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Analysis: Drawing a strategic map for Bangladesh
Mamun Rashid, Jishan Rahman
- Published at 11:41 pm July 7th, 2018
- Last updated at 11:42 pm July 7th, 2018
Bangladesh GDP accelerated about one percentage point in every decade since the 1980s, no small feat given where we started Mahmud Hossain Opu/Dhaka Tribune
Over the last few years we have witnessed the socio-economic indicators of our country moving more and more towards a positive direction. For instance, in the three years ending 2016, Bangladesh’s gross domestic product (at current prices) in dollar terms grew at a compounded annual rate (CAGR) of 12.9%, more than twice of India’s 5.6%!
Business Standard India recently published a news article stating Bangladesh is poised to take over India in terms of per capita income, which has upswept conversations about our economy over coffee cups. We see such staggering statistics from time to time that seems too good to be true. Because even after doing so much, it doesn’t feel enough. We look at our streets, at our education, at our administration, the progress shows skewed towards a particular class and thus, not inclusive.
Over the last few years we have witnessed the socio-economic indicators of our country moving more and more towards a positive direction. For instance, in the three years ending 2016, Bangladesh’s gross domestic product (at current prices) in dollar terms grew at a compounded annual rate (CAGR) of 12.9%, more than twice of India’s 5.6%!
These statistics make us wonder that, in a few years’ time, is it really possible that Bangladesh could surpass the per capita income of India? Will we truly get to open the newspaper one fine morning to find our hopes turn into reality? Will achieving that feel enough? Well, probably not.
Per capita income is a statistic of average. Averages are great when you deal with numbers as they tend to minimize the effect of the extreme values, the outliers. But when it comes to per capita income, the outliers are living breathing human beings. That means we are effectively reducing people to numbers and that’s not good. Growth has to be inclusive, otherwise it never feels like growth and per capita income misses that point.
Where do we stand?
To put some context into Bangladesh’s growth scenario, let’s see how we compare with some of our peers in terms of few socio-economic indicators. Bangladesh since its inception has shown poverty alleviation and growth works in tandem. It showed that growth reduces poverty through a number of channels and creates employment opportunities for the poor, unskilled workers. She generated resources for the government to deploy provisions of public services such as elementary education, primary health care, rural infrastructure etc. which benefitted the poor.
Growth also enabled the government to devote greater resources to expand the coverage of social safety net programs to redress the plight of the poor. Bangladesh GDP accelerated about one percentage point in every decade since the 1980s which is no small feat given where we started.
It is, however, upsetting for us to witness the rising income inequality in the country. To get a more accurate understanding of the income level in the country, we should look at the Gini index, not only per capita income. For a refresher, the Gini index is a measurement of the income distribution of a country. The Gini index score ranges from 0 to 100 with 0 signaling a perfectly distributed income while a high Gini index score means high income inequality in the country.
Bangladesh, in 2010, had a Gini index score of 32.10. This figure was in a decreasing trend from 2004 to 2010, however from the turn of the decade as economic growth picked up Bangladesh’s Gini score also began rising. By 2016, Bangladesh’s Gini score stood at 32.40. While this is not a significant rise, it is still worrying because this is signaling a rising income inequality- the rich are getting richer while the poor are getting poorer. Bangladesh needs to find ways to counter this trend if she wants to have inclusive economic growth.
The economics of our economy
Bangladesh will soon be a developing country after qualifying for LDC graduation and that comes with numerous challenges. Kissinger’s so-called basket case has risen to the occasion by being a model to be followed across the world when it comes to poverty alleviation and economic growth. Bangladesh has earned commendable reputation for achieving remarkable success in reducing poverty in multiple dimensions. However, it’s too soon to be complacent, as this is a crucial time.
When we compare the size of the economy to the export value of a country it shows the export dependency of that particular country. In 2017 Bangladesh exported $34.02 billion which was about 13.5% of its GDP. While the Bangladesh economy along with the exports is growing rapidly, it still has the lowest export value among its peers. Vietnam, the only country with a lower GDP than us, has an export value of $214.02 billion which is 96.8% of their economy. Yes, Vietnam exports far more than us but the ratio isn’t necessarily desirable. The entire economy of the country is dependent on export. If anything happens to the current world trade order (such as America currently imposing tariffs on trading partners under America first policy) then Vietnam’s entire economy might collapse. India is leading in both the size of GDP and export value and has been doing a spectacular job in balancing both.
“The World in 2050”, a report published by PricewaterhouseCoopers (PwC), projects that in terms of growth, Bangladesh could be one of the fastest growing economies over the period to 2030, averaging a growth of around 5% a year. Bangladesh will be the 23rd largest economy of the world by 2050. The expectations as you can see are phenomenal.
