FROM RAGS to STITCHES – As it turns 50, Bangladesh is doing well, despite its politicians.
But the prospects for the next few years look troubling.
Economist March 27, 2021
In colonial times, the eastern half of Bengal was one of the poorest parts of British India. After independence and partition in 1947, it became one of the poorest bits of Pakistan. And after it declared itself an independent country, Bangladesh, in 1971, it became poorer still, as the rump of Pakistan fought a savage war to retain it, destroying a big share of its few assets and killing many of its best and brightest.
Few could have predicted how the tables would turn. This week marks 50 years since Bangladesh’s first president, Sheikh Mujibur Rahman, declared independence on March 26th 1971. Over the intervening period the country’s income per person has surpassed Pakistan’s and is approaching India’s (see left-hand chart). Before the pandemic, economic growth exceeded 7% for four years in a row, outpacing not just Pakistan and India, but even China.
Bangladeshis are not just vastly wealthier, but healthier and better educated too. Some 98% of Bangladeshi children finish primary school, compared with less than a third during the 1980s. Literacy has soared (see chart). Infant mortality has plunged. Virtually everyone uses a toilet rather than defecating in the open. In all these respects, Bangladesh is doing better than both Pakistan and India.
Devastating as the war of independence was, in some ways it set Bangladesh on the path to success. Many expatriates came home to help their new country recover. Zafarullah Chowdhury, who dropped out of university in Britain, set up a charity that helped to distribute cheap generic drugs and contraceptives. Fazle Hasan Abed sold his flat in London to return before founding another charity, brac, that taught mothers how to rehydrate children suffering from diarrhoea, turning it from a deadly illness to a nuisance.
The overstretched government was only too happy to allow aid agencies and ngos to take on such tasks. In a drive in the 1980s to vaccinate children against diseases like polio, the country was split down the middle: the government took one half, brac the other. By the end of the decade the immunisation rate had risen from 2% to 80%.
Charities like brac had an especially big impact because they targeted women. By the 1990s it was running 64,000 schools, which were not only educating girls but employing women to teach in them. There are now more girls in high school than boys (another difference from India and Pakistan). brac and other organisations also popularised microcredit, turning millions of rural women into entrepreneurs.
Bangladesh’s booming garment industry has helped to improve women’s welfare, too, argues Rubana Huq of the Bangladesh Garment Manufacturers and Exporters Association. The share of women in paid work has risen from 3% 50 years ago to 36% today. Some 80% of Bangladesh’s 4m garment workers are women. Their work “earns them economic freedom and dignity at home and outside”, says Ms Huq.
The garment industry has become the world’s second largest, accounting for 11% of gdp and 80% of export revenue. Successive governments have helped mainly by getting out of the way, simplifying labour laws and removing import duties on inputs. This free-market approach was crucial in fomenting growth, says Fahmida Khatun of the Centre for Policy Dialogue, a think-tank in Dhaka.
Yet Bangladesh’s politics is as depressing as its development is uplifting. Sheikh Mujib tried to turn the country into a one-party state, but was quickly assassinated. The current prime minister, his daughter, Sheikh Hasina Wazed, seems determined to make his vision a reality. Since coming to power for a second time in 2009, she has abolished the practice of holding elections under an impartial caretaker government. The main opposition figure, Khaleda Zia, was arrested in 2015. She has since been convicted of corruption and banned from politics in a trial she says was politically motivated. Before the most recent election, in 2018, opposition parties claimed that more than 7,000 of their activists had been arrested. Many opposition candidates, like Ms Zia, were barred from running owing to criminal convictions. Sheikh Hasina’s Awami League and its allies won 288 of 300 seats.
It is not just opposition activists, but also journalists and other critics of the government who increasingly wind up behind bars. In 2018 the government introduced the Digital Security Act, supposedly to curb religious radicalism and pornography online. But its vague provisions, which include stiff jail sentences for those who post “aggressive or frightening” content, have been used to silence critics of all sorts. Mushtaq Ahmed, a writer, was arrested last year after criticising the government’s response to covid-19 on Facebook. He died in prison last month, having been denied bail six times.
