Rural non-farm economy and employment

The agriculture sector in the country is the largest in terms of employment. Some 71 per cent of the population is rural; 46 per cent of them are employed in agriculture. The rest are engaged in the rural non-farm sector.
The agriculture sector accounts for 21 per cent of the country's GDP. The rural non-farm (RNF) sector is driven largely by the agriculture sector, for a further 33 per cent (World Bank, 2011). During the period 2000-2012, the labour force grew by an average 1.5 million people a year due to overall population growth and other demographic changes in the country.
The United Nations Conference on Trade and Development (UNCTAD) has published an extensive report for 2013 on the LDCs' growth with employment for inclusive and sustainable development. It has evaluated the opportunities and challenges of the LDCs. Creating employment opportunities is critical because of the fundamental role it plays in economic development and in people's lives. Not only does it influence income, aggregate demand and investment decisions, it is also the best and most dignified pathway out of poverty.
The challenge for Bangladesh, as for other LDCs, is to create a dynamic rural economy that both attracts investment and provides productive employment for the population. During the period 2000-2012, Bangladesh enjoyed a per capita economic growth rate of around 4.6 per cent a year.
At present, around 53 per cent of the rural population is classified as poor, and the average rate of poverty reduction has been only 1 percentage point per annum, which means that some 50 million people are still below the absolute poverty line (World Bank, 2011).
Employment creation as a means of reducing poverty is consequently a major development challenge. Despite the preponderant role of agriculture in rural employment, the sector cannot fully absorb the growing rural labour force or generate sufficient income to reduce poverty.
Rural-urban migration has created job opportunities for many, but overall employment growth in rural areas since the 1990s has been concentrated in the rural non-farm economy.
The main drivers of change in the rural economy of Bangladesh are technological innovation within agriculture, increased linkages between rural and urban areas (improved transportation, communications, electrification), growing market linkages and access (demand/supply), skills development, availability of financial services and rising migrant remittances (UNCTAD, 2012). The massive road constructions, ICT service centres at union level and widespread use of internet and mobile banking have created a revolution in rural activities. Bangladesh has also undergone a continuous transformation of agricultural production since 1990 with the rising output of high-yield varieties of rice and other cereals, the increased use of chemical fertilisers and pesticides, government subsidy on fertilisers and a rapid increase in irrigation through both deep and shallow tube wells. While much of the supply system is privatised, the new technology and market systems are widespread. Irrigated Boro rice has become more important than the traditional Amon as the primary crop. Bangladesh is in the process of having commodity exchange very soon. The market will ensure better agricultural product price for farmers.
Rising agricultural production has helped reduce seasonal vulnerability and household dependence on one major crop a year. In addition, the steady decline in average farm size has been somewhat offset by a rise in average production gains for rural households. Increased production has also impacted on the local labour market as demand for labour increased, resulting in real wage increases for the landless poor and seasonal migration within the country. The Monga-affected people from the Rangpur area once migrated to Noakahali and Chittagong. The labour force from these areas also began migrating to Middle East and Europe for better earnings and opportunities.
Bangladesh adopted technological advances, and investment and rural infrastructure policies in promoting rural non-farm employment and diversification. The rural economy in Bangladesh has the potential for substantial improvements, whether in the local labour market, physical capital, land, agricultural production and distribution or marketing linkages. However, a lack of investment in public goods, especially in remote rural areas, high barriers of entry for the poor or vulnerable groups to various dynamic RNF markets, high transaction costs for access to existing markets, and a general asymmetry of market information may limit this potential.
The rural non-farm economy has emerged as a potential source of productive employment and, consequently, poverty reduction in Bangladesh since the 1990s. This economy is primarily composed of rural manufacturing, agri-business, livestock, fisheries, cottage industries, trade and marketing services, rural construction, transport, infrastructure and various other services. It also comprises a highly productive dynamic sector that caters mainly to urban demand, and a low-productivity, mainly traditional sector that encompasses many of the rural poor. The latter sector is essential to many households' livelihoods and acts as a safety net for the poorest rural dwellers. The dynamic rural economy is composed of 'specialised firms' run by entrepreneurs with relatively high skill levels. These businesses tend to be small and medium enterprises (SMEs) that are larger in scope and scale than traditional households or micro-enterprises (World Bank, 2007).
In Bangladesh, there were 2.9 million new entrants in the job market in 2005, and this number will rise to 3.1 million by 2020 before beginning to decline. These are the numbers of productive and decent jobs and livelihoods, which will have to be created in the country each year. If the goal is not achieved, the likelihood is that poverty and international migration rates will go up.
An important source of income and employment for the poor in the LDCs, and for women in particular, is rural non-farm economic activities. These activities are closely linked to farming, the food chain and the production of goods and services (often non-tradable) for local rural markets. With increasing urbanisation and improvements in rural-urban transport networks, rural non-farm activities also produce goods and services (both non-tradable and tradable) for distant markets. Unfortunately, the non-farm economic activities of women are not considered in the surveys of the statistical department of the government. There are no accurate data based on household surveys of full- or part-time employment in rural non-farm activities in Bangladesh.
The benefits associated with this economy will encourage it to grow further. At the same time, the creation of medium-sized enterprises will foster conditions for technological progress. Once the medium enterprises increase the scale of production beyond the optimal point with the existing production processes, they will be compelled to go for innovation in order to maintain their profitability.
The best approach to employment creation recognises that the process of structural change should ideally be led by the consolidation and expansion of modernising core of the economy, composed of high value added knowledge-intensive and competitive activities in manufacturing, mechanised agriculture and modern services. In terms of labour, ideally this should be achieved through the transfer of workers from low-productivity, poorly paid work to more productive and better employment in other sectors. This is inter-sectoral transfer of labour.
The logic behind this approach to employment creation is that increase in productivity in agriculture releases labour, which should be absorbed by the rest of the economy, that is, tradable and non-tradable activities. Since the tradable ones are subject to intense competition, the extent to which they can absorb labour is limited. In other words, the choice of capital-labour ratio tends to be exogenously determined. As a consequence, non-tradable activities would have to provide the bulk of employment opportunities for new entrants and also for those released from subsistence activities. These sectors include infrastructure and housing; basic services (education, health, sanitation, communication, public administration); technical services --- repair and maintenance; and most transportation services; insurance services --- property and commercial brokerage; personal, social and community services etc. Since these activities do not generally face international competition, the policy space to influence outcomes in these sectors is larger than in the tradable sector. This implies that there are much greater possibilities for increasing the employment intensity of growth in these activities.
Bangladesh recently entered the overseas market with metal products from the engineering clusters in Bogra, garments made on common stitching machines by rural women in northern Bangladesh for the Indian seven-sister market and hand-made wooden coffins for the Western markets. Bangladesh policies should aim specifically at helping enterprises in the rural area grow in size.
The gradual integration of rural non-farm economic activities with the global supply chain can bring about a revolutionary change in Bangladesh economy.
The writer is a legal economist.
 shah@banglachemical.com