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The First BEF Conference | Radisson Blu Water Garden Hotel Dhaka
21-22 June,
2014
Vision 2030 - Avoiding the Middle Income
Trap and Jobless Growth: Overcoming
Binding Constraints to Growth and Getting
Policies and Institutions Right
Mohiuddin Alamgir
Bangladesh Economists’ Forum
2
Vision 2030- Avoiding the Middle Income Trap and Jobless Growth: Overcoming Binding Constraints to Growth and
Getting Policies and Institutions Right
MOHIUDDIN ALAMGIR*
*The author is a member of the Bangladesh Economists’ Forum. He is a graduate of Dhaka University and earned his Ph.D. in economics from Harvard University. He has written on development. He has worked for BIDS in Bangladesh and various organizations around the world. He was President of the Bangladesh Economic Association (1974-1976).
This modest contribution is dedicated to Chunnu Miah (Abu Ahmed Abdullah), Akhlaq Bhai (Dr. Akhlaqur Rahman), Swadesh Da (Dr. Swadesh Ranjan Bose) and Doc (Dr. Abdul Ghafur) who loved Bangladesh and cared for all of us. A silent genius that Chunnu was he left a permanent stamp on me. We shared a room as paying guests in a Delhiwali Bhaji’s house in Karachi when we started our professional career at PIDE under Sir (Professor Nurul Islam) and later shared an apartment during our graduate studies at Harvard. His was an untimely death that has left a large void in the BIDS family.
The author gratefully acknowledges the extensive use of ideas and inputs from all members of the BEF in preparation of this paper. Errors and omissions are author’s own.
Years back what Professors Nurul Islam, Rehman Sobhan and Anisur Rahman taught me at Dhaka University and PIDE are engraved in the content of this paper. I cannot say nor do enough to repay my lifelong debt to them. As colleagues, boss and mentors Sartaz Aziz and Idriss Jazairy of IFAD sharpened my knowledge of development and poverty. Dr. A.R. Khan and Dr. S.R. Bose’s research guided me throughout my professional career. My friend Arjun Thapan of ADB whose recently deceased father a General in the army fought to liberate Bangladesh has inspired in me broader approach to issues and precision targeting. I owe debts of gratitude to all of them. My life is studded with so many other helpful people who stood by me in my long journey. Today at the sunset stage of my life I salute them and wish them the best.
Abbreviations
ASEAN Association of Southeast Asian Nations
BCIM Bangladesh–China–India–Myanmar Forum for Regional Cooperation
BEF Bangladesh Economists’ Forum
BIDS Bangladesh Institute of Development Studies
BIMSTEC Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation SASEC South Asia Subregional Economic Cooperation
CAREC Central Asia Regional Economic Cooperation
FDI foreign direct investment
FY Fiscal Year
GDP gross domestic product
GMS Greater Mekong Subregion
HSC Higher Secondary School Certificate
ICT Information and Communication Technology
kWh Kilowatt hour
MRA Microfinance Regulatory Authority
MW Megawatt
NSDP National Skill Development Policy
ODA Official Development Assistance
PIDE Pakistan Institute of Development Economics
PPP Public-private partnership
SSC Secondary School Certificate
TVET technical and vocational education and training
ii
CONTENTS
Page
I. RECENT ECONOMIC PERFORMANCE OF BANGLADESH 2
II. GROWTH PROSPECTS OF BANGLADESH 4
III. CONSTRAINTS TO GROWTH 9
IV. POLICIES, STRATEGIES AND INSTITUTIONS 26
V. CONCLUSIONS 48
Annex A 50
Annex Map 51
REFERENCES 52
Tables
1 Comparative Economic Indicators of Selected Asian Countries 2 2 Binding constraints and strategies to overcome 12 3 Investment and Maintenance as % of GDP (average 2005-2015) 17 4 Road and Railway Network of Bangladesh (kilometers) 17 5 Paved Road Density for Asia 17 6 Energy Use Efficiency 18 7 Current Supply and Demand of Gas 19 8 Fuel Composition of Electric Power Generation 2013-14 and 2030 31 9 Energy Efficiency Program 2015-2030 31
Charts
1 Recent Economic Performance 3 2 Longer Term Growth Prospects of Bangladesh 5 3 Projected Structural Transformation of the Bangladesh Economy 6 4 Average Labor Productivity 8 5 GDP Per Person Employed 2008 8 6 Energy consumption per capita kilogram of oil equivalent 2010 18 7 Electric power consumption per capita (kWh) 18 8 The Energy Picture at a Glance 19 9 Gas production projection 2009-10 to 2024-25 20 10 Trend of Loss of Per Capita Cultivable Land 25 11 Total Energy and Electricity Consumption Per Capita 31
Figures
1 Middle Income Trap and Jobless Growth 11 2 Framework for Economic Policy Making and Strategy Formulation in a
Pluralistic Democracy 28 3 GDP Growth and Skill Development 33
Vision 2030 – Avoiding the Middle Income Trap and Jobless Growth:
Overcoming Binding Constraints to Growth and Getting Policies and
Institutions Right
Abstract. The Bangladesh economy started tentatively in the 1970s under democratic leadership tasked to rebuild a post-conflict landscape with virtually no resources. The country coasted uncomfortably under autocratic leadership in the 1980s, but sprang back to life with accelerated growth under democratic leadership in the 1990s to present with some interruptions. A democratic government has held out the Vision 2021 of a middle income Bangladesh. This paper looks beyond 2021 and argues that Bangladesh can continue to grow, move to a higher growth trajectory to reach upper middle income status by 2030 and developed country status by 2040-2050. The major drivers are demographic dividend, skill development and productivity growth, financial inclusion with stability, a functioning pluralistic democracy, rising total and agricultural labor and land productivity, growing rice commercialization, rapid growth of exports, improved female literacy and labor force participation, overseas employment and remittances, and structural flexibility (amenable to change). History suggests pluralistic democracy binds all together. Otherwise few factors will shine while others lag behind and the total result less than optimal. Bangladesh is traditional in look but modern, dynamic and open in spirit. The Bangladesh economy and society has gone through substantial structural transformation over past forty years without much tension. It should be able to go through more and achieve what is almost unprecedented in history. There are challenges along the way. Bangladesh has to overcome the so called middle-income trap and jobless growth. Other constraints are land, connectivity, energy, skills, governance, finance, policies and institutions, basic education, regional cooperation, climate change and natural disaster, and the size, structure and functioning of the domestic market. Appropriate policies, strategies and institutions to overcome these constraints would have to be put in place. Policy, strategy and institutional recommendations made in this study are based on current and projected knowledge of what is and what might be. As events unfold, these may have to be reviewed and revised to take account of new realities. What is important is that economic policy making and strategy formulation are carried within the framework of pluralistic democracy to allow constructive debate as a basis for national consensus and effective implementation of programmes for middle income Bangladesh by 2021, upper middle income Bangladesh by 2030 and a developed Bangladesh by 2040-2050.
2
I. RECENT ECONOMIC PERFORMANCE OF BANGLADESH
1. Bangladesh lags behind other Asian middle income countries according to several economic indicators (Table 1). Bangladesh aspires to narrow the gap and achieve the status of a middle-income country by 2021. Judging by the shifting growth trends since 1970s and recent growth performance against many odds, the middle income goal set in the Perspective Plan is achievable; the longer term growth prospect of Bangladesh is even better. Borrowing from the market jargon, the author is bullish on the Bangladesh economy anticipating the country crossing the lower middle income threshold by 2021 easily moving on to achieving the upper middle income status by 2030 on way to becoming a developed country by 2040 and beyond. Having said this the paper will make it clear that the road ahead contains many challenges and constraints which Bangladesh will have to overcome.
2. In the 1970s GDP growth of Bangladesh was well below potential (Chart 1). A firm base for economic growth was established in the mid-1990s. The economy slowly emerged from the agriculture-led development to manufacturing and services sector-led growth. Average annual growth of GDP stagnated around 4% between 1973 and mid-1990s. Growth accelerated since the Fourth Plan from 4.2% in the period 1990-1995 to 6.3% in FY06-FY10. Per capita income increased from little over $100 in early 1970s to about $750 in 2010.1 Estimated figures for 2012 and 2014 are $834 and $920 respectively in 2010 prices (Chart 1). The headcount poverty rate declined from over 80% in the 1970s to 31.5% in 2010. Accelerated GDP growth with poverty reduction is attributable to good agricultural performance due to increases in land productivity, growth of industries with employment and export boom in the garment sector, service sector growth, remittances, microcredit driven non-farm income generation, trade liberalization and macroeconomic stability (fiscal balance, monetary stability and external account balance). Bangladesh moved from low-growth below poverty level equilibrium trap to reach a high growth
1Government of Bangladesh, Planning Commission. 2011. 6th Five Year Plan FY2011 - FY2015, Accelerating Growth and Reducing Poverty. Part 1. Dhaka, Bangladesh.
Table 1: Comparative Economic Indicators of Selected Asian Countries 2011
Country
Mid-Year
Population
2011
(million)
Labor force
participation
rate
Labor force
2011 (million)
Labor
productivity
2011 $
(GNI/labor)
GNI 2011
($ million)
GNI per
capita
2011 ($)
GDP
growth
(2010-
11)
GDP
per
capita
growth
(2010-
11)
Gross
saving
as % of
GDP
2011
Gross
investm
ent as %
of GDP
2012
Domestic
financing
as % of
total
investment
Bangladesh 142.3 38.1 54.2 2172 117800 827.7 6.5 5.0 18.0 23.5 76.7
Bhutan 0.7 58.6 0.4 3901 1600 2130.0 5.6 3.8 39.9 61.0 65.4
Cambodia 14.3 87.0 12.4 940 11700 820.0 7.1 5.8 14.1 17.1 82.5
China, People’s Rep. of 1340.9 74.2 994.9 6677 6643200 4940.0 9.3 8.8 50.9 48.3 105.4
India 1182.1 36.4 430.3 4105 1766200 1420.0 6.3 4.9 30.8 35.0 88.0
Indonesia 237.6 67.7 160.9 4431 712700 2940.0 6.5 5.4 36.4 32.9 110.6
Japan 127.8 58.4 74.6 76901 5739500 44900.0 -0.7 -1.0 21.7
Korea, Rep. of 49.4 61.0 30.1 34479 1039000 20870.0 3.6 2.9 31.6 29.5 107.1
Lao PDR 6.3 78.0 4.9 1445 7100 1130.0 8.0 6.5 16.3
Malaysia 28.6 63.7 18.2 13723 250000 8770.0 5.1 3.4 39.5 23.6 167.4
Mongolia 2.7 61.6 1.7 3908 6500 2310.0 17.5 15.7 37.3 62.5 59.7
Nepal 26.3 83.9 22.1 748 16500 540.0 3.9 2.1 14.5 38.3 37.9
Pakistan 173.5 45.9 79.6 2486 198000 1120.0 3.0 1.1 9.1 14.1 64.5
Philippines 92.6 64.1 59.4 3533 209700 2210.0 3.9 2.2 16.8 20.5 82.0
Sri Lanka 20.7 48.6 10.1 5348 53800.0 2580.0 8.3 7.1 15.4 29.4 52.4
Thailand 63.8 72.3 46.1 6684 308300 4440.0 0.1 -0.5 28.3 26.5 106.8
Viet Nam 86.9 74.4 64.7 1718 111100 1270.0 5.9 4.8 25.8 29.8 86.6
Source: ADB. 2013. Key Indicators 2013. Manila.
World Bank. 2013. World Development Indicators 2013. Washington D.C.
3
trajectory (Chart 1). The annual growth figures would have shown a clear exponential trend had it not been for dips induced by internal (natural calamities and political uncertainties and tension) and external factors (Asian financial crisis, global oil and food price crisis, global financial crisis and oil price increase). Nonetheless, according to the Perspective Plan Bangladesh will attain middle-income status by 2021 (Vision 2021). GDP was seen to grow annually at 8% by 2013, increasing to 10% by 2017. 2
2 Government of Bangladesh, Planning Commission. 2010. Outline Perspective Plan of Bangladesh 2010-2021: Making Vision 2021 a Reality. Dhaka. Box 1.
Chart 1: Recent Economic Performance
Source: FAO. http://faostat.fao.org/site/567/DesktopDefault.aspx?PageID=567#ancor Source: Bangladesh Bank database.
Source: Bangladesh Bank Database. Source: Bureau of Manpower, Employment and Training website:
http://www.bmet.gov.bd/BMET/stattisticalDataAction accessed 10 February 2013
Source: Bangladesh Bureau of Statistics and Budget FY2014, 6th
Five Year Plan and Perspective Plan.
Source: Government of Bangladesh, Planning Commission. 2011.
6th Five Year Plan FY2011 - FY2015, Accelerating Growth and
Reducing Poverty. Table 1.2.
4.0 3.5 3.8 3.8 4.2 5.1 5.5 6.3 6.7 6.3 6.07.2 8.0
10.0
0.02.04.06.08.0
10.012.0
Average Annual GDP Growth (%)82.9
73.8
58.750.1 52.3
43.835.2
81.466.0
42.7
27.8 35.228.4
21.3
56.6 50.1
48.940.0
31.5
0.0
20.0
40.0
60.0
80.0
100.0
FY74 FY82 FY92 FY96 FY00 FY05 FY10
Headcount Poverty Rate (%)
Rural Urban National
1513367820821008
26777904
37627500
50061200
1571620197
25661
34836
43423
0
10000
20000
30000
40000
50000
0
10000000
20000000
30000000
40000000
50000000
60000000
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Paddy Production (tonnes) and Yield
(kg/ha) 1972-2012
Paddy Production (tonnes) Paddy Yield (Kg/Ha)
1 592 3,756
15,512
7431,520
6,008
22,796
0
5000
10000
15000
20000
25000
Merchandise and RMG Exports 1979-80 to 2011-12
(US$ million)
Ready made Garments 0 0 Total exports 0 0
3.96 4.38
9.94
10.62
7.85
7.446.49 5.06
0
2
4
6
8
10
12
Inflation Rate (CPI) and Interest Spread
12-month average rate of inflation (base:1995-96)
Interest spread between deposits and advances (%)
6,087
103,814
222,686
607,798
23.71
781.541954.95
14176.91
0.00
2000.00
4000.00
6000.00
8000.00
10000.00
12000.00
14000.00
16000.00
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
Overseas Employment and Remittances 1976-2012
Total employment Remittances (million $)
4
II. GROWTH PROSPECTS OF BANGLADESH
3. The challenge is how to sustain the growth momentum beyond Vision 2021. Early 2010s have seen GDP growth sliding below that projected by Vision 2021 much of it explained by climatic hazards, political instability3 and slow recovery of the global economy. Nonetheless, prognosis for the future remains good. Bangladesh could conceivably move to a higher trajectory of accelerated growth. Bangladesh should then grow at a rapid pace avoiding the middle-income trap a la Brazil, Indonesia, Malaysia, South Africa and Thailand, and escaping the current fate of the Philippines of jobless growth (economy growing with persistent high unemployment rate4). Vision 2030 laid out for this Conference could lead Bangladesh to developed country status by the middle of the century with continued social progress (education and health). There is policy convergence on social progress across political divide.5
4. Taking a longer term perspective and balancing favorable factors against constraints there is a good case for being optimistic about the future prospect of the Bangladesh economy. Bangladesh can reach the status of a middle income country with a per capita income of $1,580 by 2021, $2,200 by 2025 in 2010 prices and move on to a higher plateau of $9,100 in 2041 and $20,000 in 2050.6 With economic policy making and strategy formulation within a pluralistic democracy that cares for people, GDP and per captia income growth of Bangladesh are expected to accelerate from current 6% and 5% respectively to steady state 10% and 9% by 2025 and beyond. Per capita income growth will be driven by declining population growth rate linked to a sharp fall in total fertility rate7. Other necessary factors include investment and saving rates which would have to increase substantially (Chart 2).8 Poverty would virtually disappear; only small frictional poverty might linger on implying that the entire population would be making contribution to growth. Foreign borrowing and overseas development assistance (ODA) would continue to play a role in filling saving-investment gap but not for long as export surplus builds up (Chart 2). The share of foreign direct investment (FDI) would grow as enabling policies take firmer route and public-private partnerships (PPP) are developed more vigorously. Bangladesh economic and employment structure would go through significant structural changes from agriculture to manufacturing and services (Chart 3). Investments in technical and vocational
3 Dr. Rizwanul Islam suggests political conflict can compromise short term growth and undermine medium term
prospect due to resulting investment uncertainty. See, “Responding to Development Challenges” in Daily Star March 15, 2014 (http://www.thedailystar.net/23rd-anniversary-2014-economy-investment-and-business/responding-to-development-challenges-15390 4 http://www.abs-cbnnews.com/business/03/17/13/jobless-growth-puzzle-haunts-ph ;
http://ph.news.yahoo.com/jobless-despite-record-growth-000500070.html; and http://www.channelnewsasia.com/news/business/philippines-jobless-rate/705640.html . According to a new study by
the World Bank as quoted in The Daily Star dated May 15, 2014, “The private sector sees political instability as the biggest obstacle for the country's business environmentP” 5 According to Dr. Rizwanul Islam, “On the social side also, there has been a degree of consistency in policies
pursued, albeit with some differences in details. And that helped the country achieve notable results in the areas of education and health.” Op.Cit. 6 The growth path envisaged is that per capita income will increase from $756 in 2010 (2010 prices) to $981 in 2015
(6.6% annual growth), $1,455 in 2020 (8.6% annual growth), $2,241 in 2025 (9.1% annual growth), $3,468 in 2030 (9.1% annual growth), $8,350 in 2040 (9.2% annual growth) and $20,022 in 2050 (9.1% annual growth). Corresponding GDP growth rates are 8.% (2010-2015), 10.5% (2015-2020), 10.5% (2020-2030), 10.5% (2030-2040) and 10.4% (2040-2050). 7 Government of the People’s Republic of Bangladesh, Ministry of Planning, Statistics Division, Bangladesh Bureau of
Statistics. 2011. Population and Housing Census 2011, Preliminary Results. Dhaka, Bangladesh; and Adopted from Carl Haub, Posted in Health, Reproductive Health. http://prbblog.org/index.php/2012/04/24/bangladesh-2011-demographic-health-survey/ accessed 5 February 2013. 8 The rate of investment will have to move from 23% in 2010 to 29% in 2015, 37% in 2020, 39% in 2030, 40% in 2040
and 36% in 2050. Domestic saving will have to be raised from 18% in 2010 to 23% in 2015, 30% in 2020, 33% in 2030, 35% in 2040 and 32% in 2050. “There is no alternative to raising the level of investment,” the country's oldest chamber said in its review of the third quarter of fiscal 2013-14.
5
education and training (TVET) would narrow supply-demand gap for skills and raise productivity. Changes in the skill mix of overseas workers could double annual average remittances from $2,000 to over $4,000 which is the level of Sri Lanka9 today. It is expected that the total cumulative overseas work force of Bangladesh would stabilize at around 25 million from the current 8 million as Bangladeshis seek employment opportunities in newly emerging countries. Alternative growth paths on current trend and with climate change and no action are in Annex A.
5. What are the sources of optimism? Demographic dividend is one. Multiple sources of growth is another. Financial inclusion (including microcredit) with stability is the anchor. The sociopolitical envelope of a functioning pluralistic democracy is the foundation for economic policy making and strategy formulation. Rising total and agricultural labor and land productivity is the main driver of growth. Rice commercialization and export is the new frontier to explore. Continued improvement of female literacy, skill and labor force participation will expand the production possibility frontier. Remittances will be a growing source of saving and investment. Export expansion will create opportunities for export-led growth as limits to growth of the domestic market are approached. One important source of optimism is the structural flexibility (amenable to change) of the Bangladesh economy and society.
9 World Bank and International Fund for Agricultural Development. 2013. Sending Money Home to Asia. Page 10.
Chart 2: Longer Term Growth Prospects of Bangladesh
Projected GDP and Population 2010-2050
Source: Author's estimate.