Members of the Awami League, meanwhile, easily secure bail for serious crimes, if they are charged at all. Government contracts often go to the party’s cronies. State-owned banks are weighed down by loans that well-connected borrowers decline to repay. There is no point going to court: the party with the closer ties to the Awami League always wins. “We literally don’t have breach of contract cases anymore,” explains Shahdeen Malik, a lawyer who argues cases before the Supreme Court. The tax code, which relies more on levies on consumption than on income or wealth, is also skewed in favour of the rich and politically connected.
The iniquities of this system are beginning to be reflected in the economic data. Between 2010 and 2016 the richesthouseholds saw their income rise by nearly a quarter, while the poorest households saw theirs decline by a third. Zahid Hussain, a former lead economist on Bangladesh for the World Bank, blames the rent-seeking behaviour of the elite. Corruption knocks two percentage points off gdp growth each year, the bank has estimated. At any rate, foreign investment has stagnated, perhaps owing in part to the caprice of the courts.
Covid-19 has exacerbated inequality by pushing millions who had escaped poverty back into it. The proportion of Bangladeshis living below the national poverty line has risen from around a quarter to 40% or so, says Asif Saleh, the head of brac. No one is able to travel abroad for work anymore, which bodes ill for future flows of remittances. These reached almost $20bn last year. Garment factories have been battered by cancellations, as lockdowns abroad have crimped sales of clothing.
The increase in women’s participation in the workforce has slowed, notes Ms Huq. Between 2005 and 2010it grew by 1.7 percentage points a year on average, but since then by only 0.7 percentage points a year. She thinks women’s rights are in retreat, too. Without the rule of law or political accountability, violence against women goes unchecked, she argues.
By centralising power in herself, Sheikh Hasina has also added an element of political uncertainty. As tight as her grip on her country is, it cannot endure past the grave. She is 73, but has no clear successor. Relatives and other close allies appear to be jockeying for position. Her son, Sajeeb Wazed, is an adviser to the government. His sister, Saima Wazed, who had been living in Canada, has recently been given a number of government jobs, prompting speculation that she is being groomed for power. Other contenders include their cousin, Radwan Mujib Siddiq Bobby, who has begun publishing a magazine about public policy, and Sheikh Fazle Noor Taposh, the mayor of South Dhaka. His parents were assassinated along with Sheikh Hasina’s in 1975. None of them has the same venerable status as Sheikh Hasina, however, and none is a plausible reformer.
Some speculate that change may come from the army, which has seized control several times in the past. But Sheikh Hasina has a tight grip on it, too. Al-Jazeera, a broadcaster based in Qatar, recently exposed the close personal ties between Sheikh Hasina and the current army chief.
Others fear Islamic radicalism. In 2016 religious extremists killed 24 people at a restaurant and bakery in Dhaka. Sheikh Hasina has cracked down on some Islamist groups, cajoling the courts to ban a prominent Islamic party, Jamaat-e-Islami, which fought alongside Pakistan in the war of independence. But she has cosied up to others, including Hefazat-e-Islam, which has agitated against the secularism for which the Awami League theoretically stands. Ordinary Bangladeshis, some 90% of whom are Muslim, have grown more religiously observant in recent years, but few seem to hanker for a theocracy.
Indeed, so complete has the Awami League’s control become that it is hard to know what ordinary Bangladeshis do want. Most will presumably be content if their personal welfare improves in the future as rapidly as it has done over the past 50 years. That happened largely in spite of Bangladesh’s politicians, however, not thanks to them.
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Bangladesh’s economic miracle is in jeopardy
Corrupt politics has become a bigger threat to the country than poverty
Squeezed on three sides by India and on the fourth by the Bay of Bengal, Bangladesh, the world’s eighth-most populous country, is both a much-praised model of development and a significant regional economy. Since a brutal war of independence from Pakistan in 1971, it has made remarkable social and economic progress.
