However, Sheikh Hasina should not take that as a mandate to continue business as usual.
By Mihir Sharma
The outcome of last weekend’s elections in Bangladesh was already certain: Prime Minister Sheikh Hasina’s party, the Awami League, won for the fourth time in a row. Hasina, already the longest-serving female head of government in the world, will now start a new five-year term.
The League’s message to voters was simple: the party had helped the country achieve impressive growth rates and should continue to do so. The victory was overwhelming. However, Sheikh Hasina should not take that as a mandate to continue business as usual.
First, voter turnout was only 40 percent, indicating that much of the electorate responded to calls from the country’s main opposition party, the Bangladesh National Party, to boycott the vote. The BNP wanted the elections to take place under an independent interim administration; instead, the Awami League remained in office. The US State Department said this week that it agrees with the opposition that “this election was not free or fair.” Britain also expressed concern about the arrest of opposition figures ahead of the vote.
Several of Bangladesh’s regional partners – especially India and Japan – believe that continuity in Dhaka is a good thing. India worries that the BNP is too soft on Islamists, and Japan believes Bangladesh under Sheikh Hasina will be a solid partner in Tokyo’s efforts to forge a new Asia-focused security framework to counter China .
But the US is Bangladesh’s largest trading partner, and it would be bad news for the country if its relationship with the West were to collapse over human rights concerns. Trade sanctions could devastate the export-dependent economy.
Even without them, Bangladesh would urgently need to rethink its growth model. So far, the country has carefully followed the advice of every mainstream development economist: small developing countries should focus on increasing exports to the rich world. Decades ago, policymakers in Dhaka decided to focus on the ready-made garment trade. They succeeded: the country with 170 million inhabitants is now the second largest clothing exporter in the world, behind only China.
It hasn’t always been easy. In 2013, more than 1,110 people died when an eight-story building called Rana Plaza collapsed. It was home to several small clothing factories that made clothes for brands such as Primark and Zara. There was outrage, at home and abroad, that workers had to toil in unsafe conditions.
The government had to respond quickly. Together with major brands and unions, it signed an ‘agreement on fire and construction safety’ – called the Bangladesh Accord – committing to more regular inspections and giving workers a greater voice in safety complaints.
Today, Bangladesh faces a problem born of its own success. The garment sector has become so efficient and profitable that it is consuming all of Dhaka’s policy attention, as well as all of the country’s spare capital and entrepreneurial energy. As a result, Bangladesh’s exports have been dangerously disrupted.
According to the country’s central bank, the garment sector was responsible for 85.9 percent of the country’s export earnings between October and December 2022. And nine countries – the US, UK, Canada and five major European economies – accounted for more than 70 countries. percent of those exports.
This dependence makes the country vulnerable to more than just sanctions. For years, Bangladesh has been the biggest beneficiary of the various exemptions from tariffs and intellectual property requirements granted to the world’s “least developed” countries, with nearly three-quarters of its exports benefiting from some kind of special exemption. The country will achieve LDC status in 2026 and could lose these privileges.
Before then, the new government must figure out how to guarantee tariff-free access to the country’s key export markets, ideally by signing several free trade agreements. Trade agreements with markets in our own region – especially the economies of Southeast Asia – should also be a priority. Bangladesh is one of the least regionally integrated economies in the world. Although three-quarters of goods imports come from Asia, only 16 percent of exports are sold back to the region.
More importantly, Bangladesh will have to work harder to develop new export industries, from pharmaceuticals to software services. Although the country has the human capital and technical capacity to sustain these sectors, they have not yet taken off.
In part, this is because the Awami League’s long tenure has created strong domestic interest groups and established corporations that have no interest in changing the status quo. A more modern policy mix – one that expands access to capital and encourages innovation – is not what these entrenched interests want to see. If Sheikh Hasina really wants her country to remain a success, she will have to look for new supporters.
First print: January 11, 2024 | 7:04 am IST