We’ve all heard the story of tortoise and the hare, but have you heard the one about the termites and the elephant? It’s a story in which the termites cross the finishing line before the lumbering elephant.
Anyone who thinks this an unlikely tale should travel to the Mirsarai Special Economic Zone, that’s coming up on 30,000 acres of reclaimed land a short distance from Chittagong. The sea here is held back by an enormous “super-dyke” and in the midst of this barren landscape, Asian Paints is building a $20-million factory slated to start up next June. Not far away, Berger Paints is putting up its second factory in Bangladesh for $29 million.
Even more ambitiously, Adani Ports and Special Economic Zone has begun work on a $115-million India Special Economic Zone (ISEZ) that will sprawl over 1,000 acres and be used exclusively by Indian investors.
With a nod to Amit Shah, our “termite friends” seem to be moving faster than our own Indian elephant. Bangladesh, which to India’s chagrin is forecast by the IMF to surpass us in per-capita GDP this year, is positioning itself as the new high-growth, low-wage country that aims to be an Asian industrial hub. It’s wooing everyone from giant Japanese corporations like Marubeni and Mitsubishi to South Korean and Chinese companies. Mirsarai is also located close to Chittagong Port from which exports can be easily and quickly shipped out of the country. “You can’t beat Bangladesh for low wages. We’re the biggest exporter of cheap labour,” says one veteran analyst. He adds: “Bangladeshis will do all jobs and are even cheaper than Indians.”
But low wages are only one part – though an important one – of the Bangladesh economic success story. Today, 93 per cent of the country’s households have electricity and the government says that will hit 100 per cent in two years. Dhaka, which had power cuts that lasted six to eight hours daily two decades ago, now has weeks, even months, without power outages and it’s the same story in the rural areas. The Shapoorji Pallonji group, owned by construction tycoon Pallonji Mistry, and the Anil Dhirubhai Ambani Group are both putting up power stations in Bangladesh, and the Adani Group plans to export power from India to Bangladesh. Shapoorji Pallonji, though, has reportedly put its Bangladesh plant on the block to cut debt. The homegrown Summit Group, meanwhile, is one of the largest power players in Bangladesh, a country of 164.4 million.
There are multiple factors tilting in favour in Bangladesh which India helped liberate in 1971. One Chinese company, Jinyuan Chemical Industry, is investing $6 million initially in Bangladesh and is about to go into production. The company’s chairman Wang Yang told a Bangladeshi newspaper she was exiting China to dodge tariffs the company might face if exporting to the US. “My first aim is to avoid the impact of the US-China trade conflict and make my products competitive,” she said.
A much larger Chinese investment is the state-owned Kunming Iron & Steel Co that is looking to invest $2.13 billion in Mirsarai’s Iron and Steel Industries Park. Bangladesh’s huge textile industry is also being taken care of and there will be room for 76 garment factories at Mirsarai. Around 1.5 million jobs are expected to be created totally at the industrial park when it is fully operational.
The Bangabandhu Sheikh Mujib Shilpa Nagar (as Mirsarai is officially known) is the flagship export zone for the country’s industrial development. But Bangladesh also aims to put up another 100 industrial parks around the country by 2030 to super-charge economic growth.
Political stability under Hasina
Will all this happen? There’s currently political stability and Prime Minister Sheikh Hasina has created the right conditions for growth but inevitably like any emerging market, there could be both political and economic upheavals. Also, the Islamists have grown much stronger politically in recent years, carrying out deadly attacks on liberal bloggers, academics and religious minorities.
By contrast, it could be said that India has taken its eye off the ball when it comes to the economy. The giants of the corporate sector were weighed down by excessive debt taken during boom times. We also squandered the opportunity offered by falling oil prices in 2014. And we indulged in costly experiments like demonetisation – we’ve never been able to figure exactly how much damage it did, but it certainly didn’t do any good. In addition, there was the botched switchover to GST with its multiple tax levels.
During this period the Bangladesh has been forging ahead and its GDP has grown faster than ours in the last two years. Also, another point in its favour is that the Bangladeshis have turned into entrepreneurs in a big way. There are at least 10 groups with revenues of more than $3 billion. Even in the $35-billion garment industry, almost $32 billion is exported by Bangladeshi entrepreneurs. Says an observer: “No matter who’s ruling, these people can take the country forward. The zeal for investment is quite high. New industrial groups are coming up fast.”
Vulnerable to external shocks
Still, don’t imagine that Bangladesh is about to overtake India as an economic power even though news that the country’s per capita GDP is overtaking ours has jolted many. “I’ve been telling people they shouldn’t get too excited,” says Zahid Hussein, former lead economist at the World Bank, adding: “India is much more integrated with the global economy so the Covid shock is much bigger.” Hussein adds also that 84 per cent of the country’s total exports still come from one industry -- garments -- which makes Bangladesh vulnerable to external shocks.
