SWOT Analysiss Of Bangladesh Economy

Although one of the world’s poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its increasing population, through increased domestic production augmented by imports. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent 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. Bangladesh is limited in its reserves of coal and oil, and its industrial base is weak. The country’s main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas. Following the violent events of 1971 during the fight for independence, Bangladesh–with the help of large infusions of donor relief and development aid–slowly began to turn its attention to developing new industrial capacity and rehabilitating its economy.

The static economic model adopted by its early leadership, however–including the nationalization of much of the industrial sector–resulted in inefficiency and economic stagnation. Beginning in late 1975, the government gradually gave greater scope to private sector participation in the economy, a pattern that has continued. A few state-owned enterprises have been privatized, but many, including major portions of the banking and jute sectors, remain under government control. Population growth, inefficiency in the public sector, resistance to developing the country’s richest natural resources, and limited capital have all continued to restrict economic growth.

In the mid-1980s, there were encouraging, if halting, signs of progress. Economic policies aimed at encouraging private enterprise and investment, denationalizing public industries, reinstating budgetary discipline, and liberalizing the import regime were accelerated. 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.

In the late 1990s the government’s economic policies became more entrenched, and some of the early gains were lost, which was highlighted by a precipitous drop in foreign direct investment in 2000 and 2001. 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 program up to 2006. Seventy million dollars was made available immediately. In the same vein the World Bank approved $536 million in interest-free loans. Efforts to achieve Bangladesh’s macroeconomic goals have been problematic.

The privatization of public sector industries has proceeded at a slow pace–due in part to worker unrest in affected industries–although on June 30, 2002, the government took a bold step as it closed down the Adamjee Jute Mill, the country’s largest and most costly state-owned enterprise. The government also has proven unable to resist demands for wage hikes in government-owned industries. Introduction:

Strength of Bangladesh Economy: I will discuss the strength of Bangladesh Economy by discussing the vital Variables i. e. the performances vital Economic Sectors. The variables are as follows: ?Agriculture ?RMG Industry ?Textile Industry ?Service Sector ?Capital Market ?Remittances ? Agriculture: Bangladesh is an agricultural country. With some three-fifths of the population engaged in farming. Jute and tea are principal sources of foreign exchange.

Major impediments to growth include frequent cyclones and floods, inefficient state-owned enterprises, inadequate port facilities, a rapidly growing labor force that cannot be absorbed by agriculture, delays in exploiting energy resources (natural gas), insufficient power supplies, and slow implementation of economic reforms.

Economic reform is stalled in many instances by political infighting and corruption at all levels of government. The quarterly report of Asian Development Bank (ADP) about Bangladesh Economy also has provided information regarding Bangladesh Agriculture: Despite the government’s broad-based support for Agriculture, the growth rate of agriculture in FY2010 is expected to be lower than in FY2009 because of the effects of weather, and weak supply response by farmers to lower farm-gate prices after last year’s harvesting season.

Although the authorities channeled electricity from the cities to rural areas during the boro season, supply wasn’t adequate to meet the full demand for irrigation. Production of staple food grains, i. e. , rice and wheat, is estimated to grow by 5. 5% in FY2010 over the 32. 2 million Tons of actual production in FY2009 (Figure 1). Production of rice is estimated to rise by 5. 1%, from 31. 3 million tons in FY2009 to 32.

9 million tons in FY2010. Wheat Production is targeted to increase by 20. 1%, from0. 85 million tons in FY2009 to 1. 02 million tons in FY2010. Substitution of cultivated land to no rice crops is expected to increase production of maize, potatoes, and other crops. Despite the unusually large production of potatoes, the lack of storage facilities caused a huge loss for farmers. The outputs of fishery, poultry, and livestock sectors, although growing, are unable to meet rising demand from the growth in population and income. ?RMG Industry: The economy of Bangladesh is largely dependent on agriculture.

However, in recent years, the Ready –Made Garments (RMG) sector has emerged as the biggest earner of foreign currency. The RMG sector has experienced an exponential growth since the 1980s. The sector contributes significantly to the GDP. It also provides employment to around 2 million Bangladeshis. An overwhelming number of workers in this sector are women. This has affected the social status of many women coming from low income families. The United States was the main export destination for Bangladeshi RMG products in the early 1990s followed by the European Union, but the European Union has surpassed the United States over time.

