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Brexit and the Impact on Bangladesh

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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-12, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
Brexit and the Impact on Bangladesh
Md. Thuhid Noor1, Md. Shafiul Islam2, Khandaker Jahangir Alam2, Md. Morshed
Hossain 3, & Shahjahan Ali 4
1,4
Research Student, Department of Economics, Begum Rokeya University Rangpur, Bangladesh.
2
Assistant Professor, Department of Economics, Begum Rokeya University Rangpur, Bangladesh.
3
Professor, Department of Economics, Begum Rokeya University Rangpur, Bangladesh.
Abstract: This study mainly aims at the Brexit and its
impact on Bangladesh as well as rest of the global
economy. It also enhances the understanding of
functioning Brexit within EU and the rest of the
worlds. The significant effect on the economy of
Bangladesh is more emphasized on this study. The
analysis is done by using the data of IMF, World
Bank and relevant sectors.
Keywords: Brexit, EU, Bangladesh, Economy &
DFQF.
1. Introduction
Brexit is an abbreviation for "British exit," which
refers to the June 23, 2016, referendum whereby
British citizens voted to exit the European Union.
The referendum roiled global markets, including
currencies, causing the British pound to fall to its
lowest level in decades. Prime Minister David
Cameron, who supported the United Kingdom
remaining in the European Union, announced his
plans to step down in October 2016, as a result.
Supporters of Brexit based their opinions on a variety
of factors, from the global competitiveness of British
businesses to concerns about immigration. Britain
has already opted out of the European Union's
monetary union -- meaning that it uses the
pound instead of the euro -- and the Schengen Area,
meaning that it does not share open borders with a
number of other European nations. "Out"
campaigners argued that Brussels' bureaucracy is a
drag on the British economy and that European
Union laws and regulations threaten British
sovereignty.
Mohamed El-Erian, the chief economic adviser at
Allianz, wrote in a Bloomberg editorial that a British
vote to leave the European Union is likely to impose
major instability on top of economic fragility and
artificial financial markets.
It may take at least two years following the vote for
the United Kingdom to exit the European Union
Imperial Journal of Interdisciplinary Research (IJIR)
completely, as per the provisions of Article 50 of the
Lisbon Treaty. As such, examples of Brexit's future
impact on British citizens are mostly speculation;
however, experts suggest that Brexit is likely to
mean slower economic growth for the country. A
slowdown in investments may also lead to fewer
jobs, lower pay and higher unemployment rates. The
absence of seamless access to European markets also
may mean fewer exports and foreign investments.
Additionally, consumers and employers reacting to
"doom and gloom" news about Brexit's potential
fallout alone may contribute to an economic
slowdown as companies hire fewer people and
consumers spend less money.
A referendum - a vote in which everyone (or nearly
everyone) of voting age can take part - was held on
Thursday 23 June, to decide whether the UK should
leave or remain in the European Union. Leave won
by 52% to 48%. The referendum turnout was 71.8%,
with more than 30 million people voting. England
voted strongly for Brexit, by 53.4% to 46.6%, as did
Wales, with Leave getting 52.5% of the vote and
Remain 47.5%. Scotland and Northern Ireland both
backed staying in the EU. Scotland backed Remain
by 62% to 38%, while 55.8% in Northern Ireland
voted Remain and 44.2% Leave.
The European Union - often known as the EU - is an
economic and political partnership involving 28
European countries. It began after World War Two
to foster economic co-operation, with the idea that
countries which trade together are more likely to
avoid going to war with each other.
It has since grown to become a "single market"
allowing goods and people to move around, basically
as if the member states were one country.
It has its own currency, the euro, which is used by 19
of the member countries, its own parliament and it
now sets rules in a wide range of areas - including on
the environment, transport, consumer rights and even
things such as mobile phone charges.
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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-12, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
Theresa May supported the campaign for Britain to
stay in the EU but since becoming prime minister -
after her fellow Remain campaigner David Cameron
stepped down - she has said she will respect the will
of the people and said: "Brexit means Brexit and
we're going to make a success of it."
For the UK to leave the EU it has to invoke an
agreement called Article 50 of the Lisbon
Treaty which gives the two sides two years to agree
the terms of the split. Mrs May has said she will not
kick off this process before the end of 2016. This
means that we will not begin to get a clear idea of
what kind of deal the UK will seek from the EU, on
trade and immigration, until next year.
Theresa May has set up a new government
department, to be headed by veteran Conservative
