Bangladesh Development Model: Challenges Of Sustainability – Analysis

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BY ABU SUFIAN SHAMRAT*

Dhaka, Bangladesh. Photo by Hafrul, Wikipedia Commons.

Since the beginning of this decade the ‘Bangladesh Development Model’ (BDM) has been drawing attention for achieving remarkable success in reducing poverty and accelerating economic growth, pulling the country from a lower-income to a lower-middle-income country.

Also the recent visits of the Chinese President Xi Jingping and the World Bank Group President Jim Yong Kim provide more acceptability and legitimacy to the developmental initiatives, macroeconomic successes, and multilateral stances of the current government of Bangladesh. The state’s policies and strategies to accelerate developmental sustainability followed by three consecutive plans i.e. ‘Vision 2021’ — establishing Bangladesh as a middle income country –, ‘Vision 2030’ — achieving zero poverty rate –, ‘Vision 2041’ — constructing a sustainable economic order as a developed economy — are shaping the faces of BDM.

The eradication of poverty initiating gradual transformation towards socio-economic sustainability is occurring due to women empowerment, gender equality in education, investment in human capital, microcredit, reducing maternal and child mortality rate, modern sanitation, increasing life expectancy, expanding RMG and private sector, demographic dividend in terms of human resources, and increasing agricultural production etc. However, the vision of sustainability based on growth and equity depends on how Bangladesh is going to manage its developmental challenges-retaining economic growth, inequality, mal-governance and corruption, geo-economic balances and strategies, qualitative development in health and education, environmental and infrastructural sustainability, diversification of economy, energy security and communication- in the near future.

Bangladesh: Journey from Poverty to Development

Bangladesh emerged from the ashes of a gory War of Independence in 1971 as the world’s second poorest nation. The war almost completely destroyed the physical infrastructure of the country. Also the long history of deprivation and inequality during the British and Pakistan periods inherited a vulnerable economic order for Bangladesh. Immediately after the independence the first government faced multifaceted challenges- including famine, natural disasters, corruption, nepotism, fragmented law and order, etc.- which U.S. presidential security adviser Henry Kissinger dubbed as a “basket case” assuming a gray future for Bangladeshi economy.

Throughout the 1970s, Bangladesh’s average GDP growth was 1.5 percent mainly because of three reasons: 1) war 2) massive nationalization and losing spree in all public enterprises and 3) policy switch toward denationalization. Capitalizing land and labor Bangladesh became able to manage its economic turmoil and since the 1980s, Bangladesh’s decade-wise average growth shifted roughly one percentage point higher, starting from 3.5 percent to reach 6.5 percent in the 2010s (Paul, 2016). The latest World Bank report, entitled ‘Poverty and Shared Prosperity 2016: Taking on Inequality’ shows that 18.5 percent of the population of Bangladesh was poor in 2010 compared with 44.2 percent in 1991. This achievement means that 20.5 million Bangladeshis escaped from poverty between 1991 and 2010.

Broadly we can divide the phases of Bangladesh’s economic history in the following way: a) 1970s-trasitional economic order shifting from extreme poverty to the securities for basic needs; b) 1980s-journey towards industrialization and foreign direct investment; c) 1990s-era of privatization and economic liberalization; d) 2000s-constructing a basis for economic growth or pre-takeoff phase; e) 2010-onwards: journey towards consolidating economic growth into sustainable development.

However, the economic growth of Bangladesh since 1972-2015 can be represented through the following graph:

Analyzing Bangladesh Developmental Model (BDM)

The Bangladesh Development Model (BDM) is moving towards an age of economic sustainability from a state of poverty to enduring development based on the rising economic growth. The miracle of BDM can be analyzed within an integrative paradigm where the contributions and progresses of both public and private sectors are equally important. The policies of adoption, adaptation, adjustment, implementation, gender equality, microfinance, FDI, and others play a key role in eradicating extreme poverty. After independence almost 80 percent people lived under the poverty line; which was 56.7 percent in 1991 reaching 12.9 percent now. From 2000 onwards, the economy has been growing consistently at 6 percent per year on average. The economy expanded 7.11 percent last fiscal year 2015-16 which is higher than the estimated growth 7.05 percent, according to Bangladesh Bureau of Statistics.

