Bangladesh’s Exports to Canada

Introduction

Trade between Canada and Bangladesh has seen substantial growth in the last decade, with Bangladesh having a major trade surplus. Its exports to Canada, according to Statistics Canada, have grown by 37% in the last five years. In contrast, Canada’s export growth has remained somewhat flat during the same period. There seems to be no major concern on the Canadian side about this, and we have not seen any action from the government to boost trade with Bangladesh. One may assume that this is because the export to Bangladesh of US$640 million is insignificant when compared to Canada’s total exports to all countries of US$475 billion in 2014 (about 0.1%).

Data: Statistics Canada

On the other hand, Bangladesh’s exports to Canada of about US$1.1 billion in 2014 is definitely significant to Bangladesh’s economy, as its total export figure, according to the Export Promotion Bureau of Bangladesh, is around US$30 billion, and Canada ranks as its sixth largest export destination. Thus, the issue of sustainability of exports to Canada in future years is an important one for Bangladesh.

In recent years, the major items Bangladesh exports to Canada are ready-made garments and household linens (close to 90% of the export value). These exports are very much dependent upon a few Canadian retailers. There is always a risk that if some of these retailers decided to change their purchase pattern and buy from other countries, such as Cambodia, Azerbaijan or Nepal, the effect on the Bangladeshi economy would be noticeable, if not devastating.

Some experts argue that this cannot happen in the near future, as the garment buyers from Canada cannot easily find another country with lower cost of labour, quality standards in manufacturing and ease of doing business.

While there are a number of countries like Kyrgyzstan with lower average cost of labour, western retailers prefer to do business with countries they consider as easier to deal with. The wages (and therefore the cost) in such developing countries where doing business is as easy as Bangladesh, like Vietnam and India, are significantly higher. In fact, Bangladesh also has an extremely large choice of garment manufacturers (approximately five thousand) compared to Vietnam (a mere thousand).

However, such rationalization does not take into account the effect of media reactions to the retailers unrelated to the above three criteria. The Rana Plaza Factory Collapse two years ago worried Bangladeshi garment manufacturers that Canadian retailers may be swayed by the negative public relations impact of such a disaster and not purchase from them.

While the Bangladeshi government continues to pledge that such accidents will not recur, there seems to be no real assurance. It is not difficult to imagine that more damaging publicity could cause serious detriment to the trade balance. In addition, internal security in Bangladesh is a major issue for foreign buyers of readymade garments. The Wall Street Journal reported on October 19, 2015 that recent killings in Bangladesh are taking a toll on the garment industry, as foreign retailers are postponing business trips, cancelling buyer’s conferences, and a number of Bangladeshi manufacturers are providing armed guards for their customers when they visit Dhaka. The killings are not related to the garment industry. However, the Bangladesh government has not been able to provide a sense of personal safety to foreign visitors, which needs to be rectified immediately.

It is clear that from a Bangladeshi perspective on the bilateral relationship, trade is the most significant factor. It is in the interest of Bangladesh to continue fostering exports and to retain an amiable affiliation. The two other economic advantages from external sources – remittances by Bangladeshi workers abroad and foreign aid – are negligible.

The remittances from Canada to Bangladesh are minuscule. Bangladeshi immigrants to Canada hardly remitted money over the years. Similarly, the Canadian development aid to Bangladesh has become insignificant and irrelevant compared to countries like Japan. Canada’s US$60 million hardly compare to the loans and grants amounting to approximately US$2 billion per year from Japan. In fact, Bangladesh does not even consider Canada as a significant donor country.

Other areas of foreign relations, such as defence and security, are also inconsequential because of distance and different political priorities.

The present paper, therefore, focuses upon why, how and what Bangladesh needs to do to foster its relationship vis-à-vis Canada with the objective of determining ways to expand Bangladesh’s exports. This will entail finding measures to, (a) avoid public relations disasters, (b) overcome non-tariff barriers (as Bangladesh has a tariff-free status with Canada being a least developed country LDC) and (c) provide incentives to areas where it should expand for sustainable export growth for the long term.

Generally, trade and investment go hand in hand for a strong commercial relationship, and it is important to look into the bilateral investment status. However, as very little statistical data is available in this area, one may reasonably assume that the investment amount is negligible (currently the Canadian direct investment is estimated by the Canada Bangladesh Chamber of Commerce (CanCham)at less than US$300 million, and Bangladeshi investment to Canada at less than US$100 million) and that it can only go up. This is the reason why this preliminary paper does not focus on the Canada-Bangladesh investment scene.