MP and Leave campaigner David Davis, to take
responsibility for Brexit. Former defence secretary,
Liam Fox, who also campaigned to leave the EU, has
been given the job of international trade minister and
Boris Johnson, who led the Leave campaign, is
foreign secretary.
These men - dubbed the Three Brexiteers - will play
a central role in negotiations with the EU and seek
out new international agreements, although it will be
Mrs May, as prime minister, who will have the final
say. The government did not do any emergency
planning for Brexit ahead of the referendum - and it
is now rushing to hire a team of skilled negotiators to
manage the complex business of negotiating
withdrawal and ensuring Britain gets the best
possible deal.
Once Article 50 has been triggered, the UK will have
two years to negotiate its withdrawal. Brexit
Secretary David Davis has suggested the country
could formally sever its relationship with the EU by
December 2018. But no one really knows how the
Brexit process will work - Article 50 was only
created in late 2009 and it has never been used.
Former Foreign Secretary Philip Hammond, now
Chancellor, wanted Britain to remain in the EU, and
he has suggested it could take up to six years for the
UK to complete exit negotiations. The terms of
Britain's exit will have to be agreed by 27 national
parliaments, a process which could take some years,
he has argued.
EU law still stands in the UK until it ceases being a
member. The UK will continue to abide by EU
treaties and laws, but not take part in any decision-
making.
Imperial Journal of Interdisciplinary Research (IJIR)
Unpicking 43 years of treaties and agreements
covering thousands of different subjects was never
going to be a straightforward task. It is further
complicated by the fact that it has never been done
before and negotiators will, to some extent, be
making it up as they go along.
Will the process of disentangling British laws from
EU ones happen at the same time as negotiations to
set up a new deal governing the terms of trade
between the EU and the UK? No one really knows
yet. The post-Brexit trade deal is likely to be the
most complex part of the negotiation because it
needs the unanimous approval of more than 30
national and regional parliaments across Europe,
some of whom may want to hold referendums.
2. Objectives of the study
The objective of the study is very unique which
entirely deals with the noted points mentioned below.
1. Concentrate on the function of Brexit and its
impact on Bangladesh’s Economy.
2. Why is there a call for Brexit?
3. Influence of Brexit in UK and others
4. Period need to leave EU
5. The overall impact all over the world
There are other objectives too that to be addressed in
the mentioned context with relevance comparing to
the study.
2. Literature Review
The European Union represents 6% of the world’s
population. But it accounts for more than 20% of
global imports and exports (European
Commission, 2002a). The EU emerges as the
leading trade power in the world today. As such, it
exhibits a strong interest in creating conditions in
which trade can prosper. The European Union is
specially committed to supporting developing
countries' efforts to integrate into the trading
system and to help them reap the benefits of
market opening, giving them a hand where needed
(Europa, 2004). The European Union applies this
particularly trade policy to the poorest countries,
for which the benefits of globalization remain
elusive. Furthermore, the European Union aims at
free but fair world trade (European Commission,
2002b). The EUs trade policy now covers a
broader canvas, beyond trade liberalization. It is
about updating and improving international rules
and giving trade partner countries a wider
coverage to ensure fair trade and harnessed
globalization.
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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-12, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
Like the other LDCs, Bangladesh gets more
trading benefit from the European Union. The EU
works closely with Bangladesh in the framework
of the EU-Bangladesh co-operation agreement
since in 1976 (Rahman et al., 2000). This
agreement provides broad scope for cooperation
extending to trade and economic development,
human rights, good governance, and the
environment (European Commission, 2013).
Enhanced market access to the EU and an
improved trading environment, the EU has
provided the Generalized System of Preference
(GSP) for Bangladesh. As such Bangladesh always
enjoyed the advantage of duty and generally quota
free access to the EU market. Export sector of
Bangladesh has undergone structural changes in
the decade of 80 in the last century with a
significant shift from jute-centered exports to
readymade garments and knitwear (Rahman,
2004). The main items that Bangladesh exports to
the EU are ready-made garments (90%), frozen
food (6%) and others (4%) cover leather and
leather goods, jute, pharmaceutical product, and
tea (Haque, at al., 2008).
RMG, ready-made garment, industry has virtually
thriven in the competitive advantage of a quota
free access to the EU market (Rahman, 2011).
Moreover, the EC’s autonomous decision to grant
duty and quota free access to all products produced
