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Bangladesh is one of the poorest countries in the world and, apart from Nepal, the poorest country in South Asia. The World Bank puts the gross domestic product (GDP) for 2004 at 61.3 billion (for comparison: approx. 2 trillion US dollars in Germany). This corresponds to a GDP per person of 440 US dollars (for comparison: 620 US dollars in India and 600 US dollars in Pakistan).

General overview

After the founding of the state in 1971, the first Prime Minister Mujibur Rahman pushed economic development along socialist lines. All industrial enterprises and banks were nationalized. Only the agricultural property remained in private ownership. With the end of military rule in 1991, the first freely elected government under the leadership of the Bangladesh Nationalist Party took clear steps towards establishing market-economy structures. Soon the first economic successes began. Bangladesh’s GDP grew by an average of 4.8% in the 1990s. This corresponds to an average per capita income growth rate of 2.5%. In 2002, the GDP growth rate was 4.4% and per capita income increased by 2.7%.

By far the biggest problem in Bangladesh is mass poverty. Despite significant improvements in recent years, the share of the population affected by absolute poverty, i.e. living on less than one US dollar a day, is 36% of the population (1993-2003). As recently as 1983, the share of the impoverished population was about 41%. However, successes in poverty reduction were mainly achieved in the cities, where the proportion of absolute poor is only 14.3% (as of 1996), while in rural areas only small successes were achieved (39.8% absolute poverty in 1996). Mass poverty also affects the country’s food situation: Almost half of the population lives on less than 2122 kilocalories per day. The political goal of reducing poverty to 10% of the total population by 2020 seems hardly achievable. According to World Bank estimates, this would require annual economic growth of 7-8%.

According to the Bangladesh Bureau of Statistics, the unemployment rate in 2002 was 3.0%. In 1996, 2.5% of those able to work were without work. However, the number of underemployed (working less than 15 hours a week) in 1996 was estimated to be about 13.9% of the working-age population. Large parts of the rural population and seasonal workers are probably not included in these figures.

Domestic economy

Bangladesh’s economy has changed – at least in monetary terms – in the years since independence from a predominantly agricultural economy to an industrial and service economy. The traditionally highly developed agricultural sector now accounts for just under a quarter of the country’s value added. On the other hand, the industrial sector and the service sector have gained considerable importance.

Nevertheless, about half of the workforce is still employed in the agricultural sector (79% in 1973). For the rural population (about three quarters of the total population) in particular, agricultural production is the only way of earning a living. Agricultural production accounted for 22.3% of GDP in 2002.

By far the most important crop is rice. More than 11 million hectares (about 77% of the total area) are used for the cultivation of rice. In addition, the cultivation of wheat is becoming increasingly important. Since 1961, the area under wheat has increased almost fifteenfold to 832,000 hectares. Nevertheless, Bangladesh is still dependent on wheat imports.

Another important crop is jute. Even though its production is increasingly being cut back, jute is still an important source of income on the world market.

Aquafarming”, the breeding of fish and shellfish primarily intended for export, is of growing economic importance. The ecological and ultimately social costs of this new economic sector are high: the soils of the densely populated country are salinated by the flooding of fields. Nevertheless, these negative consequences are neglected by the political side because of the large profits that can be made from exports.

While in 1973 only just under 5% of Bangladesh’s workforce worked in the industrial sector, by 2002 this figure had risen to 15%. At 12.1 billion US dollars, industrial production accounted for 25.6% of GDP.

The upturn in the industrial sector is mainly due to the boom in the textile industry. This success story began in the 1980s, when South Korean textile producers attempted to circumvent the textile import quotas of the industrialized countries by settling increasingly in Bangladesh. Today, the textile industry, which is mainly located in the vicinity of the large cities of Dhaka and Chittagong, employs about 1.5 million people. The state supports this industry with a number of special regulations, including exemption from customs duties for all textile intermediate products. Despite the protectionist trade policy of the industrialized countries in the textile sector in the form of quantity quotas, Bangladesh managed to assert itself on the world market. With the end of the World Textile Agreement and the associated abolition of quantitative restrictions, the success story can be expected to continue.

