by Mahtab Haider

It was in March 2002 that the then commerce minister Amir Khosru Mahmud Chowdhury — young, ambitious, and tipped to become finance minister someday — announced that he was closing down the Trading Corporation of Bangladesh. The corporation, established in 1972 as a successor to its Pakistan avatar, was traditionally tasked with intervening in the market when the prices of essential commodities rose unnaturally, either due to market shortages or hoarding. There was a triumphant feel to the commerce minister’s declaration. ‘The days of protectionism are over. The government has no business staying in business,’ Khosru famously said, pledging his firm commitment to liberalising the economy and underlining the need for the government to leave business and trade to the private sector.
   In the wake of that announcement, 340 officials and employees of the TCB were given the golden handshake. While the TCB is yet to be dismantled, it is a largely crippled organisation, with most of the remainder of its employees due for retirement in June next year.
   Khosru has since been cast out of the BNP’s inner coterie of power, but the values of liberalisation and deregulation he pledged commitment to remain at the heart of much of the ‘reforms’ that the BNP has pursued during its stint in power since 2001. To be fair, though they be arch-enemies on the streets, there seems little discernable difference in ideological territory between the ruling BNP and the main opposition in parliament, the Awami League, when it comes to their perception of the role that the government must play in a market economy. In fact what best describes both these parties’ stance on liberalisation and decentralisation is indifference and ignorance rather than informed belief.
   It was in 2002 that the finance minister, M Saifur Rahman, promised a drastic shake-up of the non-commercial banking sector, proposing to eventually privatise the state-run Rupali, Sonali, Janata and Agrani banks through a series of reforms. While reforms were long due at the state-owned banks, the new and urgent agenda was set by the International Monetary Fund and the World Bank, in line with the Washington Consensus, a term that is now globally synonymous to the market fundamentalism that forms the traditional wisdom of the Bretton-Woods twins. The outcome of that initiative was recently seen in the decision to sell the majority shares in Rupali Bank to Saudi Prince Bandar Bin Mohammad Bin Abdul Rahman Al Saudi last month.
   Efforts are also on to privatise the utilities services. Dhaka WASA’s billing system has already been outsourced, and the general impression is that both DESA, the electricity supply authority for the city, and its counterpart in the water sector will be privatised in phases, the beginnings of which we are currently witnessing. For those of us who suffer from problems of ghost billing, or encounter harassment by the officials of these agencies, this may appear to be good news, but it bodes ill for us in terms of the aggregate welfare outcome. It is only natural that profitability priorities of private operators will eventually drive the prices of these utilities higher, denying a great portion of the rural population access to what we consider essential services.
   More recently, the government has managed to show what can only be described as a unique commitment to laissez faire values, as it watched helplessly over the past year or so as prices of essentials in kitchen markets across the country soared. Middle-class and working-class consumers who struggle to make ends meet need no telling of it all over again, how prices have peaked. But for the sake of context, it is important to point out that prices of essentials such as chilli and potato have risen between 80 to 100 per cent over the past year. The price of red lentils has risen by 35 per cent in the past year, while the price of sugar has risen by 56 per cent. Overall, the Bangladesh Bureau of Statistics’ general inflation index shows a 7.61 per cent rise over last year’s figures. When the BNP came to power, inflation was a negligible 2.79 per cent. Since prices started rising in 2003-2004, the government has employed a wide range of measures, all of it rhetorical, in explaining the crisis and its causes. And as the BNP now faces a public outcry and a goring in the run up to the elections because of the price hike, they are once again taking shelter in their old rhetoric of pointing to the irrelevance of governments in market economies.
   Two months ago, as the commerce minister, Hafizuddin Ahmed, faced a salvo of questions from reporters over the government’s inability to check the steep rise in prices, he said, ‘There is very little for governments overseeing market economies to do about such things.’ Admittedly, this was a defensive tactic, and only had rhetorical value, but it goes a long way in showing how governments perceive their own role in an increasingly globalised and liberalised world.
   The fact of the matter is, much of the agenda of limited or zero-role of governments is instilled in the mindsets of our policymakers by their own inherent unwillingness to take on responsibility for crises, buttressed by a mantra to that effect chanted repeatedly at their ears by the multilateral lending institutions, the World Bank and the IMF. The IMF and World Bank ideology is based on neo-liberal thought which suggests that governments exist to foster trade and commerce, to remove barriers to the free movement of capital.
   This is why the government is eager to open up the health and education sectors to the private sector, convinced that the market will ensure a more efficient system to administer education and healthcare, which will become more relevant and more service-oriented than if bureaucrats, lacking incentive and exposure, do the same.
   This year, in a twist of irony, the TCB’s ghost came back to haunt the commerce ministry. Plans are now on to revive the TCB ahead of the Islamic month of Ramadan.
   Why this equally drastic policy U-turn?
   The major part of the reason is that the government has by now exhausted all its options of a market-driven solution to the problem of high kitchen prices and come to the inevitable conclusion that market-driven agendas are exactly what is causing a glitch in the system. It has been reported in the press that the intelligence agencies have identified cartels of businessmen who have discovered the profits to be made by creating artificial shortages in the supply of kitchen market essentials, releasing their stock over a long stretch of time. So the government now plans for the TCB to hold stocks of goods whose prices peak during the month of Ramadan, in order to intervene in the market whenever a shortage arises.
   Now, proponents of laissez faire are always quick to point out that this is not the fault of markets but the fault of imperfect information within markets that causes the buyers not to be aware that if they now buy in small quantities instead of panicking, it will be very likely that the prices will not rise as quickly and as high. They argue that as soon as shortages arise, new players enter the market to satisfy the shortfall, tempted to enter the fray for the profits to be reaped. The problem is, these theories crumble in the face of reality, when elements such as economically and politically powerful cartels enter the fray, with the ability to resist any new entrant to the market with the sheer force of gun-barrels and ministerial directives. So the role of the government as a regulator of such markets becomes extremely crucial, given that they have to at once enforce law and order to resist cartels from acting like oligopolists, and at the same time make their ability to intervene in the market at any time be known. Toothless governments and hapless commerce ministers become ineffective in the economics of markets.
   It is very useful in this context to cite the example of the stock market crash of 1996 in Bangladesh to understand this better. The market for stocks and bonds is obviously a highly evolved one, at the other end of the spectrum from kitchen markets. Whereas kitchen markets sell physical goods that are grown with labour and subject to weather conditions and other physical limitations, the market for stocks and bonds is an invisible one where buyers and sellers do not even need to interact in order to trade. Whereas a consumer buying his rice and lentils at a kitchen market has little idea of the prices of the same in another kitchen market that is one hour’s travel away, traders on the stock exchange are able to access information on prices, thousands of kilometres away in a matter of seconds. And yet, in 1996 a cartel of company directors and share brokers suppressed information, created artificial shortages, and then sold and bought their own shares over and over making supernormal profits with every transaction that eventually ended in a crash that became a holocaust for medium and small investors.
   Of course, there was the Securities and Exchange Commission that is tasked by the government to be a watchdog in the market for stocks and bonds, but in keeping with the government’s ludicrous conviction that markets are self-sufficient and efficient systems in themselves, the SEC was so short-staffed and limited in expertise in dealing with the crisis that they might as well not have been expected to do any regulation.
   It is equally useful to cite the example of the higher education sector in understanding the nature of markets. Three successive governments have now played a significant role in allowing private sector universities to operate in Bangladesh. The Private Universities Act, 1992 opened up the sector and during its present tenure the BNP-led four party alliance government has granted 33 private universities permission to open their doors to students. As of today there are 54 private universities in the country. The government has also been forced to revoke the license of at least eight of these universities this year because of a low quality of education imparted, their lack of qualified faculty, and a slew of other problems that the universities were hiding, charging their students astronomical fees, as is the bench-mark, to give them an education that would hardly qualify them for jobs.
   Once again the University Grants Commission — the higher education watchdog — exists, but it has only had a handful of staff added to its ranks since it was created in 1972, a period over which at least these 54 more universities have been added to the list. It has been widely reported in the press that the UGC is powerless against the most blatant violations of their mandate by private universities, because the UGC must, by law, make a written application for action to the education ministry before it can crack down on any of these institutions. Of course, due to political considerations and monetary incentives, those applications for action disappear into a black hole of inaction within the ministry.
   To go back to ‘reforms’ initiated by the government in the banking sector and the utilities sector as dictated by the agenda of its multilateral lenders, it is important to examine the results they will have. Undoubtedly the state-run banks are riddled with problems of bad-debts, because of loans given out by their staff who were presumably motivated by personal gains in terms of percentages rather than the profitability merit of the projects themselves. But as all the NCBs are now set for privatisation, can we assume that access to rural credit will remain the same under the new management whose sole responsibility is to achieve higher profits for these banks? Will poor farmers, badly in need of temporary loans in order to buy inputs in the wake of floods, be able to convince bank management that a disbursement of this risk-laden loan is in national interest? And what would happen if farmers cannot secure that loan? Famine would be a very real economic outcome of that market-driven decision, and the country’s food security would be severely threatened.
   In a similar vein, it is very likely that as the government gradually loses its ability to disburse credit the industrial sector will suffer a serious blow, as foreign controlled banks are much more keen to disburse consumer credit, the recovery of which is hardly ever imperilled by political instability or economic downturns. So, industrial projects find it doubly difficult to convince private sector banks that their projects are feasible, if laden with risks related to politics and global economics. But the importance of such industrial development can hardly be ignored for a country like Bangladesh.
   The government through these actions, using the rationale of free markets as the supreme decision maker in modern economic practices, is making Bangladeshi society a victim of the crude profiteering tendencies and extreme ignorance of economic theory of our political leadership. It is a pity that Bangladesh is deprived of commerce and finance ministers who have, at least, a rudimentary knowledge of economics that would equip them with the understanding that no self-respecting economist could ever academically justify a zero-role for the government, be it in a developing country such as Bangladesh, or an advanced economy such as the US. If markets were really as independently efficient, would the US really need a Monopolies and Mergers Commission or a Food and Drugs Administration? If free markets and capital were indeed ideals to be pursued, why would the US government have stepped in to prevent the sale of one of its oil giants UNOCAL to the Chinese company CNOOC last year?
   There is little doubt that Adam Smith is not only the father of modern economic theory but also the father of the idea that claims that motivated self-interest by individuals causes markets to be efficient and well-functioning systems. This will hardly be unfamiliar to economists, but Smith would hardly have envisioned how his vision would be distorted to justify a retreat of the state from economic activity.
   As Gavin Kennedy, an economist at Edinburgh Business School, points out in his book Adam Smith’s Lost Legacy, Smith was far from a laissez faire zealot. According to Thomas M. Humphrey, a retired long-time editor of the Economic Quarterly in Richmond, US, who reviews Kennedy’s book:
   ‘Smith argued that a strict policy of complete laissez faire is warranted only in the ideal state of natural liberty where free competition and perfect factor mobility prevail in all markets. Absent these conditions, market failure can occur making restorative intervention desirable. Far from glorifying businessmen, Smith saw them, often operating in collaboration with the government, as the source of anticompetitive trade restrictions. He described how rent-seeking businessmen conspire to monopolise markets, restrict output, raise prices, and lower wages. To this end they lobby politicians to grant them exclusive privileges, legal monopolies, protective tariffs, and the like. When the politicians, their class interests more aligned with the lobbyists than with other groups, comply, businessmen are benefited at the expense of the community at large. A government wanting to improve the welfare of all its citizens would break free from the dictates of its business petitioners and remove all restrictive practices. It would act to restore competition, not undermine it.’
   Whether in our kitchen markets or our stock markets, it is those same rent-seeking businessmen who Smith talked about who restrict output, raise prices and then lobby the government for privileges. Smith in fact was a far greater proponent of economic redistributive justice and general welfare as a responsibility of the government than his ‘market fundamentalist’ champions like to admit today. In his seminal work, The Wealth of Nations, Smith writes:
   ‘When the toll upon carriages of luxury... is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, wagons, and the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor…
   ‘…A tax upon house-rents...would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expen[s]e, not only in proportion to their revenue, but something more than in that proportion.’
   More recently, it is the celebrated economist Joseph Stiglitz who has made his views on the efficiency of markets be well known. In his paper, Globalisation and the economic role of the state in the new millennium, Stiglitz writes: ‘There is a broad consensus that a free-market, laissez faire approach does not work...When pressed many on the right will admit that there are market failures, but not only do they put greater stress on the government failures, they express great confidence that market mechanisms can be improved, and little confidence that the deficiencies in public process can be remedied.’
   It is a common, if foolish, opinion that often makes the rounds in Dhaka’s elite circles that perhaps if we privatised the government, it would function a little better. The government and its bureaucratic machinery is certainly a long way from being efficient and well-functioning, on this there is little scope for debate. But the fashion in which governments in the developing world are being made to retreat from economic activity is exacerbating poverty and economic disparity, which in the long run will lead to a cataclysm of great proportions. The government’s role in economic activity is intricately linked to concepts of social justice and democracy, and when we call for its retreat we are in fact destroying mechanisms through which these goals can be achieved. As demonstrated with the examples of the kitchen markets and the stock markets in Bangladesh, it is not a tenuous conclusion to draw that markets (in Bangladesh at least) are inherently imperfect. That is why we need the government to regulate them, to oversee them and to correct them when they result in failure.
   Mahtab Haider is senior assistant editor, New Age

