Economy of Bangladesh

East Bengal—the eastern segment of Bengal—was a historically prosperous region.[40] The Ganges Delta provided advantages of a mild, almost tropical climate, fertile soil, ample water, and an abundance of fish, wildlife, and fruit.[40] The standard of living is believed to have been higher compared with other parts of South Asia.[40] As early as the thirteenth century, the region was developing as an agrarian economy.[40] Bengal was the junction of trade routes on the Southeastern Silk Road.[40]

A woman in Dhaka clad in fine Bengali muslin, 18th century.

Under Mughal rule, Bengal operated as a centre of the worldwide muslin, silk and pearl trades.[40] Domestically, much of India depended on Bengali products such as rice, silks and cotton textiles. Overseas, Europeans depended on Bengali products such as cotton textiles, silks and opium; Bengal accounted for 40% of Dutch imports from Asia, for example.[41] Bengal shipped saltpeter to Europe, sold opium in Indonesia, exported raw silk to Japan and the Netherlands, and produced cotton and silk textiles for export to Europe, Indonesia and Japan.[42] Real wages and living standards in 18th-century Bengal were comparable to Britain, which in turn had the highest living standards in Europe.[43]

During the Mughal era, the most important centre of cotton production was Bengal, particularly around its capital city of Dhaka, leading to muslin being called "daka" in distant markets such as Central Asia.[44] Bengali agriculturalists rapidly learned techniques of mulberry cultivation and sericulture, establishing Bengal as a major silk-producing region of the world.[45] Bengal accounted for more than 50% of textiles and around 80% of silks imported by the Dutch from Asia, for example.[41]

Bengal also had a large shipbuilding industry. Indrajit Ray estimates shipbuilding output of Bengal during the sixteenth and seventeenth centuries at 223,250 tons annually, compared with 23,061 tons produced in nineteen colonies in North America from 1769 to 1771.[46] He also assesses ship repairing as very advanced in Bengal.[46] Bengali shipbuilding was advanced compared to European shipbuilding at the time. An important innovation in shipbuilding was the introduction of a flushed deck design in Bengal rice ships, resulting in hulls that were stronger and less prone to leak than the structurally weak hulls of traditional European ships built with a stepped deck design. The British East India Company later duplicated the flushed-deck and hull designs of Bengal rice ships in the 1760s, leading to significant improvements in seaworthiness and navigation for European ships during the Industrial Revolution.[47]

The British East India Company, that took complete control of Bengal in 1793 by abolishing Nizamat (local rule), chose to develop Calcutta, now the capital city of West Bengal, as their commercial and administrative center for the Company-held territories in South Asia.[40] The development of East Bengal was thereafter limited to agriculture.[40] The administrative infrastructure of the late eighteenth and nineteenth centuries reinforced East Bengal's function as the primary agricultural producer—chiefly of rice, tea, teak, cotton, sugar cane and jute — for processors and traders from around Asia and beyond.[40]

After its independence from Pakistan, Bangladesh followed a socialist economy by nationalising all industries, proving to be a critical blunder undertaken by the Awami League government. Some of the same factors that had made East Bengal a prosperous region became disadvantages during the nineteenth and twentieth centuries.[40] As life expectancy increased, the limitations of land and the annual floods increasingly became constraints on economic growth.[40] Traditional agricultural methods became obstacles to the modernisation of agriculture.[40] Geography severely limited the development and maintenance of a modern transportation and communications system.[40]

The partition of British India and the emergence of India and Pakistan in 1947 severely disrupted the economic system. The united government of Pakistan expanded the cultivated area and some irrigation facilities, but the rural population generally became poorer between 1947 and 1971 because improvements did not keep pace with rural population increase.[40] Pakistan's five-year plans opted for a development strategy based on industrialisation, but the major share of the development budget went to West Pakistan, that is, contemporary Pakistan.[40] The lack of natural resources meant that East Pakistan was heavily dependent on imports, creating a balance of payments problem.[40] Without a substantial industrialisation programme or adequate agrarian expansion, the economy of East Pakistan steadily declined.[40] Blame was placed by various observers, but especially those in East Pakistan, on the West Pakistani leaders who not only dominated the government but also most of the fledgling industries in East Pakistan.[40]

