Frontier markets

Climate risk belies booming Bangladeshi economy

Bangladesh is one of Asia’s fastest-growing economies but the growth rate is not matched by the level of foreign investment. Natural disaster remains a major drawback.

Bangladesh was Asia’s fastest-growing economy last year but remains one of the region's least preferred investment destinations.

Despite record-breaking growth of 7.86% in 2018 and its booming textiles sector, the South Asian nation attracts less foreign direct investment than Cambodia and even Myanmar. 

Among the obstacles cited by economists are the country's underdeveloped capital markets, its risky and unstable banking sector, its burdensome bureaucracy and high levels of corruption, and also political and regulatory uncertainties.

But there's one element often overlooked – climate risk.

The World Bank in 2015 named Bangladesh one of the countries most vulnerable to climate change and natural disasters. The country’s flat topography and vast low-lying plains make it highly susceptible to floods, droughts, cyclones and earthquakes.

More than 80% of the country’s 160 million people are exposed to floods, earthquakes and droughts, and 70% to cyclones, the World Bank estimates. About 25% of the land mass is inundated with water every year and severe flooding occurs every four to five years.

In 2007, Bangladesh suffered an estimated economic loss of $1.7 billion, or about 2.6% of its GDP that year, after tropical cyclone Sidr caused more than 3,400 deaths in one of the country’s worst natural disasters ever.

Bangladeshi villagers tried to pull a big boat back in the water after Cyclone Sidr

Germanwatch, a Berlin-based environmental organisation, estimates that Bangladesh suffered about $2.8 billion in damage due to natural disasters in 2017. That was about 1.1% of its $249 billion GDP that year.

POOR INFRASTRUCTURE 

To be sure, Bangladesh’s high disaster vulnerability is to a large extent a result of its poor infrastructure and inefficient utility services.

A weak electricity network, frequent power shortages and inefficient water supply are among the many factors that aggravate damages and intensify the risk of food insecurity and spread of diseases during extreme weather.

Climate change remains a barrier to Bangladesh in achieving its economic development targets and improving the livelihood of its people.

Addressing climate change is a national priority. With the help of international organisations such as the World Bank and Asian Development Bank, the Bangladeshi government has invested more than $10 billion over the years to mitigate some of the risks arising from natural disasters.

Some of the initiatives include building emergency cyclone shelters, rehabilitating coastal embankments, improving farming systems and developing early warning and disaster management systems.

Extreme weather disasters are set to become more frequent and severe as global climate change exacerbates.

At the moment, there is no direct evidence to show how climate-related risks can impact investment at the institutional level.

However, at the same time, it is becoming increasingly clear that sophisticated investors recognise the importance of integrating climate-risk factors into the investment process, as better meteorological stats and analysis allows them to better assess the implications of natural disasters.

So as Dhaka works towards attracting foreign investment through economic reform and regulatory improvements, it is equally important that it steps up efforts to address climate change.

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