by Tanim Ahmed

To begin with, here are a few figures from the World Development Report 2006, an annual publication of the World Bank, which might help bring things into a better perspective.
   Bangladesh, with about 140.5 million people, accounted for about 2.21 per cent of the global population in 2004. That same year, with a GDP of $56.844 billion, it accounted for only 0.14 per cent of the global GDP, which stood at about $41 trillion (that is 12 zeroes after the figure). The figure gets worse when considering Bangladesh’s position in terms of global trade volume. With $8.15 billion of exports and $12.1 billion of imports, Bangladesh’s manufactured exports trade accounted for only about 0.11 per cent of global trade volume. Bangladesh, it must be noted, is not particularly behind compared to other low income countries.
   As for all the low income countries combined, their share of the global trade was only 2.53 per cent. But it leaves out services, which constitute a much larger share of the global trade, where poor countries are even farther behind the developed countries. So is Bangladesh. Almost 90 per cent of its exports comprise merchandise trade although services constitute almost half of the national GDP.
   At the domestic level, agriculture contributes about 20 per cent to the national GDP but continues to provide employment for over half the working population directly. Another factor has come to be of much importance for Bangladesh, namely foreign remittance. Remittances from expatriate Bangladeshis have reached almost half the country’s export earning and go a long way in protecting the economy from unforeseen external shocks such as the sudden rise of import bills due to an increase of international fuel prices.
   Since textile and apparels generate about 75 per cent of its export earnings, Bangladesh relies heavily on this sector to keep its head above the water amid the rapidly changing scenario of global commerce. While the global trade volume increases every year, the least developed countries’ share of that volume continues to gradually dwindle. Statistics show that it has decreased from 0.8 per cent to merely 0.4 per cent share of global trade between 1980 and 1997, a period marked by a significantly stronger push for globalisation than any other period in history.
   The idea of globalisation was sold to the developing countries with promises of handsome dividends, which have not materialised yet. This idea of globalisation necessarily involves a greater dependence on international trade, especially exports, along with the token reduction of tariffs and subsidies. Advocates claim that with stronger integration with the global trade, and a liberalised economy, countries will achieve faster economic growth. They also cite examples of East Asian economies, and more recently of India and China, all of which had fiercely guarded their economies for long periods till their businesses were mature enough to face international competition. Some, including India and China, still retain protectionist policies as does a bulk of the developed countries in selected sectors. As Robert Hunter Wade points out, ‘Their experience, and that of Japan, South Korea and Taiwan earlier, shows that countries do not have to adopt liberal trade policies in order to reap benefits from trade and in order to grow fast. They all experienced relatively fast growth behind protective barriers, and their fast growth fuelled the expansion of their trade. As they became richer they tended to liberalise their trade — providing the basis for the common misunderstanding that trade liberalisation fuelled their growth.’
   In his paper ‘Globalisation, Poverty and Income Distribution: Does the Liberal Argument Hold?’, Wade reveals that 85 per cent of world income goes to 20 per cent of the world’s population, 6 per cent to 60 per cent of the world’s population. ‘Can this meet any plausible test of distributive justice?’
   A UN report, the World Economic and Social Survey 2006, shows that although there is considerable inequality within many developing countries themselves, 70 per cent of global inequality stemmed from the difference of income between countries. The report states that the current mode of globalisation, so to speak, has not benefited developing countries and has certainly contributed to losses including de-industrialisation.
   Several studies — by the World Bank, European Union, Carnegie Endowment for International Peace and the Food and Agricultural Organisation — show that a likely agreement at the World Trade Organisation under the currently running, and recently deadlocked, Doha Round will result in minimal increase in the volume of global trade, but the bulk of it will go to developed countries.
   Developing countries are expected to gain only $16 billion from the World Bank’s projected $96 billion from a ‘likely Doha scenario’. But only a few large developing countries including Brazil, India, China, Argentina and South Africa are expected to receive most of those gains.
   A report of the Carnegie Endowment for International Peace, ‘Winners and Losers: Impact of the Doha Round’, has similar observations projecting net gains between $40 and $60 billion of which developing countries may receive $21.5 billion. Among them China will rake in $10.6 billion from the liberalisation of manufactured goods.
   The report finds that the poorest countries are likely to lose out from any likely Doha scenario unless special measures are taken to protect them. ‘Bangladesh, East Africa, and the rest of Sub-Saharan Africa are adversely affected in every Doha scenario modelled, regardless of whether the level of ambition is modest or high.’
   It says the main beneficiaries from agricultural liberalisation constitute a handful of developing countries, including Argentina, with the highest gains of $358 million, Brazil, South Africa and some countries of the Association of South East Asian Nations.
   Another World Bank assessment of the Doha Development Agenda devotes an entire chapter to Bangladesh, which finds that Bangladesh, being a net food importer, will face net losses from higher world food prices, and face preference erosion in markets where it is given special treatment due to overall tariff reductions.
   The section on the Doha scenario concludes that the trade deal will lead to increases in consumer prices, especially among rural and poor households, so much so that overall poverty will increase.
   It says poverty increases for all household categories except large farmers, for whom poverty declines through agricultural capital accumulation, and highly educated urban households, for whom initial poverty rates are nil.
   ‘The biggest losers are marginal farmers and low- and medium-educated urban households, which are more dependent on skilled wages,’ says the study.
   The Doha round is only part of the ‘globalisation’ game. This round, dubbed as the Doha Development Agenda, was launched with promises of development of the poorer members of the 150-member trade forum at the ministerial conference in the Qatari capital in 2001. But the promises could not have been farther from the truth. When studies conducted by such a staunch champion of free trade and globalisation as the World Bank state that Bangladesh will be a net loser and, what is worse, the already marginalised will be affected the hardest, there remains little doubt of the inefficacy of global economic integration in mitigating inequality and enhancing development.
   It turns out that the very section of people who are expected to gain the most out of a ‘development’ round stand to be the biggest losers.
   However, that is not to say that Bangladesh should shut down its borders and make attempts to become self-sufficient. On the contrary, economic growth is essential to raise the living standards of the poorer sections of people. This will entail an opening up of the lucrative markets in the West for labour-intensive exports, as well as foreign direct investment with technology transfer. Protection should be specific and for certain periods of time only till Bangladesh becomes mature enough to compete globally. It boils down to appropriate domestic policies gradually effecting a diversified export basket, enhancing production and proper utilisation of foreign investment. The effect of these policies could perhaps be best discussed in the context of specific sectors.
   Mobile telephony and the readymade garment sector are, without a doubt, two of the most vibrant sectors in Bangladesh. They also aptly demonstrate the typical characteristics of their respective sectors — services and manufacturing.
   While the textile sector generates substantial employment, especially of women, and has consequently, albeit by default and not by design, contributed significantly to their financial empowerment, it is still grappling to get a firm foothold in the international market dominated by larger manufacturing economies. As such, the textile sector displays the typical characteristics of an emerging industry in a populous country with abundant labour supply. Although not to be condoned, it is quite predictable that the labour force will be optimally exploited.
   Some two million people, of whom 90 per cent are reportedly women, are said to be employed in about 4,000 garment factories across Bangladesh. The garment sector is also the largest foreign currency earning sector of the country, contributing about 75 per cent of its entire exports. Of the $10.5 billion worth of exports in 2005-06, the garment sector’s contribution was $7.9 billion. The knit sector contributed $3.82 billion and the woven sector $4.02. Thus, even by conservative estimates, assuming that the knit sector imports 20 per cent of its raw materials and the woven sector imports 40 per cent, the garment sector also contributed at least $2.4 billion to the country’s imports, possibly constituting one of the highest importing sectors.
   Although the woven sector has grown by some 13.5 per cent and the knit by about 35.4 per cent, the workers in that sector are yet to be given even the most basic rights enshrined by the laws of the land. The current minimum wage of Tk 930 (barely 50 cents per day at current rates) has not been revised in the last 10 years, and despite regular meetings of the Minimum Wage Commission, there are no signs that this will be re-adjusted to a reasonable level any time soon. While the workers want the minimum wage to be Tk 3,000, the owners suggest some Tk 1,230, and have even rejected the government’s compromise figure of Tk 1,800. Apparently, it is the factory owners’ position that they would rather keep their factories closed than agree to a minimum wage of Tk 1,800 per month, which would be equivalent to about 85 cents! There is of course no reason to believe that the working conditions or workers’ rights — maternity leaves, overtime, regular payment of wages and weekly holidays — will be duly ensured.
   This emerging sector, notwithstanding its substantial and valuable contribution to our country’s macro-economic stability, will presumably continue its current practice.
   The disconcerting aspect of the industry is that despite an increase in its export volume, Bangladesh factory owners fail to earn as much as their counterparts in other exporting countries, and even those in the subcontinent. Besides their inability to bargain with their buyers, the factory owners have not tried to diversify their production lines. Even within the garment sector, Bangladesh’s main exports remain restricted to a few low-end lines that are typically ‘high volume, low value’. According to some estimates, an import ban on .01 per cent of US tariff lines can adversely affect the sector by up to 40 per cent in terms of money earned.
   While general incentives such as tax holidays and exemptions, cash incentives and back-to-back letters of credit remain in force, there has been little government effort to encourage high-end production, increased value addition or attainment of labour standards through precisely directed and effective incentives. The exporters have thus remained contented with their handful of production lines and have not felt the need move to more value added production or develop backward linkage to ensure higher value addition, since the government has given no signs of discontinuing its incentives.