Status of Bilateral Trade

According to Statistics Canada, the merchandise trade between Bangladesh and Canada in 2014 was US$1.75 billion, with Bangladesh having a trade surplus of US$468 million and exports to Canada of US$1.1 billion. Bilateral trade has increased by 37% since 2010. In addition, Bangladesh is Canada’s second-largest trading partner in South Asia. Interestingly, while Canada’s trade relationship with the SAARC countries on the whole is dismal, its exports to Bangladesh have remained consistent and second only to India.

Canada’s trade in 2014 with India was US$5.8 billion. This amount is about three times that of its trade with Bangladesh, while India’s GDP is more than twelve times higher than Bangladesh’s. Canada’s trade with India is particularly disappointing to Canada, as the Canadian government has allocated a large amount of resources (money and personnel) for expanding trade, including negotiations for a free trade agreement. While India has not been active in expanding trade in Canada, bilateral Canada-India trade has increased by 43% since 2010 with Canada having a trade surplus of US$39 million.

This is in spite of Canada’s not considering Bangladesh as a strategic partner for trade and spending minuscule amounts on bilateral trade expansion.

At the present time, the main Canadian imports from Bangladesh, according to Statistics Canada, include the following:

Readymade garments
Bed and kitchen linens
Shrimps and frozen fish
Footwear and headgear
Umbrellas and other accessories
Tableware and Kitchenware

And the Canadian exports to Bangladesh include:

Wheat products
Lentils and peas (or dal)
Canola seeds
Metal and alloy products
Engineering products
Aircrafts
Lumber and wood pulp
Automatic regulating or controlling instruments and apparatus

Sustainability of Bangladesh’s Export to Canada

As explained earlier, the lion’s share of Bangladesh’s export is in readymade garments and household linen. The insight gathered from the garment manufacturers in Dhaka in this regard clearly indicates that these manufacturers are almost totally dependent upon the major western retailers, including Canadian ones. The market is also very price-sensitive, and if exporters of another country cut prices, or major Canadian retailers, such as Loblaws, Haggar Canada or Wal-Mart Canada, decide to purchase from another country, the Bangladeshi export numbers could collapse. Thus, for Bangladesh, sustaining or even increasing its exports should be its foremost goal.

In this setting of vulnerability, and as Canada is one of the major export destinations, it is difficult to understand why there is hardly any noticeable export promotion drive in Canada by Bangladeshi organizations, including the government and other trade associations.

In April, 2015, President of the Canada Bangladesh Chamber of Commerce (CanCham Bangladesh) Masud Rahman announced that Bangladesh aims to raise its garment exports to Canada at least five-fold to $3.5 billion by 2021. The author has seen no action on the part of CanCham nor Bangladesh Garment Manufacturers and Exporters Association (BGMEA) for further market promotion.

The few trade missions that come to Canada are not highly professional. More proficiency, determination and initiative (which will require substantially more resources) need to be brought into the export promotion. Otherwise, trade expansion efforts will be futile. It would also require major action from the Bangladeshi government, and not merely from a few announcements made by trade associations and chambers of commerce.

The author had the opportunity to participate in a trade mission from Bangladesh in Toronto. He was surprised by the lack of publicity given to the mission. Most visitors to the trade show (organized by the Bangladesh High Commission in Ottawa) were relatives of the exhibitors who came from Bangladesh and some local Bangladeshi Canadians who hardly could be considered as appropriate business visitors. Some mission participants openly said that this is an easy way to get a Canadian visa to visit relatives and friends in Canada and the US.

The difficulty for observers outside the government is that it is not clear how seriously and critically the Bangladeshi government looks into this situation. While it is highly elating to find that Bangladesh is moving from being an aid recipient country to an emerging state and where trade is becoming more important than foreign aid, this must also be reflected in the composition and operation of diplomatic posts and their priorities in pursuing trade promotion activities.

In Ottawa, according to the Canadian Foreign Affairs’ Protocol Office, only one out of five diplomatic officers (not including the High Commissioner) in the Bangladesh High Commission in Ottawa deals with trade issues. The other four officers look into matters of political and consular natures. The commercial officer is known to the authors. While he is extremely capable of handling commercial matters, he is busy doing other things like consular work – issuing visas and signing passports. In addition, there are no other trade posts in Canada other than Ottawa, not even in Toronto – the commercial hub of Canada.

The posts must be able to show effectively this sea change in the Bangladesh economy.

In March, 2015, the author attended a successful seminar organized by the Bangladesh High Commission in Ottawa on “Development Perspectives”. He was highly impressed by the depth of knowledge of High Commissioner Kamrul Ahsan, who chaired the session. A number of Canadian importers/retailers with direct connections to Bangladesh gave presentations. In a previous similar seminar in 2014, the invited speakers did not have a clue about the present state and status of Bangladesh from a development or an economic perspective. This is definitely a welcome change and should be fostered.

