Introduction
The relationship between Sri Lanka and Bangladesh has traditionally revolved around trade, fostered by geographical proximity and strong cultural ties. This has resulted in considerable growth in bilateral trade over the years. The current economic crisis in Sri Lanka further reinforces the need to strengthen trade ties with neighboring countries such as Bangladesh, which is set to graduate from the Least Developed Countries (LDC) list. This presents a unique opportunity for both nations to further enhance their economic cooperation and benefit mutually from increased trade.
Sri Lanka-Bangladesh trade ties:
The potential trade partnership between Sri Lanka and Bangladesh holds significant promise for economic growth and collaboration. The two countries already have a solid foundation for greater trade relations, with their current trade volume being valued at $300 million USD (according to a 2022 report).
Sri Lanka’s exports to Bangladesh have experienced a substantial growth from $10 million in 2000 to $222 million in 2021. Bangladesh’s exports to Sri Lanka have also increased significantly over the past 26 years, growing at an annualized rate of 7.31%. Sri Lanka’s exports to Bangladesh have grown at a higher annualized rate of 15.4%.
The trade between Sri Lanka and Bangladesh encompasses a wide range of sectors, including mineral fuels, oils, electronic equipment, chemicals, crocheted fabrics, and agricultural products. According to data from 2022, Sri Lanka’s most exported product to Bangladesh was mineral fuel and oils, totaling $48.96 million, followed by electrical equipment ($35.59 million) and knitted fabric ($22.82 million). In 2021, Bangladesh exported $83 million worth of goods to Sri Lanka, with the main products being packaged medicaments ($25 million), electric generating sets ($6.09 million), and knitted t-shirts ($ 4.34 million).
Sri Lanka and Bangladesh implement measures to attract Foreign Direct Investment
Sri Lanka and Bangladesh have demonstrated significant direct investments in each other’s countries, with Sri Lanka’s investments in Bangladesh amounting to approximately $2.5 billion, making it one of the largest investors in the country. Bangladesh, on the other hand, has invested only $3.9 million in Sri Lanka. Despite the discrepancy in investment amounts, this indicates growing interest from Bangladeshi investors in exploring opportunities in Sri Lanka’s economy.
To further increase the volume of Foreign Direct Investment (FDI), both Sri Lanka and Bangladesh have implemented policies, incentives, and tax concessions to create favorable investment climates. Sri Lanka has introduced measures such as the Board of Investment (BOI) Act and the Strategic Development Projects Act, offering tax incentives for specific industries, export-oriented businesses, and Special Economic Zones (SEZs) like the Colombo Port City and Hambantota Industrial Zone. In addition to these incentives, Sri Lanka has also invested in infrastructure development projects such as ports, airports, highways, and power generation.
Similarly, Bangladesh has introduced reforms such as the Bangladesh Investment Development Authority (BIDA) Act, which offers a one-stop service for investors, tax incentives, tax holidays, and duty-free importing of capital machinery for priority sectors. SEZs like Bangabandhu Sheikh Mujib Shilpanagar and Chattogram Export Processing Zone provide streamlined procedures and infrastructure facilities, while infrastructure development projects such as power plants, roads, ports, and information technology parks, support industrial growth.
Existing and proposed trade agreements between Sri Lanka – Bangladesh
Existing and proposed trade agreements between Sri Lanka and Bangladesh have had a significant positive impact on their respective economies. The bilateral agreements, signed on various dates, include the South Asian Preferential Trading Arrangement (SAPTA), the Agreement on South Asian Free Trade Area (SAFTA), the Global System of Trade Preferences (GSTP), the Asia Pacific Agreement (APTA), and ongoing discussions regarding a Preferential Trade Agreement (PTA). These agreements aim to reduce bilateral trade costs, identify and address barriers such as tariffs, non-tariff measures, and administrative procedures, and facilitate future trade investment and cooperation between the partners.
In addition, regional integration initiatives such as the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) provide platforms for enhanced cooperation. Active participation in these regional forums allows Sri Lanka and Bangladesh to strengthen their trade relations, access larger markets, and benefit from regional trade integration.
How Trade Relations Impact the Economies of Sri Lanka and Bangladesh
The trade relations between Sri Lanka and Bangladesh have a significant impact on their economies. The increasing volume of exports and imports between the two countries opens up larger markets and helps diversify their export portfolios, reducing dependence on specific industries or markets. This, in turn, makes their economies more resilient in the face of uncertain complexities such as the ongoing Russia-Ukraine war and global supply chain disruptions brought on by the COVID-19 pandemic.
Trade ties also create employment opportunities in sectors such as manufacturing, agriculture, and logistics, leading to increased job creation and a reduction in unemployment rates. Improved trade also contributes to foreign exchange earnings, strengthens foreign exchange reserves, and enables the meeting of international financial obligations, importation of essential goods and services, and maintenance of economic stability.
Overall, the trade relations between Sri Lanka and Bangladesh have far-reaching positive effects on their respective economies, improving the standard of living for their citizens and furthering their development.
Addressing weaknesses in Sri Lanka-Bangladesh trade ties
The trade relations between Sri Lanka and Bangladesh have several strengths but also some weaknesses that need to be acknowledged and addressed such as,
– Trade Imbalance: Bangladesh has a significant trade surplus with Sri Lanka, which can create economic challenges for Sri Lanka in competing with the low-cost manufacturing and textile industries of Bangladesh.
