Diversifying for Stability: Bangladesh’s New Focus on Leather, Jute, and Agro-based Industries amid Economic Crisis

Sarder Ali Haider[1]

Bangladesh is currently navigating through a challenging economic landscape. A significant part of this crisis is the severe depreciation of the Bangladeshi taka against the US dollar, which has led to a foreign exchange reserve crisis. Over the past year, the taka has seen a marked decline, significantly impacting the purchasing power for imports and increasing the nation’s financial vulnerability. This situation is compounded by the slowdown in global demand due to the aftermath of the COVID-19 pandemic and the ongoing geopolitical uncertainties​​​​.

Additionally, while Bangladesh has achieved commendable export earnings, with the RMG sector being the primary contributor, other vital sectors have witnessed negative growth. This has raised concerns about the sustainability and resilience of Bangladesh’s export-driven economy​​.

In the face of these economic challenges, diversification emerges as a crucial strategy. Over-reliance on a single sector, such as the RMG, makes the economy vulnerable to global market fluctuations and sector-specific challenges. Diversification not only helps in spreading these risks but also opens new avenues for growth and development. By tapping into different sectors, Bangladesh can create a more balanced and resilient economy capable of withstanding external shocks.

Recognizing this need for diversification, the Bangladesh government has turned its attention to other potential sectors like leather, jute, and agro-based industries. These sectors have been identified as having substantial growth potential and the ability to contribute significantly to the nation’s export earnings.

The leather industry, with its historical significance and existing infrastructure, presents an opportunity for value-added exports. The jute industry, once a cornerstone of the Bangladeshi economy, has the potential to be revived, especially in the context of growing global demand for eco-friendly products. Lastly, the agro-based industry, pivotal due to Bangladesh’s agricultural heritage, can be a significant source of export diversification, tapping into the global demand for diverse agricultural products.

In the following sections, we will explore deeper into each of these sectors, examining their current state, challenges, and the opportunities they present in the broader context of Bangladesh’s economic diversification efforts.

The Current Economic Landscape in Bangladesh

Detailed Analysis of Economic Challenges

Dollar Crisis: Bangladesh is grappling with a severe dollar crisis, manifesting in the significant depreciation of the Bangladeshi taka against the US dollar. Over the past year, the taka has depreciated by approximately 10%, leading to a record low against the dollar. This depreciation has severely impacted the country’s capacity to afford imports, contributing to a foreign exchange reserve crisis. The devaluation of the taka increases the cost of importing raw materials, fueling inflation and affecting the overall cost of living​​​​.

RMG Sector Dependency: The RMG sector has been the backbone of Bangladesh’s export economy, contributing significantly to the country’s export earnings. However, this heavy reliance on a single sector poses risks. The RMG sector’s performance is closely tied to global market conditions, particularly demand in major export markets like the US and the EU. Any fluctuations or downturns in these markets can have a direct and significant impact on Bangladesh’s economy.​​

Statistical Overview of Export Earnings and Sectoral Contributions

Export Earnings: In fiscal year 2022-23, Bangladesh earned a record $55.55 billion in export earnings, demonstrating a year-on-year growth of 6.67%. However, this figure was 4.28% less than the targeted $58 billion, partly due to decreased global demand and other economic challenges. The RMG sector was the highest earner, contributing $46.99 billion​​.

Sectoral Contributions: Apart from the RMG sector, most other notable sectors, including leather, jute, home textiles, agricultural products, and engineering products, saw negative growth in FY23. For instance, leather and leather goods registered a negative growth of 1.74% to $1.22 billion, while jute and jute goods experienced a negative growth of 19.4% to $912.25 million.

Impact of Global Market Conditions on Bangladesh’s Economy

Global Demand and Supply Chain Disruptions: The slowdown in global demand, partly due to the economic aftermath of the COVID-19 pandemic and ongoing geopolitical tensions, has adversely affected Bangladesh’s export sectors. The RMG sector, in particular, has faced challenges like order cancellations and reduced demand in key markets.

