Business Trade in the Bangladesh

Introduction

Bangladesh is one of the most impoverished countries, located in South Asia. It has a population of 133 million people, majority of who, live below the poverty line.

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Economic Growth

Bangladesh was one of prosperous countries in the Indian sub continent with high economic growth potential prior to colonization by both Britain and Pakistan. Billions of dollars were poured by foreign countries to bolster Bangladesh economy after the county gained self governance. Instead of the foreign Aid benefiting the people and the general economy, there was no significant improvement to the standards of living. Economic surveys indicate that Bangladesh has maintained a 5% economic growth, though no tangible evidence on the ground to confirm this. The economic growth has created a group of few billionaires and left millions of Bangladeshis in abject poverty.

The most worrying trend in Bangladesh is the dwindling industrial bases. Expectations were high that the country would make advances in industrialization in the period between 1980 and1990, but in this period, no considerable industrial growth was experienced. Recent past have seen the country make major gains in garments manufacturing industries but with the current trend in globalization, Bangladesh is likely to loose all these gains.

Agriculture is the main stay of Bangladesh economy. The monsoon rains experienced in the region support the production of Rice, Jute, tea, and wheat. Major industries found in Bangladesh deal in manufacturing and processing of Jute, garment, seafood and pharmaceuticals. Bangladesh exports includes raw jute, ready made garments, frozen sea food and leather good to United States, Britain and Japan market.

Business Cycles

The economic shocks brought about decline in economy in the 1980s and 1990 in Bangladesh did not have adverse effects on the country economy but instead were widespread over a long period of time. This was occasioned by high influx of foreign currency into the country in a bid by foreign investor to bolster the country macroeconomics activities. Billions of dollars was invested in the country by foreign countries in that period leading to accumulation of capital and cost adjustments. This was a big score for Bangladesh as the economy did not go into recession.

Despite the fact that the country never made much progress in macroeconomics development, there are many factors that have helped Bangladesh from going into recession. Bangladesh is one of the biggest exporters of labor to developed countries. Today, there are as many as 500,000 Bangladeshis working abroad. These people remit substantial amount of foreign currency which helps in stabilizing Bangladesh economy. Recent events have seen direct investment in to Bangladesh by foreign multinationals like Chevron, Navana Group and Unocal Corporation in various sectors of Bangladesh economy. Such investments are not likely to bring much economic boom but play a pivotal role bringing the much needed economic stability to prevent recession.

Trade

Bangladesh has experienced negative trade balance been since early 1980s. The annual trade is represented by 65 percent imports and 30 percent exports. For this reasons, Bangladesh can not afford to open up it market for free trade as this will result to death of its economy. Today, Bangladesh trade tariffs remains high at an average of 50%. This is relatively low compared to the 1990s trade tariff which stood at a 100% for most goods, a further 15% VAT is charged on all imports. This is in a bid to control imports into the country.

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To encourage industrial growth, tariffs and duties are reduced on machinery imported for use in less developed regions of Bangladesh. Factories which use local materials or which produce goods for export enjoy reduced imports duties to facilitate growth.

Recent arrangements between India and Bangladesh to trade under Free Trade Agreement flopped, faced with opposition from all stake holders including the World Bank, IMF and Bangladesh industries representative. This was occasioned by the fact that India would gain at the expense of Bangladesh. Already, 20 percent of Bangladesh imports come from India. Any attempt by Bangladesh to open up its market to India through Free Trade Agreement, would see Bangladesh market flooded with goods manufactured in India. This would hurt Bangladesh economy, leading to collapse of the already struggling industries. Free Trade Agreement between the two countries will only be possible if India start by first removing all trade tariffs, allowing at least 30 categories of products from Bangladesh into India’s Market.

