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Bangladesh - Economy

Foreign investors in a broad range of sectors have been increasingly frustrated with the politics of confrontation, the level of corruption, and the slow pace of reform. Investors viewed favorably steps taken by the interim government to address corruption, governance, and infrastructure issues, though most believed it was too early to assess the long-term impact of those developments. With the reemergence of Sheikh Hasina in a position of political leadership, and her subsequent interest in international outreach, opportunities to build upon U.S.-Bangladesh economic cooperation exist. For prospective economic cooperation to be further realized, Bangladesh must address its market shortcomings and vulnerabilities in a timely manner.

Poverty in Bangladesh is party a result of the long history of low urbanization, weak institutions, spotty and inadequate physical infrastructure, and insufficient entrapreneurship. Other reasons cited as causes of persisting poverty include illiteracy, idleness, class exploitation, the selfishness of individuals, and a lack of trust among people. The conditions under which the people of some East Asian countries have virtually propelled themselves into a more dynamic economic situation simply do not exist in Bangladesh.

While more than 30 percent of the population remains below the poverty line, Bangladesh has made impressive progress since gaining independence in 1971. Bangladesh has reduced child mortality by more than two-thirds, and is on track to meet its 2015 Millennium Development target well ahead of schedule. It has also reduced the number of people affected by hunger from 40 million to 27 million, and reduced gender inequality in schools and in the labor force.

Although one of the world's poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, through increased domestic production augmented by imports. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self-sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. Bangladesh is limited in its reserves of coal and oil, and its industrial base is weak. The country's main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas.

Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, maize and vegetables are assuming greater importance. Due to the expansion of irrigation networks, some wheat producers have switched to cultivation of maize which is used mostly as poultry feed. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh's labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks.

With 28.8 million metric tons produced in 2005-2006 (July-June), rice is Bangladesh's principal crop. By comparison, wheat output in 2005-2006 was 9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. /p>

The IMF and World Bank predicted GDP growth over 2010-2015 of about 6.0%, well short of the 8%-9% needed to lift Bangladesh out of its severe poverty. The initial impact of the end of quotas under the Multi-Fiber Arrangement has been positive for Bangladesh, with continuing investment in the ready-made garment sector, which has experienced annual export growth of around 20%. Downward price pressure means Bangladesh must continue to cut final delivered costs if it is to remain competitive in the world market.

The total labor force was approximately 50 million, of whom approximately 1.9 million belonged to unions, many of which were affiliated with political parties. There were approximately 4,000 garment factories employing 2.5 million workers; more than 80 percent were women. No reliable labor statistics were available for the large informal sector in which the majority (nearly 80 percent) of citizens worked.

Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force.

Bangladesh is one of the poorest countries in the world with about 45 million “very poor” people, (as measured by the Cost of Basic Needs method). In 1996, 48 percent of the people of Bangladesh did not consume enough food to obtain their minimum caloric intake recommended for good health, and thus were below what is called the absolute poverty line in most countries. In 1997, 59.3 percent of children ages 6 to 59 months suffered from stunting, a long-term nutritional indicator of poverty. This grinding poverty has forced many families to put their children to work at a very young age.

According to the Bangladesh Bureau of Statistics Labor Force Survey (1990), there are 5.7 million 10 to 14 year old children working in Bangladesh. Another estimate puts the number at 15 million. Nearly all the child labor in export industries is found in the garment industry. According to the Bangladesh Ministry of Labor, "children are found working in garments, bakeries and confectioneries, hotels and restaurants, transport, bidi (cigarette) factories, small engineering workshops, fish-processing, and other informal and unregulated sectors." There are also allegations of children catching and processing shrimp in Chittagong for export.

Bangladesh has over the years accumulated a large number of development projects involving massive public investment, mostly financed by foreign loans and grants, which are operating at well below their productive capacity. In most sectors such development projects of a significant scale have been put in place, after many years of preparatory work, based on the expectation that they would make significant contributions to the growth and diversification of the Bangladesh economy. Much time and energy, often dating back to the period of Pakistani rule, was invested in mobilising external funding for these projects. Yet once these projects were commissioned little attention was paid by successive governments to ensure that these projects performed according to the promises spelt out in their feasibility studies. In many cases such projects operated at well below their capacities and even ceased to operate.

The reluctance by the government, under donor advice, to support investment in capital and intermediates goods industry in Bangladesh has set in motion a process of de-industrialisation, where a variety of industrial sectors in Bangladesh have atrophied. The necessary policy support and commitment of resources for the development of an engineering industry, as was attempted by governments in some fast industrialising East Asian countries, was totally neglected by successive governments in Bangladesh over the last two decades. Thus policies which could build a more self reliant economy through both accelerating and diversifying Bangladesh's industrial base were never considered as a development option.

The authorities announced in the early 1990s that 54 firms were to be privatized within the financial year 1997-98. But the authorities were unable to privatize such a large number of firms. The Awami League government reconstituted and strengthened the Privatization Board since assumed power in 1996. However, since then only four enterprises hade been privatized and handed over to the private sector by the end of the decade. The pace of the program is slow even though the authorities were determined to privatize a large number of enterprises within two or three years.

Bangladesh Steel and Engineering Corporation (BSEC) was established on July 1, 1976 by incorporating Bangladesh Steel Mills Corporation and Bangladesh Engineering & Shipbuilding Corporation.Initially this Corporation had as many as 62 different Enterprises. After Privatization through sale and returning back to the original owners, as of 2010 only 15 Enterprises were remaining with the Corporation. Of this 9 were in operation and the rest were awaiting sale or/and going back to original owners.

The Bangladesh Government continues to court foreign investment, something it did fairly well in the 1990s in private power generation and gas exploration and production, as well as in other sectors such as cellular telephony, textiles, and pharmaceuticals. In 1989, the same year it signed a bilateral investment treaty with the United States, it established a board of investment to simplify approval and start-up procedures for foreign investors, although in practice the board has done little to increase investment. Bangladesh also has established export processing zones in Chittagong (1983), Dhaka (1994), Comilla (2000), Mongla (2001), Iswardi (2005), Uttara (2006), and Karnafully (2007).

The most important reforms Bangladesh should make to be able to compete in a global economy are to privatize state-owned enterprises (SOEs), deregulate and promote foreign investment in high-potential industries like energy and telecommunications, and take decisive steps toward combating corruption and strengthening rule of law.

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Page last modified: 18-05-2012 15:25:54 ZULU