Inflationary Pressures: The global increase in commodity prices, especially in the wake of the Ukraine conflict, has led to higher costs for essential imports like fuel and raw materials. This has contributed to domestic inflation, further straining the purchasing power of consumers and businesses in Bangladesh.

Credit and Investment Concerns

The dollar crisis and inflation are not just domestic issues but also affect Bangladesh’s ability to attract foreign investment. Concerns about the country’s economic stability may lead to a decrease in investor confidence. Additionally, the potential risk of a credit rating downgrade, as indicated by Moody’s recent actions, can increase the cost of borrowing for Bangladesh and affect its financial reputation on the global stage.

The economic landscape of Bangladesh is currently marked by a series of interlinked challenges: the dollar crisis, heavy dependency on the RMG sector, negative growth in other key export sectors, and the impact of adverse global market conditions. These factors collectively underscore the need for a diversified and resilient economic structure that can better withstand external shocks and ensure sustainable growth.

The Significance of the Leather Industry

Historical Perspective and Current State

Historical Background: The leather industry in Bangladesh has a long-standing history and has been recognized as a significant sector for its potential in the global market. Traditionally, Bangladesh has been known for producing high-quality leather, primarily due to the country’s favorable climatic conditions for livestock, which provide a good base for raw leather.

Current State: Despite its potential, the leather industry in Bangladesh has faced various challenges in recent years. It remains a significant contributor to the nation’s export earnings, standing as the second-highest exporter after the RMG sector. However, the industry has seen a negative growth trend, with exports in the fiscal year 2022-23 showing a decline​​. The industry is primarily concentrated in the Dhaka district, with the relocation of tanneries from Hazaribagh to the Savar Leather Industrial Park, aiming for better environmental compliance and modernization.

Challenges Faced and Potential for Growth

Environmental and Compliance Issues: One of the primary challenges has been environmental concerns, particularly in terms of waste management and pollution. The relocation of tanneries to the Savar Leather Industrial Park was a step towards addressing these issues, but challenges in infrastructure and waste treatment facilities continue to impede progress.

Market Access and Quality Standards: The industry also faces challenges in accessing high-value international markets, partly due to the lack of compliance with global environmental and labor standards. There is a need for improved quality control, certification, and branding to meet international standards and preferences.

Potential for Growth: Despite these challenges, the leather industry in Bangladesh holds significant potential for growth. With adequate investment in technology, training, and infrastructure, along with adherence to environmental and labor standards, the industry can tap into higher-end markets. The availability of raw materials domestically provides a solid foundation for this growth.

Government Initiatives and Incentives

Policy Support: The Bangladeshi government has recognized the potential of the leather industry and has implemented various policies and incentives to promote its growth. This includes the establishment of the Savar Leather Industrial Park, which aims to provide a modern and environmentally compliant space for tanneries.

Financial Incentives: The government offers various financial incentives, such as tax holidays and export subsidies, to encourage investment in the leather sector. Additionally, there are provisions for low-cost financing and grants for meeting environmental compliance standards and regulations. These financial measures are designed to ease the capital requirements for modernizing and expanding leather businesses.

Training and Development Programs: Recognizing the need for skilled labor in the industry, the government, in collaboration with various organizations, has initiated training programs for workers in the leather sector. These programs aim to enhance skills in leather processing, quality control, and compliance with international standards.

Export Promotion: The government, through bodies like the Export Promotion Bureau, has been actively involved in promoting Bangladeshi leather in international markets. Participation in international trade fairs and exhibitions is encouraged and often subsidized to increase the global visibility of Bangladeshi leather products.

Future Prospects: Looking ahead, the government’s focus seems to be on transforming the leather sector into a more sustainable, environmentally compliant, and globally competitive industry. The emphasis is on moving up the value chain by not just exporting raw leather but also finished leather products, which have a higher value in the international market.

While the leather industry in Bangladesh faces significant challenges, its historical significance, coupled with the government’s initiatives and the inherent potential for growth, positions it as a key player in the country’s economic diversification strategy. With concerted efforts towards environmental compliance, quality improvement, and market expansion, the leather industry could significantly bolster Bangladesh’s export earnings and contribute to a more diversified and resilient economy.

