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Under the Banyan Tree – South Asia Spotlight: Sri Lanka and Bangladesh
665 Plays13 days ago
Economists Ines Lam and Aayushi Chaudhary join Fred for a broad discussion on two fast-growing Asian economies that don't get talked about enough.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
Impact of Middle East Events on Bangladesh and Sri Lanka
00:00:24
Speaker
Hello Under the Banyan Tree listeners, Fred here. Now this week's episode was recorded before the tragic events in the Middle East unfolded and they will have a significant impact on the two economies that we're discussing, Bangladesh and Sri Lanka in particular because the rise in oil and gas prices will affect these economies who are large net importers but also the flow of remittances with money being sent from the Middle East back to Bangladesh and Sri Lanka That might risk being interrupted, and of course, in the case of Sri Lanka. Also, the flow of tourists, a recent bright spot for the Sri Lankan economy might be interrupted, but what we're seeing unfold in the Middle East. Now, with that in mind, let's start this week's episode.
Focus on Bangladesh and Sri Lanka Economies
00:01:15
Speaker
Welcome to Under the Banyan Tree, where we put Asian markets and economics in context. I'm your host, Fred Newman. We've got an All Economist podcast here for you today with a focus on two South Asian economies that you might not know too much about. It's Bangladesh and Sri Lanka in the spotlight. One industry unites these two economies and where else can they look when a major cash cow is threatened by U.S. tariffs? My guests are fellow economist Enes Lam in a Hong Kong studio and a Yushicho dowry who joins us from Mumbai.
00:01:46
Speaker
Let's get the conversation started right here under the Banyan Tree.
00:01:56
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Let's start with some context on these
Economic Overview: Growth and Industries
00:01:58
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two economies. Both have seen an enviable growth rate of around 5% in recent years. They're both major exporters with a big emphasis on apparel. Bangladesh is actually the second largest global garment manufacturer after mainland China. In fact, if you're buying men's woven shirt off the rack today, it's more likely to come from Bangladesh than anywhere else in the world. As well as apparel, Sri Lanka is also a big tea, coffee and spice exporter, but tourism also plays a significant role in GDP. So Ines, let me start with
Bangladesh's Economic Growth and Challenges
00:02:28
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you. Paint us a picture about what the Bangladesh economy is really about.
00:02:34
Speaker
Hi Fred, Bangladesh is a very exciting economy. um So it has 177 million people, which makes it the eighth largest population in the world. And when I visited the country last year, I i was surprised to see how lively the society was given. There is a relative lack of infrastructure, but I see that people are moving, goods are moving fast. So yeah, I was very impressed. it's a very dynamic economy. um Obviously, it's also grown extraordinarily rapidly, over 6% for 20 years or so, making one of the fastest growing economies in Asia, in fact. How how does it fare more recently?
00:03:15
Speaker
Yeah, that's right. I mean, a lot of people don't know that Bangladesh was growing at such high rates in the past. The past few years, the economy was encountering a number of challenges um since COVID years. But Bangladesh recently had a national election. And I think this election is significant in the sense that it sets the stage for a new page of the economy.
00:03:40
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So new elections, Bangladesh, obviously, um but the government also faces some economic challenges there.
Sri Lanka's Economic Struggles and Recovery
00:03:46
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Ayushi, you are our guru on the Sri Lankan economy and paint us a picture here of that little island in the Indian Ocean. What is Sri Lanka all about?
00:03:57
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Thank you, Fred. So Sri Lanka is a small economy. The size of the economy would probably be around 100 billion dollars. And with close to 23 million people living in the economy. So given this economy and the number of people are so small, exporting becomes the main business of the economy.
00:04:14
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Amongst the big exports, it is tea, textile, spices. followed by remittance income along with tourism. Sri Lanka is one place where you will have unspoiled beaches, incredible wildlife, stunning landscape. In fact, before the pandemic, it was ah ranked by the Lonely Planet as the most attractive tourist destination.
