Bangladesh: A Journey of Growth and Development

Bangladesh: A Journey of Growth and Development

March 6, 2017

By Taposh Ghosh

Looking at this small South Asian nation, aged at only 45 years, from the perspective of any global citizen, it is very difficult to not acknowledge the remarkable progress Bangladesh has made in such a small space of time. The country has successfully met numerous economic and social indicators, and is striving at a rate which is far greater in comparison than any other lower middle income nation, similar in size and population to Bangladesh. Development of infrastructure, particularly since the beginning of the 21st century has enabled the establishment of countless industries which have only successfully amplified the growth rate being enjoyed by manifolds.

ACHIEVING MILLENNIUM DEVELOPMENT GOALS

Bangladesh, over the past years, has also achieved global praise in its initiatives towards achieving the Millennium Development Goals (MDGs) as set by the United Nations. Bangladesh has already met several targets of the MDGs such as reducing the poverty gap ratio, attaining gender parity at primary and secondary levels of education, under-five mortality rate reduction, containing HIV infection with access to antiretroviral drugs, children under five sleeping under insecticide treated bed nets, detection and cure rate of tuberculosis under directly observed treatment short course and others. In addition, the country has made remarkable progress in the areas of poverty reduction, reducing the prevalence of underweight children, increasing enrolment at primary schools, lowering the infant mortality rate and maternal mortality ratio, improving immunization coverage and reducing the incidence of communicable diseases.

The Household Income and Expenditure Survey of 2010 data show that the incidence of poverty is declining at a rate of 2.47 percent per year since 1991-92 in Bangladesh. Bangladesh, in fact managed to achieve the target of halving the population living under the poverty line within 2012. On the other hand, areas that still require greater attention are hunger-poverty reduction and employment generation, increases in primary school completion and adult literacy rates. Furthermore, creation of decent wage employment for women, increase in the presence of skilled health professionals at delivery, increase in correct and comprehensive knowledge on HIV/AIDS, increase in forest coverage, and coverage of information and communication technology are also some of the barriers that need to be overtaken within the present decade.

STRIVING TOWARDS MIDDLE INCOME STATUS

For a number of years now, the aim to reach the status of an upper middle income nation has been in talks. The government aims to reach this milestone by 2021, which is also the country’s 50th year since independence. With only 5 years remaining to achieve this dream, every citizen of the nation asks the question if we are heading in the right direction or not. In 2014, Bangladesh reached Low Middle Income Country status. The country currently is at an important juncture, when with the implementation of the right policies and timely action, it can move up within the middle-income bracket. For that, Bangladesh will need to further accelerate growth.

Bangladesh has been consistently experiencing an economic growth rate of around 6% over the past few years with an investment to GDP ratio close to 29%. But these figures will not suffice if we wish to attain that lucrative status of a middle income nation by the country’s 50th birthday. The country needs to invest 33-34% of its national income to boost its economic growth up to 8% (as stated by Kaushik Basu, Chief Economist of the World Bank). Only then will the dream begin to materialize.

The role of the secondary sector and tertiary sectors of production is of utmost importance in order to achieve this unprecedented rate of growth. The country needs to shift its dependence from the agricultural sector, which employs over 40% of the country’s labor force and divert them to manufacturing industries. In recent years, growth can be credited to some of the leading manufacturing sectors, but it is also crucial to realize that the significance of the roles of such industries will need to be greater in upcoming years.

RMG SECTOR EXCEEDING TARGET EXPORTS

The apparel and readymade garments industry has been the backbone of the country’s manufacturing industry accounting for over 80% of the country’s exports. The Export Promotion Bureau recently released data stating that the garment industry has generated $28.09 billion in revenues for the fiscal year 2015-16. This figure results in a 10.21% growth from last year’s revenue. The target for the fiscal year was however set at $27.37 billion, which being overrun shows the great potential this sector still holds, despite many believing it to be saturated by this point.

The journey has not been all merry for the sector. Recent terrorist attacks and the Rana Plaza incident created major difficulties, with foreign buyers withdrawing orders. But following the Rana Plaza incident, health and safety standards have increased significantly, securing and improving workplace conditions. Expenses related to safety upgrades have been harsh on profit margins, but manufacturers did not stop taking work orders. It is solely the persistence of local entrepreneurs that is to be credited for the immense contribution the industry has made for the country’s economy.

With growing buyers’ confidence in Bangladeshi apparel and improvement in safety standards of workers in factories, the RMG sector is expected to achieve 12% export growth and successfully reach the target of $50 billion in exports by 2021 (McKinsey & Co.).  

PHARMACEUTICAL INDUSTRY EXPERIENCES GROWTH

Bangladesh’s reliance upon the contribution made by the RMG sector is undeniable. But in recent years, the country has managed to address the issue of diversification by experiencing growth in a number of other booming sectors. The pharmaceutical industry currently is one of the most dynamic sectors in the country. Being one of the most technologically developed manufacturing industries of the nation, the industry currently contributes about one percent to total GDP with enormous potential for expansion.

The fiscal year of 2016 has been particularly successful for the pharmaceutical industry, with export earnings witnessing a growth of 13.04% as revenues rise to $82.11 million (Export Promotion Bureau). This exceeded the government’s target by 2.64% with the revenue set at $80 million. This increase in trade can be credited to numerous pharmaceutical manufacturers obtaining certification from the respective countries and global organizations to export pharmaceutical of Bangladeshi origin. According to the Export Promotion Bureau (EPB), Bangladesh exported pharmaceutical products to 105 countries in 2016, with Myanmar being the country’s largest buyer.