The Role of the Jute Industry in Economic Diversification

Historical Importance of Jute in Bangladesh’s Economy

“Golden Fiber” Era: Jute, often referred to as the “Golden Fiber”, has historically been one of the most important natural fibers in Bangladesh, both economically and culturally. During the 20th century, particularly in the post-independence era, jute was the largest export earner for Bangladesh. The country was one of the world’s largest producers and exporters of jute fiber and products.

Contribution to Economy: Jute played a crucial role in the rural economy, providing employment to millions of farmers and workers in jute mills and related industries. The export of jute and jute products significantly contributed to the country’s foreign exchange earnings.

Challenges Faced by the Jute Industry

Decline in Demand: The advent of synthetic substitutes led to a global decline in the demand for jute. This had a profound impact on the jute industry in Bangladesh, leading to the closure of many jute mills and loss of jobs.

International Trade Barriers: The jute industry faces challenges in the form of anti-dumping duties imposed by countries like India, which have affected exports. Such international trade barriers have made it difficult for Bangladesh to maintain its competitiveness in the global jute market​​.

Local Production Issues: Challenges within the industry include outdated machinery, inefficiencies in production processes, and inadequate investment in modernization. Moreover, issues related to the quality of raw jute and fluctuating prices have affected the overall profitability and sustainability of the jute sector.

Government Strategies to Revive and Promote the Jute Industry

Policy and Regulatory Support: The government of Bangladesh has enacted policies to support the jute sector, including the National Jute Policy-2018, which prioritizes the production of quality jute, ensuring fair prices, and expanding the market for jute products.

Promotion of Jute as an Eco-Friendly Alternative: With the growing global emphasis on environmental sustainability, the government has been promoting jute as an eco-friendly alternative to synthetic materials. The Packaging Act of 2010 was enacted to encourage the use of jute bags instead of plastic​​.

Export Promotion and Incentives: The government, through the Export Promotion Bureau, is actively involved in organizing international and local fairs to showcase jute products. Financial incentives and subsidies are provided to encourage the export of diversified jute products.

Focus on Diversification and Quality Improvement: Efforts are being made to diversify the range of jute products and improve their quality to meet international standards. This includes developing value-added products like jute textiles, geo-textiles, and home décor items, which have a higher market value.

Research and Development: The government and various research institutions are focusing on R&D to enhance the quality of jute fiber and develop new uses for jute. This includes improving agricultural practices for jute cultivation and exploring innovative uses in various industries.

Revitalizing Infrastructure: Efforts are being made to modernize jute mills and improve infrastructure to boost efficiency. This includes upgrading machinery, improving supply chain management, and providing training to workers.

International Collaboration: Bangladesh is seeking to collaborate with international partners and organizations to enhance market access for its jute products. This includes negotiating trade agreements and participating in international trade expos to showcase the versatility of jute.

The jute industry in Bangladesh holds significant potential for contributing to the country’s economic diversification. By addressing the current challenges and capitalizing on the global shift towards eco-friendly products, the jute industry can reclaim its position as a vital sector of the Bangladeshi economy. With the right strategies and support, jute can once again become a key export product, contributing to sustainable economic growth and diversification.

The Potential of Agro-based Industries

Overview of Bangladesh’s Agricultural Sector and Its Economic Impact

Significant Sector: Agriculture is a cornerstone of the Bangladeshi economy, engaging a substantial portion of the labor force. It plays a critical role in ensuring food security, generating employment, and contributing to the GDP.

Diverse Produce: Bangladesh’s agricultural sector is diverse, encompassing crop production, livestock, fisheries, and forestry. Major crops include rice, jute, tea, wheat, sugarcane, and various fruits and vegetables.

Economic Contribution: Despite the growing importance of other sectors like RMG, agriculture remains a significant contributor to Bangladesh’s economy. It provides raw materials for the agro-based industries and plays a vital role in the rural economy.

