Diversify trade to mitigate shocks

Bangladesh should diversify its export base to mitigate trade shocks and explore opportunities in the emerging markets in Asia where trade is growing amid a slowdown in the West, said a top banker.

Natalie Blyth, global head of trade and receivables finance of HSBC, said Bangladesh is quite exposed to one segment, which is garment, and a couple of regions, namely the US and Europe.

She said Bangladesh has great penetration in the US and Europe, and there is no reason to believe that that should stop. But there are other products and other markets to explore, she said.

“The future is not just in clothing for Bangladesh. Apart from Europe and the US, there are markets in Asia, which I think is an area Bangladesh should move to,” she told The Daily Star in an interview.

Clothing and apparel is Bangladesh's biggest export sector, which accounts for more than 80 percent of the country's export earnings. Marketwise, the US and Europe are major export destinations.

Blyth said there are half a dozen different sectors such as leather goods, jute and jute goods, and agricultural products that are set for double-digit growth from 2016-20.

Bangladesh is the second country Blyth has visited since taking up her new role at the Europe's largest bank a couple of months ago. She was in Dhaka in the first week of December this year to attend the Sixth HSBC Export Excellence Awards.

On the Bangladesh market, the British banker said, “It is an important business. It is a big trade hub.”

Bangladesh would probably become a middle-income economy before or on its celebration of 50 years of independence in 2021, she said. “That's massive, exponential growth.”

She has also visited the textile and pharmaceutical facilities of a local company and spoke to nine of the bank's clients in Bangladesh.

“All of them spoke about expansion in different segments, not only in garments. There are other sectors that are growing. That is a very positive thing.”

Blyth said there is untapped potential for exports in the Asean region and other parts of Asia.

While Western Europe's share of world trade is forecast to fall to 22 percent by 2050 from 34 percent in 2015, the bank expects North-East Asia's share to rise to 29 percent from 22 percent and South-East Asia's share to rise to 11 percent from 7 percent by 2050.

There were 1.8 billion people in the global middle-income group in 2010, 28 percent of them living in Asia. This is expected to grow to 5 billion by 2030, with 66 percent of them in Asia.

Blyth said country risk is going to an agenda of vendors Bangladesh is supplying to, and they are going to be looking at their concentration.

If the vendors look at their concentration in Bangladesh they may look at it as “too much” and may decide to diversify to other countries in order to mitigate risks, said Blyth.

The bank forecast exports to grow at 10.6 percent on average from 2017 to 2020, helped by infrastructure development, currency competitiveness in Europe, and trade liberalisation.

The banker, who joined HSBC in 2007 from Deutsche Bank, also touched upon the terrorism threat issue confronting the countries.

There is absolutely no country that is immune to terrorist attacks, she said when asked about the impact of the July 1 Holey Artisan attack.

“So, Bangladesh is no different from the UK and France for that matter. Everybody has had hits and suffered the same way.”

“I think Bangladesh's reaction to it has been exceptional, and you should be very proud of it as a Muslim country. The way that parents have reacted to the radicalised perpetrators is quite emotionally compelling and very strong.”

“But I do not think the outside world has understood that yet,” she said, adding that it is up to international visitors like her to come to Bangladesh, see for themselves and then spread the news.

She said Bangladesh's story is positive because the opportunity is huge. “There is a government that seems to talk to and get on with business – not every country does that. The government is very conducive to business.”

Blyth studied biochemistry at St Andrews University in Scotland, but then was trained as a lawyer. She switched fields again later, in to banking.

The global trade environment is pretty challenging with unexpected headwinds. Global trade is growing slower than GDP, which is a pretty dramatic fundamental shift, as people had thought that global trade will grow multiple times of GDP infinitely, she said.

She termed the Brexit, referendum in Italy, populist reactions around the globe and the G20's move to put in 120 protectionist measures in just half a year as unprecedented surprises.

“All of these are anti-trade moves,” she said, including US President-elect Donald Trump's pre-election rhetoric around his dislike of the North American Free Trade Agreement, and disapproval of the Trans-Pacific Trade agreement.

However, she said the positive of Trump is that the President-elect said he supports fair trade with strong rules and his emphasis is on building infrastructure.

The One Belt and One Road Initiative of China is going to be massive for the region.

“These are all politically positives for trade.”

She also said currencies continue to be volatile. “I do not think that will hold last, and Trump's election may accelerate other currencies coming through, like the renminbi.”

“I can imagine that the renminbi will become a legitimate reserve currency in a period of time.”

HSBC organised a panel discussion in Singapore a couple of months ago addressing the China paradigm shift on commodities because China buys 50 percent of the world's top 15 or 20 commodities, and the prices of all these commodities are set in dollars although they do not come from the US.

“They are all set in dollars. I do not think that is sustainable,” she said.

The panel includes businesses from China, Singapore and Indonesia.

According to Blyth, most participants in the discussion said it would take between 18 months and three years for the renminbi to become a legitimate reserve currency while an expert said it will take five years.

“It is going to be quite a dramatic development in trade.”

Twenty percent of Bangladesh's imports come from China, and it will hinge on importers and exporters whether they will settle their trade in the renminbi.

HSBC is also the first bank to facilitate trade settlement in the renminbi. Blyth also discussed India's demonetisation move. “It is great to see a government taking up responsibility for cleaning up bad actors.”

HSBC is the only international bank in Bangladesh which has its presence in all the eight export processing zones in the country. In 2014-15, EPZ factories exported goods worth $6.11 billion.

HSBC Bangladesh facilitates about 10 percent of the country's international trade.

Normally Bangladesh does not allow firms to invest outside of the country. However, it has so far allowed a handful of companies to do so in a case-to-case basis.

But Mahbub-ur Rahman, deputy CEO of HSBC Bangladesh, said there is a realisation that this facilitates the businesses to grow outside.

“That makes us believe that if the situation warrants, the regulator will be open about it,” he said the customers demand the rules to be more flexible.

If Bangladeshi exporters have to explore new markets, there will be a requirement of repatriation of some of the capital investment, according to Rahman.