A billiard-table-flat land on the combined floodplain of some of Asia’s biggest rivers, the country was once a byword for poverty, famine and natural disasters. Today, with a population of 170m, devastating human losses to cyclones are, thanks to shelters and warning systems, a thing of the past. So, too, are widespread food shortages. Child mortality rates are slightly better than the global average and half those of Pakistan. Female literacy, not long ago abysmal, is now 73%. The share of women in paid work has climbed from 4% at independence to 35%, largely thanks to a thriving garment industry.
In the decade before covid-19, Bangladesh grew at an average annual rate of 7%, only slightly slower than China. Its gdp per person, around $2,500 at market prices, is higher than India’s. It is expected to graduate from the un’s ranks of least developed countries (ldcs) in late 2026. It aims be an upper-middle-income country by 2031.
Yet hard-won optimism about Bangladesh’s trajectory is now being tested. The pandemic and Russia’s invasion of Ukraine have caused a serious economic shock to the country. It is gripped by a cost-of-living crisis. One manifestation is that the streets of Dhaka, the teeming capital, have this winter been filled with huge numbers of rough sleepers wrapped in flimsy shawls. Another is that at the central bank, the country’s foreign-currency reserves have been alarmingly run down.
On the political front, an election is due by the beginning of next year. Its outcome is not in serious doubt: Sheikh Hasina, the increasingly autocratic prime minister, has done what she can to destroy the opposition. Yet her zero-sum approach to politics has raised tensions that are likely to spark violence as the vote looms. Down but not quite eliminated, leaders of the opposition Bangladesh Nationalist Party (bnp) are already in the streets. Meanwhile, the stench of corruption in Dhaka is as acrid as the capital’s polluted air. Far from stepping into a bright future, Bangladesh appears in key respects to have lost its way.
The energy and bustle of Bangladeshis are still on display in the malls and factories of Dhaka and beyond. Such dynamism is the engine of the country’s unpredicted success. After the war, many of its people returned from abroad to help rebuild. One launched a charity, brac, which focused on women’s and children’s health, ran schools and set up microfinance schemes. ngos performed wonders to boost gender equality, which in turn improved many social, health and economic outcomes. Some developing states, including India and Pakistan, view ngos as political threats. Bangladesh’s overstretched government embraced them. Now brac is an export success, running services in Asia, Africa and the Caribbean.
Two-fifths of the population still work on the land. Yet road-building by the World Bank and others has connected villages with towns, boosting local farm markets. The garment industry that sprang up around Dhaka is world-class. The government helped by scrapping duties and outdated labour laws.
Sheikh Hasina, in power since 2009, has sought to drive a new phase of growth by splurging on infrastructure. Power has long been patchy. The capital has satanic levels of traffic congestion and air pollution. Crossing the riverine country is a challenge. But last year a huge road (and, soon, rail) bridge opened across the Padma River, the main channel in Bangladesh of the mighty Ganges, transforming the country’s economic geography. In Dhaka, a Japan-backed elevated metro is going up, along with a new airport terminal. Everywhere, power plants are being built. Much of this construction is only worsening congestion in the short term. Longer-term, the bottlenecks should ease.
Despite such visible progress, foreign diplomats, independent analysts and even thoughtful members of the ruling Awami League (al) in private express serious concerns. These run along several fronts, economic and political, though all are related. One is balance-of-payments vulnerabilities. Another is an overreliance on the garment industry. Overarching all is a grave worry about governance. A web of state capture and decay has spread through the country’s institutions.
These weaknesses have been laid bare by a familiar set of woes, including the fuel- and food-price inflation and fleeing capital that the war in Ukraine has visited upon the developing world. Bangladesh’s foreign-currency reserves have slumped to under $30bn. Last year the government called in the imf as a precaution. In January a $4.7bn loan was agreed. Yet the local currency, the taka, remains wobbly. And as the government puts the brakes on imports, in part by doubling down on the requisite inspections and permits, exporters are finding it hard to bring in the foreign inputs they need. They are also struggling to get hard currency to back letters of credit. Without those, they cannot trade.
