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Economy

Bangladesh aims to leap beyond textiles with help from South Korea

Garment export leader expands into tech, energy and other emerging industries

Workers at a garment factory in Bangladesh. South Korean companies, whose transfer of technical know-how helped Bangladesh become the world’s second-largest textiles exporter, are looking at the potential of other emerging sectors. (Photo by Akira Kodaka)

DHAKA -- The country that helped Bangladesh catapult it to an apparel export powerhouse is now aiming to diversify the South Asian nation away from the sector that has sustained it for decades: textiles.

South Korea's prime minister, Lee Nak-yon, who concluded a three-day visit to Dhaka in mid-July, told a business audience here that his country would lend its support for Bangladesh to prosper in new industries by slashing its reliance on ready-made garment exports that made up more than 80% of its overseas sales of $40 billion for the year ending in June.

South Korean companies, whose transfer of technical know-how helped Bangladesh become the world's second-largest textiles exporter, behind only China, have scoped out the potential of other emerging sectors.

SK Group, the country's third-largest conglomerate, is exploring the potential of eventually outsourcing semiconductor manufacturing to Bangladesh, according to officials at the Korea Trade-Investment Promotion Agency, or KOTRA, in Dhaka. The country is at the nascent stage now, and outsourcing would begin initially with design.

The company's energy arm, SK Gas, already has partnered with Mitsui & Co. of Japan and SPL Petrochemical Complex of Bangladesh and will invest $300 million in the energy sector, in particular a liquefied petroleum gas terminal in the southeastern city of Chittagong.

"South Korea is one of the first foreign investors of significance in Bangladesh," Gowher Rizvi, international affairs adviser to Bangladesh's prime minister, told the Nikkei Asian Review. "South Korea -- in a very interesting way -- has been one of our major development partners," he said. "Unlike other countries who have provided bilateral aid, South Korea from the start focused on investment."

Indeed, South Korea established diplomatic relations with the country in 1973, two years after Bangladesh gained independence from Pakistan. That was followed by the transfer of technology and production skills from Daewoo Corp. to Desh Garment in 1979, setting the stage for the boom in Bangladesh's textile industry.

Later came Youngone Corp., which established garment factories in Dhaka and Chittagong. The company today employs nearly 70,000 people in Bangladesh.

"We, the Koreans, are proud that our investors have been pioneers for the Bangladesh garment industry," Jong Weon Kim, director-general at KOTRA in Dhaka, told Nikkei. Some 100 South Korean apparel companies are operating in Bangladesh, contributing mostly to the country's textiles industry, he noted.

Analysts echo that sentiment.

"It was a historic contribution of Daewoo to the ready-made garment sector," said Zaidi Sattar, chairman of Dhaka think tank Policy Research Institute and a former trade economist with the World Bank.

Sattar said South Korean companies brought the idea of introducing bonded duty-free imports and back-to-back letters of credit in a country that had no cotton production and offered not much more than cheap labor and trade benefits for Western markets.

South Korean Prime Minister Lee Nak-yon, at a business forum in Dhaka this month, noted that Bangladesh would receive duty-free and quota-free access to South Korea’s market. (EPA/Jiji)

With bonded duty-free imports, companies can delay the payment of tariffs until they are ready to use materials imported earlier. If the materials are used for producing exports, they are not required to pay the tariff.

"Bonded facility was a breakthrough for Bangladesh," Sattar said. "Without it, Bangladesh's garment industry would have never taken off."

But Bangladesh's honeymoon with the textile and garment industry is almost over.

"Pressure is building up on the garment sector," said Mustafizur Rahman, a fellow with the Centre for Policy Dialogue, a Dhaka think tank. "Rivals like Vietnam and Cambodia are competing with us."

Rahman said that since South Korea has made an exit from the garment sector, Bangladesh can tap the opportunities of branching out and utilize its expertise. He said that Bangladesh should also harness burgeoning demand for emerging sectors such as digital economy and e-commerce.

Looking ahead, Rahman said, diversification is crucial as Bangladesh will lose duty-free and quota-free benefits when it graduates to developing country status, as defined by the United Nations, by 2024, from least-developed country status currently.

Meanwhile, South Korea's exports to Bangladesh in 2018 stood at more than $1.2 billion against imports of $346 million -- a stubborn gap Prime Minister Sheikh Hasina wants to plug with duty-free and quota-free access to South Korea's market.

During his visit in July, Lee held out the assurance of providing just that kind of access. Bangladesh's major exports to Korea include garments, leather goods and farm products, while it imports steel, electronics, plastic, chemical, paper and machinery.

Economists say Bangladesh needs to expand its export base and reduce dependence on textiles to shield the economy from possible external shocks.

"Too much of the economy riding on one sector is not good for sustained and stable growth," Sattar said. But to diversify Bangladesh's exports, he said that the government must extend bonded duty-free imports to nontextile shipments.

South Korean companies are hoping to seize the opportunities.

Amid Bangladesh's fast-growing economy and "the map of industry" changing, KOTRA's Kim said that South Korean companies are moving to other sectors, including infrastructure and engineering, electronics, machinery, information technology, chemicals, energy, entertainment and food. "Our future relationship is very bright because more and more Korean companies are knocking the door of the Bangladesh market."

Bangladesh last year took in a record $3.62 billion in foreign direct investment led by Japan and China, but FDI from South Korea was a fraction of that figure: $73 million.

Rizvi, the adviser to the prime minister, said that Bangladesh is courting South Korean entrepreneurs to invest by leveraging what he calls a "capable and one of the most disciplined workforce in the world." Bangladesh is a "stable" and "democratic" society, he said.

Still, while Bangladesh has made "enormous" improvements in electricity generation and transport, Rizvi acknowledged that overall infrastructure and ease of doing business ranking remain worrisome constraints. Last year it ranked 176 out of 190 countries in the World Bank's ease of doing business index.

But officials remain bullish.

"Japanese and South Koreans are coming up due to a rapid pickup in Chinese investment," said Nabhash Chandra Mandal, a top official with the Bangladesh Investment Development Authority. "Those who will come first will grab the market."

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