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Frontmatter
- K. A. S. Murshid
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6 - The Rural Non-farm (RNF) Sector
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Summary
Introduction
Traditionally, the RNF sector consisted of an assortment of rural households dependent on a variety of service sector livelihoods comprising artisans, barbers, petty food processors and vendors, craftsmen, milkmen, potters, tinkers, tailors and carpenters. They depended on the custom of the vast farming population whose demands they tried to cater to. However, given low productivity and low rural incomes, the demand for the services of these non-farm groups was low and unstable (mirroring unstable farm incomes), making their livelihoods quite precarious. This was the state of RNF in the 1960s and 1970s, before the advent of the GR.
The more recent development history of East and Southeast Asia and parts of South Asia suggests that rural industry and commerce expand in parallel with agricultural production, as linkages between the two deepen (Ranis and Stewart 1993; Yusuf and Kumar 1996; Bhattacharya 1996). Typically, RNF is viewed as having two distinct components: (a) a high labour productivity segment and (b) a low productivity segment. The former is associated with higher incomes, while the latter operates more as a residual. In the process of rural development, RNF is expected to gradually lose its residual character, giving way to more productive, better-paying activities.
In the context of poverty alleviation, it has been noted that non-farm earnings led to an absolute improvement in incomes of the poor, suggesting that a dynamic RNF sector will have a strong anti-poverty impact (Lanjouw and Lanjouw 1999; Lanjouw 1999; B. Sen 1996; Haggblade and Hazell 1989; Haggblade, Hazell and Brown 1989). In the context of the Indian literature, Lanjouw (2007) and Haggblade, Hazell and Reardon (2010) have argued that the impact is not automatic and in fact appears to be muted with a tendency to bypass the extreme poor. Experience from Bangladesh, however, paints a much more positive picture (Pitt and Khandker 1998; Khandker 2005; Khandker, Khalily and Samad 2016a).
Over a 20-year period (1991–92 to 2010–11), moderate poverty headcount declined from 78 per cent to 27.5 per cent, while extreme poverty declined from 64.8 per cent to 14 per cent.
Glossary
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Dedication
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8 - Industrialization: Other Stories
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Summary
Introduction
The popular narrative of industrialization of Bangladesh is focused almost solely on RMG. While RMG is certainly the jewel in the industrial crown, there are many other smaller sectors that have sprouted up in the country, many responding to growing domestic demand emanating from a newly emerging middle class. Some of these non-RMG manufactures are also being exported, and while their shares to total exports are small, taken all together, they play a significant role in the economy in terms of employment and value addition. The real significance of all these numerous, small-scale activities, however, is not how much they account for in terms of shares of GDP but whether and what potential these hold for future growth and expansion. This is important because for over 20 years Bangladeshi policymakers have been searching for signs of an additional one or two sectors that could impart further impetus to export growth and diversification. The growing industrial strength reflected in a number of sectoral and sub-sectoral activities could well mark a turning point for Bangladesh's industrial fortunes. Most importantly, it demonstrates that the country has acquired considerable skills and capacities to undertake a large variety of manufacturing and processing activities, and under the right circumstances (that is, incentives and policy support, including protection), it could expand quickly. In other words, this is proof of capability. What is needed now is for Bangladesh to leverage this experience to chart out new areas of dynamic comparative advantage. A precondition for this to happen would be a change in the mindset of policymakers to look beyond RMG and consider other potential sectors for privileged policy incentives.
These ‘other sectors’ are a combination of mostly new manufacturing areas along with a few traditional ones that are attempting to resurface once again, using new technology and fresh branding approaches. Among the latter, jute and especially leather goods are often touted as having great potential. However, the promise of rehabilitating them has been elusive, although the leather sector has seen a degree of new investments and use of improved technology, including effluent treatment plants to reduce environmental pollution.
List of Abbreviations
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2 - Initial Conditions: The Odds Revisited
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Summary
Overview
The conditions at the time of its birth in 1971 could not have been less auspicious for Bangladesh. The country was overwhelmingly agricultural and rural at the time with much of agriculture dominated by just one crop, namely rice, which was grown in the vast flood plains under risky, rain-fed conditions. The other important crop was jute – the main foreign exchange earner for the country. As it happened, floods and poor successive rice harvests combined with a much-weakened administration which, along with depleted food reserves, empty coffers and an infrastructure in tatters, ushered in famine in 1974 that not only took a heavy toll in terms of human lives but also succeeded in branding Bangladesh as a poor, famine-prone and crisis-prone country that would heavily need to depend on foreign aid for a very long time – an abiding image that is only now beginning to be shed.
