Notwithstanding the adverse global conditions and senseless political strife within the country, the economy of Bangladesh has defied the prophets of doom in making significant headway. A 6.0 plus per cent annual gross domestic product (GDP) growth rate in Bangladesh in the last few years compares very well with the global average of less than 3.0 per cent and Asian average of 5.4 per cent.
More impressive has been the movements of Bangladesh's social indicators in the right direction : life expectancy at birth at 69 years compared to 43 in 1972, infant mortality down to the 30s per thousand, total fertility rate (TFR) reducing to less than 2.0, maternal mortality declining to 94 per thousand, annual population growth rate of just above 1.0 per cent, women economic participation rate hovering around 40.0 per cent compared to 3.0 per cent in early 70s, literacy rate at 60.0 per cent plus (the quality issue is, of course, a major concern), primary enrolment leaping to nearly 100 per cent with perceptible reduction in dropout rates, gender parity in primary and secondary enrolment and a jump in tertiary enrolment to 2.6 million. The country is poised to realising the Millennium Development Goals (MDGs) set for 2015 as it has already reduced poverty to half (26.0 per cent) ahead of schedule.
SOME EVIDENCE OF PROGRESS
Some evidence of Bangladesh's progress is presented below:
World Bank: Doing Business Report, 2013: Bangladesh advanced 21 steps to 74th position.
World Economic Forum: Global Competitive Report 2013: Bangladesh advanced eight steps to 110th position.
Recalling that in 1972-73, the contribution of the primary sector to GDP was 53 per cent, it is clear that in the admirable GDP growth of the last four decades, primary sector, agriculture in particular, has yielded ground to the tertiary sector and the manufacturing sector. The pace of growth in the manufacturing sector was impressive in 2005-06 and showed a steady increase ever since. Consistent as it is with the decline in the poverty rate from above 40 per cent to 26 per cent in the same period, it shows that an employment-intensive growth strategy not only promotes growth but also has the inherent mechanism of reducing poverty.
The pace of industrialisation, however, has not been strong enough to cause absorption of the entire annual addition of the 2.0 million job seekers to the workforce. The profit-intensive tertiary sector is not friendly to job creation. The agriculture sector is still saddled with significant underemployment. Of the 2.00m new job seekers, 0.8 million join new jobs home and another 0.7 million or so go abroad in a good year leaving 0.5 million joining the rank of unemployed or underemployed.
In other words, the job-creating as well as poverty-reducing manufacturing sector need to expand faster to fully absorb within the growth mechanism, the additional hands joining the labour force. Inadequate infrastructure has been cited as a major obstacle to the faster growth of the economy, manufacturing in particular.
INFRASTRUCTURE AND THE DOUBLE DIGIT GROWTH PROSPECT
The investment:GDP ratio in Bangladesh seems to have been stuck at 24-26 percentage band and ICOR or incremental capital output ratio at around 4.0. Hence Bangladesh is in a medium magnitude growth trap - 6.0-6.7 per cent. The private sector investment in the country accounts for four-fifths of the total investment in the country leaving the twenty per cent or so critically important investment by the public sector mostly in infrastructure.
Infrastructure types: Within the division between physical infrastructures e.g. roads, ports, railways, power, energy, telecommunications and the social infrastructure e.g. human resources, management, judicial system and law and order, two areas need to be specifically cited. One is an extreme scarcity of land. The shortage is reportedly driving away many investors of home and foreign origin. The other is the much-talked-about governance or lack of it which many think is eating into the vitals of the growth phenomenon.
Amongst the reasons why a concentration of attention in purchasing land has escalated over the years is that other forms of deployment of assets are not so popular e.g. uncertain capital market returns have been subjected to fiscal measures. Dividends on savings certificates (even the dividends from the Pensioners Savings certificates) are subjected to income taxation. By contrast, investment in purchasing land is not taken note of, enjoys low taxation as the registration value is a fourth or fifth of the actual land price in the market, and the land rent is still rather negligible.
Similarly, urban investment in real estates is also very 'fiscal convenient' for the owners of homes/apartments. Taxation is neither commensurate with the potential value appreciation of the property nor is the formula of locality-wise or size-wise taxation rate implemented. May be half of the urban apartments are under 'cooperatives' of a sort without any registration. Hence the strong attraction of the investors to the land and real estates to the recent neglect of private sector investment in productive purpose. High-profit services sector has always been attracting a lot of resources. Reports of capital flights through over- or under-invoicing also surface at regular intervals without any effective measures to stop these.
