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Export diversification has long been a key priority for Bangladesh, underscored by its inclusion in major national strategic documents such as the 6th, 7th, and 8th Five-Year Plans (FYPs), as well as the Perspective Plan 2041 (PP2041). This focus aims to reduce the country’s dependence on a single export product—ready-made garments (RMG)—which generates over 80% of total export revenue, and diversify its export basket to improve resilience, competitiveness, and sustainability in global trade.
The need for diversification has become even more pressing as Bangladesh nears its graduation from Least Developed Country (LDC) status in 2026. LDC status has provided Bangladesh with preferential trade benefits, including tariff-free access to major markets such as the European Union (EU), United Kingdom (UK), China, India, and Japan. However, as Bangladesh progresses toward graduation, these benefits will be phased out, and higher tariffs could be imposed, especially in the textile and garment sectors. This anticipated increase in tariffs could pose challenges to the country’s export expansion unless diversification measures are taken swiftly.
As it stands, Bangladesh’s export portfolio remains highly concentrated in the RMG sector, which alone accounts for more than 80% of the country’s total exports. This lack of diversification exposes the economy to shocks affecting the garment industry, such as global demand fluctuations, changing fashion trends, or disruptions in production. Furthermore, Bangladesh’s export structure is among the least diversified in the world, as evidenced by its high score of 0.88 on the Herfindahl-Hirschman Index (HHI), which measures export concentration. This score is more than four times higher than the developing-country average (0.68), signaling a significant risk to long-term export stability.
In response to these challenges, the World Bank identified four key sectors—leather & leather goods, footwear, plastics, and light engineering (LE)—as critical to Bangladesh’s export diversification strategy. Among these, the Light Engineering (LE) sector stands out as a sector with significant potential for growth and global competitiveness.
The Light Engineering (LE) sector plays a pivotal role in Bangladesh’s industrial landscape, supporting key industries such as textiles, agriculture, and shipbuilding. With over 80,000 enterprises and nearly one million employees, the sector generates employment, adds value to the economy, and reduces the country’s dependency on imports by locally manufacturing essential industrial components. As of the fiscal year 2023–2024, the domestic market size of the LE sector was estimated at USD 8.2 billion, and the sector meets approximately 50% of the domestic demand for LE products.
Despite these achievements, Bangladesh’s LE sector is still modest in terms of export performance, with exports reaching USD 795.63 million in 2022. While this figure is commendable, it remains small when compared to Bangladesh’s total manufacturing exports. The government has recognized the LE sector’s potential and, under the Export Policy 2021-24, has prioritized it as a high-potential industry for export growth. To facilitate further expansion, Bangladesh has already begun to develop specialized industrial parks, such as those planned for Dhaka, Chattogram, and other regions.
The Bangladesh government has introduced several incentives and reforms aimed at boosting export diversification, particularly in sectors like LE. The Light Engineering Industry Development Policy (2022) sets out an ambitious action plan to increase the sector’s contribution to GDP by 40% by 2027. The government has provided substantial support through:
These measures are designed to promote infrastructure development, enhance technological modernization, improve human resource skills, and encourage market expansion. In addition, the government has prioritized the development of industry clusters, which will foster greater collaboration, knowledge sharing, and innovation within the LE sector.
Looking ahead, Bangladesh’s export diversification strategy will depend heavily on scaling up efforts in key sectors like LE, leather, plastics, and footwear. Through targeted export promotion and improved market access, Bangladesh can position itself as a major player in the global light engineering market, which is valued at USD 8 trillion. Key products for export include bicycles, industrial machinery, refrigerators, optical lenses, batteries, and other essential industrial components.
To accelerate growth in the sector, it will also be vital to upgrade production capabilities and expand training initiatives to foster efficiency. Furthermore, integrating quality assurance and certification processes will help meet international standards, boosting the global credibility of Bangladesh’s light engineering products.
In conclusion, export diversification is not just a policy objective but a strategic necessity for Bangladesh. With its reliance on a single sector making the economy vulnerable to external shocks, broadening the export base is crucial to ensuring long-term growth and sustainability. The LE sector, along with three other sectors, stands at the forefront of this diversification strategy, with significant export potential that can help Bangladesh move beyond its over-reliance on RMG exports. With robust government support, industry collaboration, and a continued focus on innovation, Bangladesh can diversify its exports and strengthen its position in the global market.
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