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Bangladesh Economy: Opportunities and Challenges

Speech by
Hua Du
Country Director, Bangladesh Resident Mission
Asian Development Bank

At the Monthly Luncheon Meeting of American Chamber of Commerce in Bangladesh

17 June 2008
Dhaka

Distinguished business leaders, development partners, and ladies and gentlemen:

I would like to start by thanking the American Chamber of Commerce for inviting me to share my thoughts on development in Bangladesh. I am talking here today just a couple of weeks before leaving Bangladesh after staying here for nearly six years; and this is the third time I've been invited to speak before you. I recall on this occasion the many interesting, inspiring, and sometimes thought-provoking speeches by many other distinguished speakers at AmCham's monthly luncheon meeting that I have enjoyed.

Bangladesh achieved strong economic growth and impressive social development

Indeed, I've personally witnessed a dynamic and growing Bangladesh over the past six years. Gross domestic product (GDP) growth steadily climbed to over 6% a year in the preceding 5 years, up from 4.8% in the 1990s, and 3.5% in the 1980s, and poverty incidence continued to decline. GDP growth is estimated at 6% in fiscal year (FY) 2008 with fiscal and current account imbalances contained at manageable levels, a remarkable performance considering the impact of the twin floods and a devastating cyclone in 2007 and heightened external shocks. With the current growth trends, the country has the potential to reach the threshold of a middle income country by the year 2020. With higher GDP growth rates of 8-9% a year, Bangladesh can even become a middle income county earlier than 2020.

The people of Bangladesh are dynamic, resilient and hard working. Even with heightened external shocks and critical governance and capacity constraints in its political and public administration system, the country has sustained macroeconomic stability. Before the phase-out the MFA, some predicted that the country's garments industry would collapse. But that did not happen; the garments industry continues to show strong growth, outperforming many others. Notwithstanding the infrastructure and human resources constraints that foreign investors face in countries with low levels of economic development, Bangladesh offers opportunities for foreign investors in important sectors, including power, steel, fertilizer, hotel, tourism, and petrochemicals. These opportunities are reflected in the inflows of foreign direct investment (FDI), which increased from virtually zero in the early 1980s to $760 million in FY2007. Access to a growing market with a population of over 140 million, low-cost production facilities, particularly, low-cost labor and natural resources have made Bangladesh significantly more attractive to international investors. In the power sector, for instance, generation by independent power producers (IPPs) has risen from nil in 1997 to 32% in 2007, currently providing 1,190 megawatts of the country's power generation.

Over these years, I've also witnessed the impressive gains that the country has obtained in key social and human indicators, including improved life expectancy, better access to education and health facilities, gender parity in both primary and secondary schools, and advancement and empowerment of women. The country's strong commitment to girls' education has led to amazing gender parity in primary and secondary education and the country is on the right course to meet the key MDG targets by 2015. The country has also made good progress in reducing maternal mortality rates and increase in female life expectancy. Though often paid a very low wage, the contributions of the two million female workers to the garments industry have been incredible, which accounts for 70% of country's exports and the highest export earner for the country. The garments industry has revolutionized the mobility of women, broken the social taboo and brought about a positive change in the attitude about women's working in the factories, outside home. The role of NGOs and increased access to microfinance for poor women has also made significant impact on women's advancement and empowerment in the vast countryside. The enhanced social mobility of women has not only improved their purchasing power, but also given them more respect in the family, access to better health services and reduction in fertility. The government has also announced the National Women Development Policy 2008 for promoting social, political and economic empowerment of women, which will undoubtedly help mobilize half of the country's population into the development process benefiting the nation in economic and social progress.

Critical governance reforms accomplished

Looking back, together, we had lived through some very difficult times. Since the political deadlock in late 2006 and subsequently, the installation of the present caretaker government in January 2007, we have witnessed a series of key economic and governance reforms by the caretaker government, to ensure timely and effective transition to an elected government. I believe that none of you will disagree the current caretaker government has gone the extra mile to restore law and order, and to improve the overall governance setting, by implementing several key governance reforms, including the separation of the Judiciary from the Executive, reconstitution and operationalization of the Anti-Corruption Commission, ratification of the United Nations Convention Against Corruption, reconstitution of the Election and the Public Service Commissions, and establishment of the Local Government Commission. The Government is also expected to enact a law very soon on the Right to Information, and prepare a National Integrity Strategy to address the issue of ethics and corruption in a holistic manner.

