Why Bangladesh is flying high at 50

Returning after over a decade, in 2003, as India’s high commissioner to Dhaka, Sikri noticed palpable changes—high rises taking the place of single-floor bungalows as the upwardly mobile moved into apartments and shops gave way to malls. The streets were choc-a-bloc with reconditioned Japanese cars. In the countryside, agriculture was booming with farmers getting three crops a year from their fields.

Of late, one hears that Dhaka—a bustling city of almost 21 million—will soon have its own metro.

Once a byword for poverty and disaster, famines and floods, Bangladesh’s per capita GDP now closely rivals India’s after having surpassed Pakistan in the last decade. According to human develoment indicators, Bangladesh outranks its bigger neighbours (see chart)—a far cry from the “basket case" that then US National Security Advisor Henry Kissinger had once made it out to be.

By 2026, this once calamity-prone outpost of South Asia is expected to be counted among developing countries of the world. Its prime minister, Sheikh Hasina, aims to make it a middle-income country by 2031.

The world is taking notice. “A very young demographic structure, a continued competitive edge in terms of wage levels, strong and rising female labor-force participation, especially relative to the rest of South Asia," wrote the Wall Street Journal in a piece titled “Bangladesh Is Becoming South Asia’s Economic Bull Case".

“We could have gone down the tube but managed to stay afloat," said Tariq Karim, a former Bangladeshi diplomat who has been Dhaka’s envoy to the US and India. In the early years, Bangladesh faced famines and severe political instability when its freedom icon Sheikh Mujibur Rehman was assassinated. “The non-government organizations (NGOs) played a critically important role in stabilizing the country," Karim added.

Propitious events like the 1974 Multifiber Arrangement (MFA)—that allowed Bangladesh to export garments to markets like the US and Europe as quota restrictions on countries like Japan kicked in—and easier labour laws set the stage for the dramatic rise of the ready-made garments’ (RMG) industry in the 1980s. Today, other high-growth sectors like pharmaceuticals are snapping at the heels of the RMG industry.

“In my view, the most important driver of Bangladesh’s success is something rarely acknowledged by economists—the empowerment of women. Whether you call this luck or strategy is a semantic matter. The fact is that the early interventions by NGOs, like Grameen Bank and BRAC (Bangladesh Rural Advancement Committee), did a lot to empower women," said Kaushik Basu, economics professor at Cornell University, in emailed comments to Mint.

Of course, credit also goes to the governments of the day. In an editorial last month, Mahfuz Anam, editor of Bangladesh’s Daily Star credited the Sheikh Hasina government for injecting a “can do" feeling among the people since her government took office in 2008.

On the flip side, however, commentators like Anam have slammed what they call repressive measures—like the enactment of the Digital Security Act by the Hasina government in 2018. The act is aimed at curbing religious radicalism and pornography online. But news reports say its provisions are vague with stiff jail terms for those posting “aggressive or frightening" content.

Given that such terms are open to interpretation, critics say the law has been used to stifle criticism of the government and settle scores with the opposition. Hasina has also been accused of arresting opposition activists—many opposition leaders are barred from contesting polls due to their criminal convictions.

According to Basu, “There are pluses and minuses to Sheikh Hasina’s rule but her upholding of secularism has played a role in making Bangladesh’s society and economy more open and inclusive. These qualities help economic growth in bigger ways than most people realize."

So, as Bangladesh looks ahead to 2031, how robust are the two prongs—NGOs and RMG industry—that have got the nation thus far? And What are the challenges it faces? Finally, how does an economically resurgent Bangladesh affect India?

The twin prongs

Asif Saleh, executive director of BRAC, Bangladesh, is a busy man. He oversees the work of Bangladesh’s oldest and the world’s largest non-governmental organization. It played a pivotal role in filling the gaps left by stretched governments in the nation’s first 15 years or so.

According to Saleh, what set BRAC apart from the foreign NGOs was that it focused on ensuring that people become capable of earning a livelihood. This meant helping people buy a farm animal or set up small businesses with small loans. “BRAC decided on a multidimensional attack on poverty, centred around the village," Saleh told Mint. At one time, BRAC had 64,000 schools in comparison to some more than 40,000 run by the government.

The empowerment of women too was a priority for BRAC. Saleh recounted run-ins with Islamist groups who in the 1980s burnt BRAC-run schools and tried to instigate common people against the NGO that it was leading women “astray". “BRAC’s central philosophy was that inequalities need to be addressed. For that, you need to break the glass ceiling or try and get around it. We have had a very progressive agenda and religion did not come into it," Saleh added.