Projected Annual Growth rate of GDP, Population
and Per Capita Income 2010-2050
23.5%
29.3%37.0%
39.4%39.9%
36.0%
17.8%22.9%
29.6% 31.5%
35.1%
32.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0% Saving and Investment as % of GDP 2010-2050
Investment as % of GDP Saving as % of GDP
756 9811,455 2,241 3,468
8,350
20,02231.5
25.6
18.6
13.0
9.1
4.42.1
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
0
5,000
10,000
15,000
20,000
25,000
2010 2015 2020 2025 2030 2040 2050
Per Capita Income (2010 $) and Poverty Rate (%) 2010-2050
Per capita income ($) % of population in poverty
6.7
9.610.4 10.5 10.5 10.4
1.3 1.3 1.3 1.3 1.2 1.2
5.3
8.29.0 9.1 9.2 9.1
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2010-2015 2015-2020 2020-2025 2025-2030 2030-2040 2040-2050An
nu
al ra
te o
f g
row
th (%
)
GDP Population Per capita income
106 136 147 255 312 381627
1,703 1,882
4,584140 148 150 162 166 170 181
204 206229
0.00
50.00
100.00
150.00
200.00
250.00
0.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
2010 2014 2015 2021 2023 2025 2030 2040 2041 2050
GDP (2010 $ billion) Population (million)
20 36 131263
1,016 1,118
2,396
32 51 151 218591 565
1,375
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
2010 2014 2015 2021 2023 2025 2030 2040 2041 2050
Projected Exports and Imports 2010-2050 ($
billion)
Export ($ billion) Import ($ billion)
14.18 17.18 21.10 27.11 36.1246.43 54.18 61.80
74.60
93.66
118.26
7.13 8.31 9.8012.11
15.5119.16
21.4923.56
25.2626.94
0.00
5.00
10.00
15.00
20.00
25.00
30.00
0.00
50.00
100.00
150.00
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
30
20
40
20
50
Projected Cumulative Overseas Employment (million) and Remittances 2010-2050 ($
billion)
Total remittance ($ billion)
Cumulative overseas employment (million)
6
6. Bangladesh along with several other countries like India is well-placed to benefit from the demographic dividend up to 2050 and perhaps beyond due to decline in fertility rates which, combined with effective policies and markets, triggers faster rates of economic growth and human development. This is reinforced by the growth of labor productivity through skill development and technological progress especially information and communication technology
Chart 3: Projected Structural Transformation of the Bangladesh EconomyGDP Structure 2010, 2030, 2050 Labor Force Structure 2010, 2030, 2050
Source: Author's estimate.
Agriculture,
47.33
Mining , 0.18Manufacturing
, 12.34
Util i ties, 0.18
Construction ,
4.79
Transport ,
7.37
Trade, 15.47
Finance &
services , 1.84
Health,
education &
administration,
4.24
Community
and
personal,
6.26
2010
Agriculture,
41.16
Mining , 0.09Manufacturing
, 21.14
Util ities, 0.09
Construction ,
7.64
Transport ,
8.73
Trade,
14.47
Finance &
services , 2.80
Health,
education &
administration
, 1.05
Community
and personal,
2.83
2030
Agriculture,
28.40
Mining , 0.08
Manufacturing
, 32.79Util ities, 0.08
Construction ,
6.73
Transport ,
7.93
Trade, 12.52
Finance &
services , 1.85
Health,
education &
administration,
1.05
Community
and personal,
8.58
2050
Agriculture,
18.59
Mining , 1.21
Manufacturing
, 17.89
Util ities, 1.07
Construction ,
8.29
Transport ,
10.7
Trade, 15.74
Finance &
services , 8.63
Health,
education &
administration
, 7.72
Community
and personal,
10.16
2010
Agriculture,
13.5
Mining , 1.4
Manufacturing
, 20
Util ities, 2.5
Construction ,
8.3Transport , 12
Trade, 16.2
Finance &
services , 8.81
Health,
education &
administration
, 7.92
Community
and personal,
9.95
2030
Agriculture, 8
Mining , 1.5
Manufacturing
, 27
Util ities, 3.5
Construction ,
8
Transport ,
12.5
Trade, 16.2
Finance &
services , 9.01
Health,
education &
administration
, 8.12
Community
and personal,
6.17
2050
7
(ICT) driven move towards a knowledge economy.10 The link between population growth, demographic dividend, education and productivity enhancing skill development on the one hand and accelerated economic growth on the other over next few decades is well articulated by Professor Wahiduddin Mahmud in his recent Public Lecture on education at the BRAC University, Dhaka, “As Bangladesh is poised to benefit from a “demographic dividend” in terms of a youth bulge, the challenge for the education systems is to leverage the advantage of rapid growth in the labour force. This youth bulge, combined with the successful campaigns for universal primary education, is leading to huge increases in the supply of semi-educated labour. There is enormous potential for utilising this workforce productively by expanding post-primary education and training on the one hand, and by creating commensurate employment opportunities on the other hand.” He added that without the switch from replication to innovation in terms of productivity increase and skill development, the next level of growth is not possible.
7. Dr. Sadiq Ahmed in his contribution to this Conference has focused on sources of growth. Suffice it to say that while moving away from agriculture 2001-2010 has been the decade of light industries like garment, 2010-2020 will see the rise of other light industries like leather along with heavy industries like shipbuilding, engineering and construction (already evident) and services including ICT. During the 2020-2030 decade engagement in these sectors would be deepened and new frontiers opened in electronics and commercial agriculture. New sectors will also emerge from Bangladesh’s integration into the global and regional value chains. Beyond 2030 Bangladesh is expected to enter the big league with a push for knowledge economy with preeminence of technology and ICT inputs in all sectors including social services. Bangladesh will have to meet the quality aspirations of the expanding domestic market of middle income and upper middle income consumers as well as respond to the diversified demands of the export market which will be a principal source of growth. This way Bangladesh will be able to consolidate its position in global and regional value chains.
8. Financial inclusion (including microcredit) with stability has opened a new frontier for inclusive growth. In recent series of speeches11 in Washington Bangladesh Bank Governor Dr. Atiur Rahman commented on financial inclusion, stability and sustainability. “BB’s inclusive, growth sustainability supportive monetary policy approach is serving Bangladesh economy well in upholding growth and stability, as evidenced in decades of steady growth performance and macro financial stability amid domestic shocks and external turbulences, including the last global financial crisis and the subsequent global growth slowdown. PMandatory environmental risk assessment routines in loan appraisal processes take account of sustainability concerns; promotion of SME and green financing is supported by low cost refinance lines within monetary and credit growth envelops of price and macroeconomic stability focused annual monetary programs. P Inclusive financing is bolstering financial stability by widening and diversifying the asset and deposit bases of lending institutions, reducing their credit and liquidity risk exposures. Inclusive financing shielded small farms and businesses in Bangladesh from any credit crunch in the last global financial crisis; when rather than needing any support or bailout for itself, the
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There are two dividends: The principal dividend is collected from declining fertility and dependency ratio raising labor force growth above population causing increased investment in production and productivity thereby contributing to rapid per capita income growth. This can last several decades during which the wage earning population accumulates assets for future old age retirement that is likely to be prolonged due to increasing life expectancy and these assets will raise national income as a second dividend. See, Khan A. Matin. 2012. The Demographic Dividend
In Bangladesh: An Illustrative Study. Paper prepared for presentation at the 18th Biennial Conference of the
Bangladesh Economic Association to be held on 12-14 July, 2012 at Dhaka. http://bea-bd.org/site/images/pdf/40.pdf. 11
Highlights of BB Governor Dr. Atiur Rahman’s visit to USA attending a series of Meetings at UNEP’s 1st Advisory Council, 6th Annual G-24/AFI Policymakers’ Roundtable and Fund-Bank Annual Spring Meetings (April 9-13, 2014) circulated by the Bangladesh Bank (refer to the Bank website http://www.bangladesh-bank.org/openpdf.php or contact A.F.M. Asaduzzaman at [email protected] / [email protected]).
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financial sector in Bangladesh was able to help out export manufacturing and other sectors affected by the global crisis.” Continuation of the policy of financial inclusion with financial stability and sustainability will underpin the optimistic growth prospects described above. Microfinance institutions (MFIs) are playing an important role in broadening the base of inclusive financing auguring well for future growth and equity. This is being achieved within a prudential financial environment. Beyond 2030, one expects graduation of many MFIs into fully-fledged financial institutions well integrated into the broader financial system. Dr. Atiur Rahman has laid out a vision for financial sector led inclusive growth in his paper at this Conference.
9. Bangladesh’s commitment to pluralistic democracy provides a strong source of optimism for the future. Since its birth, Bangladesh has witnessed democratic institutions passing through testing times but the spirit of democracy and values carried with it triumphed at the end. Nonetheless, the subversive attacks on the economy, people and body politics of Bangladesh by foreign as well domestic elements continue. The latter is our own demon within us with which we have to come to terms with as the struggle for supremacy continues. The safety valve is democracy which will allow all voices to be raised in reasoned arguments and the democratic rules and norms shall determine which views to prevail for what length. Even then the threat against democracy and sovereignty will be present a shade beneath the surface. The nation as a whole will have to remain vigilant if the vision of inclusive and sustainable growth were to materialize. Bangladesh a basket case of the 1970s is one story. The new Bangladesh close to becoming an emergent tiger, food self-sufficient and even a rice exporter is another story. However, Bangladesh is not about storytelling, it is a living experiment in harnessing limited resources to feed and clothe many, meeting the challenges of frequent natural disasters and bold social innovations which have been role models for many around the world. It is an argumentative society debating each topic to the bone and creating conflicts (sometimes) over nothing. It is a polarized society where emotions run high over closely held beliefs and prejudices. It is a person and interest group-centric society giving rise to multiple sources of power that characterize pluralistic democracy. Non-democratic forces have from time to time usurped power from these sources but at the end democracy won the day. Both leaders and people have wavered at times about commitment to democratic values but good sense has
carried the nation through turbulent phases. There is no reason why total commitment to democratic values should not serve us well in the future as Bangladesh strives to become a developed country by way of the middle income status by 2021. The history is on our side. Khalid Shams talks about a structured regulatory environment for the pluralistic democracy to work for future socioeconomic development of Bangladesh.
10. Labor productivity has been rising though Bangladesh ranks low in comparison with other Asian countries like India, China, Sri Lanka, Indonesia and Vietnam (Charts 4 and 5). Average labor productivity nearly doubled between 1974 and 2010, agricultural
Source: Adopted from Ahmed, Sadiq, Op.Cit.
Source: Adopted from Ahmed, Sadiq. 2012. Employment, Productivity, Real Wages and
Labor Markets in Bangladesh. Policy Research Institute, Dhaka.
38499
39524
40382
40160
39919
40745
41805
47794
49597
53522
63918
69527
0
10000
20000
30000
40000
50000
60000
70000
80000
1974 1981 1984 1985 1986 1989 1991 1996 2000 2003 2006 2010
Chart 4: Average labor productivity (000'Takas 1995-96 prices)
Average labor productivity (000'Takas 1995-96 prices)
3722
7445
10378
14916
5676
10671
2880
02000400060008000
10000120001400016000
Chart 5: GDP Per Person Employed 2008 (constant 1990 PPP $)
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labor productivity increased by a quarter between 2002-2013 and 2009-2010 from Taka 23,412 in 1995-96 prices in 2002-2003 to Taka 29,185 in 2009-2010.12. Land productivity as measured by paddy yield per hectare increased almost three fold between 1972 and 2010 (Chart 1). This will be the most important source of growth in the future. Dr. Mahabub Hossain has elaborated on agricultural and rural development policy that will support the rising productivity trend.
11. Professor Salim Rashid maintains that rice economy holds great prospect for Bangladesh as a source of inclusive growth, poverty reduction and export expansion. This is predicated on rice commercialization, technology development and adoption, emphasis on hybrid variety, productivity growth, diversification of diet and export promotion policies. Food insecurity is off the plate. Food self-sufficiency is no longer a matter of choice; it is a logical outcome of progressive development of the rice economy. Bangladesh would be producing rice competitively and be an important player in the work rice market. One missing element that has to be kept in the forefront is necessary adaptation to climate change given vulnerability of Bangladesh agriculture. His paper at this conference is an eye opener.
12. Bangladesh has been rightly lauded for progress on female literacy and labor force participation (garments) and the emergence of female entrepreneur class thanks to microcredit. This socioeconomic revolution will continue in the future making significant contribution to productivity growth from formal sector participation as opposed to informal unpaid family labor and thereby to overall growth, equity and poverty reduction.
13. The promises of future overseas employment and remittances and export expansion are clearly laid out in Chart 2. Dr. Zaidi Sattar tells us the story of export-led growth showing the course of Bangladesh’s transformation from an import dependent slow growing economy to an export surplus rapidly growing economy. The contribution of overseas employment and remittances to future growth will come largely from the transformation of labor quality and productivity.
14. The greatest source of comfort is that Bangladesh has gone through substantial structural transformation over past forty years without much tension. A kind of structural flexibility is now built in to the body economy and society which will enable it to absorb the further necessary structural transformation that lays ahead (Chart 3). Bangladesh is traditional in look but modern, dynamic and open in spirit. The rural-urban, agricultural-non-agricultural and technological and societal transformation and the quantum shift in saving, investment and FDI performance as well as labor intensity of industries13 anticipated in the next several decades is almost unprecedented in history. Herein lays the secret of the evolving developed Bangladesh by mid-century.
III. CONSTRAINTS TO GROWTH
15. The long term growth prospects of Bangladesh are defined on a feasibility space delineated by binding constrains. These constraints have been identified by a rapid diagnostic study consisting of macroeconomic analysis and subsector analysis of the financial sector, markets, infrastructure (especially transport and energy), trade, regional cooperation, agriculture and rural development, education, skill, governance, land, climate change and policies and
12
Author’s estimate based on national income and labor force survey data of the Bangladesh Bureau of Statistics. 13
Dr. Rizwanul Islam makes a strong case for raising investment especially private invest and FDI to narrow gap with China, India and Vietnam which indeed is challenging.. Op.Cit. However, with this gap narrowing Bangladesh should
be able to achieve the necessary “ P structural transformation from agriculture to industry and eventually to services” as Dr. Rizwanul Islam suggests. This will also imply that after taking advantage of high labor intensity Bangladesh will be moving towards relatively more capital intensive activities.
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institutions. The ex-post growth path will be given by the policies, strategies and institutions put in place by the leadership of Bangladesh and their acceptability across political divides.
16. The Seventh Five Year Plan strategies need to put Bangladesh back on the higher growth trajectory to attain middle-income status by 2021 and surge beyond to developed country income level by 2040. There are two immediate challenges to overcome, the so called middle-income trap14 and jobless growth15. The latter is an emerging phenomenon faced by countries like the Philippines, high growth rate accompanied by sustained high rate of unemployment.
Middle income trap
17. The middle income trap is characterized by a country having reached certain level of income (between $1,000 and $12,000) tend to stay there for two reasons. First, with rising real wages, low investment ratios, slow manufacturing growth, limited industrial diversification and poor labor market conditions it loses competitiveness to other cheap labor sources. Second, it is unable to compete with other advanced countries that have introduced high skill innovations and structural changes, undertaken policy and institutional reforms and followed an open trade regime. Per capita income of middle income countries plateaus and eventually stagnates.16
Jobless growth
18. Countries recovering from recession and those experiencing secular growth from low income level face jobless growth. Recovery from recession involves cyclical and structural adjustments. Job losses associated with cyclical shocks are temporary until industry rebounds and starts hiring. However, joblessness can last longer if the number of workers thrown out of job is large and industry recovery is not sufficient to absorb all or absorb only slowly. Structural adjustments are different. The latter causes job losses, industry declines, employment shift from one industry to another and may also usher in a phase of productivity growth through automation and technological progress. New industries rise but with slower rate of employment creation. Job creation in new and revived industries occurs with a time lag the length of the lag depends among others on industry capacity to manage risks associated with creation (establishing and filling) of new jobs/positions. The result is growth but employment fails to catch up rapidly. This is developed country syndrome which may not affect Bangladesh by 2030. The situation Bangladesh is likely to face on its way to prosperity is that of the Philippines, record growth with little or no employment growth. There are several reasons for that. First, productivity growth induced by new technology seems to have reduced employment growth. Second, worker/employment shift from low productivity (e.g., rural/agriculture) to high productivity sector (urban/industry and services) pushed by rural-urban migration is having the same impact on
14
Kharas, Homi and Harinder Kohli. 2011. What Is the Middle Income Trap, Why do Countries Fall into It, and How Can It Be Avoided? Global Journal of Emerging Market Economies September 2011 vol. 3 no. 3 281-289; Kharas, Homi. Undated. CHINA’S TRANSITION TO A HIGH INCOME ECONOMY: Escaping the Middle Income Trap. Wolfensohn Center for Development , The Brookings Institution. 15 http://www.investopedia.com/articles/economics/10/jobless-growth-economy.asp.
16 See, http://en.wikipedia.org/wiki/Middle_Income_Trap; http://thailand-business-news.com/economics/35439-is-
thailand-caught-in-the-middle-income-trap; http://www.eastasiaforum.org/2011/12/18/thailand-a-nation-caught-in-the-middle-income-trap/; http://malaysiasdilemma.wordpress.com/2011/08/15/the-myth-of-malaysia%e2%80%99s-middle-income-trap/;
http://article.wn.com/view/2012/03/27/Indonesia_Risks_Falling_Into_The_MiddleIncome_Trap/; http://www.freerepublic.com/focus/f-news/2852152/posts; http://www.mb.com.ph/articles/320428/philippines-faces-middleincome-trap; http://story.russiaherald.com/index.php/ct/9/cid/723971d98160d438/id/203962279; http://www.americasquarterly.org/print/2142; Kharas, Homi and Harinder Kohli. Op.Cit. and Kharas, Homi. Undated. CHINA’S TRANSITION TO A HIGH INCOME ECONOMY. Op.Cit.
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growth of total employment. Third, shift in skill mix of industry demand for labor has affected overall employment growth as many are marginalized and out of a job. Fourth, secular growth has not been rapid enough nor has recent high growth been sustained over long enough periods yet to absorb the backlog of un- and underemployed as well as new entrants to the labor force. Fifth, to increase profit, industries are going for new management with leaner business organization. The result is lower number of workers per unit of investment than before.17 It is likely that as a growing economy Bangladesh might face this predicament unless countervailing measures are taken.
19. The longer term growth strategy of Bangladesh has to be such as to avoid both middle-income trap as well as jobless growth. This is what the Forum will be focusing on through various contributions. The situation can be stylized in Figure 1.
Figure 1: Middle Income Trap and Jobless Growth
Unemployment (%) Per capita income ($)
Upper middle income
Steep decline in unemployment
Middle income trap
(Income not rising beyond a level)
Jobless growth
Middle income
Slow decline in unemployment
Steady decline in unemployment
A B Growth (%)
20. Beyond the Middle Income Trap and jobless growth which represent structural limitations to growth, Bangladesh will have to deal with a number of other constraints to longer term sustainable growth. Connectivity (roads and ports), energy and skills are among the most binding constraints in Bangladesh.18 Other constraints are governance (lacking strength,
17
http://en.wikipedia.org/wiki/Jobless_recovery; http://www.newyorkfed.org/research/current_issues/ci9-8.pdf; http://newsinfo.inquirer.net/426165/the-whys-and-way-out-of-jobless-growth; http://www.investopedia.com/articles/economics/10/jobless-growth-economy.asp. 18
See, Asian Development Bank. 2011. Bangladesh Country Partnership Strategy 2011-2015. Manila. According to the Strategy document, “Serious constraints in power, gas, ports, railways, and roads restrict investment including FDI inflows.” (paragraph 5). The strategy continues with “The country faces a worsening shortage of technical and
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transparency and accountability and struggling to deal with serious consequences of corruption), finance (inadequacy especially poor performance of FDI), policies and institutions (inadequacies and lack of continuity), basic education (inadequate preparation for participation in a tech savvy, multilingual, multi-skilled and multi-tasked world), regional cooperation (lack of), vulnerability to climate change and natural disaster, land (quality and quantity) and size, structure and functioning of the domestic market.19 The list and order is presented in Table 2.20
Table 2: Binding constraints and strategies to overcome
Binding constraints Strategies for overcoming constraints
Transport infrastructure: A network of relatively poor quality and poorly managed facilities due to lack of resources for construction and operation and maintenance (O & M), roads and ports are congested, quality of service is poor and capacity expansion inadequate to carry the load of a rapidly growing economy, incomplete domestic and regional connectivity and no attention to establishing multimodal economic corridors, emphasis on roads to the neglect of rail and waterways, the lack of trade orientation of the transport network, and gaps in Road Master Plan to meet transport demand by 2030
Up to 2030: Enforcing an infrastructure policy with emphasis on transport connectivity, multimodal economic corridors balanced among different modes (road, rail and inland waterways) and deep sea ports backing it up with larger investments; and mobilizing resources through Public-private partnership (PPP) for greater use of ICT in transport management.
