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How will Bangladesh reach higher levels of prosperity?

Sanjay Kathuria's picture
Bangladesh has now joined the ranks of a lower middle-income country. But the next phase of growth and poverty reduction is harder. Credit: World Bank

There is no doubt that Bangladesh is a modern day success story—a far cry from Henry Kissinger’s label of a “basket case.” Its growth has been steady, even impressive in the context of feeble global growth, and it has now joined the ranks of a lower middle-income country. Its poverty reduction record is even more impressive, with over 20.5 million people escaping poverty between 1991 and 2010.  

But the next phase of growth and poverty reduction becomes harder, since the more obvious sources of growth have largely been exploited.

During our recent Facebook live stream on jobs and exports in Bangladesh, there was much interest in potential new sectors, jobs for graduates, and role of startup companies, among other issues. The Diagnostic Trade Integration Study explored the issues of the next phase of jobs and export growth in details. 
 

FACEBOOK LIVE: Sustaining growth and job creation in Bangladesh


As we discussed, Bangladesh’s export performance has been impressive. Its world market share doubled over 1995-2012. It is now the world’s second largest apparel exporter, next only to China. The apparel sector employs about 4 million workers, 75 percent of whom are female.

But success in apparels has also meant an over-reliance on this sector, which forms over 80 percent of total exports. And this is accompanied by a lack of market diversification—the most notable “absentees” being South Asia and East Asia, the two fastest growing regions in the world, with only around 2 and 9 percent of exports, respectively, going to these regions.
 

Bangladesh will need to push to diversify to other promising sectors in manufacturing and services. Credit: World Bank

In order to go beyond garments, while consolidating its strengths in this sector, and to accelerate job creation through exports, Bangladesh will need to deepen trade and investment linkages with South and East Asian economies, accompanied by a push to diversify to other promising sectors in manufacturing and services.

Some key reform areas that were discussed:

Create a neutral trade regime. Bangladesh’s tariff regime creates incentives to produce for the home market. Total tariffs are effectively doubled by complex and non-transparent para tariffs, to levels of around 27 percent. The regime also provides much higher protection to consumer goods production versus intermediates, which distorts resource allocation, creates fertile ground for protectionist lobbying, and creates disincentives for production of intermediate products.

Level the playing field for all exporters. Much of the success of garments owes to the bonded warehouse facility that enables duty-free imports for exports. However, this facility has, in practice, not been easily accessible to other sectors, including potential exporters and newer exporting sectors, and has been an important hurdle for export diversification.

Attract high quality FDI in goods and services. Bangladesh’s FDI inflows are growing. But they are below potential and well below FDI inflows of competing countries. In particular, there is insufficient FDI in manufacturing and backbone services, which would allow the economy to diversify and also become more efficient overall. Lack of serviced land is a key constraint to FDI. Other constraints include excessive and non-transparent regulations, and potential private sector resistance to FDI.

Improve logistics and trade facilitation. Bangladesh has significantly improved its rankings in the 2016 Logistics Performance Index, but its 87th rank is still short of India’s 35th or Pakistan’s 68th rank. There is still much work to be done if Bangladesh is to embed itself deeper into regional and global value chains—in particular, “in and out” trade has to be very efficiently done; speeding up goods transport between Dhaka and Chittagong; and overcoming significant bottlenecks in border trade with India.
 
The agenda is clear. Implementation will involve overcoming likely resistance from those who benefit from the status quo, and empowering those who will champion this forward-looking agenda (see some examples here). There will be winners and losers as a consequence of reforms, but, it is important that a pro-active approach is followed in taking care of potential losers, e.g., labor market training programs, creating a more business-friendly economic environment, etc. It is also worthwhile to invest in a communications campaign with a positive vision of change, to help overcome resistance.  
 
As many other countries have shown, the gain can be worth the short-term pain.

Comments

Submitted by Dinakar on

Thank you for this interesting article and video. It was particularly interesting to have the comparison with Vietnam in this context - there are certainly a lot of lessons there!

Submitted by Shahid Chowdhury on

Okay, Bangladesh just joined "Lower middle income countries' club" We congratulate all governments who were involved since 1991-2010 to reduce poverty level as a result 20.5 million people escaped from vicious circle of poverty. We have a bad sign of one sector like garments dependent economy as a result we have to diversify exports to get rid of one sector dependency. In addition, our country heavily dependent on manufacturing sector but we must have to add knowledge based and service sectors too. Otherwise, we can not compete globally. Our tourism, Software, hotel and restaurant business must be improved in terms of quality and quantity along with investment from private and government sectors. Above all we need rule of law, good governance and human rights that were mentioned by Dr. Fahmida Khatun in Tritoy Matra. Without political stability we can not attract foreign direct and indirect investment. Nowadays, China is a global economic and military power, it has enormous amount of Foreign currency surplus so China can invest in our growing economy. In other words, there is a "big push" theory in economics so only China can give us a big push from take off position to drive to maturity and high mass consumption.

