Joining the middle-income club

Challenges ahead for Bangladesh, as the country moves out of LDC status towards membership of the middle-income club.

Joining the middle-income club
Bangladesh Bank notes. Photo: Glyn Thomas/Alamy Stock Photo

Though economically vibrant, Bangladesh is highly stressed on the climate front, with rising levels of inequality and space for expression in political and civil society becoming increasingly constricted. Amid the economic growth, Bangladesh gained eligibility to shake off its Least Developed Country (LDC) status in March 2018, with final graduation to Middle Income Country (MIC) status expected in 2024. As a result, the country needs to prepare for a future in which exports no longer enjoy duty-free market access to the United Kingdom as well as other countries, and the Boris Johnson government feasibly reduces a robust UK aid programme on the basis that most aid flows are legally designated to countries retaining LDC status.

As Bangladesh joins the middle-income club, investors, partners, and those about to pull the plug on aid to the country, should bear in mind several key factors. First, the profits from growth in Bangladesh have not been evenly distributed — GDP has largely been driven by garment exports, and the availability of cheap labour. Secondly, the protection of human rights will become inextricably linked to economic issues. And third, Bangladesh’s exposure to the climate emergency is likely to worsen disproportionately.

Many donors are now reining back funding of their traditional aid programmes in Bangladesh on the basis that the country has entered a phase of development where the government, not foreign donors, should be taking more responsibility for public investment, particularly on the back of a growing, albeit increasingly marginalised middle class and its tax resources.

Any donor to Bangladesh should look closely at where its aid programme ends, and new relationship starts. The transition between aid, trade and investment is never going to be abrupt, nor should it be. The European Union, for example, has offered continuation of duty-free access to LDCs for three years after graduation (for Bangladesh this will be in 2027). So far, the UK has not matched any such commitment, despite Bangladesh’s status as a member of the Commonwealth and the inevitable pivot that a post-Brexit Britain will have to make towards non-EU trading partners.

But growth in Bangladesh brings its own particular risks. While the likes of Japan and the UK, struggling to manage the demographic time-bomb, might consider a young population to be a huge economic asset, most young Bangladeshis are not trained to be productive. The asset of youth suddenly presents a very real risk to political stability in the face of denied opportunity. As a result, it is crucial that Bangladesh, like the rest of South Asia, invests more in education and professional skills development to stave off the threat of dissatisfaction and social strife.

Growth may also bring increasing disparity in the distribution of wealth, compounded by further frustration among a squeezed middle class that feels it is losing its voice and its privileges. Social disparity is growing by the day and inevitably this also means that Bangladesh is at risk of going backwards in terms of women’s empowerment.

Over 80% of Bangladesh’s workforce is engaged in informal employment. Uneven, non-inclusive growth cannot be sustainable if the economic model is based on a race to the bottom, the cheapest prices and often harsh working conditions. Despite its remarkable surge in GDP, over 40 million Bangladeshis are still living below the poverty line. Inclusive growth is now imperative, targeted at and benefiting the more vulnerable, the less powerful, and more women.

Depending on how we calculate aid flows, the UK is often considered the largest donor to Bangladesh. Yet alarm bells will ring as the UK switches its relationship from development partner to trade partner. Bangladesh already falls far short in terms of the number and maturity of its civil rights institutions, as well as the development of norms and standards that afford the necessary protections from human rights abuses demanded by the civil society in a maturing democracy, and the protections demanded by those workers who form the backbone of an exploitative economy predicated on fast fashion.

NGOs are urging the British government to stay engaged on the aid side for at least another five years, at a bare minimum to continue funding programmes to support vulnerable families and those dependent on the informal labour market that is driving Bangladesh’s economic growth.

Intriguingly, some countries like China and India have enjoyed generous amounts of overseas development assistance beyond LDC graduation, as part of the UK’s effort to retain influence with globally significant players. Despite the emerging economic superpower status of these countries, not to mention British taxpayer disenchantment, successive British governments have justified the goodwill their ongoing largesse has presumably bought by channelling ongoing aid to areas like climate change and public health that it defines as borderless challenges.

The Bangladesh government and its international partners should make every effort to broaden their offer in sectors such as agro-processing and information and communication technology (ICT) that have great potential to stimulate training and inclusive growth in Bangladesh.

The UK’s funding to NGOs in Bangladesh should include smaller organisations that can help build a strong, vibrant civil society so the people can develop the means to challenge and hold their government to account, and not rely — or be forced to rely through lack of options — on foreign human rights bodies to assume this responsibility. There should therefore be a greater focus on the sixteenth UN Sustainable Development Goal (SDG 16), which hopes to “promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.” It is impossible for any country to be fully functional on human rights unless the government is directly accountable to the people, and strengthening in this area should be a crucial aim of UK investment as the UK-Bangladesh relationship morphs from aid recipient to development partner, through to equal trading partner.●

Halima Begum is a political analyst and global development expert who has worked in senior roles at DFID, the British Council and the LEGO Foundation.