However, the drivers which are constructing the BDM, pulling the country from poverty to development, based on growth include:

Human Capital: Human capital is the major driver of poverty alleviation leading towards sustainable development. Now the working human capital constitutes almost three times greater amount from the 1980s and 1990s due to qualitative changes in human demography. Also the recent demographic size of working women grows twice time from 1990. There are 78.6 million people in the workforce, including all sectors like garments, agriculture, manufacturing and the service sectors.

The number of workers in the RMG sector alone is 4.4 million at present. Between 2003 and 2013, women’s employment rose from 7 million to 17 million. Some 4 million women, mostly from poor rural areas, work in the RMG sector. The average age of most of the workers is below 40. Nearly 17.1 million people are involved in fish production, while animal farming has created job opportunities for around 6.5 million people (The World Bank, 2016: 9). Both qualitative and quantitative progresses are occurring in human capital development due to increasing enrollment, gender equity and quality in education, training, profession, projects; reducing infant mortality and fertility rates; reducing birthrate following national family planning strategies since 1980s (Birthrate- 1971: 6.9%, Now: 2.3%).

Agriculture: Agriculture has played a key role in reducing Bangladesh’s poverty from 48.9% in 2000 to 31.5% by 2010 with over 87% of rural people part of their some income from agricultural activities. Irrigation, high-yielding crop varieties, more efficient markets, and mechanization, enabled by policy reforms and investments in agriculture research, human capital, and roads have driven growth. Over 87 percent rural people derive at least some income from agriculture.

Source: The World Bank, Dynamics of rural growth in Bangladesh: sustaining poverty reduction, 2016

However, two thirds of rural households rely on both farm and non-farm incomes. The production of rice has increased three times in the last three decades initiating around 50 percent reduction of extreme poverty. Also the other agro-sectors like fish production, livestock products, poultry production, and so on are contributing to greater development of Bangladesh.

Industry: Bangladesh has achieved a tremendous growth rate in its industrial production. The economy comprises of a number of small and medium enterprises that make up for 25 percent of the nation’s GDP. In FY2009-10, the rate of growth of the share of industrial sector in GDP was 6.49 percent, while in FY2010-11, FY2011-12 and FY2012-13, the rate became 8.20 percent, 8.90 percent and 8.99 percent respectively. Industrial growth is estimated at 10.1 percent in FY2016, driven by growth in large and medium scale manufacturing and construction. Overall imports for the industrial sector grew about 6.5 percent in dollar terms, mainly due to import of capital machinery which grew by 14.1 percent. Power plants, Padma Bridge construction, flyovers and balancing, modernization, rehabilitation and expansion of industrial units, garments and textiles in particular, spurred capital machinery imports (World Bank, 2016: 10).

Increasing Purchasing Power Parity (PPP): In October 2015, the international poverty line was updated from $1.25 a day at 2005 PPPs to $1.90 a day at 2011 PPPs for most countries. Bangladesh was one of five countries which retained the $1.25 poverty line to calculate international extreme poverty rates, as the switch to the $1.90 line resulted in a significant change in the estimated poverty rate, warranting further analysis. The revised series of poverty rates are found to be significantly lower, such that the divergence between the number of extreme poor based on the national Lower Poverty Line (LPL) and the international extreme poverty line has nearly disappeared (World Bank, 2016: 1-2).

Export: In fiscal 1984-85, Bangladesh’s garment export was $0.12 billion and in fiscal 2015-16, the country’s clothing export was $28.09 billion. Notably the RMG sector produces around 81 percent export-oriented income alone. The export of garments can be singled out in this context. Total export as a proportion of GDP rose from 7.5 percent in fiscal year 1993-94 to 20.7 percent in fiscal year 2012-13 and the share of garments in total exports in the respective years rose from less than 45 percent to well over 80 percent. This industry contributes 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.