Since Bangladesh followed a socialist economy by nationalising all industries after its independence, it underwent a slow growth of producing experienced entrepreneurs, managers, administrators, engineers, and technicians.[48] There were critical shortages of essential food grains and other staples because of wartime disruptions.[48] External markets for jute had been lost because of the instability of supply and the increasing popularity of synthetic substitutes.[48] Foreign exchange resources were minuscule, and the banking and monetary systems were unreliable.[48] Although Bangladesh had a large work force, the vast reserves of under trained and underpaid workers were largely illiterate, unskilled, and underemployed.[48] Commercially exploitable industrial resources, except for natural gas, were lacking.[48] Inflation, especially for essential consumer goods, ran between 300 and 400 percent.[48] The war of independence had crippled the transportation system.[48] Hundreds of road and railroad bridges had been destroyed or damaged, and rolling stock was inadequate and in poor repair.[48] The new country was still recovering from a severe cyclone that hit the area in 1970 and caused 250,000 deaths.[48] India came forward immediately with critically measured economic assistance in the first months after Bangladesh achieved independence from Pakistan.[48] Between December 1971 and January 1972, India committed US$232 million in aid to Bangladesh from the politico-economic aid India received from the US and USSR. Official amount of disbursement yet undisclosed.[48]

After 1975, Bangladeshi leaders began to turn their attention to developing new industrial capacity and rehabilitating its economy.[49] The static economic model adopted by these early leaders, however—including the nationalisation of much of the industrial sector—resulted in inefficiency and economic stagnation.[49] Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued.[49] Many state-owned enterprises have been privatised, like banking, telecommunication, aviation, media, and jute.[49] Inefficiency in the public sector has been rising however at a gradual pace; external resistance to developing the country's richest natural resources is mounting; and power sectors including infrastructure have all contributed to slowing economic growth.[49]

In the mid-1980s, there were encouraging signs of progress.[49] Economic policies aimed at encouraging private enterprise and investment, privatising public industries, reinstating budgetary discipline, and liberalising the import regime were accelerated.[49] From 1991 to 1993, the government successfully followed an enhanced structural adjustment facility (ESAF) with the International Monetary Fund (IMF) but failed to follow through on reforms in large part because of preoccupation with the government's domestic political troubles.[49] In the late 1990s the government's economic policies became more entrenched, and some gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001.[49] In June 2003 the IMF approved 3-year, $490-million plan as part of the Poverty Reduction and Growth Facility (PRGF) for Bangladesh that aimed to support the government's economic reform programme up to 2006.[49] Seventy million dollars was made available immediately.[49] In the same vein the World Bank approved $536 million in interest-free loans.[49] The economy saw continuous real GDP growth of at least 5% since 2003. In 2010, Government of India extended a line of credit worth $1 billion to counterbalance China's close relationship with Bangladesh.

Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas.[49] Foreign reserves dropped markedly in 2001 but stabilised in the US$3 to US$4 billion range (or about 3 months' import cover).[49] In January 2007, reserves stood at $3.74 billion, and then increased to $5.8 billion by January 2008, in November 2009 it surpassed $10.0 billion, and as of April 2011 it surpassed the US$12 billion according to the Bank of Bangladesh, the central bank.[49] The dependence on foreign aid and imports has also decreased gradually since the early 1990s.[50] According to Bangladesh bank the reserve is $30 billion in August 2016

In last decade, poverty dropped by around one third with significant improvement in human development index, literacy, life expectancy and per capita food consumption. With economy growing close to 6% per year, more than 15 million people have moved out of poverty since 1992.[51]

Map showing the growing areas of major agricultural products.

Most Bangladeshis earn their living from agriculture.[49] Although rice and jute are the primary crops, maize and vegetables are assuming greater importance.[49] Due to the expansion of irrigation networks, some wheat producers have switched to cultivation of maize which is used mostly as poultry feed.[49] Tea is grown in the northeast.[49] Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas.[49] Due to a number of factors, Bangladesh's labour-intensive agriculture has achieved steady increases in food grain production despite the often unfavourable weather conditions.[49] These include better flood control and irrigation, a generally more efficient use of fertilisers, and the establishment of better distribution and rural credit networks.[49] With 28.8 million metric tons produced in 2005–2006 (July–June), rice is Bangladesh's principal crop.[49] By comparison, wheat output in 2005–2006 was 9 million metric tons.[49] Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat.[49] Foreign assistance and commercial imports fill the gap,[49] but seasonal hunger ("monga") remains a problem.[54] Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower.[49] 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 labour force.[49] Due to farmers' vulnerability to various risks, Bangladesh's poorest face numerous potential limitations on their ability to enhance agriculture production and their livelihoods. These include an actual and perceived risk to investing in new agricultural technologies and activities (despite their potential to increase income), a vulnerability to shocks and stresses and a limited ability to mitigate or cope with these and limited access to market information.[54]

