Saturday, August 25, 2012OP-ED Can Bangladesh benefit from globalisation? Can Bangladesh benefit from globalisation? Abdullah Shibli, Anisul M. Islam and Syed Mushtaque Ahmed The last few decades witnessed a dramatic increase in the globalisation trend, particularly for the emerging market economies. Increased pace of globalisation was aided, among other factors, by the spectacular advancement of technology, removal of trade and investment barriers and collapse of the former Soviet regime. Although the wind of globalisation has swept over many South and Southeast Asian nations and reached the shores of Bangladesh, Bangladesh still has to exploit the full potentials of this powerful undercurrent unleashed by the globalisation process. If we look at two of our largest neighbouring nations, China and India derived 29% and 25%, respectively, of their national incomes from export-oriented sectors in 2011, while the share of this sector is about 23% for Bangladesh (Table 1). In this paper, we will start off with a brief discussion on the meaning of globalisation to shed light on its influence and its impact on Bangladesh. We will also discuss some of the areas that Bangladesh could target in the coming years and suggest a framework of policies that might help Bangladesh in reaping maximum benefits from globalisation. What is globalisation? In his book entitled Globalization and Its Discontents, economist and Nobel Laureate Joseph Stiglitz defines globalisation as "the closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders." (New York: Norton & Company, 2002). If we carefully deconstruct this working definition of Stiglitz, it is not very difficult to see that for Bangladesh, the question is not so much whether we are now part of the global economy, as much as what are the trends and where should we be heading to be part of the rising tide of globalisation. Since its inception, Bangladesh has expanded its foreign trade sector significantly, and like many other Asian economies has made significant strides in many aspects of the global economy: labour market, telecommunications, foreign direct investment, and digital revolution. Using a few commonly used measures of trade integration such as export, import, and trade ratios, Table 1 provides some trends and we notice the following: a) Bangladesh has made steady progress in globalisation since 1980; and b) Bangladesh's trade ratio of 47% compares favourably with India (44%) and Pakistan (35%), but unfavourably with China (68%) and Sri Lanka (68%). While some of the advocates of globalisation including Stiglitz and another Nobel-winning economist Paul Krugman have in recent years pointed out some of the hidden costs of globalisation including increased volatility and recurrent global crisis and that globalisation, as in the cases of industrial revolution and the ICT revolution, are inevitable forces that need to be managed well. The questions we need to discuss nationally are: Where are opportunities for Bangladesh? How can we minimise the inherent risks of globalisation and how do we share the benefits of globalisation more equitably globally and internally? Bangladesh has benefitted from its global ties but it is time to look for new linkages and should behave strategically to realise further benefits. As economist Siddiqur Rahman Osmani points out in his policy paper, "The Impact of globalisation on poverty in Bangladesh," Bangladesh in the 1990s benefitted from three globalisation driving factors: the international commodity market (rice), MFA (garments), and openness of factor markets (remittances). However, we note that in recent years, these drivers of growth might be reaching a plateau and it is clear that we cannot expect the strong stimulus from these sectors as it has been in the past. We have identified several areas where projected growth is expected to be the greatest, and these are: * ICT, particularly software development, production, cloud computing; * Taking advantage from outsourcing particularly from the hospitality, medical, financial, and call centres; * Strong potential that can be reaped by tapping into foreign direct investment, or FDI (energy, power, and telecom); * Moving up in to higher value-adding activities in the RMG sector; * Scrap-metal recovery from ship-breaking and also further exploit the country's recent inroads in ship-building; * Agribusiness, especially processing fruits and vegetables, poultry, cult-flowers, and other value adding activities; and * Frozen foods, particularly frozen fruits, vegetables, and sea foods. Bangladesh has not been very successful in attracting a good amount of inward FDI flows from global sources to fill the above mentioned gaps. A quick analysis of FDI inflow reveals that it has hovered within the range of $500 to $900 million annually, although last year it reached a peak of $1.3 billion, which is quite low compared to some other Asian countries such as China and India. The ratio of cumulative stock of FDI to GDP for selected five counties including Bangladesh is shown in Table 2. Table 2: Foreign Direct Investment (stock) as percentage of GDP Source: UNCTAD and Word Bank, World Development Indicators. A comparative analysis of historical trend of FDI in selected Asian countries including Bangladesh is shown in Table 3. We need to pay attention to the fact that in recent years, Bangladesh has not been as successful in attracting FDI compared as some other neighbouring countries as evidenced from data in Table 3. Table 3: Growth Rates of FDI (In percent) Source: UNCTAD From the above discussion, it seems evident that the inflows of FDI into Bangladesh are minuscule in relation to the remittances from non-resident Bangladeshis (NRB) and exports as well as in comparison to inward FDI flows into China and India. What accounts for this state of affairs? Recently, one of the current prime minister's advisers accurately pointed out that political unrest, military intervention, incompetent public sector, obstructive bureaucracy, shortage of land, and natural disasters are some of the factors discouraging FDI into the country. Financial Times also attributed the drop in FDI in 2010 to power/gas shortage. The next question is: what does the country need to do to attract more FDI? First of all, we cannot overemphasise the importance of coordinated policy that involves various ministries and prime minister's policy advisers to streamline and expedite project approvals and implementation. Other areas of concern are: political stability, law enforcement, better enforcement of property rights, expedited dispute resolution, good governance, and control of corruption. Furthermore, Bangladesh can try to attract FDI from other emerging economies, e.g., China and India, by cultivating and fostering deeper trade, investment, and other economic ties. One of the authors (Ahmed) has in his research discovered that massive public sector investment in cooperation with foreign governments, international agencies, and global private investors to improve physical infrastructure and technological infrastructure are favorable to FDI flows. These and other actions mentioned above will enable Bangladesh to exploit the opportunities and attain the full potentials inherent in globalisation. The writers are Visiting Lecturer, Framingham State University; Professor of Economics, University of Houston-Downtown; and Professor of Economics, Cameron University, respectively.