Term paper on Managerial Economics (E501

)

THE ECONOMIC DEVELOPMENT CHALLENGE FOR 21st CENTURY BANGLADESH

Institute of Business Administration Dhaka University 1

December 26, 2009

Dr. Mohammed Farashuddin Guest Faculty, Institute of Business Administration University of Dhaka Dhaka. Subject: Submission of the term paper on Managerial Economics.

Dear Sir, Here I would like to submit the term paper on “The Economic Development Challenge For 21st Century Bangladesh” for your kind evaluation. In preparing the term paper, I got the opportunity to learn much about the different aspect of Bangladesh economy. I have tried to figure out the major impediments to economic growth of Bangladesh based on its current economic standpoint and proposed some probable solutions. But it is to inform that prejudice is avoided and no remark is made to disdain anybody (especially in case of the analysis of the irregularities).

If case of any confusion which requires any further explanation I will be readily available to explain the matter to you, as the situation requires.

Thank you.

Sincerely Yours

……………….. Md. Asif Hasan Roll No. 29 MBA 42nd (E).

2

....................16 Conclusion...............................................................................7 The Theory of Unbalanced Growth in context of Bangladesh................10 Development of power sector......................................................... 4 Introduction......................................10 Development of SMEs.................................................................... 18 References.......................................................................................................................................................15 Govt’s recent initiatives to face the economic challenge.........................................................................................................................................................................................................................................................................................................10 Initiative needed to be taken to face the economic challenge..................................................................................................21 3 ..................5 Major obstacles to economic growth of Bangladesh....3 Acknowledgement................. 5 Current economic standpoint of Bangladesh..................................................................Table of contents Table of contents....................................

However.Acknowledgement I would like to thank and give my attribute to my honorable course instructor Dr. who has been very much friendly and approachable to me through the course and has given me a lot of guidance in the preparation of my term paper. 4 . Mohammed Farashuddin. I hope that this course as well as this work experience will help me to build my career in a successful and precise way in this arena.

we believe that. Only by the united effort of both the Government and general public of Bangladesh we can overcome the challenges. Its share of the world export market peaked in the Second World War and the late 1940s at 80% and even in the early 1970s accounted for 70% of its export earnings. polypropylene products began to substitute for jute products worldwide and the jute industry started to decline. scarcity of energy. economic competition relative to the world.Introduction Bangladesh continues to face a number of major challenges from the day of its liberation in 1971. have to work together to face the challenges for 21st century Bangladesh. Bangladesh is the seventh most populous country and is among the most densely populated countries in the world with a high poverty rate. Moreover.” We. For us it is a matter of hope that in Bangladesh per-capita (inflation-adjusted) GDP has more than doubled since 1975. more than three quarters of Bangladesh’s export earnings come from the garment industry. The industry now employs more than 3 million workers. “Where there is a will there is a way. Although two-thirds of Bangladeshis are farmers. However. 90% of whom are women. lack of good governance.200. A large part of foreign currency earnings also comes from the remittances sent by expatriates living in other countries. The topmost challenge for Bangladesh is its serious overpopulation. Jute was once the economic engine of the country. the other challenges for 21st century Bangladesh includes widespread political and bureaucratic corruption. 5 . and the poverty rate has fallen by 20% since the early 1990s. Current economic standpoint of Bangladesh Now the economy of Bangladesh is at the crossroads. Bangladesh grows very significant quantities of rice. In 2002.In this paper I have tried to figure out the major impediments to economic growth of Bangladesh based on its current economic standpoint and proposed some probable solutions. tea and mustard. However. the industry exported US$5 billion worth of products. an increasing danger of hydrologic shocks brought on by ecological vulnerability to climate change and so on. which began attracting foreign investors in the 1980s due to cheap labour and low conversion cost. Despite continuous domestic and international efforts to improve economic and demographic prospects. the people of Bangladesh. Bangladesh still remains a developing nation. Its per capita income in 2008 was US$520 compared to the world average of $10.

