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Bangladesh’s Resilience On Trial Again

Zahid Hussain's picture

 David Waldorf )Bangladesh's economy is currently subject to probably the harshest test of resilience it has faced in recent memory. In the past, growth continued to be resilient despite several external shocks that slowed exports, remittance, and investment. Bangladesh’s resilience to global shocks came from strong fundamentals at the onset of the crisis, competiveness of exports and migrant labor, relatively under-developed and insulated financial markets, and a pre-emptive policy posture. Bangladesh has a robust disaster management capacity to deal with natural disasters, undertake rescue operations, and conduct post-disaster relief and rehabilitation.

Resilience to external and internal shocks, however, cannot be taken for granted.  The test of resilience this time has come from a host of factors including over 40 (and still counting) national and regional strikes since January 2013, violent factional street fighting since February and destruction of public and private capital.  A stubbornly fragile global economy is not helping either. Recent weeks have seen a wave of interest-rate cuts from the euro zone to South Korea to Australia following ultra-loose monetary policy in the US, Japan and the UK. Abundant liquidity has done little so far to boost global demand.

Bangladesh’s potentially billion dollar garments industry is in a crisis arising from, in addition to factors mentioned above, a lethal factory fire in November 2013 and the Rana Plaza tragedy in late April that, in terms of its human toll, put to shame many natural disasters. These have reportedly led many international corporations to scramble for other options. They are allegedly checking on potential new suppliers in southern Vietnam, central Cambodia, and the hinterlands of Java in Indonesia. Can these countries deliver as an alternative to Bangladesh? Industry experts note that even if political violence escalated sharply in Bangladesh, only 10 to 20% of its output, or $2 billion to $4 billion a year worth of goods, could be shifted in the next nine months or so to other countries. A catastrophic collapse in export orders is not really in the horizon despite reputational risks related to worker conditions in the sector.

The question is can the industry meet the orders given the worsening domestic situation which is making it increasingly difficult to operate any business, not just garments.  2013 so far has really been the unlucky thirteen it was feared to be with Mahasen contributing the nature’s what thankfully turned out to be less than two cents to the never ending series of blows to the Bangladeshi people and the economy.  Add to this the perennial inability to address the structural problems that has constrained investors’ response to new opportunities and have led to the outflows of capital.

While the excess of national savings over investment was relatively small during the ‘90s and early ’00s, it has risen significantly since fiscal 2005, reaching 3.2 percent of GDP in fiscal 2010. A temporary recovery in investment since 2010 reversed the excess of savings over investment in FY11 and FY12, but in FY13 the excess is projected to be 1.5% of GDP.  This reflects declining private investment and feeble growth in public investments, to the extent that national savings could not be entirely absorbed domestically. The failure to improve the business environment enough to absorb Bangladesh’s entire national savings, or attract foreign savings, in recent years has been compounded by the image crisis resulting from safety failures in garments and the political crisis that is paralyzing the economy.    

Sadly, Bangladesh is losing valuable time. It can be a strategic export hub in the heart of Asia. Over 50% of the world’s consumers live within 3,000 miles of Bangladesh.  Positioned between India and China, Bangladesh is well placed to become the next generation of export hubs.  It has a young population with 57% of labor force under 25 and a huge local market of 160 million people.  It has an attractive competitive business environment with duty and quota free access to EU, Japan, Canada, Australia and other countries.  Recently, there has been significant progress in establishing Economic Zones to provide investors a highly hospitable place where they can locate their plants in fully serviced land.  Bangladesh’s growth in 2001-10 has surpassed growth in Indonesia, Philippines, Malaysia, Pakistan, Thailand and Hong Kong.  It has been a happening place. However, what is happening now is not the kind of happening place Bangladesh needs to be!

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