in the less developed countries (with the exception
of arms) comes up with new perspectives for
Bangladesh (World Bank, 2002). The main
imports from the EU consist of transport
equipment, textile and textile articles, food stuffs,
beverages and tobacco, machinery and appliances,
and chemical products (European Commission,
2012). The balance of trade with EU, over the
years, remained hugely in favor of Bangladesh
(5572.06 million US dollars in 2010) (Statistical
Year Book, 2011; Direction of Trade Statistics,
2011). Bangladesh enjoyed positive balance of
trade from the year 1991and this trend is still to
exist in the recent years (see Figure 1 for more
details). Bangladesh is likely to face a massive
challenge to export more in the market of the EU
in recent years. Compete with other rivals, the ban
on imports of fishery products (shrimp), limiting
infrastructure (utilities, road network, and port
facilities), lack of compliance facilities, supplier
performance, good design and less diversified
exportable goods, and economy and political
instability are the major concerns which creates
the hindrance to uplift the trading performance of
Bangladesh with the EU (Mckinsey and Company,
2011). There are large numbers of existing peer-
reviewed studies focused on trade liberalization,
Imperial Journal of Interdisciplinary Research (IJIR)
trade creation, trade agreement, and effectiveness
of free trade in the world. Classical economic
analysis shows that free trade increases the global
level of output because free trade permits
specialization among countries (Mankiw, 2009;
Ethier, 1988). Specialization allows nations to
devote their scarce resources to the production of
the particular goods and services for which that
nation has a comparative advantage. The benefits
of specialization coupled with economies of scale
increase the global production and welfare. Trade
facilitation and trade flows raising global capacity
halfway to the world average in four areas (port
infrastructure (air and maritime), customs
environment, regulatory environment, and e-
business infrastructure) would increase trade by
$377 billion (Wilson et al., 2005). Cox and Harris
(1985) conducted a study on the effects of
eliminating Canada’s trade barriers by using
computable general equilibrium model and found
that trade liberalization creates more welfare gain,
more production, enhanced factor productivity,
and increase trade volume. Free trade agreement
sometimes boosts up the trading capacity of
involved countries. Turkey and Pakistan are the
typical example in this regard. Turkey and
Pakistan had made benefit to a large extend when
they signed from free trade agreement. Export
flows from Pakistan to Turkey and Turkey to
Pakistan grown sharply since 2001 (Suvankulov
and Ali, 2012). But there is a little bit debate about
the positive performance of free trade and trade
linearization. Under preferential liberalization
condition, big countries always gain more benefits
than the small countries. Small countries would
gain little or even loss (Bandara and Yu, 2003).
For Bangladesh, there are several studies about the
free trade issue. These studies focused on the
promotion of free trade between India,
Bangladesh, and the European Union (Sikder and
Chakraborty, 2005), trade potential of Bangladesh
with the SAFTA and other neighboring countries
(Rahman et al., 2006), market access issue EU-
Bangladesh trade regime (Haque et al., 2008).
Most of the studies on trade issue used the gravity
model to quantify the gain from trade. However,
very few studies focus on the effectiveness of free
trade between Bangladesh and the European
Union. Trade policy of Bangladesh and the
European Union varies throughout the exportable
and importable goods and it is essential to review
different policies for different exportable and
importable goods. Bangladesh is agro based and
top readymade garments producing but industrially
underdeveloped country and therefore, Bangladesh
requires different trade policies for different
exportable and importable goods for enhanced
trading environment. This study focuses on the
model base assessment of effectiveness of free
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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-12, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
trade between Bangladesh and the particular
region (the European Union).
In its revised growth forecasts published 19 July
2016, the IMF implicitly recognized it had been
excessively pessimistic regarding the economic
consequences of Brexit: “After saying that leaving
the European Union could trigger a UK recession,
the International Monetary Fund now expects the
British economy to grow by 1.7 per cent this year
and 1.3 per cent next year The UK is still set to be
the second-fastest growing economy in the Group
of Seven industrialized nations this year – behind
the United States – and third-fastest next year,
behind the US and Canada"
European experts from the World Pensions
Council (WPC) and the University of Bath have
argued that, beyond short-lived market volatility,
the long term economic prospects of Britain
remain high, notably in terms of country
attractiveness and FDI: "Country risk experts we
spoke to are confident the UK's economy will