We can only hope that our impressive growth is likely to continue in the future because of the biggest things going for our country - its population. What was seen as a curse was turned into a blessing by Bangladesh, leading to new terms such as “demographic dividend” and “density dividend.”
With the presence of a young, vibrant and growing population, the country’s growth engine will rage on with a rising consumer base for many years to come. It is estimated that the Bottom of the Pyramid (BOP) segment of the population that currently stands at 84 million will nearly halve to 44 million by 2025 and the emerging middle class will rise from the current 17 million to 27 million in the coming decade.
The rise in purchasing power will not be limited to major cities like Dhaka and Chittagong, but spill over to witness even greater impact in cities like Khulna- an emerging industrial hub, Gazipur - already a major RMG centre, to other cities that will see similar growth of urban populations and consumer bases. It is estimated that in Bangladesh, by 2025, there will be 63 cities with MAC (middle and affluent class) populations of at least 100,000 compared with 36 present now.
There are three major GDP contribution sectors in a country, agriculture, manufacturing and services. All the jobs and output in an economy is attributed to one of these three. Their percentage contribution to the GDP can tell a lot about an economy. A country with a major contribution from the agriculture sector usually signals that the country is underdeveloped. A large proportion of the population is undereducated or uneducated. A manufacturing focused country will most likely be a developing country with education being focused on high school and few people moving on to university, leading to a semi-skilled labour force. Finally, a country with a very high proportion of the GDP stemming from the service sector usually means that the country is a developed economy with a skilled labour force.
The GDP contribution in Bangladesh can be broken down as: 14.2% from the agriculture (primary) sector, 29.2% from the manufacturing (secondary) sector and 56.5% from the services (tertiary) sector. To put this in context, Indian GDP is 17.32% agriculture, 29.02% manufacturing and 53.66% service. To compare with a developed country, USA has a breakdown of 0.9%, 18.9% and 80.2% in its primary, secondary and tertiary sectors. The United States has a very tiny proportion of its GDP coming from the agriculture sector. This shows the skill level of the labour force.
As for Bangladesh, the GDP contribution sectors are gradually switching away from the agriculture sector due to an increasing skill level in the country. The statistics show that the GDP contribution sectors in Bangladesh and India are somewhat similar, contributing a little more from the service sector. In comparison with Philippines, Malaysia, Thailand and Vietnam, Bangladesh has a similar GDP contribution from the service sector but the manufacturing sector in these countries are more advanced. These countries average less than 10% in the agriculture sector, around 35% in the manufacturing sector and around 57% in the service sector.
The workforce of today
The rise of labour intensive exports, particularly the RMG industry has played a pivotal role in ameliorating poverty. The garments industry mostly employs women, most of whom come from relatively poor families. This industry contributed to poverty alleviation not merely by creating income-earning opportunities for the poor, but also by delaying marriages and reducing the family size of poor households. Remittances helped reduce poverty by increasing consumption as well as savings by poor households.
All of these factors contributed to the reduction in “Passenger” population in our economy and led to the increase of the national capital. Owing to that, investments poured in which in turn increased the consumer spending and made way for more employment.
As we can see, Bangladesh has the second lowest literacy rate among the compared countries. Bangladesh and India have a similar literacy statistic. They are both much lower in comparison to some of the south Asian countries. Bangladesh and India are more dependent in their agricultural sector than Malaysia, Thailand or Philippines. Bangladesh and India average about 16% contribution from the agriculture sector while the other 3 countries average about 8.5%. While the tertiary sector is not heavily impacted by this, the higher level of basic educated people in those countries result in a greater proportion of contribution stemming from the manufacturing sector. On the other hand, the unemployment rate in Bangladesh is just above the average of these countries. The RMG sector in Bangladesh has contributed significantly to employment generation however the largest portion of employment is the primary or agriculture sector. Some critics say that while Bangladesh does not have a high unemployment rate, a large number of people are underemployed in the country which makes the statistics deceiving.
Inadequacy of technological infrastructure acts as another barrier to inclusive growth. The expertise gained from the evolution of the ICT sector will be key in bringing down the obstacles to advanced technology in Bangladesh. To achieve this Bangladesh has to focus on providing the ICT sector with a labour force with high professional expertise.
We now live in the age of automation, the Internet of Things, AI and Industry 4.0. We hope Bangladesh will take effective and sustainable steps to create an adoptive environment to introduce Industry 4.0. Industry 4.0 will allow for a more productive and efficient manufacturing system by providing greater automation, enhanced communication which will lead to lower costs, increased revenues and innovation but most importantly creation of unique goods and services that best meet individual consumer demand. A strong and well controlled expansionary fiscal policy may be necessary from the government to properly develop and prepare a well-structured infrastructure, encourage investments and subsidizing industries so as to promote research and development.