The infrastructure, rudimentary to begin with, was in shambles with bridges blown up, roads in poor shape and even the country's ports at Chittagong and Mongla rendered inoperative – both experiencing massive damage and destruction. The Chittagong Port suffered the greatest damage from the operations of Bengali Naval Commandos during the 1971 war who used limpet mines to blow up ships anchored in Chittagong. This disrupted shipping while at the same time sending a stark message to the enemy. It was a Russian naval contingent under Rear Admiral Sergey Pavlovich Zuenko who took up the challenge of clearing the port of all obstacles, including innumerable mines and sunken ships, to make it ready for normal operations – a process that was declared complete on 30 June 1974. It took less time to clear out the Mongla Port, which too suffered heavy damage during the war, mainly from aerial bombing.
In addition, there was the need to resettle and rehabilitate 10 million refugees who were now returning from camps in India where they had taken shelter during the hostilities, placing a huge administrative and fiscal burden on the country. There were shortages all around – for construction material, essential raw materials, clothes, food and medicine.
1 - A Bird’s-Eye View of the Bangladesh Economy: 1971–2020
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Summary
The traditional image of Bangladesh as a woefully poor, overpopulated nation plagued by food shortages, natural disasters, massive malnutrition, illiteracy and under-employment has finally receded into the background. The country has now begun to attract attention from the world for its economic performance and potential business opportunities rather than for its poverty and misery. The growth rate for 2018–19 was a record 8.15 per cent. This came down to an estimated 5.24 per cent in 2019–20 as against earlier projections by the government of 8.19 per cent – purportedly due to economic shutdown in the wake of COVID-19. If the official figures are proven correct, the growth rate achieved in 2018–19 is the highest on record for the country and one of the highest in the world.
In terms of per capita income, Bangladesh became a lower-middle-income country in 2015 and is on track to graduate out of the least developed country (LDC) status by 2024, after all three indicators for crossing the initial threshold were met in 2018 – the only LDC in Asia–Pacific to have done so (Murshid 2019). Per capita income in 2019 was USD 1856, and the country has set ambitious targets to become an upper-middle-income country and a developed country by 2031 and 2041. That the country can dream to become a high-income country by 2041 itself speaks volumes about its confidence and ‘can-do’ mindset – a far cry from the hand-to-mouth existence of the early years when foreign aid was the only way to make ends meet.
Growth
In general, the growth rate has steadily climbed, displaying quite a lot of variability in the 1970s, with a great deal of year-to-year fluctuation. The instability is clear from Figure 1.1, where we see that it persisted into 1981–82 before entering into a long, unbroken period of stable growth. Growth in the 1980s was low, hovering around the 3.5–4.0 per cent mark but gradually crawling up to reach just over 5 per cent on average during 1995–2000. By 2005, another 0.5 percentage point was added, with the trend continuing to top 6 and then 7 per cent in 2005 and 2015. Bangladesh's growth performance appears remarkably stable, especially after 2003 – a feature that is also borne out in comparison with that of neighbouring countries.
3 - The Food Security Challenge
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Summary
Rice is the staple food of the more than 165 million people of Bangladesh, with rice production continuing to dominate the country's agriculture. The share of agriculture in national GDP has been steadily declining over the years. In 2018–19 its contribution to GDP was 13.7 per cent, with crops accounting for slightly over 7 per cent and rice production dominating crop production (Government of Bangladesh 2020: 287). Rice accounts for two-thirds of calories, half of the protein intake and a similar share of the household budget of rural Bangladeshis. In terms of production, it accounts for almost 80 per cent of the cropped area (World Bank 2013). Thus, rice is crucial to Bangladesh's food security, with self-sufficiency in rice having been a major policy goal of the government for the last five decades.