Improving good governance in a developing country like Bangladesh is not a quick and simple task. Though, we're indeed impressed by the pace of unprecedented governance reforms that Bangladesh has achieved during the last 18 months. There are challenges ahead, but we are all hopeful that these reforms will be sustained in the future. It will be pertinent to mention that ADB has placed good governance as one of the strategic priorities in its assistance program to Bangladesh. Last November the ADB-supported Good Governance Program came into effect, through which we are providing the Government of Bangladesh $150 million over four years to undertake a comprehensive governance reforms program in the jurisdiction of ACC, the judiciary, and other core institutions to strengthen government's core and sector level anti-corruption measures. We sincerely believe that the December general election will lay the foundations of a democratic government under which debates on key economic issues will be held in the Parliament instead of through hartals and blockades in the streets, when the movement of people and goods would come to a standstill in the country. And this democratic government will continue the efforts including economic reforms initiated by the present and past governments.

The extensive anticorruption drives have caused some fear and uncertainty within the business and investor community. However, the caretaker government has recognized this problem and is undertaking several measures to safeguard better business practices. A Better Business Forum was set up to facilitate systematic feedback from the private sector on major issues affecting private sector development. The caretaker government also formed a Regulatory Reforms Commission to streamline and upgrade the cumbersome business policies and regulations of the country. The initiative of setting up a Truth Commission is also encouraging. These have started to lift business confidence.

At the sector level, reforms in the Chittagong Port have improved its efficiency by 30% and cut costs by 40%. Bangladesh Bridge Authority has been transformed into a Bridge Division vesting it with greater autonomy in decision making ahead of the construction of the Padma Multipurpose Bridge. In the financial sector, reforms include transforming three nationalized commercial banks and Biman Bangladesh Airlines into public limited companies and listing four state-owned power and oil companies with the stock exchanges. In the telecommunication sector, the liberalized policies, regulations and the reform plans of the Government including transforming the T&T Board as a public limited company are already showing very positive results in attracting large private sector and foreign investment in the country.

Challenges facing the country are also grave

Now let me focus on the challenges. Bangladesh, indeed, politically as well as on the economic front, is at a critical juncture and facing a difficult and challenging time ahead. However, I am confident that with the emergence of a visionary and capable political leadership, backed by oversight from the ever conscious civil society and private sector, and the citizenry, Bangladesh will be able to translate these challenges into opportunities for the country.

Food security and inflation are pressing concerns

In the macroeconomic front, rapidly growing inflation is the biggest problem at the moment, which has been pushed by higher import bills on food grains and fuels due to inconceivable price hike of these commodities in the international market. The unusual rise of food prices in the recent time, which has been a world phenomenon, has really hard hit the poorest and the marginalized groups. This price hike was caused by domestic production shortfall following successive natural disasters and also by international higher prices. The food price rise has severe human dimension and has seriously eroded the purchasing capacity of people living below the poverty line and government employees, industrial workers, and others with fixed incomes. Addressing the hardship of poor people affected by higher food prices remains a challenge. Failure to contain higher food prices could seriously undermine macroeconomic and political stability. Government responses including raising food-grain imports, building its own stock through imports and domestic procurement, and widening social safety net programs are commendable. But over the medium to longer term, improving productivity by disseminating modern production technologies, developing rural infrastructure including reliable and expanded irrigation systems, bringing ecologically disadvantaged areas under cultivation, providing extension services, improving marketing, producing quality seeds through public-private partnerships, and ensuring rural financial services are essential.

Make economic growth more inclusive

We all understand that challenges of Bangladesh's development agenda are immense. However, in the quest for quick economic growth and development, the country must seek inclusive economic growth and put in more resources for reduction of poverty of millions of people who live under desperate poverty. This would need to create and expand access to opportunities and more investment in health, education and safety net programs for the poorest. Alongside, the country needs big investment in infrastructures- energy, power generation, roads, railway and ports to attract further investment and ensure industrial development and employment creation through private sector participation. The country also needs to expand and improve the education and health services and to protect the environmental degradation.

Private sector driven economic development is the key

Bangladesh's aspiration to become a middle income country by 2020 must be led by the private sector. A robust private sector is the key to attracting investment, entrepreneurship and technological innovation needed for quick economic growth. It is obvious that without private sector investment, jobs and economic opportunities for the thousands of people cannot be ensured. The government, therefore, needs to continuously invest in infrastructures and social development, and to further liberalize the policies and regulations and remove obstacles to inclusive growth and private sector driven development efforts.