The garment industry poses a longer-term concern. Overreliance on it, says Fahmida Khatun of the Centre for Policy Dialogue, a think-tank in Dhaka, represents a “serious weakness”. The sector’s future is uncertain. Graduating from ldc status will mean losing some tariff exemptions in Western markets. Lower-cost producers, such as in Cambodia and Ethiopia, threaten to take the same bite out of Bangladesh’s market share that it took from China’s.
Other export industries struggle to grow. Bangladesh is a member of no major regional trade pact. It has attracted little of the other sorts of production being moved out of China. Though some domestic sectors such as pharmaceuticals and electronics have potential, appalling bureaucracy and uneven customs duties hold them back. The eiu, a sister company of The Economist, ranks Bangladesh’s business environment 15th out of 17 Asian countries.
That speaks to the country’s biggest concern. Its dire governance touches nearly every corner of the country’s affairs—even the external account. Bangladesh’s rich and corrupt have made it a money-laundering world leader. Bangladeshis have a slang for those upscale districts of Toronto and other Western cities where their rich have parked money: begum para, or “begum [”high-ranking woman”] areas”. If it were not for a remarkable, 10m-strong army of mainly poor Bangladeshis, toiling in the Gulf, South-East Asia and elsewhere and remitting money home, the country’s balance of payments would be even worse.
Business and politics are conjoined. Non-performing loans have risen, thanks to banks favouring the politically connected with loans they do not repay. A powerful cabal of politicians, bureaucrats and the security services extorts fees that are the downpayment for accomplishing anything—from getting off an unfair traffic fine, to winning a government contract, to joining the coastguard, to applying to be a primary-school teacher. Far from being valued as they dearly deserve to be, those overseas-remittances workers are routinely shaken down at immigration.
Sheikh Hasina claims she is cracking down on corruption. In truth, the state is rotting from the head. She has constructed a personality cult around her late father, Sheikh Mujibur Rahman, the country’s independence hero—and by extension around herself. Her patronage system and demand for loyalty underpin her power, while destroying independent institutions. The police and the courts are in the service of the al and its cronies. The press is not free. Dissidents are in jail; some have been murdered. Even on punchy university campuses the al rules by fear, via its swaggering, sometimes violent student wing. A first-year undergraduate says he had to toady to its leaders to get a dorm room. Bright young Bangladeshis say they yearn to move abroad.
Sheikh Mujibur tried to make Bangladesh a one-party state before, in 1975, he and much of his family were assassinated. His daughter has all but completed the task. This is the context for the coming election. Sheikh Hasina long ago dispensed with the practice of holding elections under an impartial caretaker government. That way, the al can more easily control the results.
Sheikh’s rattle and roll
With her arch-rival, Khaleda Zia, under house arrest and her party, the bnp, hounded, the election’s outcome is already known. Yet the bnp, no less thuggish now than when it was in power, has recently recovered sufficiently to launch mass protests in Dhaka. It raises the risk of mob violence, and deepening political divisions.
It is only one of several worrying scenarios. Sheikh Hasina is 75 and has not anointed a successor. Younger family members lack either the experience or will to take over. If a stroke were to take the prime minister tomorrow, the country could fall into chaos.
Not all is gloom. Impressive to any visitor is how cheerfully and relentlessly young Bangladeshis look to themselves to solve problems. Theirs, says one Dhaka observer, is “a country of side-hustles”. People run e-commerce businesses from their bedrooms. A journalist keeps a dozen buffaloes outside the capital and supplies mozzarella to upmarket pizzerias. Over dinner in such places, people speak of their hopes for a better, more representative Bangladesh, one that gives opportunities rather than takes them away. At the moment, though you say it in public at your peril, the main obstacle to that future is the apparatus of wasted opportunities presided over by their prime minister. ■
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Is Bangladesh’s admired growth model coming unstuck?