Development in the physical infrastructure, roads, railways, ports, power and energy, telecommunications, waterways, bridge and so on have not been adequate to optimally facilitate the growth momentum. Roads and telecommunications sub sector have influenced their way towards significant expansion. National highways expanded to a length of 3,570 kilometer in 2012 compared to 3,086 in 2001; the total road network in Bangladesh expanded to 21,462 kilometers in 2012 from 20,799 in 2001.
It is unfortunate that the cheaper, safer and environment-friendly railways continued to deteriorate and the length of its network remained static at 28,707 kilometers. In the riverine Bangladesh, the waterways suffered the most telling neglect to turn into an outdated, unsafe and an unreliable mode of transportation. One hundred thousand vessels are running without fitness certification, 12,000 deaths occurred since independence and 20,000 cases are pending without punishment. Road communications costs more money and lives but has managed to always get away lightly from the legal penalty. The offence of rush driving resulting in death which was non-bailable and punishable with imprisonment for life, if proven guilty, is now a bailable offence and the punishment reduced to three years.
The influence of the roads lobby on the governance system of Bangladesh is unusual and dangerous. Neither has there been any serious and sustained effort in turning the railways into a commercially profitable service as in the South Asian countries.
Power and energy: The most critical bottleneck towards investment and economic growth in Bangladesh is a scarcity of electricity and gas. Estimates indicate 60 per cent of the country's population have access to electricity and per capita availability of electricity at 292 kwh is amongst the lowest in developing countries. In 2013, the electricity generation capacity doubled to 10,000 mw and the actual generation reached a level 7,500 mw compared to 3,800 mw in 2008.
But a lot more need to be done without the kind of questions that are raised about the high cost of generation under the quick and peak rental schemes, which was admittedly unavoidable in the context of the 2008-09 situation. The debate about the fuel to be used for electricity generation need to be rationally resolved expeditiously.
Gas versus coal based energy: Twenty-one per cent of the global electricity is generated from gas whereas in Bangladesh it is as high as 85 per cent. Precious gas, which has better alternative use including industrialisation, is misused in many instances as reflected in a low 37 per cent efficiency. Users of concessional priced gas for electricity generation should be notified to use modern equipment including rotator or forfeit the right to gas entitlement.
Bangladesh also cannot have the luxury of piping gas into domestic use (8.0 per cent or so). Cylinder should be used for gas for domestic purpose.
Recent moves in strengthening BAPEX and escalation of investment for gas exploration, extraction, piping and development should continue.
In Bangladesh, coal should be the main fuel for electricity generation. South Africa (94 per cent), China (81 per cent), Australia (76 per cent), India (64 per cent) and USA (49 per cent) rely mainly on coal for electricity generation. We generate only 15 per cent electricity from coal despite the fact that the country has in a 100 km2 area in Rangpur-Dinajpur, a deposit of 2800 MMPTA capacity extractable superior quality bituminous coal capable of generating through open pit method at mine mouth or adjacent areas, 20,000 mw of power for 50 years. Energy experts and economists in Bangladesh have estimated the cost of generation of one kwh electricity from various sources as under :
A mega plan is needed for setting up a Coal Bangla, a corporate entity, with adequate operational autonomy, leadership and strong funding support to (a) acquire the land around the mines at a price several times the market price, (b) provide equity shares to the land owners, (c) generate job opportunities for the children of the affected and (d) formulate and implement a foolproof relocation and rehabilitation plan before the open pit electricity generation from indigenous coal project is launched. A national consensus at least on this critical issue is required.
Hydro electricity generation on a joint venture mega scale can be sought in cooperation with India, Nepal, Bhutan and other counties.
Nuclear energy that is being pursued by the government can be a major supplementary source with acceptable safely provision guarantees.
For all or any major public sector undertaking in the power and energy sector, it is desirable that a feasibility study is undertaken first and an accountability chain established before the use of the national resources.
Public sector domination in the power and energy sector is recommended for strategic reasons.
This is an adapted version of a presentation, made by Dr. Mohammad Farashuddin, President, East West University and a former governor of Bangladesh Bank, at the conference of Bangladesh Economists' Forum, held in Dhaka on June 21-22, 2014.
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