Investment: A significant rise in public investment led to an increase in total investment in relation to GDP from 28.9 percent in FY15 to 29.4 percent in FY16. The increase in public investment is attributable to the government’ expenditure on infrastructure projects.

Unlike domestic private investment, FDI increased significantly (9.27 percent) from $1.8 billion in FY15 to $2 billion in FY16 due to an improvement in reinvestment in existing companies. FDI inflows in Bangladesh were directed mainly to manufacturing, trade and commerce related activities. “Foreign investment is split into three categories: equity, reinvestment of earnings and intra-company loan. Last fiscal year, equity capital or new investment declined 4.35 percent from a year earlier to $505 million. However, reinvestment of earnings edged up 1 percent to $1.15 billion. Intra-company loans more than doubled year-on-year to $344 million during the period (The Daily Star, October 24, 2016).”

Remittances and Reserves of Foreign Currency: Remittance, third largest sector of the country’s economy, makes a large portion of the country’s foreign currency reserves and a significant portion of it comes from workers living in GCC countries. Almost 8 million Bangladeshis are working in more than 150 countries now. Remittances help reduce poverty by increasing consumption as well as savings by poor households. Here again Bangladesh has made remarkable strides. During the period of 1990 to 2010, remittances grew by a compounded annual growth rate of 13.2 percent. In absolute terms, the amount of remittance was $761 million in the fiscal year 1989-90; it rose to $14,461 million in 2012-13. The growth was uninterruptedly positive in every single year during this entire period.

Despite significant overflow of migrant workers in both FY15 and FY16 remittances fell in FY16. The current decade is experiencing a dramatic rise in terms of foreign currency reserves exceeding $30 billion (till September, 2016: $31.3859 billion).

Social Security Paradigm: Social security programmes in Bangladesh are administered through numerous agencies, including many arms of Government, non-Governmental organizations, and international bi-lateral and multi-lateral partners in the following areas: Old-Age Allowance Scheme (3.15 million old aged people are getting this allowance), Allowance Scheme for Widowed and Distressed women (1.15 million), Rural Maintenance Program (RMP), Rural Infrastructure Development Program (RIDP), Test Relief (TR), Gratuitous Relief (GR), Vulnerable Group Feeding (VGF), Vulnerable Group Development (VGD) enjoying 10 million people now, Food Security Enhancement Initiative (FSEI), Programs for Acid Burnt Women and the Physically Handicapped, Funds to assist victims of natural disasters, Honorarium scheme for insolvent freedom fighters, Funds for retraining/reemployment of voluntarily retired or retrenched workers, and so on. In 2008 the social safety net program covered 13 percent of poor households, which has increased 25 percent in 2015. Also the current government designed some effective social security programs- ‘One House One Farm’ project, National Social Security Strategy 2015, Household Database project, National Urban Health Strategy 2014, Seventh Five Year Plan- in order to ensure greater social security based on social justice, equity, inclusiveness, and rule of law.

Developmental Visions: The Perspective Plan provides the road map for accelerated growth and lays down broad approaches for eradication of poverty, inequality, and human deprivation. Specific strategies and the task of implementation will be articulated through the two five-year plans: Sixth Five Year Plan (2011-2015) and the Seventh Five Year Plan (2016-2020). The expectation is that by 2021, the war against poverty will have been won, the country will have crossed the middle income threshold, with the basic needs of the population ensured. Along with higher per capita income, Vision 2021 lays down a development scenario where citizens will have a higher standard of living, will be better educated, will face better social justice, will have a more equitable socio-economic environment, and the sustainability of development will be ensured through better protection from climate change and natural disasters. The associated political environment will be based on democratic principles with emphasis on human rights, freedom of expression, rule of law, equality of citizens irrespective of race, religion and creed, and equality of opportunities. The development priorities also include ensuring effective governance and sound institutions but creating a caring society; addressing globalization and regional cooperation; providing energy security for development and welfare; building a sound infrastructure and managing the urban challenge; mitigating the impacts of climate change; and promoting innovation in a knowledge-based society along with the vision of ‘Digital Bangladesh’ based on information and communication technological development and integration.

