Bangladesh economy: Do not worry if you are confused
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SATURDAY, AUGUST 13, 2022
Bangladesh economy: Do not worry if you are confused

Analysis

Zahid Hussain
20 November, 2019, 04:15 pm
Last modified: 20 November, 2019, 05:08 pm

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Bangladesh economy: Do not worry if you are confused

Business confidence in Bangladesh is significantly higher than the global and Asian average

Zahid Hussain
20 November, 2019, 04:15 pm
Last modified: 20 November, 2019, 05:08 pm
Bangladesh economy: Do not worry if you are confused

If you are following reports on perceptions and reality on Bangladesh's economic trends and prospects, do not worry if you are wondering why you are confused. The first reassurance I can offer is your confusion probably emanates from thinking logically because there is an enigmatic mixture of the good, the ambiguous and the bad in the whole bowl that is staring at you.

Let me start with the good

Business confidence in Bangladesh is significantly higher than the global and Asian average. "Bangladeshi businesses are proactively adapting to the pace of global change, with expansion into new markets, investments in innovation and upskilling their workforce as key ways to boost growth", according to the Chief Executive Officer of HSBC Bangladesh as quoted in a local newspaper.

This observation was inspired by a HSBC Navigator Survey which gauges sentiment and the near to mid-term expectations of businesses on business outlook, international trade, geopolitics, sustainability, technology and wellbeing. It is compiled from responses by decision-makers from 193 small and large firms across a broad range of industry sectors in Bangladesh. The survey was conducted between August and September 2019.

"Almost every company (97%) is projecting growth in the next year, with half (50%) classed as high-growth firms that are expecting to grow by 15% or more."  This is more than double the global average (22%).

Bangladeshi businesses see trade as a force for good over the next five years. "More so than their global peers, they believe trade will drive innovation (cited by 94%), improve efficiency (92%), provide new business opportunities (82%) and support employment (81%)."

"Bangladeshi businesses are more relaxed about protectionism than almost every other market in the world, with the exception of Sweden and Germany…. Just two in five (42%) Bangladeshi companies feel that protectionism is a growing trend, a sharp decline from the previous year, when more than nine in 10 (93%) felt this was the case."

"More than two-thirds (68%) of Bangladeshi businesses believe that introducing sustainable business practices will increase sales…. Bangladeshi companies are well ahead of the global average in considering these factors (both factors cited by 23% of firms globally)."

Bangladeshi companies believe 5G and data security will have the greatest impact on business in the next five years. "Bangladeshi businesses are more bullish on 5G and data security technologies than their counterparts globally…"

Now the ambiguous

Findings such as the above could be very reassuring if corroborated by the ground realities. Fortunately, there are some, but all conditional on reforms.

Bangladesh is one of the many countries in Asia where a window of opportunity to gain from the first demographic dividend will remain open for several more years. A growing supply of workers boosts production and income while stimulating market expansion. According to the ADB's Asian Economic Integration Report 2019/20, estimates proxying the dividend with the ratio of producers to consumers, suggest that out of 18 Asian economies, 9 will remain at the stage of reaping the first demographic dividend for 20 years from 2015. These countries are Bangladesh, India, Indonesia, the Lao PDR, Malaysia, Maldives, Nepal, the Philippines, and Timor-Leste. As Bangladesh starts experiencing a gradual decline in the share of working age population, its ability to sustain high growth will be challenged.

The transitory bonus from the first demographic dividend can be turned into valuable assets to realize a "second demographic dividend." Potential growth hinges heavily on labor productivity. This requires investing in the quality of human and physical capital. Such investment can be financed from accumulated savings in preparation for longer years of retirement. Longevity and longer working life are potential sources of growth in an aging society as well. This is the third or "silver" demographic dividend.  Households and individuals, facing dramatic extension in healthy life spans over the years, have incentive to invest not only in early education, but in lifelong education.