-Limited Product Diversification: The trade relationship is heavily concentrated in a few sectors, making both countries vulnerable to changes in global market demand and economic shocks.
– Non-Tariff Barriers: Complex regulatory procedures, standards, and certification requirements can hinder trade between the two countries, increasing transaction costs and limiting market access.
– Infrastructural Limitations: Insufficient physical infrastructure can lead to delays and higher logistics costs, impacting the competitiveness and efficiency of trade.
– Limited Information Exchange: Lack of adequate information exchange and market intelligence can hinder trade opportunities and make it challenging for businesses to identify and seize trade opportunities.
– Political and Policy Instability: Political instability and changes in government policies can create uncertainties and disrupt the smooth flow of trade and investments.
Overcoming these weaknesses through diversification, reducing non-tariff barriers, improving infrastructure, enhancing information exchange, and ensuring political stability is essential to foster stronger and more balanced trade relations between Sri Lanka and Bangladesh, leading to mutual benefits and sustainable economic growth.
Challenges and Opportunities in Sri Lanka-Bangladesh trade relations
The trade relationship between Sri Lanka and Bangladesh presents a combination of challenges and opportunities. Both countries face tariff and non-tariff barriers, regulatory complexities, and geopolitical tensions that affect market fluctuations. However, collaborative efforts can overcome these obstacles. The textile and apparel industry offers significant potential for collaboration, with Bangladesh’s second-largest ready-made garment sector and Sri Lanka’s expertise in high-quality garments. Sharing manufacturing technologies and accessing new markets can further enhance this potential.
The growing IT sectors in both countries can benefit from knowledge sharing, software development, and business process outsourcing, contributing to market expansion, competitiveness, and also the agriculture and agro-processing sector holds promise for cooperation, as both countries have significant agricultural sectors that can benefit from sharing best practices, technology, and diversifying agricultural products. Furthermore, the service sector, including tourism and business services, presents opportunities for mutual growth, with Sri Lanka’s tourism infrastructure and marketing expertise complementing Bangladesh’s unique cultural attractions.
Besides, collaboration in the industrial sector can drive economic growth, job creation, and technological advancements. By addressing trade barriers, leveraging strengths, and exploring opportunities, Sri Lanka and Bangladesh can strengthen their trade relations, foster economic growth, and create a prosperous future for both nations. The trade relationship between Sri Lanka and Bangladesh has had a transformative impact on their respective economies. It has resulted in increased trade volumes, diversification of export markets, job creation, technology transfer, and foreign exchange earnings. Furthermore, it has facilitated regional economic integration and stimulated investment and business opportunities. By nurturing and further strengthening their trade ties, Sri Lanka and Bangladesh can continue to leverage their trade potential for sustained economic growth and shared prosperity.
Conclusion
Sri Lanka and Bangladesh have witnessed a significant increase in their trade volume over the years. Both countries have successfully expanded their bilateral trade and diversified their export-import baskets. Sri Lanka and Bangladesh have complementary economies, with each country specializing in different sectors. Sri Lanka has a strong presence in industries such as textiles, garments, and tea, while Bangladesh is known for its textile and ready-made garments sector. This complementarity creates opportunities for trade cooperation, where both countries can benefit from each other’s expertise and resources.
Trade relations between Sri Lanka and Bangladesh provide market access to their respective products. Bangladesh, with its large population, serves as a significant market for Sri Lankan products. Similarly, Sri Lanka offers opportunities for Bangladeshi products to enter its market and tap into its consumer base. Enhanced trade relations promote economic integration between Sri Lanka and Bangladesh. This integration leads to the exchange of knowledge, technology, and investment, fostering economic growth in both countries. It also helps build regional economic cooperation and strengthen ties within the South Asian region. Sri Lanka and Bangladesh are both members of regional organizations such as the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). These platforms provide opportunities for both countries to engage in regional trade initiatives and collaborate on various economic fronts.
Despite the positive developments, there is still untapped potential in trade relations between Sri Lanka and Bangladesh. Both countries can explore avenues to further expand their trade and investment cooperation. This could include diversifying the range of traded goods and services, reducing trade barriers, and promoting business-to-business interactions. The trade relations between Sri Lanka and Bangladesh play a crucial role in their overall economies. Trade cooperation provides market access, promotes economic integration, and facilitates regional cooperation. By capitalizing on their respective strengths and exploring untapped potential, both countries can further enhance their trade relations and contribute to sustainable economic growth.
Ananda Chakma
(Ananda Chakma is a Bangladesh-based independent researcher. His main area of work is Economics and its related branches. He has completed his Bachelor of Economics special degree at Gujarat University, Ahmedabad, India. He also works as a social activist in Bangladesh. Conducts various social, Cultural, and educational research based in Bangladesh.)
References
- https://thegeopolitics.com/bangladesh-sri-lanka-trade-ties-issues-and-prospects/#:~:text=Exports%20from%20Sri%20Lanka%20to,of%20it%20five%20years%20ago.
- http://www.slhcdhaka.org/trade_investment.php
- https://oec.world/en/profile/bilateral-country/bgd/partner/lka
- https://www.customs.gov.lk/
