January 7, 2021
Mustafa K Mujeri | Published: January 05, 2021 20:22:40
Bangladesh’s development story over the past fifty years is full of development surprises and extraordinary resilience of the people in the face of frequent natural disasters and manmade calamities. The country’s economic transformation has largely been driven by social changes, initiated by women empowerment, and providing a rare example of a neo-liberal development model under which social progress has far outstripped economic growth. In the process, the role of the state has been critical in pursuing sound macroeconomic policies, disaster management, investments in public health and education and partnerships with NGOs and civil society, along with pursuing a reasonably pro-poor growth and social policy agenda highlighting women’s empowerment and grassroots activism.
With Bangladesh’s vision of becoming an upper middle income country by 2031 and a high income country by 2041, the key to success will be to integrate three development dimensions covering desirable structural changes, growth to reduce income and productivity gaps (convergence), and enhanced equality. For Bangladesh, interactions between structural transformation and social development are critical since technology has radical impacts on social interactions, leading to adaptation and regeneration of social relations. These developments indicate the need for embracing a multi-sectoral and interdisciplinary view on structural transformation in Bangladesh to include institutions that mediate social outcomes such as gender relations.
In Bangladesh, although women constitute half of the population, women’s labour force participation rate is only 36.4 per cent compared with 84.0 per cent for men in 2020. Women’s participation in formal labour force is rising (e.g. in RMG industry), but huge gender inequalities continue to persist in the labour market in Bangladesh. Women are heavily concentrated as unpaid family workers and day labourers in the rural areas (in low productivity daily work with low wages and often concentrated in public food for work programmes) and in unpaid family businesses.
Moreover, despite a strong convergence in human capital characteristics (for example, in terms of educational attainments) since the 1990s, wages of men and women have not converged to the same extent and a sizeable gender gap persists. In Bangladesh’s patriarchal society, women are assigned most of the reproductive role and they suffer from high workload and unpaid labour, lack of decision-making in the household and society and subordination, while gender-biased social norms keep most women trapped in disadvantaged situations.
As a result, women’s level of employment is much lower than that of men due to factors working on both the demand and supply sides. On the supply side, women’s labour market participation depends on a host of socio-economic factors, including household income, age, marital status, education, household dependency ratio and others. While, on the demand side, women employment depends on factors, such as firm level characteristics, technology, location of activities, and others. There are also some sector-specific issues that affect the expansion of women’s employment in certain economic activities.
In terms of quality, women are mostly involved in low-paid and low-productivity activities and, according to the Labour Force Survey, 92 per cent of the employed women labour in 2017 are engaged in the informal economy. The outcomes in the labour market shows that women’s economic empowerment in Bangladesh has to address many dimensions, e.g., patriarchy and purdah, double burden and time poverty, financial and business knowledge, gender gap in digital technology, access to networks and markets, and many socio-cultural and techno-economic constraints.
The participation in the formal economy is an important vehicle for women’s economic empowerment and for raising the status of women and promoting gender equality. The regular wages and salaries, relative job security, prospects for promotion and regulated working conditions in formal employment offer significant potential benefits for women. Formal employment has the ability to increase women’s access to skill development, market information, credit, technology and other productive assets, social protection, pensions and social safety nets. The benefits of women’s participation in the formal economy create spillover effects on overall gender equality, productivity growth, poverty reduction and the sustainable development goals (SDGs). These are important for Bangladesh since the educational gains for women have not been matched by equal gains in their economic opportunities as many women with education are either excluded or employed in positions that do not make full use of their education and skill.
If we assume that women’s economic empowerment is reflected in the realisation of the full labour market potential of the female labour force, this will result in significant macroeconomic gains, including GDP growth. For quantifying the potential impact on GDP growth, we use the accounting relationship: yt = (Y/P)t = (Y/H)t x (H/E)t x (E/L)t x (L/P)t where yt is GDP per capita in year t, Yt is GDP in year t, Ht is the number of working hours in year t, Et is the number of employed persons in year t, Lt is the total number of working age population (aged 15-64) in year t and Pt is total population in year t. On the right hand side, the first term (Y/H) is the labour productivity per hour, (H/E) is the annual average working hour per employed hour, (E/L) is the employment rate, and (L/P) is the demographic dividend.