Submitted by Jan Muhammad on

Pravite

Submitted by Tanjilul Islam on

As a fresh graduate of Mechanical engineering, I believe we have good amount of potentials manufacturing industry.

Some companies like WALTON and RFL are leading currently. We are expecting more foreign investment in upcoming days In heavy manufacturing industry where labour intensive work is required.

I graduated from China and I had the opportunities to see chinese manufacturing industry.

I believe if engineers like me remains in this country rather than brain drain, manufacturing industry would see a better future soon.

tanjilul@live.com

Submitted by Monower Mithu on

Irrespective of so many limitations like governance, energy crisis, infrastructure etc. Bangladesh showed some remarkable successes in recent years. Development to me not always can be measured through economic indicators. Bangladesh achieve much better success then India and Pakistan in social indicators accompanied by aforementioned economic growth. Garment sector being the engine of economic growth in this sector employing around 4.4 million people majority of which are women. Government strategically helping this sector through different policy support because in Bangladesh we have had huge unemployed labour and some cases labour in informal sector. Ready made garment (RMG) is a labour intensive sector can play vital role to combat unemployment. Legacy is also a matter RMG sector showed sharp growth trend. Leather, tea, sea food are also popular export product of Bangladesh. Bangladesh aspired to export 60 Billion USD by 2021 and graduated to a middle income country and government sets a target of 50 Billion export from RMG sector. We hope and believe Bangladesh will be able to reach the target within stipulated time frame.

Submitted by Sazu Singh ( Sazu Sam on fb) on

Dear Mr. khaturia,Thank you for the insightful opinion on Bangladesh economy.As a startup I project/see emence opportunities in my land,from services to manufacturing.Bangladesh, as a nation has come a long way overcoming all the struggles and barriers. But I feel we are missing something , may be a world class company to get confidence to get going. From crafting gemstones and Analyzing research and market reports to analytics and Big data, we have the ability and courage to challenge(sorry sir for using the rude word 'challenge') the international standard. The new generation of start up is that ambitious. We just need support and cooperation. That day will not be far enough when a Bangladeshi origin company will be regarded bluechip at the new York stock exchange.
Thanks
Sazu Singh

Submitted by Anonymous on

I strongly disagree with this ideas. Though needs to improve like everything but not this way. Protection first. Bangladesh itself a big market for the producer here & need to protect myself first.

Submitted by Hussain Syed Monowar on

Good to know that World Bank has given more importance on revival of IWT in BD. I strongly believe that rivers in BD can contribute more to establish a vibrant trade friendly transport network and if the advantage of IWT is unlocked container traffic will penetrate more efficiently to the main consumption and distribution area. Thanks to WB for undertaking D-C IWT corridor. I believe this will help to estabish a green sub regional connnectivity.

Submitted by Md. Nawaz Sharif Tanvir on

Very impressive insight regarding Bangladesh and it's current developing economy. Skilled man power , more focus of agriculture based job, more investment in IT and R&D, transparency on rights for each individual may lead this country a fantastic future. Large portion of youth is another mentionabl asset to prosper.

Submitted by nizar mecklai on

A most impressive discussion and having lived and worked in pre-Bangladesh, I am partial to the need for the labour intensive and health producing AGRICULTURE to produce ORGANIC produce. The topography of Bangladesh would be likely suitable for MANPOWER rather than MACHINEpower. Also, the range and variety of vegetables and fruits would provide the varied DIET FOR HEALTHY population.
Another sector to consider is TOURISM with the SUNDERBANS, COX BAZAAR, SYLHET and the INLAND WATERWAYS(like KERALA).

Submitted by md ashiqur rahman on

thanks for this nice article.

there are some points to ponder,,the main success what Bangladesh has seen is in social enrichment in terms of pushing money from centre to periphery which was aided by remittances sent by workers abroad and garments workers who usually work in the cities but send the money to their distant villages they hailed from.

I think this low slopped stream of money along with industrialisation in many parts are the major factors which played the vital role.

but more things to be done,,infrastructure development,more IT based exports exploration,enhancing quality of medical services in all levels and limitations of price hiking need to get proper attention.

moreover improvement of education quality is also very important to face future challenges.

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