00:04:38
Speaker
Ayesha, you make me want to travel again to Sri Lanka and I've been there. and israeli It is a stunning country to visit. But you know for all its its beauty, the beaches and and really its remarkable development history, the economy has slipped in recent years, um but it's now starting to get back up on its feet. Can you can it talk a little bit about about what caused the stumble and and where we are today in terms of economic growth?
00:05:02
Speaker
I agree, Fred. I mean, unfortunately, Sri Lanka has not had a single normal year since 2016, I would say. It had floods, it had drought, then there was sudden change in political leadership, followed by Easter bombings in 2019. And then we all know we had COVID, which sort of brought economic activity to a standstill ah for these small economies, which were largely dependent on tourism.
00:05:26
Speaker
I think since then, a lot of policy developments have happened. a lot of policy changes have been implemented under the um IMF umbrella. Inflation, which was around 2023 as high as 70%, has now come down to about 2% to 3%. And hopefully it will gradually move up to the central bank's target of about 5%. So that's encouraging. economy that has stumbled is now coming back on
Bangladesh's Garment Sector and U.S. Tariffs
00:05:50
Speaker
its feet. Ines, let me bring you in here. We talked about the fact that you know Bangladesh has had a tremendous growth run for decades, really. It's struggled a little bit economically in the last couple of years. What are some of the more near-term economic challenges or the number one challenge you would point to for the new government as it settles into into government?
00:06:10
Speaker
I would say that the biggest challenge that the new government is facing is a slowdown in the garment export sector. And a lot of it has to do with U.S. tariffs. So Bangladesh ready-made garment faces nearly 37% of tariffs imposed by the U.S. And it has clearly caused some damage to recent exports already. Now, we should say, of course, here at this point that some of these terrorists are now being brought down by a recent Supreme Court ruling in the US. But certainly over the past year, um the high terrorists have impacted the garment exports to the United States. How large is garments relative to the total exports for Bangladesh? How important is is the garment sector?
00:06:54
Speaker
The importance of the garment export sector cannot be underestimated. It accounts for over 80% of the country's total exports. And for the US market, it's about one-fifth of total clothing shipments. ah The EU is the biggest market for Bangladesh. It's about half of all exports. So, ah Garmin exports very, very important now, despite sort of the noise of the U.S. tariffs coming in and now being reduced, but we don't know what's going to happen next in terms of what new tariffs might come through in the U.S. How competitive is is Bangladesh in that sector overall?
00:07:31
Speaker
I mean, Bangladesh is very competitive in its ah garment exports. And as you mentioned at the beginning, that is the second largest garment exporter after mainland China. And a lot of it has to do with the low wages um in the country. Recent data suggests that there are still a lot of interest coming from foreign companies wanting to set up factories in Bangladesh.
00:07:54
Speaker
So there is still a lot to run. And when we get some political stability come back after the elections, presumably that sector could still drive employment, drive economic growth. Ayushi, let me ask you here because Sri Lanka was known as the major garment
Sri Lanka's Economic Drivers: Remittances and Tourism
00:08:10
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exporter, but it's kind of shifted a little bit away from that. It's still important. But what are some of the other sectors that are coming through in in Sri Lanka?
00:08:19
Speaker
Yeah, Fred, I mean, ah textile is one of the biggest export item for Sri Lanka. It's about 40% of Sri Lanka's export. But there are many other drivers of growth which Sri Lanka is banking upon. The second big driver of growth being remittance income, especially ah the Middle Eastern economies, which send money back home. And this these remittances account for about 7% to 8% of Sri Lanka's economy. Another very big driver of Sri Lanka's growth is tourism, which is about three and a half to four percent of Sri Lanka's economy. Again, because of its strategic location and the incredible offerings, making it a preferred tourist destination. So we have remittances important. Obviously, Garmin Expo is important. the economy is that have enormous growth potential. And when we come back, we want to look further out and see what really the potential is for both Sri Lanka and Bangladesh. you
00:09:24
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Ayushi, let me start with you. What and excites you about Sri Lanka? What do you think is going to be Sri Lanka in 10 years' time down
Future Growth: Logistics and Services in Sri Lanka
00:09:34
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the road? Yes, there the beaches. Yes, there the garments. But what is really going to be the trick up Sri Lanka's sleeve when it comes to economic growth in years to come?