Bangladesh ranked 105 out of 140 countries in the Global Competitiveness Index 2019, better than Pakistan and Nepal in South Asia and Cambodia in East Asia. It ranks relatively better on market size (36), health (93) and macroeconomic stability (95) and well behind on business dynamism (121), product market (119), skills (117) and infrastructure (114).  Growth potential is restrained by the narrow categories of products Bangladesh can make -- cotton trousers and cotton shirts have stably accounted for nearly 60 percent of total U.S. apparel imports from Bangladesh in the past ten years.

While on track to graduate from the LDC status in 2024, the country will be facing market access challenges as a result—double transformation Rules of Origin under EU GSP will come into effect after 2027, pharmaceuticals will lose waiver on WTO's Intellectual Property Right Laws and duty-free quota-free access to EU and few other markets will be reviewed.  Bangladesh has very limited number of Free Trade Agreements – 12 in the making, of which only 3 are actually in effect.

And finally, the bad

What do we know about the recent economic trends? 

Despite strong remittances and weak imports, the external current account balance had $678 million deficit in the first quarter of FY20 as exports declined precipitously; import of capital machinery dropped 1.8 percent and private sector credit growth slowed to 10.7 percent, suggesting weak investments; growth in tax collections plummeted to 2.7 percent, suggesting weaknesses in economic activity; government borrowing from the banking system has reached Tk 430 billion, almost 91 percent of the target for the whole fiscal year, raising the risk of crowding out credit to the private sector; and non-performing loans in Bangladesh's banking system is among the highest in Asia, suggesting a fragile state of financial stability. 

The Bangladesh Garment Manufacturers and Exporters Association has reported that at least 50 garment factories have closed since February with 25,000 workers laid off.

Although inflation was modest at 5.5 percent in October, onions caused teary eyes because of its incendiary prices.  Salt prices soared suddenly on November 19th, driven by just a rumor. 

Despite some improvements lately, Bangladesh's 168/190 ranking in the Ease of Doing Business Index 2020 is very low compared with all countries in East Asia and South Asia (except Afghanistan). Getting construction permits takes 281 days, nearly twice as long as the South Asian average; getting electricity takes 115 days, compared with 86 in South Asia, and costs twice as much per capita as in South Asia; registering property takes 284 days, compared with 108 in South Asia, costing 7.1 percent of the property value (same as in South Asia); commercial dispute settlement takes 1442 days, compared with 1102 in South Asia, costing 67 percent of the contract value, compared with 30 percent in South Asia; and the time to export and import are the highest in South and East Asia if Afghanistan is excluded.

The threat of the corruption menace has grown stronger, as revealed in the updated index report titled Trace Bribery Risk Matrix 2019. Bangladesh ranked 178.  The TRACE matrix measures business bribery risk in 200 countries. Bribery threat is the highest in Bangladesh compared with any other in South Asia. Bangladesh has a high degree of government interaction, a high expectation of bribes, and a high regulatory burden. The quality of anti­bribery dissuasion and anti­bribery enforcement is very low as are the degrees of media freedom/quality and civil society engagement, says the report.

In the World Bank's Worldwide Governance Indicators (2018), a composite of six aggregate indicators, Bangladesh is in bottom 20 percent on control of corruption and regulatory quality; and bottom 30 percent on government effectiveness and rule of law.

So, what can we conclude?

Clearly, there are major constraints and risks. And yet, "Bangladeshi businesses are brimming with confidence", according to the HSBC report cited earlier. Who knows? If fortune favors the brave, then the unbound optimism of these 193 entrepreneurs may be directly complicit in their creation of a boom. This is how society likes to see entrepreneurs, 'storming the castle' regardless of the risks, a hero in the face of failure viewing both their past and future through rose-tinted lenses regardless of evidence to the contrary.  As they say, "you have to believe it before you see it." It's all about faith and believing the evidence seen with your heart, not your eyes. 

The author is an economist.

Economy / Top News

Bangladesh Economy

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