On December 29, 2020, a 120-meter long cargo ship from Indonesia crossed the Matarbari channel to reach Bangladesh, auguring progress in developing the eponymous deep sea port project worth BDT 177 billion, and a giant step ahead in improving Bangladesh's logistics and infrastructure development.
As a country nestled between South and Southeast Asia, Bangladesh has chances of leveraging its geo-economic potential, which requires rapid upgradation of its logistical infrastructure.
Bangladesh's economy now stands at a crossroads. It's in the middle of its journey towards becoming a developed nation by 2041 and achieving the Sustainable Development Goals (SDGs). Bangladesh's share of manufacturing in its total exports is impressive and surpasses other LDCs by a good margin. However, the current Trade to GDP ratio for Bangladesh is at 35% (120th WEF Report), which is extremely low in comparison to a competitor like Vietnam (200%).
The COVID-19 has dealt a debilitating blow to economic dynamism everywhere, with export demand facing harsh downward trends. Bangladesh's graduation from LDC by 2024 will lead to loss of many LDC advantages. The country ranked 105th out of 141 countries in the 2019 Global Competitiveness Index of the World Economic Forum. It is now even paramount to overhaul the country's competitiveness by upgrading logistics and infrastructure for trade and investment.
There are many challenges in Bangladesh's logistics and infrastructure performance, ranging from inefficient port clearances to slow connectivity. The costs of not having a modern logistical system are steep. Our low logistics performance due to unreliable supply chains and inefficient infrastructure is damaging our industrial and business competitiveness, driving up transaction costs. Logistics costs account for as much as 4.5% to 48% of the total sales, depending on the sector in Bangladesh.
Development of modern infrastructure has been a core component of the economic transformation of Asian tigers, including China, in the last few decades. Taiwan and South Korea heavily invested in infrastructure, amounting to around 9.5% of GDP during their period of rapid industrialisation, while for China it was around 8% to GDP until 2003.
While Bangladesh is at the doorsteps of accelerated growth, we are still far behind India, Vietnam, Indonesia and Thailand in terms of logistics and infrastructure quality. In Bangladesh, investment in physical transport infrastructure investment is around 2% to 3.6% of GDP, which is much lower than the required levels.
While noting the shortcomings, we cannot however be oblivious to the impressive advancement that has been made in recent years. Under the leadership of our Honourable Prime Minister, Bangladesh increased infrastructure spending almost three times from 2011-12 investment levels. The mega infrastructure projects such as Padma Bridge, the Matarbari Hub, and the deep seaport will be game changers, opening up new opportunities and will accelerate our GDP growth.
To keep up the momentum and build upon the gains, Bangladesh needs to be mindful of the shifting landscape of logistics development and mark the emerging trends. Today, business competitiveness demands improved productivity, channel expansion, shorter lead time, faster market access, efficient ports, adequate storage and warehousing facilities, etc for an efficient logistics eco-system that could accelerate trade opportunities.
Digital transformation and e-commerce are taking bigger roles in the supply chain and logistics landscape. We need to have greater automation of ports services, including customs clearances, payments, as well as introducing data-driven processes for decision-making.
Stronger public-private collaboration and policy coordination would be required to ensure efficient and innovative systems, from warehouse management to plant logistics, including shipping and distribution logistics.
As Bangladesh aspires to reach higher growth projections of double-digit GDP growth, infrastructure investment needs to be further increased to 6-7% of GDP. In the longer-term, UNESCAF projected that Bangladesh, like other Countries of Special needs (CSN) requires investing 10.2% of GDP in sustainable infrastructure to create economic prosperity.
It is roughly estimated that Bangladesh on average needs around USD 18 to 20 billion per annum, a total amounting around USD 320 billion, in cumulative infrastructure investment. Connecting communities, markets and supply chains nationally, regionally and globally through an efficient logistics system will help create opportunities for jobs, businesses and help distribute wealth across Bangladesh, and help attain many of the SDG priorities as set by the UN.
The planning and policy framework need to be aligned with the priority of mobilising a greater share of investment in a strategic manner. The Perspective Plan 2021-2041 – the government's long-term planning instrument – has designed five strategies to establish a multimodal transportation system to turn logistics infrastructure into a competitive advantage.
We need an overall national logistic development policy supported by higher investments in infrastructure to reduce costs substantially and increase the country's competitiveness in various areas. To develop the logistics sector through a targeted, coordinated and time-bound manner, a Logistics Master Plan is needed, which should be implemented with close supervision from the highest level.
As it will become difficult for the public sector to maintain the above-mentioned investment level to keep pace with economic growth, a significant share of infrastructure investment needs to come from the private sector under various modalities.
For ensuring public-private collaboration on logistics and infrastructure development, Business Initiative Leading Development (BUILD), the country's leading private-public dialogue platform, seeks to play a catalytic role. BUILD has already formed a high-powered committee named Logistics & Infrastructure Development Working Committee (LIDWC) under the Prime Minister's Office (PMO) that aims to address the short to long term policy challenges, the required reforms, and various opportunities for the sector.
We feel that deeper engagement of both policy planners and the private sector will enable collaboration towards building a better logistics sector. The working committee already held its first meeting under the chairmanship of Mr Md Tofazzel Hossain Miah, Secretary, PMO on December 23, 2020.
The following is a five-point charter of recommendations for rapid enhancement of logistics and infrastructure sector in Bangladesh:
Include logistics as a priority sector for the upcoming Industrial Policy 2021, as suggested by BUILD in the recent Logistics & Infrastructure Development Working Committee (LIDWC) meeting.
Explore developing alternate financing for infrastructure projects and engaging the private sector in a greater capacity.
PPP model should be increasingly adopted for infrastructure development.
National Logistics Infrastructure Master Plan (NLIMP) needs to be formulated as a clear roadmap.
Theme-based working groups on logistic sub sectors like warehouse, port, temperature-controlled logistics could be formed inviting experts and stakeholders.
Abul Kasem Khan is the Chairperson of Business Initiative Leading Development (BUILD), a research and public-private dialogue think tank