Many new jobs – 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.[49] By the late 1990s, about 1.5 million people, mostly women, were employed in the garments sector as well as Leather products specially Footwear (Shoe manufacturing unit). During 2001–2002, export earnings from ready-made garments reached $3,125 million, representing 52% of Bangladesh's total exports. Bangladesh has overtaken India in apparel exports in 2009, its exports stood at 2.66 billion US dollar, ahead of India's 2.27 billion US dollar and in 2014 the export rose to $3.12 billion every month. At the fiscal year 2018, Bangladesh has been able to garner US$36.67 billion export earnings by exporting manufactured goods, of which, 83.49 percent has come from the apparel manufacturing sector.[55]

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 hand loom 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.[56]

Other industries which have shown very strong growth include the pharmaceutical industry,[57] shipbuilding industry,[58] information technology,[59] leather industry,[60] steel industry,[61][62] and light engineering industry.[63][64]

A Bangladeshi textile fabric plant

Bangladesh's textile industry, which includes knitwear and ready-made garments (RMG) along with specialised textile products, is the nation's number one export earner, accounting for $21.5 billion in 2013 – 80% of Bangladesh's total exports of $27 billion.[65] Bangladesh is 2nd in world textile exports, behind China, which exported $120.1 billion worth of textiles in 2009. The industry employs nearly 3.5 million workers. Current exports have doubled since 2004. Wages in Bangladesh's textile industry were the lowest in the world as of 2010. The country was considered the most formidable rival to China where wages were rapidly rising and currency was appreciating.[66][67] As of 2012 wages remained low for the 3 million people employed in the industry, but labour unrest was increasing despite vigorous government action to enforce labour peace. Owners of textile firms and their political allies were a powerful political influence in Bangladesh.[68] The urban garment industry has created more than one million formal sector jobs for women, contributing to the high female labour participation in Bangladesh.[69] While it can be argued that women working in the garment industry are subjected to unsafe labour conditions and low wages, Dina M. Siddiqi argues that even though conditions in Bangladesh garment factories "are by no means ideal," they still give women in Bangladesh the opportunity to earn their own wages.[70] As evidence she points to the fear created by the passage of the 1993 Harkins Bill (Child Labor Deterrence Bill), which caused factory owners to dismiss "an estimated 50,000 children, many of whom helped support their families, forcing them into a completely unregulated informal sector, in lower-paying and much less secure occupations such as brick-breaking, domestic service and rickshaw pulling."[70]

Even though the working conditions in garment factories are not ideal, they tend to financially be more reliable than other occupations and, "enhance women’s economic capabilities to spend, save and invest their incomes."[71] Both married and unmarried women send money back to their families as remittances, but these earned wages have more than just economic benefits. Many women in the garment industry are marrying later, have lower fertility rates, and attain higher levels of education, then women employed elsewhere.[71]

After massive labour unrest in 2006[72] the government formed a Minimum Wage Board including business[73] and worker representatives which in 2006 set a minimum wage equivalent to 1,662.50 taka, $24 a month, up from Tk950. In 2010, following widespread labour protests involving 60,000 workers in June 2010,[74][75][76] a controversial proposal was being considered by the Board which would raise the monthly minimum to the equivalent of $50 a month, still far below worker demands of 5,000 taka, $72, for entry level wages, but unacceptably high according to textile manufacturers who are asking for a wage below $30.[67][77] On 28 July 2010 it was announced that the minimum entry level wage would be increased to 3,000 taka, about $43.[78]

