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Infrastructure and logistics sectors of Bangladesh: Neglected issues (Part 1)

Bangladesh as a development miracle

The success story of Bangladesh is well known as it is termed as a ‘Development Miracle’ everywhere. The country has progressed significantly since her independence in the year 1971. The GDP of the war-ravaged country in 1972 was only US$6.29 billion. This figure has been magnified 65 times to reach approximately US$410 billion (assuming Taka 84.81 per US$) reflecting a compound annual growth rate of 7.68% (Source: The World Bank and BBS).

Poverty eradication is another success story of the country. Based on the international poverty line of US$1.90 per person per day, Bangladesh’s poverty had declined from 44.2% in 1991 to only 13.8% in 2016/17 (Source: The World Bank). Per capita GNI of the country traveled from only US$120 in 1973 to a staggering US$2,554 in 2021 marking a 6.58% compound annual growth rate indicating the fact that the initial GNI figure had doubled in only around 12 years.

Growth, people and political commitment

As the research notes from Madhur Jha, Standard Chartered India’s head of thematic research, and David Mann, the bank’s global chief economist in 2019 showed, Bangladesh’s per capita GNI is expected to reach US$5,734 in 2030. Our calculations also show that the GNI may reach US$4,753.39 in 2030.

This success story has not just been magically written by any novelist. Rather, the resilience of the people along with the tremendous commitment of the present Hon’ble Prime Minister Sheikh Hasina led government and the hunger & willingness of private stakeholder leadership translated the dreams of the millions into reality through their patience, hard work, devotion, dignity, and above all, their patriotism and love for the land.

Figure 1: Per capita GNI of Bangladesh.

Market economy and entrepreneurs

In a free and open market economy, the economy is primarily controlled by the private sector. There are almost no Government interventions. Bangladesh is no different either. Competitiveness along with the quality of the inputs and the outputs determine successes and failures of the business ventures. Entrepreneurs look for lucrative investment opportunities and leverage them to earn superior returns by offering their innovative products and/or services to the people.

The story of all successful Bangladeshi entrepreneurs is almost the same. They have taken the advantage of growing middle-income consumer base of the country and succeeded in establishing and thriving their businesses by addressing expressed as well as latent demands of the consumers. The exporters of the country took advantage of the Duty-Free Quota Free market access offered to the Least Developed Countries (LDCs) by their developing and developed counterparts and captured considerable market shares in a few business sectors such as the RMG, the Leather and Footwear, Jute and Textile, and the Pharmaceutical industries. Few emerging exporting sectors of the country include IT, ITES and Fintech, Food Processing, Light engineering, Agriculture, Real estate, and Handicrafts industries.

Sectorial contributions to GDP and the emerging issues

As data shows, the local market is primarily dominated by the service sectors followed by the industrial and agricultural sectors respectively (Ministry of Finance). The wholesale and retail sectors contributed 14.08%, land transportation contributed 6.94%, post & telecommunications (including ICT) contributed 2.72%, real estate, renting and business activities contributed 6.15%, large and medium scale manufacturing contributed 19.92%, construction contributed 8.22%, agriculture contributed 9.9%, and fishing contributed 3.37% to the GDP of the country. The contribution of the rest of the subsectors is yet to gain pace. The success stories and challenges of the RMG, leather, and jute industries are well discussed.

However, the infrastructure sector, which collectively contributes 12.55% to the GDP of the country, only took spaces of the newspapers to reflect its potentials and success stories. One of the reasons for this is the fact that this sector is primarily controlled by the Government and visibility of the large infrastructure projects also carries success stories of the political party in power.

The projects those are either completed by the private sectors and/or, have comparatively less visibility, are still neglected. This article focuses on some of the realities surrounding these least highlighted infrastructures and logistics sectors to get a holistic view of some of the critical impediments of Bangladesh’s future development, which got the least attention from the policymakers of the country.

The biasedness towards the Megaprojects

The journey of the country’s infrastructure sectors has also been phenomenal. As shown in Figure 2 below, highways (national, regional, and others) had increased from 21,272 km to 22,419 km marking around 5.24% growth within the last 3 years.

To support growth and ensure utilization of the full potential of Bangladesh’s resources and capabilities, it is essential to develop an efficient transportation and communication system that will connect Bangladesh with international and regional road networks as well as with other ICT networks. Considering this view, a few mega projects are undertaken by the Government of the country for quick implementation.

Figure 2: Trend of Bangladesh’s Roads and Highways in km.

In 2021, megaprojects such as the Rooppur nuclear power plant, the Matarbari Ultra Super Critical Coal-Fired Power Project, Dhaka Mass Rapid Transit Development Project, Padma Bridge Rail Link (First Amendment) project, Bangabandhu Sheikh Mujib Railway Bridge construction, Padma Multipurpose Bridge Construction project, The Dhaka-Ashulia Elevated Expressway construction project, the Expansion and Strengthening of Power System Network, Hazrat Shahjalal International Airport Expansion had received utmost priority at the national budget and had been allocated Taka 54,451.48 crores or, US$6.35 Bn (assuming Taka 85.8 per US$). It is equivalent to 8.9% of the US$71 billion budget of the country in the fiscal year (FY) 2021- 2022.

Realizing and acting on the needs

The world Bank estimated that Bangladesh needed to spend between US$7.4- US$10 billion each year until 2020 to bring its power grids, roads, and water supplies up to the standard for serving its growing population.

The transportation sector alone was projected to need between US$36 and US$45 billion of investments.  However, in the year FY2020- 2021, only around US$6.1 billion was spent in this sector by the government (Ministry of Finance, Economic Review, assuming Taka 84.81 per US$).

FDI inflow shows that the country has had a significant reduction in inflows in the year 2020, which gained a bit of pace in 2021 and can be projected to reach US$3.89 billion by 2023. If this number can be reached, it will mark around a 55% increase from its 2021’s value of US$2.51 billion. Among the major subsectors of infrastructure, Bangladesh could attract the highest amount of foreign investment from the power sector amounting to US$0.46 billion or, around 18% of the net FDI inflow in 2021.

Figure 3: Trend of FDI inflow with projections until 2023.

The next two promising sectors of infrastructure are telecommunications and Gas and Petroleum respectively. Telecommunications attracted US$0.24 billion or 10%, and Gas & Petroleum attracted US$0.15 billion or 6% of total FDIs to the country.

However, due to heavy reliance on internally collected revenues as the source of financing for a few major infrastructure projects, many small-scale and not highly visible projects such as water supply, gas transmission, efficient transmission lines for electricity, and ICT services could not be fully built.

Moreover, despite having plans to utilize naval routes around Dhaka and the country, we could not yet see the availability of sufficient navigable waterways, and therefore, we failed to utilize the cheapest mode of transportation of the country resulting in an ever-rising trend of local transportation costs.

Apart from financing, the greed of the river grabbers and lack of political will are also among the most important reasons for the aforementioned problems. We will discuss further the issue of transportation and logistics in the coming section of this article.

The authors:

Md-Kamrul-Bari Enamul-Hafiz-Latifee
Md. Kamrul Bari MIPA AFA is a qualified accountant and also a doctoral researcher at the IBA, University of Dhaka and Deputy Editor-in-Chief at the International Journal of Management and Accounting (IJMA). He can be reached at bari.sarkar@gmail.com. Enamul Hafiz Latifee is a Policy & Trade Economist, Joint Secretary (Research Fellow), Bangladesh Association of Software and Information Services (BASIS). He can be reached at ehlatifee@gmail.com and viewed at www.ehlatifee.com.
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