.
Robust macroeconomic management, exceptional achievements in poverty reduction and sustained human development helped the country attain the World Bank's 'lower-middle income status' in 2015 and secure the United Nations Committee for Development Policy recommendation for graduating into a 'developing country' in 2026.
Building on this impressive record, Bangladesh has laid out its grand vision to become a 'High-Income Country' by 2041.
Bangladesh's stellar development so far has been primarily export-led. Over the years, Bangladesh has become an important player in the global textile and ready-made garments value chain. Records of Bangladesh's exports show an annual average growth of about 10.25% since 2001.
However, Bangladesh needs to boost its export competitiveness. Although Bangladesh has a sizable domestic market, the $28.5 trillion global trade market presents a tremendous opportunity for Bangladesh's export sector to scale up.
Bangladesh had some success in broadening its customer base in order to manage risk and adapt to changing demand patterns. However, it remains challenging to diversify into higher-value added products and tap into other large and emerging markets, particularly in the East.
Overconcentration on the Ready-Made Garment (RMG) sector is starting to yield diminishing benefits. Since 2010, annual employment growth in the textile and RMG sector has slowed down to 1.5% on average, with the RMG sector witnessing only 1.1% jobs growth over the period 2015-2020.
Rising wage demands, pressure on logistics and intensifying global competition grounded on increasingly efficient automation and a structural shift in advanced economies' demand away from fast fashion to high-quality, durable products at a premium, has put significant competitive pressure on Bangladeshi producers.
The progress of Vietnam's Preferential Trade Agreement (PTA) with the European Union (EU) will create further competition for Bangladesh's export share in the region. According to a McKinsey report, Vietnamese apparel imports into the US in 2020 were worth 2.5 times more than those imported from Bangladesh.
Bangladesh has shown great persistence in its recovery from the ongoing Covid-19 pandemic by riding on RMG exports, and Bangladesh has the opportunity to take advantage of China's shift away from garments.
While the recent German Supply Chain Act is well-intentioned, it may also have implications for Bangladesh's RMG export potential, raising costs to ensure standards.
Bangladesh's need for greater competitiveness
Bangladesh's next phase of growth calls for rapid improvement in trade competitiveness as the country's current advantage is based on disproportionately low wages, an advantage that is gradually eroding.
Bangladesh is ranked 105th in the Global Competitiveness Index 2019, which suggests that logistics, infrastructure, innovation and business dynamism can be improved.
Bangladesh has some catching up to do if it wants to be on par with other coastal countries in Asia, which is also suggested by the World Bank's Logistics Performance Index.
This goes to show that Bangladesh's strong export performance over the years could have been higher if it had been able to address domestic infrastructure needs. There is a substantial need for supporting infrastructure in order for trade to thrive.
Attaining Bangladesh's Vision 2041 will require significant development of facilitative trade infrastructure to enhance the country's connectivity to international markets.
Role of modern ports and logistics
The pandemic has brought to the fore the pivotal role a country's port performance plays in terms of timely supply of goods, both nationally and internationally. According to the World Bank, more than 80% of global merchandise trade by volume are carried by sea, with approximately 35% of total volumes and over 60% of commercial value being shipped in containers.
Meanwhile, inefficient ports hinder the attainment of national and international trade potential by imposing an extra cost both directly and indirectly in terms of time, which translates into money..
Efficient management of containers is thus integral to trade and connectivity. The role of ports is not limited to cargo handling, as ports have evolved over time into logistic integrators, which means that they include the provision of value-added logistics services which enable reduction in cost, time and complexity in accomplishing import and export activities.
Through the use of advanced technologies enabling efficient service delivery, the competitiveness of ports can be enhanced to facilitate better trade and logistics performance.
The delivery of a diverse logistics performance is driven by the quality of supporting infrastructure such as roads, railways and ports. Better transport efficiency, regional connectivity, hinterland condition and port accessibility improve a port's competitiveness further and helps develop an environment favourable to industry.
A well-connected and efficient port system with enhanced logistical capabilities is a key determinant of FDI in a country, and it can also serve as a catalyst for regional economic development.