Challenges in Agro-based Industries and the Potential for Export Growth

Challenges: The primary challenges facing the agro-based industries in Bangladesh include limited access to modern technology, inadequate storage and processing facilities, and challenges in meeting international quality standards. Additionally, climate change and natural disasters pose a significant risk to agricultural productivity.

Export Growth Potential: Despite these challenges, there is a considerable potential for export growth in the agro-based sector. Products like tea, seafood, spices, and fruits have high demand in international markets. With proper investment and development, these products can significantly increase Bangladesh’s export earnings.

Value Addition: There is an opportunity to add value to agricultural products through processing, packaging, and branding. This would not only increase their market value but also help in diversifying the export basket.

Government Policies and Support for Agro-based Industry Development

Policy Initiatives: The Bangladeshi government has implemented various policies aimed at promoting the agricultural sector. These include subsidies on agricultural inputs, support for irrigation and infrastructure development, and research on crop diversification and improvement.

Financial Support: The government provides financial support to farmers and agro-based industries, including easy access to credit and insurance against crop failure or natural disasters.

Training and Development: Efforts are made to provide training and development programs for farmers and entrepreneurs in the agro-based industries. These programs focus on modern agricultural practices, efficient use of resources, and adaptation to climate change.

Export Incentives: The government offers incentives for exporting agro-based products. This includes tax benefits, support in meeting international standards, and assistance in finding export markets.

Infrastructure Development: Investments are being made in developing infrastructure such as cold storage, processing units, and efficient supply chains. This is crucial for reducing post-harvest losses and ensuring the quality of agro-products.

The agro-based industries in Bangladesh hold immense potential for contributing to the nation’s economic diversification and growth. By addressing the existing challenges and leveraging government support, these industries can significantly enhance their contribution to the economy, particularly in the export sector.

Comparative Analysis with RMG Sector

Overview of the RMG Sector’s Dominance in Bangladesh’s Exports

Major Contributor: The Ready-Made Garment (RMG) sector is the backbone of Bangladesh’s export economy, significantly contributing to the country’s GDP and employment. It has played a pivotal role in the economic development of Bangladesh.

Global Position: Bangladesh is one of the world’s largest exporters of garments, primarily catering to major western markets. The sector has seen substantial growth over the years, thanks to low labor costs and favorable trade agreements.

Economic Impact: The RMG sector not only contributes significantly to export earnings but also has a vast socio-economic impact, providing employment to millions, especially women, and fostering ancillary industries.

Comparing Government Support and Incentives between RMG and New Focus Sectors

RMG Sector Support: The RMG sector has historically received extensive support from the government in terms of financial incentives, policy support, and infrastructural development. This includes tax holidays, export subsidies, and access to low-cost financing.

Support for Leather, Jute, and Agro-based Industries: While these sectors have received government attention, the level of support has been less extensive compared to the RMG sector. However, recent initiatives indicate increasing government interest in diversifying the export base, with incentives and policies being introduced to promote sectors like leather, jute, and agriculture​​​​

Comparison: The RMG sector’s growth has been fueled by a combination of favorable global market conditions and strong domestic policy support. In contrast, the leather, jute, and agro-based sectors have faced challenges like environmental compliance, market access, and infrastructural limitations. The government’s recent focus on these sectors aims to bridge this support gap.

Analyzing the Potential of Leather, Jute, and Agro-based Industries to Complement the RMG Sector

Complementary Role: These sectors have the potential to complement the RMG sector by diversifying the export base and reducing over-reliance on a single sector. This diversification is crucial for economic stability and sustainability.

Expanding the Export Basket: Leather and jute products, with their eco-friendly and sustainable appeal, can tap into new market segments. Similarly, agro-based products can cater to the growing global demand for organic and specialty foods.

Creating Synergies: There is potential for creating synergies between these sectors and the RMG sector. For instance, the development of the leather and jute sector can lead to the production of high-value accessories and packaging materials for the garment industry.