remain robust in the event of an exit from the EU.
'The economic attractiveness of Britain will not go
down and a trade war with London is in no one's
interest,' says M Nicolas Firzli, director-general of
the World Pensions Council (WPC) and advisory
board member for the World Bank Global
Infrastructure Facility, Bruce Morley, lecturer in
economics at the University of Bath, goes further
to suggest that the long-term benefits to the UK of
leaving the Union, such as less regulation and
more control over Britain's trade policy, could
outweigh the short-term uncertainty observed in
the country risk scores."
On 4 August 2016, in response to signs of an
historically fast economic slowdown in Britain, the
Bank of England took measures including cuts to
interest rates and buying debt. The bank also
forecasts GDP growth to slow down significantly
in the near future, with GDP growth to be
cumulatively 2.5% lower than its pre-Brexit
forecast
On 10 August the Institute for Fiscal
Studies published a report funded by the Economic
and Social Research Council which warned that
Britain faced some very difficult choices as it
couldn't retain the benefits of full EU membership
whilst restricting EU migration. The IFS claimed
the cost of reduced economic growth would cost
the UK around £70Bn more than the £8Bn savings
in membership fees. It did not expect new trade
deals to make up the difference.
A report by Tim Oliver of the German Institute for
International and Security Affairs expanded
analysis of what a British withdrawal could mean
Imperial Journal of Interdisciplinary Research (IJIR)
for the EU: the report argues a UK withdrawal
"has the potential to fundamentally change the EU
and European integration. On the one hand, a
withdrawal could tip the EU towards
protectionism, exacerbate existing divisions, or
unleash centrifugal forces leading to the EU's
unravelling. Alternatively, the EU could free itself
of its most awkward member, making the EU
easier to lead and more effective.
4. Methodology
To analyze the data and make it comprehensive, we
used the data from secondary sources particularly
from BBS, IMF, World Bank and Capital
Economics, London based think-tank National
Institute of Economic and Social Research etc. will
be consulted. We use the data to analyze
qualitatively in the context of the history of
Bangladesh’s export to EU.
5. Analysis
There was a dramatic fall in the value of the pound
against the dollar and in share prices in the
immediate aftermath of the Brexit vote. Britain also
lost its top AAA credit rating, meaning the cost of
government borrowing will be higher.
But a month after the vote share prices in the UK had
recovered, with the FTSE 100 trading higher than
before the referendum. The broader FTSE 250 index,
which includes more British-based businesses,
remains about 1.5% lower than before the Brexit
vote.
Retail sales figures for July were up on the same
period last year, defying predictions of a post-Brexit
slump. And UK industrial output grew at the fastest
rate for 17 years in the April-to-June quarter, up
2.1% compared with the first quarter of the year. The
Office for National Statistics said "very few"
respondents had been affected by the uncertainty
from the referendum vote.
However, the Bank of England has announced
additional measures to stimulate the UK economy
amid uncertainty over Brexit and worries about
productivity and economic growth, cutting interest
rates from 0.5% to 0.25% - a record low and the first
cut since 2009. Another key plank of its stimulus
policy - buying up UK government bonds - has run
into trouble after the Bank failed to find enough
sellers of long-dated government debt.
The rate cut followed figures showing the UK
economy contracting at its fastest rate since the
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Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-12, 2016
ISSN: 2454-1362, http://www.onlinejournal.in
financial crisis. The Markit/CIPS purchasing
managers' index - a closely-watched economic
barometer - showed activity in the UK's dominant
services sector saw its sharpest fall in seven years,
from 52.3 in June to 47.4 in July, suggesting a
downturn is on its way.
Apart from exports to the UK, the third largest export
destination for Bangladesh, remittance income from
the European country may come under strain as an
impact of its departure from the EU.
In the long run, Bangladesh's economy might take a
hit if the current uncertainty in the global economy
persists further. “It is bad news for the global
economy. It is not good news for Bangladesh at all,
as we are dependent on the global economy, and the
UK is a major market for us”.
There had already been uncertainty in the global
economy and Brexit exacerbated it further. The
devaluation of the pound may have an immediate
impact on Bangladesh's exports and remittance.
The UK is Bangladesh's third largest export
destination after the US and Germany, and the
second largest in Europe. As Britain chose to leave
the EU, economists and exporters said it would be a
major challenge for Bangladesh to retain duty-free
trade privilege of its goods to the UK. Because of
Brexit, the whole EU as well as the UK would face
an economic crisis. As a result, people would buy
less and the exporting countries would feel the pinch.