Beyond 2030: Continuation of the above strategy with added emphasis on elevated expressways, increased number of lanes, high speed electric railway, high speed inland and coastal waterways transport, mass transport, logistics development, application of ICT for transport management, air transport much of it outsourced to the private sector for investment and operation and maintenance (O & M) fully equipped to handle cross border and transit traffic (long and short distance).
Energy: Supply is unreliable and lags behind demand; per capita consumption is one of the lowest in the world; wholesale wastage of energy because of poor energy efficiency awareness (policy, technological choices, and policy support); micro-grid and off-grid options are expensive as isolated markets are controlled by few suppliers; energy wastage is significant in public facilities (public lighting and building); uncontrolled demand growth driven by growing use of individual air-conditioning units without proper insulation and
Up to 2030: Implementing an energy policy for larger investments in gas exploration and clean coal based energy, renewable energy as well as energy efficiency ensuring a minimum of 30,000-40,000 MW by 2030; policies for efficient use of current investment and resources with improved load factor; establish national energy efficiency and conservation agenda to reduce peak demand by at least 1000 MW by 2020; promoting Independent Power Production (IPP) with an eye on cost implications; establish micro-grids with newer storage options and efficient lighting and other appliance; liberalizing tariff with necessary regulation; reducing technical and revenue loss; supporting the development of regional power grid facilitating energy exports and imports as feasible; narrowing the gap between supply and demand and between installed capacity and maximum generation; improving management efficiency, plants, O & M and the distribution network; promoting PPP; and rationalizing allocation of gas for electricity generation and
managerial personnel, leaving the skills base insufficient to support economic diversification and global competitiveness.” Paragraph 6. 19
The listing and ranking are based on literature review, perception developed from field visits and discussion with stakeholders and the business community. 20
Other authors have done constraint analysis. On the basis of a growth diagnostics analysis Rahman Jyoti and Asif Yusuf identifies “Pfactors that act as breaks on a further sustained rise in economic growth: low levels of human capital; poor infrastructure; market failures specific to individual sectors; low levels of trade; corruption; and cumbersome regulations.” See, Rahman Jyoti and Asif Yusuf. Economic growth in Bangladesh: experience and policy priorities. Internet website not identified. Policies recommended by the authors to overcome constraints are unsurprisingly “Ptackling infrastructure bottlenecks; open new export markets, maintain existing ones, and resist protectionism; and reducing regulatory and bureaucratic burden on the private enterprises.”
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building policy that contributes to higher cost; over reliance on gas; coal policy is wanting; renewable energy is nascent and energy conservation is almost a foreign concept; and the power expansion program of the Energy Master Plan will not be able to meet the energy demand of an upper middle income Bangladesh by 2030
competing uses; supporting gender-based program for renewable energy development; and mobilizing resources through Public-private partnership (PPP) for greater use of ICT in transport management. .
Beyond 2030: Keeping primary emphasis on clean coal energy, renewable energy, energy import from the regional energy grid and energy conservation and making full use of the latest technological advancement; increasing the share of PPP and the private sector in total energy supply; and continued use of ICT for energy management.
Skill: Annual addition of 2 million plus labor is difficult to absorb in the absence of appropriate training and skill development; low skill pervades the entire labor force causing low productivity; training and skill development facilities are inadequate and poorly equipped; competency based training is missing; and skill mix of overseas workers is unfavorable to raising average earnings/remittances to the level of other Asian countries like India, Pakistan and Sri Lanka
Up to 2030: Articulating a skill development policy and strategy in response to structural changes in the economy and global opportunities abroad; following up the policy and strategy with larger investments in skill development; synchronizing skill development with the exploitation of the demographic dividend on the one hand and growth and structural change based on productivity growth on the other; reorienting skill development towards export-led growth which is critical for Bangladesh to work its way out of the impending middle income trap and jobless growth; transforming the skill mix and productivity of overseas employment to achieve greater employment openings and higher return in terms of average remittances; developing specific policies and incentives to attract non-resident Bangladeshis to actively engage in skills transfer and investment in Bangladesh; increasing public investments and mobilizing private resources including PPP for the development of ICT and related skills; and making additional investments in female literacy, greater participation of women in skill development programs, increased female labor force participation in formal sector employment and creating greater opportunities for women in business.
Beyond 2030: Continuation of the above strategy with added emphasis on reducing supply-demand mismatch and unemployment and under-employment at all levels and among all groups; adapting skill composition to changes in technology; ensuring that training and skill development is mostly private sector based as skill development develops and matures as a market based activity; facilitating selected import of skilled labor to fill gaps; and continuing manpower exports for overseas employment; and making the development of ICT and related skills an integral part of strategies for longer term skill development.
Governance: Lacking strength, competency, effectiveness, transparency and accountability and struggling with the serious consequences of corruption
Up to 2030: Initiating governance reform for decentralization and improvement of effectiveness through administrative reform as a continuing and gradual process based on both objective need and subjective public demand, productivity, transparency and accountability and reduction of corruption and abuse of power and enforcing the rule of law; encouraging female participation and representation in legislative bodies, judiciary and administration and all policy making bodies; strengthening Anti-Corruption Commission along with expediting the judicial process; and allocating resources for the development and application of e-governance.
Beyond 2030: Continuation of the strategy of decentralization and enforcement of the rule of law with complete transparency and accountability within the framework of pluralistic democracy and further emphasis on e-governance.
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Finance: Domestic resource mobilization inadequate to meet financing needs of a growing economy; financial governance is weak; sub-optimal resource allocation; Foreign Direct Investment (FDI) is anemic; the financial sector is fragmented; and inadequate synergy between monetary and fiscal policy
Up to 2030: Improving financial governance and access to finance especially for SMEs; providing incentives for FDI especially tax incentives for non-resident Bangladeshi (NRB) investments; making microfinance financially competitive and adherent to prudential norms as directed by the Microfinance Regulatory Authority (MRA) and the BB; and pursuing financial inclusion and stability a la BB Governor Atiur Rahman’s dictum for inclusive sustainable green growth and policy shift towards instilling in the financial sector the ethos of socially responsible financing focused towards supporting environmentally sustainable output activities and away from financing of speculative profit seeking or wasteful ostentation. Mobilization of public and private resources including PPP for e-finance will improve the delivery of e-finance.
Beyond 2030: Continuation of the above strategy with ten pillars: (i) financial market integration, (ii) microfinance for the extreme vulnerable groups, (iii) meso-finance for graduate clients of the microfinance including SMEs, (iv) capital market development with built in regulation and stabilizers, (v) greater harmony between fiscal and monetary policy, (vi) complete independence of the Bangladesh Bank in the conduct of monetary policy, (vii) capital account convertibility with oversight on satisfaction of pre-conditions, (viii) continuous strengthening of the banking supervision capacity of the Bangladesh Bank as all financial institutions are brought under its direct supervision and control, (ix) privatization of all state owned banks except one for payment purposes; (x) eliminating political patronage; and (xi) continuing investments in e-finance.
Policies and institutions: Major problem is policy inadequacies; lack of continuity of policies; bias towards interest groups; institutions are weak unable to deliver minimum agenda, services, regulation, facilitation and protection; the lack of flexibility in both policies and institutions; and poor implementation
Up to 2030: Ensuring policy continuity and effectiveness of regulatory bodies; eliminating redundant regulations; eliminating regulations restrictive to registration and growth of SMEs; enforcing regulations which are basic for development based on rule of law and public accountability, without any political bias; filling the vacuum where new regulations and enforcement mechanisms are urgently required i.e. land use regulations, building codes, primary education and environmental protection; introducing effective polices to curb corruption at all levels; and ensuring effective implementation of existing policies including 2009 ICT policy with necessary amendments that will serve the cause of inclusive growth much more than new laws and regulations that are unlikely to be implemented seriously.
Beyond 2030: Continuation of the above with emphasis on strengthening all institutions involved in policy making and implementation of policies as the making of good policies, timely policies or readjustment or correction, amendments or extension of policies, and policy implementation are very important in the economic context of a country like Bangladesh; strengthening the policy making capacity of the legislature and key ministries of the government as well as the Bangladesh Bank; taking stock of the state of implementation of existing policies and the effectiveness of key institutions as of 2030; following it up with strengthening of Banking Policy, Monetary Policy, fiscal policy, Investment Policy, Privatization Policy, Trade Policy, Education Policy, Skill Development Policy, Labor Law, Agriculture Policy, Food Policy, Population Policy, Industrial Policy, Transport Policy, Transit Policy, Energy Policy, Renewable Energy Policy, commercial (import and
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export) policy, tariff policy, tax policy and laws, subsidy policies, Procurement Policy, Company Law, Foreclosure Law, Law of Contract, Land Policy, Land Law, Water Policy, Water Law, Forest Policy, Fisheries Policy and Environment, ICT Policy and Climate Change Policy.
Basic education: Inadequate preparation for participation in a tech savvy, multilingual, multi-skilled and multi-tasked world; poor quality; high system leakage; public-private divergence; poor equalizing influence, on the contrary inequity is entrenched; and the study of culture, religion (all religions) and history not properly balanced with general and technical curriculum; classroom educational techniques not effective nor attractive and enjoyable with only limited use of ICT and little room for original thinking
Up to 2030: Promoting skill development anchored in a drive for universal English and computer literacy from an early stage of schooling and competency in at least one additional foreign language and skill for all higher secondary certificate (HSC) graduates; harnessing mathematical skills; helping students from an early stage to overcome the so called fear of math; Taking steps to contextualize and operationalize the thrust for education for all; tackling the two challenges of basic education that is meaningful quality and system dropouts through six strategic actions: (i) teacher quality, (ii) curriculum, (iii) teaching materials and physical facilities, and (iv) educational support both at school and at home for those vulnerable to falling through cracks; (v) developing open school platforms (TV, net, mobile applications) with specific ICT support. (Like India did in some areas, distribute $20 Tablet PC to all HSC students for about only $50 million); and (vi) developing vocational experts: programmers, gardeners, welders, cooks and drivers (for export as migrant workers.
Beyond 2030: Continuation of the above policy and strategy with educational flexibility, namely, (i) allowing people to change courses at any point in time, (ii) allowing people to enter the educational system at any level at any time on the basis of proficiency tests, (iii) introducing international best practices and content into the basic education system as much as practicable to make students at par with those in other countries, (iv) making basic education increasingly ICT based which is more than just knowing how to use the computer, (v) introducing additional emphasis on language proficiency, (vi) orienting basic education to build the base for the development of high level scientific skills in which Bangladesh has been lagging behind, (vii) putting greater emphasis on the development of original thinking and management of day to day problems and issues, and (viii) making the educational system in tune with environmental and climate change issues.
Regional cooperation: More talk than action; regional and Subregional institutions are weak; little linkage with non-regional bodies; infrastructure, policies and institutions are not yet in place to promote and support regional economic cooperation and integration; progress limited by lack of vision and mutual mistrust; and apathy of large countries towards smaller neighbors
Up to 2030: Strengthening Subregional cooperation in South Asia especially South Asia Subregional Economic Cooperation (SASEC); increasing investments in connectivity infrastructures and border facilities; adopting facilitation measures; opening up physical connectivity and cooperation with the Association of Southeast Asian Nations (ASEAN) and the Greater Mekong Subregion (GMS) countries; and laying the foundation for internet connectivity and making it operational.
Beyond 2030: Continuation of the above and Bangladesh along with partner countries striving for regional (SARC), Subregional (SASEC, BIMSTEC, and BCIM) and interregional (with GMS, ASEAN, CAREC and Northeast Asia – China, Japan and South Korea) economic and eventual monetary integration making use of the full range of internet connectivity and service delivery..
Climate change: Vulnerability to climate change and natural disaster as well as degradation of the
Up to 2030: Implementing climate change adaptation and mitigation measures; treating climate change adaptation policy as an integral part of the development policy matrix and not just an addendum;
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environment from combined population, urbanization and GDP pressure; inadequate policies and institutions to deal with challenges of climate change; and low or no investments in climate change mitigation and adaptation
improving water resource management; promoting sustainable agriculture; and climate proofing development plans, annual budgets, medium term expenditure framework (MTEF) and local development programs; making use of ICT for environmental preservation, climate change mitigation and adaptation and disaster management.
Beyond 2030: With climate change impact being more evident, intensifying the implementation of the above strategy with a particular emphasis on the management of change including possible large scale population migration and in this effort making ICT a foundation tool for change management.
Land: Resources are on the decline both quality and quantity wise; declining trend in the availability of arable land; land productivity under threat; land use intensity, degradation, and poor management are undermining sustainability; inadequate investment in land conservation, reclamation and development; lack of cadastral survey; backlog of land titling and registration; inadequate protection of tenants; and land speculation distorting resource allocation and reducing growth potential
Up to 2030: Considering the prospect of a highly urbanized Bangladesh by 2030, formulating a forward looking urban development strategy around sound spatial planning, land zoning and mass transit; pursuing an urbanization policy for improved management of the accelerated urbanization process already under way in a somewhat chaotic manner; increasing investment in research, training and technological innovation including integrated farm practices for increasing rice and diversified food production; increasing investment in land rehabilitation, development and protection; increasing budget allocation for development; implementing legislation enacted for ownership and tenurial rights; proceeding cautiously with digitization of land records in Bangladesh. On new institution, set up a very strong ‘urban and regional development authority’ (proposed by Khalid Shams.
Beyond 2030: Continuation of the above strategy and elaboration of a revised Land Policy backed up by a revised Land Law aimed at promoting land saving and efficient land use and a more aggressive push to digitization of land records and transfer.
Size, structure and functioning of the domestic market: Small size of the domestic market; fragmented market; lack of infrastructure for smooth market operation; monopolistic and monopsonistic market control by few; barriers to competition; barriers to entry; the lack of finance; lack of application of modern technology especially ICT, and the lack of policy continuity
Up to 2030: Removing barriers to entry; eliminating cost of intermediation; reducing transaction costs by improving regulation, infrastructure (transport, storage and processing), and ICT; eliminating information asymmetry; stimulating demand and supply in response to income and price changes and technological progress, regional and international cooperation and climate change; formulating pricing policy with the objective of avoiding prolonged excess supply or demand and achieving other social and economic objectives; formulating policies and strategies to eliminate market fragmentation; implementing export promotion policies in line with comparative and competitive advantage; developing market institutions and pricing instruments to promote quality, cope with seasonality and changing food habit; and rationalizing the functioning of the produce, input, land, labor, capital and entrepreneur market
Beyond 2030: Continuation of the above policy and strategy with a view to achieving complete market integration and liberalization with full application of ICT .
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Transport
21. Infrastructure development in Bangladesh is dominated by the public sector. It accounts for almost all of road and railways transport and a sizeable part of inland waterways and deep sea cargo shipping. Without increased private sector participation in financing transport constraint will remain in play. The country will have difficulty in reaching the norm implicit in Table 3. The current transportation network of national and regional highways, Zila roads and rural road is impressive (Table 4) though there are issues related to quality and operational efficiency, maintenance and lack of intermodal interface and
connectivity. The road network dominates accounting for the bulk of passenger and cargo traffic while lower cost rail and inland water alternatives lag far behind. In terms of total road
density (kilometers of road per thousand square kilometers of land area) Bangladesh compares favorably with selected Asian countries but not so when it comes to paved roads (kilometers of paved road per thousand square network. kilometers of land area) (Table 5).
22. Long-term planning has been missing from road development though strategy and policy guidance comes from the National Land Transport Policy (NLTP) 2004, Integrated Multi-modal Transport Study ((IMMTP) 2004 and Bangladesh Road Master Plan Study 2009 (for 20 years) and the Rural Road Master Plan. Maintenance is an issue causing road deterioration. Most of the network is in poor state, seasonal in nature, easily flooded and washed away. Key issues/constraints are maintenance, overloading, congestion/traffic management, safety and bridges. As Bangladesh moves up the income ladder, transport development should be multimodal as opposed to current focus on single mode single segment that leads to waste and
Table 3: Investment and Maintenance as %
of GDP (average 2005-2015)as % of GDP (average 2005–2015)
Country group Investment Maintenance Total
Low income 4.2 3.3 7.5
Lower-middle
income3.8 2.5 6.3
Upper-middle
income1.7 1.4 3.1
Total
developing3.2 2.3 5.5
Source: Courtesy of Tito Yepes, based on Fay and
Yepes (2003) as cited in Estache, Antonio and
Marianne Fay.2009. Current Debates on Infrastructure
Policy. Commission on Growth and Development,
Working Paper No. 49. The World Bank. Washington
Table 5: Paved Road Density for Asia
Source: Asian Development Bank. 2012. Key
Indicators for Asia and the Pacific 2012. Manila.
1990 Latest year1990 or
reference
Latest
yearPakistan 219.5 335.1 143.6 PChina, People’s Rep. of ... 413.9 P 221.4Korea, Rep. of 574.4 1081.2 410.7 857.4Bangladesh 1444.3 1837.8 104 174.6India 672.7 1382.2 318.2 684.2Sri Lanka 1483 1551.4 474.6 1256.6Brunei Darussalam ... 564 P 457.4Cambodia 202.8 216.7 15.2 13.7Indonesia 159.4 262.9 71.9 149.6Lao PDR ... 171.4 P 23.5Malaysia ... 300.5 P 248.8Myanmar 38.3 41.3 4.2 4.9Philippines 538.5 670.9 89.4 66.4Thailand 141.3 352.4 78.1 347.1Viet Nam 295.2 516.3 69.4 245.8
Country
Road density Paved Road density
(kilometers of road
per thousand square
kilometers of land
area)
(kilometers of paved
road per thousand
square kilometers of
land area)
Table 4: Road and Railway Network of
Bangladesh (kilometers) of Bangladesh (Kilometers)
Categories Total PavedPaved as
% of total
Roads and Highway Department
National 3492 3445 99
Regional 4268 4105 96
Zila 13280 10659 80
Total 21040 18209 87
Rural roads 289334
Railways Broad
gauge
Meter
gaugeTotal
2010-11 659 1757 2416
Source: 6th Plan, Part 2, Tables 4.3 and 4.6 for
roads. Government of Bangladesh, Bureau of
Statistics. 2012. Statistical Yearbook of
Bangladesh - 2011. Dhaka for railways.
18
low economic return to investment. Transport planners have not focused enough on a single Bangladesh-wide integrated framework for multimodal transport/economic corridor network development comprising roads, railways, water ways, sea routes, ports, airways, river ferries, border points and land ports and transport hubs/interchanges that is strategic, economically justified, enhances connectivity and competitiveness and is environmentally sustainable. The current state and the proposed 6th Plan is essentially fragmented development which one should review and realign. The concept of economic corridor has gone missing.