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

Many Western multinationals use labour in Bangladesh, which is one of the cheapest in the world: 30 euros per month compared to 150 or 200 in China. Four days is enough for the CEO of one of the top five global textile brands to earn what a Bangladeshi garment worker will earn in her lifetime. In April 2013, at least 1,135 textile workers died in the collapse of their factory. Other fatal accidents due to unsanitary factories have affected Bangladesh: in 2005 a factory collapsed and caused the death of 64 people. In 2006, a series of fires killed 85 people and injured 207 others. In 2010, some 30 people died of asphyxiation and burns in two serious fires.[79]

In 2006, tens of thousands of workers mobilized in one of the country's largest strike movements, affecting almost all of the 4,000 factories. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) uses police forces to crack down. Three workers were killed, hundreds more were wounded by bullets, or imprisoned. In 2010, after a new strike movement, nearly 1,000 people were injured among workers as a result of the repression.[79]

BNS Durgam has been built in Bangladesh

Shipbuilding is a growing industry in Bangladesh with great potential.[80][81] Due to the potential of shipbuilding in Bangladesh, the country has been compared to countries like China, Japan and South Korea.[82] Referring to the growing amount of export deals secured by the shipbuilding companies as well as the low cost labour available in the country, experts suggest that Bangladesh could emerge as a major competitor in the global market of small to medium ocean-going vessels.[83]

Bangladesh also has the world's largest ship breaking industry which employs over 200,000 Bangladeshis and accounts for half of all the steel in Bangladesh.[84] Chittagong Ship Breaking Yard is the world's second-largest ship breaking area.

Khulna Shipyard Limited (KSY) with over five decades of reputation has been leading the Bangladesh Shipbuilding industry and had built a wide spectrum of ships for domestic and international clients. KSY built ships for Bangladesh Navy, Bangladesh Army and Bangladesh Coast Guard under the contract of ministry of defence.

Until 1980s, the financial sector of Bangladesh was dominated by state-owned banks.[85] With the grand-scale reform made in finance, private commercial banks were established through privatisation. The next finance sector reform programme was launched from 2000 to 2006 with focus on the development of financial institutions and adoption of risk-based regulations and supervision by Bangladesh Bank. As of date, the banking sector consisted of 4 SCBs, 4 government-owned specialized banks dealing in development financing, 39 private commercial banks, and 9 foreign commercial banks.

• Tourism in Bangladesh

Bangladesh's information technology sector is growing example of what can be achieved after the current government's relentless effort to create a skilled workforce in ICT sector. The ICT workforce consisted of private sector and freelance skilled ICT workforce. The ICT sector also contributed to Bangladesh's economic growth. The ICT adviser to the prime minister, Sajeeb Wazed Joy is hopeful that Bangladesh will become a major player in the ICT sector in the future.[86] In the last 3 years, Bangladesh has seen a tremendous growth in the ICT sector. Bangladesh is a market of 160 million people with vast consumer spending around mobile phones, telco and internet. Bangladesh has 80 million[87] internet users, an estimated 9% growth in internet use by June 2017 powered by mobile internet. Bangladesh currently has an active 23 million[88] Facebook users. Bangladesh currently has 143.1 million mobile phone customers.[87] Bangladesh has exported $800 million[89] worth of software, games, outsourcing and services to European countries, the United States, Canada, Russia and India by 30 June 2017. The Junior Minister for ICT division of the Ministry of Post, Telecommunications and Information Technology said that Bangladesh aims to raise its export earnings from the information and communications technology (ICT) sector to $5 billion by 2021.[90]

The bullish capital market turned bearish during 2010, with the exchange losing 1,800 points between December 2010 and January 2011.[95] Millions of investors have been rendered bankrupt as a result of the market crash. The crash is believed to be caused artificially to benefit a handful of players at the expense of the big players.[95]

The list includes ten largest Bangladeshi companies by trading value (millions in BDT) in 2018.[96][97]

A Square Pharmaceuticals plant in Gazipur.

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 Nations Development Programme report "Sewing Thoughts: How to Realize 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.[98]

"[In 2005] 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.[99]

The 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.

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.[100]

Bangladesh has been a world leader in its efforts to end the use of child labour in garment factories. On 4 July 1995, the Bangladesh Garment Manufacturers and Exporters Association, International Labour Organization, and UNICEF signed a memorandum of understanding on the elimination of child labour in the garment sector. Implementation of this pioneering agreement began in fall 1995, and by the end of 1999, child labour in the garment trade virtually had been eliminated.[101] The labour-intensive process of ship breaking 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.[102] 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.