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Analysis of the situation in Bangladesh; opportunities, challenges and risks

The Bangladeshi economy has grown rapidly in the past decade with annual GDP growth rates consistently above 6 pct. and reaching 7.3 pct. in 2018, placing it among the fastest growing economies in Asia. In many ways, the outlook is positive as big challenges related to insufficient power supply and poor infrastructure are starting to be addressed and a new consumer class emerges with a demand for more and better goods and services. Moreover, while Bangladesh is located in one of the least integrated regions globally, there is significant potential for cross-border cooperation in a wide range of areas, including development of infrastructure such as roads, tunnels, bridges, power supply and for promoting trade. With a strategic location along potential economic corridors, Bangladesh could act as a hub between India, China and South East Asia. This represents a potential rise in trade, transport and tourism, including in the context of the Chinese Belt and Road Initiative.

However, many issues remain to be addressed for Bangladesh to fully realize its social and economic potential. Economic growth is still mainly driven by the export led Ready-made Garment (RMG) industry, the service and construction industries and remittances. With more than 2 million youths entering the labour market every year, job creation will be crucial – also to address irregular migrant flows. Yet, the inflow of foreign direct investment remains low, mainly due to the poor regulatory framework and business environment as well as widespread corruption and red tape. Moreover, domestic investments suffer from limited and expensive local financing. Despite this, both larger and middle-sized Danish companies are showing an increased interest in entering the local market.

The Ready-made Garment sector accounts for more than 80 pct. of export earnings and employs more than 4 million workers, 60 pct. of whom are women. The success has made Bangladesh the world’s second largest exporter of RMG after China, but the sector’s role in creating employment has started to decline with increased automation. The pharmaceutical sector has grown significantly and is becoming one of the growth industries with exports to more than 125 countries, including the US and EU markets. Also the information and communications technology (ICT) industry has grown steadily over the last years, with increased outsourcing of services and development solutions by European companies to Bangladesh. As most imports to Bangladesh are sourced from China and India, the trade balance between Bangladesh and the EU is in clear favour of Bangladesh.

The majority of people living in rural areas are still dependent on agriculture for livelihood and income. Today, Bangladesh is self-sufficient in grains, but productivity increases have stalled and the area of farmland is shrinking, following urbanization and climate change. Bangladesh is among the most climate vulnerable countries, victim to heavy rain, floods, cyclones, salinization and spells of drought, intensifying the risk of food insecurity, disappearance of income opportunities for farmers, and the spread of water-related diseases. More than 25 million out of the country’s 165 million people are still living in poverty, mainly in rural areas. Economic projections indicate that the poverty rate will fall to 15-20 pct. by 2030, which is still far from enough to eradicate extreme poverty by 2030. In addition, inequality is increasing.

The high level of remittances is believed to have played a major role in the reduction of poverty. With a contribution of around 8-10 pct. to GDP, remittances compose a major pillar of the Bangladeshi economy, and Bangladesh ranks seventh on the list of the world’s top remittance receiving countries. Every year, more than half a million Bangladeshis join the 9 million already working abroad – mainly in the Middle East and South East Asia. Bangladeshi nationals represent a significant group of irregular migrants arriving in Europe.

In recent years, Bangladesh’s political development has been characterized by an increasing pressure on democracy, rule of law and human rights. This has been most notable in connection with the parliamentary elections in December 2018 and the campaign period preceding it, which was marred with violence and significant obstacles to a level playing field. The Government has enacted and amended laws, which violate freedom of expression and curtail civil and political rights, such as the freedom of assembly. Civil society space is significantly constrained with i.a. a very bureaucratic and cumbersome registration process. Despite some progress, the governance system continues to be weak and insufficiently resourced. Most public institutions are inefficient, highly centralized and politicized, making provision of effective services challenging. Corruption continues to be a widespread and systemic problem undermining democratic, social and economic development.

As Bangladesh graduates from the LDC status, compliance with the human and workers’ rights covenants will be of increasing importance to maintain the preferential access to EU markets through the current Everything But Arms (EBA) or future Generalised Scheme of Preferences-Plus (GSP+), that is key for the RMG sector and thus for the Bangladeshi economy.

While employment in the RMG-sector has created opportunities for women, mainly from rural areas with little or no education, gender inequality remains a big challenge as social and institutional barriers still prevent women from taking up jobs and from developing productive skills. Bangladesh has the third highest rate of child marriage in the world. Gender based violence, harassment in public transportation, lack of child-care facilities and lack of secured benefits such as maternity leave are common problems.

Bangladesh has made remarkable achievements in access to education, especially at the primary level and for girls. Despite this, the dropout rates are still significant, and only 50 percent of the students who enrol in the first grade reach grade 10. Women continue to lag behind men in higher secondary and tertiary education. Government spending on education as a share of GDP is around 2 pct., the second lowest in South Asia.

The fragile situation in the Chittagong Hill Tracts where indigenous peoples are poorer and have less access to social services than the national average represents a particular set of problems. The Government is yet to fully implement a peace accord from 1997 and to address tens of thousands of grievances on access to land.

Religious intolerance and violent extremism are on the rise. In recent years, Bangladesh has experienced killings of people who oppose a fundamentalist interpretation of Islam, such as bloggers, and human rights activists as well as religious minorities and foreigners. Factors such as political polarisation, increasing inequality and adverse impacts of climate change contribute to the creation of a breeding ground for radicalization, particularly among youth. This situation is exploited by groups such as Daesh (ISIL), Al Qaeda in the Indian Subcontinent (AQIS), and the Pakistani based Lashkar-e-Taiba, all believed to be active in Bangladesh. The authorities regularly claim to disrupt planned terror attacks.

With the escalation of the Rohingya crisis in 2017, almost one million Rohingya refugees have taken shelter in Cox’s Bazar in the South Eastern part of the densely populated country. The Government of Bangladesh maintains that the only acceptable outcome is a political solution and that the refugees must return to Myanmar. Yet, this is unlikely to happen in the short- to medium term, and the situation is well under way to become a protracted crisis. While the Bangladeshi people initially welcomed the Rohingya population, there are growing concerns about the negative impacts of their longer-term stay. Decreasing water levels, environmental degradation and deforestation, road congestion, price hikes, and potential outbreak of diseases are among the consequences that create tensions with local communities. Moreover, there is a risk of trafficking and radicalization in the extremely densely populated camps.

In its international relations, the Government of Bangladesh has placed high importance on reaching out to its neighbours and building broad alliances in the region and beyond. The country is a strong advocate for achieving the SDGs, in particular those related to climate and water resources, aid effectiveness and education for girls. Bangladesh is an active partner in international organisations and a major contributor of military staff to UN peacekeeping operations. In addition, the country has a high international profile in the promotion of safe, orderly and regular migration. Bangladesh is a member of the Human Rights Council for the period 2019-2021. The country has also applied to become a P4G partner.