   The low pay of the workers is likely to have a negative effect on the industry when all the safeguard measures on China, restricting it from full-fledged exports to the US and the EU, are lifted in 2008. The state of the garment workers has not been able to attract better human resources and their skills are still not at a par with their Chinese or Thai counterparts, which will be necessary for high-end production with increased value addition. Unless that is done, Bangladesh will remain at the bottom of the pile while other countries move on to the high-end markets offering them larger profits. That it has not happened is clear from Bangladesh’s trend of increasing export volume and comparatively decreasing prices.
   At the other end of the spectrum are the mobile telephone companies. Mobile telephony is a thriving market at the moment and, with a potential customer base of 2.5 crore, the five operators have barely achieved 50 per cent of their full potential. A sixth company is expected to launch operations by the end of 2006, which only indicates that the market is far from saturated. This service sector also exhibits a classic sign of how competition can indeed increase consumer welfare. Subscription fees for each connection went down from Tk 1,50,000 to Tk 50 in a matter of about 10 years as, with each new entrant, competition increased and prices fell, including the air-time rates.
   This sector, the four private operators combined, has seen substantial amounts of investment, to the tune of $445.113 million in the last ten years. The companies have also remitted some $257.968 million in those ten years. As with any typical service industry operating under an inefficient regulatory regime, that too an impotent one, the mobile sector has exhibited sufficient signs of huge profits after several years of expansion and consistent investment. Their trend of profit repatriation had almost become threatening, considering that Grameen had only begun to remit almost exponentially increasing amounts of foreign currency, till Sheba was taken over by Orascom which launched the Banglalink brand, which, fortunately for the domestic economy, was considered a potential threat by Grameen. It is perhaps due to Banglalink’s entry and Warid’s expected entry that the remittance figures are still at a tolerable level.
   Grameen’s remittances had increased 11 times from a paltry $5 million in 2000 to a whopping $56 million in 2003. The flow, it may safely be presumed, was thwarted by Banglalink’s entry with substantial funds and aggressive marketing that in fact changed the scenario. Grameen’s remittance decreased slightly in 2004 and dipped quite sharply in 2005 when Orascom was investing heavily in its network and infrastructure. It can be safely assumed that Grameen has merely switched to re-investing its profits. It can be said that Banglalink is also instrumental in hastening the attainment of the critical mass of 10 million mobile subscribers. It should be noted that Aktel’s remittance figures are also on the rise. Its remittances went from only $0.354 million in 2001 to $17.25 million in 2005 while its investments are dwindling.
   In all probability, and once the customer base is more or less saturated, the private mobile operators will begin to remit their profits, seriously threatening the national foreign exchange reserves.
   According to figures in February 2006, the four companies have a total of 416 service centres, averaging almost 27,000 customers per centre. Grameen has the highest ratio, averaging about 15,800 customers for each of its 380 ‘help desks’ that provide after-sales service. CityCell’s six centres average over 83,000 customers each, AkTel’s 20 centres average 1,60,000 customers and Banglalink’s 10 centres are each supposed to cater to the needs of over 1,50,000 customers.
   The concerned regulatory authorities only hope that with increased competition the quality of this service will also increase, but stop short of stipulating concrete numbers or ratios.
   Despite generating such a remarkable volume of revenue, the entire industry does not directly employ more than 15,000 persons.
   Investment regulations in Bangladesh not only allow tax holidays and income tax exemptions but they also have no bars on the proportion of profit repatriation. Investors are also allowed duty-free imports of any or all of their raw materials with no requirement to procure a certain portion locally. Provisions for mandatory technology transfer are non-existent. Neither of these companies are asked to float their shares with the stock exchange nor subjected to an obligatory re-investment of a certain portion of the profits.
   Given the overly liberal provisions for investment, foreign or domestic, investors are only required to re-invest a meagre percentage of their investment that has been exempted from taxes. Foreign investment in a certain sector, or at a certain level of a certain sector, does not contribute to horizontal or vertical spill-over in such a scenario, and as far as mobile telephony is concerned, it provides employment to some individuals.
   The complete lack of performance requirements, quite unlike many other developing countries, allows large corporations not to share their profits with the general public. It also means that there will not necessarily be any redistribution of wealth from this robustly active economic sector that has so much potential for growth and prosperity even in a poor economy like Bangladesh.
   These provisions, coupled with heavy foreign debts, have led to larger outflow than inflow of foreign exchange. According to reports, foreign investors repatriated $3.626 billion, 81 per cent of their total investment of $4.457 billion between 1996 and 2005.
   As mentioned before there are no laws protecting the consumers’ interest or their rights. More often than not, corporate commercial interests override public concerns and their welfare even in social sectors such as health and education. The regulatory bodies are often understaffed and inefficient, if not inept as well. There is little visible effort to ensure that the corporations conform to their implicit contract with the customers, be it in service delivery or sale of manufactured products.
   The establishment, both political and bureaucratic, are still overwhelmed by the financial might of the business houses and cannot do much despite their sincere intention, if there is any at all in the first place. The more compelling reason for the authorities not being able to do much are the liberal policies and regulations that have been enacted and implemented and were the basis of contracts with foreign investors. These policies must also bear in mind Bangladesh’s situation in a practical manner. It might very well be that excessive performance requirements could discourage investment. But as they stand, the policies do not seem to have much balance or coordination among them, which provides a certain direction for the economy.
   The government export policy 2003-2006 earmarks five sectors as high priority with a list of incentives they will enjoy.
   These include software and ICT products, agro-products and agro-processing products, light engineering products (including auto-parts and bicycles), leather products and high-priced readymade garments. Besides, it designates some more sectors as special development sectors. These include pharmaceutical products, cosmetics and toiletries, luggage and fashion goods, electronic products, cards and calendars, stationery products, silk cloths, handicrafts, herbal medicines and medicinal plants.
   The Bangladesh investment guide, mentioning some 16 thrust sectors, also includes jewellery and diamond cutting and polishing.
   The incentives, both for the high priority and special development sectors, include project loan with lower interest rate on priority basis, income tax exemption, financial incentives including cash assistance, export loan on easy terms and lower interest rate, air transport facility with exempted transport fare, tax return/bond facility, assistance for setting up infrastructure and related units to reduce production cost, expansion of institutional and technical facilities for developing product quality and quality control, assistance in marketing products and assistance in exploring markets abroad.
   The mere division of ‘high priority’ and ‘special development’ sectors bears little significance since their incentives are similar. Moreover, these incentives do not have any numerical indications.
   The government’s import policy, which could be crucial in providing protection in certain sectors while fostering competition in others, is at the mercy of the international financial institutions that keep insisting on a continuous lowering of the import tariff ceiling. The government complies with the prescriptions since they are attached as conditionalities of each tranche of loans.
   The last budget session saw a reduction of import tariffs of over 3,000 products. These also included such agricultural products as onions, turmeric, ginger and lentils, apparently in a bid to contain their rising prices. However, there has not been any initiative to increase the domestic production of these essential items. It appears that the government would rather import essential food items that are already being produced in the country instead of attempting to increase local production and reduce dependence on imports.
   The government’s approach to a liberalised import regime is evident from the preface to the current import policy, valid between 2003 and 2006. It reads, ‘Consistent with the changes in the trend of world trade with the conclusion of the Uruguay Round of Multi-lateral Trade Negotiations and creation of the WTO at the close of the 20th century, Bangladesh has been pursuing steps towards liberalisation of her Trade Policy.’
   Bangladesh, being a least developed country, is exempted from all reduction commitments that are obligatory for developing or developed countries under the multilateral framework of the World Trade Organisation. The general membership of the trade forum does not expect that any of the LDCs will attain a higher level of liberalisation until the richer members have themselves done so.
   The preface goes on to state, ‘This Import Policy is being published at the beginning of the 21st century, also (sic) keeping in consideration the impact of free global trade on the garment sector of the country after 2004. However, protection policy to a bare minimum has been pursued, considering public health and security as well as social, cultural and religious norms and bindings. In the formulation of this new Import Policy Order all the commitments made by the past and the present governments under WTO agreements have been duly taken care of, as the three-year Import Policy Order can, by no means, be kept outside the principles and objectives of those commitments.’
   This part is a blatant lie, since the Bangladesh government, previous or present, does not have any commitments whatsoever, so there is no question of acting upon them either. It is obvious that the liberal stance and the emphasis — ‘protection policy to a bare minimum has been pursued’ — is only made to appease the lending agencies and organisations.
   Surprisingly, in all these policy documents there is no mention of any service sectors, except of course diamond cutting and software development, although services account for a major portion of the global trade volume. But none of the policies gives any indications about the government’s willingness to nurture and foster a service industry, even for a niche export market.
   In the prevailing global economic order, manufactured and agricultural items, although providing employment to large numbers of people, are bound to face continuously deteriorating terms of trade. But high-end machinery, equipment and services seldom face such an adverse situation even during global recession. While a robust agriculture and manufacturing sector are essential for such a populous country as Bangladesh, thriving service industries will actually make the difference and reduce the gap with other economies. India has demonstrated how that is done quite well.
   Considering the economic regimes of successive governments, it is more likely that the domestic economy has an outward orientation with an emphasis on increasing exports, although critics point out that such economies, especially in the developing world, are more susceptible to external shocks than those that have a higher domestic orientation. But if outward orientation is indeed the chosen solution, Bangladesh’s survival in the global economy will depend not how much is exported, but what is exported.
   Tanim Ahmed is assistant editor, New Age