In Bangladesh, as in most other developing countries, women labour force participation rate is much lower than the men participation rate (estimated at 36.4 per cent for women compared with 84.0 per cent for men in 2020). While calculating the impact of greater women participation in the labour market in an economy, it is usually hypothesised that if women labour force participation rate can be increased to the level of the men participation rate (that is, if gender parity in labour force participation rate is ensured), this would substantially raise the overall employment level, which can be approximated by (men labour force participation rate-to-total labour force participation rate/total labour force participation rate), and hence GDP per capita would also increase by a similar magnitude. Hence, if we adjust the women labour force participation rate to the level of the men participation rate to estimate the impact of women’s economic empowerment, we find that GDP per capita rises by between 0.5 to 0.7 percentage points on an average in Bangladesh which can be a substantial gain for the country.
For moving towards the cherished development vision, the key for Bangladesh will therefore be to introduce good practices for increasing women’s contribution to the country’s formal economy through advancing women’s economic empowerment using multiple channels, such as reducing structural barriers to women’s productive economic participation, removing restrictive gender norms and stereotypes, creating institutional mechanisms to assist the young women to plan their careers and ensure gender-sensitive balance between job and family responsibilities, providing non-traditional and innovative forms of employment for women, supporting private sector networks to promote gender equality in the workplace and society and other potential options.
In Bangladesh, gendered power structures and social norms lock women in positions that limit both their productivity and their ability to contribute to the economy and society, particularly since women are marginalised as economic actors due to the structural inequalities that leave them insecure. As such, women’s economic empowerment requires a holistic approach that recognises the importance of societal and political, as well as individual empowerment as essential contributors to economic empowerment. Within the approach, women’s economic empowerment needs a comprehensive framework to address the ‘what’ and the ‘why’ of the concept to identify the key areas for effective interventions and the pointers for effective implementation of the women’s economic empowerment agenda, both in the local and national contexts.
Over the last fifty years, targeted efforts by the government and the nongovernment actors have played important roles in creating the initial condition state at the micro-level through initiating grassroots level transformations for promoting women’s economic empowerment. These initiatives, no doubt, have created the essential building blocks for developing the critical linkages between micro and macro levels which can trigger rapid transformations in economy-wide and sector-specific gender barriers to prepare the macro economy to effectively respond to these micro-signals to women’s economic empowerment. These micro-macro transmissions and interactions, which are seldom acknowledged in the traditional development literature, are the key features of Bangladesh’s innovative neo-classical development model which has brought significant socio-economic transformations over the last fifty years; and these are also critical towards ensuring women’s rapid economic empowerment in the coming years.
The current need is to explore the dynamics of micro-macro interactions of the women’s economic empowerment interventions in Bangladesh and identify both systemic and gender-induced barriers and challenges, both at micro and macro levels that hold women back from economically empowering themselves. For targeting specific policies, we should move towards country-specific model capable of revealing and quantifying the causal relationships of women’s economic empowerment and the country’s economic outcomes at the macro level in Bangladesh to better design future interventions and facilitate their scaling up to cover more women and in varied locations.
Dr Mustafa K Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM).
December 25, 2020
Mustafa K Mujeri | Published: December 25, 2020 21:02:37 | Updated: December 25, 2020 21:31:13
The country’s RMG and apparel industry has seen a devastating impact of Covid-19. Cancelled orders, unsold stock and declining demand have led the sector to struggle for sustaining its past successes at expected levels. Bangladesh’s close competitor in the RMG market is Vietnam which had 6.2 per cent of the global market share in 2019; and Vietnam managed to achieve strong export growth since the late-2019. Vietnam has also shown better performance than Bangladesh in containing the Covid-19 pandemic and is currently threatening rather successfully to capture Bangladesh’s position as the 2nd largest exporter of RMG after China.
Vietnam has also entered into a free trade agreement (FTA) with the EU in August 2020 which is the most comprehensive agreement that EU has ever concluded with a developing country. At present, only 42 per cent of Vietnamese exports to the EU enjoy zero tariffs under the GSP. It will be almost 99 per cent elimination of duties after the FTA. The EU is also a major export destination for Bangladesh’s RMG. Bangladesh is yet to negotiate a similar FTA or bilateral trade agreements once the GSPs are removed. Vietnam’s RMG export basket is also more diversified with relatively higher value-added products than Bangladesh; and per hour labour productivity per worker is 19 per cent higher in 2016–USD 4.09 in Vietnam compared with USD 3.45 in Bangladesh as estimated by the Asian Productivity Organisation (APO). It is more likely that Vietnam still holds this advantage although the labour cost is lower in Bangladesh. It is therefore high time for Bangladesh’s RMG sector to regain its position of power and adopt a sustainable pathway for going forward.