Once the UK leaves the EU, it would no longer
depend on the EU for crucial decisions. In such a
case, the trade privilege may be reduced, as there
would be no partner to oppose the decisions. The UK
is not only an export destination. Many international
companies are headquartered there. This country is
very important to us. The UK matters greatly in the
future plan for expansion of our export basket in
terms of value and volume.
Among western economies, the UK is the second
biggest source of remittance for Bangladesh after the
US. Migrant workers living in the UK send $1 billion
in remittance every year, contributing greatly to
Bangladesh's remittance income of more than $15
billion.
Because of the plunge in the pound, migrant workers
and non-resident Bangladeshis may postpone
sending money back home until the currency revives.
The plunge may hit Bangladeshi exporters, as
purchase of goods or services by the UK from other
countries will be more expensive.
Imperial Journal of Interdisciplinary Research (IJIR)
Brexit could be contagious and provoke other EU
countries to leave the bloc. And if that happened,
Europe would be weakened further. Brexit could
spur a “tariff war” among countries as they may seek
to raise customs and other duties to protect their
domestic industries. If all countries impose import
tariffs, the global trade would squeeze. “If the global
trade squeezes, it will affect our economy,” he said.
As a way forward, the Bangladesh government
should start lobbying with the British government to
retain the duty benefit Bangladesh enjoys from the
EU. Bangladesh's export to the UK would continue
to grow because of the big number of non-resident
Bangladeshis. But we have to ensure duty-free
market access. Exporters said if the UK continues to
give Bangladesh duty-free benefit even after its exit
from the EU, Bangladesh wouldn't face any
challenge in terms of export. Being a least developed
country, Bangladesh has been enjoying the zero-duty
benefit since 1971 under Everything But Arms
scheme of the EU, a trade bloc of 28 European
nations. The EU is the largest export trade bloc for
Bangladesh. Bangladesh was able to reach its current
position of the second largest apparel exporter
worldwide due to EU's generous trade benefits since
1971. Bangladesh now enjoys a 12.5 percent duty
benefit, which means Bangladeshi exporters don't
have to pay any duty on export to this trade bloc. But
if the UK discontinues the benefit, Bangladesh will
lose its competitiveness to other competitors.
The UK is a good destination not only for apparel,
but also for fresh vegetables and agro-products
because of the significant number of Bangladeshis
residing in the UK. Export of jackfruits and mangoes
has risen recently. Other items high in demand are
carrot, tomato, potato, eggplant, spinach, cauliflower,
papaya, pumpkin, bottle gourd, cabbage, coriander
leaf, okra, cucumber, bitter gourd, bean, jute leaf,
drumstick, radish, fish and meat. Local companies
also export agro-processed food to the UK.
Bangladesh exports fruits and vegetables worth more
than Tk 400 crore to the UK a year. Nearly 40
percent of the country's total export of vegetables,
fruits and allied products a year is destined for the
UK. Garment shipments to the EU increased by 4.11
percent year-on-year to $15.37 billion last fiscal
year, according to the EPB.
At present, the 28-nation economic union accounts
for 60.28 percent of the country's garment exports a
year.
In Europe, Germany was the prime destination, as in
previous years, accounting for $4.33 billion of the
$15.37 billion export receipts.
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The UK came in next, importing garment items
worth $2.9 billion from Bangladesh. According to a
note by London-based research firm Capital
Economics, Brexit would cause at most a GDP drop
of 0.2 percent across Asia.
The finding is based on a worst-case scenario
estimate by London-based think tank National
Institute of Economic and Social Research, which
said Brexit would reduce British imports by 25
percent worldwide within two years.
Exports to the UK presently account for only 0.7
percent of Asian countries' GDP, said Capital
Economics. According to experts, it will take the UK
at least two years -- if not more -- to sort out the
historic exit from the 28-country bloc.
The main impact on Bangladesh’s economy would
be in RMG sector.
Bangladesh earned $28.09bn from RMG exports in
the FY 2015-16 which just ended around 10.21%
growth from the previous year according to EPB
figure. Whereas country’s RMG exports
concentrated to major destination like EU (European
Union). The EU is the basket of RMG exports and
United Kingdom (UK) is the potential part of this
basket. But the matter of concern is now the UK
people decided to leave European Union (EU) as
52% people voted for exit while 48% cast vote to
stay with the union by a referendum held on June 23.
Britain’s exit (Brexit) from the EU will hurt
Bangladesh exports especially the RMG sector to
UK markets as it will cast shadow on the exchange
rates, fear the country’s economists and RMG
exporters.
The UK buyers of Bangladeshi garment products
have started putting price pressure on manufacturers
following the freefall of pound sterling as a result of