by Titu Datta Gupta

The countries around the globe have official statistical agencies that release economic data, and independent researchers and analysis groups give their views on those figures. Their analysis and forecast may go against the official ones, but they seldom question the authenticity of the major economic indicators measured by official agencies, because very few agencies can afford to have the individual network to collect the huge mass of data on all the economic and trade activities of a country.
   Bangladesh can be cited as an exception where economic figures are more often than not contradicted by local researchers, although they do not have enough data of their own to substantiate the reasons for their disagreements.
   The investment data, for example, are subject to open debate and contest. The latest arguments between the Board of Investment’s chief and an independent research organisation were some of the most acrimonious in recent times. The debates were not confined to figures. At one stage, five trustees of the research agency were dragged into a defamation suit for (mis)reported remarks which, the BoI chief claimed, marred his personal dignity.
   Contesting official data has become a fashion for a section of local researchers and groups. Such attempts are intended more to gain space and air-time in the media than to help people understand the real economic trend of the country. These researchers can read the pulse of the media, which usually loves to make headlines out of negative aspects. Wide media coverage also gives them a strong basis for the external exposure that they need to sell their services and expertise abroad.
   Debating on figures without substantiation and thus making front-page headlines may give pleasure to researchers and analysts. But these exercises, instead of helping the foreigners and even the locals to get the real picture of the country’s economy, add to the already existing confusion over economic data, which are sometimes contested by the finance minister himself.
   Lay-people do not have enough interest in the textbook analysis of economic indicators. For them it is important to understand the real implications of those figures in our everyday life and affairs.
   For example, take the case of inflation, which has become almost a household word for people who read newspapers. Econometric technicians might find it foolish to define inflation just as an index of rising prices, ignoring a lot of other underlying causes. But, to most of us, inflation means a general and sustained increase in price levels.
   When the Bangladesh Bank or Bureau of Statistics says inflation stands at 7 per cent, we find it difficult to believe that prices have risen by only 7 per cent from last year’s levels. Economists and analysts, who often appear in the news reports, should help the common people understand what this figure actually means. They may investigate whether it is 7 per cent or 17 per cent and give rise to academic debates with their own findings. But people would like to see the sort of analysis that tells them the real impacts of inflation on their day-to-day life and how these impacts can be minimised.
   When official data shows the country received, say $500 million, last year in foreign direct investment, analysts can tell people whether or not it helped the economy and how, whether the amount is concentrated in a few areas, in which sector the country needs more investment, and so on. People don’t really want to hear debates over the figures, the method of compiling the figures and whether they came from Bangladesh Bank’s balance of payment data or Board of Investment’s real FDI survey.
   Economic figures alone have no real meaning to people unless they relate to life and activities one way or the other. Economists and the media should link the figures to their implications to public life.
   Official data may claim per capita income has gone up to $500 over the years. But what does it mean to a lay-person? Someone is earning less than 50 cents a day, another $1,000 a day. Statistics will tell you the average income is $500.25. Economists can use the media to tell the people that the average income is rising, but at the same time the rich-poor gap is widening fast. They can identify where the gaps are more crucial and how they can be narrowed.
   If the Bureau of Statistics says that GDP grew by 6 per cent this year, it may make the finance minister upbeat and the multilateral lending agencies happy. But to many others it is confusing. Economists can tell people where the growth really took place, who were benefited and who were left out, and how the results of growth can be distributed equitably. They can also help the people understand why Bangladesh needs more growth and by how much, why China’s 10 per cent plus GDP growth is a threat to the world economy, and why a mere 2 or 3 per cent growth is enough for Europe or America.
   Economists can also explain how growth, however fast it may be, is negated by the lack of social incentives needed by citizens for housing, health-care, education, unemployment and old age. Just mentioning in chorus the growth rate and macro-economic stability does not make any sense to people in general.
   Yet we need figures to give others, especially the foreigners, an impression of our economy. When we read in newspapers that Zimbabwean inflation soars above 1,100 per cent, we can have an idea of the fragile economy of the African nation. Economic data must come from official agencies. Only official figures have acceptance worldwide. There are designated government agencies, and researchers can help them gain efficiency to make data more authentic and flawless. Individual researchers or research groups need to do so for ensuring the accuracy of their own studies, since they do not have sources of their own and solely depend on official agencies for all inputs.
   No country can afford to allow individuals or groups to come up with contrasting figures on key economic indicators. The government must evolve a mechanism to obtain integrated data from various agencies and designate one specific outlet to make them public. Local researchers will then concentrate more on qualitative analysis than finding fault with figures and methods. And lay-people will be saved from sinking deeper into the hazy world of economic figures and wallowing in confusion.
   Titu Datta Gupta is joint news editor, New Age

by Nazmul Ahsan

The Paris Declaration, which was endorsed on March 2, 2005 and calls for continued efforts to harmonise, align and manage aid for results with a set of monitorable actions and indicators, can be used to deal with the unimplementable conditionalities the multilateral lending agencies often impose on the government.
   Multilateral lenders and bilateral donors have imposed more and more conditions to disburse loans and grants in recent years, whereas disbursement of funds has seen a steady decline, according to the latest statistics of the Economic Relations Division of the government.
   They released about $6.5 billion between 2001-02 and 2004-05, down from $7.3 billion between 1995-96 and 1999-2000.
   In 2005-06, $1,174.76 million – $895.75 million in loans and the rest in grants – was disbursed in loans and grants, down $313 million or 21.07 per cent from the amount disbursed in 2004-05. In 2004-05, $1,244.21 million was disbursed as loans and $244.22 million as grants.
   ‘The flow of aid has shrunk but the number of conditionalities increased,’ Zaid Bakht, research director of the Bangladesh Institute of Development Studies, said when talking to New Age. ‘The situation can improve if the decisions incorporated in the Paris Declaration is implemented.’
   Sources in the government and the local consultative group of the multilateral lending agencies and bilateral donors attributed the decline in disbursement of external loans and grants to tough conditions, and inefficiency and corruption in the public sector.
   They fear the flow may slow down further if the situations remain unchanged.
   The World Bank disbursed $537.31 million, UNICEF $23.27 million and Japan $36.88 million, down from $696.33 million, $25.19 million, $45.03 million respectively in the preceding fiscal year. The Asian Development Bank and the European Union have, however, disbursed more funds.
   The declaration is an international agreement to which over one hundred ministers and heads of multilateral and regional lending agencies like the World Bank, International Monetary Fund, Asian Development Bank, African Development Bank, Arab Bank for Economic Development in Africa, Council of Europe Development Bank, European Bank for Reconstruction and Development, European Investment Bank and the Organisation for Economic Cooperation and Development signed.
   The finance and planning minister, M Saifur Rahman, also attended the meeting, representing Bangladesh. The representatives of the European Union, the United States, African and Asian countries attended the meeting.
   The declaration calls for increasing alignment of aid with national priorities, scaling up for more effective aid, adapting and applying to differing country situations and establishing mutual accountability.
   The declaration is categorical about reliable indicative commitments of aid over a multi-year framework, and disbursement of aid in a timely and predictable fashion according to agreed methodologies.
   ‘Enhancing the effectiveness of aid is also necessary in challenging and complex situations, such as the tsunami disaster that struck countries of the Indian Ocean rim on 26 December 2004. In such situations, worldwide humanitarian and development assistance must be harmonised within the growth and poverty reduction agendas of partner countries. In fragile states, as we support state-building and delivery of basic services, we will ensure that the principles of harmonisation, alignment and managing for results are adapted to environments of weak governance and capacity. Overall, we will give increased attention to such complex situations as we work toward greater aid effectiveness,’ it says.
   Economists believe tough conditions imposed by the multilateral lending agencies are major deterrents to aid effectiveness and project implementation.
   The lenders often do not release committed funds in time, which has resulted in the accumulation of aid worth about $10 billion in the pipeline.
   ‘Donors and lenders have to be more realistic on imposing conditions, while the government has to be more serious to increase its implementation capacity,’ Zaid said.
   Besides, multilateral lenders, without analysing present and socio-economic realities of the country, have been pressing the government to bring reforms in the financial system and implementing a number of sensitive agenda ahead of the national elections, bureaucrats and economists say.
   The Paris Declaration stipulates that country situation must be considered at the time of imposing conditions or taking commitments from the government for any sort of reforms or implementing conditions at the time of signing loan agreements.
   ‘Developed in a spirit of mutual accountability, these partnership commitments are based on the lessons of experience. We recognize that commitments need to be interpreted in the light of the specific situation of each partner country,’ it says.
   The IMF has recently asked the government to terminate or rationalise the current tax incentive regime to increase tax collection, as the incentives cost the exchequer about Tk 1,100 crore every year.
   Currently, 55 tax incentives in the forms of exemption and rebate exist to give a boost to industrialisation and strengthen the export-oriented sector.
   The chairman of the National Board of Revenue, Abdul Karim, told leaders of the Bangladesh Garment Manufacturers and Exporters Association at a meeting recently that existing tax incentives should not be terminated ignoring the interest of local industrialists and exporters.
   However, the fate of the next instalment of fund under the poverty reduction and growth facility will become uncertain, unless the government at least assure the IMF that it has plans to rationalise the regime and provide an outline.
   The IMF has also asked the government to impose value-added tax on domestic passenger and cargo transport, and to increase gas and electricity prices on a wholesale basis.
   Refusal to put in place any of the prescribed fiscal measures could mean delay in, if not cancellation of, the disbursement of the fifth instalment of the poverty reduction and growth facility and the fourth instalment of the development support credit. The government is supposed get around $210 million from the fund under the two schemes.
   Conversely, implementation of either or both at the fag end of its tenure may lead to serious repercussion in the upcoming general elections.
   A high-powered IMF team is scheduled to visit Bangladesh from September 6 to 13 to review the implementation status of different triggers under the PRGF, sources said.
   ‘It would be suicidal in case the government imposes the tax,’ a high official of the finance ministry told New Age.
   NBR sources said the IMF has long been insisting that the government should impose VAT on domestic transport, which is exempted now.
   According to the macroeconomic framework under the PRGF, the government should have removed the existing VAT exemption by 2005, the sources said.
   ‘The IMF believes around Tk 1,600 crore extra revenue would be generated every year, once the domestic transport sector is brought under the VAT net,’ an NBR high official told New Age.
   Sources in the finance ministry said they would try to convince the IMF on the negative impact for the ruling parties in the next elections, if the new fiscal measures were to be taken.
   The World Bank, without considering the role of political government ahead of the national elections, has asked recently to corporatise the state-owned Sonali, Janata and Agrani banks.
   It has called for a change of status for the banks to private limited companies. The cabinet in mid-August turned down a proposal to corporatise the banks, taking into account the possible repercussion in the upcoming general elections.
   ‘The World Bank said the disbursement of $150 million under the development support credit 3 is linked to reforms in the nationalised commercial banks,’ a finance ministry official said.
   ERD sources say the donors and multilateral lenders have agreed to implement the Paris Declaration, as the government and the donors have jointly prepared the ‘harmonisation action plan’ to implement the mandate of the declaration.
   ‘We are ready to implement the Paris Declaration by implementing the harmonisation plan,’ an ERD high official told New Age. ‘Donors are also keen to the see the declaration in place.’
   Nazmul Ahsan is special correspondent, New Age

