Economy of Bangladesh

File:Bd farmer.jpg

Most Bangladeshis earn their living from agriculture.

The economy of Bangladesh is the 31th largest economy in the world as measured by purchasing power parity (PPP). It has made significant strides in its economic sector since its independence in 1971. Bangladeshi garments industry is one of the largest and comprehensive industry in the world. Before 1980, Bangladesh's economy and foreign exchange earnings were driven by the jute industry. However, this industry started to fall dramatically from 1970, when polypropylene products gained popularity over the jute products.

Current GDP per capita of Bangladesh registered a peak growth of 57% in the Seventies immediately after Independence. But this proved unsustainable and growth consequently scaled back to 29% in the Eighties and 24% in the Nineties.

Bangladesh has also made major strides to meet the food needs of its increasing population, through increased domestic production. Currently, Bangladesh is the third largest rice producing country in the world. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recents years; the country is largely self-sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk. Bangladesh's predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought. Although improving, infrastructure to support transportation, communications, and power supply is poorly developed. The country has large reserves of natural gas and limited reserves of coal and oil. While Bangladesh's industrial base is weak, unskilled labor is inexpensive and plentiful.

Macro-economic trend

This is a chart of trend of gross domestic product of Bangladesh at market prices estimated by the International Monetary Fund with figures in millions of Bangladeshi Takas.

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)
1980	250,300	16.10 Takas	20
1985	597,318	31.00 Takas	36
1990	1,054,234	35.79 Takas	58
1995	1,594,210	40.27 Takas	78
2000	2,453,160	52.14 Takas	100
2005	3,913,334	63.92 Takas	126

For purchasing power parity comparisons, the US Dollar is exchanged at 12.86 Takas only.

Agriculture

Fishing is an important source of income in Bangladesh

Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, wheat is assuming greater importance. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh's labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks. With 2000000.2 million metric tons produced in 1999, rice is Bangladesh's principal crop. National sales of the classes of insecticide used on rice, including granular carbofuran, synthetic pyrethroids, and malathion exceeded 13,000 tons of formulated product in 2003 [2][3]. The insecticides not only represent an environmental threat, but are a significant expenditure to poor rice farmers. The Bangladesh Rice Research Institute is working with various NGOs and international organizations to reduce insecticide use in rice [4]. In comparison to rice, wheat output in 1999 was 1.9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labor force.

Industry

Fortunately for Bangladesh, many new jobs 1.5 million- mostly for women- have been created by the country's dynamic private ready-made garment industry, which grew at double-digit rates through most of the 1990s.By the late 1990s, about 1.5 million people, mostly women, were employed in the garments sector. During 2001-2002, export earnings from ready-made garments reached $3,125 million, representing 52% of Bangladesh's total exports.

Eastern Bengal was known for its fine muslin and silk fabric before the British period. The dyes, yarn, and cloth were the envy of much of the premodern world. Bengali muslin, silk, and brocade were worn by the aristocracy of Asia and Europe. The introduction of machine-made textiles from England in the late eighteenth century spelled doom for the costly and time-consuming handloom process. Cotton growing died out in East Bengal, and the textile industry became dependent on imported yarn. Those who had earned their living in the textile industry were forced to rely more completely on farming. Only the smallest vestiges of a once-thriving cottage industry survived.

At independence Bangladesh was one of the least industrially developed of the populous nations. Annual per capita consumption of steel and cement was only about one-third that of India, for example, and electric power consumption per capita was less than one-fifth.

Investment

The stock market capitalisation of the Dhaka Stock Exchange in Bangladesh crossed $ 9 billion in October 2007. The earliest strategy of the Bangladeshi government was to promote industrialization by making funds available for businessmen through subsidies and national banks. But this plan went awry, as the government lacked the political will to stop financing poorly-performing companies. As a result, the national banks had built large heaps of 'non-performing' loans which are unlikely to be ever repaid. The failure of the national banks discouraged investments by the emerging private financial sector. Currently, Bangladeshi enterpreneurs generally suffer from lack of funding as many banks are reluctant to invest in industry and have instead turned their attention to consumer credit.

Textile sector

Bangladesh's textile industry, which includes knitwear and ready-made garments along with specialised textile products, is the nation's number one export earner. The sector, which employs 2.2 million workers, accounted for 75 per cent of Bangladesh's total exports of US$10.53 billion in FY2005-06, in the process logging a record growth rate of 24.44 per cent. However, since May of 2006 the industry has been plagued by on-going industrial unrest, as textile workers, who are among some of the most lowly paid in the world, have staged regular violent demonstrations in a bid to achieve a higher minimum wage, regular rest days and safer working conditions.