The country’s pharmaceutical sector also remains largely protected from external competition, with restriction against imports for drugs that are manufactured locally. The World Trade Organization’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPs) agreement permits Bangladesh to reverse-engineer patented generic pharmaceutical products to sell locally and export to markets around the world. This is turning Bangladesh into a hub for affordable and high-quality generic medicines and contract manufacturing, with exports to potentially more than 85 countries across the world.

CONSISTENCY IN LEATHER AND FOOTWEAR EXPORTS

With easy access to raw materials, Bangladesh accounts for around 3% of the world’s leather demands. Leather products and footwear, the second biggest export earning sector, grew 16.62 percent to $533 million year-on-year during the July-November, 2016 period (The Daily Star). With multiple U.S. and European brands showing interest in Bangladesh for finished leather products, this sector has yet to contribute further to the country’s goals towards reaching the Middle Income Status.

For the third year in a row now, export revenues from the leather industry have crossed the $1 billion mark. However, growth has been slow facing unrest in the Eurozone and environmental concerns for the industry. The government’s initiative to reform the leather industry by creating a separate leather manufacturing zone has been supported by international agencies.

This reform can be highly beneficial as estimates show that if significant environmental concerns are addressed, economic prospects could be even greater, allowing the leather sector to challenge the RMG sector as the country’s most valuable export segment. Local leather experts calculate potential exports at $5 billion by 2020, if environmental compliance concerns are appropriately addressed.

REJUVENATING THE GOLDEN FIBER

Many might argue that Jute has lost its luster and can no longer make the significant contribution to the economy it once used to make. But industry experts disagree thoroughly. Bangladesh still produces over 70 lakh bales of raw jute annually (1 bale equals 180kg). A temporary embargo was placed by the government on the exports of raw jute which hindered production and growth in the previous fiscal year. The ban has since been lifted earlier this year.

Production is expected to reach its full potentials as the government pursues the use of jute packaging over plastic ones throughout the country. The Mandatory Jute Packaging Act stipulates local rice millers to use jute sacks, creating an estimated annual demand of 360 million such jute bags. The government plans to add 12 more products under this act which creates an additional demand for 15 lakh bales of raw jute. To meet such demands, the Ministry of Agriculture has set the new raw jute production target to 85 lakh bales from the current season. 

REBRANDING FISH EXPORTS TO THE WORLD

For many years now, export of frozen foods, largely shrimp, has contributed around 3% of total exports for the country. But international concerns over standard of Bangladeshi shrimp created a drastic decline in the revenues generated from the industry over the previous fiscal year. The government has however taken steps to amend the crisis being faced by these local manufacturers. In order to boost exports again, particularly to the U.S. market, the government took the initiative to brand the ‘Black Tiger’ shrimp at the Seafood Expo North America (SENA), which took place earlier this year.

The initiative was appreciated by Bangladeshi exporters attending the expo, who now aim to leverage upon premium fish products and rebrand the country’s image as a frozen food exporter. Direct impact of this step is yet to be measured, but fish exports in general fetched $547 million in revenues in the fiscal year of 2016. This was a noticeable increase after the drastic drop in earnings suffered back in 2015.

FINANCIAL INCLUSION AND INCLUSIVE GROWTH

The government and the Bangladesh Bank have been very keen in recent years to promote sustainable and inclusive growth throughout the economy, ‘leaving no one behind’. The latest sustainable development goals show a broad social commitment for inclusive, equitable and environmentally sustainable socioeconomic growth. The government has led proactively with the country’s progress in sustainable development, with policy thrusts on massive digitization to support financial inclusion and inclusive growth.

One major success in recent years has also been the channeling of money to rural areas, helping the rural economies to thrive. What microcredit started to bring rural commoners under the financial service umbrella, has been taken a step further through the massive success of Mobile Financial Services (MFS) within the economy. With over 128 million active mobile phone subscribers, Bangladesh has turned out to be the perfect breeding ground for MFSs also referred as mobile banking. Bangladesh Bank statistics suggests that 18 Bangladeshi banks currently provide MFS services with the help of local mobile network operators  while some 39 million registered MFS customers transact around Taka 7 billion every day. There were 3.9 crore registered mobile financial service accounts in Bangladesh until Octobe, 2016, with only 1.38 crore active ones.

Bangladesh currently acts as a role model for financial inclusion to the world due to its regulatory moves which embrace and promote innovative financial inclusive products, which has helped the nation overcome challenging global financial periods.

THE NEXT ASIAN TIGER

In 2015, Kaushik Basu, Chief Economist of the World Bank stated, “Bangladesh is poised to be the next Asian Tiger. Given current economic progression, many more experts might agree with Mr. Basu’s statement. Striving towards attaining the Middle Income Nation status and being the next Asian Tiger, Bangladesh has reasons to look forward to the coming years. But complacency at this very crucial time can also prove to be devastating as a lot of progress is yet to be made in order to achieve the aforementioned goals.

The country needs to invest heavily in education and skill development as it looks favorably poised to take over China in a number of areas of manufacturing and services leveraging on Bangladesh’s labor price competitiveness. The need to not only create further jobs, but better quality jobs, is imminent as the country is shifting its dependence from agriculture to manufacturing. In addition, bureaucratic hurdles in doing business also needs to be relaxed to encourage greater foreign and private sector investment, which also shouldbe backed by adequate infrastructure.

All this clearly brings the argument down to greater governance, sound policy formulation and proper execution. The country needs to replicate the success of RMG in other thriving sectors. The government’s initiative to integrate technology into everyday lives is another crucial factor, which has already kick-started a digital revolution. Wholly, Bangladesh looks to be on course in achieving greater economic and social growth in the upcoming years. The likely possibility of Bangladesh achieving most of its economic goals by 2021 and emerging as the next Asian Tiger is hence not at all misplaced. 

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