and China). Bangladesh has seen expansion of its middle class. 1 GDP growth of 5. In December 2005. a growth in the labour force that has outpaced jobs.6 million tons.Obstacles to growth include frequent cyclones and floods. Fig. the country has achieved an average annual growth rate of 5% since 1990. Indonesia. a 19.8 million tons. political infighting and corruption." Despite these hurdles." along with Egypt. marginally exceeding FY2008’s record output. Vietnam and seven other countries. inefficient use of energy resources (such as natural gas). according to the World Bank. at 4. insufficient power supplies. Bangladesh has seen a dramatic increase in foreign direct investment. below the performance of the previous year but somewhat higher than the projection of 5.6% made in the Asian Development Outlook (ADO 2009) released in March this year (Fig. mismanaged port facilities. is estimated at 17. the second rice crop (harvested in November– January).9%.6% rise over the previous fiscal year and reflecting a strong recovery from the severely damaged FY2008 crop. Goldman Sachs named Bangladesh one of the "Next Eleven. inefficient state-owned enterprises. "among Bangladesh’s most significant obstacles to growth are poor governance and weak public institutions. This stronger outturn is due to better than expected agricultural expansion. According to the World Bank. rose to 11. As of May 2009.6%.1). and its consumer industry has also grown. the major rice crop (harvested in April– May). slow implementation of economic reforms. India. The output of aman. Crop production benefited from favorable weather conditions as well as 6 . four years after its report on the emerging "BRIC" economies (Brazil. Russia. Boro.9% is estimated for FY2009 (ended June 2009). according to Bangladesh Bureau of Statistics the GDP growth was 5.

Slow implementation of energy projects continued to restrict industry’s expansion. the manufacturing sector has to be made highly vibrant.1). the growth of the services sector has also been fairly robust. the development process of Bangladesh must strive to expand employment creation opportunities very rapidly. The scope of additional absorption of labour in agriculture being somewhat limited. Weakening construction activity and power outages pulled back manufacturing growth. Services sector growth (at 6. as outlined in the ruling party’s election manifesto and reflected in a new public– private partnership (PPP) scheme.3%. largely as a result of slower export and import activity. In 1996.9% fell below both the ADO 2009 projection of 6. as export production in the second half of the fiscal year slowed more sharply than expected. In spite of droughts. commonly known as the Poverty Reduction Strategy Paper (PRSP).strong support from the Government that enabled farmers to access inputs and credit. increasing both its growth rate and its contribution to the GDP by leaps and bounds.8% outturn of FY2008. the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) had conducted an empirical study to find out the constraints to industrial sector growth and investment as perceived by industrial entrepreneurs and businessmen of different classes. It is the manufacturing sector's contribution to the GDP that has remained nearly stagnant at around 15 per cent and its growth rate at 5.5% in FY2008) moderated. down from 6. All the general impediments to private sector growth would apply equally to the growths of both large industries and small industries. floods. the best potential for this lies in the manufacturing sector. although the new Government (elected in January 2009) has given power generation and gas development a high priority. A summary of this somewhat simplistic study was 7 .6% and the 6. the agricultural sector of the country has performed well and has enabled the country to be self-sufficient in food. Industrial growth of 5. Poverty Reduction and Social Development. To achieve the desired 8-10 per cent GDP growth. cyclones and various other natural or management related disasters.9% (Fig. Major obstacles to economic growth of Bangladesh To achieve the committed Millennium Development Goals (MDGs) of 2015 or the targets of the National Strategy for Economic Growth. There have been many analyses on why the industrial sector of Bangladesh has remained in hibernation.

which listed 90 recommendations for removal of existing bottlenecks (Table 1). in a recent paper by the author. 8 . largely by smuggling. b) In port services. including land ports. the respondents named the following: Priority 1: Power supply Priority 2: Industrial credit Priority 3: Administrative reforms Again. titled The Role of Private Sector in Bangladesh. the following 25 issues were identified as impediments to growth of the private sector : 1. Inefficient support infrastructure: a) In the utilities sector. 4. Lack of long-term capital availability through banking channels. Table 1 When asked to identify the three most urgent issues in order of priority. 2. 3. Dumping of products.published informally under the title In Search of Enabling Environment. specifically in power. Lack of long-term capital in the capital market and bond market.

