The Scenario of Bilateral Trade Between Bangladesh & South Africa_ Current Barriers & Recommendations for Future Prospects

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Top StoryIssue: July , 2012

The scenario of bilateral trade between Bangladesh & South Africa: CurrentBarriers & Recommendations for future prospects

A K. M. Salim Osman

BKMEA feels pride in averring that the knitwear sector of Bangladesh is

heading toward a course of immense possibilities. But the real success

will ultimately lie in tailoring them into realities being guided by

appropriate capabilities.

We have undertaken an array of activities aimed at market expansion

and product diversification. After studying the knitwear import volume

of Japan, Russia, South Korea, South Africa, Ecuador, Malaysia, Mexico,

Brazil, Argentina, Chili, Paraguay, Venezuela, Uruguay, Portugal, Poland,

Honduras, we believe that these unexplored markets can herald a new

era of prosperity by leaving a massive boost in our national economy.

South Africa is a hugely potential country in terms of economic growth

tendency and import value. Bangladesh has a good relationship with

South Africa. We always look up to Noble Laureate Nelson Mandela and

the administrative mechanism of South Africa.

But still the bilateral trade between th ese two countries has not reached the peak as expected. Various trade barriers have put

negative impact on this stodgy development.

Against the lower spectrum in business development between Bangladesh and South Africa, we have reasons to be happy that in

recent times positive attitude towards doing business from both the sides has surfaced into scene. Though the total trade value

between these countries was about US$ 11.35 million in 2001, it has increased by about ten times after ten years. During the

eleven years time span from 20 01 to 201 1 (mentioned below), South Africa enjoyed trade surplus in many t imes. For prosperous

mutual beneficiary trade, each country should have distinct comparative advantage in production of tradable items. In order toexplore comparative advantage, the trade structure can be examined.


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Investigating the trade structure, it has been apparent that the export bundle of Bangladesh to South Africa differs significantly

from that of South Africa to Bangladesh. It indicates the possibilities for expanding mutual trade between two countries. The export

items of Bangladesh include mainly RMG & other textile goods, Cotton, Ceramic, Plastics & its products, Tobacco & manufactured

tobacco substitutes and Leather & Footwear etc, whereas South African export items consist of Cereals, Organic & inorganic

chemicals, Salt, Sulphur, earth, stone, plaster, lime and cement, Iron and steel, Paper & paperboard, Vehicles other than railway,

tramway, etc.

No doubt that the domestic knitwear market of South Africa is large. Since knitwear is a common items consumed by all-aged

people, the country imports significant amount of the clothing apart from its own production. During 2011, the country imported

US$ 677.43 million knitwear from different locations of the world, whereas the amount was about US$ 595.39 million in 2010.

China is the key supplier of the market followed by Mauritius, India and Bangladesh. The knitwear import demand of the country

has been growing over time. During 2011, its growth rate was about 13.78 per cent.


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If the sovereign-debt crisis continues to be worsening with a broad surge in risk premia and spillovers across European countries,

South Asia and other developing countries specially Bangladesh could be seriously affected through trade and financial channels. As

a safeguard measure, we have looked out for newer destinations to export our Knitwear items. We have some unique features that

have made Bangladesh the second-largest knitwear exporter in the world after China.

What makes Bangladesh class apart from other competitors is we export at competitive prices even than super-supplier China. In

South African knitwear market, Bangladesh exported about 4.54% of what China exported in 2010, though Bangladesh supplied at

most competitive prices in the market. Per piece Bangladeshi knitwear item was exported to South Africa by about US$ 1.66,

whereas China exported at US$ 1.85. Turkey and France are another two high-cost producing countries but major suppliers in the

knitwear market.

It is surprising to many that why low-cost, but quality knitwear producing country Bangladesh didnt attain larger market share in

the knitwear market of South Africa? WE have the following observations---

Bangladeshs export, especially RMG faces high tariff & other non-tariff barriers.

Difference in banking regulations and implementation methodology.

Absence of South African mission in Bangladesh- a reason why Bangladeshi traders cannot visit South Africa easily.

Lack of effective communication between business communities of both countries.

Geographical distance between Bangladesh & South Africa and not being acquainted with multi-dimension factors of

Bangladesh Knitwear Sector.

The Modus Operandi of Business as existing in the South Africa(Hindrances to the way of Trade Facilitation)

* In the age of liberalized and free trade global economy, South Africa being the eminent member of BRICS appears to be a high

tariff barrier country restricting LDCs like Bangladesh to access freely in her market.

* The high tariff spectrum is mostly applicable for most favored nations (MFN) - an average of 40.78% (WTO, 2011) for clothing

goods making it the highest among all tariff lines and all BRICSmember.

* In contrast, the Non MFN partners most of which are advanced economies enjoying with access to either zero or an average of

17.78% duties owing much to the free trade agreement (FTA) of South Africa with EU-27 and EFTA.

* Besides, its regional trading blocs including SADC and SACU have also allowed LDCs like Lesotho, Angola, Malawi, Mozambique,

Tanzania, Zambia and DR Congo to access preferentially to the largest economy in Africa.


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The tax structure & other blocks for Bangladesh to enter into South African Market---

Bangladeshi knitwear faces primarily about 41% tariff barriers for accessing to the market and then 14% as VAT. In addition to,

other non-tariff barriers along with these financial barriers hinder the competitiveness of Bangladeshi knitwear at South African

retail market.

The Nearest mission of South Africa located at Sri Lanka maintains a diplomatic connection with Bangladesh. Bangladeshibusinessmen have to collect visa from Sri Lanka rather than their mainland for traveling South Africa.

Since Sri Lanka is located far away from the country, so it is time consuming as well as associated with additional cost for collecting

visa. Businessmen are not much interested to stay at least couple weeks in Sri Lanka for collecting visa. These may hinder from

continuous communication between business communities of both countries.

The government level initiave should have been much more intensified given the favorable facilities existed for expansion of

business between these two countries.

Why Should South Africa choose to import from Bangladesh?

Quality Products with chic and elegance

Most competitive price in the world

Strong backward linkage facility(Core strength in cotton items)

About 20 percent cumulative average growth rate over last decadesThe capability of Bangladesh Knitwear sector with a staggering share of 41% in the national export earnings.

Excellent FDI ( Foreign Direct Investment) facilities

Reliability, on-time shipment commitment and compliant factories

Governmental assistance to help develop business environment

A good number of Bangladeshi are living in South Africa

Excellent port management of Bangladesh

BKMEAs incessant endeavor to help the factories develop with super-modern production mechanism.

To enhance the business with South Africa, we seek the following policy support. (The recommendations are twofold in nature

though)

Our solicitation to the South African Delegation (Short & medium term)

Withdraw or reduction of tariff from RMG permanently or at least temporarily.The visa issuing services for at least businessmen should be provided from Bangladesh.

Official Sitting for customizing banking facility and regulations

Promoting private sector dialogues between the two countries.

Organizing yearly business dialogue between the two countries

Initiation of a favorable business policy By South African Government for Bangladesh.

Long term

South African mission should be extended to Bangladesh permanently.

Strengthening an effective link between both countries banking systems.

If possible, to sign up trade agreements (if not any yet) for export of knitwear items under easier conditions and guidelines

The writer is President, BKMEA & can be reached at [email protected]


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Issue: July , 2012

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The Scenario of Bilateral Trade Between Bangladesh & South Africa_ Current Barriers & Recommendations for Future Prospects