These two destinations generate more than 90 per cent of the total RMG export earnings of Bangladesh (BGMEA and the Export Promotion Bureau). The shares of other importers, such as Australia, Canada, China, Japan and the Russian Federation as well as countries in the Middle East. The total RMG export earnings of Bangladesh are minimal. This section of the paper focuses on surface-level competitive performance of the Bangladesh RMG industry in the United States and the European Union markets only. In addition, the performance of China and India along with Bangladesh as RMG suppliers to international markets is also considered for comparative analysis.

According to Export Promotion Bureau (EPB), Bangladesh exported knitwear products to China worth $3. 071 million in fiscal 2007-08 against $0. 76 million in the previous fiscal year, posting a staggering 400 percent growth. In fiscal 2007-08 the country exported woven garments to China worth $6. 691 million against $6. 323 million in fiscal 2006-07. The total export to China from Bangladesh amounted to $106. 946 million against the import of around $3. 0 billion in fiscal 2007-08. In 2007, Bangladesh exported cotton T-shirts, singlets and other vests worth $0. 79 million against $0. 57 million in 2006.

China imported such kind of apparel items worth $976. 890 million in 2007 and $926. 330 million in 2006 from the rest of the world. It clearly shows that China itself imports apparel items of a significant amount. Aggressive marketing drive by Bangladesh can grab a chunk of such import of China, experts say. Currently Bangladesh enjoys duty concession on exports of 757 products to Chinese market under Asia Pacific Trade Agreement. Of the 757 products, 22 knitwear items and almost the same amount of woven items are included in the concession category. As a result, the export of knitwear and woven products is getting a steady rise to China.

?Textile Industry: While agriculture for domestic consumption is Bangladesh’s largest employment sector, the money gained from exporting textiles is the single greatest source of economic growth in Bangladesh. Exports of textiles, clothing, and ready-made garments accounted for 77% of Bangladesh’s total merchandise exports in 2002. Only 5% of textile factories are owned by foreign investors, with most of the production being controlled by families or Bangladeshi companies. Textile exports from Bangladesh displays a buoyant performance. Knitwear and woven garment exports have increased by 41. 8%, and 36.

2 percent during December 2008 comparatively over the previous years figures. Since Bangladesh exports low end textile products, their sales are least affected by the economic crisis. Shoppers from the income declining countries, who prefer to restrict their shopping budget, prefer to buy low end garments imported from Bangladesh. ?Service Sector: The service sector in Bangladesh is now contributing more than 49 percent to the gross domestic product (GDP) after reorganization of different sectors under the newly adopted national accounting system, The Financial Express reported Saturday.

The report quoted sources of the finance and planning ministries as saying the relative contributions of the service and industry sectors have increased over the years while those of agriculture have declined. The contributions of the agriculture sector dropped from about 30 percent in the early 1990s to 25. 28 percent at present, but the industry sector commanded 25. 69 percent in the last financial year. Asian Development Bank (ADP) has launched an analysis on Bangladesh Economy. They described the service sector of Bangladesh in the following way: Performance of the services sector largely dependson the outcomes of the agriculture and industry sectors.

The global economic crisis has impacted growth of the Services sector in a variety of ways. Contraction in tradeand investment activities affected performance of transport and communication services. Subdued trade and investment activities affected financial services. Moderation in remittance inflow also dampened demand for services affecting wholesale and retail trade and Community, social, and personal services. Lack of infrastructure and power supply has constrained new investment in health care and education services. The Telecommunications sector is also affected by the slowdown in economic activities, particularly trade??

Capital Market: Asian Development Bank (ADP) in their quarterly analysis has described the capital market as follows :

Weakness of Bangladesh Economy: In terms of strengths, there is no doubt Bangladesh is in a good geographic location. It provides an important link between the economies of South Asia and the dynamic Southeast Asian region. Bangladesh sits on strategic trade lanes and Chittagong can emerge as a major port to service the regional economies. Although Bangladesh is a new nation, it represents an old and flexible civilization. Both its ecology and history point to the people’s hidden resilience in the face of adversities, with capacity to produce unexpected social renewals and economic recovery.

Another source of its strength is the rapid advance made by the non governmental organizations (NGOs) and other grassroots bodies, creating alternative delivery mechanisms and acting as vocal civic institutions especially for the poor. This is an important source of ‘social entrepreneurialism’ and a channel of vibrant development of many elements in society. The ongoing process of mainstreaming women into development is a strategic strength to bring wider and deeper social and economic changes. Gains in increasing political and electoral participation of women, enhancing press freedom, and creating a vibrant civil society are important for strengthening democratic institutions and consolidating human rights.