Following the worst of the unrest in late May, which saw at least one worker killed as police shot live rounds at protesters, the government formed a Wage Commission, ordering it to report on a suitable new minimum wage in three months.

The Commission, which included business and worker representatives finally released its conclusions on October 9, recommending the wage be set at Tk1,662.50, up from the current level of Tk950, but far below initial worker demands for Tk3,000.

Whether this new wage will placate workers, who allege years of unsafe and abusive conditions remains to be seen. Fresh outbreaks of violence occurred on Oct 2, 3 and 10, but at least some of these protests appear to have stemmed from factory-specific factors, rather than industry wide discontent.

After initially condemning the unrest as the work of outsiders attempting to capture the nation's share of global markets, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) leaders appear to have finally accepted the need to raise wages.

The government also seems to believe some change is necessary. On September 21, 2006 then Ex-Prime Minister Khaleda Zia called on textile firms to ensure the safety of workers by complying with international labor law at a speech inaugurating the Bangladesh Apparel & Textile Exposition (BATEXPO).

External trade

Bangladeshi exports in 2006

The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) has predicted textile exports will rise from US$7.90 billion earned in 2005-06 to US$15 billion by 2011. In part this optimism stems from how well the sector has fared since the end of textile and clothing quotas, under the Multifibre Agreement, in early 2005.

According to a United Nation Development Programme report "Sewing Thoughts: How to Realise Human Development Gains in the Post-Quota World" Bangladesh has been able to offset a decline in European sales by cultivating new markets in the United States.

"Last year we had tremendous growth. The quota-free textile regime has proved to be a big boost for our factories," said BGMEA president S.M. Fazlul Hoque told reporters, after the sector's 24 per cent growth rate was revealed.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) president Md Fazlul Hoque has also struck an optimistic tone. In an interview with United News Bangladesh he lauded the blistering growth rate, saying "The quality of our products and its competitiveness in terms of prices helped the sector achieve such... tremendous success."

Knitwear posted the strongest growth of all textile products in 2005-06, surging 35.38 per cent to US$2.82 billion. On the downside however, the sector's strong growth came amid sharp falls in prices for textile products on the world market, with growth subsequently dependent upon large increases in volume.

Bangladesh's quest to boost the quantity of textile trade was also helped by US and EU caps on Chinese textiles. The US cap restricts growth in imports of Chinese textiles to 12.5 per cent next year and between 15 and 16 per cent in 2008. The EU deal similarly manages import growth until 2008.

Bangladesh may continue to benefit from these restrictions over the next two years, however a climate of falling global textile prices forces wage rates the centre of the nation's efforts to increase market share.

Prior to the Wage Board's announcement of its recommended minimum wage, the rate had remained unchanged at Tk950 for more than 12 years. Although the government may allow up to three years for the new wage to be implemented, and inevitably there will be compliance issues as manufacturers drag their feet, it seems politically untenable for wages to remain at their current levels given the unprecedented industrial unrest.

In response to the Wage Board's initial draft recommendation of a minimum wage of Tk1,604 to be increased to Tk1,800 after eight months, the BGMEA declared over 50 per cent of factories would be ruined within three months. While this claim is no doubt an exaggeration, the capacity of Bangladesh's textile industry to absorb a significant wage hike as margins become tighter is a key question which hangs over the future of the industry. Bangladesh's textile sector is concentrated in export processing zones in Dhaka and Chittagong. These zones, which are administered by the Bangladesh Export Processing Zone Authority, aim to offer "a congenial investment climate, free from cumbersome procedures" according to Bangladesh Export Promotion Bureau's website.

They offer a range of incentives to potential investors including 10 year tax holidays, duty free import of capital goods, raw materials and building materials, exemptions on income tax on salaries paid to foreign nationals for three years and dividend tax exemptions for the period of the tax holiday.

All goods produced in the zones are able to be exported duty free, in addition to which Bangladesh benefits from the Generalised System of Preferences in US, European and Japanese markets and is also endowed with Most Favoured Nation status from the United States.

Furthermore, Bangladesh imposes no ceiling on investment in the EPZs and allows full repatriation of profits.