by Asjadul Kibria

Remittance inflow has almost doubled in the past five years and was almost four times higher than that of external aid, which registered a marked decline in the same period. While the establishment has causes to frown upon the trend, it may in fact be a boon rather than a bane for the domestic economy.
   Remittance by workers overseas rose to $4.8 billion in 2005-06, up from $2.5 billion in 2001-02. External aid, meanwhile, dipped to $1.24 billion in 2005-06 from $1.44 billion in 2001-02.
   The World Bank says the trend is not unique but universal.
   ‘Migrants officially sent home more than US$167 billion dollars to their families in developing countries this year [2005] – a figure more than twice the level of international aid,’ the bank observes in its recent publication.
   Remittance has become a major driving force for Bangladesh’s economy, indeed. Along with export earnings, which crossed the $10-billion mark, it contributed significantly to buttress the balance of payments, resulting in a record current account surplus of $572 million in 2005-06.
   However, there is a risk in remittance-financed current account. It is a ‘fragile instrument’ as Bangladesh has no real control on its trends and sources.
   The inflow of remittance to Bangladesh actually depends on the whim and will of some countries, the heads of the countries, to be precise, former finance and cabinet secretary to the government Akbar Ali Khan explained at a workshop a few weeks back.
   ‘Any abrupt and whimsical decision by any of them can have a negative impact on the remittance inflow to Bangladesh,’ he said.
   Notably, more than half of the remittance has been sourced from oil-rich countries in the gulf that are run by autocrats.
   Another risk lies in the indifference of the policymakers in Bangladesh. The government has neither any comprehensive plan to sustain the remittance inflow nor any initiative to increase the number of skilled manpower for employment overseas.
   Whatever growth there has been in terms of remittance has been possible because of individual initiatives despite continuous foul play by unscrupulous manpower agents.
   But even Akbar Ali Khan would admit that the most corruption and embezzlement from public funds occurs in the activities or operations of development projects that are often funded by foreign loans and credits. A gradual decline of that source will therefore be much cause of worry for the government because it would have a telling impact on the government’s ability to fatten the pockets of party coterie.
   The World Bank publication identifies exorbitant fees charged by remittance service providers as a major impediment to remittance inflow, especially in case of small earners. It says remittance service providers often charge as high as 10-15 per cent for small transfers, typically made by poor migrants.
   Moreover, it is not always easy for migrants to access remittance services if they do not speak the local language or have necessary documentation. Besides, relatively underdeveloped financial infrastructure in some countries makes it difficult for the recipients to collect remittance.
   All of these are true for Bangladesh and Bangladeshi workers overseas. Many Bangladeshi workers still remit funds through illegal channels even after stepped-up vigilance worldwide.
   ‘The $167 billion figure – double that of five years ago – does not disclose the full extent of remittances to the developing world, as many migrants send money home through unofficial channels,’ the World Bank publication says.
   Meanwhile, the necessity for foreign aid, especially soft loan, has prevailed, primarily to support the balance of payments. Export is increasing impressively and so is import, ballooning the merchandise trade gap along with an increasing gap in service trade. To fill in the gap, Bangladesh needs foreign exchange, which is where foreign aid comes handy.
   The problem with foreign aid lies in the stringent conditions set by the International Monetary Fund, the World Bank and other multilateral agencies. The government of Bangladesh is always driven by a short-term benefit motive and agrees to the conditions without hesitation or delay. However, as time wears on, it fails to meet many of the conditions because of political will. The trend has recently been on display, again.
   The IMF is yet to disburse the sixth instalment of the poverty reduction and growth facility fund, which was due in June 2006. Obviously, the government needs to convince its development partners into expeditious disbursement of committed aid and relaxation of conditions. ‘The more we can access concessional loans, the more helpful it will be to support the balance of payment by reducing the risk of vulnerability,’ Akbar Ali Khan said.
   Although it might be true the government chooses not to tell the public how much each tranche of loan from international financial institutions would cost when their attached conditionalities are analysed.
   If loans are indeed beneficial for the country, the government could well explain, publicly, that the cost of implementing the conditions is outweighed by the amount that comes from abroad. There significant reservations regarding foreign loans and credits. Another point to be in this regard is that conditions of multilateral lending agencies such as the World Bank, Asian Development Bank or the International Monetary Fund stem from a single overriding concern — an open market where private corporations, and preferably those from North, can rule supreme. These agencies have also been instrumental in promoting certain projects that have proved rather damaging for Bangladesh in retrospect.
   The closure of Adamjee Jute Mills, which was brought about by a condition of a World Bank loan and Asia Energy’s open-pit coal mine project that would have been funded by the Asian Development Bank and the UK-based Department for International Development, are two points among many others, some of which have surely remained beyond public scrutiny.
   The Adamjee closure sent a negative signal throughout the country from which farmers, as well as exporters have not been able to recover in the following years, all the while when India has been making remarkable progress in jute exports reaping the full benefits of a heightened demand for natural fibres in the international market.
   The erratic flow of development aid has had even the donors worried. In a working paper, published in March 2006, the IMF has acknowledged that positive impact of foreign aid is limited by the erratic behaviour of aid flow.
   ‘The introduction in 1999 of various initiatives anchored in poverty reduction strategy papers which were aimed at strengthening coordination among donors, improving the design of financial support programmes, and improving domestic records of policy implementation should have led to an improvement in the time series properties of aid flows,’ says the paper, titled ‘Volatility of Development Aid: From the Frying Pan into the Fire?’
   ‘We find no evidence of any fundamental changes in the way aid has been delivered in the past five years. If anything, aid volatility has worsened somewhat and the information value of long-term lending commitments has declined,’ it states.
   The paper concludes that causes of the volatility and unpredictability of aid, and the broader issue of macroeconomic instability in low-income countries, have not been addressed in a systematic manner by the lenders.
   The lenders are of course rightly worried. The later Bangladesh realises that it could well do without whatever miniscule foreign aid it receives could be made up with some constructive efforts to fetch remittance and increased exports, the better for them. Because it would mean Bangladesh would remain in their grips for a longer period to further the Northern agenda through whatever little leverage they might have. It must have been noticed that conditions for foreign aid are becoming stricter as it has declined through the years. They will presumably diminish further with stronger ‘development’ commitments elsewhere that will invariably have a political motive rather than anything else.
   Moreover, despite performing well, and not defaulting on its loans, despite being the ‘good boy’ Bangladesh was overlooked in the Heavily Indebted Poor Countries initiative which wrote off debts of several other countries that lag far behind in the very factors that the lenders will their clients to meet.
   Although the government needs to remind the lenders of their responsibilities and accountabilities when negotiating foreign aid, bureaucrats or politicians choose not to do so merely to ensure that there are, at the end of the year, some development projects open to plunder. The lending agencies are quite aware of the fact and will remain content as long as their agenda to open up the economy is served, no matter what the costs.
   If the government is indeed keen to ensure availability of foreign funds, and it must be, there should be sincere efforts to make remittance service more accessible to foreign workers. The government should also strive to make their lives easier and provide essential services to expatriate Bangladeshis through its consulates. On the home front, there should be strict regulations governing the manpower agents. If expatriate workers are shown even half the reverence that the establishment reserves for the lenders, and accord them with similar fiscal incentives that are showered on foreign investors, homesick Bangladeshi labourers should not think twice to send their money home.
   Bangladesh should also strive to train and develop human resource catering to the specific demands of foreign countries. There should be particular attention for service delivery. With a high percentage of ageing population in the developed countries, demand for nurses and caregivers will certainly rise. The myth about ‘brain drain’ is at least partially demystified with the recent trend of ‘brain gain’ of India. Their manpower exports, and skilled manpower at that, have proven rather beneficial for the economy in more ways than one in the long run.
   But even then, the foreign remittance, being entirely dependent on the free will of individuals cannot be relied upon as a sustainable source of foreign exchange. By the same argument, neither can foreign aid, since it also depends upon the will of the lending agencies, and more importantly upon the commitment of their political masters.
   Since availability of foreign exchange is imperative for economic stability, the government should, instead of hankering after alms from the lenders, look into expanding the export base. It should concentrate on developing high-end manufacturing base or a service sector that would not be susceptible to external shocks. But those are long term plans and given the current scenario the government cannot, but depend on whatever little foreign aid it receives along with the hefty remittance inflow.
   To that end, it needs to improve internal governance, which is key to redressing the risk of remittance and the decline in foreign aid flow for long-term sustainability of the economy.
   Asjadul Kibria is senior staff correspondent, New Age

