Impact of Brexit on Bangladesh

Impact of Brexit on Bangladesh

June 23, 2016, is a black day for the European Union as the people of the United Kingdom voted in favour of leaving the union. Clearly, it is a massive drive to the European experiment in post world war-II. It will have outrageous implications all over the world especially for the developing countries like Bangladesh though the decision of departing the EU will come into effect after 2018.

The United Kingdom is the third largest export destination of Bangladesh and the country historically maintains positive trade balance with the UK.  During 2015-2016, a total of US$ 4,017.6 million worth of goods were exported to the UK which is 11.73% of total export. The major exportable items include ready-made garments, frozen food, IT engineering, leather and jute goods, bicycle, etc. of which 80% constitutes  knitwear and woven garments. The country has initiated diversifying its export basket with high-end and high value-added products and shown remarkable success in exporting pharmaceutical products, computer services, ship building, electrical and electronic products across the world.

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In recent times, the short-term visible impact of the Brexit is devaluation of currency that has already witnessed an about 10% fall. Bangladesh will bear the brunt of the exit as it is the third largest single export destination for our products. This fall will also slim down remittance and foreign direct investment in Bangladesh. Brexit will also have a negative impact on the bilateral trade and investment relationship. In the mean time buyers try to get price benefits out of their devaluating exchange rate. The declining exchange rate of pound sterling will make imports costlier for UK businesses. If the trend continues for a long time, inflation will go up and the British consumers will buy less, which will then affect our exports there. Now the question arises that $50 billion garment export target by 2021 may not be possible.

During the period between January-July 2015, the price of RMG products imported by the EU fell by 1.41%, in spite of the fact that every factory had to spend Tk 5 crore to Tk 20 crore to upgrade infrastructure, fire safety, and electrical safety facilities to meet international standards, even though social compliance had already been established after the Rana Plaza building collapse at Savar, Dhaka in 2013. But RMG exporters are yet now getting lower price from buyers of major RMG importer countries in EU.

.According to Capital Economics, a London-based research firm, Brexit would cause at the most a GDP drop of 0.2 per cent across Asia. This is a matter of concern for us. The government will have to make necessary adjustments in the proposed budget and keep the export sector vibrant by maintaining the tax at source on readymade garments export at 0.60 per cent instead of 1.5 per cent. In fact, consequences of Brexit will generally depend on UK's reactions. Bangladesh needs to proceed carefully. It should inclusively analyze the post-Brexit global economic changes by forming a national committee involving representatives of trade bodies, law practitioners, economists, researchers and representatives from concerned ministries and agencies so that effective actions may be taken promptly. The government ought to start lobbying and need to renegotiate with UK to retain the duty-free access. Accordingly, the government should also try through the diplomatic channel so that the trading facility now being enjoyed in the UK through EU to keep pace with the global competitors is maintained.