However, the success is paid for with poor working conditions such as lowest wages, lack of occupational safety and child labour. In industrialised countries, for example, calls are increasingly being made for regulations to introduce minimum social standards for international trade. Some experts doubt, however, that such a measure would really benefit workers in Bangladesh’s textile industry. Rather, they suspect that the establishment of these minimum standards would create a new protection instrument to protect the domestic markets of the industrialised countries from cheap competition.

Bangladesh is a country poor in raw materials. It has low natural gas reserves. For example, 7.5% of the import volume must be used to buy fossil fuels. In 2001, domestic electricity production covered 86.2% of national energy requirements.

About 35% of Bangladesh’s working population (16% in 1973) work in the services sector, accounting for more than half of GDP.

Foreign trade

After the introduction of market economy reforms in 1991, Bangladesh increasingly opened its markets to foreign producers. In the course of this liberalization, both import and export volumes increased. The current account balance deteriorated and has been negative since 1995. Nor could this development be prevented by the improvement in the ratio of average export prices to average import prices (terms of trade) in the 1990s.

Despite the continuation of the course of liberalization, Bangladesh’s markets are still protected by high tariffs and other protection instruments.

In 2000, goods and services worth USD 9.7 billion (20.5% of GDP) were imported. The volume of imports thus rose by an average of 9.3% per year in the 1990s. The main import products are capital goods (25.6%), textiles (21.5%), petroleum (6.1%) and food (4.1%). The most important import countries are the People’s Republic of China with Hong Kong, India and Singapore.

The volume of exports has risen sharply in recent years and reached a level of 6.5 billion US dollars (13.8% of GDP) in 2000. In particular, exports of goods from the textile and clothing industry developed into a growth engine. Due to the low wage level, more and more textile companies from the industrialized countries are settling in Bangladesh. Textiles accounted for about 75% of export revenues in 2000. Other export products include shrimps, tea and leather.

The share of export revenues from jute fibres in total export revenues was only 1.6% in 2000 (compared to 19% in 1980). Although Bangladesh dominates the world market for jute with a share of 87%, its jute manufacturers are in growing competition with producers of synthetic and other natural fibres (such as kenaf from Thailand or meste from India). This intensified competition led to a serious drop in prices: the price of jute was halved compared to 1985.

The most important export countries are the USA (22.4% of total exports), Germany (14.5%) and Great Britain (11.2%).

Despite increased efforts, the government was only able to attract foreign investors to the country to a limited extent. In 2000, for example, foreign direct investment amounted to just USD 280 million (about 0.6% of GDP). In particular, legal uncertainty, regulatory frenzy and bureaucratic corruption discourage foreign investors from investing their money in Bangladesh.

State and economic policy

After winning the parliamentary elections in 1991, the Bangladesh Nationalist Party (BNP) carried out numerous economic reforms aimed at establishing market economy structures. This course was followed by the Awami League, which was in power from 1996 to 2001, and since

After winning the parliamentary elections in 1991, the Bangladesh Nationalist Party (BNP) carried out numerous economic reforms aimed at establishing market economy structures. This course was continued by the Awami League, which ruled from 1996 to 2001, and again by the BNP since 2001.

In 1992, the government’s revenue situation was considerably improved with the introduction of value-added tax. In addition, first steps were taken in the privatization of state-owned industrial enterprises. In addition, structures were created that allow the free movement of capital.

Bangladesh’s currency, the Taka, has been freely tradable since 1992. Despite the very low foreign exchange reserves, which only cover expenditure on imports of about 45 days, Bangladesh’s central bank has intervened considerably.

The opening of product markets is a declared political goal. Customs duties, subsidies and import quotas were drastically reduced in the 1990s.

However, the transition from a state-controlled economic system to a market economy was only completed to a limited extent. Some areas of Bangladesh’s economy, such as the labor market and public administration, have so far remained unaffected by the reforms.

The country’s debt stood at 33.3% of GDP in 2000. Politicians thus succeeded in significantly reducing the debt level of 46.3% in 1994. Another economic success of Bangladesh is the reduction of annual inflation to 1.8% in 2001.

 

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