by Khawaza Main Uddin

Bangladesh is yet to assess the real benefits of small and medium enterprises despite its silent growth and the government declaring it a thrust sector in view of its potentials and attention of various players, including entrepreneurs and multilateral lenders.
   In fact, the small and medium enterprise sector seriously suffers from formal access to financial services in the country although arrangements are being made of late to ensure funds from banks and non-financial institutions for setting up or running small and medium enterprises that are yet to bring expected results.
   These small enterprises are the ‘missing middle’ of funding as they can neither access formal lending from financial institutions in absence of collateral nor are they entitled to borrowing from the micro-finance institutions that are active at different parts of the country. While many an SME has grown, banking mainly on individual savings or funding from family and friends, the crisis of finance in the sector was rather a case of allocational failure of the market.
   The contribution of the sector to the national economy is not significant. The industrial sector contributes about 30 per cent to the gross domestic product, in which the share of manufacturing sector is 17.05 per cent but the official statistics available have not shown any separate calculation for the SMEs.
   In the last fiscal year, Bangladesh achieved over 10 per cent growth in manufacturing sector and its driving force are the woven and knitwear garment sectors both of which arguably belong to the SME sector. According to the 2003 national private sector survey of enterprises in Bangladesh, the SME sector was responsible for around 40 percent of gross manufacturing output.
   The contribution of the SME sector to the GDP, in unofficial statistics, presented by business leaders representing the sector, is claimed to be around 25 per cent.
   In rough estimate, the SME sector employs over 80 per cent of the industrial workforce and the number of units — both formal and informal — is believed to be about 60 lakh across the country. The private sector survey has shown that the SME sector comprises about 79,754 establishments while a lender-driven estimate has found some 2,00,000 companies in the SME category in Bangladesh.
   Whatever the number, the sector is now considered a key means for sustainable employment generation and economic expansion especially in a densely populated country like Bangladesh.
   The government is contemplating establishment of a number of industrial clusters for small and medium enterprises to ensure collective approaches for procurement and marketing of products as well as giving buyers an easy access.
   The prime minister has recently announced that the government would soon establish an SME Foundation and set up an SME Women Entrepreneurs Forum, the national network institution to facilitate businesswomen.
   The government has also taken an initiative to frame a separate SME policy, which is however a part of the current industrial policy, to help enhance the SME units across the country at a time when neighbouring countries have already taken some concrete steps to promote the sector.
   But the policy direction is more ceremonial than anything else. A perfunctory perusal would suffice to illustrate the point. Besides stating ‘the present government has identified the Small and Medium Enterprises as a priority sector and as the driving force for industrialization,’ and that a national taskforce led by the Principal Secretary of the Prime Minister’s Office has been formed with regard to policies, there are little other stipulations.
   It goes on to state that the government would ‘provide special facilities as well as infrastructural support to Cottage and Small and Medium Enterprises’ and ‘take action to use solar power and municipal refuse to generate electric power’ to run these establishments.
   In a separate chapter on the small and medium enterprises the industrial policy identifies over 30 industries as small and medium enterprises. In doing so it obliquely precludes the possibility other industry to be recognised as an SME.
   The policy also reiterates the government’s acknowledgement of the importance of SME and reaffirms its commitment to further facilitate the sector, but falls short of spelling out any industry or area specific incentive of measures.
   The industrial policy, concluding the brief chapter, reads, ‘SMEs will be established on a greater scale across the country in order to bring about poverty alleviation, unemployment reduction and creating more employment opportunity so that national economic growth can be attained.’ Apparently the government has taken an initiative to draw up a separate policy governing SMEs.
   It remains vague from industrial policy exactly how the government wishes to develop and enhance the small and medium enterprises so as to how the sector would take off and emerge as a major driver of the economy. The decisions of neighbouring countries are more concrete and seem to be guided by a more concrete goal that stems from a more serious planning exercise. As for Bangladesh’s policies they remain rhetorical.
   In India, the finance minister, P Chidambaram has recently asked the banks to step up loans to SMEs, announcing a package that envisaged 20 per cent increase in credit flow to the SMEs. Loans to the SME units would be around 1,35,000 crore Indian rupees by 2009-10 fiscal.
   In Pakistan, which has recently formulated a uniform definition of SMEs by taking a vigorous initiative, SMEs contribute around 30 per cent of the GDP and $2.5 billion to the manufacturing sector’s export earnings.
   Given the prospect and growth of the SME sector, the International Finance Corporation had in 2002 launched SouthAsia Enterprise Development Facility targeting efforts towards greater SME financing from local Bangladeshi banks.
   The Bangladesh Bank had, in the 2004-05 fiscal, introduced a scheme of Tk 100 crore to offer refinancing facility to scheduled banks and financial institutions against their loans to SMEs. Till March this year, the central bank distributed over Tk 190 crore from this fund.
   The World Bank, under the enterprises growth and bank modernisation programme, has provided $10 million, and the Asian Development Bank, under SME sector development programme, has approved $30 million of loans to extend credit facilities to SME entrepreneurs.
   A few banks such as the BRAC Bank and the Eastern Bank currently provide a special service named SME banking. Several foreign banks are also engaged in SME banking currently.
   It is clear from the executive decisions and the vague policy directions that the government is under an impression that all the SMEs need is some capital. Surely easier access to credit would go a long way in boosting the performance and growth of the SME, but credit alone cannot ensure that they thrive in the longer term, especially when faced with huge volumes of cheap imports from abroad.
   The government cannot expect the sector to withstand competition in an increasingly liberalised economy without providing some sort of protection and necessary services.
   Moreover, if the SME sector is expected to generate reasonable amounts exports on top of generating employment, they would have to be assisted by state supported research and development programmes. These small enterprises do not possess the capital or resources to engage in serious research and development. Pending state assistance in research and development, the government should identify specific sectors to promote provide them with time bound protection in which time there should also be programmes to enhance the quality of their products in order for them to be able to compete in the international market.
   Khawaza Main Uddin is senior staff correspondent, New Age

by Farida Chowdhury Khan

How do NGOs differ from the public and private sector? What do they have in common and what is their raison d’etre?
   Economics would have us know that there are two basic kinds of goods and services — private goods that lend themselves to production and consumption by private agents, the analysis of which constitutes most economic theory, and public goods, which differ from private goods in that they are non-excludable and Non-rivalrous. When they are provided, everyone has the right to consume them and can do so without competing with each other. A “pure” public good has this distinction. The reason why public goods cannot be provided solely through the market and on the basis of profit maximisation is because the demand curve for a public good is not available as a signaling mechanism for sellers (Buchanan, 51-55). This is because when public goods are available to one, they are available to all. For example, in the case of a highway when it is made available to the general public, it cannot exclude anyone (even if we include a nominal toll paying mechanism which does not reflect the marginal cost of providing the highway). Therefore, no single consumer has the incentive to reveal his or her marginal utility from such consumption and contributes to the free rider problem, an associated distinctive feature of public goods.
   Education and health are not pure public goods in the above sense but are goods with substantial positive externalities for society and have often been publicly provided in liberal, modern, and affluent societies, and their colonies, and now in post-colonial societies in developing nations. In most economies, K-12 education is considered a public good and, therefore, can be non-excludable to a degree and non-rivalrous to the extent that enough buildings, supplies, and teachers are available.
   Are there any goods that we could call pure public goods? Defense or police protection is often cited as examples but if a country attacks another country without general consensus on the basis of a decision by the “leader”, whom is defense serving? If it serves the will of a selected group, then the utility from the offensive attack for some can conflict with the utility from averting the attack that others would have had, and hence consumers can compete for “defense” in the sense that one group may want the funds to be spent on keeping soldiers within national borders and another may want such funds to be spent on sending soldiers out for an offensive attack. It is well known that police protection is available in certain neighbourhoods more reliably than others — as is police harassment! In that case, who consumes the good and who does not?
   So if there are no pure public goods, which goods can we call public goods? Perhaps those we also call “social services” — defense, police protection, legal systems, basic education, basic health services, roads and highways, street lights, bridges, and the like —what we might call the fundamental physical and social infrastructure of a democratic society that has the resources to provide such goods.
   If these social services and public goods are therefore the same, the key point being that market provision of these goods is never adequate and the marginal social benefit exceeds the marginal private benefit, then it is the goods themselves and the nature of their utility to society that makes them public goods and certainly not who provides them. The free rider problem exists if the market tries to provide some of them (roads, defense) and the market under-provides those that can be individually consumed — schooling or health services. In either case, there is market failure in the general provisioning of social services/ public goods.
   In most industrial market economies these goods are provided by the state or by a combination of state and private production. It should be noted that often private production of these goods occurs because public provision is not deemed adequate by those who can afford to pay for better quality and larger quantity of these goods — private schools and colleges (the price of higher education in most countries is higher than K-12 and/or college is rationed through entrance requirements). Health on the other hand is paid for privately through the purchase of health insurance in the United States by those who can afford this, and not really paid for per unit consumed but rather per unit of expected consumption for the entire group of people purchasing a particular health insurance.
   In Bangladesh, basic health and education as well as other social services (legal services, finance at market rates) are underprovided through the state as well as the market. The inadequacy in such provision is complemented by private production for those who can afford to pay — upper classes and middle classes have always paid for better schooling where admission criteria included having a certain cultural trait: carrying the markers of belonging to the middle class. However, another new group has come about since the mid-twentieth century, particularly in the last quarter, and mostly in the last decade of the twentieth century. They are the non-governmental organisations (NGOs) or non-profit organisation that are not part of the state or international governance bodies. They are private groups with the agenda of providing social services — essentially public goods that are underprovided - but not operating with a profit motive. Some of their common features are that they are established with specialised public grants, often international, and that they strive to be financially sustainable in their operations by emulating the efficiency of the private sector, for instance, by taking on the organisational structures and culture of private institutions.
   NGOs have been largely in the business of social infrastructure provision, trying to create literate, healthy, civil societies through the provision of what we could call public goods that are routinely provided by the state in affluent liberal democracies, primarily because the state does not have the resources to provide education and health in a widespread manner to a large and poor population. In Bangladesh, Bangladesh Rural Advancement Committee (BRAC), the largest NGO, provides 31,000 schools. While NGOs provided health services alongside the state since the 1950s, their activities were primarily limited to awareness raising and facilitating linkages with rural health centers and it is only recently that NGOs have started to establish their own hospitals and have attempted to subsidise health care for the poor. NGOs also run nutrition and water and sanitation projects, as well as projects for emergency health relief or those countering the spread and effects of cholera or AIDS. NGOs have also started to provide childcare centers and schools in garments factories, thereby producing services not available from the market and subsidising garment factories by making productive women workers available for work on a regular and non-distracted manner.
   Together with the state, NGOs provide the same safety nets in Bangladesh and, increasingly, in many Third World countries, that the state provides in developed nations. An observation by Zohir (2004) is that these NGOs have been able to tap into existing community networks and, therefore, have been more efficient in the distribution of services than the state has. Thus the private NGO is contrasted to the inefficient public sector. However, the NGO is also seen to undertake “socially conscious investment” that is too risky and has too low a return for the private sector but also has substantial employment generating and community building effects. In this manner, the NGO serves the public good in a way that the private sector does not. Clearly, NGOs exist on the scale that they do because there is market failure and state failure in the supply of public goods/social services. The state fails because the poor who are not served cannot represent themselves to stake out their rightful share of resources as citizens. NGOs therefore come to the rescue. They create civil societies of a new kind — a population that knows it has rights to social services but that the representation of those rights is enabled through the NGO.
   NGOs also serve another subtle purpose; they are a constant reminder of the inability of the state to perform its economic functions and the need to privatize these functions. It is little wonder then that multilateral financial institutions and donor groups both fund and encourage the presence of NGOs. If anything, such a presence reduces the bargaining power of the state to negotiate borrowing conditions with donors and renders the state a superfluous body with an insignificant role and little credibility. That a democratic government is ultimately accountable to its people to provide public services in an adequate manner continues to remain an impossible idea. The corruption problem and public governance problem are both bred against the backdrop of the socially efficient NGO.
   While the contribution of NGOs to the economy of Bangladesh is substantial and cannot go unrecognized, it should be noted that a social cost of NGOs is a building of civil society founded on the notion of the “failed” state. Certainly, patriotism in the United States could not have flourished if the United States government had not been the overwhelming producer of social services, in spite of its inability to provide adequate health services to its citizens. Although there has been a rise in the presence of church groups and a general social entrenchment of neo-liberal rhetoric against big government, the public sector keeps growing in size. Perhaps both developed countries and NGOs can impart to us the important lesson that there are such things as public goods and it is ultimately the responsibility of our government to provide these to the general public in an inclusive and accountable manner.
   Farida Chowdhury Khan is professor and chair of economics, University of Wisconsin-Parkside. This paper was published in the Journal of Bangladesh Studies (volume 7, number 2)

