Sustaining growth in a global economy:
Bangladesh in the 21st Century
-- Hon. Senator Mac Harb, Canada
Prepared for DCCI’s 2008 International Business Conference
In July 2007 a World Bank Report predicted that Bangladesh could join the ranks of middle-income countries (MICs) within the next decade. But a short year later, the global economic environment has shifted dramatically. In fact, in its October 2008 World Economic Outlook, the International Monetary Fund reported that “(t)he world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s". Food and fuel prices are soaring and they have pushed inflation to the highest levels in a decade. Obviously, this takes an especially heavy toll in the developing world. So does this mean that the World Bank’s qualified but optimistic prediction for Bangladesh is out of reach? Not at all. I believe that a dramatic improvement in Bangladesh’s economic situation is not only achievable, but by redoubling its efforts through the current financial crisis, Bangladesh can ensure that when the inevitable global economic upturn occurs, it is well-positioned to build a strong and prosperous economic future. Bangladesh has already made many moves in the right direction. Macro-economic policies combined with the ingenuity and successes of social entrepreneurs have brought Bangladesh to the threshold of the middle-income country status. By continuing to work together in a few key areas such as governance, infrastructure and the power sector, Bangladesh’s public and private sector will ensure future prosperity and growth for its citizens.
The current situation:
The World Bank’s prediction on the bright future that lies ahead for Bangladesh was based on a variety of impressive economic and social gains in the past decade.
These gains include:
· Doubling of GDP growth per capita since 1975
· Significant progress on its Millennium Development Goals (MDGs)
· Outperforming most low-income countries - as well as many of its South Asian neighbors – on various social indicators i.e. literacy rates have doubled, population growth down to 1.1% in 2007
· Gender parity in both primary and secondary level school enrollment
· Significant increase in life expectancy since the 1990s
Much of this success has come about due to income growth, which is recognized to be the strongest engine for raising living standards and reducing poverty. And where has this growth come from? The first generation of reforms following independence in 1971 has worked remarkably well resulting in innovative institutions and reforms achieved through social entrepreneurship. The work and the impressive results achieved by Dr. Muhammad Yunus of Grameen Bank and Mr. Fazle Hasan Abed of the Bangladesh Rural Advancement Committee (BRAC) as well as Iqbal Quadir's of GrameenPhone have contributed to the “Bangladesh Paradox” a phrase used to describe this country’s remarkable economic growth and development despite, or perhaps in spite of the lagging governance and infrastructure levels in this country. But Bangladesh must resist any urge to maintain the status quo or it will risk stagnation and a shrinking economy.
How to ensure growth and national prosperity:
So how does Bangladesh move from one of the 33 most impoverished countries to join the ranks of the middle income countries (MIC) in this era of a truly global economy and serious worldwide economic downturn? Research shows that to achieve MIC status, GDP must grow at a rate of 7.5 percent per annum. While this is a challenging target, it is not impossible. The World Bank estimates Bangladesh’s GDP growth in 2008 at 6.9 percent. Obviously the current global slowdown may impact this estimate, but growth can be sustained and enhanced by taking some basic but necessary steps.
Certainly government has a role to play but the business community must be the catalyst driving the reforms if this goal is to be achieved. Just to highlight the importance of the private sector, one needs only pause a moment to consider the case of India. In its latest ranking of 181 national economies, the World Bank Group’s “Doing Business 2009” data lists India 122nd in terms of ease of doing business. Within this category, India ranks 136th in terms of dealing with construction permits, 169th in the paying taxes category, and 180th in the enforcing contracts category. And yet, the incredible entrepreneurial determination of Indian business has pushed this economy into the ranks of the top emerging economies in the world with 9% annual GDP growth over the past five years. In less than two decades, India has become a global force in computer software, business process outsourcing, R&D, and high-tech manufacturing. When obstacles were encountered, these creative individuals and corporations found new ways to move forward. Governance in that country has also moved forward, albeit slowly, in response to the tidal wave of economic development that is taking place in spite of outmoded policies and ingrained incompetence and corruption. And so it must be in Bangladesh.