Today, Bangladesh is self-sufficient on average, even managing to produce a surplus from time to time, a feat underscored by the fact that the population of the country more than doubled since 1972. Total rice production increased at a rate of about 3 per cent per year over the period 1972–73 to 2007–08, of which boro rice (the dominant rice crop) registered the highest growth of over 6.0 per cent per year. This was possible because of the GR technology of the 1970s and 1980s combined with market reforms and structural adjustments of the 1990s, and attention to the availability, quality and distribution of key inputs like diesel, fertilizers and seeds in more recent years (N. Ahmed et al. 2007; R. Ahmed et al. 2000).
This is a far cry from the early years when the Bangladesh economy was overwhelmingly rural and agricultural, with 90 per cent of the population living in rural areas and only 10 per cent in the towns, concentrated mainly in Dhaka and Chittagong. Agriculture's share of GDP was 60 per cent, and rice was the main crop grown in subsistence mode under traditional, rain-fed conditions. Jute was the main cash crop and the main foreign exchange earner accounting for 90 per cent of commodity exports. Industry was skeletal, mainly in the public domain, and run so badly that it was a constant drain on meagre public resources instead of making a contribution to the exchequer.
5 - International Migration
- K. A. S. Murshid
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Summary
At the same time that Bangladesh was struggling with the GR, a silent process of migration was already afoot – a beginning which would eventually gather steam and take off. In 1976, only 6,000 workers left for the Middle East for work but by 1981 this rose to around 56,000. Other countries in Asia, including Pakistan, India, Sri Lanka, Nepal, Thailand and Philippines, were able to respond more quickly to the dramatic opening up of labour markets in the oil-rich Middle East following the lifting of the oil embargo in 1973 and a surge in the petrodollar economies of the Gulf and Saudi Arabia. Thus, the number of Indians sent out in 1976 was around 4,000 but this figure grew to over 275,000 in 1981. In the case of Pakistan, the figure for 1976 was less than 42,000, which went up to over 168,000 in 1981 (Arnold and Shah 1986).
The slower initial response rate from Bangladesh may have been due to labour market preferences or more likely due to the poor institutional arrangements and high migration costs in Bangladesh compared to competing countries. Bangladesh in the mid-1970s was a country that was still struggling with the aftermath of war and famine. Migration rates, nevertheless, picked up quickly but spiked in 1991–95 and 2006–10, the latter including the global financial crisis period. In fact, only during 2011–15 we observe a 12 per cent drop in outmigration, which appears to be related to the 8 per cent decline in remittance growth in the subsequent period (Table 5.1).
Migrant remittances continue to play a big role in a number of Asian countries including Bangladesh, helping to strengthen the BOP and shore up foreign exchange reserves while also having an impact on rural households in terms of income, consumption, savings and investment. A related impact of remittances, historically, has been its timing – gaining ascendance at a time when donor fatigue was setting in, putting aid-dependent countries like Bangladesh at considerable risk (Rodríguez 2020). For example, for Bangladesh, remittance earnings comprised 40 per cent of exports and 5.7 per cent of GDP in 2018. In fact, the comparative figures for a number of countries like Nepal, Sri Lanka, Pakistan and Philippines are higher (Table 5.2).
Index
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4 - Exploring Transition and Change in the Rice Market
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Summary
This chapter explores the question of how the large, complex paddy-rice market in Bangladesh was able to transform itself and evolve in the face of changing risks and incentives into a better-functioning market system. It notes significant but opposing trends over two decades in different areas, particularly in terms of market structure, trade circuits and exchange relations. Evidence of a sharp decline in tied transactions points to the growing importance of impersonal exchange. Underlying causes of these changes are explored with particular reference to microfinance, remittances, rural roads, mobile telephony and mobile financial services (MFS).
Much has changed in the rural economy in recent decades: the micro-credit revolution has matured, remittances have grown enormously, mobile phones have brought on an information revolution in the country and there have been major transformative changes in health, education, especially girls’ education, and physical infrastructure.
We explore the Bangladesh paddy-rice market, which has tended to be described variously as traditional, backward, complex, hierarchical, interlocked and exploitative, on the one hand, and well integrated, competitive and efficient on the other (Ravallion 1986, 1987; Baulch et al. 1998; Dawson and Dey 2002; Goletti, Ahmed and Farid 1995). In actual practice, the rice market displays elements of both aspects, with some backward areas associated with complex forms of tied exchange á la Crow and Murshid (CM henceforth) (1994), while other more advanced areas display a much more competitive outcome based on increasingly less personalized transactions.
