Despite solid development performance since independence, Bangladesh's per capita income at around $600 remains very low. Poverty has come down from over 70 percent in the early 1970s to around 40 percent in 2005. Yet this level is still very high and rural poverty is even higher at 44 percent.
A look at spatial distribution of development progress shows significant disparity between leading and lagging regions of Bangladesh. Notwithstanding progress in tackling natural disasters and establishing social safety nets, the poor in Bangladesh remain highly vulnerable to a range of internal and external shocks. The lagging regions are mostly border districts. The labour force is mainly engaged in low productivity agriculture; connectivity with growth centres is limited; human indicators are weak; and good jobs are scarce.
To address these development challenges comprehensively, they need to be related to the key development constraints:
Low labour productivity: While the GDP share of agriculture has sharply declined from around 50 percent in the early 1970s to below 20 percent in 2009, employment share has fallen only marginally and remains at over 50 percent. Outside agriculture, employment is heavily concentrated in low productivity informal services.
Manufacturing sector's GDP share has increased from 11 percent in the early 1970s to 18 percent in 2009, but employment share has barely increased from around 7 percent to 10 percent over the same period. On the supply side, labour productivity is constrained by low skills.
To tackle the employment challenge effectively, policies will need to focus on both demand and supply sides of the labor markets. On the demand side, creating good jobs will require a rapid growth in manufacturing investment, output, and exports. On the supply side, government investment in education and training will be the key to improving labour skills.
Weak trade logistics: Research shows that trade logistic costs are a key determinant of export competitiveness. According to World Bank analysis, Bangladesh ranks 79 out of 155 countries in terms of the 2010 trade logistic index (LPI). This index is a combination of performance on six areas: customs, infrastructure, international shipments, logistic competence, tracking and tracing, and timeliness.
The 2010 ranking is an improvement in performance over 2007, yet this performance is much lower than the rankings achieved by competitors (China at 13, India at 47 and Vietnam at 53). Bangladesh scores particularly low on customs procedures and on infrastructure and logistic competence.
Infrastructure constraint: Energy crisis is already constraining growth by an estimated half percent of GDP. This constraint is rapidly growing in intensity and needs to be tackled on a crisis footing. To meet expected power demand of 6,600MW in 2010, installed capacity needs to grow to 8,000MW as compared with 5,200MW presently. This 30 percent shortage of power generating capacity (2,800 MW) will challenge policy.
Linked to this, the availability of primary fuel is a worrisome factor. Gas accounts for some 70 percent of primary fuel for commercial use. Rapid growth in demand for gas without commensurate expansion in supply has caused the emergence of excess demand for gas. Present shortfall in gas supply exceeds 10 percent leading to rationing.
Power outages are estimated to lower GDP by an estimated $1 billion per year. Electrification ratio expanded rapidly since the early 1990s, growing from 10 percent in 1994 to 37 percent in 2008. Yet, this is still amongst the lowest in the developing world. In the rural economy, low power connectivity is a serious constraint to non-farm sector growth and human development. Inadequate investment in primary fuel (gas, coal, and hydro-power) raises serious concerns about the severity of future energy constraint.
Water and climate change: Ganges-Brahmaputra-Meghna river basins are home to 530 million people. The water is shared between India, Nepal, Bangladesh, China, and Bhutan). Among the challenges for water management include: increased pressure on water resources from growing population; growing water pollution; increased vulnerability from climate change especially as the monsoon is expected to be more severe and less predictable; reduced dry-season flows; increased intensity and frequency of water related hazards; sea level rise and salt-intrusion.
Image2Countries acting alone cannot effectively address these risks.
Role of Geography
Resurgence of global interest in understanding growth dynamics shows that geography matters for growth. While Bangladesh decries its downstream location disadvantage emerging from the flow of international rivers, it does not celebrate its two major advantages: tremendous access to sea and being the gateway between Central/South Asia and East Asia.
Taking advantage of location: There are two distinct ways in which Bangladesh can take advantage of its geographic location. First, global evidence shows that countries with access to sea (ceteris paribus) do better than land-locked countries. By opening up existing ports and through further investment, Bangladesh can tap a dynamic source of revenues and economic growth. The true potential, for example, is illustrated by the development performance of internationally renowned sea ports like Rotterdam, Singapore, and Hong Kong.
The second source is Bangladesh's location as the "Asian Gateway" linking Central and South Asia with East Asia. Through better land, air, and sea connectivity Bangladesh can become an Asian commercial hub with immense development opportunities.
Border area development: Of the 30 border districts, some 29 districts are a part of the lagging regions in Bangladesh (the only exception is Jessore). Growth and investment in the lagging regions will benefit tremendously from reducing cross-border restrictions on trade, transport, and investment. Removal of these restrictions will also facilitate agglomeration economies and production sharing arrangements as in East Asia under Asean Plus 3.
Easing energy constraint: South Asia's North-East sub-region has tremendous untapped hydro-power potential (See Table 1). Through proper grid connectivity and transmission lines, the scope for power trade to relieve Bangladesh energy constraint is tremendous.
Water security and climate change: On the negative side, the location of Bangladesh makes it especially vulnerable to climate change and natural disasters as it lies at the bottom end of the flow of the three mighty rivers Ganges-Brahmaputra-Meghna. Importantly, all three rivers, especially the Ganges and the Brahmaputra, flow through upstream India.
Other countries that are also upstream and have an impact on water flows are China and Bhutan (Brahmaputra) and Nepal (Ganges). It is obvious from geography that the only viable solution to Bangladesh's water problems and vulnerability to climate change is through a cooperative solution with upstream neighbors (India, Nepal, Bhutan and China). Arguably, without water cooperation long-term solution to poverty reduction in Bangladesh is not possible.