The formation of labour unions within the EPZs is prohibited as are strikes.

Bangladesh's exports to the U.S. surpassed $1.9 billion in 1999. Bangladesh also exports significant amounts of garments and knitwear to the EU market.

Bangladesh also has significant jute, leather, shrimp, pharmaceuticals and ceramics industries.

Bangladesh has been a world leader in its efforts to end the use of child labor in garment factories. On July 4 1995, the Bangladesh Garment Manufacturers Export Association, International Labour Organization, and UNICEF signed a memorandum of understanding on the elimination of child labor in the garment sector. Implementation of this pioneering agreement began in fall 1995, and by the end of 1999, child labor in the garment trade virtually had been eliminated. The labor-intensive process of shipbreaking for scrap has developed to the point where it now meets most of Bangladesh's domestic steel needs. Other industries include sugar, tea, leather goods, newsprint, pharmaceutical, and fertilizer production.

The Bangladesh government continues to court foreign investment, something it has done fairly successfully in private power generation and gas exploration and production, as well as in other sectors such as cellular telephony, textiles, and pharmaceuticals. In 1989, the same year it signed a bilateral investment treaty with the United States, it established a Board of Investment to simplify approval and start-up procedures for foreign investors, although in practice the board has done little to increase investment. The government created the Bangladesh Export Processing Zone Authority to manage the various export processing zones. The agency currently manages EPZs in Adamjee, Chittagong, Comilla, Dhaka, Ishwardi, Karnaphuli, Mongla, and Uttara. An EPZ has also been proposed for Sylhet [5]. The government has given the private sector permission to build and operate competing EPZs-initial construction on a Korean EPZ started in 1999. In June 1999, the AFL-CIO petitioned the U.S. Government to deny Bangladesh access to U.S. markets under the Generalized System of Preferences (GSP), citing the country's failure to meet promises made in 1992 to allow freedom of association in EPZs.

Sylhet is fast becoming the retail capital of Bangladesh, with many shopping centres being built by expatriates to serve fellow expatriates visiting Sylhet and the emerging middleclass. Many of these developments hark back to Britain.

Overview

• 
  The area of Gulshan is a commercial hub of the country
• 
  Karwan Bazar is home to many of Bangladesh's important offices
• The city of Dhaka has grown rapidly over the last few years
  The city of Dhaka has grown rapidly over the last few years
• 
  Bazaars in Bangladesh are popular trading places for everyday household necessities.

Bangladesh has made significant strides in economic sector since independence in 1971. Although the economy has improved vastly in the 1990s, Bangladesh still suffers in the area of foreign trade in South Asian region. Despite major impediments to growth like the inefficiency of state-owned enterprises, a rapidly growing labor force that cannot be absorbed by agriculture, inadequate power supplies, and slow implementation of economic reforms, Bangladesh has made some headway improving the climate for foreign investors and liberalizing the capital markets; for example, it has negotiated with foreign firms for oil and gas exploration, better countrywide distribution of cooking gas, and the construction of natural gas pipelines and power stations. Progress on other economic reforms has been halting because of opposition from the bureaucracy, public sector unions, and other vested interest groups. The especially severe floods of 1998 increased the country's reliance on large-scale international aid. So far the East Asian financial crisis has not had major impact on the economy. World Bank predicted economic growth of 6.5% for current year. Foreign aid has seen a decline of 10% over the last few months but economists see this as a good sign for self-reliance.There has been 18% growth in exports over the last 9 months and remittance inflow has increased at a remarkable 25% rate. Export was $10.5 billion in fiscal year 2005 exceeding the target export of $10.4 billion. Target export for current year is $11.5 billion. An estimated GDP growth of 6.7% was predicted for FY 2006.