10. Political instability. Widespread corruption. 17. 21. 11. A slow process of deregulation and privatization. Lack of transparency and accountability in government decision making. aggravated by extensive arbitrary powers exercised by customs officers. leading to frequent strikes.c) High transportation costs. 9. 8. Lack of regulatory bodies. Lack of good governance. Inconsistency among different government policy statements. Lack of an appropriate education system to support an industrial economy. Complicated and cumbersome customs procedures. 18. Widespread tariff anomalies. A lack of credible statistics. Lack of research and development. 22. An uneven playing field between the private sector and the public sector. Low productivity and a highly politicized labour sector. Government control on public utilities. Too many holidays. 7. 24. 19. 23. 20. 9 . An inefficient and corrupt judicial system. 14. Lack of an industry-friendly social and political environment. 12. 13. 6. 25. 5. 15. High interest rates in the banking sector. 16. High customs' duties. Lack of local technology.

not a balanced growth should be aimed at. but rather existing imbalances— whose symptoms are profit and losses—must be maintained. the real bottleneck is not the shortage of capital. In view of the lack of entrepreneurial abilities there is a need for a mechanism of incentive and pressure which will automatically result in the required decisions.The Theory of Unbalanced Growth in context of Bangladesh According to the Hirschman's Theory of Unbalanced Growth. According to Hirschman. but lack of entrepreneurial abilities. Investments should not be spread evenly but concentrated in such projects in which they cause additional investments because of their backward and forward linkages without being too demanding on entrepreneurial abilities. the power generation will have to increase drastically to achieve that goal. In this section I have tried to give a shape of the present constraints and stated some steps to rise from the situation. or entrepreneurs aim at personal gains at the cost of others and are thus equally detrimental to development. Electrification of the whole country should be taken as the top most priority. Currently only 44 percent of the total population has access to electricity and per capita generation is only 10 . Development of power sector It has already been stated that in order to survive as a nation. Initiative needed to be taken to face the economic challenge The long list of problems and constraints itself indicates what needs to be done to remove the constraints. Potential entrepreneurs are hindered in their decision-making by institutional factors: either group considerations play a -great role and hinder the potential entrepreneur. In context of Bangladesh. manufacturing industries and import substitutions are relevant examples. and to prosper in the 21st century. In Bangladesh. the performance of the power sector is yet to reach a satisfactory level. Bangladesh will have to shift from an agrarian economy to an industrial economy. Consequently.

have become very old and thus operating at a much-reduced capacity. their reliability and productivity have fallen. Shortage of gas supply further exacerbated the supply situation. 3: Installed Capacity (Fuel type) 11 . in the public sector. 2: Installed Capacity (Plant type) Fig. As a result. For the last few years.5 times of growth rate. In FY 2007-08. The fall of the water level of Kaptai Lake significantly reduced generation capacity of the Kaptai Hydroelectric power plant. A good number of generation units. Fig. the total installed generation capacity was 5305 MW with 3809 MW in public sector and 1496 MW in private sector (including REB). actual demand outmatched supply exposing shortage of our generation capacity. The installed capacity by plant type and fuel type during FY 2007-08 are shown in figure 2 and 3. it was possible to supply 4130 MW of maximum demand (Public sector 2826 MW and IPP 1304 MW).174 kWh. This is very low compared with other developing countries. In FY 2007-08. Reduction of poverty to a moderate level calls for GDP growth rate at 7-8 percent and achieving this growth rate requires increased access to electricity which should be in the region of 1.