Bangladesh's state of port and logistics
In Bangladesh, high economic costs accrue due to a congested transportation system and nascent logistics ecosystem. Logistics costs in Bangladesh are high in most sectors, up to 47.9% of sales in the case of horticulture.
Road transport cost is relatively higher in most developing and developed countries, and represents a high share of direct logistics costs. Inventory carrying costs make up a significant share of indirect costs.
According to a recent study, the average speed of trucks on highways is about 19 kilometres an hour, less than half of what it would have been in uncongested conditions.
If congested conditions are addressed, Bangladesh has the opportunity to reduce logistics costs by at least 7–35% depending on the sector.
That Bangladesh's nascent trade logistics infrastructure has further room for improvement is reflected in the Logistics Performance Index (LPI). Bangladesh is ranked 100th overall with a score of 2.58, while comparable countries such as Indonesia and India score higher on the scale.
On the other hand, enhancing port capacity and efficiency has an integral role to play in boosting Bangladesh's trade competitiveness and facilitating Bangladesh's expected growth in trade by means of amore efficient logistics service delivery and the management of containers supported by advanced technologies.
In a recent Container Port Performance Index by the World Bank and S&P Global Market Intelligence, Chattogram Port ranked 341 out of 370 ports analysed, indicating room for significant modernisation and capacity increase.
That said, it is also evident that the authorities are making efforts to deal with increasing trade cargo pressure. In 2021, Chattogram Port handled 3.2 million TEUs (Twenty-foot Equivalent Units) registering a 13% growth compared to 2020.
Demand for Chattogram Port continued to be strong even during the pandemic, as container growth and vessel growth of around 3.1% and 9.72% respectively kept the ports occupied at full capacity. Port service level, however, continues to be challenged and shows that there is room for better port performance through the expansion of port facilities and the use of modern technologies and value-added services to further increase port efficiency and logistics performance.
Improving Bangladesh's trade infrastructure and logistics would not only enable it to increase its global market share in garments and textiles, but also diversify into new markets and sectors. Improved infrastructure is estimated to have a potential impact of $35.5 billion for Bangladesh by 2030, according to a UNESCAP study.
This calls for the development of integrated logistics comprising world-class ports, roads, storages and transportation supported by the state-of-the-art technology for extremely competitive turnaround and clearance time.
Recognising the need to upgrade its ports with better and more modern facilities and increased handling capacity to support expected growth in trade, enabled by the best technologies available, the government of Bangladesh has taken some bold and timely steps such as the Matarbari port project and the Bay Terminal project in Chattogram.
The Bangladeshi government has identified Chattogram Port as a key international gateway, critical both for the functioning of the transport system and the economic success of the country. In order for Chattogram Port to continue to be able to handle growing export demand, timely implementation of additional port capacity and improving port efficiency will be crucial.
Critical projects like the Bay Terminal project, involving world class port operators like Singapore's PSA, will enable Chattogram Port to leapfrog and attain the goal of becoming a world class port.
The Bay Terminal, capable of supporting domestic cargo as well as enabling passage of regional cargo in the Bay of Bengal area, can help increase Chattagram Port's handling capacity from the current 3.2 million TEUs, taking it close to the expected 5.6 million TEU containers by the year 2036, as forecasted in the Strategic Master Plan.
Well-positioned to handle larger vessels of about 5,000 TEUs, the Bay Terminal will be transformational for Bangladesh if it is supported by the necessary road, rail, inland waterway, and storage/warehousing infrastructure to link it to the commercial hubs and cargo hinterland in the country. This would enable multimodal solutions, enhance competitiveness and ensure full use of its potential.
The Strategic Master Plan of Chittagong Port recognises the need for the corresponding expansion of hinterland links in tandem with port infrastructure to cater to the projected trade growth, and calls for coordinated planning and implementation among road, rail, waterway, and cargo handling operations in order to create sufficient infrastructure capacity. It is thus paramount that port development is also accompanied with timely modernisation of road and railway connectivity.
Creating an efficient and sustainable port and logistics ecosystem will require each component in the supply chain to be optimised. A holistic governmental approach is needed in the form of greater coordination among the relevant ministries, authorities and the private sector in order to increase the effective capacity of core and supporting infrastructure and to remove distortions in logistics service markets.