Economy of Bangladesh: Wikis

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Economy of Bangladesh
Bashundhara city.jpg
Bashundhara city shopping complex
Currency Bangladesh Taka (BDT)
Fiscal year 1 July - 30 June
Trade organisations WTO, SAFTA, D8, WCO
Statistics
GDP $228.4 billion (2008 est.PPP)
GDP growth 6.5% (2008 est.)
GDP per capita $ 1500 (2008 est.PPP)
GDP by sector Agriculture (19%), industry (28.7%), services (53.7%) (2007 est.)
Inflation (CPI) 5.4% (2008 est.)
Population
below poverty line
36% (2009 est.)
Labour force 70.86 million (2008 est.)
Labour force
by occupation
Agriculture (45%), industry (30%), services (25%) (2008 est.)
Unemployment 2.4% (2008)
Main industries jute manufacturing, cotton textiles, garments, tea processing, paper newsprint, sugar, light engineering, chemical, cement, fertilizer, food processing
External
Exports $18.36 billion (2009-2010)
Export goods garments, textiles, jute and jute goods, leather, produce, frozen fish and seafood
Main export partners US 31.8%, Germany 10.9%, UK 7.9%, France 5.2%, Netherlands 5.2%, Kuwait 4.9%, Japan 4.5% Italy 4.42% (2000)
Imports $20.205 billion (2008)
Import goods machinery and equipment, chemicals, iron and steel, raw cotton, food, crude oil and petroleum products,
Main import partners China 11.4%, India 9.1%, Singapore 8.5%, Hong Kong 7.1%, Japan 6.5%,(2008)
Gross external debt $19.23 billion (31 December 2008 est.)
Public finances
Public debt $1.2 billion (June 2005 est.)
Revenues $14.1 billion (2008-2009 est.)
Expenses $25.8 billion (2008-2009 est.)
Economic aid $.975 billion (2000 est.)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars
Bangladesh has modernized rapidly in recent years.

The economy of Bangladesh is constituted by that of a developing country.[1] Its per capita income in 2008 was est. US$1,500 (adjusted by purchasing power parity) significantly lower than India, Pakistan, both which are also lower than the world average of $10,497.[2] According to the gradation by the International Monetary Fund, Bangladesh ranked as the 48th largest economy in the world in 2008, with a gross domestic product of US$224.889 billion. The economy has grown at the rate of 6-7% p.a. over the past few years. More than half of the GDP belongs to the service sector, nearly half of Bangladeshis are employed in the agriculture sector, with RMG, fish, vegetables, leather and leather goods, ceramics, rice as other important produce.

Remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, as well as exports of garments and textiles are the main sources of foreign exchange earning. GDP's rapid growth due to sound financial control and regulations have also contributed to its growth. However, foreign direct investment is yet to rise significantly. Bangladesh has made major strides in its human growth index.[3]

The land is devoted mainly to rice and jute cultivation of rice, fruits and produce, although wheat production has increased in recent years; the country is largely self-sufficient in rice production.[3] [3] Bangladesh's growth of its agro industries is due to its rich deltaic fertile land that depend on its six seasons and multiple harvests.[3]

Improving at a very fast rate, infrastructure to support transportation, communications, power supply and water distribution are rapidly developing.[3] Bangladesh is limited in its reserves of oil, but recently there was huge development in coal mining. The service sector has expanded rapidly during last two decades, the country's industrial base remains positive.[3] The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas, with the blessing of possessing the two worlds only natural sea ports in Mongla and Chittagong, in addition to being the only central port linking two large burgeoning economic hub groups SAARC and ASEAN.[3]