Fronted by Mohammed Yunus, Bangladesh’s other celebrated NGO, Grameen Bank, stuck to micro lending. While the interest rates may have been high, the loans were small with near zero defaults. Also, care was taken to ensure that money was loaned to the senior female member of the household.

The result: Bangladesh bettered its social indicators. Manmohan Parkash, the Bangladesh country director of the Manila based Asian Development Bank explained how deeply set this focus was from the nation’s beginning: “Sheikh Mujibur Rehman had three sets of people backing him—the poor, the women and the youth—at the time of the freedom movement. So, food, shelter and health were the first priorities."

The RMG industry was a beneficiary of the NGOs focus on the rural women in Bangladesh. But the industry has also played its part in empowering them, says Rubana Haq, president of the Bangladesh Garment Manufacturers and Exporters Association.

“The main reasons behind the extraordinary growth that Bangladesh’s RMG industry has experience is some of the policy support like back-to-back credit opportunity, bonded warehouse facilities and most importantly, the resilience and decade long hard work of our entrepreneurs," Haq said.

The RMG sector crossed the landmark of $34 billion export in FY 2019, directly impacted 4.1 million lives. The garment industry has “historically" been a space that women workers have dominated without any “backlash" from society.

Cornell’s Basu added that the absence of complex labour laws (like the colonial Industrial Disputes Act) played a role too. “Bangladesh was lucky. It was born in 1971 without the law since Pakistan had already gotten rid of it, but then it recreated much more sensible laws and this facilitated its manufacturing sector, helping exports to take off. This played a big role in Bangladesh’s huge success in the garment industry," Basu said.

The challenges

Having cast its “basket case" tag decisively aside, there are many challenges before Bangladesh as it targets becoming a middle-income country by 2031. An immediate one is poverty reduction. The World Bank predicts that poverty would “increase substantially in the short term, with the highest impact on daily and self-employed workers in the non-agricultural sector and salaried workers in the manufacturing sector."

Another challenge is moving RMG production up the value chain. “Despite being the second-largest apparel exporters in the world, 80% of our garment exports fall within the price range of $15 per kg and only 20% of the exports get a price above that up to $35 per kg," said Huq.

According to ADB’s Parkash, cheap labour has been an advantage but upskilling of workers is the key to move into high-end manufacturing like Vietnam has successful done. “There is a young population that is willing to learn. One needs to invest in R&D and equip them in science, technology, engineering and mathematics that will increase their employability," Parkash said.

Pointing to the 10 million expatriate Bangladeshis who send back $25 billion in remittances each year, he said that if locals were skilled better, remittances could swell to $100 billion.

Improvement of infrastructure—roads and ports—is another problem to be dealt with. “Chittagong port is deeply congested. The Japanese are building another port at Matarbari. This should help Bangladesh build warehouses to attract container traffic," Parkash said. “Reworking of the industrial policy to create more jobs, develop the financial sector that is open transparent, agile and modern financial system" were some of the things Bangladesh needed to set right, he said.

“Foreign Direct Investment in Bangladesh is currently 0.6% of GDP. This is too low," he added.

The role of India

A growing Bangladesh is good news for India. “When you clock growth rates like 8.3%, you are not threatened by India which is seen as an economic giant in South Asia," said Smruti S. Pattanaik, analyst at the government-backed Manohar Parikkar Institute of Defence Studies and Analyses.

Sharing a border of almost 4,100 km with Bangladesh, India has a major stake in peace and prosperity in Bangladesh. For one, an economically vibrant Bangladesh ensures there is no illegal migration, seen as a major irritant in ties, said former foreign secretary Kanwal Sibal.

Given its tensions with Pakistan and worries about China making inroads into countries along India’s neighbourhood, New Delhi has made special efforts to keep Bangladesh on its side. This has translated into $8 billion in lines of credit; a slew of connectivity projects that has benefitted both countries; and nine million vaccine doses to deal with covid-19, more than any of India’s neighbours have received.

In 2015, India’s Parliament ratified the land boundary the pact with Bangladesh pending since 1974—uplifting ties to an altogether new level. Long pending demands of the use of each other’s territories to move goods were accepted by both. India sends goods to its landlocked northeast through Bangladesh—once a matter of major contestation—while Dhaka’s trade with Kathmandu crosses through India.

Warmer ties have meant disagreements are voiced in private with amid public displays of bonhomie. “There are many unresolved issues—sharing of the waters of the river Teesta for example is seen as a hurdle. But whenever there is a reference in public its always that the other side understands India’s limitations," said Harsh V. Pant, an international relations professor at the London-based King’s College.