Bangladesh's manufacturing sector risks becoming uncompetitive because of lower productivity and its reliance on low labour costs as wages are rising locally and the use of labour-saving technologies is growing globally, said the World Bank yesterday.
The export-led manufacturing growth model will remain central to Bangladesh's sustained growth and job creation, but continued reliance on low labour costs to maintain the competitive edge is increasingly untenable as the country consolidates its middle-income status and its wage costs rise, the WB said in a report titled "Gearing up for the Future of Manufacturing in Bangladesh".
Simultaneously, major global trends—the growing use of labour-saving technologies, shifting trade patterns, and the increasing use of services inputs in production—are reducing the importance of wage costs in determining international competitiveness.
"In this changing manufacturing landscape, Bangladesh risks becoming uncompetitive on both the wage and non-wage dimensions of productivity as it seeks to diversify its export basket and move up the value chain," the WB said.
The manufacturing sector needs to focus on the transition from competing on wages to competing on productivity.
Bangladesh's emphasis must shift to broader considerations of efficiency and productivity upgrading as a precondition for sustainably generating well-paid jobs.
"By strengthening innovation and technology adoption in the firms, the manufacturing sector can improve its productivity."
Commerce Minister Tipu Munshi launched the report through a virtual programme.
Hans Timmer, chief economist of the WB for South Asia, said: "Following every global crisis, we see shifts in the geographic and economic centres, change in trade flows and the emergence of new technologies. So, we should expect major changes to come."
The report focuses on opportunities for the manufacturing sector of Bangladesh.
Diffusion and adoption of technology in the manufacturing sector were relatively slow as a few firms adopted modern equipment while others are taking a long time to adopt technologies, Timmer said.
He underscored the need for focusing on small and medium-sized enterprises to accelerate the diffusion and adoption of technology.
Because of the new environment, these enterprises will play a key role because of the fragmentation of production and customisation of products, he said.
A firm-level adoption of technology (FAT) survey on technology use in Bangladeshi firms, conducted as part of the World Bank's global FAT project in 2019-20, revealed that most firms still use fully manual or powered but manually operated basic machinery across production stages.
Even in the garment subsector, most firms use basic machinery in most production stages, except for sewing. Eighty per cent of garment firms use semi-automated technology in the sewing stage, and 9 per cent use automated sewing methods.
"Firms need to be enabled to climb the technology ladder," the new report said.
Many firms do not even use basic management practices to set targets, provide incentives to workers, and monitor performances. Around 32 per cent of firms do not monitor any key performance indicators.
The covid-19 crisis may accelerate the global trend toward automation, and new technologies and business practices can help firms recover from the crisis and adapt to the post-pandemic world.
The FAT survey showed that firms in Bangladesh are lagging Vietnam in many general-purpose technologies.
The multilateral lender revealed that more than 75 per cent of Bangladeshi firms do not have any workers with a college degree in engineering and applied science.
Fifty-five per cent of firms are managed by a person without a college degree, and most firms still use basic or near-basic technologies.
Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said because of the graduation from the group of the least-developed countries, Bangladesh's preferential market access, which currently gives the country a competitive edge over many nations, including Vietnam, would not be there.
"So, we will have to move from market access-driven competitiveness towards productivity-driven competitiveness," he said.
At the onset of the Covid-19 crisis in May 2020, the government acted quickly and announced a series of support measures for the private sector. But only 2 per cent of manufacturing firms received assistance in the early phase of the pandemic, according to a rapid survey conducted by the WB.
"The government should ensure that such support reaches its intended beneficiaries," said the report, stating that support measures would continue to remain vital as the pandemic rages.
It said digital technologies could be a useful complement in enabling firms to better adjust to the Covid-19 shock. E-commerce platforms can enable firms to maintain access to necessary intermediate inputs and a distribution network for their products.
During the first wave, 6 per cent of the firms increased the use of internet and digital platform, 3 per cent invested in new equipment or software, and 3 per cent introduced a new product, the pulse survey found.
"In order to reduce uncertainty and help productive firms recover, financial support should be complemented by policies that provide regulatory guidance, strengthen the regulatory framework for insolvency and debt resolution, and simplify tax and customs administration."
Commerce Secretary Tapan Kanti Ghosh and World Bank Country Director Mercy Tembon also spoke.