Brexit. The UK buyers will try to cut prices and to
some extent even to cancel the orders. This pressure
on price will further affect exporter’s margins that
have already been squeezed due to a rise in
operational and compliance costs. If the trend
continues for a long time, inflation will go up and the
British consumers will buy less, which will then
affect our exports there. Now the question arises that
$50 billion garment export target by 2021 may not be
possible.
While UK is the third largest single export
destination for Bangladesh, it is very important for us
as the exporters enjoy duty-free market access for all
products under Generalised System of Preferences
Imperial Journal of Interdisciplinary Research (IJIR)
(GSP). That is why it has become a big question for
the country as to whether it will be able to enjoy the
trade facilities after the exit of UK.
Bangladesh's exports to the UK may greatly be
affected due to a possible suspension of duty benefits
by the British government following Brexit. But it
seems the British retailers are not ready to pay more
for the garment products they source from
Bangladesh, according to RMG exporters.
Bangladesh’s exports to the UK totaled US$ 3.20
billion in the financial year 2015-16 with US$ 2.90
billion coming from the RMG sector data from EPB.
During the period between January-July 2015, the
price of RMG products imported by the EU fell by
1.41%, in spite of the fact that every factory had to
spend Tk 5 crore to Tk 20 crore to upgrade
infrastructure, fire safety, and electrical safety
facilities to meet international standards, even though
social compliance had already been established after
the Rana Plaza building collapse at Savar, Dhaka in
2013. But RMG exporters are yet now getting lower
price from buyers of major RMG importer countries
in EU.
In practical view I had noticed that in one of EU
countries like Italy buyers and retailers are sourcing
RMG products from Bangladesh by a low price and
sell to consumers with high price in the various
shopping malls.
Faruque Hassan, the vice-president of BGMEA said
that we have a target to grow apparel exports to the
UK by 12 percent to 15 percent year-on-year. It is
expected that it will cross the $5 billion mark in the
next five years in UK. Still, if the 12.5 percent duty-
benefit is cut, Bangladeshi exporters will lose
competitiveness. So, UK market is very significant
for RMG exporters of Bangladesh. But it needs to be
pointed out here that the country needs to achieve
about 12% of total RMG export growth to reach
$50bn export target by 2021. In recent times, the
short-term visible impact of the Brexit is devaluation
of currency that has already witnessed an about 10%
fall. Bangladesh will bear the brunt of the exit as it is
the third largest single export destination for our
products. This fall will also slim down remittance
and foreign direct investment in Bangladesh.
Brexit will also have a negative impact on remittance
earnings and spill a catastrophic impact on the
bilateral trade and investment relationship. In the
meantime, buyers try to get price benefits out of their
devaluating exchange rate. The declining exchange
rate of pound sterling will make imports costlier for
UK businesses. Additionally, industry insiders are
thinking that Brexit would cause uncertainty in the
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markets and pose other economic risks like exporters
to the UK will get less value in currency exchange.
The issue was not directly related with Bangladesh
but the country might have to face immediate impact
of Brexit. If Brexit poses negative impact on both the
EU and UK economy, Bangladesh would have to
suffer and if the Brexit leads positive in the economy
we will be benefited. It is true RMG sector will be at
risk, unless we explore more new markets with
additional basket of export products.
Since the exit will be executed by next two years;
Bangladesh government has to negotiate with UK for
continuing the trade facilities which may not be
effective after two years. Recently most of the
country’s economists also suggested the government
should form a national committee comprising trade
bodies, experts, international trade law practitioners,
economists, researchers, and representatives from
concerned ministries and agencies to observe and
report findings on post-Brexit global economic order.
RMG sector is the lifeline of Bangladesh economy. It
constitutes more than 80% of the country’s total
export and enjoyed a double-digit growth rate,
helping the country remain on track. So, it is not only
the responsibility of the owners of apparel industries
to showcase a positive image, but the government
also has a responsibility to start negotiation to deal
the issue bilaterally with UK.
6. Problems & Suggestions
There would be problems of numerous types in
the context of this study.
The government has declined to give a firm
guarantee about the status of EU nationals currently
living in the UK, saying this is not possible without a
reciprocal pledge from other EU members about the
millions of British nationals living on the continent.
EU nationals with a right to permanent residence,
which is granted after they have lived in the UK for
five years, will be able to stay, the chief civil servant