Economic Resilience: By developing these sectors, Bangladesh can mitigate the risks associated with global demand fluctuations in the RMG sector, ensuring a more resilient and balanced economic growth.

While the RMG sector will continue to be a key player in Bangladesh’s economy, the development of the leather, jute, and agro-based industries is essential for economic diversification. This not only spreads economic risk but also opens new avenues for growth and development, contributing to a more robust and sustainable economy.

Case Studies and Success Stories

Apex Footwear Limited: Apex Footwear Limited, one of the leading leather footwear manufacturers in Bangladesh, stands as a success story in the leather industry. The company has made significant strides in producing high-quality footwear and leather goods for both local and international markets. Apex has developed a strong brand presence and has successfully penetrated European and North American markets, showcasing the potential of Bangladeshi leather products on the global stage.

Quote from Industry Leader: Syed Nasim Manzur, Managing Director of Apex Footwear Limited, in an interview, emphasized the importance of innovation and quality in achieving international success. He stated, “Our focus on quality products, along with consistent innovation and understanding of market trends, has been key to our success in the competitive global market.”

Jute Industry Success Story: Golden Jute Industries Ltd is one of the successful jute mills in Bangladesh that has diversified its product range beyond traditional jute products. They have ventured into producing jute yarns, geo-textiles, and diversified jute lifestyle products that have gained popularity in international markets. Their commitment to sustainability and quality has helped them establish a strong market presence.

Quote from Industry Expert: Dr. Mubarak Ahmad Khan, a prominent scientist in jute research, noted, “The innovation in product diversification and focus on quality is crucial for the jute industry. Companies like Golden Jute Industries are setting an example by exploring new market segments and showing the world the versatility of jute.”

Agro-based Industry Success Story: PRAN-RFL Group, one of the largest conglomerates in Bangladesh, has a significant presence in the agro-based industry. Their success lies in value addition and export of a wide range of agricultural products, including processed foods and beverages. PRAN’s commitment to quality and adaptation to international standards has enabled them to export their products to over 140 countries.

Quote from Industry Leader: Ahsan Khan Chowdhury, Chairman and CEO of PRAN-RFL Group, in an interview, highlighted the importance of meeting international standards and innovation in product development. He stated, “Our focus on international standards and continuous innovation in product development has been key to accessing global markets and expanding our brand presence.”

Cross-Sector Success

Case Study: Square Textiles Division: Square Textiles Division, part of Square Group, a leading business conglomerate in Bangladesh, has successfully integrated cotton production with textile manufacturing. Their model of controlling the supply chain from raw cotton to finished textiles has not only ensured quality but also allowed for greater market responsiveness.

Quote from Industry Expert: Dr. Rubana Huq, former President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), commented on the importance of supply chain integration and diversification, “Integrating different stages of production, from raw materials to finished goods, is crucial for ensuring quality and sustainability in the textile and garment sector. It’s a model that can be replicated in other sectors for enhanced competitiveness.”

These case studies and quotes from industry leaders and experts highlight the successes and potential in various sectors of Bangladesh’s economy. They demonstrate how innovation, quality focus, market understanding, and supply chain integration can lead to significant achievements in the global market.

Challenges and Recommendations

Identifying Key Challenges

Infrastructure and Technology: A major challenge in diversifying into sectors like leather, jute, and agro-based industries is inadequate infrastructure and outdated technology. This limits production capacity, quality, and compliance with international standards.

Access to Finance: Small and medium-sized enterprises in these sectors often struggle to access finance. High interest rates and complex loan procedures hinder their growth and modernization efforts.

Market Access and Compliance: Entering international markets requires compliance with stringent quality and environmental standards. Many enterprises in these sectors lack the expertise and resources to meet these standards.

Skilled Workforce: There is a shortage of skilled labor in these sectors. The workforce often lacks the necessary training and skills to operate advanced machinery and adopt modern production techniques.

Strategic Recommendations for Effective Diversification

Investing in Infrastructure and Technology: The government and private sector should invest in modernizing infrastructure and technology. This includes setting up modern facilities, adopting sustainable practices, and enhancing quality control mechanisms.