Contents

Economic history

East Bengal—the eastern segment of Bengal, a region that is today Bangladesh—was a prosperous region of South Asia until modern times.[4] It had the advantages of a mild, almost tropical climate, fertile soil, ample water, and an abundance of fish, wildlife, and fruit.[4] The standard of living compared favorably with other parts of South Asia.[4] As early as the thirteenth century, the region was developing as an agrarian economy.[4] It was not entirely without commercial centers, and Dhaka in particular grew into an important entrepôt during the Mughal Empire.[4] The British, however, on their arrival in the late eighteenth(18th) century, chose to develop Calcutta, now the capital city of West Bengal, as their commercial and administrative center in South Asia.[4] The development of East Bengal was thereafter limited to agriculture.[4] The administrative infrastructure of the late eighteenth and nineteenth centuries reinforced East Bengal's function as the primary agricultural producer—chiefly of rice, tea, teak, cotton, cane and jute—for processors and traders from around Asia and beyond.[4]. After its independence from Pakistan, Bangladesh followed a socialist economy by nationalizing all industries, proving to be a critical blunder undertaken by Bangladesh's leaders[citation needed]. Education policies of the British dating back from colonial era deprived education to millions of Bangla peoples setting them back by decades. Some of the same factors that had made East Bengal a prosperous region became disadvantages during the nineteenth and twentieth centuries.[4] As life expectancy increased, the limitations of land and the annual floods increasingly became constraints on economic growth.[4] Preponderance on traditional agricultural methods became obstacles to the modernization of agriculture.[4] Geography severely limited the development and maintenance of a modern transportation and communications system.[4]

The partition of British India and the emergence of India and Pakistan in 1947 severely disrupted the former colonial economic system that had preserved East Bengal (now Bangladesh) as a producer of jute, rice and other agro commodities for the rest of British India.[4] East Pakistan had to build a new industrial base and modernize agriculture in the midst of a population explosion.[4] The united government of Pakistan expanded the cultivated area and some irrigation facilities, but the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with rural population increase.[4] Pakistan's five-year plans opted for a development strategy based on industrialization, but the major share of the development budget went to West Pakistan, that is, contemporary Pakistan.[4] The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payments problem.[4] Without a substantial industrialization program or adequate agrarian expansion, the economy of East Pakistan steadily declined.[4] Blame was placed by various observers, but especially those in East Pakistan, on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan.[4]

Since Bangladesh followed a socialist economy by nationalising all industries after its independence, a slow growth of experienced entrepreneurs, managers, administrators, engineers, or technicians underwent.[5] There were critical shortages of essential food grains and other staples because of wartime disruptions.[5] External markets for jute had been lost because of the instability of supply and the increasing popularity of synthetic substitutes.[5] Foreign exchange resources were minuscule, and the banking and monetary system was unreliable.[5] Although Bangladesh had a large work force, the vast reserves of under trained and underpaid workers were largely illiterate, unskilled, and underemployed.[5] Commercially exploitable industrial resources, except for natural gas, were lacking.[5] Inflation, especially for essential consumer goods, ran between 300 and 400 percent.[5] The war of independence had crippled the transportation system.[5] Hundreds of road and railroad bridges had been destroyed or damaged, and rolling stock was inadequate and in poor repair.[5] The new country was still recovering from a severe cyclone that hit the area in 1970 and cause 250,000 deaths.[5] India, by no means a wealthy country and without a tradition of giving aid to other nations, came forward immediately with massive economic assistance in the first months after the fighting ended.[5] Between December 1971 and January 1972, India committed US$232 million in aid to Bangladesh, almost all of it for immediate disbursement.[5]

Bangladeshi leaders slowly began to turn their attention to developing new industrial capacity and rehabilitating its economy.[3] The static economic model adopted by these early leaders, however—including the nationalization of much of the industrial sector—resulted in inefficiency and economic stagnation.[3] Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued.[3] Many state-owned enterprises have been privatized, with banking, telecommunication, aviation, media, jute including a range of other vital sectors have been privatised.[3] Inefficiency in the public sector have been improving however at a gradual pace, external resistance to developing the country's richest natural resources, and power sectors including infrastructure have all contributed to slowing economic growth.[3]

In the mid-1980s, there were encouraging signs of progress.[3] Economic policies aimed at encouraging private enterprise and investment, privatizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated.[3] From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles.[3] In the late 1990s the government's economic policies became more entrenched, and some of the early gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001.[3] In June 2003 the IMF approved 3-year, $490-million plan as part of the Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to support the government's economic reform program up to 2006.[3] Seventy million dollars was made available immediately.[3] In the same vein the World Bank approved $536 million in interest-free loans.[3]

Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas.[3] Foreign reserves dropped markedly in 2001 but stabilized in the USD3 to USD4 billion range (or about 3 months' import cover).[3] In January 2007, reserves stood at $3.74 billion, and they increased to $5.8 billion by January 2008, in Nov 2009 it surpassed $10.0 billion according to the Bank of Bangladesh, the central bank.[3] In addition imports and aid-dependence of the country has systematically been reduced since the beginning of 1990s.

Macro-economic trend

This is a chart of trend of gross domestic product of Bangladesh at market prices estimated by the International Monetary Fund with figures in millions of Bangladeshi Taka. However, this reflects only the formal sector of the economy.