Interlocutors in Dhaka have mentioned that the change that is needed in the Bangladeshi government’s activities abroad may be hampered in a major way by the serious resource crunch in the Bangladesh exchequer for providing support to its diplomatic posts, and particularly sending more diplomatic officers to Canada. One simple suggestion is that if allotting more budget resources to commercial affairs is not possible in the near future, diplomatic officers dealing with aid and political issues be transferred and replaced by commercial officers. This is an approach the Bangladesh government must consider sooner rather than later.

Amidst such a portrayal of doom and gloom, the situation in Canada for Bangladeshi exports is definitely better than it is in the United States. For trade expansion, there exists one definite advantage in Canada. Contrary to the US, Bangladesh has a zero-tariff status in Canada as a least developed country (LDC). While this situation can change, no action has been noticed on the part of the Canadian government to take Bangladesh out of the list of countries with zero-tariff status. While this status is restricted by the rules of origin and exclusion of some products, this advantage can be utilized to promote a number of products, albeit overcoming the non-tariff barriers.

Service Sector and Investment

Up to this point, the emphasis has been on the export of goods, including commodities. Observing Bangladesh’s neighbour India, who has been successful in the services sector in Canada, it seems reasonable to consider that there is definite potential for Bangladesh in this sector due to the level of knowledge of English, telecommunications and conducive business environment there. As relevant data is lacking in this area, a fact-finding project would be useful to determine if Bangladesh has significant potential in outsourcing, BPOs and third country export.

Regarding Canada’s meagre investments to Bangladesh, reliable statistics are also not available. However, the Bangladesh government should promote actively the investment incentives such as tax holidays, free trade zones and some exit guarantees, as described in its web sites – www.boi.gov.bd and www.bdhcottawa.ca. Without an upbeat campaign, Bangladesh will not be able to garner much interest from Canadian investors.

In contrast to the apathy of Canadian investors, other countries like, Japan, China, Korea and India are investing or planning to invest in Bangladesh, as its economy is growing at a rate of more than six percent during the last five years, and there are major opportunities for investment in infrastructure.

There is also no foreign investment promotion and protection agreement, such as required by most serious Canadian investors, between the two countries. It is essential to determine why this treaty is not being put in place sooner rather than later. It seems that Canadian investors could succeed by investing in the infrastructure sector in projects like roads, bridges, telecommunications, transportation and energy.

Japan recently announced an investment of $6 billion for major projects during the next five years. Similarly, China promised $10 billion for the next five years for transportation, power and regional connectivity. Recent settlement of the sea boundary with Myanmar and India may open windows for oil and gas explorations in the Bay of Bengal. The US is active in this area (such as Chevron investing in the gas output from Bangladesh). Canada, unfortunately, has tarnished its reputation in Bangladesh because of Niko Resources Limited, but it can definitely be restored. There is a niche market for Canada in aircraft, urban transportation (metro rail and light rail) and major rail links where Canada assisted Bangladesh in Seventies and Eighties.

However, in the highly competitive global investment scene, the Bangladesh government and local entrepreneurs have to make a significant proactive campaign to seek such investments.

Conclusion

It is easy to conclude that Bangladesh needs to sustain and enhance its trade with Canada, as well as seek investments. While the initial suggestion would be that the effort and initiative to attain this goal have to come from individual exporters and businesses seeking investment, the Bangladeshi Government also needs to provide extensive and substantial support to the existing and potential exporters.

It is for the entrepreneur to determine if his or her product can have a profitable market in Canada and what would be the cost of doing business. The ultimate responsibility lies with the individual exporter.

Our immediate suggestion is to open and operate a marketing office in Toronto for promoting garment exports to Canada with the participation of the Bangladesh Government, BGMEA, CanCham Bangladesh and a few other trade organizations.

This suggestion should not be considered as a platitude. The Bangladeshi export to Canada is potentially vulnerable, and an action plan to sustain and expand trade is crucial and urgent. In order to prepare such an action plan, more in-depth research and analysis are essential. In the garment sector, one needs to examine, inter alia, (a) the safety and human concerns in manufacturing, including stricter controls to enhance Bangladesh’s image in the garment export market, (b) the nature of competition in the world market (including Canada) and the requirement of modernizing production techniques, and (c) the public relations campaigns needed by the government and industry leaders.

CanCham Bangladesh, along with BGMEA, must expand their scope. A marketing office will be able not only to promote Bangladeshi exports, but also conduct essential research currently conducted by organizations of other countries such as China.

