Bangladesh is set to graduate from the Least Developed Country (LDC) designation in 2026, a milestone that brings both opportunities and challenges for its export sector. Currently, the country enjoys duty-free and quota-free (DFQF) access to nearly 60% of its export markets under LDC-specific trade concessions, enhancing its competitiveness. In FY 2022-23, Bangladesh Bank reported $55.56 billion in exports, with the Ready-Made Garments (RMG) sector contributing $46.99 billion (84.6%). However, LDC graduation will lead to the loss of trade benefits, potentially increasing export tariffs. The EU, Bangladesh’s largest export market (44%), may raise RMG tariffs from 0% to 8-12% after exiting the Generalised System of Preferences (GSP), which could cost $5-7 billion annually unless the country qualifies for GSP+. Apparel export tariffs to Japan and Canada might rise to 16-17%, reducing competitiveness, while leather exports to the US could also face higher tariffs. A WTO report warns that without strategic interventions, Bangladesh’s export revenues could drop by 7-10% post-LDC graduation. To mitigate these risks, the country must enhance trade efficiency through logistics improvements, regulatory reforms, and strategic trade agreements to sustain its export growth.
Challenges in Bangladesh’s Trade Efficiency
Despite its impressive export growth, Bangladesh faces significant trade inefficiencies that could hinder its competitiveness post-LDC graduation. These challenges primarily stem from logistics constraints, high costs of doing business, and a lack of export diversification.
1. Logistics and Infrastructure Bottlenecks
Bangladesh rated 88th out of 139 nations in the World Bank’s Logistics Performance Index (LPI) 2023, indicating customs and monitoring system inefficiencies. Lack of digital documents and authorisation raises exporter lead times and costs. Over 90% of Bangladesh’s international trade passes through Chittagong Port, which has substantial turnaround times. Shipping can take 5-7 days, but efficient ports like Singapore and Shanghai take less than 24 hours. Mongla and Payra Ports are developing, but they lack the infrastructure and connectivity to relieve Chittagong. Trade is delayed by manual and bureaucratic customs processes, raising exporter expenses.
Bangladesh’s inland transportation expenses are among the highest in South Asia due to inadequate roads and traffic. Railway freight contributes to less than 5% of cargo movement, while efficient export economies like India have over 25%. Bottlenecks on the Dhaka-Chittagong route, a significant export corridor, hinder shipments.
- High Cost of Doing Business
Bangladesh’s business environment is complicated and expensive, hindering trade efficiency. Exporters face a frustrating regulatory environment that requires several agency clearances, increasing transaction costs and delays. Due to heavy regulations, Bangladesh ranks 168th out of 190 nations in the World Bank’s Ease of Doing Business 2020. Variations in tax refunds and incentives disturb corporate long-term planning, adding to policy uncertainty. Export procedures are complicated by the National Board of Revenue (NBR) and Ministry of Commerce’s lack of coordination. Power outages and gas shortages hinder industrial operations, especially in export-driven sectors like RMG and textiles. In 2023, energy tariffs rose 15-20%, raising industrial costs and weakening Bangladesh’s global competitiveness. Addressing these inefficiencies is crucial for enhancing the country’s trade performance post-LDC graduation.
3. Limited Export Diversification
Over 80% of Bangladesh’s exports are Ready-Made Garments (RMG), putting the economy vulnerable to external shocks. Exports could suffer if key purchasers like the EU and US cut demand. Sustainable growth requires Bangladesh to diversify into high-potential areas like medicines, ICT, agribusiness, leather, and jute. With enhanced trade facilitation, the $200 million pharmaceutical export market might reach $1 billion. The ICT sector grows 40% annually but needs better policy assistance for worldwide market expansion. Leather and agriculture have great potential but confront compliance and infrastructure issues that limit competitiveness. Non-RMG exports struggle to meet ISO, FDA, and EU standards, restricting access to high-value markets. Despite its export potential, the leather industry faces EU prohibitions due to tannery environmental violations. Bangladesh’s post-LDC trade competitiveness depends on compliance practices and export diversification.
Strategies to Enhance Trade Efficiency: Lessons from Global Best Practices
Bangladesh must adopt proven trade efficiency models from successful economies to sustain export competitiveness post-LDC graduation. Those countries have leveraged infrastructure development, trade agreements, regulatory reforms, and export diversification to transition into high-value export economies.
i. Infrastructure and Logistics Improvement:
The World Bank’s Logistics Performance Index (LPI) is critical for evaluating trade efficiency, export competitiveness, and supply chain reliability. It examines countries using six components. The indicators were picked after conducting theoretical and empirical studies and consulting with logistics professionals. The figure divides the six LPI indicators into two categories: areas for policy regulation and supply chain performance outcomes.
- Improving Customs and Border Management Efficiency
Bureaucratic inefficiency and bureaucracy delay Bangladesh’s customs and border management. The country needs a National Single Window (NSW) system to integrate customs, port authorities, and regulatory entities into a single digital platform for clearance to improve efficiency. For low-risk shipments, risk-based inspections should substitute physical inspections to speed processing. Certified exporters can get faster clearance using AEO programs.