But there’s no denying that Bangladesh has grown steadily over the last decade and since 2016 growth has crossed 7 per cent each year. India, by contrast, has had its ups and downs and full-year growth in 2019-20 dropped to 4.2 per cent. In 2018-19, it was at a relatively lowly 6.9 per cent. On a per capita basis, India’s GDP is expected to contract this year by 10.5 per cent to $1,877 while Bangladesh’s per capita GDP is expected to increase by 4 per cent to $1,888. Another sobering fact is that five years ago Indian per capita income was 25 per cent higher than its neighbour.
“We had good fiscal management. The macro-economic position has been stable. India has gone through ups and downs,” says Ahsan H. Mansur, head of the Dhaka-based Policy Research Institute. Bangladeshis look with bemusement at the economic shocks that have convulsed India under Prime Minister Narendra Modi such as demonetisation and the hastily introduced GST.
Remittances have climbed
Most crucially, Bangladesh has been less hit by the pandemic than India over the last eight months. (Its infections peaked in June while ours have yet to peak). Remittances from non-resident Bangladeshis have climbed to over $18 billion, an increase over last year, at a time when the Gulf countries have been sending workers back. That’s in sharp contrast to India where remittances are expected to drop this year from around $83 billion to around $64 billion. Remittances account for about 6 per cent of Bangladesh’s GDP. Importantly, says Mansur, most Bangladeshis abroad are from the rural areas. “Because they are from the rural areas, they send 100 per cent of their remittances to the rural economy,” he adds.
How have Bangladesh remittances actually risen during this crisis-filled time? Many theories have been doing the rounds including a suggestion that Bangladeshis working in the Gulf are dispatching all their savings back home before returning themselves. Alternatively, economists speculate Bangladeshi workers abroad are sending back more money to families who’ve been more in need of cash during the last few pandemic-and lockdown-hit months.
But the most likely explanation is that the pandemic shutdown hit the illegal cash transfer channels and Bangladeshi workers were forced to send money back via legal routes, adding to the recorded amount. Also, analysts say Bangladeshis may be hanging on to their jobs in places like the Gulf because they are paid even less than the Indians there.
Around 10 million Bangladeshis work abroad in the Gulf, Europe and other parts of the world. They’re the second-largest contingent in the Gulf after the 8.5 million Indians there. Each year, about 2 million Bangladeshis enter the workforce and around 25 per cent are thought to head abroad (most Bangladeshis insist that youngsters looking for jobs do not head to India but other parts of the world).
Though the picture is changing, remittances, the vibrant textile sector and farming are the three pillars of the Bangladeshi economy. Like India, the Bangladesh economy is primarily all about consumption-led growth as the population has become more affluent. Also, agriculture has grown steadily and that includes fisheries, livestock, poultry and high value crops. Micro-credit, which has played a bigger role in Bangladesh than anywhere else in the world, has had an important impact in building the agricultural sector. More women have also been involved in poultry and livestock farming. Bangladesh is now amongst the world’s top ten fish producing countries because of its successful freshwater aquaculture.
There were great fears that Covid-19 would decimate Bangladesh’s economy and particularly its garment factories which operate in cramped conditions. But the garment units have come out relatively unscathed with the help of government financing. One explanation is that garment factory workers – who are mainly women – are young and therefore haven’t been so badly hit by the infections. Bangladesh’s exporters initially said $3,25 billion worth of orders had been cancelled but now report that 80 per cent of these orders have been reinstated. Also, the garment exporters have built up a new business making PPE suits and other health-related products.
Far behind in education
What are the downsides to the Bangladesh growth story? Education is far behind desired levels. Political leaders at all levels have a huge say in the education system and the appointment of teachers. In terms of higher education Bangladesh is far behind India and doesn’t have established institutions like the IITs and the IIMs. Corruption is rife and, of course, there are fears that Islamist elements could destroy the country’s founding secularist principles.
On healthcare and hunger, Bangladesh outperforms India. For instance, Bangladesh ranked 75 out of 107 nations in the Global Hunger Index 2020 while India stood at 94. The country managed to end open defecation more than a decade ago and there are toilets in even the smallest village houses. In most villages, all houses have power connections and indoor toilets. LPG is also widely used. The availability of stable power has created a demand for refrigerators, TVs and even rice cookers.
Even in a pandemic-battered year, economists say that the mood in Bangladesh is upbeat and there’s a feeling that things can only get better. The IMF, meanwhile, forecasts that India and Bangladesh will likely be running neck-and-neck in terms of GDP per capita income in coming years.