The central message of this chapter is that the huge paddy-rice market is not static but is constantly changing, adapting and evolving into a better-functioning market system. In particular, the backward forms that have been well noted are in recession, and over the course of the last several decades various forms of tied finance have been dramatically reduced. It is suggested that the improvements in agricultural performance – especially in rice production and, broadly, in the rural socio-economic regime marked by exogenous developments in infrastructure, mobile telephony and MFS, and rural finance – have played a significant role in transforming rural markets.
9 - The Social Sector Puzzle
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Summary
Let me only add … that while recognizing the deep difficulties currently besetting the system – including the recent severe floods – I do not share the general sense of despondency, if not despair, concerning the prospects for the future. There are enough things, I am firmly convinced, within the control of the decision-makers of Bangladesh to convert present stagnation into satisfactory – though by no means spectacular – forward motion.
– Gustav Ranis, ‘Brief Reflections on the Central Issues of Policy in Bangladesh’The role of human resources in a country's development journey is crucial in supporting high-value agriculture, industry and services. We saw earlier that Bangladesh had chalked up considerable gains in social outcomes, especially in certain key indicators related to family planning, health, primary education, nutrition and women's empowerment. In fact, the most commented upon achievements of Bangladesh relates to its successes in the social sectors. Pointing to widely available governance indicators and corruption scores, especially emanating from the World Bank and Transparency International, observers have struggled to reconcile these positive social outcomes to the disappointing performance in governance. This struggle intensified further given the relatively small public resources that were deployed to social sector programmes over the years (Chowdhury and Osmani 2010; Asadullah, Savoia and Mahmud 2014). The question to ponder over, therefore, is how these much-vaunted social outcomes were achieved, given acute resource constraints, poor political and economic governance and an uncertain aid regime within an unstable and depressed socio-economic environment.
The explanations attempted have generally referred to non-governmental actors, aid-supported interventions, low-cost solutions, attitudinal and behavioural changes, role of community organizations and a generally supportive role of the government.
Thus, Chowdhury et al. (2013) attribute the health sector performance to pluralistic health systems, women-focused interventions, family planning, oral rehydration therapy and immunization programmes, effectively delivered by trained community healthcare workers.
Asadullah, Savoia and Mahmud (2014) found no evidence to suggest that the performance was income mediated or support led, as some had indicated and suggested that an inclusive approach combined with government and NGO efforts ‘in all social sectors’ were responsible: successful awareness campaigns were launched, low-cost innovations helped reduce fertility and child mortality rates, and gender parity in education was achieved through, for example, the ‘Female Secondary School Stipend’ programme.
References
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Notes
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Contents
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Conclusion
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Summary
Despite the Odds
The odds against Bangladesh were heavily stacked as the country faced war, devastation, floods, famine and severe political instability beginning in 1971 and continuing off and on for at least two decades before reaching a semblance of stability. In addition, the country faced a huge burden of poverty, malnutrition and hunger but was bereft of resources with which to tackle these. Despite such grave handicaps, the country registered sharp progress across a large number of fronts, recording improvements in health and education, nutrition and poverty, women's empowerment, water sanitation and food production. It was able to begin the process of export-led industrialization as in other parts of Asia, shedding its aid dependence and ‘basket case’ image, growing steadily at around 5 per cent in the 1990s and over 6 per cent from the early 2000s. This sustained, stable macroeconomic performance, the rapid pace of industrialization and a growing indication of economic diversification suggests that Bangladesh has spread its wings to join the ‘flying geese’ flock of Asia as its latest member behind Vietnam, having in the meantime achieved ‘club convergence’ in its immediate South Asian vicinity.
Food and Population
The GR had already transformed the agriculture of countries like Mexico, Philippines and Punjab (in India and Pakistan). Initially, the GR was focused on wheat but the success of the Philippines, which experienced large rice productivity increases, held out promise for impoverished rice-growing areas in South Asia.
However, for the GR to succeed, preconditions were required, including irrigation and transport infrastructure, rural roads, and complementary inputs like chemical fertilizers and seeds needed to be made available and accessible to farmers. Here, the public sector backed by donors and suitable policy reforms was able to rise to the challenge, despite the widespread reports of poor governance.