Along with sustained low labour costs, Bangladesh’s big advantage is its leadership in LEED (Leadership in Energy and Environmental Design) certified green RMG with 91 LEED-certified factories in Bangladesh, which is higher than in any other country. Of the 10 highest rated LEED-certified factories in the world, six are located in Bangladesh. These give a preference on the part of the foreign buyers and investors for importing RMG from Bangladesh and treat the country as a lucrative destination for FDI. On the other hand, some critical constraints for Bangladesh are that the country does not have a diverse range of export destinations and possesses a low product range of RMG and low labour productivity.
At present, the urgent need for Bangladesh is to secure FTAs or bilateral trade deals to expand the access of its RMG to multiple destination markets. China has announced a tariff exemption for 97 per cent of Bangladesh’s products in July 2020 which provides an excellent opportunity to benefit from trading with China and adopt more advanced production processes and technology from China to move up in the ladder of global RMG market. The key for Bangladesh will be to take the advantage of being a world leader in Green RMG to add higher value to its RMG products. In particular, Bangladesh’s RMG sector will have to provide more attention towards maintaining factory standards and labour welfare regulations to overcome the disruptions in the post Covid-19 world.
Since its beginning, Bangladesh’s RMG exports are led by the GVC-led production and distribution channels. The process has been characterised by cross-border fragmentation of production processes, which entails specialisation in a narrower range of tasks by domestic firms organised within the global production networks. With limited productive capacities, integrating with GVCs has provided wider trade opportunities for Bangladesh’s domestic RMG industry to gain access to new markets through specialising in a single or limited number of tasks in the production chain.
The typical feature of the GVC-oriented RMG is that the firms in Bangladesh focus mainly on manufacturing (processing) activities, while research and design (R&D) for product development is provided by the global brands or importers in the developed country markets, raw materials are sourced from a cheaper source in another country, and marketing and after sales services are provided by the providers in countries where the consumers are located (this is called the ‘smile curve’ process). The issue for Bangladesh is that the manufacturing stage in the smile curve generates very little value in proportion to the retail prices paid by the consumers of the RMG products.
With a huge advantage in terms of cheap labour, Bangladesh is mostly involved in two low-value stages of cut, make and trim (CMT) and original equipment manufacturing (OEM)/free on board (FOB). In short, most of Bangladesh’s RMG export does not fall under the high-value added models, such as original design manufacturing (ODM) and original brand manufacturing (OBM). Thus, Bangladesh is mostly known as a source of low-cost garment items in bulk rather than a source of relatively high-priced garment products sold by the global brands.
Thus, the key for Bangladesh in RMG upgrading is to move up the GVCs through developing product and process upgradation capabilities. Product upgrading involves producing high value garment items by moving into higher segments of the value chain, while process upgrading requires advancing production methods using better and modern technologies and more skilled labour force. Although Bangladesh has made a beginning, still it needs to go a long way in both upgradation processes.
Further, the impending graduation from the LDC status, which represents a major development transition for Bangladesh, also gives rise to concerns about the adverse implications of the loss of access to various support measures on RMG export such as duty-free market access and relaxed rules of origin (ROO) provisions in the EU. Bangladesh’s RMG industry needs to go for industrial upgradation within GVCs including automation and deepening of capital-intensive techniques for promoting export competitiveness of its products.
It is true that the GVCs are making important contributions to the growth of the export-oriented RMG in Bangladesh since the 1980s including rapid expansion of women employment in the industry. On the other hand, the role of RVCs has been rather limited–the strength of which lies in supporting higher-value activities, such as design and branding. At present, the heightened uncertainty unfolding in the GVCs due to recent trade wars and the Covid-19 pandemic has forced several stakeholders to give a new look at RVCs as complementary drivers of RMG. In this context, the major route is to strengthen intra-regional trade and RVCs for which designing of optimal regional policies is the key to move forward.
In Bangladesh, no serious study is available in the textiles and apparel sector on the value chain directionality of firms – their orientation to different value chains – and how these affect upgrading opportunities and outcomes. Further, only limited knowledge exists on the impact of industrial and trade policies on firms’ incentives to capitalise strategically on the benefits created by different types of value chains. Available evidence from other countries suggests that various types of value chain offer distinct opportunities for upgrading, job creation, and development of backward linkages to domestic and/or regional suppliers.
