"Within one month our revenues had jumped over 50%."

Bangladesh Economy Facts

 

lake- Trade in Bangladesh

It has generally been a rough economic environment for a few years in Bangladesh. Does this mean that trade in Bangladesh has suffered as well? There are a few bright spots in the Bangladeshi economy, amid the general perception of a poor economic environment. According to the Daily Star, on April 2010, USA – based ratings agency Standard & Poor’s (S&P) awarded Bangladesh a BB- for a long term in credit rating which is below India and well over Pakistan and Sri Lanka in South Asia. Bangladesh has gradually decreased its dependency on foreign grant and loan from 85% (In 1988) to 2% (In 2010) for its annual development budget. Its per capita income in 2010 was US$641 compared to the world average of $8,985, according to the IMF. But, if purchasing power parity (PPP) is taken into account, Bangladesh’s economy is the 44th largest in the world at US$257 billion according to the IMF. Although two-thirds of Bangladeshis are farmers, according to BBC, more than three quarters of Bangladesh’s export earnings come from the garment industry, which began attracting foreign investors in the 1980s due to cheap labour and low conversion cost. In 2009–10 fiscal year the industry exported US$ 12.6 billion worth of products where in 2002 the exported amount was US$ 5 billion. Recently, Bangladesh has been ranked as the 4th largest clothing exporter by the WTO (The World Trade Organization) . Whereas, according to The Economist, Bangladesh has world’s third-largest clothes-export industry.

Problems overshadow trade in Bangladesh

However, these few bright spots are overshadowed by some serious problems that the Bangladeshi economy continues to face. Obstacles to growth include frequent cyclones and floods, inefficient state-owned enterprises, mismanaged port facilities, a growth in the labour force that has outpaced jobs, inefficient use of energy resources (such as natural gas), insufficient power supplies, slow implementation of economic reforms, political infighting and corruption. According to the World Bank, “among Bangladesh’s most significant obstacles to growth are poor governance and weak public institutions.” Despite these hurdles, the country has achieved an average annual growth rate of 5% since 1990, according to the World Bank.

This was part of an assessment made by the the US Bureau of South and Central Asian Affairs. The privatization of public sector industries has proceeded at a slow pace—due in part to worker unrest in affected industries—although on June 30, 2010, the government took a bold step as it closed down the Adamjee Jute Mill, the country’s largest and most costly state-owned enterprise. The government also has proven unable to resist demands for wage hikes in government-owned industries. Access to capital is impeded. State-owned banks, which control about three-fourths of deposits and loans, carry classified loan burdens of about 50%. The IMF and World Bank predict GDP growth over the next 5 years will be about 6.5%, well short of the 9-10% needed to lift Bangladesh to Mid Income Nation level, within that time period. 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 in excess 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. Foreign investors in a broad range of sectors are increasingly frustrated with the politics of confrontation, the level of corruption, the slow pace of reform and privatization and deregulation of the public sector and the lack of basic infrastructure e.g. roads. While investors view favorably recent steps by the interim government to address corruption, governance, and infrastructure issues, most believe it is too early to assess the long-term impact of these developments.

Overall, Bangladesh has seen expansion of its middle class (world’s fifty-fourth largest, just below of Singapore & Vietnam, according to the UN Statistics Division), as a result its consumer industry has also grown. In December 2005, four years after its report on the emerging “BRIC” economies, Goldman Sachs named Bangladesh one of the “Next Eleven”, along with Egypt, Indonesia, Vietnam and seven other countries. Therefore, while there has been some major issues with trade in Bangladesh, it’s also a good country to keep an eye on over the next several years. Bangladesh has made significant strides in its economic sector performance since independence in 1971. Although the economy has improved vastly in the 1990s, Bangladesh still suffers in the area of foreign trade in South Asian region.

Despite major impediments to growth like the inefficiency of state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture, inadequate power supplies, and slow implementation of economic reforms, Bangladesh has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power stations. Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups.

 

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Author:Globial International Business Team

The Globial International Business Team researches, analyzes, and reports on all things related to global trade and business.

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