Energy
23. Bangladesh has one of the lowest energy consumption per capita in the world (Charts 6 and 7). Energy use efficiency is declining (Table 6). The gap between installed and maximum generating capacity is widening due to management inefficiency and poor maintenance of capacity (Chart 8). Maximum generating capacity gap between supply and demand is about 89% given that Bangladesh is on the threshold of lower middle income country. Power generation cost varies widely depending on the fuel used. Given limited supply of hydro the fuel of choice is gas (68% of power generated in 2012-2013) but its supply is limited and shrinking with no new
exploration coming up with any probable reserve. Institutionally, the Power Development Board generation is least cost supplier of power. Purchase from rental is three times the amount (Chart 8). Government has been forced to adopt ad hoc measures to augment power supply with options which were not necessarily least cost. Nonetheless from the supply hyatus of the early 2000s, power supply increased over past decade though unit cost was relatively high. There has also been problem with power sector management. The sector has been absorbing large subsidies, many public sector user units have not been paying bills on time, power supply interruptions
have affected both private and commercial sectors adversely. Governments effort to ease power supply thorugh the use of coal fired power plant have received resistance. A prospective foreign private investment for coal-based power generated so much controversy that the investor backed away from the proposed venture.
Table 6: Energy Use Efficiency
Year
GDP per
capita at
constant
prices
(Tk)
Electric
power
consumption
per capita
(kwh)
Electric
power
consumption
per Tk 1,000
of GDP per
capita (kwh)
1989-90 11798 49 4.15
2010-2011 25721 279 10.85Source: GDP per capita from from BB data series.
Electricity power consumption per capita from World
Bank. 2013. World Development Indicators.
Washington D.C.
Source: World Bank. 2013. World Development Indicators. Washington D.C.
209
355
1,807 566
867
5,060 2,558
292
341
487
434
6,456478
1,699 681 363
1,310 667
1,948
1,520 519
01,0002,0003,0004,0005,0006,0007,000
Bang
lade
sh
Cam
bodi
a
Chi
na
Indi
a
Indo
nesia
Kore
a,P
Mal
aysia
Mya
nmar
Nep
al
Paki
stan
Philip
pine
s
Sing
apor
e
Sri L
anka
Thai
land
Viet
nam
Low
inco
me
Mid
dle
inco
me
Lowe
rP
Upp
erP
East
Asi
aP
Sout
h As
ia
Chart 6: Energy consumption per capita kilogram of oil equivalent 2010
279
146
2,944 616
641
9,744
4,117
131 93
457
643
8,307
449
2,243
1,035 242
1,823 698
2,942
2,337 555
0
2,000
4,000
6,000
8,000
10,000
12,000
Bang
lade
sh
Cam
bodi
a
Chi
na
Indi
a
Indo
nesia
Kore
a,P
Mal
aysia
Mya
nmar
Nep
al
Paki
stan
Philip
pine
s
Sing
apor
e
Sri L
anka
Thai
land
Viet
nam
Low
inco
me
Mid
dle
inco
me
Lowe
r mid
dleP
Upp
er m
iddl
eP
East
Asi
aP
Sout
h As
ia
Chart 7: Electric power consumption per capita (kwh) 2010
19
24. Power needs large investments and long time lag between planning and power generation. Power interruptions cause substantial losses (0.5% of GDP21). Increase in power generating capacity lags behind demand growth.22 Systems losses though reduced are still high
(12.26% in 2011-12 compared with 25.34% in 2000-01)23. Heavy reliance on gas and oil is a source of vulnerability. How long will gas last is a moot question (Chart 9). Uncertainty of gas supply has affected power production. Oil import bill is huge (3% of total imports in FY2011) and power generation cost is high. Lack of adequate planning and investment has undermined the early
promises of gas and coal.24 As of 2009, of the total supply of 36 million metric ton of oil equivalent, gas leads the way with 18 million metric tons followed by biomass (12 million metric
21
Government of Bangladesh, Planning Commission. 2011. 6th Five Year Plan FY2011 - FY2015, Accelerating Growth and Reducing Poverty. Part 1. Dhaka. Page 127. 22
Asian Development Bank. 2010. Country Partnership Strategy : Bangladesh 2011-2015. Manila. 23
Government of Bangladesh. Ministry of Finance. 2012. Bangladesh Economic Review. Dhaka. Table 10.4. 24
6th
Plan, Part 2, page 147.
Table 7: Current supply and demand of gasCurrent supply Current demand: average annual demand 912 BCF
Total number of gas
fields24 Sector
2010-11 2011-12 2012-13 2013-14 2014-15
Total recoverable
reserve (proven and
probable)
20.605 Trillion
Cubic Feet
(TCF)
Power 300.5 324.5 350.5 378.5 415.8
Total gas consumption
ot June 20119,788 TCF Captive power 142.6 164.0 188.6 216.9 238.6
Total remaining reserve
(proven and probable)10.817 TCF Fertilizer 94.0 94.0 94.0 94.0 94.0
Daily gas production2,000 million
cubic feetIndustry 160.7 184.8 214.4 246.5 271.1
Daily demand for gas2,500+ million
cubic feetHousehold 99.5 111.4 124.8 139.8 153.8
Daily shortage of gas supply500+ million
cubic feetCNG 44.7 51.4 56.5 113.0 124.3
Others 30.8 31.9 32.7 33.7 37.4
Total 872.8 962.0 1061.5 1222.4 1335.0Source: Rashaduzzaman Mithun, M. 2012. An Overview of Bangladesh Gas & Power Sector. Bangladesh Textile Today,
November 2012 Government of Bangladesh, Planning Commission. 2011. 6th Five Year Plan FY2011 - FY2015, Accelerating
Growth and Reducing Poverty. Part 2. Dhaka. Page 149, Table 3.15.
Chart 8: The Energy Picture at a Glance
Source: Charts drawn from data in Unnayan Onneshan. 2014. Recent Trends of Growth in Agriculture, Industry and Power, Bangladesh
Economic Update, March 2014. Dhaka. http://www.unnayan.org/index.php/publications/all-publications/recent-articles.
3,218
5,166
6,639
8,1008,525
10,241
3,218 3,4583,622
3,8123,718
4,1304,162
4,890
6,0666,675
6,970
0
2,000
4,000
6,000
8,000
10,000
12,000 Gap Between Installed and Maximum Generating Capacity
InstalledGenerationCapacity (MW)
MaximumGeneration(MW)
88
.90
4.6
8
3.7
8
2.6
6
82
.47
11
.90 2
.66
2.9
7
77.7
9
17.4
0
2.5
6
2.3
2
68.0
4
27
.98
2.0
1
1.9
4
0
10
20
30
40
50
60
70
80
90
100
Gas Oil Coal Hydro
Types of Fuel Used in Power Generation
2009-2010
2010-2011
2011-2012
2012-2013
0.0
0
0.8
3
4.7
0
15.8
0
13.3
0
4.4
71.1
2
1.7
6
2.0
5
4.9
3
3.0
7
2.4
0
1.1
2
2.5
9
6.7
5
20
.73 1
6.3
7
6.8
7
0
5
10
15
20
25
Power Generation Cost by Type of Fuel (Tk/kwh)
Fuel Cost
Non-fuel Cost
Total Cost
2.5
0
2.7
8
4.2
6
1.8
8
2.6
5
3.1
9
3.4
2
8.0
5
1.8
0
3.9
5
3.6
7
3.6
6
10.1
8
2.0
2
5.3
63.8
0
4.0
7
10.9
9
1.9
7
5.7
7
0
2
4
6
8
10
12
BPDB
Generation
Purchase
from IPP
Purchase
from rental
Purchase
from public
plant
Total
Cost of Power Supply From Different Sources (Tk/kwh)
2009-2010
2010-2011
2011-2012
2012-2013
20
tons), oil (4 million metric tons) and others (2 million metric tons). Current demand and supply of gas show imbalance (Table 7) which will accentuate as production declines (Chart 9).
25. To summarize the issues for the 2030s: (a) change the current state of inadequate and unreliable gas and power supplies to one of balanced and adequate supply; (b) increase gas production and power generation, rehabilitate, upgrade and expand transmission and distribution, promote cross border cooperation, strengthen institutional capacity and promote efficient use of resources (reduce system losses, use energy efficient appliances and machinery); (c) encourage public and private investments in energy with increased private participation; (d) strengthen longer term energy planning, strategy development and policy formulation; (e) introduce structural and policy and regulatory reforms especially with respect to tariff and subsidy; and (f) create an incentive framework for renewable energy development and power saving. While cost of generation is 2.05 Taka per kWh (relatively low by international standard), the cost to save a kWh would be less than 50 paisa or negative in many cases. Besides Bangladesh needs to develop a power storage strategy through battery development or other means.
26. Of the five coal fields ((Khalaspur, Barapukuria, Phulbari, Dighipara and Jamalganj) with an estimated reserve of 3,300 million tons one (Barakpura) is in commercial production providing throughput for a 250 MW generation plant. The coal policy is mired in public debate. The time has come to delink it from passion and emotion and adopt a more open approach to dealing with it on the basis of hard nut economics. Over past fifty years, nuclear power has been more talk and less action. Renewable energy is yet to find a grip.
Skill
27. Incremental annual labor force addition (2 million plus) far exceeding economic and social absorptive capacity is worrisome. Paradoxically, there is shortage of skilled labor and average productivity of labor remains very low. About 40% of the work force is illiterate and 96% received no training. Secondary School Certificate (SSC)/Higher Secondary School Certificate (HSC) and higher level qualification account for only 10.8%. The remainder has attended school at various levels but not completed it. Only 1.4 % has technical and vocational training. In-service training covered 1.1%, tailoring/garments 0.7%. Sixty percent of agriculture, forestry and fisheries workers have no education. Corresponding figures are 41% for production and transport workers and 32% for others.25 The majority of workers in Bangladesh are either unskilled or semi-skilled dominated by the former. These figures just confirm the low level of education and skill of the work force in Bangladesh or “low skill low productivity equilibrium”. According to the 2011 National Skill Development Policy (NSDP), facilities, policies and institutions and incentives and financing must be in place to take advantage of the two way virtuous circle shifting the “low-skill, low-wage equilibrium” to a “higher skill, higher productivity and high-wage equilibrium” by pushing the production frontier upward. Because of unfavorable skill mix average earnings of Bangladeshi overseas workers is lower than those from India, Pakistan and Sri Lanka. Public TVET institutions have limited capacity, capacity utilization is low,
25
Government of Bangladesh, Bangladesh Bureau of Statistics. 2011. Report on Labor Force Survey 2010. Table 2.4.
Chart 9: Gas Production Projection 2009-10
to 2024-25
Source: Rashaduzzaman Mithun, M. 2012. An Overview of
Bangladesh Gas & Power Sector. Bangladesh Textile Today,
1,896
2,022
2,158
2,340
2,518
2,669
2,852
3,030
3,240
3,500
3,818
4,112
4,439
3,992
3,636
3,324
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2009
-10
2010
-11
2011
-12
2012
-13
2013
-14
2014
-15
205-
16
2016
-17
2017
-18
2018
-19
2019
-20
2020
-21
2021
-22
2022
-23
2023
-24
2024
-25million cubic feet per day (mmcfd)
21
job placement is low and training quality is poor. The training is not market oriented. The quality of output is poor and there is supply demand mismatch. The key challenges to be addressed include (i) reducing chronic demand and supply mismatches, (ii) providing courses with internationally recognized credentials to ensure that those receiving training acquire the required competencies, (iii) promoting higher profile for TVET and new qualifications, by ensuring that quality instructors are engaged, (iv) fully utilizing existing training capacity and expanding further to meet emerging needs by ensuring that the training institutions meet the standards, (v) increasing the per capita remittances of overseas workers by enhancing their skills at a higher level; (vi) providing training for skill development of millions of potential environment refugees due to climate change who can be turned into specialized workers for employment abroad replacing the current incumbents like the Philippines, Sri Lanka and India. One major area of concern is how to raise labor productivity and match skills demand with supply through a comprehensive and synchronized skills development strategy and corresponding investment road map.
Governance
28. In a nutshell we are looking at a state of governance though improving a lot still lacking strength, competency, effectiveness, transparency, accountability and not free from corruption. This is not an indictment. It is a statement of popular perception which may not stand closer scrutiny. Fact remains though that Bangladesh lags behind comparators in governance indicators.26 Simply stated governance in all its manifestation is weak in Bangladesh: political governance (the form of political regime), administrative/executive governance (learning from Rana Plaza and other industrial accidents to tighten regulatory oversight and establishing the rule of law), legislative governance (managing legislative process for law making), judicial governance (independence/integrity of judiciary), financial governance (fraudulent banking operations), corporate governance (SOE governance especially banks), local governance and others. Looking at differently, Bangladesh comes short in all forms of governance, namely, participation, accountability and transparency, independence of judiciary, corruption, the rule of law, decentralization, respect for human rights and ease of or cost of doing business. According to FY14 Budget Speech of the Finance Minister, the government has taken several steps to reform governance including public expenditure management (budget management, public debt management and streamlining of accounting), financial sector reform (banks and capital market), business environment, making parliament more effective, digital land management system and measures combating corruption. Longer term growth prospects will certainly be compromised if governance risks are not mitigated through strategic countervailing measures. These will have to be identified and laid out clearly. In the society at large in Bangladesh, good governance is sought by all as a way of reducing the cost of doing business. The challenge is how to develop a common perception of what good governance is all about. More important is to develop a commitment to it by all concerned. This Forum is called upon to look into whether it is possible to offer an outline social contract for good governance and efficient economic management in Bangladesh around which a consensus might eventually be developed. Corruption is a concern for friends at home and abroad. One cannot continue to ignore it.
Finance
29. Finance as a constraint appears in fund mobilization and financing, institutions, regulation and management and financial governance. The state of finance in Bangladesh is mixed. Domestic resource mobilization is improving but remains inadequate to meet financing needs of a growing economy. Despite reform initiatives of the Ministry of Finance and the 26
Rahman, Atiur. 2013. Present Conditions, Monetary Policy and Outlook for the Economy and Investments in Bangladesh. Power point presentation at Adam Smith Seminar: Schloss Spiez, Switzerland. 25 June.
22
Bangladesh Bank, financial governance remains weak. Financial system operates in a manner as to lead to sub-optimal resource allocation and resource leakage with the capital market being treated as Casino roulette. Bangladesh has failed to create a favorable physical and financial environment to attract larger flows of FDI. The present rate is anemic. The financial sector is fragmented waiting to be integrated for healthy financial intermediation. Inadequate synergy between monetary and fiscal policy is undermining growth and development as well as financial integrity and stability.
Policies and institutions
30. Major problem is policy inadequacies. Like most developing democracies it takes time for major policy pronouncements. When at last a policy sees the light of the day it is full of inconsistencies that perhaps is unavoidable given the policy document is a product of compromises and political expediencies. Worst still is lack of continuity of policies which hampers decision making both public and private. Investment decisions require assurance of policy continuity. Otherwise investors will hold back from making longer term resource commitments. Most if not all policies are biased towards special interest groups. Another outcome of compromises underpinning policy formulation. In a pluralistic democracy policy formulation through open public debate would be less susceptible to special group influences. In our society we must recognize that special group influences will always be there, as it is in developed countries too, but the moot question is can democratic dynamics protect the true spirit of the policy. Though much work has been done to strengthen institutions over past four decades, institutions are weak unable to deliver minimum agenda, services, regulation, facilitation and protection. Lack of flexibility in both policies and institutions stifle growth and development. Policies are poor, policy implementation is poorer.
Basic education
31. Bangladesh has performed well in terms of basic education indicators (primary school enrolment and female enrolment for example) but is haunted by poor quality and dropout problems. Inadequate preparation for participation in a tech savvy, multilingual, multi-skilled and multi-tasked world is the issue. It is difficult to make general observation to apply to the whole system because there is so much variation between rural-urban divide and also among different types of school. The early socialization process which produces student inputs for the educational system is universe apart among socioeconomic classes. The basic education system enrolls but it does not absorb students into a lively welcoming scholastic environment that is enjoyable and supportive of original thinking. The basic education system puts pupils into a prisonlike classroom donning suboptimal environment that is suffocating. Students escape (drop out) as soon as they can. This process is expedited by economic pressure. Parents want children to continue in school but many do not afford it in terms of direct cost and also opportunity cost of labor value of the child especially if it is a girl child. Students get pushed out due to poor performance linked to poor domestic as well as school environment. High system leakage is thus a brutal reality hidden behind fancy enrolment numbers. Public-private divergence plagues the system because the former is spoiled by security while the latter languish in insecurity (financial and otherwise). Basic education is supposed to be an equalizer. In Bangladesh it is still and far cry, poor equalizing influence, on the contrary inequity is entrenched; At all levels there are problems with curriculum. At the beginners level knowledge of English, computer and mathematics is not adequately stressed; at mid-level emphasis on additional foreign language and skill proficiency is undervalued. Study of culture, religion (all religions) and history is not properly balanced with general and technical curriculum. In a personal conversation Professor Wahiduddin Mahmud highlighted the ‘glaring missing gap’ in the quality of education at the secondary level which according to Dr. Farashuddin Ahmed was
23
also the view of our dear Professor Abdur Razzaq. This means what comes out of the secondary education level is weak, what goes into university and technical education level is weak, what comes out of the university and technical education system is of necessity weak, the process is extended up to the job market and the production and service systems with low quality producing low quality products and services hindering the growth process because Bangladesh’s competitiveness is compromised in product, services and overseas job market.
Regional cooperation
32. Bangladesh has to export its way out of low income to middle and high income. This would be relatively easy to achieve if the thriving regional market of over one and half a billion people of the seven neighboring countries were mutually open for business with one another. Given transport cost saving and prospect of establishing regional value chains cross-border and transit trade can grow at more than double digit rate contributing to Bangladesh’s projected double digit growth rate on way to middle income and advanced country status over next three to four decades.27 The reality of regional cooperation tells a different story that needs to be rewritten.
33. In South Asia including Bangladesh there is more talk about regional cooperation than action. Politics is one reason. Size difference is another. Strategic/security interest is a third. Economics is the fourth. Religious and cultural differences are an unspoken fifth. Lack of interest and benign neglect of India is sixth. Lack of mutual trust and confidence is the final seventh. Hence instead of reaping the benefit of regional cooperation, Bangladesh is caught in the talks and speeches in working groups and Summits. Beyond this, regional and Subregional institutions are weak. There is little linkage with non-regional bodies. Infrastructure, policies and institutions are not yet in place to promote and support regional economic cooperation and integration which is the way forward and will be win-win for all. Clearly, progress is limited by lack of vision and mutual mistrust, apathy of large countries towards smaller neighbors and popular resistance emanating from lack of information and knowledge
34. Notwithstanding all the above, road, rail and inland water and sea route are linked to neighboring countries though commercial use has been far below the potential due to policy, institutional and physical barriers to trade, transit and transport. Lack of planning, inadequate investments, poor private sector participation combined with the slow pace of policy and institutional reforms have held back progress in national, regional and international connectivity. The current state of the transportation network suggest much can be gained by streamlining domestic network of intermodal links together with facilitation measures for regional and international exchanges. The latter means a lot for Bangladesh as the country is the bridge between Central-South Asia, Southeast Asia and Northern Asia. This is an opportunity but unless the country acts fast, it runs the risk of being bypassed by other regional cooperation and development initiatives excluding Bangladesh.
Climate change
35. Bangladesh is not a major source of greenhouse gas emissions (GHGs). Mitigation measures while relevant is not critical. Adaptation measure is the key element in addressing
27
This is particularly important as Bangladesh faces the prospect of rising industrial wages reducing its current low-wage competitiveness which can be neutralized by market expansion in neighboring countries at lower logistic cost. See, Basher, Abul. 2014. Bangladesh needs to export more to neighboring countries. Blog posted at Asian International Economists Network (www.aienetwork.org), 7 May 2014. According to Basher, “As long as Indian economy continues growing, openings for Bangladesh to export to India would emerge and Bangladesh should focus on its domestic capacity to take advantage of them.” Examining the changes in composition of Bangladesh’s exports to India, Basher concludes that export expansion could occur through introduction of new products opening the way
for the country to deal with the so called Lewsian turning point.