732 MW and 9. domestic. industry. and 2015 would be about 6. which increased to 150. 2012. Fig. and nuclear power. Of the total net energy generation. Other possible means of alternative sources of energy include wind power. To meet the growing demands of electricity in the domestic and industrial sectors.A total of about 24. Net generation by plant type and fuel type is shown in Figure 4 and 5 below.25 percent was gas based.) are considered. Of the total net energy generation 86. In FY 1996-97.305 million-kilowatt hours (Mkwh) of net energy (15.57 percent oil based. Generation of electricity using wind requires high 12 .066 MW. 7. In other words. hydroelectric power. So Bangladesh needs to reduce its dependency on natural gas gradually.786 MW respectively.40 percent was generated in public sector while the remaining 37. Bangladesh will have to come up with a plan for massive production of power.167.60 percent was generated in the private sector.992 million cubic feet in FY 2007-08. etc. the natural gas consumption was 107. the maximum demand in 2009.993 MW in 2020.240 million cubic feet for power generation under BPDB power plants. the total reserve of gas will last about 10 years when all other sectors of gas usage (fertilizer.71 Mkwh in private sector) were generated during FY 2007-08 (excluding REB generation).27 percent coal based and 5. 4. solar power. 5: Generation pattern (Fuel type) According to the base forecast of the Power System Master Plan drawn up in 2005.29 Mkwh in public sector and 9137. At this rate of consumption of gas only for the electricity generation (which uses 70% of the total gas consumption). 3. 4: Generation pattern (Plant type) Fig. tidal power. the gas reserve will last 20 to 25 years. while explore the feasibility of developing alternative sources of energy.91 percent hydro based. 62. The demand is expected to be 13.

Despite abundance of surface water. However. Solar power uses sun's energy to produce electricity. Germany. Building of the Kaptai dam in the early 1960s caused inundation of localities around the reservoir. the potential for hydroelectric power is limited at best. Because of low terrain and high population density. further research and development of the nuclear energy will continue throughout the world. 13 . the USA produces about 15% of its electricity (477 billion kilowatt-hour) supply from 132 nuclear reactors. Parts of Chittagong and Hill Tracts might be feasible for generation of electricity using wind power. Siltation behind dams also limits the life of operation. However. To meet the increasing demands of energy. Generation of electricity using solar power is environmentally feasible. which led to uprooting of many indigenous people. Generation of electricity using tidal power is very similar to hydroelectric power. Valleys within mountains can funnel winds at high speed. Many countries in North America and Europe heavily rely on nuclear energy. The Kaptai hyrdoelectric station is the only major power generating facility in the country. To meet the world's energy demand in the future. Tidal channels are dammed off and tidal water is forced to pass through a narrow gate to which a turbine is connected. generation of electricity using tidal power will have to be limited to isolated channels inside the Sundarbans area. Most of these alternative sources of energy discussed earlier are still more costly compared to the energy produced by conventional methods. the production costs and price will decline. For example.wind speed and available open space. USA. and Japan also use a significant amount of energy generated by nuclear reactors. the prospect of developing hydroelectric power is not environmentally feasible in other parts of the country. Bangladesh should also consider developing nuclear power as the sources of future energy. Canada. According to the Energy Information Administration. Development of solar power should be a top priority for Bangladesh in the 21st century.5 billion kilowatt-hours) from nine nuclear reactors. and are suitable locations for wind turbines that can generate electricity. Since most tidal channels are used for navigation in Bangladesh. France uses up to 75% of nuclear energy to meet the national demand. development of tidal power causes problems to navigation. Sweden. India produces about 2% of its electricity (5. with an increase in energy demands and with an invent of more efficient technologies in the future. UK. The direction of the turbine can be changed to allow both incoming flood tide and outgoing ebb tide to work on the turbine. as well as to confrontation between the victims and the government. Solar energy is plentiful in Bangladesh.

