An incontrovertible feature of the world economy is the increasing economic interaction among countries. The process is popularly branded as globalisation. The channels of transmission of economic interaction are movement of goods and services, capital and labour. Bangladesh has been an active participant in this process of integration with the global economy and has benefited considerably thereby. The benefit is reflected in acceleration of growth of gross domestic product (GDP). The specific channels of transmission of positive influence of the global economy are exports, foreign direct investment (FDI) and remittances sent by Bangladeshi workers employed abroad. The relevant data are presented in Table 1.This article seeks to explore the prospects of sustained stimulus to growth emanating from the world economy.
EXPORTS: There are some differences of views regarding the determinants of export growth of Bangladesh. It is generally believed that one of the important factors which influence export performance is the economic growth of the major importing countries. There are others who argue that demand for exports of Bangladesh is income inelastic and therefore remains unaffected by variations in economic growth of our trading partners. The fact that exports of Bangladesh recorded fairly high growth rates during FY 07 and FY 08 (averaging about 16 per cent) despite remarkable deceleration of output growth of major destination countries (Table 2) is cited as evidence in support of this claim.
However, this view needs to be interpreted with caution. In an earlier paper (The Financial Express dated August 19, 2015) I had observed that the analysis of export data for the period 2000-2015 shows a positive, though statistically not very strong, relationship between export performance of Bangladesh and annual percentage change of consumer expenditure of advanced countries. The latter, of course, is highly correlated with output growth. Moreover, it is worth noting that our export growth decelerated substantially to 10.3 per cent in FY09 and 4.1 per cent in FY 10, possibly indicating a lagged effect of output decline in advanced economies.
In light of the above output growth of advanced countries which account for the overwhelming proportion of our exports cannot be dismissed as a determinant of our export performance. It is, therefore, a matter of concern that estimates of output growth for 2017 and 2018 are lower than in 2016 for Euro area as a group, Germany and Japan (Table 2).
There are several other concerns regarding export performance. These arise from (a) Brexit and consequently terms of access to U. K. market, (b) uncertainties regarding forms of implementation of protectionist stance of the United States under President Donald Trump, (c) lower or stagnant growth in China and India, (d) marginalisation of the role of World Trade Organisation (WTO) in protecting the interests of the poor countries in global trade negotiations and (e) possible further appreciation of Taka against both Euro and British Pound (there has been notable appreciation during the past one year).
Given the above scenario it would be unrealistic to expect any substantial boost to our domestic economy from exports. Readers are reminded that during the period July to February of the current fiscal year our exports grew by only 3.2 per cent compared to 8.9 per cent during the same period of the previous year.
REMITTANCE: Remittance sent by Bangladeshi workers employed abroad has been on a downhill march for some time. The growth of remittance during FY16 was - 2.5 per cent. It suffered more drastic decline later. During July-February of the current fiscal year remittance fell by 17 per cent.
Nearly two-thirds of remittance received originate from six countries: Malaysia, Kuwait, Oman, Qatar, Saudi Arabia and UAE. The economic conditions of the latter five countries are largely dependent on the price of oil which fell dramatically in 2015 (-47.2 per cent) and 2016 (-15.9 per cent). It is obvious that the fall in oil price has played an important role in causing negative growth of remittance to Bangladesh. IMF projections indicate a modest rise of oil price in 2017 and 2018 and therefore GDP growth of middle-eastern host countries is unlikely to experience any notable acceleration (Table 3). Even for Malaysia, the anticipated GDP growth in 2021 is projected to be marginally higher than in 2017. The other two countries from which Bangladesh receive substantial remittance are the United States and the United Kingdom, accounting for about 20 per cent of the total. The rising anti-immigration sentiment in these countries as well as other countries of Europe is well-known and needs no elaboration. The combination of lacklustre prospects of output growth and the popular anti-immigration stance of most host countries does not bode well for any major uptick of remittance.
FOREIGN DIRECT INVESTMENT: During the past few years there has been an upward trend in FDI (foreign direct investment) inflow. This gives rise to some measure of optimism. However, the optimism has to be qualified by a number of considerations.
FDI inflow into any country is typically volatile, marked by considerable fluctuations. This has been the experience of Bangladesh as well.
The growth of home countries (countries from which FDI originates) exerts contradictory influence on investment abroad. On the one hand, improved growth can generate resources for outward FDI. On the other hand, improved profit prospects in home countries can discourage outflow. Given the picture of growth of some potential home countries listed in Tables 1 and 2 as well as of China and India it is difficult to be sanguine about the short-term prospects of acceleration of FDI inflow into Bangladesh.
It is generally believed that Bangladesh is now receiving serious attention from potential foreign investors. An important explanation for this lies in the rising labour cost in China, Vietnam and other East Asian countries. However, significant acceleration of actual inflows will be influenced by the adequate availability energy (gas, electricity) at reasonable prices, progress in enhancement of skill of workforce, improvements in the governance and "ease of doing business" indicators and convenience in acquisition of land.
From the point of view of Bangladesh, another important consideration in the FDI scene is that an overwhelming proportion of FDI (75 per cent in FY 16) consisted of reinvested earnings and intra-company loans. The inflow of fresh equity which has the potential of bringing about greater diversification of industries is a relatively small component.
CONCLUDING OBSERVATIONS: The analysis in this paper shows that growth acceleration of Bangladesh is unlikely to receive any significant boost from export and remittances. There may be some increase in FDI inflow, but its quantitative significance relative to exports and remittances is too small. The stimulus for growth acceleration, therefore, has to come from the domestic sector of the economy. In particular, we need a major breakthrough in domestic private investment which, as a proportion of GDP, has remained stagnant for nearly a decade. The constraints to private investment are well-known and need not be elaborated. Policy makers need to pay dedicated attention to relieving these constraints at the earliest.
Dr. Mirza Azizul Islam is a former Advisor to the Caretaker Government, Ministries of Finance and Planning and presently a Visiting Professor in BRAC University.