at the Home Office has said. The rights of other EU
nationals would be subject to negotiations on Brexit
and the "will of Parliament," he added.
A lot depends on the kind of deal the UK agrees
with the EU. If it remains within the single market, it
would almost certainly retain free movement rights,
allowing UK citizens to work in the EU and vice
versa. If the government opted to impose work
permit restrictions, then other countries could
reciprocate, meaning Britons would have to apply for
visas to work.
Imperial Journal of Interdisciplinary Research (IJIR)
Again, it depends on whether the UK government
decides to introduce a work permit system of the
kind that currently applies to non-EU citizens,
limiting entry to skilled workers in professions where
there are shortages. Citizens' Advice has reminded
people their rights have not changed yet and asked
anyone to contact them if they think they have been
discriminated against following the Leave vote.
Brexit Secretary David Davis has suggested EU
migrants who come to the UK as Brexit nears may
not be given the right to stay. He has said there might
have to be a cut-off point if there was a "surge" in
new arrivals.
Sterling has lost more than 10% of its value against
the dollar since Brexit. With the pound worth about
$1.30, this is down to the lowest levels since 1985. It
has also fallen in value against the euro. For much of
2015 the pound would buy you between €1.35-1.45.
This year sterling has weakened against the euro, and
has dropped following the Brexit vote to about €1.16.
Some major firms such as Easyjet and John
Lewis have pointed out that the slump in sterling has
increased their costs.
Summer holidaymakers travelling overseas from the
UK are finding that their pounds are buying fewer
euros or dollars after the Brexit vote. The day-to-day
spending impact is likely to be more significant.
Even if the pound regains some of its value, currency
experts expect it to remain at least 10% below where
it was on 23 June, in the long term. If they are
correct, imported goods will consequently get more
expensive - that means food, clothing and homeware
are all likely to get pricier. These price rises might
not kick in immediately. For example, all the big
retailers would have factored in the currency risk
when organizing their finances. In effect they have
insured themselves against a fall in the pound, but
this will start to unwind next year leading to price
increases in the shops. Sellers of luxury items, such
as high-end cars, have much bigger profit margins,
so may be able to absorb the extra costs without
passing these on to customers.
Prime Minister Theresa May has said one of the
main messages she has taken from the Leave vote is
that the British people want to see a reduction in
immigration. She has said this will be a focus of
Brexit negotiations. The key issue is whether other
EU nations will grant the UK access to the single
market, if that is what it wants, while at the same
time being allowed to restrict the rights of EU
citizens to live and work in the UK. Mrs May has
said she remains committed to getting net migration -
the difference between the numbers entering and
leaving the country - down to a "sustainable" level,
which she defines as being below 100,000 a year. It
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Imperial Journal of Interdisciplinary Research (IJIR)
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ISSN: 2454-1362, http://www.onlinejournal.in
is currently running at 330,000 a year, of which
184,000 are EU citizens, and 188,000 are from
outside the EU - the figures include a 39,000 outflow
of UK citizens.
According to Capital Economics, a London-based
research firm, Brexit would cause at the most a GDP
drop of 0.2 per cent across Asia. This is a matter of
concern for us. The government will have to make
necessary adjustments in the proposed budget and
keep the export sector vibrant by maintaining the tax
at source on readymade garments export at 0.60 per
cent instead of 1.5 per cent.
Nobody exactly knows what will be the impact of
Brexit on the world economy including Bangladesh.
However, if the UK continues to allow duty-free
market access after its exit, Bangladesh would not
have difficulties in export. If something like this
happens, the impact will be lesser than anticipated.
UK would continue to grow because of a large
number of non-resident Bangladeshis there.
Certainly there would be suggestion for Bangladesh
as well as the rest of global economy discussed
below.
In fact, consequences of Brexit will generally depend
on UK's reactions. Bangladesh needs to proceed
carefully. It should inclusively analyze the post-
Brexit global economic changes by forming a
national committee involving representatives of trade
bodies, law practitioners, economists, researchers
and representatives from concerned ministries and
agencies so that effective actions may be taken
promptly. The government ought to start lobbying
and need to renegotiate with UK to retain the duty-
free access. Accordingly, the government should also
try through the diplomatic channel so that the trading
facility now being enjoyed in the UK through EU to
keep pace with the global competitors is maintained.
After the referendum, the pound fell more than 10
