Golden Jubilee: Bangladesh’s Economic Success Story
Bangladesh celebrated its 50th year after declaring its independence from Pakistan in 1971. The declaration led to a nine-month long war that had left countless people dead. The war had effectively decimated most of Bangladesh’s physical infrastructure and the economy was in peril with a negative GDP growth rate of 14 percent [1]. Economic restructuring began by placing most economic activities in the hand of government led corporations. The economy was primarily agrarian with heavy subsidies placed in the agricultural sector in order to stabilise the food supply chain by redistributing surpluses in output from farmers to places where there were deficits. It was during the economic reforms in the 80s and 90s where a private sector led economy adopting trade openness began to shift the economy from agriculture to manufacturing as a percentage of GDP [3].
Currently, Bangladesh is one of the fastest growing economies in the world with an average of 6 to 7 percent GDP growth rate over the last decade [4]. In the 70s, the per capita income was $USD 100 but by 2016, this figure had risen to $USD 1430 [3]. Furthermore, Bangladesh recorded a 50% reduction in poverty from the year 2000 to the year 2016 [3]. This remarkable performance by the country in reducing abject poverty and implementing reforms to support growth has led the UN to state that based on its current trajectory, Bangladesh is set to graduate from the Least Developed Countries (LDCs) category by 2024 [5].
Bangladesh’s strong economic growth performance can be credited to macroeconomic stability from the comprehensive reforms in the trade and financial sectors in the 90s [3]. Indicators for macroeconomic stability include declining debt levels, a reduction in the proportion of foreign aid with respect to gross national income (GNI), low inflation and rising per capita GDP. Without the presence of macroeconomic stability, foreign investments divert elsewhere and makes the country vulnerable to external shocks [3]. This places Bangladesh in an interesting position financially. Unprecedented level of remittance income over the last few decades from expatriate workers overseas has consolidated the country’s foreign exchange reserves and improved the current account deficits. This improves the resource position of the government and allows for fiscal responses to crisis that may appear [3]. Furthermore, the acceleration of the country’s GDP growth can also be attributed to the rising export-GDP ratio particularly from the readymade garments (RMG) industry.
During the early stages of Bangladesh’s economic history, the main source of exports was jute (a type of fibre). This posed a problem, as jute was being competed out of the market by synthetic substitutes such as polyester. In response to this, a few Bangladeshi businessmen agreed to a joint venture with the South Korean clothing company, Daewoo [6]. The agreement paved the way for the transfer of technical skills and management practices to the Bangladeshi workers and allowed the South Korean company to set up shop in Bangladesh to bypass quotas on exports to the US set by President Richard Nixon’s Multi-Fiber Arrangement. Years later, 84 percent of Bangladesh’s export comes from primarily RMGs with The EU being one of Bangladesh’s leading customer at about 62 percent of export value with the US at 18 percent [7].
Bangladesh’s reliance on the RMG sector does come with certain challenges. Bangladesh’s RMG sector had revitalised itself after initiatives to improve work safety after two workplace tragedies: the 2012 Tazreen factory fire and the 2013 Rana plaza factory collapse. However, new challenges have arisen in recent years. In 2019, the growth of the RMG sector had slowed down and competitors such as Vietnam had surpassed Bangladesh in sales volume in 2020 [7]. Bangladesh ranks lower than Vietnam in Foreign Direct Investment (FDI) and other sustainability indexes. For the RMG sector, lower FDIs compared to competitors could see Bangladesh losing out on new trade deals and by extension, segments of the global apparels market.
FDIs are a vital financing source, particularly for developing countries as it provides access to newer technologies and raises living standards of the population. Improving Bangladesh’s FDI track record could aid its efforts to advance the RMG sector but also diversify into other ventures such as ICT, software development, pharmaceuticals, and light bulb manufacturing. To increase FDI, Bangladesh must develop a framework for sustainable development where improvements of current infrastructure and mitigation of climate change are its primary goals. Bangladesh already has mega infrastructure projects such as the Matarbari deep seaport, Dhaka Metro Rail Project and Padma Bridge to name a few. In fact, the Matarbari deep seaport is expected to expand GDP by 3 percent [8]. However, some of these projects have suffered from significant delays as a result of the current pandemic.
The coronavirus remains troubling for the global economy. For Bangladesh, this came in the form of a lower growth rate of 5.24 percent in the 2019-2020 financial year, the lowest it has been since the Global Financial Crisis (GFC) [4]. In the RMG sector, revenue losses amounted to $5.6 billion with workers being laid off and small factories closing doors from high operating costs [7]. The coronavirus also threatens the inflow of remittances. Although remittances grew by 10.87 percent in 2019-2020 financial year [4], the loss of jobs in the localities where expatriate workers live could mean lower remittance inflows in the future. Border closures do represent a huge problem for a country that depends on labour mobility, but it provides an opportunity for the government to invest in upskilling programs for future employees to foreign labour markets. Upskilling programs improve employee wages by providing access to better jobs. This increases the inflow of remittances.
Despite challenges faced, Bangladesh is still on the path to becoming a middle-income nation within a few years. The stride it has made in the last 50 years is impressive. With sufficient upgrades to infrastructure, sustainable development goals, appropriate fiscal policies to mitigate the economic effects of coronavirus and plans to attract foreign investors, Bangladesh will inevitably reach prosperity.
References
[1] Rooney, K. (2019, November 19). Here’s what you need to know about Bangladesh’s rocketing economy. Retrieved from World Economic Forum: https://www.weforum.org/agenda/2019/11/bangladesh-gdp-economy-asia/
[2] Rahim, A. (1975). An Analysis of Planning Strategy in Bangladesh. Asian Survey, 15(5), 383-393. doi:10.2307/2643252
[3] Hossain, M. (2020). Bangladesh’s Macroeconomic Policy. Singapore: Springer Nature Singapore Pte Ltd.
[4] Finance Division, Ministry of Finance, Government of the People’s Republic of Bangladesh. (2020, October 28). Chapter One: Macroeconomic Situation. Retrieved from Finance Division, Ministry of Finance, Government of the People’s Republic of Bangladesh: https://mof.portal.gov.bd/sites/default/files/files/mof.portal.gov.bd/page/f2d8fabb_29c1_423a_9d37_cdb500260002/Chapter-01%20%28English-2020%29.pdf
[5] United Nations. (2018, March 16). Least Developed Country Category: Bangladesh Profile. Retrieved from United Nations: https://www.un.org/development/desa/dpad/least-developed-country-category-bangladesh.html
[6] Chace, Z. (2013, December 2). Nixon And Kimchi: How The Garment Industry Came To Bangladesh. Retrieved from NPR: https://www.npr.org/sections/money/2013/12/05/247360903/nixon-and-kimchee-how-the-garment-industry-came-to-bangladesh
[7]Berg, A., Chhaparia, H., Hedrich, S., & Magnus, K.-H. (25, March 2021). What’s next for Bangladesh’s garment industry, after a decade of growth? Retrieved from Mckinsey & Company: https://www.mckinsey.com/industries/retail/our-insights/whats-next-for-bangladeshs-garment-industry-after-a-decade-of-growth
[8] BSS. (2021, March 19). ‘Matarbari Port likely to contribute about 3% in GDP growth’. Retrieved from Dhaka Tribune: https://www.dhakatribune.com/bangladesh/development/2021/03/19/matarbari-port-likely-to-contribute-about-3-in-gdp-growth