A development superstar faces malign politics and rising corruption
Few countries have confounded their doomsayers as satisfyingly as Bangladesh. The “basket case”, in Henry Kissinger’s noxious phrase, that emerged in 1971 from the ravages of the third India-Pakistan war was widely considered a failed state in the making. It was poor, overcrowded, badly run and prey to violent cyclones and the vicissitudes of the great rivers meandering across it. Yet Bangladesh celebrated its first half-century in 2021 as a secular democracy, a model of frugal social development and South Asia’s standout economic performer.
Thanks to the dynamism of its activists, the country has long embraced progressive social policies. They have brought advances in particular for women and girls, who are more educated, likelier to be employed and have fewer and healthier children than their counterparts in India (let alone Pakistan). On the back of such progress, and a garments industry that was a winner from China’s rising labour costs, economic growth picked up. As we explain, in the ten years before covid-19 struck, Bangladesh grew at an annual rate of 7%, not far off China’s 8%. Its gdp per head at market prices, of about $2,500, is higher than India’s. In 2026 it is due to be promoted from the un’s ranks of least developed countries. Its ambition to be an upper-middle-income country by 2031 should be plausible.
However, those prospects are now clouded. Beset by conditions that afflict many developing countries, including rising import costs, scarcer capital and balance-of-payments pressures, Bangladesh was forced in January to secure a $4.7bn loan from the imf. It is not nearly as straitened as crisis-ridden Pakistan or Sri Lanka, but it ought to be held to a higher standard.
To maintain its progress Bangladesh will require a step-up in its economic performance. Yet its troubles have exposed structural and political weaknesses that point in the other direction: to a serious risk of deterioration.
Bangladesh is over-reliant on garments, which make up about 85% of its total goods exports. They may soon lose the preferential trade terms associated with Bangladesh’s least-developed status, even as competition from lower-cost producers such as Cambodia is rising. And Bangladesh’s efforts to diversify into higher-value-added industries, such as pharmaceuticals and electronics, are unimpressive. They are hampered by graft, red tape, difficulties in obtaining credit and a relentless brain drain, all of which have a common cause: the corrupt and controlling regime of Sheikh Hasina, the prime minister since 2009.
Almost every area of the economy is touched by her bid to turn Bangladesh into the one-party state envisaged by her assassinated father, Sheikh Mujibur Rahman, the country’s first president. Access to jobs, permits and government contracts runs through the ruling Awami League. Many domestic banks are thinly disguised shell operations, designed to funnel loans to the well-connected. Foreign direct investment has begun to flag in the past few years; the country’s ratings for doing business are the worst in South Asia. In an election due early next year, violence is looking increasingly likely as Sheikh Hasina’s beleaguered opponents take to the streets.
The 75-year-old prime minister’s commitment to strong government is not irrational. Bangladesh has suffered spasms of instability, including 29 attempted military coups. Still, she has taken authoritarianism to its limit in a society with deep traditions of pluralism and debate. Easing her party’s grip is the necessary next step towards building a more durable governing culture and, it might be added, to securing her family’s legacy and perhaps its safety. It is also essential to restoring the independent institutions that will be the foundation for the country’s future growth—which is likely to be harder to generate than its growth so far.
Western governments are reluctant to apply pressure. They doubt they have much influence with Sheikh Hasina and are wary of China’s growing investments in Bangladesh. Yet they have more sway than they know. Members of the country’s elite prize their links with the West, from business opportunities to educating their children; and Bangladesh relies more on foreign capital than in the past.
The stakes are high. As the climate warms, the environmental threats to Bangladesh are outpacing its progress. Assuming a temperature rise of 1.5°C above pre-industrial levels, the country could see 13m climate migrants and a third of its agricultural output wiped out by 2050, says the World Bank. Such a disaster could destabilise an acutely sensitive region. It could even make Mr Kissinger look prescient. If it is to mitigate that risk, Bangladesh cannot afford to become mired in oppressive one-party politics. It needs to get richer quicker.