In order to enhance overall exports, while there is a need to look into sectors other than garments and the potential of these other sectors, expansion of the garment export market should be a priority. Quadrupling garment exports to Canada by 2021 (as announced by CanCham last April) is a possibility. But, it should be reiterated that this would require significant effort and determination on the part of the manufacturers, exporters and the government. This will require expansion of manufacturing capacity (which will require enhanced and regular supply of gas and electricity, infrastructure and overall law and order), adequate cash flow, active marketing in Canada and the Bangladeshi government’s support in all these areas. To say that Bangladesh garment exports can increase without the support of the government is misleading. The garment sector as well as other sectors need to be scrutinized carefully from domestic and Canadian market perspectives. Such studies should relate to adequate high quality domestic production capability for export, Canadian market potential, and market penetration skill and ability of the exporters. To expand this approach to other export sectors, the present standards of the sanitary and phytosanitary inspection regime in Canada needs to be examined for the food and beverage export. Bangladesh needs to determine what kind of food products will be acceptable and admissible to Canada. Similarly, infrastructural issues such as work stoppages (hartals), bottlenecks and transit delays need to be looked at for all export sectors. While the Bangladeshi garment exporters have been exceptional in meeting the delivery requirements of the importers, they may not be able to continue with expanded demand. Exporters in other sectors may initially have difficulties in meeting stringent delivery schedules.

Similar to exports, it is also important to examine the impediments restricting investors looking at Bangladesh in a serious manner and improve conditions to entice them. These may include modifying existing local laws, positioning proper arbitration facilities and training Bangladesh government officials in seeking investments – domestically and at foreign posts. While a number of studies have dealt with the reduction of red tape and increasing efficiencies within the government in project authorization, management and implementation, it will continue to remain an important criteria for obtaining investment.

Finally, it should be stressed that sustaining exports to Canada is a must. No effort should be left out on the part of the Bangladeshi government and entrepreneurs to attain this goal. It is also equally important to enhance exports to the surrounding markets, Asian countries like Japan, China and Korea, European nations, and Bangladesh’s immediate neighbour – India. In the investment area, however, if a close examination determines that an investment drive in Canada would not result in sufficient benefit, Bangladesh may postpone their investment promotion efforts in Canada. While this is not part of this paper, it should be pointed out that Bangladesh must concentrate on countries such as Japan, China and India (and maybe the United States) for more investment, as these countries have consistently shown interest in investing in Bangladesh

Acknowledgement

The author would like to show his gratitude and appreciation to Mr. Tanwir Nawaz, Chairman, Urban Habitat, Dhaka, Bangladesh for providing useful data, insightful critique and support.

Appendix: Trade Barriers for Bangladeshi Exports to Canada

In order to expand trade, an exporter has to determine if shipping products to a foreign country would generate an acceptable profit within a reasonable time period – similar to expansion of the domestic business. This obviously means that the price of the order from a buyer, which includes the domestic price; shipping and insurance; and all additional costs such as customs duty based upon existing tariff rates, Bangladesh export tax (if any) and bank financing (including the cost of L/C) should provide enough profit to the exporter.

In addition to arranging financing and sales logistics for exports, the exporter cannot also ignore the non-tariff barriers. In order to succeed, a Bangladeshi exporter has to look at the following:

While a Bangladeshi exporter may have family connections in Canada, the exporter’s lack of familiarity with Canadian commercial rules and regulation is a major impediment. In fact, it can be particularly disastrous if he or she depends upon relatives for abiding regulations (Canadian residents of Bangladeshi origin remarkably lack knowledge of import regulations).
The Bangladesh High Commission in Canada also does not play a large role in promoting their country and business due to the dearth of resources and deficiency in expertise.
Limited availability of export financing from Bangladeshi banks and export insurance coverage is a definite barrier to expand exports from Bangladesh. Canadian financial institutions also typically do not assist foreign exporters.
While Bangladesh enjoys duty-free entry of goods to Canada, it is not carte-blanche, and certain export items may have tariffs. For all exports to Canada, certain non-tariff barriers remain, and for some items they may be crucial, such as sanitary and phytosanitary restrictions for food items.
While most imports in Canada are on a 30-day payment scheme, there still is a requirement of irrevocable L/Cs as a necessary instrument for payment. Even for these L/Cs, exporters need to be vigilant regarding the reputation of the issuer as there are unscrupulous importers in Canada who have circumvented the rules.

Bangladeshi exporters need also to be informed about bankruptcy and insolvency laws in Canada, as such an event can be detrimental to the creditor.

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