Bangladesh is a special case. The South Asian country, with a population of 160 million, has maintained consistent 6% growth during the past decade despite the global financial crisis, numerous political upheavals and several man-made or natural disasters. Rather than a wretched basket case that keeps aid agencies employed, Bangladesh is increasingly attracting the attention of international investors and foreign companies.
Indeed, in 2005 Jim O’Neill, former chairman of Goldman Sachs Asset Management and chief economist at Goldman Sachs, included Bangladesh among the “Next 11” countries set to follow the Bric nations to become some of the biggest economies in the world.
“More than anything, Bangladesh’s inclusion is based on demographics: its large, youthful and enterprising population,” O’Neill told delegates at the inaugural FinanceAsia Bangladesh Investment Summit, Europe, held in London at Grosvenor House on June 11.
The “Next 11” covers a broad spectrum that ranges from South Korea and Mexico to Nigeria and Pakistan. O’Neill devised scorecards covering six categories: political conditions, macroeconomic conditions, macroeconomic stability, human capital, technology and microeconomic environment, that are further sub-divided into key components.
Bangladesh scores impressively (2012 compared with 1997) for mobile subscriptions, reduction in the cost of starting a business, life expectancy and a more open economy. The country scores less well for political stability and inflation
Bangladesh can eventually attain the level of affluence and development achieved by South Korea, according to O’Neill. It will move up the value chain and already its IT sector is growing rapidly. It needs to stay the course, which means tackling corruption, investing in infrastructure, improving labour conditions, encouraging entrepreneurs and instilling a respect for the rule of law.
The country’s steady economic growth performance so far is due in part to its well-diversified economy, which helps insulate it from sector-specific shocks, said Hassan Zaman, chief economist at Bangladesh Bank at the Summit. The economy is made up of 50% services, 31% industry and 19% agriculture.
Clearly, it is wrong to associate the country solely with the ready-made garment industry, which nevertheless accounts for 75% of exports. But other exports are growing, including pharmaceuticals, jute, leather products, IT/outsourcing, and shipbuilding, and total exports have more than quadrupled to $26.7 billion over the past decade.
Remittances are also a significant source of foreign exchange. They have grown by 16% already this year, and are received from countries in the Middle East, the US and UK. In fact, inflows from remittances last year presented a tough challenge for the central bank to sterilise their impact on inflation.
Bangladesh is getting wealthier. It has a GNI per capita of around $900 now compared with the middle-income threshold of $1,025. The population in poverty fell from 61.6 million in 2000 to 44.8 million in 2010, yet, the Gini inequality measure stayed constant at 0.33) over the decade, promoting social cohesion, said Zaman.
There have been other significant gains in social indicators over the past 20 years, such as lower infant mortality, decreased, longer life expectancy, which compares favourably with India.
However, Bangladesh faces important challenges. Political strikes and demonstrations ahead of this year’s elections could damage investor sentiment and economic growth. The Rana Plaza factory collapse disaster in April where hundreds of people died underscore the need for more stringent enforcement of standards related to worker welfare.
In the financial sector, the fraud at a state-owned commercial bank should lead to a tighter focus on financial sector oversight, which will be helped by compliance with the terms of the IMF’s $1 billion Extended Credit Facility agreed in April 2012.
Perhaps, the most essential requirement is that Bangladesh nurtures a business culture and institutional mindset that can attract sustainable investment. This was emphasised by Lord Heseltine, former deputy prime minister of the UK and founder of the Haymarket Group.
“The reliable, engrained recognition of the importance of the rule of law and the ability to find the right partners provide confidence for investors and anyone doing business in a country,” he told delegates at the London summit.