24
impacts of climate change in Bangladesh. Climate change will lead to climate events such as sea level rise, extreme rainfall events, increased frequency of cyclones, waves, and storm surges causing flooding and erosion, salt water intrusion, prolonged drought and desertification. These in turn will impact on people, economic activities, projects and the environment. Bangladesh is vulnerable to climate change and natural disaster as well as degradation of the environment from combined population, urbanization and GDP pressure which will intensify by 2030. Possible climate change damage to Bangladesh include direct damage to physical and social infrastructures and institutions (planning, operation and maintenance, disaster management) and loss of habitation, land, forest, and flora and fauna. This will work as a serious constraint to future economic growth resulting from loss of lives, productivity (due to injury and health and nutrition impact), production, income, trade, transport, land use, land value and employment, market and macro impact, food, feed and energy insecurity, breakdown of law and order, and enhanced personal and social dislocation due to migration. The apocalyptic vision of Climate Change refugees overwhelming neighbors and the surviving areas of the country cannot be taken lightly. It is speculated that in the next 50 years with 1 foot rise in sea level, 15% of the total landmass of Bangladesh will disappear in the Bay of Bengal creating 30 million environmental refugees.28 Big cities like Dhaka are already flooded with climate migrants.29 Some authors have zeroed in on climate change impact on agriculture and food security through its effects on water resources availability, ecosystems and biodiversity (in Sundarbans and tropical forests), human health and coastal agricultural land and crop yield that may decline by 30%. Consequences of climate change are evident all across Bangladesh.30 Villagers in central Bangladesh have noted increased frequency and intensity of the floods “P disrupting agriculture, mobility, and making basic services like drinking water and healthcare very hard to access.” The problem is current policies and institutions are inadequate to meet the challenges of climate change. Mitigation measures are not very substantial burden on Bangladesh but over time this may change and the country will have to adopt strong mitigation measures which have cost implications. Funds for climate change investments are a constraining factor though Bangladesh can have access to global climate change funds. Risks of losing asset value are quite high due to damages inflicted by extreme climate events. Large investments will have to be made in adaptation measures in order to protect assets. Otherwise,
28
Zakaria, Naima. Climate change and Bangladesh 2050. Co-executive Director AT-Large, www.changebangladesh.com. PPT Presentation. http://www.slideshare.net/naimazakaria1/climate-change-and-bangladesh-2050. According to another account, “Rising sea levels could flood 17 per cent of the country — or erode the land — and create between 20 million and 30 million refugees, experts say.” See, How bad can climate change get? Bangladesh already knows. http://www.thestar.com/news/world/2013/02/09/bangladesh_faces_mass_migration_loss_of_land_from_climate_change.html. A lower estimate of 14 million was presented in Chowdhury, Rabindranath Roy. Climate Change and Bangladesh Our Vulnerability and Response. PPT Presentation. Ministry of Environment and Forestry, 26 August 2008. This was linked to the inundation of 29,846 square kilometers as a result of 1 meter rise in sea level. 29
Friedman, Lisa. 2012. How Bangladesh Is Preparing for Climate Change. http://www.scientificamerican.com/article.cfm?id=bangladesh-prepares-for-climate. Speaking of Dhaka, the author says, “Nearly 500,000 people – about the population of Washington, D.C. – move to this city on the banks of the Buriganga River each year, mostly from coastal and rural areasP. According to the International Organization for Migration, about 70 percent of slum dwellers in Dhaka moved to the city because they experienced some form of environmental hardship.” The author suggests that the 2100 miles of high-tech fencing built by India along its border with Bangladesh is to fend off both current illegal migrant as well as future climate change induced refugees. 30
“The impacts of higher temperatures, more variable precipitation, more extreme weather events, and sea level rise are already felt in Bangladesh and will continue to intensify.” Afrin, Tamanna. Bangladesh and Climate Change. March 25, 2012. http://climateemergencyinstitute.com/bangladesh_1_affrin.html. “Rainfall patterns are changed due to climate change – crops yields are expected to drop significantly. Crop production will decrease 30% in 2100. Production of rice & wheat will reduce 8.8%, and 32% within 2050 respectivelyP. There are 13% areas are salinity at Bagerhat, Khulna & Sathkhira, the southwestern coastal districts of Bangladesh at present which will increase 16% in 2050 and 18% in 2100.”See, Mostofa, Golam. 2009. Impacts of climate change in Bangladesh. http://www.climatefrontlines.org/en-GB/node/426.
25
future growth prospects will be compromised. As of now policies and institutions are in the formative stage. Actual investments in mitigation and adaptation are modest. With global support Bangladesh will have to improve technical knowhow and increase the level of investments in climate change mitigation and adaptation at project or program level.
Land
36. Over past decades land resources are on the decline both quality and quantity wise. Declining trend in the availability of cultivable land is evident from data (Chart 10). This trend is likely to accentuate due to rapid urbanization and expansion of non-agricultural activities. Realization of food and feed security and potential rice export expansion referred to above will
depend on proper husbanding of land resources and land productivity. Cropping intensity increase combined with industrial and urban environmental pollution from solid and chemical waste may affect land quality adversely. Further threat comes from natural degradation from soil erosion and saline water intrusion from the sea, a real threat under climate change. Present land use and management practices leave much to be desired as age old belief is still there that land will automatically replenish itself in terms of area and fertility. Farmers and government alike have made little investments in land conservation, reclamation and development. Weak land administration is encouraging conflicts,
land grabbing, river filling and diversion of land to other uses than what it is marked for. Deforestation is on the rise. Lack of cadastral survey, backlog of land titling and registration and inadequate protection of tenants are serious issues. Land zoning and land use planning is weak. This is important for protecting agriculture, relocating industries (e.g., tanneries) and establishing industrial, export processing and special economic zones. Expansion of road and rail network, river and sea port development and establishment of transport logistics are often faced with land constraints.
Size, structure and functioning of the domestic market and expanding foreign market for Bangladeshi products
37. Even with a growing population and increasing per capita income along with changes in life style, values and tastes the size of the domestic market of Bangladesh will remain relatively small. Stimulating domestic demand will be a constant challenge. Growth will therefore have to be sought in external markets. Seeking international market is both a science and an art. Good quality products demanded by consumers abroad will fetch good price only through modern marketing strategies. The domestic market in Bangladesh is not only small it is fragmented. Market integration is incomplete due to lack of infrastructure and institutions. Lack of infrastructure inhibits smooth market operation. Monopolistic and monopsonistic market control by few is normal rather than exception. Barriers to competition and entry, restrictive regulatory practices, lack of finance, lack of policy continuity and information asymmetry enables some with connection to corner the market. This is anti-growth and anti-employment.
Chart 10: Trend of Loss of Per Capita Cultivable Land
Source: Charts from Unnayan Onneshan. 2014. Recent Trends of Growth in
Agriculture, Industry and Power, Bangladesh Economic Update, March 2014. Dhaka.
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IV. Policies, Strategies and Institutions
38. Policies, strategies and institutions to overcome constraints to growth that will hold Bangladesh back from reaching the upper middle income status by 2030 and go beyond are laid out here in two phases, those relevant for up to 2030 and others that have to be implemented beyond 2030. By and large prescribed actions for the first phase will have to be continued thereafter with some additions and alterations for the second phase beyond 2030. These are recommendations on the basis of current and projected knowledge of what is and what might be. As events unfold, policies, strategies and institutions may have to reviewed and revised in different light. That is only natural. Therefore one has to treat the contents of the following paragraphs with certain flexibility.
Avoiding the middle income trap and jobless growth
39. Up to 2030: The task is challenging as experiences of Brazil, China, South Africa, Malaysia, Indonesia, Thailand and Malaysia suggests. The escape has to be anchored in longer term strategies sustaining accelerated growth finding new processes and markets to maintain export growth. Expansion of domestic demand especially of the rising middle class for high-quality, innovative products that help drive growth. Industries can no longer rely on cheap labor and capital for driving expansion. New way is growth based on high productivity and innovation. Investments have to be made in infrastructure, skill development, new technology and innovation. Korea has shown the way with large investments in technology and education and the high return realized.
40. The way out of jobless growth is sustained rapid growth, more education and training and skill upgrading to make the workers more flexible to fit many jobs and become more productive and more profitable to hire, high labor intensity, policy and institutional reforms for assured high returns to capital, agriculture modernization, new industries and training and skill development to fit the requirements of these industries.
41. The answer to jobless growth is thus support for self-employment, growth of labor-intensive industries, overseas employment placement as well as policies to address concurrently the challenges of income inequality, productive employment and social protection in order to make economic growth more inclusive.31 Bangladesh has been slack in all three outlets which can and should be capitalized. The sixth plan strategy of providing higher income employment opportunities to an expanding labor force should be continued under the seventh plan. The employment challenge is linked to GDP growth and skill development to meet demand of a changing economy. Structural transformation of the economy has to lead skill transformation rooted in higher level of technology and productivity. The rate of growth of infrastructure services has slowed down which has reduced the pace of growth. Delay in the implementation of the critical Padma Bridge will hamper growth. Financing the bridge from domestic resources is a good step though it will take away money from other productive pursuits thus affecting growth at least in the short run. While garments exports have continued to grow, it will have to adjust to the new realities. The industry will have to be more sensitive to worker welfare. Working condition, work environment and wages will have to be reviewed and improved. Bangladesh will have to build its global image of a worker friendly country. Bangladesh is falling behind sixth plan targets of growth of goods and non-factor services. This has to be reversed.
42. Beyond 2030: With appropriate policy and institutional reforms Bangladesh will have avoided the middle income trap and jobless growth and consolidated its Vision 2030. This would
31
See, Rizwanul Islam, Op. Cit. and Addressing the challenge of economic inequality, Tuesday, March 19, 2013 The Daily Star http://www.thedailystar.net/beta2/news/addressing-the-challenge-of-economic-inequality/
27
be the launching pad for lifting the economy on to a higher growth trajectory. Vision 2030 and beyond as elaborated in this paper is achievable only under pluralistic democracy, the suggested apex of the framework for economic policy making and strategy formulation (Figure 2). Pluralistic democracy represents the umbrella for the Bangladesh society to operate under for national consensus building through bottom up discussion and dialogue without any autocratic interference or imposition from the top. The disparate forces representing different institutions and interest groups need to be brought into an interactive decision making process that will work through multiple sources of power. Conflicts will arise but conflict resolution mechanisms shall be put in place so that disagreements do not get out of hand undermining national aspirations for economic growth with improved quality of life for all, a life of dignity and harmony. The strength is in diversity with the government constitutionally entrusted to protect and promote diversity for all citizens. Implicit in pluralistic democracy are a set of instruments that are essential for economic policy making and strategy formulation. These instruments refer to behavioral norms that must be accepted by all actors in the society. The link between instruments and operations is Vision 2030. Strategies, policies and institutions need to be defined to realize Vision 2030 and go beyond. To reiterate what was said above, Vision 2030 will be the launching pad for Bangladesh to take off into self-sustained growth becoming a developed country by the middle of the century. There has to be a national consensus on the Vision and the policies and strategies to achieve the goals embodied in the Vision.
43. Bangladesh will have to continue with policies, strategies and institutions laid out in Figure 2. Particular emphasis has to be on good governance, economic diversification, export diversification, financial inclusion and stability, infrastructure development, technological improvements, productivity growth, quality basic education, skill development, efficient service delivery, open economy32, market liberalization with regulation and effective resource mobilization and efficient resource allocation. This is a tall order. In the current divisive political environment unilateral action will not achieve national consensus on anything even if it were well intentioned and for the good of the country and the people. Discussion, debate and dialogue without precondition is an absolute minimum for reaching understanding on the way forward with regard to national governance and the agenda for socioeconomic development. Revival of the pluralistic democracy will create the environment to go beyond Vision 2021 onto Vision 2030 and beyond side stepping middle income trap and jobless growth. Adherence to pluralistic democracy will provide the push for good political governance ensuring that leaders do not have to be at war with their people. Leaders will lead people as partners in the pursuit of prosperity for all in a Bangladesh that will be a role model globally as it has been in the past in areas of social development (education, health and women in development) and poverty reduction thanks to policy convergence across political divide.
44. A prominent economist, former Advisor and my teacher told me recently that he does not expect in his lifetime Bangladesh doing better than 5-6% GDP growth per annum. This is a serious indictment on the Bangladesh economy and its ability to overcome immediate constraints amidst political conflict, instability and chaos. The hurdle, most would say as my teacher is politics. I would say politics and conflicts are given. We have to live with it and help it mature into non-violent debate over policies and institutions – options and choices. Residual of conflict would persist, stubbornly I would say because this is part of human nature. We have to create conditions through well-functioning pluralistic democracy to minimize violence and destruction of national and private assets. Otherwise Bangladesh will remain trapped at 5-6% GDP growth range as my teacher said. 32
Over past decades Bangladesh economy has become increasingly open with trade/GDP ratio increasing from 18.5 per cent in FY1990 to 47.1 per cent in FY2013. See Wahab, Md. Abdul and Md. Mazab Uddin. 2014. Management of External Sector Openness, Bangladesh Experience. Country paper presented at SAARCFINANCE Seminar, Dhaka, April 29-30, 2014.
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hese are discussed below on the basis of the lead is given by various contributions at this Conference. Figure 2: Framework for Economic Policy Making and Strategy
Formulation in a Pluralistic Democracy
Pluralistic
democracy
Implication: Interactive process working through multiple sources of power such as democratic institutions, interest groups and peoples’ representatives with the government
protecting and promoting diversity
Political consensus and decisions
Economic consensus and decisions
Social consensus and decisions
Respect for life, human dignity and welfare
Respect and tolerance for all
religious beliefs and practices
Respect for and adherence to
rule of law
Respect and tolerance for alternative social and political
views and philosophies
Respect for and adherence to sound technical advice and business ethics
Foundation
Instruments
Operations
Economic policy making and strategy formulation
Vision 2030: Possible economic, social and political landscape
Institutions Policies Strategies
• Building post-MDG world on MDG achievements
• Prioritizing sources of growth with high labor/export intensity
• Avoiding middle-income trap and jobless growth by overcoming binding constraints
• Human resource development for Vision 2030
• Skilling for productivity growth • Strategic urbanization and
land-use planning
• Macroeconomic stabilization policies for non-inflationary growth
• Policies for financial stability and financial inclusiveness
• Policies for financial sector integration and harmonization
• Export promotion policies for export-led growth
• Regional cooperation and integration policies
• Education policy for all • Energy policy for environmental
sustainability and growth • Adaptation and mitigation policies
for climate change • Social protection for all
• Social contract for good governance
• Establishing behavioral norms with respect to rule of law and human values
• Civil society as the third pillar • State in a privatized world • Future of microfinance
institutions within an integrated financial sector
• Capital market development • Aid coordination for aid
effectiveness
29
Develop comprehensive integrated multimodal economic corridor network
45. Up to 2030: Enforcing an infrastructure policy with emphasis on transport connectivity, economic corridors and deep sea ports backing it up with larger investments is the way forward. The transport network of the future need to be more systematically conceptualized as connecting (i) urban nodes, (ii) hinterland (including neighboring countries) to ports (Chittagong and Mongla and perhaps two more deep sea ports including one proposed at Sonadia), (iii) industrial zones, (iv) trading points, (v) border points, (vi) natural resource extraction zones, (vi) regional partners, (vii) regional gateway, and (viii) Dhaka with rest of the country in Hub‐and‐spoke networks avoiding excessive concentration of activity in the hub which occurs because firms located there face lower transport costs than firms in spokes. Besides Bangladesh should move beyond transport corridors and pursue development of economic corridors. Mobilizing resources through PPP will reduce the financing gap that bedevils infrastructure development. Economic corridors imply complementary investments in the transport corridor and its surrounding area, to achieve the most positive benefits to the community through growth of production, economic activities, urban and rural settlements, border towns and others contributing to real economic and social development and regional economic integration. Transport development should be integrated into the framework for longer-term economic development through the concept of comprehensive integrated multimodal economic corridor network. This approach recognizes economic corridor as the backbone of growth. On the other hand, economic growth is the foundation of economic corridors. It is important to examine implications of integrated economic corridor development for investment and for the necessary policy and institutional reform to optimize gains from the dynamic impact of infrastructure investments on rural and urban economies, poverty and regional development. Important considerations for the 2030s and beyond are the emerging role of the private sector and PPP and appropriate response to climate change. Much can be learnt from the best practices of Southeast (Thailand) and northwest Asia (Korea) which have been opening up space for the private sector and PPP in infrastructure development. Bangladesh needs to assess carefully climate change mitigation options and adaptation measures including climate proofing for transport and economic corridors. With these stipulations economic corridors would be able to attract investment and generate economic activities in surrounding areas of the transport backbone including the less developed areas or regions due to physical linkages and logistics facilitation being in place in the corridor.
46. There are many options available to Bangladesh for developing economic corridors which are anchored in transport corridors. Recent efforts by the Government, South Asia Subregional Economic Cooperation (SASEC) and the Asian Highway planners have produced a set of 16 corridors. The result of these efforts is useful but rather complex and not all corridors are needed. Instead this study refers to an ongoing Asian Development Bank (ADB) study to develop a nine corridor comprehensive integrated multimodal economic corridor network (Annex Map). These corridors include roads, rail and water ways. Intermodal exchanges allow movement from one corridor to another and one mode to another. Given the compact nature of the land mass, population distribution and human settlements in Bangladesh the nine corridor network can be conceptualized as a module of the London Tube. Investments will have to be made in constructing and/or upgrading roads, rail and waterways, logistics, software, bridges, road related facilities, rolling stock and the development of economic space around the transport backbone to improve existing and house new industries, hubs of economic activities, urban and semi-urban settlements, markets trade posts, transport hubs and others. Directly as well as through link roads and air, rail and waterways connections, these corridors will link up with border posts, land ports, sea ports, river ports, urban and administrative centers, industrial zones, export processing zones, tourist destinations and smaller towns. Thus, the nine corridors satisfy market integration and link criteria. By 2030, Bangladesh can be visualized as an
30
interconnected market place buzzing and booming with economic activities and population and trade movements. Given the structural proximity to the London Tube mode it should be possible to move anything between any two points within Bangladesh or out of Bangladesh in 3-4 hours’ time or less. This within-country integrated economic corridor development is open to improved regional connectivity, transit and integration as facilitation measures are built up and put in place. Preliminary economic analysis suggests that all corridors and sections have relatively high internal economic rate of return (20% +) thereby providing a strong economic foundation to develop world-class infrastructure to facilitate growth of domestic entrepreneurs, local businesses and attract foreign investment. The roads, highway and expressway network will have sufficient capacity to carry domestic and regional traffic (passenger and cargo) load. Regional cargo movement will be facilitated by the fact all segments which overlap with or are linked to Asian Highway (AH) (AH1, AH2 and AH41) will follow AH design standard. Domestic and regional trade, transport and transit will be facilitated by the construction of mega bridges like the two proposed bridges over the river Padma, increased container traffic, multimodal interchanges, formulation and implementation of trade, transport and transit policies catering to the requirements of both in-country and cross-border traffic. Bangladesh economic corridors will increase transit trade allowing neighbors to make greater use of port facilities also to take cargo from one part of the country to another cost-effectively. Bangladesh will have to create enabling conditions so that the northeast India can increase trade with Bangladesh and third countries and reduce cost of transport for shipment to other parts of India. The proposed economic corridor network is about improving connectivity within Bangladesh as well as enhancing Bangladesh’s role as the land bridge between South and Southeast Asia and also northern Asia through Myanmar and the People’s Republic of China. Optimal sequencing of investments in the corridor components has to be followed carefully in order to maximize return.