Year Gross Domestic Product US Dollar Exchange Inflation Index
(2000=100)
Per Capita Income
(as % of USA)
1980 250,300 16.10 Taka 20 1.79
1985 597,318 31.00 Taka 36 1.19
1990 1,054,234 35.79 Taka 58 1.16
1995 1,594,210 40.27 Taka 78 1.12
2000 2,453,160 52.14 Taka 100 0.97
2005 3,913,334 63.92 Taka 126 0.95
2008 5,003,438 68.65 Taka 147

For purchasing power parity comparisons, the US Dollar is exchanged at 12.86 Takas only.

Economic outlook

Efforts to achieve Bangladesh's macroeconomic goals have been problematic mostly due to corruption within the government.[3] The privatization of public sector industries has proceeded at a slow pace—due in part to worker unrest in affected industries—although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country's largest and most costly state-owned enterprise.[3] The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded.[3] State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%.[3]

The IMF and World Bank predict GDP growth over the next 5 years will be about 6.5%, well short of the 9-10% needed to lift Bangladesh to Mid Income Nations.[3] The initial impact of the end of quotas under the Multi-Fiber Arrangement has been positive for Bangladesh, with continuing investment in the ready-made garment sector, which has experienced annual export growth in excess of around 20%.[3] Downward price pressure means Bangladesh must continue to cut final delivered costs if it is to remain competitive in the world market.[3] Foreign investors in a broad range of sectors are increasingly frustrated with the politics of confrontation, the level of corruption, the slow pace of reform and privatization and deregulation of the public sector and the lack of basic infrastructure e.g. roads.[3] 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.[3]

Economic sectors

Agriculture

Map showing the growing areas of major agricultural products.

Most Bangladeshis earn their living from agriculture.[3] Although rice and jute are the primary crops, maize and vegetables are assuming greater importance.[3] Due to the expansion of irrigation networks, some wheat producers have switched to cultivation of maize which is used mostly as poultry feed.[3] Tea is grown in the northeast.[3] Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas.[3] Due to a number of factors, Bangladesh's labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions.[3] These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks.[3] With 28.8 million metric tons produced in 2005-2006 (July-June), rice is Bangladesh's principal crop.[3] By comparison, wheat output in 2005-2006 was 9 million metric tons.[3] Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat.[3] Foreign assistance and commercial imports fill the gap.[3] Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower.[3] Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force.[3]

Manufacturing & Industry

Many new jobs - mostly for women - have been created by the country's dynamic private ready-made garment industry, which grew at double-digit rates through most of the 1990s.[3] By the late 1990s, about 1.5 million people, mostly women, were employed in the garments sector as well as Leather products specially Footwear(Shoe manufacturing unit). During 2001-2002, export earnings from ready-made garments reached $3,125 million, representing 52% of Bangladesh's total exports. Bangladesh has overtaken India in apparel exports in 2009, its exports stood at 2.66 billion US dollar, ahead of India's 2.27 billion US dollar.[6]

Eastern Bengal was known for its fine muslin and silk fabric before the British period. The dyes, yarn, and cloth were the envy of much of the premodern world. Bengali muslin, silk, and brocade were worn by the aristocracy of Asia and Europe. The introduction of machine-made textiles from England in the late eighteenth century spelled doom for the costly and time-consuming hand loom process. Cotton growing died out in East Bengal, and the textile industry became dependent on imported yarn. Those who had earned their living in the textile industry were forced to rely more completely on farming. Only the smallest vestiges of a once-thriving cottage industry survived.

Other industries which have shown very strong growth include the chemical industry, steel industry, mining industry and the paper and pulp industry.

Textile sector

Bangladesh's textile industry, which includes knitwear and ready-made garments along with specialized textile products, is the nation's number one export earner. The sector, which employs 2.2 million workers, accounted for 75 per cent of Bangladesh's total exports of US$10.53 billion in FY2005-06, in the process logging a record growth rate of 24.44 per cent.

The government formed a Wage Commission, ordering it to report on a suitable new minimum wage in three months.[7]

The Commission, which included business and worker representatives finally released its conclusions on October 9, recommending the wage be set at Tk1,662.50, up from the current level of Tk950, but far below initial worker demands for Tk3,000.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders have finally accepted the need to raise wages.