percent that is the lowest value since 1985 and
devaluation of pound through Brexit might hurt
Bangladesh economy in different ways. UK may
adopt an immediate conservative move on their
financial expenditure as the purchase of goods or
services in the UK will be more expensive and goods
being sold to other countries from the UK will
become cheaper in particular. Again, it could
encourage imposition of a huge tariff on imports to
raise revenue or to protect their domestic industries.
If Brexit is effective, migrant workers and NRBs
may defer sending money back home until the
currency regains its old position. Racial tension may
be raised as vote highlighted disagreement on
immigration. Finally, it will echo around the world
that may induce further shock in the world economy.
Imperial Journal of Interdisciplinary Research (IJIR)
As a consequence of Brexit, Bangladesh may lose its
competitiveness over its counterparts, especially in
the export trade. Thus, Brexit may negatively impact
on exports and remittance earnings of Bangladesh.
Moreover, it may significantly influence our future
plan of expanding export which is linked with Vision
2021. Bangladesh should be keen on its aim to raise
the earning from exports even after Brexit.
7. Conclusion
The United Kingdom has finally decided to leave the
European Union (EU) as per results of a referendum.
Although it is still too early to predict the fallout of
the Brexit which means British exit, it’s true that the
tumbling of the British pound to a 31-year low will
affect trading of countries like Bangladesh. It’s true
that it could put a negative impact on the
Bangladeshi exports to the UK, which is the third
largest export destination for Bangladesh products.
Bangladesh would have to go for bilateral
negotiation to avail trade facilities. But then if the
Brexit brings positive results for the economy of the
UK it would not hit Bangladeshi exports, but if the
exit leads to any adverse impact on the economies of
the UK and the EU then the South Asian country.
Bangladesh enjoys duty-free benefits for all products
and flexible rules of origins for readymade garments
in the EU. Due to Brexit, Bangladesh would have to
need bilateral agreements to avail the benefits in the
UK. If any crisis takes place in the economy of EU
and UK due to Brexit, it will hit hard Bangladeshi
export business. Top economists at British
universities have feared that Brexit would damage
UK’s economy. They thought that Brexit would
cause uncertainty in the markets and pose other
economic risks. Although the Brexit is not directly
related with Bangladesh, the country might have to
face its immediate impact. The exit of Britain from
EU would not be positive as integration is important
this time for the EU economy. Bangladesh’s exports
to the UK totalled US$ 3.20 billion in the financial
year 2015-16 with US$ 2.90 billion coming from the
readymade garments sector. The president of the
World Bank has already warned a British exit from
the European Union could have a ‘negative impact’
on developing countries across the globe. Brexit is
one of the biggest risks to lower and middle income
nations since the UK’s economic grounding has a
direct impact on stability around the world. The gap
between global commodity imports and commodity
exports, which have grown by 6% and 0% this year
respectively, could get much worse as Britain leaves
the EU. And uncertainty in global capital markets is
bad for the world economy. On the other hand, the
stability of the British economy is really important
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 Imperial Journal of Interdisciplinary Research (IJIR)
Vol-2, Issue-12, 2016
ISSN: 2454-1362, http://www.onlinejournal.in

for the stability of the global economy and also

uncertainty in global capital markets have very
negative effects even on the poorest countries. It is
time that Bangladesh makes serious homework on
ramifications of the Brexit and does the needful.

8. References

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[6] Mankiw NG (2009). Application: international trade.

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[7] European Commission (2012). European Union, trade

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[8]Haque AKE, Karim A, Abdallah W (2008). Market

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[9] Europa (2004). Activities of the European Union

external trade. Retrieved from www.EUROPA-Activities
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[10 European Commission (2002a). The EU countries to

open its textile and clothing market. Evaluation of trade in
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[11] European Commission (2002b). Making globalization

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[12] Ethier WJ(1988). The pure theory of international

trade and its application. Modern International Economics.
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[13] Limano N, Venables AJ (2001). Infrastructure,

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[15 Chaney T (2011). The gravity equation in international

trade: An example. University of Chicago, USA.

Imperial Journal of Interdisciplinary Research (IJIR) Page 76

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