I know that the relationship between business and government here in Bangladesh is progressing along these lines. Thanks to organizations like the Dhaka Chamber of Commerce, government and the private sector share concerns and ideas and frequently consult with each other on vital issues affecting trade and investment. This collaboration is paying off and will be a key component as Bangladesh moves forward.
But we must look to a few crucial areas, areas which are as linked and interdependent as the global economy itself.
Improved environment for foreign investment:
The government has done many things right over the past few decades – it has encouraged migration, resulting in remittances from the 5 million strong diaspora totaling more than 6.5 billion US$, more than 10 per cent of the country’s GDP which is more than 5 times the level of foreign assistance. In fact I understand the first ever Non-Resident-Bangladeshi (NRB) Conference was held in Dhaka in December 2007 to build on this excellence source of investment and expertise. The government has also made wise public expenditures on roads, health and education and as mentioned earlier, by partnering with NGOs and the private sector, government has allowed social entrepeneurship to flourish.
But to move to the next economic level, the government must continue to improve in areas of public accountability, electoral stability, transparency and corruption within both the public service and the private sector, all of which are cited in the World Economic Forum’s Global Competitiveness Report as major constraints to foreign investment in Bangladesh. According to the World Bank & IFC Doing Business 2009, the regulatory environment in Bangladesh has become more burdensome for companies since the 2007-2008 year. Entrepreneurs can expect to go through 7 procedures and spend 73 days at a cost equal to 26% of GNI per capita on average to start a company. Certainly the government is addressing these issues, but it will need to take significant further steps to overcome weaknesses in public accountability, taxation and the quality and efficiency of its civil service in order to improve the business climate for both local and foreign investment. As private sector corruption is equally widespread, efforts must also be made to improve audits, respect existing conflict of interest guidelines and to strengthen and enforce integrity systems in this sector.
Infrastructure is another vital component of globalization. New and enhanced infrastructure will provide jobs, increase attractiveness for foreign direct investment, improve productivity and urbanization and ultimately, connect Bangladesh to the global economic markets it desperately needs to access. Much has been done on this front. Much work remains. I would like to commend the Government of Bangladesh for recognizing in its latest Poverty Reduction Strategy Paper that “an efficient transportation network with adequate coverage … is an essential input for development of the economy.” This kind of investment while improving basic services in major metropolitan areas, will also decentralize urban development, broadening economic activity and decreasing the pressures on the large centres such as Dhaka. Investment in a stable and viable power supply, the further development of nation-wide telecommunications systems, and the improvement of ports will also pay huge dividends in terms of economic growth.
Not only must Bangladesh stabilize the power supply, it must address other aspects of the power sector. Power generation and production is perhaps one of the most important determining factors in Bangladesh’s desired rise to MIC status. World Bank studies show that access to power, or more correctly, the lack of access to power, is another of the top obstacles to investment in Bangladesh. It also has devastating impact on the productivity of existing businesses in the country. While important steps such as establishing the Bangladesh Energy Regulatory Commission in 2004 and decreasing Bangladesh Power Development Board’s almost monopolist control over the industry, further inroads will be made by increasing private investment in power exploration and generation. As well, power and gas prices must rise from their current below cost levels and if coupled with appropriate subsidies, this could be done without undue hardship on the lowest income citizens. With its large potential natural gas reserves, Bangladesh can be a major player in world energy markets. Delays in developing these resources will severely impede efforts on all other fronts.
While investors view favorably recent steps by the interim government to address corruption, governance, and infrastructure issues, most believe it is too early to assess the long-term impact of these developments. The strength of the textile export industry and its convincing success competing in global markets following the quota-free Multi-Fiber Agreement launched in 2005 are signs that Bangladesh is ready to join more developed economies in the international marketplace. The current economic crisis, and the likely plunge in commodity prices that will accompany it, point to the need for diversification of Bangladesh’s economic base and underline the importance of addressing the basic requirements of economic growth – good governance, adequate infrastructure and a stable and reliable power sector. Bangladesh is a country rich in resources and in entrepeneurial spirit. Working together, there is no reason why the government and the private sector cannot lift this country into the ranks of middle-income countries in the very near future.
“Bangladesh: Strategies for Sustained Growth” Sandeep Mahajan, Senior Economist, South Asia - Poverty Reduction and Economic Management Network, World Bank