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Bangladesh stays in the fast lane

Paran Balakrishnan | Updated on November 24, 2020 Published on November 24, 2020

Relatively unscathed: Covid has hardly dented the textile sector   -  Reuters

The country that was once dismissed as an ‘international basketcase’ is flourishing even during Covid times

When it’s complete, it will be Bangladesh’s longest road bridge. The 10-km bridge stretching across the River Padma will link Bangladesh’s southwest corner with the rest of the country, cut travel times and boost trade and commerce. It’s a shining example of Bangladesh Prime Minister Sheikh Hasina’s drive to keep the economy rolling by building roads, bridges, railways and supplying uninterrupted power to every home.

For a glimpse of an even more ambitious project, head to the Mirsarai Special Economic Zone outside Chittagong. Here, on 30,000 acres of reclaimed land, Bangladesh is building its flagship industrial zone in hopes of enticing companies from around the globe. Bangladesh aims to put up 100 special economic zones by 2030.

Leading the way from India into Mirsarai is the Adani Group which is planning to build a 100-acre zone only for Indian companies looking to set up shop in Bangladesh. Already, there is a $20-million Asian Paints factory slated to launch early next year and a $29-million Berger Paints plant. Other Indian companies in Bangladesh include power generation firms and auto industry stars like Ashok Leyland and the Hero Group.

It was Henry Kissinger who visited newly formed Bangladesh in 1974 and famously declared it to be a ‘bottomless basket’. The image has stuck in our minds, so it was a shock jolt when the IMF announced last month Bangladesh’s per capita income would overtake India’s in 2020. (In 2015, India’s per capita GDP was 40 per cent higher than Bangladesh’s.)

The fact is Hasina, in power now for 12 years, has worked out an economic gameplan to take her country to the next level. She’s steered a steady course, keeping the focus firmly on infrastructure sectors like roads, bridges, railways and power and also leveraged Bangladesh’s low-skilled labour to develop industrial export powerhouses, chiefly textiles.

That’s paid off and it shows in the GDP figures. Bangladesh’s GDP was $102 billion in 2009 soon after Hasina took office. After a decade of over 7 per cent annual growth, it tripled to $302 billion in 2019. Foreign direct investment also tripled in the decade to $3.6 billion. In this Covid year, the IMF projects Bangladesh’s growth will tumble to 3.8 per cent but accelerate to 9.5 per cent in 2021. (India’s growth is set to contract this year by over 10 per cent.)

Bangladesh’s USP

What’s the USP that would bring global giants to Bangladesh? First and foremost, there’s low wages. “If an Indian will do a job for $300, a Bangladeshi will do it for $250,” jokes a Bangladeshi economic analyst.

Besides that, Bangladesh is a country that’s got its economic act together in more ways than one. Look at the power sector. Step back to the 2000-2010 decade and Bangladesh was a land of long urban power cuts and non-existent rural power. Hasina ended that by simplifying the tendering process, even though it’s said to have led to considerable corruption. Today, 93 per cent of the country has electricity and power cuts are a bad memory in Dhaka. The government’s looking to get power to the entire country in the next two years.

The booming power sector’s one that’s attracted Indian companies to our neighbour. Mumbai-based Shapoorji Pallonji’s 220MW gas-fuelled Bhola plant is nearing completion, though it may sell the facility to cut debt.

Similarly, Reliance Power has allied with Japanese energy company Jera to build a 750MW gas-fuelled plant at Narayanganj near Dhaka. Then, there’s the Bangladesh-India Friendship Power Company, a tie-up between NTPC and the Bangladesh Power Development Board, which is building a 1,320MW Rampal plant, though it’s significantly behind schedule. Besides this, the Adani Group has a power-purchase deal with Bangladesh to supply power generated at its 1600MW Godda plant in Jharkhand.

At a different level, Bangladesh has also been wooing companies exiting China to avoid US tariffs. One giant considering a new home is Chinese state-owned Kunming Iron & Steel Co which is looking at investing up to $2.13 billion at Mirsarai. There’s also the Jinyuan Chemical Industry which erected a $6-million plant. Jinyuan chairman Wang Yang says she set up in Bangladesh precisely to “avoid the impact of the US-China trade sanctions.”

In other areas too, Bangladesh has notched up some unexpected successes. It’s now the third-largest fish exporter after China and India and is exporting vegetables to the Middle East. Vegetable and fruit exports climbed to $146 million, up almost 80 per cent in 2019-20 from the year before. However, during the last few months, the Covid-induced halt to flights stalled exports and the Bangladeshis have fretted about losing its vegetable market to India which has chartered flights to the Middle East.

Textiles still booming

But the buttresses of the Bangladesh economy are the still booming textile sector which provides 85 per cent of its exports and the 10 million Bangladeshis working abroad in the Gulf and other corners of the globe and who sent home remittances totalling $18 billion last year. That’s, of course, far behind India. Our remittances totalled $83 billion in 2019-20 and will slide to $64 billion this year. By contrast, Bangladeshi official remittances have risen, though that’s probably because of a scheme to reward people sending home money via legal channels.

When the pandemic first began to cut a swathe through the world there were dire predictions that Bangladesh’s textile sector, where workers toil huddled together at close quarters in poorly ventilated factories, would be decimated by the virus. Initially, the garment sector lost $3 billion worth of orders but a few months later about 80 per cent of these were reinstated.

But there was a surprise in store for the purveyors of gloom and doom. While the Indian economy has been felled by Covid-19, the pandemic hasn’t hit Bangladesh hard. The textile industry’s been relatively unscathed and when the workers returned from their villages production restarted without too much difficulty. It’s still a mystery how the sector got off so lightly though experts speculate it may be because the workers are mostly young.

Where does India fit into the Bangladesh growth story? Many Indian companies saw huge opportunities but weren’t able to grab them. The giant infrastructure projects were mostly scooped by the Chinese who are building the Padma Bridge, amongst other projects. And the Dhaka airport expansion has gone to the Japanese.

Should India have a free-trade agreement with Bangladesh? Bangladeshis point out that wouldn’t be easy because India erects a host of non-tariff barriers to keep products out. Also, Bangladeshi textiles are almost certain to face tariffs to protect Indian companies. Still there are opportunities east of the border and India should be looking at how to make the most of them.

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Published on November 24, 2020
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