Key socioeconomic issues that we must address
Bangladesh is, without a doubt, one of the most promising economies in the region. We have made considerable progress in many socio-economic sectors. But in recent times, the country has been facing some challenges and threats that, if left unaddressed, could seriously undermine the nation's development and damage our future economic well-being. Below is my compilation of some of those issues that need urgent attention.
POPULATION AND POVERTY
Bangladesh is the world's eighth most populous country and also one of the most densely populated. Even though the country has put a cap on unchecked population growth—and achieved considerable success in reducing fertility, from 6.3 children per woman in 1975 to 2.04 children per woman in 2018—the country is still adding two million people to its population every year. And if current patterns of growth continue, the population would reach between 230-250 million in 2050, according to a report by the United Nations Development Programme (UNDP). In general, the population of a country is seen as the most important economic resource, but unchecked growth can be detrimental to economic development. It diminishes the availability of capital per head by limiting access to food, housing, sanitation, health care, education, and employment, which in turn reduces the productivity of its labour force. High population density is often cited as a primary reason for degradation of natural resources and depleting both ecosystems and environment.
Today, some quarters in our country tend to see the large population as an economic asset, but we need to understand that whether a large population is an asset or a burden depends on how that population is being managed, trained up and employed. At present, more than 65 percent of our population is of working age, between 15 and 64 years. The country is going through a "demographic window of opportunity" but unfortunately, we could not take full advantage of that situation, simply because of not having enough skilled people. We are still struggling with a huge low-skilled workforce; about 86 percent of the total employed population aged 15 and above are in the informal sector, which is insecure, poorly paid and has no social security, meaning that they cannot contribute much to economic development. Although the rate of poverty in recent times has gone down but the number of people living below the poverty line has gone up just because of our rapid population growth. Currently, almost one in four Bangladeshis (24.3 percent of the population) lives in poverty, while 12.9 percent of the population live in extreme poverty.
Bangladesh has shown a very welcoming attitude towards foreign investors, allowing foreign investment in most sectors and providing favourable conditions for doing business here, but still foreign investment has been comparatively low in Bangladesh compared to its regional peers. According to a report of the United Nations Conference on Trade and Development (UNCTAD), the country received USD 3.61 billion in foreign direct investment (FDI) in 2018 as against USD 2.6 billion in 2017. Of the USD 3.61 billion that came in Bangladesh, USD 1.12 billion were in the form of equity, USD 1.30 billion as reinvested earnings, and USD 1.18 billion as intra-company loan.
Investment to GDP ratio was 31.56 percent in FY 2018-19, out of which 23.40 percent came from the private sector and only 8.13 percent from the public sector. Private investment, which typically accounts for about 75 percent of the total investment, has been stagnating for the last few years. Industry experts say, the deterrents that discourage investors include time-consuming bureaucracy, poor socio-economic and physical infrastructure, unreliable energy supply, corruption, low labour productivity, undeveloped money and capital markets, high cost of doing business, complicated tax system, delays in decision making, etc. Although Bangladesh advanced eight notches in the World Bank's ease of doing business 2020 ranking to 168 out of 190 countries, there are still significant bottlenecks in doing business. For instance, transferring a property title in Bangladesh takes an average of 271 days, almost six times longer than the global average of 47 days. Resolving a commercial dispute through a local first-instance court takes an average 1,442 days, almost three times more than the 590 days' average among OECD high-income economies.
In 2018-19, Bangladesh earned USD 40.53 billion by exporting goods. Of the amount, the readymade garment (RMG) sector alone earned USD 34.13 billion accounting for over 84.21 percent of total exports, followed by several other products including agricultural products, frozen food, jute and jute goods, and leather. Over the past 10 years, garment exports had been increasing at a year-on-year rate of over 13 percent. But currently, RMG is in a sluggish mode. In the first half of the current financial year 2019-20, garment exports to the European Union fell by 6.75 percent while the export earnings from the United States decreased by 3.67 percent. According to Export Promotion Bureau data, Bangladesh earned USD 3.05 billion in November 2019, down by 10.70 percent, which was USD 3.42 billion in the same month last year.
ECONOMIC GROWTH & EMPLOYMENT
Although the country has experienced exceptional economic growth in recent years, it has failed to create adequate jobs. Different studies show that between 2013 and 2017, while the average annual GDP growth was 6.6 percent, the average annual growth of jobs was only 0.9 percent. The employment share of the manufacturing sector declined from 16.4 percent to 14.4 percent. According to a report published by the United Nations Population Fund (UNFPA), some 47.6 million or 30 percent of the total population are young (10-24 years), and of them, 25 percent—numbering around 11 million—are currently inactive, i.e. they are neither in the education cycle nor involved with any economic activity. Unfortunately, the unemployment rate is higher among the higher educated group of youth.
At present, one of the major causes for concern for the economy is our ailing banking sector which has been, on many occasions, tarnished by unwanted malpractices. For decades, banks are funnelling loans worth billions of taka by violating banking rules and procedures to influential people, who have been known to be lax with repayments. As a result, as of September 2019, defaulted loans in the banking sector stood at a record Tk 116,288 crore. The rise in defaulted loans is another reason behind the declining private-sector credit growth and investment. A combination of strong policy reforms and good governance in the banking sector is the need of the hour.
In addition to factors discussed above, low-quality education, inadequate health care, unplanned urbanisation, pollution, climate change, severe urban-rural disparities, low tax-GDP ratio, good governance, rising inequality, corruption, etc. are also affecting our efficiency and productivity, as well as constraining businesses and industries that have the potential to grow. Therefore, the government needs to take immediate action to resolve these issues. It can start with revamping our weak education system, making it more suitable to the changing times so that young people can meet the needs of the jobs of today and tomorrow, because an unskilled, uneducated and unemployed population is nothing but a sheer burden for a country. Diversification of the export basket and tapping new markets are sorely needed. Also, we need to invest much more in education, health and infrastructure, and create a favourable environment for local and foreign investment, so that we can increase production, productivity and consequent employment opportunities for the future workforce.
Abu Afsarul Haider studied economics and business administration at Illinois State University, USA. He is an entrepreneur currently living in Dhaka.