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Australia–Bangladesh: A Booster Dose For Trade Diversity?

24 Sep 2021
By Brendan Augustin
Australia and Bangladesh table flag with black Background. Source: Aritra Deb/Shutterstock

Bangladesh’s potential to be a much more significant trade and investment partner for Australia is real. In the eyes of many Australians, including in the business community, Bangladesh has an outdated and incomplete image.

Within Australia, Bangladesh is perceived as an aid-dependent, impoverished country which is subjected repeatedly to natural and human induced disasters, like cyclones, floods, and building collapses due poor building standards. In reality, however, the country has made impressive strides in its development journey, and that image is in need of a refresh.

Bangladesh recorded nearly 6 percent annual GDP growth from 2000-2019 and officially registered a 3.5 percent growth rate in the COVID-19 ravaged 2020, raising the country’s GDP to almost US$320 billion. In pre-COVID-19 2019, the economy grew by eight percent. A GDP per capita of around $2,000 – for a population of around 160 million people – means that the country is set to move out of Least Developed Country status in the next few years.

Indeed, Bangladesh could be described as the least known, fastest growing economy in Asia. In recent months it has overtaken India’s per capita income and even provided foreign exchange assistance  to Sri Lanka. In terms of recent growth rates and the size of its economy, Bangladesh has many similarities with Vietnam, a country which receives a lot more attention in Australia.

The conclusion of the Australia-Bangladesh Trade and Investment Framework Arrangement (TIFA) on 15 September is therefore timely and could provide the necessary boost towards a more significant economic relationship. While TIFAs are seen as mostly symbolic and replete with good intentions, they do signal an injection of commitment and ambition. TIFAs do not guarantee trade and investment growth, but there are examples where instruments like TIFAs have presaged the building of more expansive economic ties between countries. An example is the US-Bangladesh Trade and Investment Cooperation Forum Agreement which was signed in 2013; by 2019 bilateral trade in goods between the two countries had increased by close to 50 percent. In this specific case, the TIFA  also highlights that Australia’s opportunity scope in South Asia goes beyond India.

The current bilateral trade relationship is modest. The Department of Foreign Affairs and Trade’s latest figures show that Bangladesh is Australia’s 30th-largest partner, with two-way trade amounting to about $2 billion. Almost half of that relates to Australian imports of textiles and clothing and exports of cotton. Starting from that low base and combined with Bangladesh’s good prospects for a post-COVID-19 recovery, there should be room for growth.  Bangladesh’s large, young, increasingly urbanised population and growing middle class should interest a range of Australian exporters and investors.

One substantial opportunity is liquified natural gas (LNG). Bangladesh’s supply of inexpensive domestic gas contributed to its development success. As this depleted, Bangladesh quickly turned to LNG imports, starting in mid-2018 and growing to four million tons per annum in 2020. Forecasters are expecting LNG imports to grow to twenty million tons per annum by 2030, a fivefold increase in less than a decade.

Australia was the world’s largest LNG exporter in 2020, just ahead of Qatar. Australia’s LNG production facilities in the north of the country are among the closest to Bangladesh’s already functioning and planned LNG import facilities. On paper, Australia should be able to be a competitive supplier to the country due to lower shipping costs.

To date, Bangladesh’s long term LNG contracts have been concluded under so called “Government to Government” arrangements, namely with Qatar and Oman. The TIFA could provide an avenue through which the prospects for a sustained LNG trading relationship could be developed, including by the two governments, ensuring that Australian LNG producers are able to compete on an equal footing.

For this to occur, Australian LNG producers, and indeed suppliers of other commodities, will also need to be convinced of the value of trade diversification and take more innovative approaches. Learning to deal with new customers in Bangladesh will require patience and creativity.

Australian producers have traditionally enjoyed the custom of buyers from North East Asia (Japan, China, Korea and Taiwan), who have consistently been prepared to provide attractive terms.  While price is part of the equation, it is also these customers’ good credit worthiness and preparedness to share risks and obligations. To get the necessary comfort with dealing with buyers with lesser experience and lower credit ratings, Australian producers will need to consider ways to manage the perceived higher risks or indeed by developing an appetite for higher risk, as sellers from other countries have done to develop new markets like Bangladesh.

It will also require Australian producers to have a long-term commitment to acquire a sophisticated understanding of the country and to develop enduring relationships. This is easier said than done as Australian companies can be expected to focus their efforts on markets which promise the best returns. Their willingness to do things differently in Bangladesh will likely depend on their perceptions of whether they can continue to count on North East Asia as the market of choice.

Bangladesh’s success has attracted many other partners, and the landscape is competitive. The Australian government, including through Export Finance Australia and Austrade, should consider some of the policies other countries have already used to develop market share in Bangladesh to grow Australia’s presence.

While it does have significant structural issues to address, many observers are cautiously optimistic that Bangladesh will be able to move up the manufacturing value chain. Australia is well placed to supply the country with natural resources and value-added inputs, as it has done elsewhere in the region as countries industrialised. Australia is also well suited to providing to a greater range and level of services, as has been done in the education sector where Australia has an established brand name in country.

Bangladesh understands the need to both attract new investment and diversify its economy in order to lessen its dependence on the ready-made garment sector, remittances from its large diaspora, and some light manufacturing. The country has been increasingly active in looking at how it can attract the necessary investment, both to help in this diversification push and to modernise its infrastructure. Australian investors, especially those with an appetite for – and experience in – investing in Asian infrastructure, should take note.

Australia’s ever-growing challenges with China have led political leaders to stress the need for more trade diversity. Bangladesh should feature strongly in the list of countries which can potentially provide that additional bandwidth. The two countries share historically significant relations: Australia was the fourth country to recognise Bangladesh’s independence in 1971 and has been a committed development partner. People-to-people links are considerable, with over 40,000 people born in Bangladesh calling Australia home, according to the 2016 census. The English language and cricket provide good cultural commonalities.

Both countries are also wary of being dominated by larger and more assertive neighbours. And Bangladesh is rising in prominence as a potential partner on strategic issues in the region. While there are some tensions between Bangladesh and India, the relationship is sturdy, and increased cooperation between Bangladesh and Australia in this area is unlikely to draw ire from Quad partner India.

The TIFA is a signpost that in the fast evolving geopolitical and geoeconomic environment, Australia and Bangladesh do have many genuine interests in common, and they can and should work much closer together. At the end of day, however, unless the business communities and political leadership of both countries seize the opportunity, the TIFA will end up being symbolic and left on the shelf of unmet expectations.

Brendan Augustin graduated with double degrees in Commerce and Laws from the Australian National University, following which he spent fifteen years in the Department of Foreign Affairs and Trade (DFAT), undertaking diplomatic assignments in Indonesia, Malaysia, Brunei, and France. After leaving DFAT, he worked in senior roles in Oil and Gas and Mining, including international assignments in Africa and Asia. He is now the Managing Director of Bina Group, which is focused on supporting companies grow internationally. In July 2021 he was elected President of the Australian Institute of International Affairs of Western Australia.

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