Also the government has given top priority to the ten fast-track mega projects estimating total cost of $43.60 billion, an amount more than $2.3 billion has been set aside from the national budget of 2016-17 specifically for their speedy implementation. These projects are Padma bridge project, Padma bridge rail connection, Deep seaport at Sonadia, Payra deep sea port, Metro Rail project in Dhaka, 2400 MW Ruppur Nuclear Power Plant, 1320 MW Rampal Thermal Power Plant, 1200 MW Matarbari Coal-Fired Power Plant, Cox’s Bazar rail road and LNG gas terminal for importing liquid gas. These projects would reshape the country’s economic outlook, improve communication and accelerate GDP growth.

Source: The Financial Express, June 3, 2016

Indeed, the country is visualizing the ‘Vision 2030’ in order to initiate a sustainable developmental order achieving zero poverty rate and ‘Vision 2041’ to merge its sectorial developmental initiatives and socio-economic diversification for constructing the ‘Golden Bengal’ based on holistic sustainability.

Developmental Challenges of Sustainability

Retaining Growth: The major developmental challenge for Bangladesh is that how the country is going to manage its rising growth rate. According to the growth model of W. W. Rostow, the BDM holds its position in the ‘take off’ stage; because the country is observing huge progress in industrialization and trading economics along with a decaying agricultural order. But it is going to face enormous challenges to achieve a matured economic order and the age of high mass consumption because achieving 8 percent to 10 percent is not an easy task by diversifying and distributing the projected growth equally. The weak recycling policies of growth and resources within the monetary and fiscal affairs, and limited usage of efficient and expert human resources for sectorial development are the Achilles heel for a sustainable economic order.

Distribution of Growth: Most of the global economies including Bangladesh are facing huge challenges regarding just distribution of growth causing microeconomic inequality but having booming macroeconomic success. Even our industrial, RMG and service sectors are expanding and contributing a lot in the consecutive GDP growth though income gap and purchasing power parity among the socio-economic classes are increasing with the same pace. In the RMG sector the owners and shareholders are earning and contributing a lot but the salary level and livelihood style of the workers remain very low as before. Socio-economic, politico-cultural and technological gaps between urban and rural society are widening day by day. Bangladesh might not be a sustainable economy if she is not going to strategize her distribution of growth based on justice and equity.

Diversification of Economy: Diversification of economy could play a pivotal role in the structural transformation of the economy from producing low value-added products to high value-added products. However, strategies and policies for economic and export diversification lack clear guidelines as regards to implementation. In case of export diversification, it has been a matter of serious concern that though there are significant incentives provided to the export sector in Bangladesh, there is formidable difficulty in actually accessing such incentives and they helped little in diversifying the export basket. Furthermore, though the latest industrial policy identifies a number of high priority and priority sectors for economic diversification, there are several policy-induced and supply-side constraints that have constricted the development of these sectors.

Unless and until these policy-induced and supply-side constraints are addressed, the agenda for further productive economic diversification will remain unfulfilled. Major supply side constraints include poor physical infrastructure, inefficiencies at ports and related internal road transportation, lack of investment fund and working capital, high interest rate, shortage of skilled workers, technological bottlenecks, lack of entrepreneurial and management skills, and very high invisible costs of doing business.

Environmental Sustainability: Bangladesh is one of the most vulnerable countries that is facing immense challenges due to climate change. Its geophysical position coupled with highly dense population, limited resources and dependence to nature makes Bangladesh a hazard-prone country with many subsequent catastrophic events like irregular rainfall patterns, floods, flash floods, cyclones, saline intrusion, drought, sea level rise, tidal surge and water logging. Increasing temperature will affect agriculture production threatening the hard earned food security the country now enjoys.

Increasing sea level may permanently submerge large tract of flat coastal land forcing large scale migration. A 45 cm rise in sea level will not only affect the vast coastal ecosystem and hamper agriculture and food production, it has the potential to dislocate about 38 million people from 20 coastal districts. The poor are the most affected by the climate extremes and have very little capacity to cope with the risks. The country has gained considerable experience and repute in management of disasters over the years, and this would be a key challenge for sustainable development in Bangladesh.