However. This situation gives us an opportunity to learn from other people's mistakes. absolutely no environmental risk is associated with them). One gram of deuterium-tritium can generate energy equivalent to burning 45 barrels of oils! These fusion reactors are still in research stage. 14 .e. Bangladesh is not at the leading edge of technological research. USA in March. Also.5 meters long. recent studies show that clay-rich seabeds can be suitable for disposal of such waste. The most efficient type is the "Breeder Reactor" which are not only efficient. As far as the radioactive waste disposal is concerned (in the case of fission reactors). it is relatively costly. We need to adopt a power generating technology that is economically feasible and environmentally sound. or heavy hydrogen. and the Three Mile Island incidence in the USA. These are all matters of future. There. 1999. In addition. transmission.e. there have not been any significant accidents associated with nuclear power generation. the nuclear fusion reactors. it will be possible to adopt technologies that are both efficient and environmentally feasible for Bangladesh in the 21st century. use heavy deuterium and tritium (a form of hydrogen) as a source of reaction. With the current trend of globalization of trade and technology transfer. According to the report the dream of sparking tabletop nuclear fusion has become a reality. scientists zapped clusters of atoms of deuterium. but significant strides have been made in development of these reactors. Except for Chernobyl disaster. Ditmire and others recently reported the findings of their research at the Centennial Meeting of the American Physical Society held in Atlanta. The Bengal fan has one of the highest sedimentation rates in the world and could be one such location for burial of radioactive waste. and was equally dangerous. The problem of radioactive waste disposal remains an unresolved issue. the Bhopal disaster in 1984 was caused by a chemical industry (the Union Carbide). Fusion reactors produce water as by products--not radioactive waste (i. For instance. The feat took place on a lab bench only about 1 meter wide and 3. which was caused by a faulty and outdated technology in the former Soviet Union. Occasional accidents can be dangerous. "media overreaction" and "enviroscare" against nuclear power plants certainly play a major role in mobilizing public opinion on this issue. with brief but extremely powerful laser pulses. there are some risks involved in safety procedures and disposal of waste materials generated in nuclear power plants. There are different kinds of nuclear reactors. but also relatively safer. and supply. Operations in all other sectors of industry have some risks associated with accidents. research is ongoing in the USA and in Japan to develop cold fusion (i.Although nuclear energy is very efficient. at room temperature). Bangladesh needs to develop an action plan for energy production. In addition. promising not commercial energy but a promising scientific pay off. as opposed to fission reactors.

Institutional facilities are needed for entrepreneurship development. Selection.. SMEs must have logical linkages between micro-enterprises below and large industries above them. through adoption of TOM. Their notional hierarchical relationships should be well recognized and made use of. adequate skill has to be developed for using and maintaining electronic components and control devices. It is therefore. skill and technical knowledge. To develop the SMEs the development of power sector is crucial. acquisition and application of the appropriate technology for production that would enable production of goods of competitive quality and competitive price. Apart from the energy support there are several other important matters which need close consideration. the total size of the new entrants to the job market may be said to be around 25 million. 4. adhering to the standard specifications. SMEs are a highly cost-effective route to industrial development. essential that indigenous R&D capabilities are developed quickly. But. including particularly capturing the high entrepreneurial ability of the women of Bangladesh. The present size of the population in the 2-14 years age group is approximately 16 million. Bangladeshi workmen are extremely good at acquiring production skills to high degrees of tolerance. 6. This deficiency has to be removed quickly by establishing appropriate training and skill development facilities. 5. while environmentally not injurious. An efficient subcontracting culture has to be developed. It would be important to determine the correct balance between labour-intensive and capital-intensive processes for achieving the required productivity and quality. and are capable of production by copying samples. Hence. and necessary training for practicing these. but this is no longer possible under WTO rules for Intellectual Property Rights (IPR).Development of SMEs I have already discussed that to achieve the desired 8-10% GDP growth. they are unable to produce goods from blueprints and drawings. due to limitations in education. ISO 9000. such as: 1. Most manufacturing processes are today electronically controlled. Compliance with Quality Assurance and environmental friendliness standards. To make the scope for jobs for this huge population there is no other solution than developing SMEs. main taining optimum productivity. 2. For Least Developed Countries (LDCs) like Bangladesh. etc. and well functioning regulatory regimes should be put in place so that the network among the subcontracting 15 . They will be candidates for new jobs. the industrial sector has to be made highly vibrant. ISO 14000. Together with another 10 million inactive people still looking for employment. 7. 3. Many countries developed their SMEs by copying products from other countries.

