Discussion Brief for the Export Strategy-Maker

The Matching Grant Facility Programme

1. Introduction 

The Matching Grant Facility (MGF) Programme is a component of the Bangladesh Export Diversification Project (BDXDP) of the Ministry of Commerce, GOB, with IDA/ World Bank credit. The project is being jointly implemented under the contract by Trade Development Institute of Ireland Limited, Dublin and Transnational Consultants Limited (TCL) of Bangladesh. The concept of MGF has been developed in the Ireland and has been implemented in 15 countries. In Bangladesh, the project was launched on 1 August 1999. 

2. Salient Features of the MGF Programme

The Matching Grants Facility (MGF), is an innovative 50% matching grant facility, aimed to stimulate exporters to undertake appropriate export diversification and development plans whereby they may reach a higher level of competitiveness and acceptance in export markets. The focal point of MGF is to induce exporters to purchase consultant and other services that help them to diversify and expand their products lines and their export markets. The MGF also encourages the growth of professionalism among service providers to offer better services to the exporters of Bangladesh. 

2.2 Objectives of the MGF 

The main objective of MGF is to lead the private sector of Bangladesh to greater and more diversified exports by assisting firms to become more competitive through the use of quality external business development services and through planned, intensive, foreign market exploration. 

2.3 Purpose of the MGF Programme 

The main purpose of MGF is to "support the Government’s objective of diversifying exports, by encouraging private firms to make fullest possible use of external business development services (local and foreign) and of travel, in order to enhance their ability to compete in export markets." 

2.4 Duration of the MGF Programme 

The MGF was scheduled to operate from 1 August 1 1999 through 31 July 2002, although an independent mid-term review has recommended its extension until 31 January 2003. 

2.5 Benefits of MGF Programme 

• Exporters becoming more competent competitive in the export market. 
• Service providers will benefit by enhancing their existing services and creating new services that are purchased by export firm. 
• Both exporters and service providers will benefit by free MGF "hand-holding" assistance to : 
  • choose the best direction and use of business development services to build their product and managerial competitiveness for and in export markets,
  • refine their export service development plans, and
  •  execute the approved plans 
   

The MGF encourages prospective clients to grow by becoming more market-reactive, proactive and competitive by agreeing to reimburse them up to 50% of eligible costs in an approved export diversification/ development plan or service development plan. 

2.6 Eligibility of the Beneficiary> 

Prospective clients eligible for participation in Exporter grants are: 

• Private firm currently exports, deemed exporters and threshold exporters representing all sectors except traditional jute goods sector 
• Providers of inputs to exporters products on the threshold of exporting 
• Commercial wing of NGOs. 

Prospective clients eligible for participation in service development grants are: 

• Private firm providing services to the exporters 
• Non-governmental bodies (e.g. chambers & trade associations) and 
• Professional firms providing support services to the exporters. 

2.7 Eligible Activities 

Eligible activities are: 

2.7.1 Company Development 

• Quality assurance and certificates like ISO , HACCP, etc. 
• Development of Management Information System (MIS) 
• Management consulting services 
• Corporate brochure designing 
• Web site design and hosting 
• Training and human resources development, etc. 

2.7.2 Market Development 

• International trade fair participation 
• Market and buyer visits 
• Inward buyer’s visit 
• Market research abroad 
• Marketing consulting services 
• Training on export marketing 
• Opening overseas marketing office 

2.7.3 Product Development 

• Technology sourcing and technical assistance 
• Development of prototype product sample 
• Hiring product designers and experts 
• Product brochures and catalogue designing 
• All types of consulting services for product development 

Ineligible expenses for MGF cost sharing are isolated activities (versus integrated plans) capital costs, working capital, recurrent costs, maintenance costs, etc. 

2.8 Total Available Funds and Maximum Reimbursements 

Export diversification/development clients have US$ 10 million of available funding while service development clients have US$ 2 million. No single sub-sector may access more than 10% ($1.2 million). No single company or group of companies can receivel more than US$ 200,000. The MGF may reimburse up to a total cumulative equivalent of US$ 200,000 per company or holding group of companies. Under service development plans a maximum of US$ 50,000 may be reimbursed to private consulting firms or US$ 200,000 to eligible exporters’ chambers and associations during the Programme period. The clients are encouraged to get second grants within the limit.

2.9 Mode of Payment 

Payment of 50% grant is by reimbursement only, coming after the MGF client has paid the entire cost and submitted proof of activity completion (The "deliverables") and evidence of payment of approved costs. The other 50% of costs must be borne by the exporters/recipients without any additional subsidy from other sources.