47. Beyond 2030: Continuation of the above strategy with added emphasis on elevated expressways, increase of average number of lanes, high speed electric railway, high speed inland and coastal waterways transport, mass transport, logistics development, application of ICT for transport management, air transport much of it outsourced to the private sector for investment and operation and maintenance (O & M) fully equipped to handle cross border and transit traffic (long and short distance).
Promote sustainable energy for growth
48. Up to 2030: The energy policy agenda is long. Implementing an energy policy for larger investments in gas exploration and clean coal based energy, renewable energy as well as energy efficiency ensuring a minimum of 30,000 MW by 2030 need to be given priority attention. The energy gap can be filled by promoting Independent Power Production (IPP) with an eye on cost implications (IPP tends to have relatively high unit cost as shown above). While saying so, it is necessary to liberalize tariff avoiding cap on electricity tariff for example though the Energy Regulatory Authority should have the option to review and reject requests for tariff increase if warranted. Reducing technical and revenue loss is critical for efficient power production and delivery. Bangladesh will benefit from energy stability ensured by an umbrella policy supporting the development of regional power grid facilitating energy exports and imports as feasible. Energy policies and strategies have to be geared towards demand and supply management narrowing gap between supply and demand. The currently observed gap between installed capacity and maximum generation can be mitigated by improving management efficiency, plants, O & M and the distribution network. Resource gap which is substantial in energy because of high capital cost can be narrowed by promoting PPP. Rationalizing fuel supply for gas based electricity generation will ease supply constraint. Gender-based programs for renewable energy development and energy conservation should be an integral part of energy policy. Finally, the development of domestic energy sources (coal and oil and gas – offshore
31
Table 8: Fuel Composition of Electric Power Table 9: Energy Efficiency
Generation 2013-14 and 2030 Program 2015-2030Sources of Electric Power 2013-14 2030 Items $ million
Installed capacity (MW) 10,241 66,830 LED lights 100
Energy saving 0.0% 30.0% TV (LED) 20
Oil 6.0% 13.8% Solar roof top 3,000
Coal 3.7% 30.0% Appliances (efficiecny) 1,000
Renewable (including hydro) 2.8% 7.5% Distribution 1,000
Gas 87.5% 18.7% Transmission 1,000
Total 100% 100% Production 3000
Source: Author's estimate. Pico-hydro 500
Biogas and others 250
Note: Energy saving program is least cost based. Micro wind turbine 300
Procurement will be on the basis of bulk purchase Regional power grid 1,000
at negotiated price with built in guarantee for product Total 11,170
quality and durability. Financing will be provided to clients Source: Author's estimate
through fund(s) established specifically for this purpose.
Funding could be mobilized from domestic and foreign sources including PPP.
Source: 2010 figures from World Bank. 2013. World Development Indicators.
Other figures are projected assuming GDP growth ealsticity of energy
consumtion of 1
Note: Growth projections are based on exponential trend between 2010 and 2030
consumption levels. Estimated exponential growth rate for electric power
consumption is equivalent to the sum of GDP and population growth rates.
Chart 11: Total Energy and Electricity Consumption
Per Capita 2010-2030
209
1,948
279
2,942
0
500
1,000
1,500
2,000
2,500
3,000
3,500
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
Energy consumption per capita kilogram of oil equivalent
Electric power consumption per capita (kwh)
drilling) has to be complemented by energy trade (regional power grid and LNG terminal and also direct imports of energy products as appropriate). Investments in energy trade should be accorded appropriate priority. A beginning has been made with a modest power trade agreement with India (250 MW flow over Bheramara - Bahrampur grid with the potential to reach 500 MW and eventually 1,000MW). Government is planning to construct a LNG import terminal at Moheshkhali Island able to handle 5 million metric tons/year of LNG. The terminal will have facilities for berthing and mooring of LNG ships with a capacity of 138,000 to 260,000 cubic meters. Electricity pricing policy holds the key to demand management and supply augmentation through private investments. Selected subsidies for the vulnerable groups and nascent industries could be built into an open pricing policy framework. With gas, coal and oil facing supply constraints due to physical availability and/or unit cost, a rational policy for clean coal use (through domestic development and/or imports) for power generation is imperative. The current Rampal controversy can be an important beginning for collective social consensus for sustainable coal based power generation.
49. Energy use efficiency is declining. Efficient energy is a window of opportunity for saving. As Bangladesh approaches per capita electricity consumption of upper middle income countries (2942 kWh) by 2030 from the relatively low level of 2010 (279 kWh) (Chart 11) total annual electric power consumption would amount to 532.211 billion kWh. For this maximum generating capacity required is estimated at 60,755 MW. With assumed 10% gap, the required installed capacity required
would be 60,830 MW. This is actually in line with Government’s 6th Plan target of 15,457 MW of total electricity generation in the country by 2015.33 Energy saving measures can reduce
33
6th Plan, Part 2, Op.Cit. Page 135.
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capacity requirement by 30% or 20,049 MW. Energy saving is contributing to capacity. Contribution of other fuels will change drastically with gas going down and coal coming up (Table 8). The notional cost of electricity generated by saved generating cost is $0.07/kWh 19% less than the average unit cost of electricity from different types of fuel ($0.09/kWh). An energy production and efficiency program 2015-2030 of $11.17 billion is proposed in support of energy saving in LED lights, TV, Solar roof top34, appliances, electric power production, transmission and distribution, Pico-hydro35, biogas from vegetable, plant and animal waste, micro wind turbine and regional power grid (Table 9). Also to consider is the development of local electric vehicle industry that could be based on solar generation. This is to improve national energy security and reduce reliance on oil. Hydro potential is an integral part of renewable energy development. The program will mostly work through establishment of energy efficiency fund (s) for bulk purchases by designated authority for eventual distribution to final users/managers (free, subsidized or at cost). Similar funds can also be established for efficiency improvement in production, transmission and distribution. Domestic and foreign public and private resources will have to be mobilized for these funds.36
50. Beyond 2030: Primary emphasis will be on clean coal energy, renewable energy, energy import from the regional energy grid and energy conservation in each making full use of the latest technological advancement. As in the case of transport, the share of PPP and the private sector in total will increase.
Invest in skill/human capital development for reaching higher growth trajectory
51. Up to 2030: Bangladesh has to start articulating a skill/human capital development policy in response to structural changes in the economy and global employment opportunities abroad. This has to be supported by larger investments in skill development synchronized with the exploitation of the demographic dividend in the backdrop of growth and structural change based on productivity growth. The latter is critical for Bangladesh to export its way out of the impending middle income trap and jobless growth. Overseas employment opportunities have to be exploited better by transforming the skill mix and productivity of workers. Average earnings of overseas workers will increase and so will annual average remittances. Bangladesh should be making additional investments in female literacy, greater participation of women in skill development programs, increased female labor force participation in formal sector employment and creating greater opportunities for women in business and providing them with the necessary finances.
52. In a recent article Professor Wahiduddin Mahmud made two important statements on skill and human capital: First, human capital is “P the most basic determinant of long run economic growth, affecting all other growth-inducing factors like how effectively we use physical capital, or how efficiently we can adopt productivity enhancing technologies or even how well we can govern ourselves.” Second, we need: “P a paradigm shift in education towards learning and skill development”.37 Hence ‘low-quality secondary education embodied low-quality skill-embodied low-quality human capital’ is indeed a binding constraint for future growth and social development of Bangladesh. There is a happy convergence of views on the importance of
34
Bangladesh has made progress with renewable energy with 2.8 million solar powered homes n 2013 creating some 114,000 jobs, for assembling solar panels and selling, installing and maintaining them. See, “Green energy creates 1.14 lakh new jobs”. The Daily Star, Published: 12:01 am Thursday, May 15, 2014. 35
Locally produced Pico-hydro micro turbine placed in running stream with 1 or 0.5 meter drop to give 100 watt of electric power to support at least 20 LED lights shared by several households. 36
This paragraph has benefited from discussion with ADB Principal Energy Specialist Mr. Sohail Hasnie. Any shortcoming is author’s own. 37
Public lecture on education at BRAC University.
33
human capital formation among Professor Gary S. Becker, Professor Wahiduddin Mahmud and Dr. Rizwanul Islam (see his contribution at this Conference). A stylized relationship between growth and skill development is in Figure 3.
Figure 3: GDP Growth and Skill Development
53. To understand the interrelationship between education, skill development and economic production one needs to bring these together into an integrated system of three level production process guided by three production functions, educational production function, skill production function and economic production function. Output of one is an input into the next. Optimally, we need to be in quest for good/quality inputs (physical inputs, teaching materials and teachers) for a good/quality school that can take in good/quality students, produce good/quality graduates who can be transformed into good/skilled workers, managers, public servants, politicians, thinkers and all others that constitute human resource development (HRD) for good/quality economic production and management with embodied good governance, transparency, accountability for which we have to have responsible good/quality leaders and policy makers to create and sustain the enabling environment. There are gaps along the entire chain which we makes strategy formulation and policy articulation to overcome skill/human capital constraint that much more difficult.
54. In recent years GoB has undertaken important policy and institutional reforms to foster skills development including (a) Formation of National Skills Development Council (NSDC) and Executive Committee of the National Skills Development Council (ECNSDC), (b) Establishment of NSDC Secretariat, (c) Approval of National Skills Development Policy 2011, (d) Formation of Cabinet Committee on Skills Development, (e) review of the NSDC Act by ECNSDC, and (f) the establishment of Industrial Skills Councils (ISCs). Appropriate resources are needed to make these reforms effective. For example, the NSDC Secretariat and the ISCs lack capacity to carry
GDP growth with skill development and skill demand growth with GDP growth
GDP
GDP
Labor demand with skill training GDP = f(Ls)
Labor demand without skill training Contribution of Skill development to GDP growth through productivity gain (vertical broken line) Increased labor demand with skill training and GDP growth (Horizontal broken line)
GDP = f(L)
L = Labor Ls = Skilled labor
Labor
34
out their respective mandate. Nine ISCs have been established with donor support (leather, food, ICT, garments, tourism, shipbuilding, construction, tea, transport and light engineering). ISCs lack a legal framework which will be provided by the NSDC Act. Both GoB and the private sector recognize that skill development is critical for economic growth and competitiveness. Economy wide training need is estimated at 8.6 million in 2014, 12.5 million in 2023 and 36.1 million in 2050. Training need is clearly very large give the size of the workforce and the current modest level of TVET output. Current resource base and capacity cannot sustain such training effort. Training targets have to be set considering what can be done within a reasonable period of time. Total training investment cost will grow substantially. need based investments going up from $1.4 billion in 2013 to $3.1 billion in 2025 and $10.2 billion in 2050. Obviously these have to be pruned down to achievable targets. One such estimate is $874 million, $1.6 billion and $4.9 billion of investment respectively for 2013, 2025 and 2050.
55. A minimum agenda for action include the following: (i) introduce Universal English and computer literacy from grade 1 and at least one additional foreign language proficiency at secondary level; (ii) introduce vocational training in at least one selected skill for all HSC graduates to ensure all graduates are employable with minimal additional training; (iii) amend the Bangladesh Labour Act, 2006 (as amended in 2010) to address concerns related to safety (fire and building), inspection provisions, work environment, wages and benefits, trade unions and safety net; (iv) establish a new Ministry of Skills Development; and (v) establish a National Skill Development Fund (NSDF) /National Human Resources Development Fund (NHRDF). The forthcoming ADB-funded Skills for Employment Investment Program (SEIP) proposes to stimulate investment in productivity improvement by making “Pindustry wide arrangements for training and skill development so that the cost of training need not be borne by individual factory owners.”38 Dr. Kholiquzzaman Ahmad will say more on education policy, Dr. Rizwanul Islam on human capital development and inclusive growth and Dr. Zillur Rahman on gaps in secondary education.
56. Beyond 2030: Continuation of the above strategy with added emphasis on reducing supply-demand mismatch and unemployment and under-employment at all levels and in all groups; skill composition adapted to changes in technology; training and skill development mostly in the private sector based as a mature market for skill development develops; and selected import of skilled labor to fill gaps and continued emphasis on overseas employment. More important, education and skill development planning has to be an integral part of the strategy for economic development.
Promote good governance for growth and growth for good governance
57. Up to 2030: Hunting for the corrupt or corruption per se is not seeking good governance. The latter is about efficiency and effectiveness, abiding by the rule of law, working by rules and norms including one of civil behavior and mutual self-respect. Such is the environment that good results will follow all actions of good faith and positive return will be flowing from all personal and social investments. Corruption as we know it will be marginalized but it will exist, so will the oldest profession of mankind. Therefore, completely eliminating corruption is not on the cards. It has to be contained and kept from harming ordinary citizens. More important corruption should not be allowed to undermine the hard work and self-sacrifice of millions. Some in the society should not be allowed to have it easy through manipulation of the system as we know it. For this all systems have to be transparent the rule of law and the justice system prevail and all public and private people in positions of authority are made to be accountable. A pluralistic democracy can ensure this by unleashing constructive forces to build trust and produce public and private
38
ADB program is similar to what is proposed by Professor Wahiduddin Mahmud in his IBT Interview of the Month in ICE Business Times, May 2014.
35
goods for the benefit of all and refrain from destructive acts that frustrate goodwill and forces people into isolated corners cocooned to protect narrow self-interest. As a practical step, strengthening the Anti-Corruption Commission and expediting the judicial process will help get results and improve Bangladesh’s image abroad.
58. A social contract for good governance is in the asking. The search for a social contract has to start with a consensus on the role of the state, a space for the state in a privatized economy and a pluralistic democracy. Democratic process will bring different political forces at the helm of the state with all privileges, scope for corruption and misuse of power. A social contract has to confront these head on in terms of recognizing threats and creating opportunities for mitigation. Otherwise there will be temptation to manipulate the process to continue dominance over the state power and abuse it for personal benefit Bangladesh has seen enough of it. .
59. Good governance can start from initiating governance reform for decentralization and improvement of effectiveness, productivity, transparency and accountability and reduction of corruption and abuse of power and enforcing the rule of law; and encouraging female participation and representation in legislative bodies, judiciary and administration and all policy making bodies. Good governance is conditioned, among others, by political stability. Short term political conflicts are inevitable in a volatile and emotional society like ours. Problem is with longer term sustained nature of conflict that signals to lack of respect for rules and norms of democracy. Can we get it back by helping develop a social compact for formulating policies and strategies for socioeconomic development under a pluralistic democracy? Professor Wahiduddin Mahmud will enlighten us on such a compact in the context of the nexus between good governance and growth.
60. Seeking good governance one has to review the role of the state. The role of the state in Bangladesh has evolved over time from one of dominant position in most of the economy to one of much more restricted role. Despite its involvement in production and trade, the state is increasingly focusing on promotion and regulation of private sector activity and the operation of the market. Given the mindset and the slow pace of change and the global trend of re-examining and reasserting the role of the state in the management of the society and the economy, Bangladesh will probably continue to see a significant presence of the state in the economic sphere. This is the temptation (grapes of heaven) that our political leaders must avoid. Stranglehold of the state creates opportunities for rent seeking which is another name of corruption that will deflect Bangladesh from the desired path of sustainable inclusive growth. It is within our reach. Please do not destroy it by the evil of corruption ridden over governance. Hence good governance is less governance and less governance is good governance.
61. The longer term strategic role of the state need to start with the Constitution and the pluralistic democratic process. The state will have to be committed to protect and uphold both. There should be no scope for wavering in the future as has been the case in the past which always slowed down the pace of socioeconomic development. The positive correlation between democracy and development in Bangladesh is evident from data. It is a two-way relationship of association and not of causality. The noticeable upward shift in the growth trajectory of Bangladesh came only after democratic tradition was restored.39 It is a democratic government with improved (not necessarily ‘good’ yet) governance that dared to lay bare the path to a
39
This view is also shared by other authors. For example, Nazneen et. al says, “The acceleration in the pace of growth started since the early 1990s when Bangladesh returned to a democratic form of government after almost a decade of autocratic rule. This also coincided with the intensified phase of wide ranging policy reforms involving deregulation of investment, trade liberalization, exchange rate, fiscal and financial sector reforms.” See, Ahmed, Nazneen, Zaid Bakht and Md. Yunus. 2010. Size Structure of Manufacturing Industry and Implications for Growth and Poverty, Bangladesh Country Paper, Bangladesh Institute of Development Studies.
36
middle income Bangladesh. The continuation of pluralistic democracy with good governance under whichever leadership can certainly propel Bangladesh to a newer height. There would be a quantitative and qualitative shift in the growth trajectory by unleashing the productive potential of all within an environment of well-functioning market under rapid technological change and the rule of law applied equally to all irrespective of political affiliation. Democratic governments backed by the will of the people can take chances to think big and change forever the destiny of the country. The motto is bring tomorrow to today and take today to tomorrow.
62. Under the umbrella of the Constitution, pluralistic democracy, law and order and the rule of law, the state in consultation with all actors should develop and implement appropriate legal and regulatory framework for smooth operations of all sectors of the economy. The responsibility for making sure that good governance is good governance is vested in the people. Policy and strategy statements will have one meaning. Nothing is to remain hidden. The principle of good governance is to be guaranteed by the complete independence of the three organs of the government, namely, legislature, judiciary and the Executive. These three pillars shall provide protection for market driven competition and private sector led growth and development. This means promotion of private sector, competition and market by correcting market failures and regulating monopoly, monopolistic practices and unfair business practices by domestic and foreign agents.
63. What about political governance in Bangladesh? Who will tame the shrew? One has to be pragmatic about it and let it evolve through practice of pluralistic democracy over the longer term. An emotional and personalized society like that of Bangladesh will go through cycles of instability at least for a few decades. One has to take it as given and work around it. There will be good all round political governance in Bangladesh only when there is good governance within each social, political, cultural and religious group. This includes good governance within our each individual family away from narrow self-interest and desire to accumulate (power and money) at the cost of others. The early socialization process needs to include textbook style learning. Democratic spirit must prevail everywhere. One must be prepared to make space for others at all levels and one must learn to respect views of others. Occasional outbursts must not be allowed to get out of hand and violence in all forms and shape at all levels including family must be discredited, discarded and disavowed. Violence is evil. One must struggle for what one believes in but preferably in a non-violent way. The nexus between governance and growth will be explored by Professor Wahiduddin Ahmad while regulatory practices will be elaborated on by Khalid Shams.
64. Beyond 2030: Continuation of the strategy of decentralization and enforcement of the rule of law with complete transparency and accountability within the framework of pluralistic democracy. Good governance has to mean efficient governance. Efficiency has to be measured in terms of how well the systems in place are working. These systems include (i) district level budget decentralization which is being flagged now by the honorable Finance Minister, (ii) complete independence of the three organs of the government, namely, legislature, judiciary and the executive, (iii) liberalized domestic market, (iv) external market openness, (vi) capital account convertibility,40 (v) labor code and laws, (vi) industrial code of conduct, (vii)
40
There are certain preconditions for moving into full capital account convertibility: (i) maintenance of strong Macroeconomic Fundamentals, (ii) strengthening the domestic financial sector through internal financial liberalization, (iii) ensuring adequate prudential regulation and supervision, (iv) strengthening the capital market including market for the government bond, (v) adoption of appropriate exchange rate policy and intervention, (vi) maintenance of appropriate time, sequence and pace of liberalization, (vii) strong financial structure of nonfinancial corporations, (viii) capacity building for management of the foreign exchange market including risk management, (ix) favorable political and regional environment, (x) well developed information system for monitoring of key variables, and (xi) formation of a Monitoring Committee. For a discussion on the subject in the context of Bangladesh see, Wahab and Mazab Uddin, Op.Cit.
37
environmental regulations and climate change policies, (viii) anti-corruption commission, (ix) human rights commission, (x) financial governance structure, (xi) corporate governance structure, (xii) law and order, (xiii) NGO governance, (xiv) global governance which will be increasingly relevant and important for countries like Bangladesh, (xv) environmental governance, (xvi) internet governance in an ever increasing interconnected world, (xvii) information technology governance, and (xviii) the management of local government units.
