Daffodil International University

Faculties and Departments => Business & Entrepreneurship => Business Administration => Topic started by: Rozina Akter on April 08, 2014, 04:56:51 PM

Title: Bangladesh set to emerge as a middle income country
Post by: Rozina Akter on April 08, 2014, 04:56:51 PM
The story of the Bangladesh economy exemplifies that of an underdog which had been continuously berated and belittled by the naysayers, as it struggled to maintain its growing population and at the same time, keeping away from myriad obstacles to growth. But Bangladesh still has to bear the ignominy of the Least Developed Country (LDC) tag.

In post-independence period, the country was in tatters, as the nine-month war had a significant dent into the country's infrastructure. The situation was exacerbated by famine in mid-70s and political instability. With liberalisation of business in 1980s, many entrepreneurs entered the fray starting new ventures. Steady industrialisation followed and the formidable readymade garment (RMG) sector took roots during this period. In 1980s, the economy slowly made a transition from an agro-based economy to the one dominated by the secondary sector.

The early 90s saw further liberalisation as RMG export expanded with growing manpower export market. Several other industries also came up. These are pharmaceuticals, leather, frozen food etc. Export- driven growth was propelled by the availability of cheap labour along with favourable tax regime.

Over the last 10 years, the economy has maintained growth within the 5.0-6.0 per cent range despite a spate of natural calamities and political instability. In the recent past, the global financial crisis in 2008 also had its minimal impact on the country's progress, despite recessionary phases in the US and the EU, major markets for Bangladeshi products.

Over the last one year, inflation remained stable at 7.0 per cent (Source: Bangladesh Bank) despite frequent supply chain disruption due to political unrest. Reining of inflation is attributed to declining growth of non-food inflation e.g. rent, which has contributed to lower inflationary pressure. The Bangladesh Bank has also adopted a tight monetary policy which has further led to lower inflation.

Exports have been riding on the blossoming RMG sector which has clocked US$ 23 billion in 2013.  Remittance revenues have grown to the tune of US$ 12 billion, albeit at a slower pace. However, import growth has declined at a relatively higher rate which contributed to a positive current account balance.

The Bangladesh economy has undergone rapid changes over the last decade with growing export driven by the RMG sector, along with flourishing manpower export, culminating in higher economic growth. These two economic drivers have been inclusive, given that the main economic agents are drawn heavily from the lowest rungs of the country's socio-economic strata. This has resulted in higher disposable income for the population at the 'bottom of the pyramid.'

Booming RMG sector currently employs 4.0 million workers, mostly women, who are generating almost 80 per cent of the country's exports. McKinsey in its recent study on Bangladesh's RMG sector has predicted export earning nearing US$ 40 billion mark within 2021. Sector growth is precipitating due to increasing labour costs in China and other competitors, leading them to move up the value chain. Bangladesh, providing the most inexpensive labour, has been the natural beneficiary of some shifting export orders.

Despite rising minimum wage this January, Bangladesh has managed to retain its least cost status. Many international investors have expressed strong interest in setting up factories in Bangladesh. The government is in talks with Chinese investors for setting up another special economic zone, specifically for Chinese companies. Other companies also have expressed interest in investing in Bangladesh, especially considering the country's large consumer base of 160 million and close proximity to vast markets of China and India.

The incumbent government has been investing heavily in infrastructure development, especially in the field of power generation, as frequent power outages have historically been a major hindrance for economic activities. The government has tackled the demand-supply gap by directly involving the private sector.  Entrepreneurs have established quick rental power generation plants which have been regularly supplying to the national grid, contributing to lower electricity shortage.

There are also long-term plans of establishing a deep sea port in Sonadia and Chinese and Indian investors have expressed their interest in developing the sea port. Establishment of sea port, expected to be completed in 10 years, can significantly reduce lead time to export and earn steady flow of revenue for the government.

According to the latest Human Development Index (HDI), prepared by the UNDP, Bangladesh has performed exceptionally well with respect to life expectancy, education, and income indices. In some cases, the country surpassed the achievements of its economically advanced neighbour India. Consequently, Bangladesh has successfully achieved most of the Millennium Development Goals (MDG) set by the UN and is on course for achieving the Sustainable Development Goals (SDG).

Despite fears of losing market share in post-MFA (Multi-Fibre Agreement) regime, the RMG sector has performed exceptionally well by steering ahead of its competitors. Export growth trend continued despite global economic downturn and major industrial incidents (Rana Plaza and Tazreen Fashions). Currently, Bangladesh has maintained the position of the second biggest exporter, after China, in the global apparel market.

Bangladesh has been receiving attention from international domain over the years due to steady performance despite global economic upheaval. Goldman Sachs has included Bangladesh in the list of the Next Eleven countries, which have potential for continuing growth in the coming years. JP Morgan has identified Bangladesh as part of Frontier Five countries having the potential of achieving phenomenal growth.

Two international rating agencies, Moody's and S&P, have been conducting Bangladesh's sovereign rating for the last four years. In all the years, Moody's has rated Bangladesh BB-, better than all the neighbouring countries, except India. Similarly S&P has also given favourable rating of Ba3, which is higher than all other neighbouring countries, except India.

However, political instability looms large in the horizon in the aftermath of the January 05 election which was boycotted by major political parties. Nevertheless, the conditions are ripe for catapulting the country as a middle-income nation.

The writer is the co-founder and Director, Finance at LightCastle Partners, an emerging market        specialised business planning and intelligence firm
Title: Re: Bangladesh set to emerge as a middle income country
Post by: mominur on April 08, 2014, 05:07:08 PM
Good news.........
Title: Re: Bangladesh set to emerge as a middle income country
Post by: Jeta Majumder on April 09, 2014, 03:27:05 PM
it will be great....
Title: Re: Bangladesh set to emerge as a middle income country
Post by: shahanasumi35 on April 09, 2014, 07:23:21 PM
Of course its a good news for us.
Title: Re: Bangladesh set to emerge as a middle income country
Post by: munna99185 on April 16, 2014, 10:08:51 AM
Nice to hear this news.
The challenge is to achieve this.
Political stability is the most important precondition for achieving this target.

Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University

Title: Re: Bangladesh set to emerge as a middle income country
Post by: anowar.bba on May 08, 2014, 03:22:38 PM
but its not guaranteed that living standard of general public will improve when bangladesh become middle income country.