Basic economic indicators
GDP-purchasing power parity	$275 billion (2004 est.)
GDP-real growth rate	7.0% (2006 est.)
GDP-per capita: purchasing power parity	$2,000 (2004 est.)
Aid-per capita	$10.1 (2003)
GDP-composition by sector
agriculture	20.5% (2004)
industry	26.7% (2004)
services	52.8% (2004)
Revenue, excluding grants	23.4% (2004)
Population below poverty line	35.6% (1995-96 est.)
Household income or consumption by percentage share
lowest 10%	3.9%
highest 10%	28.6% (1996)
Inflation rate (consumer prices)	5.8% (2000)
Labour force	64.1 million (1998)
Note: extensive export of labour to Saudi Arabia, Kuwait, UAE, Oman, Qatar, and Malaysia; workers' remittances estimated at $1.71 billion in 1998-99
Labour force-by occupation
agriculture	65%
services	25%
industry and mining	10% (1996)
Unemployment rate	3.6% (2002)
Budget
revenues	$4.9 billion
expenditures	$6.8 billion, including capital expenditures of $NA (2000)
Industries	jute manufacturing, cotton textiles, garments, tea processing, paper newsprint, cement, chemical, light engineering, sugar, food processing, steel, fertilizer
Industrial production growth rate	6.2% (2001)
Electricity-production	13.493 billion kWh (2000)
Electricity-production by source
fossil fuel	92.45%
hydro	7.55%
other	0% (2000)
Electricity-consumption	12.548 billion kWh (2000)
Electricity-exports	0 kWh (2000)
Electricity-imports	0 kWh (2000)
Industry and international trade
Agriculture-products	rice, jute, tea, wheat, sugarcane, potatoes, tobacco, pulses, oilseeds, spices, fruit; beef, milk, poultry
Exports	$6.6 billion (2001)
Exports-commodities	garments, jute and jute goods, leather, frozen fish and seafood
Exports-partners	US 31.8%, Germany 10.9%, UK 7.9%, France 5.2%, Netherlands 5.2%, Italy 4.42% (2000)
Imports	$8.7 billion (2001)
Imports-commodities	machinery and equipment, chemicals, iron and steel, textiles, raw cotton, food, crude oil and petroleum products, cement
Imports-partners	India 10.5%, EU 9.5%, Japan 9.5%, Singapore 8.5%, China 7.4% (2000)
Economic aid-recipient	$1.575 billion (2000 est.)
Exchange rates	Taka per US dollar - 69.00 (October 2006), 55.807 (2001), 52.142 (2000), 49.085 (1999), 46.906 (1998), 43.892 (1997)
Source:Discovery Bangladesh

Debt - external: $16.5 billion (1998)

Economic aid - recipient: $1.475 billion (FY96/97)

Currency: 1 taka (Tk) = 100 poisha

Exchange rates: taka (Tk) per US$1 - 69.000 (October 2006), 49.085 (1999), 46.906 (1998), 43.892 (1997), 41.794 (1996), 40.278 (1995)

Fiscal year: 1 July - 30 June

Growths in remittance and exports have contributed to an overall positive balance of payment (BoP) in the last fiscal year (FY 2005-06).

Country's trade imbalance also recorded a decrease of 13 percent as export outweighed import in the last fiscal.

Overall BoP recorded a surplus of US$ 365 million in the FY '06, which was a smaller surplus with $ 67 million in FY '05, according to Bangladesh Bank statistics.

Exports saw a 21.63 per cent growth during last fiscal whereas in FY '05 the growth was 13.83 per cent.

Earning from export amounted to $10.52 billion in FY' 06, which was $8.65 billion during FY '05.

During the last fiscal, growth in import was 12.05 percent or $1431 million whereas export had a growth of 21.63 percent or $1849 million.

On the other hand, remittance inflow maintained the growth rate over 24.78 percent, touching $4.8 billion mark in the last fiscal mainly due to increase in skilled labour abroad and government's efficient move against money laundering.

Due to better performance by the export sector, the country's trade deficit decreased largely in the last fiscal. Reducing by $418 million country's deficit in trade balance now figures at $2879 million.

Despite larger service and income deficit, current account balance recorded a surplus of $572 million in the last fiscal against the deficit of $557 million during FY '05.

The overall BoP recorded surplus despite decline both in foreign aid and net foreign direct investment (FDI) in the last fiscal.

According to official statistics from Bangladesh government, net FDI amounted to $675 million in financial year 2005-06, which was $800 million in FY '05.

Bangladesh Bank statistics also reveals that foreign aid amounted to $1241.21 million in last fiscal, which was $1260 million in FY '05.

References

•  This article incorporates public domain material from The World Factbook. CIA.
•  This article incorporates public domain material from U.S. Bilateral Relations Fact Sheets. United States Department of State.

External links

• Global Economic Prospects: Growth Prospects for South Asia The World Bank, Dec. 13, 2006
• Bangladesh: Strategy for Sustained Growth, The World Bank, 2007-07-27
• Bangladesh Budget 2007 - 2008

See also

• Bangladesh
• Bangladesh Academy for Rural Development