Labor Market

Agriculture employs the highest number of people than any other sector of Bangladesh economy. Over 75 percent of the labor force is engaged in rural agricultural activities, with only 12 percent working in industries. However, continued population growth has seen an upsurge in unemployment rate leading to rural-urban migrations. The highest composition of labor force is composed of youths. Currently, unemployment stands at 32%.Only a small portion of the Bangladesh labor force is unionized, with most unions being affiliate of political parties. Strikes are a common feature in Bangladesh as worker press for better pay.

With a huge pool of professionals, Bangladesh is among the top countries exporting labor to developed countries. Currently, over half a million Bangladeshis work in foreign countries offering skilled or expatriate services. These people are a chief source of foreign currency which they remit to their relatives back home.

Bangladesh has also made stride in a bid to position itself to offer ICT offshore services just like her counterpart, India. With over 20,000 graduates in computer services from both the public and private universities; the country is set to benefit from back office job outsourced by companies based in United States, Europe and Canada to the India subcontinent. Currently the level of outsourcing and off-shoring is at a minimal rate with expected growth in future.

Bangladesh has one of the lowest minimum wages in the world. Currently, workers in garment factories receive a minimum wage of US$ 15.3 per month, equivalent to 850 Bangladesh Taka. There have been massive protests by workers pressing for better wages and the raising of minimum wage to US$ 35 per month.

Exchange Rates

Bangladesh has for a long time embraced the Convectional Fixed Peg Arrangement exchange rate regime. In this case, Bangladesh currency, the taka, exchange at a fixed rate to major currency like dollar and pounds where the exchange rate fluctuates within a narrow margin. This arrangement has been serving Bangladesh very well.

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The World Bank has in the recent past been involved directly in Bangladesh economical issues. On the matter relating to Exchange rates regime, the world bank have warned Bangladesh against the use of Floating Exchange Rate Regime until the country is able to effectively achieve its trade deficit with foreign countries. Such warnings at times are not considered by policy makers.

Recent decision to shift to free float exchange regime, largely determined by the market has resulted in a lot economic volatility which have so far seen the taka depreciate by over 9%. There is a general feeling that policy maker acted out of impulse in switching from fixed rate regime to free float regime.

Monetary Policy

The Central bank of Bangladesh is charged with various functions which include taking important economic and monetary policy aimed at stabilizing prices; it regulates the entire banking sector and manages the country’s gold reserves and foreign exchange. Bangladesh bank is the main government banker and also bank for other banks. The bank is charged with the issuance of currency and bank notes of all denominations except the one and two Taka notes.

In 1989, Bangladesh, adopted a broad Financial Sector Reform Programme which saw the country’s monetary policy takes a new direction aimed at promoting market economy in an environment which was competitive. The Bangladesh bank shifted from Direct Quantitative Monetary Control (DQMC) to indirect methods of monetary management. Target fixation was the central aim of this exercise but the way to achieve it was changed and direct control of bank interest rates and Credit Ceilings was withdrawn. Today, the supply of money is usually regulated by indirect manipulation of reserve instead of credit ceiling. The Bangladesh Bank use different monetary control instrument likes Open Market operation, statutory reserve requirement, bank rates and rediscount policy to achieve it objectives.

Bangladesh Bank has played a central role in stabilizing inflation rate caused by depreciation of the taka, as a result of shift to free float exchange rate regime. The Bank has come up with monetary policy aimed at putting inflation on a downswing trend. This have been one of the priorities that the bank have put as part of boosting economical growth aimed at improving the standards of living of Bangladeshis and bring down the rate of unemployment.

Reference

James Jeremiah Novak (1993) Bangladesh: Reflection on the water, Indian University Press, United States.

Just Faaland, John Richard Parkinson (1996) Bangladesh: The test Case of Development, Hurst Publisher, United Kingdom.

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Mahfuz R. Chowdhury (2005) Why Developing Countries Like Bangladesh Remain poor, Web.

Salehuddin Ahmed, Governor, Bangladesh Bank, Monetary policy of Bangladesh, Web.

Wahiduddin Mahmud (2003) Bangladesh Faces the Challenge of Globalization, Web.

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