Support financial inclusion and sustainable financing for sustainable inclusive growth
65. Up to 2030: Bangladesh has to prioritize improving financial governance and access to finance. Bangladesh Bank under Governor Atiur Rahman has made a good beginning on both fronts. The effort has to be sustained and deepened over the longer term. Access to finance has to be ensured especially for SMEs which will be important sources of export-led inclusive growth in the future. SMEs will have to be capitalized, equipment and machinery upgraded, the use of ICT expanded and modern business practices introduced. Improving the incentives for FDI will pave the way for additional financing with risk sharing. Recognizing the proven potential of microfinance as an effective instrument for sustainable inclusive growth conditions need to be created for making microfinance financially competitive and adherent to prudential norms as directed by the Microfinance Regulatory Authority (MRA) and the Bangladesh Bank. More important, to paraphrase Governor Atiur Rahman, Bangladesh Bank is pursuing financial inclusion and stability for inclusive sustainable green growth. The Governor also suggests there has been a policy shift towards instilling in the financial sector the ethos of socially responsible financing focused towards supporting environmentally sustainable output activities and away from financing of speculative profit seeking or wasteful ostentation.41 Careful assessment would suggest this is a work in progress which needs to be expanded. More on this from Governor Atiur Rahman.
66. The financial and institutional base of the capital market has to be strengthened in order for it to play a larger role in resource mobilization than at present. This has to be at the core of future financial policy framework. Professor Mirza Azizul Islam will be covering in detail capital market development in Bangladesh. This paper touches on few ideas.
67. Capital market development would call for framework to provide oversight and protection, increased number of securities and initial public offerings, the development of bond and debt with improved organization, transparency and accountability reflected in better financial reporting by listed companies, stronger governance structure of stock exchanges (effective demutualization and an end to unscrupulous behavior and practices of brokers and dealers), full disclosures, accounting and auditing standards compliant with international practices and a strong regulatory framework providing protection for investors. Measures have to be taken to improve capacity of market players including Securities and Exchange Commission, stock exchanges and brokers. The bond market needs to be broadened beyond the current small amount of government bonds. The market for asset-based securities has to be developed but avoiding the real state bubble. Conditions have to be created for insurance companies, mutual funds and other institutional investors to play a greater role in the market. One of the conditions is reducing exposure of financial institutions to government securities. Government borrowing is siphoning off money from the market. Minimum fiduciary requirement of financial institutions holding government securities need to be periodically reviewed and revised.
68. Bangladesh has long overdue actions to be undertaken over the medium-term to develop capital market: (i) boosting saver and investor confidence, (ii) enhancing market flexibility and security, (iii) strengthening the insurance sector, (iv) increasing participation, (v)
41
BB Governor Dr. Atiur Rahman’s Washington Speech, Op. Cit.
38
promote financial stability through supervision of the financial system, (vi) strengthening regulatory measures and capacity of the regulators (SEC), (vii) develop monitoring mechanism and market surveillance system, (viii) reducing market speculation by monitoring the amount and use of bank lending, (ix) enforcing transparency and accountability by upgrading accounting and auditing standards, (x) improve access to information through ICT, (xi) strengthening analytic capability of market operators and analysts, (xii) expediting adjudication of enforcement actions and imposing severe punishment for unethical market behavior, (xiii) improving governance of listed companies, (xiv) pursuing demutualization of the stock exchanges, (xv) developing an active debt market for corporate debt, mutual funds, and other financial instruments, and (xvi) improving debt clearing and settlement infrastructure and coordinating regulatory activities of the Bangladesh Bank and the SEC with regard to issuance and trading in government securities.
69. Beyond 2030: For the period beyond 2030s, Bangladesh will have to continue actions identified above deepening and broadening the market, improving regulation, and investor confidence, moderating boom-bust experiences, strengthening the capacity of market operators and regulators in their respective arrears of functionalities, introducing appropriate technology and institutional reforms and improving transparency, accountability, market surveillance system and information access. In other words, the longer term will comprise continuation of the above strategy with focus on ten pillars: (i) financial market integration, (ii) microfinance for the extreme vulnerable groups, (iii) meso-finance for graduate clients of the microfinance including SMEs, (iv) capital market development with built in regulation and stabilizers, (v) greater harmony between fiscal and monetary policy, (vi) complete independence of the Bangladesh Bank in the conduct of monetary policy, (vii) capital account convertibility with oversight, (viii) continuous strengthening of the banking supervision capacity of the Bangladesh Bank as all financial institutions are brought under its direct supervision and control, (ix) privatization of all state owned banks except one for payment purposes, and (x) making lending for political patronage a history.
Make policies and institutions pro sustainable inclusive growth
70. Up to 2030: Ensuring policy continuity and effectiveness of regulatory bodies is import to support accelerated growth. On regulation, Khalid Shams would say (i) eliminate redundant regulations; (ii) eliminate regulations restrictive to registration and growth of SMEs; (iii) enforce regulations which are basic for development based on rule of law and public accountability, without any political bias; and (iv) fill the vacuum where new regulations and enforcement mechanisms are urgently required i.e. land use regulations, building codes, primary education and environmental protection, introducing effective polices to curb corruption at all levels; and ensuring effective implementation of existing policies with necessary amendments that will serve the cause of inclusive growth much more than new laws and regulations that are unlikely to be implemented seriously. All institutions involved in the formulation and implementation of policies will have to be strengthened and empowered. A strong institution unless adequately empowered cannot deliver. For example public sector training institutions cannot produce skills as required because of central government interference in day to operations and decision making. Khalid Sham’s paper elaborates on the regulatory aspects of governance. To sum up, over the medium term ensuring policy continuity and effectiveness of regulatory bodies is important.
71. Beyond 2030: In a recent interview, Professor Wahiduddin Mahmud said we shall need a more capable system of economic management that can respond to the needs of putting the economy firmly on a path of modernization and global integration.42 He said it in current context
42
Interview, Op.Cit.
39
but we extend it to 2030 and beyond because it is a relevant and powerful statement encompassing policies and institutions. One may consider humanizing capability at individual/society level by conceptualizing it along the lines of Professor Amartya Sen’s43 capabilities approach putting accent on freedom to choose tools/ways of economic management albeit socioeconomic management. The expression modernization needs to be understood as encompassing economic growth (referring to income growth) and social progress (inclusion, equity, values and freedom of choice) in a world that is increasingly integrated globally. In the same interview, Professor Mahmud calls for a shift from replication to innovation for the next stage of growth. Actually for the next stage of growth to reach developed country status, Bangladesh needs to graduate from replication to innovation without necessarily abandoning the former. The BEF is in sync with Professor Mahmud that in order to escape the enclave type export-based (RMG alone) growth, Bangladesh has to introduce policy and institutional reforms for improving the investment climate.
72. For the future Bangladesh will have to develop a technology and knowledge based fully diversified economy. Bangladesh will have to transform itself from a labor intensive to capital intensive exporter with much of the capital embodied in labor. This will mean continued reforms of policies and institutions that hold Bangladesh back from (i) learning and exploring the breadth of opportunities and comparative and competitive advantage in different product lines, (ii) acquiring necessary technology, management, skills, entrepreneurship and market intelligence, (iii) making necessary investments in infrastructure, (iv) removing internal market barriers, and (v) developing negotiating skills for removing trade barriers (tariff and non-tariff).44
73. In looking beyond 2030, beginning has to be taking stock of the state of implementation of existing policies and the effectiveness of key institutions as of 2030. The assessment is likely to suggest that continuation of the existing policies with emphasis on strengthening all institutions involved in policy making and implementation of policies as the making of good policies, timely policies or readjustment or correction, amendments or extension of policies, and policy implementation are very important for a country like Bangladesh. Investments have to be made in strengthening the policy making capacity of the legislature and key ministries of the government as well as the Bangladesh Bank. Certain policies and relates laws will have to be reviewed and strengthened to meet challenges of the day and the period following. A sample of these concerns include the Banking Policy, Monetary Policy, fiscal policy, Investment Policy, Privatization Policy, Trade Policy, Education Policy, Skill Development Policy, Labor Law, Agriculture Policy, Food Policy, Population Policy, Industrial Policy, Transport Policy, Transit Policy, Energy Policy, Renewable Energy Policy, commercial (import and export) policy, tariff policy, tax policy and laws, subsidy policies, Procurement Policy, Company Law, Foreclosure Law, Law of Contract, Land Policy, Land Law, Water Policy, Water Law, Forest Policy, Fisheries Policy and Environment and Climate Change Policy.
Formulate basic educational policies for strengthening the economic and social foundation of Bangladesh
74. Up to 2030: Basic education policies and institutions need to be geared towards promoting skill development anchored in a drive for universal English and computer literacy from an early stage of schooling and competency in at least one additional foreign language and skill for all higher secondary certificate (HSC) graduates. Basic education policies and institutions have to be responsive to structural changes and technological progress while adhering to the need for protecting cultural heritage and promoting cultural diversity. The educational authority at all levels must develop programs and must be provided with institutional
43
Sen, Amartya K. (1985). Commodities and Capabilities. Oxford: Oxford University Press. 44
See, Interview, Op.Cit.
40
support to conduct delivery of basic education in a manner such that students are prepared for participation in a tech savvy, multilingual, multi-skilled and multi-tasked world. The answer to poor quality educational output and system leakage is all-round systemic improvement consisting of facilities, curriculum and teachers. Basic education has to be made an enjoyable experience. Public-private divergence in quality can be addressed by increasing support for private school. Quality obsessed elitist private schools will remain ahead of others. The challenge for the rest is to play the catch up game. All round quality improvement is also the answer to the failure of the educational system to play out its equalizing influence. Uneven quality of education delivered by different types of schools is entrenching inequality which is already skewed due to unequal access to assets, finance and political power. Private school grant governance has to be improved. A nation cannot prosper unless it carries forward the proud tradition of its culture, religion (all religions) and history. Thus, there has to be a balance between study of culture, religion (all religions) and history and general and technical curriculum Dr. Kholiquzzaman Ahmad will say more on education policy in the context of education for all, Dr. Rizwanul Islam on human capital development and inclusive growth and Dr. Zillur Rahman on secondary education.
75. Beyond 2030: Continuation of the above policy and strategy with educational flexibility. First, people should be able to change courses at any point in time. Second, people should be able to enter the educational system at any level at any time on the basis of proficiency test. Third, the basic education system should be introducing international best practices and content as much as practicable to make students at par with those in other countries. Fourth, basic education should increasingly become ICT based which is more than just knowing how to use the computer. Fifth, additional emphasis should be placed on language proficiency and math skills. Sixth, basic education should build the base for the development of high level scientific skills in which Bangladesh has been lagging behind. Seventh, greater emphasis has to be given on the development of original thinking and management of day to day problems and issues. Eighth, the entire educational system has to be completely in tune with the emerging environmental and climate change issues. Ninth, Bangladesh may have to walk on two legs, Universalist as well as elitist as India has done combined with the experience of China and Vietnam.45 Tenth, one critical area of skill development is the capability of developing sound framework for project analysis with micro and macro implications fully worked out for final decision-making.46 Finally, education planning has to be synchronized with skill needs of the economy, among others and the two have to be integral part of the strategy for economic development.47
Promote regional cooperation and integration for sustainable inclusive growth
76. Up to 2030: National and regional connectivity in South Asia is a driver for higher socioeconomic growth through creation of economic opportunities in lagging regions. Improved connectivity within countries between lagging and prosperous regions can facilitate transformation of the poorer regions. This objective can be fulfilled by developing integrated economic corridors connecting regions with diverse natural endowments, varying human skills and physical and social infrastructure. Bangladesh should strengthen linkages with South Asian countries especially with members of South Asia Subregional Economic Cooperation (SASEC) and go beyond to link up with countries of Southeast Asia, through Myanmar and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), and East Asia, including through the People’s Republic of China. SASEC corridors are work in progress on each side of the border. Cross-border infrastructures and facilitation measures are long in 45
See, Interview, Op.Cit. 46
Ibid. 47
Ibid.
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waiting. Trade, transit and transport facilitation policies and regulatory framework and associated institutions should evolve around this integrated concept of transport/economic corridor network.
77. Beyond 2030: Continuation of the above and Bangladesh along with partner countries should be striving for regional (SARC), Subregional (SASEC, BIMSTEC, and BCIM) and interregional (with GMS, ASEAN, CAREC and Northeast Asia – China, Japan and South Korea) economic and eventual monetary integration on win-win basis. Bangladesh should be striving for economic and monetary integration first with South Asian neighbors, review progress and benefits over a decade or more and then push the frontier beyond South Asia.
Invest in climate change mitigation and adaptation
78. Up to 2030: The government should be implementing climate change adaptation and mitigation measures treating climate change adaptation policy as an integral part of the development policy matrix and not just an addendum. Bangladesh is vulnerable to water scarcity and water abundance which need to be addressed by improving water resource management and promoting sustainable agriculture which undoubtedly is a critical consideration for Bangladesh.
79. Beyond 2030: With climate change impact being more evident, the implementation of the above strategy will have to be intensified and a particular emphasis will have to be place on management of change including possible population movement as the sea level rise and salinity intrusion threats materialize.
Save land for economic diversification and urbanization through productivity growth.
80. Up to 2030: Considering the prospect of a highly urbanized Bangladesh by 2050, urgent attention has to be given to formulating a forward looking urban development strategy around sound spatial planning, land zoning and mass transit. Bangladesh authorities need to focus on improved management of the accelerated urbanization process already under way in a somewhat chaotic manner. As Khalid Shams says we need “Pnew urban development policies, appropriate regulations for land use, land development, housing a well as industrial construction”.48 A large space has to be created for private sector participation in building an urbanized Bangladesh. Planned urban development has to go with increasing investment in research, training and technological innovation for economic diversification. Rapid urbanization would put food security concerns under stress. However objective realities and analysis of Professor Salim Rashid suggest Bangladesh can tackle food security and go beyond to become net rice exporter through integrated farm practices for increasing rice and diversified food production combined with increasing investment in land rehabilitation, development and protection. At the level of expenditure policy the government should be allocating a larger share of budget for development and not just recurrent expenditure for agriculture. Legislation enacted for ownership and tenurial rights need to be implemented effectively. There is much talk about digitization of land records which will be helpful but without proper cadastral survey and resolution of title/ownership conflicts premature digitization may create new problems rather than solve old ones. So care has to be taken in implementing the digitization policy. In land zoning a particular attention has to be paid to making space available for industries. Land availability is a common complaint. Strict policies must be implemented to forestall land
48
Shams, Khalid. 2014. Addressing Need for Reforms in Governance for Economic Growth. Paper presented at the First Conference of the Bangladesh Economists’ Conference 21-22 June 2014, Radisson Hotel, Dhaka. The author
continues, “A very strong ‘urban and regional development authority’ under the top political leadership as well as well a decentralized municipal governance system, elected regularly with clear mandates, resources and responsibility for enforcement, would be a priority.”
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speculation by politically connected influential people. There has to be a serious review of the land tax to base it on market rather than historic value.
81. Beyond 2030: Continuation of the above strategy and elaboration of a revised Land Policy backed up by a revised Land Law aimed at promoting land saving actions in all uses in all forms. The new law should focus on among others land zoning, land tax, land speculation and land for industry and other priority uses.
Promote market integration, efficiency and connectivity within appropriate regulatory framework.
82. Up to 2030: The government will have to respond to the push for market integration coming from the private sector by removing barriers to entry. Government assistance is most effective in the areas of infrastructure, transport, finance and regulation eliminating cost of intermediation and reducing transaction costs. Investment in ICT improves incentive structure and facilitates access to market information eliminating information asymmetry and speeds up transaction thereby improving profitability by stimulating demand and supply in response to income and price changes and technological progress. Market integration also calls for actions to promote regional and international cooperation and undertake relevant measures and required investments for climate change mitigation and adaptation. As a matter of policy, all prices need to be market determined with targeted support for the vulnerable groups. More important the government should be formulating pricing policy with the objective of avoiding prolonged excess supply or demand and achieving other social and economic objectives. Besides, formulating policies and strategies to eliminate market fragmentation is important as it deals with entry, cost and exploitative intermediation.
83. Other priorities include implementing export promotion policies in line with comparative and competitive advantage, developing market institutions and pricing instruments to promote quality, cope with seasonality and changing food habit, rationalizing the functioning of the produce, input, land, labor, capital and entrepreneur market. Rationalizing market operations requires wage, price, rent, profit and interest rate flexibility with regulatory control of upper and lower limits as the case may be. The latter is important from various perspectives including balance. For example, a balanced and liberalized produce market will ensure resource use efficiency and balance demand with supply at a price fair to both producers and consumers.
84. Land market in Bangladesh is complex with nothing like market clearing supply and demand interface. Land rents are low but transfer premium is high. Increasingly, investments in land are neither for rental income nor production but for speculative purposes. In simple terms, supply is limited irrespective of the type of use (market) while demand seems to be insatiable making it difficult to model the market for analysis of current and future market behavior. Clearly, this makes policy making and institutional reforms difficult. The situation is being compounded by the day as land is becoming scarce, industrialists and foreign investors interested in setting up industries, deep sea ports and export processing zones are clamoring for land, land speculation is becoming rampant, food and agriculture is losing land, land zoning regulations are routinely flouted, hunger for land is destroying rivers and water bodies and flora and fauna and land is becoming a political tool in the hands of few. One approach is to encourage long term land lease market and limited ownership by foreign entities. The government irrespective of its political affiliation is naturally very sensitive and cautious when it comes to land issues. The government will have to prioritize the development of a regulatory framework and build institutions to implement it for effective operation of an open land market.
85. The labor market on the other hand should be operating to facilitate economy’s ongoing structural transformation from agriculture to industry and eventually to services. The government has to facilitate employer, employee and government tripartite partnership in transforming labor
43
from low productivity skills to higher productivity skills. According to Dr. Rizwanul Islam there is a mismatch between shift in the structure of the economy and that in terms of employment.49 With accelerated growth envisaged for Bangladesh over next several decades, policies and institutions must be geared towards creating productive employment at home and finding higher productivity/income job openings abroad. A well-functioning Labor Law and Minimum Wage Law will improve labor market operations protecting employer and employee interests alike. The Labor Law will have to continue to meet the expectation of the international community concerned with worker welfare in light of recent tragedies in the RMG sector.
86. Capital/financial market integration is important. One important area of concern is financial sector integration and harmonization of the financial sector development with the real sector in Bangladesh. Policy and institutional reforms have to address the problem of fragmentation of the financial sector. The dichotomy between formal and informal sector is an indictment on the coverage and effectiveness of the monetary policy on the one hand and legal and regulatory framework on the other. Policies in favor of creating level playing field for all financial actors and widening and deepening the coverage of financial regulations and strengthening financial intermediation are urgently required. Financial policies have to deal with situations which hinder financial sector integration and efficiency of financial market operations.
87. Dichotomous and lopsided relationship between bank and non-bank financial institutions undermines resource mobilization, financial intermediation and financial sector integration. This has to be corrected.
88. Attention has to be paid to the operations of MFIs which has been much discussed recently in the context of Grameen Bank. MFIs even those under some sort of regulatory framework operate in a world of their own with market delinked interest rate setting, market delinked individual micro and mini borrowers, financial sector delinked small, medium and large MFIs, mixed performance with respect to financial governance, personalized ownership style management, insensitivity to external criticism, unclear succession and graduation route and limited macroeconomic impact of most MFIs. The Grameen Bank stands out in terms of performance but its integration with the financial sector is incomplete. Investment functions of commercial banks and MFIs and activities of investment and specialized banks are neither synchronized nor harmonized.
89. Rural and urban banking services are not uniform in terms of quantity and quality and diversity. This has to be addressed by creating level playing field and improving supervision.
90. Multitude of interest rates prevails in the financial market. Only a fraction is truly market determined. This can be addressed by promoting financial market integration and enhanced monitoring and supervision.