- Strengthening Trade and Transport Infrastructure
Congested ports (Chittagong, Mongla, Payra), poor road connectivity, and inadequate rail freight services increase shipment delays and costs in Bangladesh. Bangladesh must increase port capacity and automation, especially fast-tracking the Matarbari deep-sea port to handle larger volumes. Dedicated rail freight corridors should be developed to reduce reliance on road transport. Encourage PPPs to build logistics parks, inland container depots, and expressways. Vietnam rose from 53rd (2018) to 43rd (2023) in LPI after expanding Hai Phong and Cai Mep ports and building rail freight lines. Bangladesh could follow Vietnam’s infrastructure expansion strategy to boost exports.
- Reducing Costs of International Shipments
Inefficient logistical networks and a lack of shipping competition keep foreign shipments in Bangladesh expensive. The government should allow more international carriers to increase competition and cut freight costs. Strengthening inland waterway transport (IWT) can minimise road transit and make export goods cheaper. Export incentives for aggregated shipments can maximise container use. The Sagarmala Project boosted coastal and inland canal transport and intermodal logistics connectivity, lowering freight costs in India.
- Enhancing Logistics Service Quality
Skill gaps, outdated technologies, and poor training affect Bangladesh’s logistics service quality and supply chain efficiency. To produce skilled supply chain management personnel, universities, and vocational institutes must offer specialised logistics training. Encourage AI-based logistics solutions for route efficiency and warehouse automation. Pharmaceutical and agro-processed exports require cold-chain logistics investments. Germany, ranked 1st in LPI 2023, established an internationally competitive logistics workforce through public-private training and digital advancements. Similar policies can boost logistics service quality and trade efficiency in Bangladesh.
- Improving Shipment Tracking & Tracing Capabilities
Bangladesh’s absence of real-time shipment tracking slows freight transit and increases mismanagement risks. The government should mandate GPS-based tracking devices in all logistics networks to ensure real-time cargo visibility. RFID and blockchain-based records will give exporters safe, tamper-proof shipment data, eliminating errors and delays. An integrated digital trade dashboard will help exporters track shipments and manage supply chain risks. China, ranked 19th in LPI 2023, pioneered AI-driven tracking systems and RFID-mandated export shipments, boosting cargo visibility.
- Ensuring On-Time Deliveries
Bangladesh’s crowded transport networks and inadequate last-mile delivery systems make on-time deliveries difficult. The country needs logistics coordination centers for real-time shipment planning and freight scheduling to improve efficiency. Enhancing first- and last-mile logistics like expedited cargo and multimodal hubs would speed up deliveries. Smart logistics platforms that optimise delivery routes with AI can also cut delays and improve trade predictability. The Netherlands, placed 2nd in LPI 2023, has an innovative logistics network integrating ports, rail, and air freight with digital freight-matching platforms to optimize truck usage and reduce delivery delays.
ii. Policy and Regulatory Reforms
Business-friendly policies decreased bureaucratic delays, and strong institutional backing helped South Korea become a high-tech export powerhouse from a low-cost manufacturing economy. Bangladesh may emulate this accomplishment by simplifying export procedures to reduce red tape and improve trade. Transparent regulatory approvals and real-time tracking will reduce business compliance costs. Trade-related institutions must also be strengthened to provide market intelligence, financial support, and regulatory direction. South Korean exporters benefit from KOTRA’s market research, trade exhibitions, and policy advocacy. Bangladesh should create a comparable institution to help businesses navigate international markets and find trade possibilities.
iii. Bilateral and Regional Trade Agreements: Vietnam’s FTA Strategy
Vietnam has increased its trade competitiveness through active Free Trade Agreement (FTA) negotiations with the EU, China, the US, and ASEAN. The EU-Vietnam Free Trade Agreement (EVFTA) gave Vietnam zero-tariff access to the EU, boosting exports. Bangladesh needs FTAs with the EU, US, India, and China to stay competitive post-LDC and secure preferential tariff access. Enhancing regional integration through RCEP, BIMSTEC, and SAFTA will increase market access. Additionally, enhanced WTO engagement is necessary to seek extended trade preferences beyond LDC graduation.
iv. Diversification and Value Addition: South Korea’s High-Value Export Shift
South Korea transitioned from textiles to high-value industries like electronics, automobiles, and biotechnology. Bangladesh must move up the RMG value chain and enter high-end fashion, technical textiles, and branded clothes to perform this. Diversifying into medicines, ICT, shipbuilding, and agro-processed goods reduces sector dependence. Long-term sustainability requires investing in R&D to promote innovation and value-added products. Compliance with ISO, HACCP, and environmental standards will aid access to high-value markets. South Korea’s substantial investment in R&D and innovation hubs leads global technology exports. Bangladesh should create industrial research hubs in medicines, ICT, and agro-processing to boost its global economy.
Author: Tasnim Safwan