This will depend upon the urgency of our government to invest in its human capital, which will play a pivotal role in our country’s development given our population of over 166 million people. Rigorous implementation of supply side policies such as vocational training, capacity building to enhance competency and the quality of the general workforce are needs of the day.
We are excited to see further impressive changes as the government has proposed for an allocation of Tk50,432 crore in the budget for 2017-18 fiscal for education, which is 12.6% of the total budget size. Investment of such nature and scale will play a crucial role in developing sustainable managerial capacity inside the country and the skill set of expatriates working abroad.
Income level and standard of living
Bangladesh is also currently ahead of India in the human or social development indicators of infant mortality rate and life expectancy at birth. A newborn in Bangladesh is more likely to see her fifth birthday than her Indian or Pakistani counterpart. She is also likely to live longer in Bangladesh (72.5 years) than India (68.6 years) and Pakistan (66.5 years).
This comparison of life expectancy among these countries puts Bangladesh squarely in the middle. While Bangladesh has the lowest per capita income adjusted for PPP among these countries, our life expectancy is somewhat better than that of the other countries. In the context of income, the comparatively high life expectancy speaks of the good work done by our administration in recent years. Indonesia, India and Philippines have more income per person but don’t have a life expectancy like ours.
Infant Mortality is a measure of deaths of infants (under 1 year) per 1000 births. Infant mortality is a sign of the level and the reach of healthcare in a country. We compared this indicator with the GDP growth rate to put the reach of the healthcare system in these countries in context of their growing incomes. While it is expected that an increase in money will lead to a better healthcare system, the scenario is quite the opposite in case of India which despite its highest growth rate status, ranks top in infant mortality. Bangladesh comes in second to last in context of infant mortality behind India. Although Bangladesh has been growing rapidly over the last few years, we can see from the mapping that increased income does not necessarily translate to better healthcare; we need to use our increased income more efficiently to increase the living standard in the country.
The challenges of tomorrow
In the coming days, Bangladesh’s greatest challenge perhaps will be to face “preference erosion” due to the LDC graduation. Once graduated, Bangladesh will not be eligible for support measures given to LDCs accorded by multilateral institutions such as the WTO.
We have a reluctance to learn from what’s happening around the world. We have to leapfrog the development cycles that the first world went through. For the coming future, project management will be the core competency if we are to get aids and loans. Are we doing enough to develop that capability?
We could initiate a task force to develop an appraisal and monitoring manual for investment projects, including capacity strengthening for timely and quality appraisal of such projects. We could invest in developing efficient project managers across government and private sector.
Bangladesh needs to gear up to leapfrog the development cycles through adoption of the technologies of future- Block chain, Internet of Things (IoT), Artificial Intelligence, and robotics to compete in the age of Industry 4.0. We have to create a start-up culture for the resulting displaced workforce through promotion of venture capital financing and government support.
The noteworthy methods used by Singapore to prepare its labour force for technological advancements could be structured accordingly and implemented in Bangladesh. They have specialized organizations, such as WorkForce Singapore, to train and educate their workers to work with technologically advanced machinery and systems in order to make the workforce more productive with greater flexibility. An initiative like this could ensure a supply of skilled labour who will be prepared for automation and greater efficiency in the production process and assembly line.
Bangladesh’s budget size is ever increasing but so is the pressure on the capacity to manage and implement the budget. Yes, we have serious issues with financial sector, so is the case with alleviating poverty and combating ultra-poverty in the northwestern region, balancing between defense, education and health budgets, ensuring quality education, minimum health service delivery to the people and accelerating the formation of national capital.
From NPLs to corruption, whenever something goes wrong in our country, the people involved gets blamed rather than the process. So only the face of the perpetrators change from one incident to the next while the underlying weak process never gets scrutinized. This lack of a systematic approach has led to the continuation of numerous mishaps including banking scandals, heists and infrastructural corruptions.
The uberization of coming workforce of tomorrow will mean only one thing- skills. Billions of dollars gets lost to neighboring countries these days because we don’t have efficient managers. Although Bangladesh has achieved impressive economic growth this past decade, the gap she has between the education system and the industry needs is alarming. This gap must be narrowed down to accelerate economic and technological growth.
We must continue our already impressive journey with the same vigor our freedom fighters fought with, because we can still do so much more. Taking inspiration from Dylan Thomas, we need not go gentle into that good night as the dream of Bangladesh has only begun!
Mamun Rashid is a partner and Jishan Rahman is a government reform consultant at PwC Bangladesh. Views expressed here are their own`