VAT and others levies. preference and perhaps some experience and expertise. Financing them should not require initially any physical collateral other than their factory establishment. overcoming all the usual bottlenecks experienced from sources of financing. management and marketing.2%.Designated financial institutions should not only be encouraged but also be helped to develop expertise in industrial financing.firms works efficiently. and submitting annual reports about their product and marketing. and developing bankable project proposals in the sectors in which they might have knowledge. Similar assistance will also he needed to meet the various compliance issues under WTO rules. the Government has reduced import duties on raw materials while keeping duties on finished goods unchanged. Higher protection for local industries has also come in the form of regulatory import duties on some items and higher supplementary duties at the import stage for numerous other items. complying with the rules for Registration of the company under the relevant law and Board of Investment (BOI). These measures. develop project profiles and set up appropriate establishments for production. 8. except perhaps registration of the unit with relevant business Associations and/or Chambers of Industries. if implemented promptly. To encourage local industries. as well as capability of working with clients so that project finance by them can be successfully implemented. and includes measures for shoring up growth and protecting the poor and vulnerable from the effects of the global economic downturn. They should have sufficiently long moratoria from different kinds of taxes. technology assessment and acquisition of relevant sectoral knowledge. Free technical assistance will have to be provided to them for accessing information. following JIT (Just In Time) systems has to be adequately developed and faithfully practiced. Govt’s recent initiatives to face the economic challenge The FY2010 budget takes an expansionary stance. The Government has also raised the turnover threshold for value-added tax on smaller enterprises. Most potential investors in the SME sector today are not entrepreneurs in the real sense. They should be subject to a minimum of regulations in the beginning. 10. The culture of respecting the needs of these contracting parties. 9. thus raising the level of effective protection. but their full effects would likely be realized only in subsequent years. inasmuch as they do not have an already developed capability to decide on viable investment avenues. might boost GDP growth beyond the projection of 5. Prospective investors would have to be given all kinds of facilities for getting started in an unreserved manner and without any kind of hassle. and they should be given protection against non-official extortionists as well. Other expansionary 16 .

2% of GDP in FY2010) were raised by 21. largely on continuation of the lowered policy rates. For FY2010. take into account the possibility of an adjustment to domestic fuel prices or the effects of any excessive government borrowing from the banking system. The absence of an active secondary bond market limits non-bank investors’ interest in this source of non-inflationary financing.measures in the FY2010 budget include large infrastructure investment programs under the ADP and the new PPP initiative as well as a widening of social safety net operations.6% of GDP). Its monetary program is aimed at 6.2 billion (about $500 million) announced in April 2009 to support the sectors affected by the global slump is continued through FY2010.2% of revenue in FY2010. open-market operations. will remain healthy. the Government would either have to borrow more heavily from banks—squeezing private investment and fueling inflation—or cut public spending. 17 .0% of GDP.1% relative to FY2009. though decelerating from FY2009. In the event of shortfalls in revenue and external financing. with an additional allocation of Tk50 billion (about $725 million).7%). This projection does not.2. this Update retains the ADO 2009 average inflation projection of 6. The fiscal stimulus package of Tk34.13).1% in FY2009 (Figure 3. moderation in domestic demand growth due to slower remittance inflows will soften price pressures. and could further undermine compliance as taxpayers underpay current tax in anticipation of future amnesties. Foreign financing is 2. the central bank sought to continue its accommodative policy: supporting the Government’s borrowing needs to finance its countercyclical development program while ensuring an adequate flow of credit tothe private sector. the overall deficit will rise to 5. which amount to 18. with over four fifths coming from the banking system. The FY2010 revenue target of 11. will not be repeated this fiscal year. which would affect its growth and poverty reduction programs.6% of GDP (compared with 11.0% growth with inflation projected at 6. In addition. which was paid as a dividend to the Government. The new revenue-enhancing measures in the budget may also take time to yield results. The budget has also strengthened existing safety net programs and introduced several new programs. and the banks’ ceiling lending rate. including an enhanced employment generation program for the hardcore poor.0% of GDP from 4. The large one-off collection by the Bangladesh Telecommunication Regulatory Commission in FY2009. The statement indicated that the monetary policy stance would be modified if inflation or growth prospects were to substantially deviate from program goals. it could potentially act as an incentive to taxpayers for concealing normal income so as to take advantage of the much lower tax rate applied. as import price increases are expected to be moderate and the projected growth in crop output. While the opportunity to legalize undeclared income should generate additional income for the year. however. Because of the substantially higher public expenditure (16. Allocations for food subsidies (0. In its half-yearly Monetary Policy Statement for July–December 2009. Stunted tax receipts are proving costly as borrowing shrinks the fiscal space through high budgetary allocations for interest payments.2% in FY2009) may prove hard to meet because of the expected continued moderate expansion in imports and subdued economic growth.5% by June 2010.0% and domestic financing 3.5% (slightly lower than FY2009’s actual 6.