Regional integration

I think you would all agree that Bangladesh can gain a lot from regional and sub-regional integration and cooperation. Economic and social cooperation through forums like SAARC and BIMSTEC can indeed help the country not only to accelerate its economic development through promoting regional trade and investment, but would also protect the people from cross-border environmental and health risks. In this context, I would like to stress on upgrading and opening the Chittagong Port for the use of eastern Indian states and other landlocked neighboring countries and developing it as a regional hub, which could be a major driver for economic development of the country.

The bureaucracy needs transformation

The caretaker government has implemented many landmark governance reforms. Unfortunately, one major reform that has remained untouched is the sluggish and complex bureaucratic structure of the Government. In my view, this is the mother of all other reforms. The pyramid bureaucratic structure and its archaic systems and procedures, inherited from the colonial days, are characterized by inefficiency, centralization, lack of delegation and job description; too many tiers in the decision making process; archaic filing and noting system and lack of e-governance; and poor pay structure are out of place in the modern states. That is why it is incapable of implementing government's own development projects, let alone promoting business and investment. We need to highlight this to the government for transforming this bureaucracy. Without its reforms, implementation target of development projects will always fall short and the vision of transforming Bangladesh into a middle-income country by 2020 may remain as an illusion.

Convert huge population as assets

We live in a world that is transforming fast, and the stock and quality of human resources has become a key to accelerating growth and reducing poverty. Bangladesh has made considerable progress in establishing a comprehensive education system, particularly in providing access to primary education. The quality of education, however, needs improvement at all levels. Even though there are pockets of excellence, the overall quality of higher education remains a concern due to a lack of funds, shortage of qualified teachers, weak management and supervision, and in certain cases, politicization of campuses. In many universities, access to ICT, science laboratories, and other educational facilities is limited. Education that is provided is not strongly linked to market demands. There is also inadequate focus on science and technology or on areas that produce marketable skills. Over 80% of young graduates enroll in general studies; only 20% study science, technology, and applied subjects. Any nation that does not possess the ability and the technology to gain and process vast amounts of information quickly will lag behind in development. Much instructional time is lost due to demonstrations and strikes, particularly at public universities. As a result, degrees are not awarded in time, which adversely affects the academic and career pursuits of the students. It is a genuine concern that campus violence has now extended to some private universities. Bangladesh can easily double or even triple the foreign exchange remittance from expatriate workers, which was more than $7 billion this year, by investing and focusing a little more on technical and science education, human resource development and language training. The country needs more skilled technicians, data entry clerks, professional managers, accountants, computer programmers, IT consultants, bio-technicians, architects, designers and corporate lawyers than generalist graduates in literature and social sciences. In a world where knowledge is not only power, but also for sale, and where almost every large company that relies upon remote transactions is starting to hire more cost-effective labor overseas, the stock and quality of human resources has become a key for less developed countries like Bangladesh to participate in the global growth process, and to reduce poverty and attain a better quality of life.

Environment and climate change pose a serious development challenge

Last but not the least, the climate change also poses a major development challenge for Bangladesh. Bangladesh's vulnerability to natural disasters also poses a risk. The recent severe flooding and cyclone are premonitions of future possible catastrophe. According to the United Nations Human Development Report 2007/2008, one meter rise in sea level would inundate 18% of land area in Bangladesh, directly threatening 11% of the population. Rising sea levels and exposure to climate disasters could result over 70 million people being permanently or temporarily displaced. These impacts are envisaged to raise the country's vulnerability to natural disasters, thus stresses the need for improved disaster preparedness, and risk mitigation and adaptation measures. Development partners need to strongly support the country to undertake a holistic approach to mitigate the effects of climate change and to adapt with the impacts of environmental degradation, and natural disasters.

Conclusion

Ladies and gentlemen, Bangladesh's development challenges are critical and manifolds. To tackle these challenges, the country needs capable and mature political leadership, pro-poor economic agenda, business friendly policies, efficient but smaller bureaucracy, decentralization, strong local governments and opportunities for participation of the poorest. The country also needs to invest more for human resource and skill development so that the country can rise to the challenges of a competitive and globalized world. I personally believe that Bangladesh will realize its goals and become an economically viable country and could even emerge as one of the next eleven fast developing countries as predicted by Goldman Sachs. We are optimistic about Bangladesh's future and stand ready to continue assisting Bangladesh in unlocking its abundant potential, as we tackle the development challenges together in the period ahead.

Thank you.