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Bangladesh's newly adopted eighth five-year plan (2021-25)

source:[Gravimetric blender]   release time:2021-04-23 09:07:28

Bangladesh’s newly adopted eighth five-year plan (2021-25) emphasizes the importance of developing export-oriented industries.

Bangladesh's economic structural transformation
Over the past 50 years, the Bangladeshi economy has undergone a major structural transformation. In the early days of independence, the economic structure of Bangladesh was dominated by the agricultural and rural economy. Agricultural production accounted for about 60% of the gross domestic product (GDP), and industry and service industries accounted for a small proportion.

At present, the proportion of agriculture has dropped to 13.6%, and the proportions of industry and service industries have risen to 34.6% and 51.8% respectively. The manufacturing sector dominates the industrial sector, and its proportion has risen from 4% in 1972 to 23.3% now. With the transformation of the economic structure, the employment structure in Bangladesh has also undergone important changes. Although about 40% of the domestic labor force is still engaged in agricultural production, industry has become the main field of employment in Bangladesh.
▲Bangladesh's agriculture, industry, service industry and GDP growth data

The rise of export-oriented industries-one of Bangladesh's successful cases

The garment industry is a leader in export-oriented industries. The industry flourished under the support of international and domestic policies in the mid-1980s. Since the beginning of this century, the Bangladeshi government has identified other industries as key industries with export potential. , Including software, information and communication technology, pharmaceuticals, leather products and footwear, shipbuilding, etc.
Export-oriented industries have helped the country create employment opportunities and reduce poverty, while the garment industry has made important contributions to women’s employment. Therefore, Bangladesh’s newly adopted eighth five-year plan (2021-25) emphasizes the importance of developing export-oriented industries.
▲ Bangladesh Garment Processing Factory

The focus of industrial development varies from time to time

In the early days of the founding of the People’s Republic of China, the foundation of Bangladesh’s industrialization was still very weak. In the 1970s, Bangladesh adopted a strategy of localization to develop its industry. From 1971 to 1975, it mainly followed an industrial development plan led by the public sector.

After Bangladesh became independent, a large number of foreigners evacuated and left many factories in the country. The implementation of this development strategy is based on these factories. At that time, small cottage industries and foreign companies were excluded from the public sector.

In 1975, the revised industrial policy allowed foreign and local private investors to cooperate with state-owned enterprises to establish industries in order to protect the market share of public enterprises.

After the regime change in 1975, the main goal of the industrial development policy was to drive economic growth through the private sector. Bangladesh began to implement denationalization and encourage private investment through loose credit policies.

The 1978 industrial policy allowed the public sector to make joint investments with the private sector as minority shareholders. If public sector companies have a major share of such investments, the private sector can be given the power to manage investment.

▲Bangladesh public and private sector investment data (source: Bangladesh Bureau of Statistics)

In the following decades, the denationalization of Bangladesh's industry has been further developed under the impetus of structural adjustment policies. The three versions of the country’s industrial development policies issued in 1982 and 1986 during the trade liberalization phase (from 1991 to present) were all formulated with the concept of market competition based on export-oriented economic growth. In the context of this series of policies, the role of state-owned enterprises in industrial development has been significantly reduced, and they only exist in limited areas.

Bangladesh’s industrial policies formulated in 1999, 2005 and 2010 included plans to promote domestic and international private sector participation in market activities. The privatization of state-owned enterprises is still a major focus of the series of policies.

In addition, the policy also emphasizes the promotion of industrial development by strengthening industrial export orientation, improving industrial competitiveness and effective use of resources, thereby greatly increasing the contribution of manufacturing to GDP.
The 2016 industrial policy has many specific goals, including raising the proportion of industry to 35% of GDP by 2021 and employing 25% of the country’s labor force.

After the 1990s, Bangladesh’s industrial policy put forward a set of plans to increase industrial productivity, using policy downturns and increasing foreign investment as the starting point to promote the growth of the number of enterprises.