00:09:45
Speaker
I think, I mean, if if I look at Sri Lanka, there are two areas which I'm most excited about. First one being logistics services. Sri Lanka has three ports on three different directions of the island. We have on the west, we have the Colombo port. On the south, we have the Hambantota port. And on the east, we have the Trigcomali port. These ports are offering logistics services and it makes an attractive destination for the transshipment trade. At the moment, the size of the logistics services is about 2.5% of GDP, but this is where we see a lot of potential. The other area which I'm very excited about is the services exports.
00:10:24
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we have seen a smart increase in services exports, especially of the other business category. Now, these could be a freelancer giving tuition services abroad, maybe helping you create ah some small architectural plan, some consultancy services. And this is where we see a robust growth in the future, taking inspiration from the Indian economy, which has now become one of the biggest locations for all the global capability centers across the world. Sri Lanka shares the same time zone. It has a lot of English-speaking population at a competitive wage. So all combination of these three things makes Sri Lanka, again, a very attractive destination for companies who would want to set up their services workshop elsewhere.
00:11:08
Speaker
So, that you described a very bright picture for Sri Lanka's ah future, but one that really relies on global connectivity. It's a small, open economy. Logistics are important. Services, exports, and we're really moving beyond garment exports.
Bangladesh's Youth, Agriculture, and Online Opportunities
00:11:22
Speaker
But, Ines, what excites you about Bangladesh? There's presumably a lot more runway for garments. I mean, yes, it's a major garment exporter, but it's not even close to China's role in the global economy or some of the other economies, so it has more room to grow. um But then beyond garments, surely Bangladesh has much more to offer on that front as well.
00:11:44
Speaker
Yeah, for sure. The biggest comparative advantage of the country is certainly the large and young population. um The young generation is highly educated and same as Sri Lanka, they are English speaking.
00:11:58
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So a lot of young people are offering their services online. And um I think beyond garment for export sector, Bangladesh also can explore the opportunities to sell its agricultural products to the world. ah Bangladesh is one of the largest producers of rice, for example. But the new government really has to improve the logistics and the transportation so all these farm products can find their way to the world.
00:12:28
Speaker
So here too, then a lot more prospects for exports. ah Interesting you mentioned online the gig economy coming to Bangladesh as well. But presumably it's not just within Bangladesh, but they're also exporting some of these services abroad. You have individuals then selling um services like what overseas?
00:12:47
Speaker
Some of the examples that I've seen are like university students um teaching kids online for maths. or ah yeah There are many different services that these English-speaking university students are offering to the rest of the world, not only in Bangladesh. So the World Wide Web opening a worldwide opportunities to Bangladeshis in Dhaka and elsewhere in the country. Yes, certainly. Ayushi and Ines, thank you very much for sharing your thoughts on Bangladesh and Sri Lanka. um It's not just about the major economies in Asia, but we also have these small jewels in the region that actually have tremendous success stories and are continuing to develop and despite recent hiccups, really are on the path of of very, very strong and sustained growth. so
00:13:34
Speaker
Thank you very much for sharing your thoughts. Thank you, Fred. Thank you, Fred. And that brings us to the end of this episode of Under the Banyan Tree. Listen, like and subscribe for your weekly fix of Asian markets and economics. Also, check out The Macro Brief, our sister podcast that looks at the major issues shaping financial markets worldwide.
00:13:54
Speaker
Under the Banyan Tree is an HSBC Global Investment Research production produced by Graham Mackay. Thank you all for joining us and we'll talk to you again soon.
00:14:44
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.