The government also seems to believe some change is necessary. On September 21, 2006 then Ex-Prime Minister Khaleda Zia called on textile firms to ensure the safety of workers by complying with international labor law at a speech inaugurating the Bangladesh Apparel & Textile Exposition (BATEXPO).

Investment

The stock market capitalization of the Dhaka Stock Exchange in Bangladesh crossed $ 10 billion in November 2007 and the $15 billion dollar mark. Major investment from foreign investors have led to a massive building boom in Dhaka and Chittagong.

External trade

Bangladeshi exports in 2006

The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) has predicted textile exports will rise from US$7.90 billion earned in 2005-06 to US$15 billion by 2011. In part this optimism stems from how well the sector has fared since the end of textile and clothing quotas, under the Multifibre Agreement, in early 2005.

According to a United Nations Development Programme report "Sewing Thoughts: How to Realize Human Development Gains in the Post-Quota World" Bangladesh has been able to offset a decline in European sales by cultivating new markets in the United States.[8]

"Last year we had tremendous growth. The quota-free textile regime has proved to be a big boost for our factories," said BGMEA president S.M. Fazlul Hoque told reporters, after the sector's 24 per cent growth rate was revealed.[9]

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) president Md Fazlul Hoque has also struck an optimistic tone. In an interview with United News Bangladesh he lauded the blistering growth rate, saying "The quality of our products and its competitiveness in terms of prices helped the sector achieve such... tremendous success."

Knitwear posted the strongest growth of all textile products in 2005-06, surging 35.38 per cent to US$2.82 billion. On the downside however, the sector's strong growth came amid sharp falls in prices for textile products on the world market, with growth subsequently dependent upon large increases in volume.

Bangladesh's quest to boost the quantity of textile trade was also helped by US and EU caps on Chinese textiles. The US cap restricts growth in imports of Chinese textiles to 12.5 per cent next year and between 15 and 16 per cent in 2008. The EU deal similarly manages import growth until 2008.

Bangladesh may continue to benefit from these restrictions over the next two years, however a climate of falling global textile prices forces wage rates the centre of the nation's efforts to increase market share.

Prior to the Wage Board's announcement of its recommended minimum wage, the rate had remained unchanged at Tk950 for more than 12 years. Although the government may allow up to three years for the new wage to be implemented, and inevitably there will be compliance issues as manufacturers drag their feet, it seems politically untenable for wages to remain at their current levels given the unprecedented industrial unrest.

In response to the Wage Board's initial draft recommendation of a minimum wage of Tk1,604 to be increased to Tk1,800 after eight months, the BGMEA declared over 50 per cent of factories would be ruined within three months. While this claim is no doubt an exaggeration, the capacity of Bangladesh's textile industry to absorb a significant wage hike as margins become tighter is a key question which hangs over the future of the industry. Bangladesh's textile sector is concentrated in export processing zones in Dhaka and Chittagong. These zones, which are administered by the Bangladesh Export Processing Zone Authority, aim to offer "a congenial investment climate, free from cumbersome procedures"m according to Bangladesh Export Promotion Bureau's website.[10]

They offer a range of incentives to potential investors including 10 year tax holidays, duty free import of capital goods, raw materials and building materials, exemptions on income tax on salaries paid to foreign nationals for three years and dividend tax exemptions for the period of the tax holiday.

All goods produced in the zones are able to be exported duty free, in addition to which Bangladesh benefits from the Generalised System of Preferences in US, European and Japanese markets and is also endowed with Most Favoured Nation status from the United States.

Furthermore, Bangladesh imposes no ceiling on investment in the EPZs and allows full repatriation of profits.

The formation of labour unions within the EPZs is prohibited as are strikes.[10]

Bangladesh's exports to the U.S. surpassed $1.9 billion in 1999. Bangladesh also exports significant amounts of garments and knitwear to the EU market.

Bangladesh also has significant jute, leather, shrimp, pharmaceutical, and ceramics industries.

Bangladesh has been a world leader in its efforts to end the use of child labor in garment factories. On July 4, 1995, the Bangladesh Garment Manufacturers Export Association, International Labour Organization, and UNICEF signed a memorandum of understanding on the elimination of child labor in the garment sector. Implementation of this pioneering agreement began in fall 1995, and by the end of 1999, child labor in the garment trade virtually had been eliminated. The labor-intensive process of ship breaking for scrap has developed to the point where it now meets most of Bangladesh's domestic steel needs. Other industries include sugar, tea, leather goods, newsprint, pharmaceutical, and fertilizer production.