No special effort was made by them to impart technical training to the 1. and natural disasters. Yet. 80 per cent of which is 18 . Value addition to the industry except for knitwear has been low for lack of indigenous backward linkages with suppliers of fabrics and accessories.5% because of increasing numbers of overseas workers returning home and because of the marked slowdown in the outflow of migrant workers. Most significantly. without the introduction of suitable machinery to ensure high quality. a current account surplus of 0.8 million women workers with little education.8% of GDP is still forecast. Indian and Sri Lankan "buyers". Among them one highly successful sector did benefit from a relative freedom from overregulation and from assistance from government. Bangladesh faces several risks that could result in the economy failing to achieve the projections: a delay in the global economic recovery. The elaborate description. is narrated here to highlight the fact that. without substantial improvement in finishing. shortfalls in revenue collections and mobilization of external financing. innovative assistance like provision for bonded warehouse facilities. and without learning to switch over to e-commerce.0% because of falling garment export orders and the lower prices offered by buyers. Export growth is projected to be sluggish at 8. Readymade garments (RMG) being the success story of Bangladesh enjoyed significant relaxation in government control. as well as the declines in most other export categories. etc. most of the investors followed others more or less blindly and machinery procured for production has been mostly vendor driven. political turmoil. because of the likely moderate trade deficit. Labour Laws. This will affect their own income as well as the export earnings of the country. who were nothing but self-appointed agents of western importers. the industry benefited from quotas for North American markets and GSP facilities in EU markets. transfer of many of the regulatory functions to the BGMEA and. Growth in workers’ remittances is expected to slow to 12. packaging and transportation systems. without the enhancement of productivity and skills of workers through training and retraining. most RMG operators will start falling behind. in part reflecting increased global commodity prices.0%. though well known to everybody in the industry. somewhat relaxed enforcement of the provisions of the Factories Act. to some extent. when they were mostly dependent on Korean. and so their productivity has remained deplorably low. Conclusion Most SMEs in Bangladesh today grew on their own initiative. Initially the entrepreneurs had no skill of international marketing. especially given the high targets set on each.Imports in FY2010 are expected to grow by 10. But for a small number of brave and leading entrepreneurs of earlier days.

and Rule of external development institutions (meaning donors). four issues were highlighted by the authors:     Financial support schemes.) In the context of promotion. Technology and training. except perhaps for technology and training. Marketing and infrastructure. Besides job losses for a large proportion of the 1. (Note: The summary of the findings and policy recommendations of the said publication could be made available from APCTT on request. there will be huge social impacts that need not be discussed here. are very much the same as observed severaldecades ago.0 million or so in the related services.8 million female workers and 2. Dhaka. SMEs can absorb an unlimited number of investors. It is interesting to observe that the conditions for small industry development that we find today. being at the threshold of total globalization. It is thus very clear why SME development should proceed hand in hand with micro enterprise development. without which the national economy cannot be sustained. SMEs are beginning to be extolled for their greater dependence on labour-intensive production techniques. Exports will help increase the purchasing power of the teeming millions of rural and urban poor. Needless to say. Momtazuddin Ahmed and Wahiduddin Mahmud of Dhaka University. using goods from the SME sector. diversification of the industrial production system will be needed not only to overcome the apprehended losses of jobs and incomes but also to enlarge the horizon. published under the title Small and Medium Scale Enterprises in Industrial Development. and thus hold the key to the future of the economy. Out of many empirical studies done in this area. development and sustainability. among many other things. The Bangladesh Experience (Academic Publishers. so much hope is being pinned on micro and small enterprises for toning up the rural economy. The horizon for technological 19 .contributed by the RMG sector. lower requirements of imported inputs and better geographical dispersion. with the world as the market. 1992) strongly corroborates the present experience and the future outlook. All the above issues are very much within the grasp of the government and easily soluble within a reasonable time frame. the work of Professors Sadrel Reza. each requiring relatively little capital to generate the maximum per unit production and employment. Inspite of the criticism and neglect of the SME sector on the grounds of inefficiency and non-optimal use of productive factors compared to larger industries. It is also being recognized that small drops make an ocean.