91. Financial market integration and the creation of level playing field is also hindered by large differences among institutions in capitalization, the degree of adherence to prudential norms (capital adequacy ratio, loan classification and provision), susceptibility to liquidity crunch due to asset-liability mismatch and last but not the least differences in management competence and ethics, transparency and accountability which have encouraged fraudulent pyramid/money laundering schemes and loan scams. This is a question of financial governance which is weak across the board in Bangladesh. The Bangladesh Bank has accomplished a lot over past five years.50 Much more needs to be done.
92. The question is what kind of policy umbrella and institutional innovations could integrate different types of financial institutions into one market framework, harmonizing their operations
49
Op.Cit. 50
An account can be found in Bangladesh Bank. 2014. Of Changes and Transformations: Bangladesh Bank. Dhaka.
44
and promoting financial intermediation for development? This will call for greater autonomy and empowerment of the Bangladesh Bank. Some steps have been taken to this effect but more needs to be done. There are other required actions. First is the greater synchronization of monetary policy with fiscal and trade policies. The establishment of modalities of policy coordination and synchronization across Bangladesh government is urgent. Second is policy and institutional push to promote savings and investments which are essential for sustaining the momentum for high growth.
93. Beyond 2030: Continuation of the above policy and strategy with a view to achieving complete market integration and liberalization.
94. Looking forward towards 2030 and beyond, the possible state of microfinance is an enigma. The market failure that gave impetus to the microcredit movement in the first place may not be as relevant in 2030 and after as it is today. Poverty will be significantly reduced but that does not mean financial exclusion will disappear. In 2030 and beyond microcredit will have to deal with residual poverty, frictional poverty, poverty of the marginalized, poverty attributable to regional disparities and poverty induced by climate change and vulnerabilities. Beyond this microcredit will have to deal with the graduates and help families respond to new opportunities linked to market, technologies especially ICT and economic openness. Depending on the ground realities and keeping with the past trend the content, operational modalities, clientele and activity coverage will have to change. Macroeconomic environment will change and microeconomic dynamics will evolve continuously. Changes may also be ushered in by development across the globe. As the microcredit spirit catches on innovations will take place in and outside Bangladesh. Just as Bangladesh is now the sole providers of best practices of microcredit, the center of gravity may shift in the future and Bangladesh may have to learn from others. The possibilities are many with deep-seated implications for economic and social changes across national, religious, ethnic, cultural and political boundaries.
95. Some of the burning issues confronting MFIs are likely to persist beyond 2030s because of the very nature of the MFI movement. These issues are outlined below:
• Liquidity and credit risks: As the NGO/MFIs expand their outreach in the future what kind of a system should one put in place to manage liquidity and credit risks?
• Systemic risks emanating from dominant position of few MFIs: The government has different possibilities to consider. Should the large ones be encouraged to take steps to be broken up? Alternatively, should smaller ones be encouraged to come together and consolidate their operations? Or, should government move the opposite way encouraging merger and acquisition to make larger number of smaller MFIs to disappear?
• Fund utilization: What is the opportunity cost of fund utilization for NGO/MFIs? Will productive and proper utilization of NGO/MFI funds remain a potent issue for consideration in the 2030s? Will the 2030s open up new frontiers for fund utilization?
• Financial and operational accountability: The government should explore the measures that need to be considered to enhance financial and operational accountability of NGO/MFIs in accordance with internationally accepted accounting standards?
• Service charge: The Forum may wish to venture into the highly charged issue of the interest rate charge by MFIs to borrowers. Is MFI interest too high? How to bring it down at par with general banking? What about interest on saving and the interest spread? Could these all be brought in line with general banking practices?
• Balancing social vs financial goals: The Forum considers social functions performed by MFIs as important if not more as financial service delivery. With increasing attention to
45
solvency, return on investment, are MFI losing human face? Is profitability a sound basis for assessing NGO/MFI sustainability?
• Succession management (responsible exits): The Forum is aware that with aging of MFIs the succession question is looming large. How to make smooth transition from original founders to the second generation or from one socially responsible investor to another without losing continuity of purpose and focus? How to manage transition from NGO/MFI to micro credit bank?
• Product (lending and saving) diversification: The Forum needs to review product diversification possibilities for NGO/MFIs. Should diversification be aimed at the poor alone or include non-poor/graduates too?
• Ownership structure and governance: On ownership of NGO/MFIs the Forum has a lot to consider. How is the ownership structure of NGO/MFIs likely to evolve in the future in light of the recent experiences and confusion surrounding ownership? What does it mean for governance and governing structure, the CEO, the Board, duties and responsibilities (including fiduciary) of the Board, decision making (avoiding rubber stamp board) and other related issues? What about private ownership or limited partnership of NGO/MFI?
• Financial intermediation: Commercial banks collect savings in rural areas and invest in urban areas. Grameen Bank collects savings from rural areas and uses it for benefit of rural members. In the future should financial intermediation of NGO/MFI be expanded geographically and sector wise? This question needs careful scrutiny.
• Legal and regulatory framework for NGO/MFIs in the 2030s: The current state is complex, confusing and counterproductive giving rise to public controversies making the future uncertain. All stakeholders need to reflect on how to develop a system-wide consistent legal and regulatory framework facilitating, among others, the transition from NGO/MFIs to microcredit banks?
• Funding: How should MFIs go about diversifying sources of funding reducing costs, spreading risks and introducing flexibility? Microfinance funding comes from clients' savings, loan from PKSF, loans from commercial banks, donors’ fund, cumulative surplus and other funds. Increasingly MFIs are relying on internal resources. In the future MFIs should be looking at diversification of funding sources including donor funds for capital build up, risk management and reserves and capacity building. Other sources are other NGO/MFIs, NGOs, private for-profit and non-profit organizations, private individuals, Investment Company, cooperatives, mutual funds, equity participation, bonds, securities and more loans from financial institutions including banks hopefully at lower costs.
• Sustainability: The Forum may wish to examine how could one ensure sustainability of MFIs? As one approach 2030 and soft funds dry up, sustainability will emerge as the most critical issue for survival of NGO/MFIs and microcredit institutions. All stakeholders need to come together to take a look at the issue. A structured approach has to be followed looking at institutional sustainability covering mission, programme, human resource and financial sustainability; market sustainability; legal policy environment sustainability and impact sustainability.51Financial sustainability has been of particular concern to proponents and critics of MFIs because many MFIs have reached operational sustainability but few qualify for full financial sustainability (no operational subsidy, no
51
http://www.sa-dhan.net/Adls/Microfinance/Miscellaneous/SustainabilityInMicrofinance.pdf
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capital subsidy including grants). Can this situation be corrected? Empirical studies52 have found several factors affecting financial sustainability of MFIs including capital structure, deposits, inflation, lending rate, portfolio at risk, share of non-earning liquid assets, yield on gross portfolio and geographic location. Other factors noted are breadth and depth of outreach, dependency ratio and cost per borrower.53 Looking towards 2030s, these factors need to be examined as these bear on the future of MFIs in Bangladesh.
• Financial system integration and financial sector development54: The Forum need to examine the two way relationship between microcredit and financial sector development. Microcredit contributes to financial sector development and integration and in turn financial sector development and integration contributes to microcredit development. Both are part of the financial sector but the link is tentative. Increasingly microcredit organizations are borrowing from commercial banks though cost is high. Given the large unmet demand for microcredit, excess liquidity of banks needs to be channeled to microcredit institutions for on-lending. MFIs complain about high cost of borrowing from banks and are trying to reduce their exposure to commercial banks. It is true in search for overall financial sustainability MFIs would be looking for cheap capital but at the end all cheap sources will dry up and MFIs would have to deal with the financial market as is. MFIs need to look carefully at the administrative cost ratio which is very high. Reducing administrative costs would open up space for commercial bank borrowing for expansion of MFI lending. Financial system development has implication for financial sector integration which will impact on scale of operations and the level of financial intermediation. In the context of Bangladesh, is full financial sector integration meaning integration of MFIs into the financial system desirable? To a certain extent insulation of the MFI from exposure to broader financial market protects its capital base (though access to large capital becomes difficult) and allows it to operate by separate rules.
• Client and activity outreach: By 2030 there should be more openness with regard to client base and outreach of microcredit programs. The question to be answered in the 2030s, how open? Will the selection of the client base be non-discriminatory and the geographical coverage too? Poor-Non-poor and rural-urban differences may not be as important as it is today.
96. Protecting innovation, vision and dedication: Microcredit as it exists today represents the spirit of innovation, visionary leadership and dedication of Professor Yunus transmitted now to many more around the world. By 2030 new generations will take over. This generation of microcredit leadership will come out of a completely different background than their present day
52
Iezza, Paolo. 2010. Financial sustainability of microfinance institutions (MFIs): an empirical analysis. Master’s Thesis at the Department of Economics, Copenhagen Business School.
http://studenttheses.cbs.dk/bitstream/handle/10417/1560/paolo_iezza.pdf?sequence=1&bcsi_scan_e41ddc73166bc1eb=wP/CmWy8+QqTOj3mSrGV9BGQm1gBAAAAecmBAQ==&bcsi_scan_filename=paolo_iezza.pdf 53
Kinde, Bayeh Asnakew. 2012. Financial Sustainability of Microfinance Institutions (MFIs) in Ethiopia. European Journal of Business and Management, Vol 4, No.15, 2012.
www.iiste.org/Journals/index.php/EJBM/article/download/ ; Borbora, Saundariya. Undated. Microfinance Institutions: Sustainability and Outreach. http://www.wbiconpro.com/314-Borbora.pdf; Guntz, Sarah. 2011. Sustainability and profitability of microfinance institutions. Research Paper 4/2011, Center for Applied International Finance and Development (CAIFD). http://www.th-nuernberg.de/fileadmin/Fachbereiche/bw/studienschwerpunkte/international_business/Master/CAIFD/ResearchPapers/SustainabilityAndProfitabilityOfMicrofinanceInstitutions_Guntz.pdf 54
Maksudova, Nargiza. Undated. Contribution of Microfinance to Financial Sector Development and Growth. . CERGE-EI1* http://www.microfinancegateway.org/gm/document-1.1.8998/Contribution%20of%20microfinance.pdf
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counterpart. Yunus has lived through poverty and famine in Bangladesh, has witnessed firsthand the agony of exclusion of the marginalized families in neighboring villages including Zobra where Grameen Bank was born. That is not applicable to other leaders and definitely will not be applicable to the new generation of leaders. The question the Forum may wish to explore in this context, can the new generation of microfinance leadership take the movement to higher plane to innovate and experiment in response to emerging local, national and global challenges? Much depends on the answer to this question.
Develop an Information and Communication Technology Policy and strategy 2015-2050 with Five-Yearly Rolling Program of Action
97. Vision 2021 envisages a digital Bangladesh by 2021. Government’s 2009 ICT Policy strives for social equity, productivity, integrity, education and research, employment generation, strengthening exports, healthcare, connectivity, environment, climate and disaster management and supports to ICT (hardware and software). Action plans include a wide range of activities which are well laid out and make a case for ICT development in Bangladesh as a tool for growth. The 6th plan55 presents five components of the ICT based economic development framework: (i) connecting citizens, (ii) human resource development, (iii) digital government, (iv) e-Parliament, and (v) e-business. We endorse the content of the 2009 ICT Policy and ICT development strategies outlined in the 6th Plan as adequate for a digital middle income Bangladesh by 2021. The results will depend on implementation. Hesitation, delay and negligence and drifting away from the strategic path will be serious setback for Bangladesh’s prospect. Alternatively, effective implementation of the ICT policy and strategies and their refinement and upgrading would lay the foundation a more advanced digital state required for Bangladesh to reach upper middle income by 2030 and developed country level by 2040-2050. Progressively all aspects of Bangladeshi life would have to be guided and facilitated by ICT to improve access and participation, eliminate digital divide, raise productivity and connectivity, facilitate transfer of technology, mobilize necessary financial and human resources, develop human resources, institutions and facilities, create appropriate incentive framework, improve the quality of life, motivate research and innovation, speed up and upgrade business, industry, exports, governance legislation, service delivery and security and safety, ensure computer literacy for all as multilingual contents are developed in response to demand.
98. Over the longer term, looking at the prospect of Bangladesh moving on to a higher growth trajectory, ICT policy and strategies have to deal with (i) computer literacy, (ii) transport infrastructure development and management (e.g., traffic and cargo and people movement), (ii) energy development, diversification,, conservation, transmission, marketing and distribution and management, (iii) training skill development for ICT as well as for all sectors, (iv) governance and service delivery, (v) financial management and regulation, (vi) development of policies and institutions, (vii) basic education for growth, (viii) regional cooperation, (ix) climate change mitigation and adaptation and environmental protection, (x) land management and (xi) labor management, (xii) capital management, (xiii) market management, (xiv) universal connectivity (every person and institution in Bangladesh cyber connected, (xv) hardware, software and content development, procurement, distribution, operation and maintenance, (xvi) demand assessment and management of supply demand mismatch, (xvii) ICT export and import, (xviii) information management, (xix) incentive framework (finance, tax and non-tax), (xx) process management (production, consumption, saving, investment, trade, transit, transport, law and order maintenance, internal and external security, foreign relations, and (xxi) research and innovation and capacity building.
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Government of Bangladesh, Planning Commission. 2011. 6th Five Year Plan FY 2011-FY 2015, Accelerating
Growth & Reducing Poverty, Part-2 Sectoral Strategies, Programs and Policies. Dhaka pp. 273-274.
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99. At more specific level some of the ideas of the 2009 ICT Policy and the 6th Plan are worth reiteration:(i) establishing community e-centers and women’s e-commerce center, (ii) providing access to critical public services, (iv) developing special ICT literacy and training programmes with particular focus on PPP for developing skilled human resources for improving enterprise productivity,, (iv) providing grants for local language and locally relevant content development including content suitable for children, (v) providing infrastructure and operational support for internet connectivity up to all villages of the country, (vi) establishing e-governance in all executive layers of the society, community and Government, (vii) developing collaborative programs with Non Resident Bangladeshis (NRB) and international research organizations for technology & knowledge transfer for productivity, (vii) using ICT for service delivery including banking, ticketing and bill payments, agricultural extension, national ID, passport, vehicle registration, driver’s license, land and other property registration and transfer, status of court cases, export market information, real time access to market information, and the like, (viii) implement ICT Act 2006 and create infrastructure for e-commerce, e-payments, and e-transactions, (ix) allowing online registration and work permit for foreign investors and VAT registration and tax filing, (x) using ICT tools for file and information sharing among all the ministries/ divisions and departments/offices, (xi) building capacity of government officials and foster leadership for electronic service delivery, (xii) making all government information in public domain available online, (xiii) promoting public-private partnerships for the private sector to invest in government service delivery using ICTs, (xiv) assessing skills of ICT professionals and meet gaps with targeted training programmes to overcome the skills shortage in the ICT industry, (xv) identifying market niches with global competitive advantage for Bangladesh for ICT and ITES (web and mobile content development, animation, Game Development, DTP, financial transaction processing, etc.), (xvi) developing marketable skills for domestic and international markets by incorporating ITES-focused short courses in TVET programmes, (xvii) establishing an ICT Centre of Excellence with necessary long-term funding to teach and conduct research in advanced ICTs, (xviii) extending the reach of ICT literacy throughout the country by incorporating ICT courses in secondary education and TVET programmes, (xix) ensuring that all universities provide global standard ICT education and introduce Postgraduate Programmes in ICT education to encourage research and innovation, (xx) provide incentives for investment in local ICT industry through an Authority/Body on ICT Industry development and an ICT Industrial Development Fund (IIDF), (xxi) creating Venture Capital fund for young ICT graduates to establish startup ICT companies backed up by a special ICT Entrepreneurship Development Fund, (xxii) building institutional capacity for producing greater number of IT professionals in line with domestic and global demands for knowledge workers and provide incentives (scholarships, teacher incentives, advanced training possibility, capacity expansion of training facilities, increased female enrolment), (xxiii) developing strong marketing, promotion and branding for Bangladeshi ICT products and services in global markets, (xxiv) fostering innovation through research & development to improve quality, process, technology, domain, value chain and niche markets, (xxv) developing Centers of Excellence with participation of industry and academia for creation of intellectual property, (xxvi) ensuring reliable and cost-effective power supply, (xxvii) building ICT infrastructure facilities in educational institutions, and the most basic (xxviii) improve Internet availability and reliability.
V. CONCLUSIONS
100. Following liberation, Bangladesh economy started tentatively in the 1970s under democratic leadership struggling with the legacy of a post-conflict landscape, coasted uncomfortably under autocratic leadership in the 1980s, sprang back to life with accelerated growth under democratic leadership in the 1990s to present with some interruptions due to
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natural, manmade, national and global perturbations and political uncertainties and conflicts. A democratic government has held out the Vision 2021 of a middle income Bangladesh. This paper looks beyond 2021 and argues that Bangladesh can continue to grow, move to a higher growth trajectory with skill development and productivity growth driven structural transformation (from agriculture to industry to services) to reach upper middle income status by 2030 and developed country status by 2040-2050.
101. What are the sources of optimism? Demographic dividend is one. Clearly identifiable sources of growth are another. Financial inclusion (including microcredit) with stability is one other. Sociopolitical envelope of a functioning pluralistic democracy is the fourth. Rising total and agricultural labor and land productivity is fifth. Rice commercialization and export is the sixth. Female literacy and labor force participation is next. Overseas employment and remittances is eighth. Export led growth is ninth. Structural flexibility (amenable to change) is perhaps the plum. History suggests pluralistic democracy binds all together. Otherwise one or the other factor will shine while others lag behind and the total result less than optimal.
102. Bangladesh is traditional in look but modern, dynamic and open in spirit. The Bangladesh economy and society has gone through substantial structural transformation over past forty years without much tension. It should be able to go through more given the structural flexibility already built in to the body economy and society. The rural-urban, agricultural-non-agricultural and societal-technological transformation and the quantum shift in saving, investment and FDI as well as labor intensity of industries anticipated in the next several decades is almost unprecedented in history. There are challenges along the way.
103. Bangladesh has to overcome the so called middle-income trap (after reaching a certain level income is stagnant – cases of Brazil, Indonesia, Malaysia, South Africa and Thailand) and jobless growth (rapid growth without employment creation – the case of the Philippines). Beyond the Middle Income Trap and jobless growth which represent structural limitations to growth, Bangladesh will have to deal with a number of other constraints to longer term sustainable growth. Connectivity (roads and ports), energy and skills are among the most binding constraints for Bangladesh. Other constraints are governance (lacking strength, transparency and accountability and widespread corruption), finance (inadequacy especially poor performance of FDI), policies and institutions (inadequacies and lack of continuity), basic education (inadequate preparation for participation in a tech savvy, multilingual, multi-skilled and multi-tasked world), regional cooperation (lack of), vulnerability to climate change and natural disaster, land (quality and quantity) and size, structure and functioning of the domestic market in that order.
104. Policies, strategies and institutions to overcome constraints to growth are laid out in two phases, those relevant for up to 2030 and others that have to be implemented beyond 2030. By and large prescribed actions for the first phase will have to be continued with some additions, amendments, refinements and alterations for the second phase. These recommendations are based on current and projected knowledge of what is and what might be. As events unfold, policies, strategies and institutions may have to reviewed and revised to take account of new realities. That is only natural. Therefore one has to treat recommendations of the study with caution and flexibility. What is important is that economic policy making and strategy formulation are carried within the framework of pluralistic democracy to allow constructive debate as a basis for national consensus and effective implementation of programmes for middle income Bangladesh by 2021, upper middle income Bangladesh by 2030 and a developed Bangladesh by 2040-2050.
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Annex Map
Source: ADB
Bangladesh Transport Network
Corridor Priority (EIRR%)
EC1 29.3% 1
EC2 27.8% 2
EC4 27.5% 3
EC6 27.5% 4
EC5 27.4% 5
EC3 26.0% 6
EC9 25.1% 7
EC7 24.8% 8
EC8 24.3% 9
All 27.2%
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