This, along with fertility declines, constituted Bangladesh's main achievement of the 1980s and 1990s – one that was central to its development journey.
The impact of the GR was immense: on rural wages, on food prices and consumption, and on poverty, and the government budget and BOP – the last resulting from a much-reduced need to make large food imports.
Introduction
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The story of Bangladesh is an extraordinary tale of struggle against immense odds. It is the story of a nation state that broke into the world stage dramatically after an armed struggle against what became viewed as an occupation army attempting to remain in power through massive repression and large-scale killings that sent over 10 million people into India to seek shelter and refuge. Before these events, Bangladesh was an unremarkable part of Pakistan (East Pakistan) whose main value for the ruling elite was its jute exports that enabled the country to earn valuable foreign exchange – much of which was appropriated for investment in West Pakistan, especially in the emerging industrial sector there. Bangladesh was overwhelmingly rural and agricultural with a high population density and massive illiteracy, malnutrition and poverty. This is where it was stuck: as the rural backwaters located in the biggest delta in the world periodically visited by violent storms and floods, and debilitating epidemics. This state of affairs continued, largely unchanged over 24 years since gaining independence from Britain in 1947, until the country broke away from West Pakistan and became Bangladesh in 1971.
While the economy remained stagnant as part of Pakistan, the same cannot be said of its politics. A nascent but vocal middle class emerged, consisting of students, teachers, lawyers, journalists and government officers. This group was strengthened by an emerging industrial working class – all largely drawn from the ranks of the peasantry, including surplus peasants. This served to challenge the traditional political power structure, which was dominated by feudal elements under the banner of the Muslim League – the party that was instrumental in the creation of Pakistan (Jalal 1994; Naqvi 1986). This newly emerged middle class became the logical political base of the Awami League (AL) formed from a breakaway group of the Muslim League. The AL adopted a distinctly more democratic, secular and ‘progressive’ stance compared to the Muslim League and quickly drew a large following from the new, aspiring middle classes.
It was therefore only a matter of time when the disparity and inequality between the two ‘wings’ of Pakistan would become apparent, which, combined by the reluctance of the ruling military–bureaucratic–feudal elite based in the west to share power with the east, did not bode well.
10 - Dhaka: Capital Formation—Urbanization, Competition and the Rise of a Business Class
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Summary
Introduction
The majority of modern activities and transactions are concentrated in the capital cities of developing countries: It is where the bulk of the formal sector employment is generated. This is also where one would encounter relatively more women in the labour market and, generally, a superior standard of living in terms of health and well-being, literacy, women's status, and social mobility, as well as access to public services. The capital is also where one would expect to find museums, art galleries, film industries, theatres, fashion houses, and other important cultural centres.
Many developing areas are undergoing rapid urbanization, and this has been particularly true for the city of Dhaka, the capital of Bangladesh, where rates of urbanization have been high. Such growth is not devoid of economic logic, as has been pointed out. Generally, high urbanization rates are a positive indication suggesting strong economic performance. Urbanization and city growth are caused by different factors, including rural–urban migration, natural population increase and horizontal expansion. However, the fundamental cause relates to patterns of economic expansion and structural transformation in the case of sustained urbanization as has been witnessed in Dhaka.
While urbanization is powering economic growth, it is also generating formidable challenges of management and sustainability. With forecasts that more than half of Bangladesh's population may be living in urban areas by 2040 from the current level of nearly 40 per cent, these challenges are set to become even more complex.
The story of urbanization in Bangladesh is mainly a story about Dhaka, its premier, indeed primate city and the centre of the administrative, political, cultural, and economic life of the country. There are other towns and cities as well, of which Chittagong in the southeast and Khulna in the southwest are the most important and serve as the country's maritime gateways to the world. Chittagong is much larger than Khulna and was given the name Porto Grande by the Portuguese and was once considered the most prosperous city in the ‘Kingdom of Bengala’ (Encyclopaedia Britannica 2021). This chapter, however, focuses mainly on Dhaka, which has become Asia's fastest-growing megacity in the 21st century, alone accounting for around 40 per cent of the national economic pie and more than a third of the nation's urban population (Afsar and Hossain 2020).
Acknowledgements
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