Energy Security: Energy is one of the primary drivers of economic growth and sustainable development. Lack of coverage and quality of energy supply is one of the key barriers to development of both industry and agriculture sector. In order to meet the present and future challenges, power and gas facilities should be expanded and alternative sources of power should be developed.

Accountability, transparency and modernization in the management of the power and gas sector need to be ensured. Illegal electricity connections have to be severed and system loss has to be minimized.

As a strategy for sustainable development of energy sector development of renewable energy, which is less polluting, will be emphasized (National Sustainable Development Strategy 2010-21, General Economics Division, Planning Commission of the Government of the People’s Republic of Bangladesh, p. 28).

Mal-governance and Corruption: Now mal-governance and corruption have become major issues in political and economic significance in developing countries like Bangladesh undermining the state institutions, norms of democracy, ethical values, and justice and jeopardizes sustainable development and the rule of law. As the core focus of BDM is to accelerate infrastructural development rapidly, the possibilities of mal-governance and corruption within the administrative organs and developmental partnerships could be major threats for Bangladesh’s developmental dream.

Merging Development with Democracy: In broader sense sustainable order highly depends on how the state is going to merge its developmental activities with democratic norms and values. Theoretically ‘sustainable development’ is perceived to bring holistic change encompassing economic, social and political aspects in order to merge development with democracy and ecology. But Bangladesh’s present stance of ‘more development and less democracy’ is going to construct an unequal order between economy and politics. If the state is not going to merge development with democracy then the macroeconomic unequal distribution might cause urban-rural, rich-poor and private-public contribution, allocation and consumption gaps.

Geo-economics and Balancing Priorities for Bangladesh: The greatest developmental dilemma is that how Bangladesh is going to balance its geo-economic priorities in the near future. Because the global great powers- the USA, China, India, Japan, Russia and others- are trying to invest and cooperate in the infrastructure, transport, railway, power development, port construction and energy based projects for fulfilling their geopolitical and strategic ambitions. The recent politics regarding deep sea port construction in Sonadia, Payra and Matarbari has also created a global power rivalry where China’s ‘One Belt One Road’, USA’s ‘Asia Pivot’, India’s ‘Cotton Route’ and Japan’s ‘Strategic Posture’- centering the Bay of Bengal narrowly and the Indian Oceanic trade routes and strategic maritime locations broadly- have created a decision making dilemma for Bangladesh in order to initiate strategic cooperation with any of these powers.

The recent visit of the Chinese president Xi Jingping capitalizing the shift of Sino-Bangladesh relations from ‘economic partnership’ to ‘strategic partnership’ provides Bangladesh more importance in the geopolitical power projection paradigm. In India’s ‘South Asian Order’, Bangladesh is the most pivotal player and regional-bilateral development partner initiating Indian diplomatic psyche to involve any kind of political, social, cultural, ethnic, economic venture with Bangladesh. Also the recent ‘Brexit’ dilemma reduced 5% export (FY 2015-16) loosing almost $90 million because Britain is the third largestGLOBAL SOURCES of Bangladeshi RMG exports along with a huge labor market.

Conclusion

Since the beginning as a nation-state from 1971 Bangladesh has been tackling its socio-economic challenges in remarkable ways. It has overcome meager resources to make the most of its strong cultural and intellectual tradition and a national will to build a prosperous nation following Independence.

Economic liberalization in Bangladesh has achieved tremendous progress in terms reducing extreme poverty, changing its agro-based economy into industry and service-based order, achieving some shining successes in MDGs and journey towards sustainable development, and using its geo-economic as well as geo-strategic strengths. But Bangladesh’s sustainable developmental dream highly depends on how the state is going to visualize its challenges of developmental sustainability.

If the state follows the pathway of economic development only without ensuring linear political, social and cultural development then the visions of sustainable development will be a far cry. In a nutshell, Bangladesh Development Model has already achieved huge successes in pulling the country from poverty to developmental pathway; but the future sustainable developmental projection clearly depends on a greater integration and consensus among economic, political, social, cultural, ecological, central-local, developmental partners, NGOs and civil society actors.