2.10 Management and Operation 

The management unit reports to a mixed private/public board, comprising five representatives of leading chambers and sector associations and two representatives of Government; one from the Ministry of Finance and BDXDP Project Director, who is an Additional Secretary in the Ministry of Commerce. 

The MGF team is led by a resident expatriate Manager and is supported by a Bangladeshi Deputy Manager and an expatriate Financial Controller. Reporting to the Deputy Programme Manager, three senior Bangladeshi export development advisors (EDAs) make up the formal marketing team, but in order to improve productivity, the contractors also recruited four young professionals to support the Marketing Team. 

3.0 Operational Performance of the MGF Programme

Approvals of grants, i.e. the value of funds committed to the grantee; are generated by the promotional activity unit, supported by advisory services and validated by the MGF unit for the board’s decision. By 31 July 2001, gross value of approvals amounted to over US$ 9,400,000 committed to some 402 projects. 

3.2 Disbursement of Grants 

In the Matching Grant Programme, disbursements lag behind approvals to a considerable extent, the nature of the lag being determined by the types of activities being supported. By 31July 2001, the value of payment orders issued amounted to over US$ 1,520,000 and the trend is strongly upwards. Reasons for this lag are many non-availability of visas in time, non-availability for foreign exchange in time, and target dates for completion of activities stretching up to nine months from the disbursement. 

The value of projects approved so far (78% of the total availability of funds) indicate a demand for MGF services that is constrained only by the availability of funds to meet it. Experience however suggests that firms only undertake about 60% of the approved activities (by value). In addition, experience in disbursements shows that only 70% of the amounts approved for activities that are completed and claimed for is actually disbursed, due to savings against budget and also, failure to meet the policy requirements of the MGF Board. It is clear by now that the real value of approvals lies somewhat in the region of US$ 5.5 million, leaving a further US$ 6.5 million to be committed. 

3.3 Deployment of Sector-wise Specialists and their contribution 

The Programme has provision for deployment of Sector Specialists: technical and /or marketing in key sectors to advise firms on future development directions. 10 Sector Specialists have been contracted and the sectors covered are diversified jute products, frozen foods (fish, shrimps), furniture and handicrafts, knitwear, leather and leather goods, pharmaceuticals, processed agricultural products, ready made garments, software and data entry, special textiles and household linens. 

4.0 Contribution of the MGF Programme

MGF is the first and only Programme in Bangladesh of this nature directly assisting the private sector by promoting existing and potential exporters of all sectors (except traditional jute). Exporters said the Programme is the only donor-funded programme that really assists them taking the perspective and orientation of exporters and providing a cash subsidy. Specifically, the contribution of MGF Programme is: 

• The Programme has introduced a planning culture among the exporters. 
• Exporters have become quality conscious, as evidenced by the fact that quality assurance certification is one of the major activities undertaken by the MGF clients with long-term impact on the company. 
• International-standard export-quality brochure catalogues and web sites have been introduced as a tool for promoting exports. 
• International trade fair participation and market visits that were otherwise not possible were undertaken by beneficiaries with great success in terms of 
  • Exposure to greater number of markets and clients 
  • True appreciation of products, product design, quality and pricing required to enter export markets. This knowledge and contacts give the clients an edge they never had before. 
   
• Many of the clients have already increased their export sales through the the MGF Programme.

5.0 Strengths and Weaknesses of MGF Programme

5.1 Strengths of the MGF Programme are: 

• Its innovative approach stimulates the local exporters. 
• Its past operational experience helps better implementation in Bangladesh. 
• Its emphasis on different export sectors strengthens total capacity. 
• Exporters are encouraged to initiate new marketing efforts. 
• Exporters share their annual marketing plan with MGF professionals, and thus fine-tune them. 
• MGF helps sector and trade associations to strengthen their service delivery-capacity. 
• Assessment by the expatriate sector specialist and experts benefit the sector and the country, which in turn also helps overcoming weaknesses. 
• MGF assistance benefits the local exporter in both the short and long term. 
• A larger number of clients are served with a limited amount of funds. 

5.1 Weaknesses of the Programme are: 

• Short Life: The Programme runs for a total of 3 years commencing from 1 August 1999 and ending on 1 July 2002, after which date no amount of grants will be available. So, MGF can only point the way towards promoting exports for future programmes. 
• Limited activities: Allowable activities under MGF do not cover all the multi-faceted requirements of an exporter. The Programme does not offer total help. MGF recommends payment based on payment evidence, but reimbursement to clients is in the hands of the Ministry of Commerce and Bangladesh Bank, where delays occur due to the bureaucratic process. 

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