In return, these enterprises will receive special treatment provided by the government, and agriculture and agro-processing industries, small and medium-sized enterprises and cottage industries will become policy beneficiaries.
As a continuation of the earlier policy, another goal of the 2016 industrial policy is to strengthen the construction of import substitution industries to meet local needs and promote the development of export-oriented industries.
Industrial policy and trade policy complement each other
Without effective trade policy cooperation, industrialization cannot be carried out successfully. Since 1985, Bangladesh’s trade policy has undergone tremendous changes, with numerous additions including trade, exchange rate, monetary and fiscal policy preferences.

Measures to promote exports are aimed at increasing the diversification of export markets, improving export quality, promoting high value-added exports, and developing domestic backward-linked industries. These reforms have benefited many sectors, including the garment industry, and provided exporters with a variety of Forms of financial preference include allowing exporters to obtain unrestricted access to tax-free imported inputs, convenient access to credit and credit subsidies, income tax rebates, and preferential tariffs on imported large machinery.

▲ Main export destinations of Bangladesh

Since the 1980s, trade liberalization has reduced the nominal tariff rate, the import weighted average tariff rate, the implicit nominal tariff rate and the effective protection rate. Non-tariff barriers such as import quantity restrictions have also been eliminated to a large extent. During this period, both the import penetration rate and the export orientation rate have risen sharply.

Industrialization in the 21st century needs to face new realities

In terms of its share of GDP, export earnings and job creation, Bangladesh has made significant progress in its industrialization. However, industrialization is facing the challenge of entering the next step of the development process, that is, shifting to the high-value-added garment industry or the production of non- garment manufacturing. In order to achieve this transition, decision makers must take many new measures.

First, Bangladesh needs to formulate a second-generation industrial policy to meet the new challenges of the 21st century. The industrial policy should be coordinated with related policies such as finance, trade, and investment. Bangladesh will get rid of the ranks of the least developed countries by 2026. Therefore, under the framework of the World Trade Organization, Bangladesh needs to re-examine and modify its domestic industrial policies to make them more strategic and adapt to the global policy system.

▲ The key position of the garment manufacturing industry in the Bangladeshi economy

Second, Bangladesh needs to increase its manufactured varieties to adapt to changing global needs, which requires substantial investment in more modern sectors. However, despite the fact that investment-friendly policies have been put in place in recent years, private investment at home and abroad has not seen a substantial increase. It can be seen that the policies themselves are not enough to attract investment, and the overall investment environment needs to be improved.

For Bangladesh, an important prerequisite for attracting investment is to eliminate supply-side constraints and reduce the cost of doing business. This means that the lack of domestic infrastructure and the complicated processes and corruption in the business process urgently need to be improved.

In order to make up for the lack of infrastructure, the government has made many improvements in the power and energy sectors, and has carried out several large-scale construction projects including the Padma Bridge. After the completion of this multi-functional bridge, it is expected to improve Bangladesh in many ways. The efficiency of the national economy.

In addition, the government hopes to quickly build 100 special economic zones to further attract foreign investment and improve the major problem of insufficient domestic investment.

▲ The Padma Bridge project in Bangladesh was constructed by China

Third, Bangladesh urgently needs talents in industrial operations. Although Bangladesh has a large youth population, there is still a shortage of qualified personnel in industry. Private companies have to supplement human resources from neighboring countries. This has led to a large number of unemployed youths in the country. Modern industrialization depends on the quality of human resources. A large number of skilled talents can attract investment. Therefore, the Bangladeshi government and the private sector urgently need to increase investment in education and capacity development.

Due to the continuous increase of technical interfaces, the entire production and marketing environment in Bangladesh is undergoing dynamic changes. In addition, the new crown epidemic has also had a continuous impact on the domestic supply chain. These effects have disrupted the labor market, and labor demand in many industries is declining.

To cope with the above changes, the government must retrain or upgrade the workforce's skills to adapt to and benefit from large-scale industrialization. At the same time, it can also provide financial, technical and other related support for independent entrepreneurship by investing in small-scale industries. These measures will create new employment opportunities and ultimately help eliminate poverty.[Gravimetric blender]