by Anu Muhammad

Modernisation theorists, in the late forties and through the fifties, worked extensively on theorising development agenda where they focussed on the scarcity of capital as one of the major constraints in the development of post-colonial Third World countries. WW Rostow, in the early sixties, termed capital the ‘missing component’ for these countries. Modernisation theorists prescribed capital inflow from capitalist economies as an almost sure remedy. Foreign Aid (FA) and Foreign Direct Investment (FDI) have always been considered to be obviously crucial in development discourses of Third World countries according to the modernisation paradigm.
   It has always been argued in modernisation theories and in the views held by the second generation theorists that capital inflow, in either form, would be essential for Third World countries to boost their economies and break the vicious circle of poverty and underdevelopment. FDI, according to this dominant view, will contribute in the economic development of the ‘underdeveloped’ countries in different ways. It will bring in foreign currency along with the latest technology, skilled manpower, new ideas and modern management; it will also create conditions for strengthening and expanding the productive bases of the host economies. With these assumptions strongly glued to the FDI discourse, it has been a custom on the part of policy-makers, and a large segment of the economists and experts, to hail FDI uncritically.
   Up to early nineties the so-called foreign aid, in projects and otherwise, dominated the external sector of Bangladesh. Since the eighties the remittance of foreign exchange has been showing significant growth. Gradually it has captured the highest position in foreign exchange inflow. In fact this source is the only real one for ensuring foreign exchange inflow into Bangladesh. FDI has been showing a significant rise since 1993. First it was in the Karnaphuli Fertiliser Company (Kafco) and then FDI showed significant rise in the oil and gas sector followed by power and telecommunications. Kafco is still a big liability for the country, as are quite a few other deals.
   Therefore, with practical experience in Bangladesh at hand, if anybody goes by objective facts and logic, the established hypothesis will be proved to be a manufactured myth. We clearly find that the FDI per se cannot ensure or cannot help the economy to develop and industrialise itself. It is not the quantity of FDI but the quality — that is the terms and conditions, areas and objectives — that determines whether it ends with disaster and high human costs or adds anything productive. In this article an attempt has been made to examine whether optimum utilisation of natural resources correlates with the present form of FDI. It is an attempt to understand the whole scenario, exploring the economics and power matrix behind the crisis where natural resources seem to have appeared to be a liability and a source of danger to the people of Bangladesh not due to lack of FDI but because of it.
   
   Concept of common property
   The concept of common property is important in discussing the issue of natural resources. Common property is property that is owned by all; nobody in a country can be excluded from the ownership and authority over that property. Natural resources like gas and coal are common property owned by the people of Bangladesh. The government of Bangladesh, therefore, is supposed to be a protector of this common property and caretaker of that resource. Any attempt to transform the common property into private property, that is privatise the common property, must fulfil two conditions: firstly, it must be in the interest of the economy and the people, and secondly, it must be approved by the people, the real owner.
   Different studies on common property at the micro-level found that the common people have little access to common property. Common property like natural resources deserve further attention, because at the micro-level common properties are being grabbed by local powers, and at the macro-level common properties like mineral resources are being grabbed by global powers. Many instances are available from different parts of the world in this regard. These global powers are mainly the big corporate bodies supported by powerful states and global institutions like the World Bank, IMF and ADB. If we look deeply into the implications of foreign aid we will discover its role in shaping ‘reform’ policies to the advantage of the donors and weakening national institutions in order to facilitate big corporate bodies and to open up common property to big business. Evidences clearly show that FDI in the energy sector comes not through the invisible hand of the market process, but through strategic intervention by the visible fist of global institutions, the managerial bodies of global corporate power. Let me explain.
   
   Foreign ‘Aid’ as a tool for problematic FDI
   The first elaborate discourse by the World Bank on the energy sector of Bangladesh was made in 1982. It was a report of the Joint UNDP/World Bank Energy Sector Assessment Programme. The report was kept secret as were most of other reports of these agencies. It was based on the findings of the Energy Assessment Mission undertaken in October 1981. It should be noted that similar reports were also issued at the same time on Indonesia, Mauritius, Kenya, Sri Lanka, Zimbabwe, Haiti, Papua New Guinea, Burundi, Rwanda and Malawi.
   The report seemed certain about the size of the gas reserves, even though no scientific analysis was cited. Even 10 trillion cubic feet (TCF) of gas was considered to be ‘substantial, economically recoverable natural gas reserves’ and, according to their estimate, ‘at present consumption levels would last for several decades’. The report then urged the concerned quarters to make ‘rapid and effective use of this major resource’ as it could be a ‘crucial element in alleviating the country’s current payment’s problems and enhancing its energy outlook’. The report also suggested the means by which Bangladesh could take advantage of these resources, saying that ‘given Bangladesh’s limited capability in mounting an exploration programme on its own, it would need to make concerted efforts to secure the participation of foreign oil companies in this area’. Moreover, it continued, since ‘the supply of gas is likely to remain well in excess of Bangladesh’s expected internal needs for a substantial period of time’, they offered different export options.
   A similar pattern existed in the pronouncements of the Asian Development Bank. It proceeded with a major energy study and an update of the power sector master plan in the same year as the World Bank. Its report was even more specific about the ‘most effective use of the gas resource’. In the same report, the Asian Development Bank also informed us that, ‘Energy projects have generally been quite popular with a number of donors…’
   Things followed accordingly. Since 1993 many Production Sharing Contracts (PSCs) were signed for leasing out different oil and gas blocks to international oil companies (IOCs). These were kept secret and hailed as a big success and a big step forward to ‘development’ of the country. FDI increased dramatically from the mid-‘90s. Presence of multinational corporations (MNCs) in gas, electricity and telecommunications became visible, and new contracts were being signed in those sectors. According to the World Bank’s estimates, since 1996 the annual averages of the highest capital inflows of FDI took place in the gas sector ($134 million) followed by the power sector ($113 million) in 5 years’ time. In the same period local institutions and specialised agencies were facing fund shortage, brain drains and government non-cooperation.
   What actually happened in the process of this so-called development? The consequences may be summed up as follows:
   The successive governments signed contracts to purchase our own gas at an average of Tk 200 when it was possible to get it at less than Tk 30.
   The governments signed contracts to buy our own gas with costly foreign currency from the IOCs or MNCs when it was possible to get it with local currency from the country’s own company.
   The governments chose to bring IOCs to explore gas when BAPEX, the national exploration agency, had the ability to do the same.
   The governments continued signing contracts even after it was found that further production of gas would be highly problematic with the existing infrastructure.
   The governments signed contracts to exhaust limited and non-renewable resources within a few years’ time, thus depriving the people of fuel, electricity and gas-based industrialisation.
   The governments turned common properties into private properties that are virtually owned by the IOCs.
   If we retrace the steps taken by the World Bank and the Asian Development Bank in the energy sector we find the following results:
   Step 1: The Study on Energy provided a policy prescription to restructure public institutions in order to create space for foreign private investment.
   Step 2: It argued that foreign private investment would provide an inflow of foreign currency, would ensure remarkable development of the energy sector and would contribute to the development of other sectors as well.
   Step3: It advocated raising the price of gas and electricity.
   Step 4: MNCs started operating here. According to the contracts, Bangladesh started purchasing its own gas at prices more than double of the local price and with foreign exchange. The national exploration agency has been kept idle. Budget deficit and pressure on our foreign exchange reserve has increased. Similar things happened in the power sector. Profitable Petrobangla became a losing concern when MNCs started operating.
   Step 5: Further increase of the price of gas and export of gas is proposed to avert further crisis!
   The results of these steps have been disastrous for the economy and the people. Because, (1) prices of gas and power are continuously increasing, and as a result of that (2) cost of production at every level has increased, which resulted in the fall of the competitiveness of Bangladeshi goods; (3) hard earned foreign currency is being used to purchase the gas and electricity which could be bought with local currency at a much cheaper rate, (4) local production establishments are being dismantled and skills are being lost through disuse; (5) losses of BPDB and Petrobangla are going from big to huge; (6) privatisation of these institutions was suggested as a solution; (7) our resources have become a huge liability.
   But these adverse consequences were seen as a ‘major step forward’ in the ‘reform processes’ by creating a congenial atmosphere for FDI.
   After analysing all the revealed facts, it can be easily concluded that the whole FDI scenario in the gas sector does not stand up to scrutiny. The FDI that took place in the gas sector was not warranted considering the local capability and demand-supply scenario. Moreover, this FDI, which became functional through PSCs, (i) had an adverse impact on our foreign exchange reserve instead of making foreign exchange more available, (ii) instead of developing capabilities it negatively affected local expertise and institutional capability, (iii) adversely affected the resource balance and caused rise of the gas price which, through the multiplier effect, caused a rise of production costs in different sectors and an erosion of our competitiveness, (iv) and finally it obstructed optimum utilisation of gas resources for the Bangladeshi people and the economy.
   
