The gravity of the situation has forced foreign buyers to cancel or modify the size of orders. As a result, industry owners in Bangladesh have found it difficult to pay salaries to workers. A large number of the laid-off workforce has returned to their home villages, sending seismic waves and creating bottlenecks in their rural economy. This phantom of unemployment of workers and the precautionary shutdowns has obviously created greater problems in the realm of food security of this populated country.
Home remittances is another major source of foreign exchange. According to World Bank data, Bangladesh received $15.5 billion in remittances in 2018, 15 percent higher compared to the previous year. In 2017, Bangladeshi migrant workers sent home, $13.5 billion, making the country the third highest recipient of remittances in South Asia in 2018, after India and Pakistan, and the 11th highest recipient in global terms.
Bangladesh is expected to overtake Pakistan in terms of per capita GDP in 2020.
Bangladesh has become one of Asia’s most remarkable success stories. Once constituting the poorest regions of Pakistan, the territory remained an economic basket case — wracked by poverty and famine — for many years after its secession from Pakistan in 1971. By 2006, conditions seemed so hopeless that when Bangladesh registered faster growth than Pakistan, this was not believed, and the achievement was considered a fluke.
Yet that year would turn out to be a watershed year and an inflection point in the history of the nation. Since then, Bangladesh’s annual GDP growth has exceeded Pakistan’s by roughly 2.5 percentage points every year. This year, its growth rate has even surpassed India’s growth.
Moreover, at 1.2% per year, Bangladesh’s population growth is well below Pakistan’s 2 percent, which means that Bangladesh’s ‘per capita’ income was growing faster than Pakistan’s by approximately 3.3 percentage points per year. By extrapolation, Bangladesh is expected to overtake Pakistan in terms of per capita GDP in 2020, even after a correction is made for the purchasing power parity.
What factors does Bangladesh owe to its quiet transformation? In the context of large-scale historical phenomena, there really can be no clear answers, only clues. Still, there are reasons to believe that Bangladesh’s economic transformation was driven in large part by social changes, starting with the empowerment of women.
Largely due to efforts by non-governmental organizations (NGOs) Grameen Bank and BRAC and more recent work of the government, Bangladesh has made significant strides toward educating girls and providing women a greater voice, both in the household and in the public sphere. These efforts were translated into improvements in children’s health and education. The average life expectancy of a Bangladeshi is today 72 years, compared to 68 of Indians and 66 years of Pakistanis.
The Bangladesh government also deserves respect for supporting grassroots initiatives in economic inclusion, the positive effects of which are visible in recently released data from the World Bank. Among Bangladeshi adults who hold bank accounts, 34.1 percent had made digital transactions in 2017, compared to an average rate of 27.8 percent made by countries of South Asia. Furthermore, only 10.4 percent of Bangladeshi bank accounts are “dormant” (meaning there were no deposits or withdrawals in the previous year), compared to 48 percent of Indian bank accounts.
Another partial explanation for Bangladesh’s progress is the success of its garment manufacturing industry. That success is itself driven by a number of factors. One notable point is that the main garment producing entities in Bangladesh are large—especially compared to those in India, owing largely to have inherited different labor laws.
All labour markets need regulation but, in India, the 1947 Industrial Disputes Act imposes heavy restrictions on the manufacturers’ ability to contract workers and expand the labour force, ultimately doing more harm than good.
The law was enacted a few months before the creation of India and Pakistan in 1947, meaning that both countries inherited it. But Pakistan’s later military regime, headed by General Ayub Khan, who was impatient with trade unions from the region that would later become Bangladesh, had repealed this in 1958, in what was then East Pakistan.
Bangladesh was born without inheriting this law. This situation offered a better environment for manufacturing institutions to achieve economies of scale and create a large number of jobs. There are still genuine concerns and questions that whether Bangladesh’s strong economic performance can be sustained.
This is true because while the country’s economy takes off, the ills of corruption, cronyism, and inequality tend to increase, and can even stall the growth process if left unchecked. There is an even deeper threat posed by orthodox groups and religious fundamentalists who had opposed early investments in Bangladesh in the initial phase of progressive, social reforms.
An unfortunate reversal of those investments would have caused a severe and prolonged economic setback. This must not be construed as merely a passing concern: vibrant economies have been derailed many times throughout history by ambitious zealotry.
A thousand years ago, the Arab caliphates had ruled over the regions of great economic dynamism, and cities like Damascus and Baghdad—the two historical hubs - had focused on global culture, research, and innovation. That golden era ended when religious fundamentalism took roots and spread its tentacles.
Pakistanis must figure out why India, which had inherited similar institutions from the British Raj, maintained democracy consistently after 1947 while Pakistan could not. They should also examine how Bangladesh has been able to successfully expand its economy while reducing its population, after breaking off from Pakistan.
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