Facilitating Access to Finance: Financial institutions should simplify loan procedures and offer lower interest rates for businesses in these sectors. The government could also provide subsidies or tax incentives to encourage investment.

Enhancing Market Access and Compliance: Programs to assist businesses in obtaining international certifications and meeting compliance standards are crucial. This includes workshops on environmental and quality standards and providing consultancy services for certification processes.

Workforce Development: Focus on training and skill development is essential. Vocational training programs, in collaboration with industry experts, can provide the necessary skills to workers in these sectors.

Role of Private and Public Sectors in Facilitating Growth

Public Sector: The government’s role involves creating a conducive policy environment that encourages diversification and growth. This can be achieved through tax incentives, reducing bureaucratic barriers, and providing support for compliance with international standards. The government should also focus on developing infrastructure, such as industrial parks and improved logistics networks that are crucial for these sectors.

Private Sector: The private sector should focus on innovation, research and development, and adopting sustainable business practices. Collaborations with foreign investors and partners can bring in the necessary capital, technology, and expertise. Additionally, private enterprises should engage in capacity building and training initiatives to develop a skilled workforce.

Public-Private Partnerships (PPPs): PPPs can be an effective tool for infrastructure development and technological advancement in these sectors. Such collaborations can leverage the strengths of both sectors – the efficiency and innovation of the private sector and the regulatory support and public welfare focus of the public sector.

International Collaboration: Both the public and private sectors should seek international collaborations for technology transfer, market access, and adherence to global standards. This includes participation in trade agreements, international expos, and cooperation with international development agencies.

Focus on Sustainability: Emphasizing sustainability and eco-friendly practices is not only necessary for environmental reasons but also for market access, as global consumers are increasingly demanding sustainable products.

Diversifying Bangladesh’s economy requires a concerted effort from both the public and private sectors. By addressing these challenges and implementing strategic recommendations, these sectors can complement the established RMG sector, contributing to a more resilient and diversified economy. This approach will not only help mitigate risks associated with global market fluctuations but also ensure sustainable economic growth.

Conclusion

The journey towards diversifying Bangladesh’s economy, with a focus on the development of leather, jute, and agro-based industries, presents a promising path towards economic resilience and sustainability. These sectors, each with their unique strengths and potential, offer avenues to lessen the country’s reliance on the RMG sector and to tap into new markets and opportunities.

By expanding into the leather, jute, and agro-based industries, Bangladesh can mitigate the risks associated with global demand fluctuations in the RMG sector. This diversification strategy is vital for building a more robust and less vulnerable economy.

Diversifying these industries has the potential to create significant employment opportunities, especially in rural areas, contributing to poverty alleviation and social stability. With the right strategies and support, these sectors can substantially increase Bangladesh’s export earnings, contributing to a more balanced trade scenario and foreign currency reserves.

The long-term vision for Bangladesh’s economy involves sustainable and inclusive growth. This includes not just economic growth but also environmental sustainability and social equity.

Integrating these diversified sectors into the global market requires a focus on quality, compliance with international standards, and innovation. This will position Bangladesh as a competitive player in the global economic landscape.

The government should continue to provide policy support, infrastructure development, and financial incentives, ensuring an enabling environment for these industries to thrive. Businesses and entrepreneurs must seize the opportunities these sectors offer, investing in technology, quality improvement, and market expansion strategies. Collaboration between the government, private sector, and international partners is crucial. This includes joint ventures, knowledge sharing, and accessing global networks for technology and market access.

Engaging local communities and ensuring that the benefits of growth in these sectors are inclusive and equitable is vital. This includes skill development and ensuring fair labor practices. The strategic diversification into leather, jute, and agro-based industries can be a game-changer for Bangladesh’s economy. It requires a concerted effort from all stakeholders to realize this vision and propel Bangladesh towards a future marked by economic stability, growth, and sustainability.

[1] PhD Researcher, Bangladesh University of Professionals.