• Monday, Jun 27, 2022
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Bangladesh beyond 50: Pivotal role of the private sector

  • Published at 12:12 am June 25th, 2021
In agriculture, there is large, untapped potential to generate higher-value addition and exports Syed Zakir Hossain

In marking its 50 years, Bangladesh should take pride in being one of the biggest development success stories of recent decades, writes Wendy Werner

For a person, turning 50 can be a time for reflection — a point to look back on achievements and an opportunity to set goals for the future. 

In marking its 50 years, Bangladesh should take pride in being one of the biggest development success stories of recent decades.  

Now the country aspires to graduate from the United Nation’s least developed country list and transform into an upper middle-income economy. 

Is the transition feasible? Certainly. 

But only a handful of countries in a similar position have managed to achieve such success in the past 50 years. 

Those countries too were not facing the scourge of Covid-19, which has hit Bangladesh hard, from impacts on lives and livelihoods to the main source of foreign exchange through reduced exports of the ready-made garment (RMG) industry. 

In the latest report by IFC and the World Bank, the Bangladesh Country Private Sector Diagnostic (CPSD), we lay out the case that Bangladesh is now at a pivotal stage of its development journey. 

The road ahead

Despite being among the fastest growing economies in South Asia, moving onto the next stage of development will require a new round of reforms to strengthen and modernize the private sector so Bangladesh’s economy can expand and create quality jobs at scale for a growing youth population.

 More than 40 million Bangladeshis still live below the national poverty line today, and around 2.5 million jobs need to be created per year to employ youth entering the labor force.

In addition, massive investments are required to bring urban, transport and energy infrastructure to the level of upper middle-income countries, while addressing ever-growing climate risks, which is high on the government’s agenda.

The government of Bangladesh’s own Eighth Five Year Plan (July 2020 – June 2025) sets a target of 8.5% GDP growth by FY25. 

To achieve this, 75% of the total investment needs to be generated from the private sector.

This cannot be achieved without reforms. 

Areas for reform

Major reforms are needed to enable the private sector to perform efficiently.

The need for reforms will become even more relevant in the post–Covid-19 recovery phase when scarce public resources are likely to be prioritized in the social sectors and the structural shifts within the garments industry will accelerate towards automation and reshoring.

Experiences from East Asia’s successful industrializers, including the Republic of Korea, point to the importance of structural reforms to kick-start the stage of the development path that Bangladesh is now entering.

Three priority areas should be part of the reform agenda – creating a favorable trade and investment environment for domestic and foreign investors, modernizing and expanding the financial sector and removing infrastructure impediments.

On the trade policy front, removing anti-export bias is a critical priority. This can be done by reducing import tariffs, making export incentives more broad-based, and modernizing customs operations. 

Domestic producers — protected from international competition by high tariffs — lack incentives to reduce costs.

It is important for Bangladesh to develop a more stable, efficient, and inclusive financial sector that offers competitively priced financing with the means to support the short-term, long-term, and equity capital needs of the private sector. 

Small and medium-sized enterprises, which employ 20% of the adult population, need easier access to finance. 

Bangladesh trails most of its regional peers and its competitors in East Asia on the World Economic Forum’s Global Competitiveness Index (2018). 

Logistics costs add anywhere between 5% and 48% to the production. 

Bangladesh will need better infrastructure if it wants to increase competitiveness and diversify into higher-value products with more complex logistics requirements.

Private sector investments 

Sustainable growth cannot be achieved without the private sector. Export diversification beyond ready-made garments, and the development of upstream and downstream industries can help offset job losses resulting from automation, restructuring, and Covid-19 impacts in global RMG value chains. 

Bangladesh could aim to move upmarket and develop inter-industry linkages in the RMG sector by leveraging existing capacity and introducing modern technologies. Large opportunities exist in footwear, leather, and electronics, which could leverage the same capabilities as RMG.

The country’s banking sector is one of the most attractive globally — but banks need a stronger capital base. Given the large deposit base that banks have, there is huge potential for efficiency gains if operational costs can be reduced. The large number of non-performing loans (NPLs) must be better managed by individual banks, and quicker resolution of bad debts is needed, as has been done in other Asian markets. 

Bangladesh needs three or four well-functioning modern ports, greater use of multimodal transport, particularly waterways, and a more efficient logistics industry. Greater private participation will help increase investment and bring required efficiencies and innovation in this sector.

In agriculture, there is large, untapped potential to generate higher-value addition and exports to meet growing domestic demand for food that is more nutritious and create jobs.

Moving to modern farming practices, developing competitive agribusiness value chains and robust agri-logistics networks will boost productivity and scale up the production of high-value-added products such as horticulture, animal protein, dairy, as well as aquaculture, where Bangladesh has a strong comparative advantage.

Investments in health in the Covid-19 era

And at a time of Covid-19 impacts, we should not forget the health sector. At just three percent of GDP, health financing in Bangladesh is low compared to countries at a similar level of development. Government expenditure on health care, less than one percent of GDP, is also one of the lowest in the world. 

The health sector is one important area where the public-private partnership (PPP) model could play a prominent role, particularly in diagnostic, specialized treatment, and dealing with medical waste.  

 Further development of the pharmaceuticals sector too, including production of biosimilars, could signify the industry’s increasing sophistication and enable more supply and exports of affordable quality medicines.

The post Covid-19 recovery will require a reimagining of Bangladesh’s current development model. The reform agenda is now more important than ever. So too is the recognition that the private sector holds the key to sustaining development success — and the opportunity of making “Golden Bengal” a reality for all the people of Bangladesh.

The Bangladesh Country Private Sector Diagnostic (CPSD) report can be downloaded here

The author is IFC country manager for Bangladesh, Bhutan and Nepal

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