The country’s vulnerability to natural disasters has significantly declined that used to inhibit greater investment flow and reduce its productivity and return in the past. Several important structural changes have taken place, such as agriculture becoming more resilient with the spread of dry season irrigated crop production and rapid expansion of non-crop agriculture; non- agricultural sectors assuming greater importance; infrastructure and market developments contributing to greater spatial integration and lower price effect of exogenous shocks; and higher mitigation capacity in responding to natural disasters.

Bangladesh has a fairly good and expanding stock of both physical and human capital, and with favorable policies, the upgrading potential of both capital is bright. The remittances from overseas workers have already become a great source of strength and this can be increased manifold with right policies. Relative stability of the country’s economic fundamentals has created a fairly good macroeconomic environment. As one can see, all the above elements represent significant strengths of the Bangladesh economy. Against this, one can set some obvious weaknesses.

One uncomfortable feature is that Bangladesh is one of the few countries where income poverty is falling slowly even though economic growth has picked up. Even after three decades, most of the economic sectors (especially agriculture) are still weak; health and education indicators are low. Infrastructure, while improving, is still poor especially in electricity, having a per capita use which is among the lowest in the world. Corruption is certainly high. The economic and administrative cost of securing business is high as well.

A feature of both a weakness and a threat is the rapidly rising inequality in income and wealth, which neither supports economic efficiency nor social equity. This is socially destabilizing as underemployed urban masses and a swelling rural landless people are much more volatile than a well-rooted community of employed non-farm workers and landed farmers. The absolute size of the population, despite success in lowering the growth rate, is increasing fast that creates tremendous pressure on resources as well as on provision of essential services. Looking forward, what advantages or opportunities does Bangladesh have? In a sense, many of the weaknesses that can be remedied are opportunities.

If agricultural productivity is low, investments in irrigation, improved agricultural systems, markets, and infrastructure can raise production and productivity. If foreign direct investment (FDI) is low, then improvements in governance, infrastructure, and investment climate can attract more investments. A higher demand for skilled workers can create an incentive for better training and education. Services sector development including export of skilled manpower is a real possibility. There is a promising private sector and the dynamism of this sector, especially in information communication technology (ICT), can be an important opportunity.

Corruption and waste: A great deal of attention has been placed on corruption in Bangladesh. This is entirely justified since corruption is a serious problem in the country. Much less attention, however, has been placed on a related but equally serious problem which is the issue of waste. Waste occurs when an unnecessary and inappropriate investment is made. One important difference between corruption and waste is that with waste, there may or may not be a transfer of resources to a corrupt person but there is certainly a loss to everyone! If a high- cost factory were built or equipment procured for its proper cost, with nothing added in improperly padded costs or commissions, it would still create a loss for Bangladesh and its people.

Higher prices have to be paid to cover the costs of the factory or the services of the equipment, or it is to be shut down. If it is shut down, there is a huge loss. If it operates, the price of the product or the service would be higher than it need be. Thus nobody benefits. When waste and corruption are combined, those who profit from a bad project derive benefit but society still loses. Corruption must be fought, but we must remember that it exists in all societies.

Waste is easier to avoid if there is a serious review of public investments and limited protection, subsidies, or guarantees to private projects. As there are large losses from bad project selection, a nation genuinely concerned with growth and stability will try to ensure that public investments are well chosen. For selecting appropriate project, an effective review of the economic feasibility of the project is essential. While this no doubt may involve some extra cost, it is much less costly than the ‘free’ feasibility studies provided by potential contractors or financiers who stand to benefit if the project is built.

Such free feasibility studies examine what kind of project should be built rather than if it is sensible to build the project. These studies are often a rich source of technical data but a poor and weak guide to underlying economics of the project. Bangladesh must manage to insulate investment choices from corruption; we should build what should be built at about the right cost, rather than what should not be built at a wildly inflated cost. We must also avoid wildly inflated costs even on well-chosen projects. Opportunities for Bangladesh Economy:

Despite continuous domestic and international efforts to improve economic and demographic prospects, Bangladesh remains a developing nation. Its per capita income in 2006 was US$2300 (adjusted by purchasing power parity) compared to the world average of $10,200. Jute was once the economic engine of the country. Its share of the world export market peaked in the Second World War and the late 1940s at 80% and even in the early 1970s accounted for 70% of its export earnings. However, polypropylene products began to substitute for jute products worldwide and the jute industry started to decline.