The Bangladesh government continues to court foreign investment, something it has done fairly successfully in private power generation and gas exploration and production, as well as in other sectors such as cellular telephony, textiles, and pharmaceuticals. In 1989, the same year it signed a bilateral investment treaty with the United States, it established a Board of Investment to simplify approval and start-up procedures for foreign investors, although in practice the board has done little to increase investment. The government created the Bangladesh Export Processing Zone Authority to manage the various export processing zones. The agency currently manages EPZs in Adamjee, Chittagong, Comilla, Dhaka, Ishwardi, Karnaphuli, Mongla, and Uttara. An EPZ has also been proposed for Sylhet.[11] The government has given the private sector permission to build and operate competing EPZs-initial construction on a Korean EPZ started in 1999. In June 1999, the AFL-CIO petitioned the U.S. Government to deny Bangladesh access to U.S. markets under the Generalized System of Preferences (GSP), citing the country's failure to meet promises made in 1992 to allow freedom of association in EPZs.

Sylhet is fast becoming the retail capital of Bangladesh,[citation needed] with many shopping centres being built by expatriates to serve fellow expatriates visiting Sylhet and the emerging middle class. Many of these developments hark back to Britain.[12]

Overview

Bangladesh has made significant strides in her economic sector since her independence in 1971. Although the economy has improved vastly in the 1990s, Bangladesh still suffers in the area of foreign trade in South Asian region. Despite major impediments to growth like the inefficiency of state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture, inadequate power supplies, and slow implementation of economic reforms, Bangladesh has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power stations. Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups. The especially severe floods of 1998 increased the country's reliance on large-scale international aid. So far the East Asian financial crisis has not had major impact on the economy. World Bank predicted economic growth of 6.5% for current year. Foreign aid has seen a decline of 10% over the last few months but economists see this as a good sign for self-reliance.There has been 18% growth in exports over the last 9 months and remittance inflow has increased at a remarkable 25% rate. Export was $10.5 billion in fiscal year 2005 exceeding the target export of $10.4 billion.

Fiscal Year Total Export Total Import Foreign Remittance Earnings
2007-2008 $14.11b $25.205b $8.9b
2008-2009 $15.56b $22.00b+ $9.68b
2009-2010(Set Target) $17.6b N/A $10.87b

See also

References

  1. ^ "Reproductive Health and Rights is Fundamental for Sound Economic Development and Poverty Alleviation," United Nations Population Fund. Retrieved June 9, 2009.
  2. ^ CIA World Factbook 2007
  3. ^ a b c d e f g h i j k l m n o p q r s t u v w x y z aa ab ac ad ae af ag ah ai aj ak al am an ao ap aq ar as "Background Note: Bangladesh". Bureau of South and Central Asian Affairs (March 2008). Accessed June 11, 2008. This article incorporates text from this source, which is in the public domain.
  4. ^ a b c d e f g h i j k l m n o p q r s Lawrence B. Lesser. "Historical Perspective". A Country Study: Bangladesh (James Heitzman and Robert Worden, editors). Library of Congress Federal Research Division (September 1988). This article incorporates text from this source, which is in the public domain.[1]
  5. ^ a b c d e f g h i j k l Lawrence B. Lesser. "Economic Reconstruction after Independence". A Country Study: Bangladesh (James Heitzman and Robert Worden, editors). Library of Congress Federal Research Division (September 1988). This article incorporates text from this source, which is in the public domain.[2]
  6. ^ "Bangladesh overtakes India in apparel exports: Indian companies grabbing Bangladeshi quota in Europe". Associated Press of Pakistan. http://www.app.com.pk/en_/index.php?option=com_content&task=view&id=92847&Itemid=2. Retrieved 30 December, 2009. 
  7. ^ "One dead after Bangladesh protest" BBC May 23, 2006
  8. ^ "Sewing Thoughts: How to Realise Human Development Gains in the Post-Quota World", United Nation Development Programme. April 2006.
  9. ^ "BD eyes $15bn textile exports by 2011". The Dawn. 3 September 2006.
  10. ^ a b "Bangladesh Export Promotion Bureau". Bangladesh Export Promotion Bureau.
  11. ^ [3]. Bangladesh Sangbad Sangstha (National News Agency of Bangladesh).
  12. ^ Gillan, Audrey. From Bangladesh to Brick Lane. The Guardian. 21 June 2002.

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