After decades of debate and analysis, Bangladesh remains trapped in an export structure that is both narrow and increasingly risky, writes Dr Mohammad Abdur Razzaque, economist and chairman of Research and Policy Integration for Development (RAPID), in The Daily Star. The persistence of this issue is not academic repetition but a reflection of how little progress has been made in finding a credible path out of export concentration.

Rather than improving, the situation has deteriorated. Readymade garments (RMG) now account for about 85% of Bangladesh’s total merchandise exports, leaving the country with one of the least diversified export baskets globally. UNCTAD’s export diversification index, where higher values indicate greater concentration, places Bangladesh at an average score of 0.87 during 2020–2022. This is significantly above the least developed country average of 0.66 and well ahead of peers such as Viet Nam at 0.54, India at 0.45, and China at 0.38. Since 2000, new products have contributed less than 5% of Bangladesh’s export growth, compared with 19% in India, 22% in Cambodia, 25% in Sri Lanka, 33% in China, 42% in Viet Nam and 62% in Malaysia.

As the report says, the dominance of garments did not emerge from a neutral policy environment. It was shaped by a specific set of global and domestic circumstances that no other sector experienced. From the 1970s until the early 2000s, the Multi-Fibre Arrangement restricted textile and clothing exports from many developing economies, diverting global sourcing towards lower-cost producers such as Bangladesh. Combined with duty-free access under least developed country provisions, this created an exceptional and time-bound advantage for garments that never materialised for other industries.

Tariff structures in major markets reinforced this bias. Garments face significantly higher most-favoured-nation tariffs than most manufactured goods. In the EU, MFN tariffs on many products range from 3 to 4%, versus 12% for garments.

Preferential access therefore carried far greater commercial value for clothing exports, encouraging firms to specialise further in this sector. Domestic trade policy amplified the imbalance, as the garment industry benefited from targeted export support measures that allowed it to scale rapidly.

A key myth surrounding export diversification is the assumption that Bangladesh failed despite having export-oriented policies in place. In practice, trade policy has remained largely inward-looking. High tariffs and trade taxes have made domestic sales far more attractive than exporting.

Weak enforcement of quality, labour and environmental standards further discourages diversification. Export markets demand strict compliance, while domestic markets impose few such requirements the report continues. Producing for local consumers is therefore easier and often more lucrative. This explains why Bangladesh has many industries thriving domestically, from food and footwear to fertilisers, cement, ceramics, furniture and pharmaceuticals, yet exports only a handful at scale. The country produces a wide range of goods, but most are not export-ready.

The obvious question is why garments succeeded where others did not. The answer lies in the sector’s export-oriented foundations. From the outset, the RMG industry was deeply embedded in global value chains and produced almost exclusively for foreign buyers. Firms aligned themselves with international standards, sourcing networks and delivery schedules rather than domestic market conditions. Bonded warehouse facilities enabled duty-free access to imported inputs, insulating the sector from domestic protection. Competition was shaped by global prices and buyer requirements, not by tariffs at home.

Other sectors, lacking such integration, remained exposed to domestic incentives that favoured import substitution. Policy debates have also tended to underestimate what exporting entails in today’s economy. Export success now depends on participation in complex systems that include design, branding, compliance, logistics, distribution and after-sales services. In a long-protected economy like Bangladesh, exporting has often been treated as a simple extension of domestic production rather than integration into global value chains.

This is where foreign direct investment becomes critical. FDI typically brings access to global buyers, established brands, technology, managerial expertise and international distribution networks. Through foreign firms or joint ventures, local producers gain capabilities that would otherwise be costly and risky to develop independently. Outside garments, Bangladesh has largely failed to leverage this channel. Ironically, while most garment exporters are local entrepreneurs, their success has depended heavily on sustained relationships with foreign buyers, a reality often overlooked in policy discussions.

Attracting FDI into non-garment sectors is arguably the most important precondition for meaningful export diversification. Bangladesh has struggled in this area due to high trade protection, regulatory complexity, weak contract enforcement, infrastructure constraints and the absence of clear, sector-specific investment strategies. In contrast, countries such as Viet Nam, China, Cambodia and Malaysia placed FDI at the centre of their export strategies, using foreign firms and joint ventures to anchor domestic production within global value chains.

While addressing infrastructure gaps, skills shortages and institutional weaknesses will take time, export diversification cannot wait for all constraints to be resolved. What is needed now is a focused and credible push to attract foreign investment into non-garment sectors, supported by a trade and investment policy that recognises FDI not as a peripheral objective, but as a central catalyst for export growth and structural transformation.