In general, GVC-oriented RMG make the greatest contribution to current job creation and export growth. But the focus is mostly on a narrow range of lower-value products. On the other hand, the RVC-oriented RMG are likely to be more involved in a wider range of product categories and related activities, including vertical integration to the textiles sector producing own yarn and fabric inputs and higher-value activities involving design and branding. These RMG are also more likely to source inputs from the regional markets.
Over the years, Bangladesh’s RMG have experienced significant economic and social upgrading; but weak linkages with the RVCs still preclude the industry to avail the full advantages of these regional networks as stepping stones to more demanding but lucrative global markets. A successful RVC-oriented RMG firm can build its capabilities, to begin with, as an own-brand manufacturer in the domestic market, then learn to export by serving the regional market, before meeting the tough requirements and competition of the global market.
In practice, all RMG firms undergo process upgrading, but GVC-oriented firms remain closest to the technological frontier. The reasons are manifold. The high degree of process upgrading (and low level of functional upgrading) by GVC firms is partly due to its nature of ownership. Most of the GVC-oriented firms are either foreign-owned or under foreign-partnerships where higher value activities are reserved for their overseas parent companies.
In terms of policy, rents allocated through multi-scalar industrial and trade policies (e.g. removal of tariffs under regional trade agreements) both at the regional and global levels can be critical for RVC-oriented RMG. For the RMG industry, Bangladesh needs to carefully assess the implications for the design of ROO and similar initiatives such as whether to opt for double transformation requirements or the more relaxed single transformation rules allowing manufacture from imported inputs. Often, the more relaxed single transformation rules favouring regional RMG export might result in backward linkage effects (e.g. more new investments in textiles). The relaxed single transformation rules of origin can allow Bangladesh’s RMG manufacturers to import their inputs but still benefit from the duty-free market access to the major importing countries.
With the graduation of Bangladesh from the LDC status in the near future, it is high time for the GVC-oriented RMG firms to reconsider their business models since the uncertainty over the future course may reduce incentives for new investments and the investors may prefer to wait for policy stability. A key concern for the policymakers will be to secure the continuity of market access in the developed countries without exposing the domestic RMG producers to additional competition.
At the present level of development of the country’s RMG industry, the value chain directionality matters for Bangladesh. Although GVC-oriented firms have made the largest contribution to the growth of RMG industry in the past, global experience suggests that the RVC-oriented RMG firms perform a wider range of higher-value activities, have greater incentives to move towards high value products, procure more inputs locally, and have a tendency to engage more in end-market upgrading. The key for Bangladesh’s policy will be to redefine the country’s multi-scalar industrial and trade policies to strategically combine the benefits of both types of value chain.
Dr Mustafa K Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM).
December 21, 2020
The 15th Annual General Meeting of InM was held on 20 December 2020 virtually due to Covid-19. The Chairman of the General Body, Dr. Qazi Kholiquzzaman Ahmad presided over the meeting. The members of the General Body including Mr. Mohammad Moinuddin Abdullah, Managing Director, PKSF; Dr. Toufic Ahmad Choudhury, Former Director General, BIBM; Dr. Jahangir Alam Khan, Agricultural Economist and Former Director General, Bangladesh Livestock Research Institute; Ms. Nazneen Sultana, Former Deputy Governor, Bangladesh Bank; Dr. Nilufar Banu, Executive Director, Bangladesh Unnayan Parishad (BUP); Dr. Anwara Begum, Senior Research Fellow, BIDS, Dr. Ramanimohan Debnath, Economic Columnist and Former Director Janata Bank Limited, Dr. Akhter Hussain, Professor, Department of Public Administration, University of Dhaka, Dr. Niaz Ahmed Khan, Professor, Department of Development Studies, University of Dhaka, Mr. Md. Fazlul Kader, Deputy Managing Director, PKSF, Dr. Mustafa K Mujeri, Executive Director, InM and Mr. Shabbir Ahmed Chowdhury, Director, InM attended the meeting.