   Coal scenario and Phulbari verdict
   The Phulbari coal-field is the latest discovery among the four coalfields found in Bangladesh since independence. Contracts or deals on this field were no exception, were done secretly, and have still not been made public. The so-called energy adviser confessed that the coal exploration deal with Asia Energy was anti-state. He also said, ‘People who were involved in signing the anti-state agreement should be tried.’ But we saw later how Mahmood himself sided with these ‘anti-state’ people.
   Despite the government’s denial of any final contract for production of coal, the Asian Energy Co (AEC) has been waging a ceaseless propaganda blitz since 2005 to give an impression that it has been promised the lease of the Phulbari coal-field. The way AEC has been operating in Phulbari, the way it has been making statements to the media, the way its local experts and employees have been engaged in a large-scale publicity campaign may be lead one to believe it had received the lease for mining. Using multi-coloured and attractive brochures and leaflets published in both Bangla and English for projecting the Phulbari Coal Mine Project, big bounties and bright prospects have been brandished for the consumption of the general masses. The publications carry a lot of illustrations. The pictures show men, women and children with smiling faces surrounded by green paddy-fields. These pictures are indeed the opposite of what is going to happen because of this one-sided deal. The smiles will die along with the green paddy-fields because of the project.
   The AEC was preparing itself for open-pit mining. It said in its documents, ‘Mining by the open cut method is new to Bangladesh, but it is a proven and highly productive and safe method in similar geological and hydrological conditions in other parts of the world such as Australia, India, Indonesia and Germany.’ It goes without saying that projecting such a sweeping comparative statement as expert opinion is ill-motivated. Leaving aside other criteria, the population aspect in Phulbari is entirely different from the reality in other countries like Australia or Germany.
   The AEC further stated in defence of open-pit mining: ‘Adoption of this method will permit the fullest extraction of coal resources, and will augment duration of the mining period and thus enhance socio-economic opportunity, income prospects and gains for the Bangladesh economy.’ It was not made clear who would bear the cost and who would be the beneficiaries of this ‘fullest extraction’!
   It was conceded in the AEC’s own publication that the ‘initial open cut will cover an area of about 2,000 hectares. Over the life of the project, a total of some 10,000 hectares will be required for the mine and associated infrastructure. This means that there will be loss of agricultural land and that people living in the eastern part of Phulbari and in a number of outlying villages and homesteads will have to be relocated…As the mine advances during the first 5 to 10 years, between 15,000 and 20,000 people will have to be resettled, and over the 30-year life of the mine the total number of people resettled could be in the region of 50,000. Population displacement is likely to occur mainly in Phulbari Township and also in some of the villages of the upazilas of Phulbari, Birampur, Nawabganj, and Parbatipur.’ From the local government offices’ data we find that the number of people who could be evicted goes beyond 1,50,000!
   Not vitally needed agricultural land alone will be lost. ‘A number of local roads, the regional Bogra-Phulbari-Dinajpur road and the north-south railway may need to be relocated.’ Besides, ‘The groundwater level will require lowering in the vicinity of the mine in order to maintain dry and safe working conditions.’ The issue has not been further elaborated on for fear of exposure of the danger and disaster this de-watering will cause.
   In another publication of AEC, we find some more partial facts and statements of possible social distortion and economic losses and damages.
   It is eventually estimated that an area of 10,000 hectares of land may be needed, a part of which will be engulfed by the mine pit. Other areas would be consumed for making roads inside the mine area, offices, workshops, stackyards for excavated soil and rocks, and some areas would go under the re-located railroad and national highway, and yet some more areas would be used for resettlement of the uprooted people. The areas to be appropriated for the purpose will spread over the upazilas of Phulbari, Birampur, Nawabganj and Parbatipur.
   It is estimated that a part of Phulbari town, some wards and villages belonging to Phulbari Municipality, and the unions of Hamidpur, Joypur, Khanpur, Khairbari and Shibnagar would come under the mine’s area. A little part of the unions of Golapganj, Aladipur and Daulatpur would also be used. Nearly 10,000 homesteads and business establishments, along with trees, would become victims and would require relocation and settlement.
   Some community buildings like schools, colleges, hospitals, mosques, temples, churches and community property like bazaars and graveyards would be affected, requiring relocation and rehabilitation.
   Even these catastrophic effects cover only a part of the story. The damage to earth formation and losses to human beings, current and long-term, have not been taken into account.
   Let us now look at the quantum of gain and quantum of loss of the economy of Bangladesh that will be caused by the deal with AEC. The latest figure for the extractable quantity of coal in Phulbari is 572 million tonnes. Besides coal, the mine contains high-grade silica (sand), ceramic clay, Madhupur clay and gravels and rocks of high quality. The AEC claims that only 10 to 20 per cent of the coal can be mined if the tunnel system of extraction is used. The percentage of recovery rises to 70-80 per cent if the open-pit mining method is adopted. In the initial stage of the project, annual coal production will be nearly 1.5 million tonnes and by 2011 the figure will rise to 15 million tonnes. The plan is that 12 million tonnes will be exported per annum of which 4 million tonnes will go to India. Only 3 million tonnes will be available for consumption in Bangladesh.
   Now let us consider the coal-only scenario. At the rate of Tk 50 billion per year, AEC can make an income of Tk 1,500 billion or 1,50,000 crore takas in thirty years. Within a few months AEC’s investment fund was shown to be increased by Tk 70,000 crore or 856 per cent. In the latter account the cost of machinery and equipment was shown at Tk 13,000 crore, and the balance is operating costs which include salaries, travel expenses, refreshment, etc. Siphoning of money outside the country of investment after artificially inflating the figure is an oft-practised ploy. Even if this discrepancy is ignored and the latter higher figure is assumed, the profit comes to nearly 100 per cent. If the previous figure, which is possibly nearer the truth, is taken into account the profit goes up to 1,621 per cent!
   On the other hand, Bangladesh will receive, by way of 6 per cent royalty and taxes, $7 billion or Tk 48,000 crore in thirty years, which amounts to a little over Tk 1,500 crore per year. In this context it should be noted that currently the export earning of Bangladesh has exceeded Tk 60,000 crore per year. Bangladeshis working abroad send foreign exchange remittances worth around Tk 30,000 crore per year. The AEC claims that its project will give a fillip to the Bangladesh economy, but the income that Bangladesh will get from AEC over 30 years is less than one year’s export earning or 2 years’ worth of foreign remittances by Bangladeshi expatriates. What can be the economical and social cost to Bangladesh in making the above income? AEC gave a partial projection but it refrained from drawing the full picture or telling the whole truth.
   According to AEC’s own estimate, the coal-field will extend over 135 square kilometres. Again, the area, which can be affected directly or indirectly during the mining operation including de-watering, will be nearly 656 sq km. This area is very fertile, paddy output is extremely high, and nearly all the land yields three crops per year! The people inhabiting the area are very active economically. The business activities in the non-agricultural sector are also expanding fast, and the density of population is very high. Because of the coal-mining operations, the production activities of the entire area in agriculture, livestock, fisheries and forestry will be totally destroyed and will remain unproductive for an indefinite period! The products here include Aman, Aus, IRRI and Boro varieties of rice, wheat, mustard, potato, corn, banana, sugarcane, jute, chilli, garlic, onion, vegetables of all varieties, and numerous fruit-bearing and timber trees. There are also rivers and canals, beels, and fish-farms numbering over a thousand, and farms that rear ducks, hens and cattle, etc. Besides the above, there are many shops, and business and commercial houses. Economic activities in the entire area will come to an end. This is ‘small loss’ in AEC’s eyes. The quantum of loss has not been figured out by AEC but the people of the area have done it. According to their account, considering the adverse effect on production and economic activities, the total loss will be Tk 1,800 crore per annum!
   Even according to the above conservative estimate, our coal resource would be used to build a mountain of profit for AEC, an MNC, at the expense of an ocean of loss to Bangladesh, to the tune of at least Tk 900 billion in addition to the loss of the coal. This predicament was shown by AEC as a blessing for the Bangladesh economy! The figure of loss will swell manifold if the destruction of a large variety of flora and fauna, environmental imbalance and economic uncertainty, along with physical debility of the population now and in the future, is taken into account.
   AEC stated that ‘during the operation of the mine, 2,100 short-term and 1,100 long-term positions would be available for employment’. AEC has been deafeningly silent about the fact that livelihood of over 2,00,000 people will be destroyed by its operation. Furthermore, the few hundred or thousand jobs to be created by them will not be routine or familiar jobs but dangerous ones indeed. Profiteers exclude these costs while figuring out profit or loss!
   If AEC and its local commission agents and collaborators can succeed in implementing their sinister plan, the foreign company will leave our country after grabbing an astronomical sum as profit, and the fawning agents and conniving politicians will be bloated by commission money gorged by them, and today’s green, living and thriving Phulbari will be permanently consigned to the status of a disfigured wasteland. No one can predict what will be the condition of the people remaining in the region.
   
   The right signal
   The Phulbari inhabitant’s uprising and their victory in resisting the AEC’s machinations by sacrificing six or seven lives seems to have halted the implementation of this disastrous project. This project is a project of mass destruction and genocide. The Phulbari people’s verdict has also sent the right signal to the government and global corporate entities, and made it plain that the people of Bangladesh will no longer tolerate plundering and impoverishment in the name of FDI.
   The AEC has caused bloodshed in Phulbari. That this blood of innocent young people will haunt the company’s directors for ever is too much to expect. Corporate characters by their very nature cannot care about the blood of hapless natives who are only fit for exploitation!
   Professor Anu Muhammad is an economist