Bangladesh grows very significant quantities of rice (chal), tea (Cha) and mustard. Although two-thirds of Bangladeshis are farmers, more than three quarters of Bangladesh’s export earnings come from the garment industry, which began attracting foreign investors in the 1980s due to cheap labour and low conversion cost. In 2002, the industry exported US$5 billion worth of products. The industry now employs more than 3 million workers, 90% of whom are women. A large part of foreign currency earnings also comes from the remittances sent by expatriates living in other countries. Worker in a paddy field – a common scene throughout Bangladesh.

Two thirds of the population works in the agricultural sector. Obstacles to growth include frequent cyclones and floods, inefficient state-owned enterprises, mismanaged port facilities, a growth in the labour force that has outpaced jobs, inefficient use of energy resources (such as natural gas), insufficient power supplies, slow implementation of economic reforms, political infighting and corruption. According to the World Bank, “among Bangladesh’s most significant obstacles to growth are poor governance and weak public institutions. ” Despite these hurdles, the country has achieved an average annual growth rate of 5% since 1990, according to the World Bank.

Bangladesh has seen expansion of its middle class, and its consumer industry has also grown. In December 2005, four years after its report on the emerging “BRIC” economies (Brazil, Russia, India, and China), Goldman Sachs named Bangladesh one of the “Next Eleven,” along with Egypt, Indonesia, Pakistan and seven other countries. Bangladesh has seen a dramatic increase in foreign direct investment. A number of multinational corporations and local big business houses such as Beximco, Square, Akij Group, Ispahani, Navana Group, Habib Group, KDS Group and multinationals such as Unocal Corporation and Chevron, have made major investments, with the natural gas sector being a priority.

In December 2005, the Central Bank of Bangladesh projected GDP growth around 6. 5%. One significant contributor to the development of the economy has been the widespread propagation of micro credit by Muhammad Yunus (awarded the Nobel peace prize in 2006) through the Grameen Bank. By the late 1990s, Grameen Bank had 2. 3 million members, along with 2. 5 million members of other similar organisations. In order to enhance economic growth, the government set up several export processing zones to attract foreign investment. These are managed by the Bangladesh Export Processing Zone Authority.

According to the IMF gradation, Bangladesh ranked as the 48th largest economy in the world in 2007. Although the economy has grown at the rate of 6-7% p. a. over the past few years Bangladesh remains a over-populated and inefficiently-governed nation with high level of poverty. While more than half of the GDP belongs to the service sector, nearly two-thirds of Bangladeshis are employed in the agriculture sector, with rice as the single-most-important produce. Remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, as well as exports of garments are the main source of foreign exchange earning.

Economic growth is rather endogenous with slow growth in foreign direct investment. Although one of the world’s poorest and most densely populated countries, Bangladesh has made major strides to meet the food needs of its ever growing population. The land is devoted mainly to rice and jute cultivation, although wheat production has increased in recent years; the country is largely self- sufficient in rice production. Nonetheless, an estimated 10% to 15% of the population faces serious nutritional risk, and that food security is at risk for 45% of the population. Bangladesh’s predominantly agricultural economy depends heavily on an erratic monsoonal cycle, with periodic flooding and drought.

Although improving at a very fast rate, infrastructure to support transportation, communications, power supply and water distribution is poorly developed. Bangladesh is limited in its reserves of oil, but recently there was huge development in coal mining. While the service sector has expanded rapidly during last two decades, country’s industrial base remains narrow. The country’s main endowments include its vast human resource base, rich agricultural land, relatively abundant water, and substantial reserves of natural gas although delepting very fast and may disappear in the next 7-8 years.

Since independence in 1971, Bangladesh has received more than $30 billion in grants, aid and loan commitments from foreign donors, only about $15 billion of which has been disbursed reflecting poor absorption capacity. Major donors include the World Bank, the Asian Development Bank, the UN Development Program, the European Commission, the United States, Japan, Saudi Arabia, and west European countries. Bangladesh historically has run a large trade deficit, financed largely through aid receipts and remittances from workers overseas.

Foreign reserves dropped markedly in 2001 but stabilized in the USD3 to USD4 billion range (or about 3 months’ import cover). In January 2007, reserves stood at $3. 74 billion, and they increased to $5. 8 billion by January 2008, according to the Bank of Bangladesh, the central bank. However, aid-dependence of the country has systamatically been reduced since the beginning of 1990s. 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. 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 Generalized System of Preferences in US, European and Japanese markets and is also endowed with Most Favored 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 labor 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, pharmaceutical, 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 Labor Organization, and UNICEF signed a memorandum of understanding on the elimination of child labor in the garment sector.