12th EGM of InM
The 12th Extraordinary General Meeting (EGM) of InM was held virtually on 25 June 2020 at 12 pm with Dr. Qazi Kholiquzzaman Ahmad, Chairman, InM in the chair. The members of the General Body, Mr. Mohammad Moinuddin Abdullah, Managing Director, PKSF; Dr. Touc Ahmad Choudhury, Former Director General, BIBM; Dr. Jahangir Alam Khan, Agricultural Economist and Former Director General, Bangladesh Livestock Research Institute; Dr. Nilufar Banu, Executive Director, Bangladesh Unnayan Parishad (BUP); Mr. R.M Debnath, Economic Columnist and Former Director, Janata Bank; Dr. Anowara Begum, Senior Research Fellow, BIDS; Dr. Akhter Hussain, Professor & Chairman, Department of Public Administration, University of Dhaka; Dr. Niaz Ahmed Khan, Professor, Department of Development Studies, University of Dhaka; Mr. Md. Fazlul Kader, Deputy Managing Director, PKSF, Dr. Nazma Begum, Professor, Department of Economics, University of Dhaka; Dr. Mustafa K Mujeri, Executive Director, InM; and Mr. Sabbir Ahmed Chowdhury, Director (Education), InM were present at the meeting. Ms. Nazneen Sultana, Former Deputy Governor, Bangladesh Bank, was granted leave and could not attend the meeting due to unavoidable reasons. Among others, the meeting approved the InM budget for FY2020-21.
The 56th meeting of the InM Governing Body was held virtually on 20 December 2020. The Chairman of the InM Governing Body, Dr. Qazi Kholiquzzaman Ahmad presided over the meeting. All members of the Governing Body – Mr. Mohammad Moinuddin Abdullah, Managing Director, PKSF; Dr. Toufic Ahmad Choudhury, Former Director General, BIBM; Dr. Jahangir Alam Khan, Agricultural Economist and Former Director General, Bangladesh Livestock Research Institute; Ms. Nazneen Sultana, Former Deputy Governor, Bangladesh Bank; Dr. Nilufar Banu, Executive Director, Bangladesh Unnayan Parishad (BUP); and Dr. Mustafa K Mujeri, Executive Director, InM attended the meeting.
55th InM Governing Body Meeting
The 55th meeting of the InM Governing Body was held on 25 June 2020 at 11.00 am. Due to the present pandemic, the meeting was arranged virtually. The Chairman of the Governing Body and InM, Dr. Qazi Kholiquzzaman Ahmad presided over the meeting. The members of the Governing Body – Mr. Mohammad Moinuddin Abdullah, Managing Director, PKSF; Dr. Toufic Ahmad Choudhury, Former Director General, BIBM; Dr. Jahangir Alam Khan, Agricultural Economist and Former Director General, Bangladesh Livestock Research Institute; Ms. Nazneen Sultana, Former Deputy Governor, Bangladesh Bank; Dr. Nilufar Banu, Executive Director, Bangladesh Unnayan Parishad (BUP); and Dr. Mustafa K Mujeri, Executive Director, InM attended the meeting.
December 6, 2020
As part of the 2020 Annual Staff Visit programme, the International Monetary Fund’s (IMF) Bangladesh Team held a virtual discussion with InM on 06 December 2020. The joint discussion was attended by InM, PKSF and SME Foundation, From InM, Executive Director Dr. Mustafa K. Mujeri and Dr. Farhana Nargis, Research Fellow attended the meeting; while Mr. Mohammad Moinuddin Abdullah, Managing Director, Mr. Md. Fazlul Kader, Deputy Managing Director, and Dr. A.K.M. Nuruzzaman, General Manager attended on behalf of PKSF and Dr. Md. Masudur Rahman, Chairperson, Mr. Md. Safiqul Islam, Managing Director, Mr. Md. Sirajul Haider NDC, General Manager and Ms. Farzana Khan, General Manager attended for the SME Foundation. From the IMF side, among others, Dr. Jayendu De, Resident Representative in Dhaka attended the discussion meeting.
The discussion covered major development issues facing the country especially focusing on Bangladesh’s informal sector and the impact of Covid-19 pandemic. The discussions reviewed the microfinance revolution, current trends and impact of Covid-19 in Bangladesh. More specifically, the discussions highlighted the impact of Covid-19 on employment, income, and food security; stimulus packages and implications on informal sector including corona-cash programme, expansion of social safety nets, CMSMEs working capital loans including the implementation constraints and need for scaling up; causes and consequences of high persistence of informal sector activities; strategies and policies towards encouraging formalisation of the informal economy; and slow pace of job growth in the country’s manufacturing sector.