Non-farm employment in rural Bangladesh

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Anu Mahmud
Diversifying one's sources of income has become a major challenge in Bangladesh in recent years. Compared to the farm sector, employment opportunities in the non-farm sector (NFS) have been increasing rapidly since early nineties. The government in its national poverty reduction strategy paper (PRSP) identified the NFS as a 'leading sector' in the rural economy. However, in practice the NSF is not getting as much attention as the farm (agriculture) sector, despite the fact that such negligence may be socially costly in the long run. The non-farm employments (NFE) for a rural household are supplementary sources of income, especially for the poor. To date, however, studies on the non-farm activities (NFA) in Bangladesh have been limited to reviewing the NFS and substantiating the participation and the household income determinants with a narrow definition and theoretical contexts. The government has not been able to intervene to shore up the NFS in rural areas due to lack of understanding of the behaviour of rural households.
The household workers earn more through NFA than from their own farming. This is consistent with the findings from similar studies conducted in South Asia. One of the main reasons is that the landless households constituting a sizeable population (about 93 per cent) is allocated to the NFA, and greater income shares (87 per cent) are gained as well. This means the relative returns from NFA are higher compared to their own farming. Compared to male, the female participation is much lower (17 per cent) in economic activities as well as in NFA. Of the household income sources from the participating NFA, the non-farm self-employments shows the highest share (about 28 per cent) of total income, followed by non-farm wage employments (20.3 per cent), out-country remittance (20.1 per cent), and in-country remittance employments (6.0 per cent). Apart from local NFA, about 16 per cent household workers participate in remittance employments. The household workers (4.0 per cent) participate in domestic remittance employments with government and non-government organisations (NGO), commercial banks and private companies mainly in the capital. The foreign remittance employments (12 per cent) are mainly in the Middle East and Southeast Asia (mostly in Malaysia and Singapore) under unskilled and semi-skilled category.
Non-farm activities are no longer 'marginal' in villages. Compared to the participation (66 per cent), considerable labour time (about 93 per cent) is allocated to the NFA resulting in higher income shares (87 per cent). In other words, the relative returns from NFA are higher compared to own farming. Compared to males, female participation is lower (17 per cent) in economic activities as well as NFA. Of the household income sources from participating NFA, the non-farm self-employments show the highest share (about 28 per cent) of total income, followed by non-farm wage employments (20.3 per cent), out-country remittance (20.15 per cent), and domestic remittance employments (6.0 per cent). The low-return NFE (68 per cent) typically requiring no particular education and little or no start-up capital, where the relatively poor households participate, dominate the local employment market. Overall, empirical analysis confirms the importance of gender and education as individual characteristics for remittance employments; access to credit, access to organisations, growth centres and migration capitals as household characteristics, growth centres and institutions as community characteristics for local employments in influencing the rural household workers' decisions, though their effects are qualitatively and quantitatively different in terms of participation and hours worked. The important factors are: individual gender, access to formal credit, access to organisation, out country migration capital, and female education for non-farm self-employments, gender, household size, landholdings and access to friends, relatives, neighbours, etc. for non-farm wage employments; household access to credit, migration capital, male education, growth centre, and institutions for high-return and low-return NFE; and gender, education, migration capital (in-country/out-country), and access to credit for remittance ( in-country/out-country) employments.
The higher dependency on foreign remittance, and low-return NFE locally could be a threat for sustainability of livelihoods in rural areas. In addition, lower participation of females, especially educated female, in NFE reflects a loss of human capital. Promotion of local high-return and domestic remittance employment targeted at the poor households and increase of female participation in NFE deserve special attention. Considering the above factors suggested remedies are as follows:
(a) For local high-return NFE; the role of growth centres, institutions, access to formal credit, and access to organisations, are particularly important. Business environment in growth centres should be improved through physical infrastructures (road connectivity, power supply, etc.) and network building.
(b) In addition to supporting low-return income generating activities, institutions (GOs, micro-finance NGOs, commercial banks, cooperatives, etc.) should raise their credit ceiling and technical support for high-return non-farm ventures.
(c) In this context, a micro enterprise development programme targeted at the poor households should be considered.
(d For remittance employment (both in-country and out-country), providing education for youth in the poor households up to the secondary level should be encouraged. Special government efforts (such as quota) and credit support targeted at the poor households should be considered.
(e) Given female participation is lower than male participation in earning activities, and female education is not playing a significant positive role in creating non-farm self-employments, social mobilisation programmes for increasing female participation in earning activities, especially encouraging the initiatives by educated rural female individuals at non-farm ventures, should be introduced.
Because the NFS has received priority in many developing countries as a means of income diversification, it may be applicable to rural areas of Bangladesh, and other developing countries. For Bangladesh, besides identifying NFS as a 'lead sector,' specific policies are required to develop this sector. Given the importance of NFE in reducing the problems of low farm productivity, poverty and food insecurity, such policies should be directed not just at farm sector development, but in promoting the rural economy as a whole. This would entail policies that encourage households (especially, the poor) to participate in high-return non-farm, and remittance employment, as well as increasing the ability of the households to respond to new opportunities.
The author writes on economic issues. anumahmud@yahoo.com