Exports stuck in EU, US orbit

For years, policymakers and businesses have talked about diversifying the country’s export basket and destinations. Yet little has changed. Despite generous government incentives, shipments rely heavily on a few products and markets.

And, readymade garments account for more than 82 percent of total export earnings. The European Union and the United States together take over two-thirds of those exports.

In the recently concluded fiscal year (FY) 2024-25, their combined share slipped only slightly to 62 percent of the record $48 billion-plus shipments, down from 65 percent three years earlier.

Last year, the EU alone absorbed 44 percent, thanks largely to duty-free and quota-free access for least developed countries, according to Export Promotion Bureau (EPB) data.

“The deeper reason is not simply that firms prefer those destinations; it is that our export basket remains overwhelmingly garment-centred, and we have too few competitive, scalable products outside apparel to push meaningfully into new markets,” said Mohammad Abdur Razzaque, chairman of local think tank Research and Policy Integration for Development (RAPID).

“When product variety is narrow, market variety cannot expand in any durable way. Hence, even with cash incentives for ‘non-traditional’ destinations, the aggregate geography barely shifts,” said the economist.

The government sees incentives as “a strategic tool” to drive export growth.

In FY 2024-25, it set aside Tk 7,830 crore, a 6 percent rise from the previous year. Over the past five years, exporters have received around Tk 35,000 crore in support, according to finance ministry data.

Currently, incentives are offered on 43 products. To encourage shipments outside the traditional markets like the EU, the United Kingdom, the USA and Canada, the government provides a 2 percent incentive to apparel exporters.

But analysts are divided over how effective the support really is.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD), said, “It is important to examine whether the incentive really yields any benefit.

Because of the export concentration in garments, two-thirds of that goes to the sector, he said.

“But it should be reversed. Incentives for exports should be target-oriented, market-specific, and impact-oriented. But what we see is that a lot of incentives are given because of demands from pressure groups, associations, lobbyists and even specific companies.”

Meanwhile, Razzaque said the pull of global demand explains the imbalance.

He said, “The EU and the US are the world’s largest, most sophisticated consumer markets, with dense buyer networks, established compliance regimes, and the capacity to absorb large and regular orders.”

“For Bangladeshi firms, especially those producing fast, repeat apparel runs, these markets offer scale, reliability, and predictable standards. It is therefore unsurprising that policy nudges alone have not altered the destination mix: the centre of global demand pulls, and our current capabilities align with that pull,” said the RAPID chairman.

Razzaque, who follows international trade closely, pointed out that many non-garment sectors face difficulties meeting quality and safety standards abroad.

He said domestic weaknesses in certification, testing and recognition abroad add to the problem, raising costs and slowing access to markets. “In short, non-RMG exports are squeezed by capability deficits and standard frictions; until these are addressed, scale-up in diverse products will remain difficult.”

He added that high logistics costs, bottlenecks, poor inland transport and weak risk management further undercut competitiveness.

The country’s lack of free trade agreements and reliance on high tariffs to protect domestic firms also discourages outward-looking growth, according to the economist.

“Elevated prices behind the tariff wall, combined with buoyant demand in a rapidly growing economy, make the domestic market more attractive than the rigours of export competition,” he said.

Fazlul Hoque, former president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said exports have increased in Australia, Japan and India.

Hoque believes that only incentives will not work. “Continuous efforts to build new markets are also necessary. We have made huge efforts to develop the market in Japan. We need to target specific markets and make continuous efforts.”

Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), said Bangladesh should expand its portfolio beyond garments.

“Bangladesh should invest in developing exportable products beyond RMG, such as light engineering, agro-processed goods, electronics, and IT services, that appeal to a broader global audience. Trade diplomacy needs to be strengthened to forge free trade agreements or reduce tariff barriers with emerging markets in Asia, Latin America, and Africa,” he said.

He added that government support should be better targeted, backed by market research and capacity-building, so exporters can break into new destinations.

Moazzem of CPD agreed, as he said that instead of making incentives end-market-oriented, the country should make them supply-chain-oriented.

He said, “We need to frame a sectoral supply-chain policy incorporating the import of raw materials, manufacturing, and end-market.”

Md Anwar Hossain, immediate vice-president of the Export Promotion Bureau (EPB), said foreign investment and an improved business environment are key to diversification.

Hossain said, “We should design policy support in tune with the support given by other countries. Our duty and customs procedures should be made easy, and lead time should be reduced to ensure speed to market.”

“If import duty is reduced and exporters are given a level playing field, many products will become competitive,” he added.