SMEs cannot finance R&D costs and efforts and the only industrial research institution of the country in the public sector. and given the support they can capture the market. combating corruption and reducing harassment from the usual rent-seekers within the government and outside. International cooperation in this regard. UNCTAD is believed to have been doing a lot of studies on the subject of technology needs for sustainable growth of SMEs. setting up viable institutions for upgrading education and skills of workers and managers. so there is no alternative to development of local R&D capabilities. Government has to start taking effective action to develop R&D capacity within the country. But they cannot solve problems that are not in their domain or are beyond their capacity. More particularly. in any case. BCSIR (Bangladesh Council of Scientific and Industrial Research) has been engaged in rather inconsequential pursuits. Today's potential entrepreneurs are highly educated and have good exposure to the world. Their guidance may be also of help in this regard. and they can certainly perform better than earlier generation entrepreneurs. Without reducing the cost of doing business by making the public services work more effectively. The tasks of funding R&D. a nexus ought to be built up quickly among research institutions. Import of technology has not been very cheap. through schemes like TCDC (Technical Cooperation Developing Countries). all energies have to be concentrated on developing and supporting micro. generating social overhead capital. maintaining a peaceful law and order situation and the like will all require concerted efforts to resolve. small and medium enterprises by removing all constraints. foreign countries are not expected to be able to develop and supply ready-made technologies and machineries for Bangladesh's needs. maybe in cooperation with others within and outside the country. universities and the private sector. have been most frustrating. improving power and gas supply and making the transport and communication sectors better remain the responsibility of the government. Bangladeshis have proved that they have the dormant capacity. 20 .development and skill development remains hazy. Time and again. With globalization at the door.

January 2007. Assistant Professor of Geology. www. 16. USA. Americus.''OIC Task Force Seminar on SMEs". Development Studies. “General X-Efficiency Theory and Economic Development”. Al-Husainy. "Industrial Policy of Bangladesh 1999". Poverty Reduction and Social Development". Government of Bangladesh. 2009. 7. Peshawar. Government of Bangladesh."National Private Sector Survey of Enterprises in Bangladesh". 10.wikipedia. 15. NWFP Agricultural. 2001. "The Role of Private Sector in Bangladesh" (An Occasional Paper). Harvey. 2002. 9. “Causes of Underdevelopment And Concepts For Development An introduction to development theories”. 12. M. Harvard University Press. 4.www. VIII. Bangladesh Bureau of Statistics. 2006-2009. "A National Strategy for Economic Growth. "Annual Report". Board of Investment (BOI). “Uncertainty and Perceptual Problems Causing Government Failures in Less Advanced Nations. Khalequzzaman. Micro Industries Development Assistance and Services (MIDAS). 17. GA 31709.en. The Journal of Institute of Development. 11. New York. September.” Journal of Socio-Economics."Export Policy". S.org/wiki/Bangladesh 21 . Bangladesh Bank. FBCCI.org :“The Energy Challenge for 21st Century Bangladesh” by Md."Bangladesh Investment Review". World Bank. 2008-2009. 8. 2008. December 2008. 1987. 3. Government of Bangladesh. Frithjof Kuhnen.References 1. Dr. "Some Thoughts on SMEs in Bangladesh" (An Occasional Paper). Bangladesh Economic Review. Vol. 33. 14. International Consultancy Group (IGT). Abdul Awal Mintoo."Bangladesh Development Policy Review". January 2009."Business Environment Survey 2007" Private Sector Views. Commonwealth Business Council. University. 6. "Statistical Yearbook of Bangladesh". 2. 2008 & 2009. Summer. 5. Sept 2008. Leibenstein.eb2000. 18. 13. Georgia Southwestern State University. Hamid. Vol. Economic Relations Division. Hosseini. Ministry of Finance. 1978. Government of Bangladesh.

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