Tensions subside in Bangladesh, but is turmoil over?

Tensions subside in Bangladesh, but is turmoil over?
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Bangladesh has been embroiled in a destructive political turmoil for the past three months. Widespread political agitation, sporadic incidents of violence and arson, and breakdown of the societal structure have all cost the small nation an estimated Tk 49 Bn (USD 630 m).

Located on the banks of the fertile Ganges Delta in the Bay of Bengal, Bangladesh has historically struggled with poor governance, military coups and political instability.

This troubled political combination has resulted in a weak economy, with the domestic infrastructure bereft of development and abundant cheap labor for external manufacturers – the primary source of Bangladesh’s GDP.

The present political impasse ensues from the historic rivalry between the two principal political parties of the country, the ruling Awami League, led by Prime Minister Sheikh Hasina, and the opposition leaders Bangladesh Nationalist Party (BNP), headed by former Prime Minister Khaleda Zia.

The two have allegedly not met face to face, or spoken for the past 20 years, although they have shuffled power for roughly the same time. But the recent bout of violence has been the result of the fiasco of the 2014 general elections.

BNP chief Khaleda Zia recently returned to her residence after spending 92 days in her Gulshan office, making a stopover at the Dhaka court to get bail for the arrest warrants pending against her. This marks a major change in the opposition’s game plan, having seemingly realised the futility of a long drawn countrywide blockade.

These indicators suggest political dissent is soon coming to an end. Zia’s latest move, the appearance at the Dhaka court, and moving back to her residence is being widely lauded as the right direction for BNP to pursue.

Zia has realised that the BNP is losing public support, and the long drawn-out protests and demonstrations no longer offer any achievable objectives.

Fielding candidates to the upcoming city corporation elections, slated for the end of the month, will allow the BNP to get back into the political setup, and, maybe, win back some of the public support it may have recently frittered away.

The BNP may have reined in its more violent demonstrators, but the seeds of dissent have already been sown. Political parties now know that public, violent demonstrations are an option, at least whenever engaged in a political tussle with the government at the centre.

The Jamaat’s latest countrywide hartal, with sporadic incidents near the capital, is clearly a leaf taken out of BNP’s game book. And therein lies the problem.

For a purely manufacturing-based economy, regaining investor confidence after this political debacle is a mammoth task. The following table gives an approximation of loses across all the industries in these past 3 months.

According to Bangladesh’s Centre for Policy Dialogue (CPD), the three month long turmoil has resulted in the loss of approximately .55 percent of the GDP. Cutback in remittances, falling euro exchange rates, sluggish demand for apparel in the US markets, and a significant decrease in export growth have all added on to Bangladesh’s woes.

Despite the political turbulence, Bangladesh continues to enjoy relative macro-economic stability in the form of low inflation, manageable fiscal deficit, stable exchange rate, and favourable balance of payments position.

However, unless the government makes policy and infrastructural reforms to incentivize investments, the private sector will remain an under-performing avenue, and will stall further growth.

For local manufacturers, the real reason to worry is the presently disrupted supply chain mechanism (and the similarly affected transport and communication lines). Reestablishing business outreach will take time, while the aforementioned sectors continue to take losses.

For most CPOs, the major risk factors in Bangladesh revolve around a few select points. Stability of infrastructure is the biggest concern to external buyers. Road/rail connectivity, port facilities and utilities are all affected by the political tensions, and are therefore the biggest risk to the apparel sector.

Other worrisome factors include supplier performance and workforce supply, and procurement of raw materials.

With the increased cost of imports and the projected increase in labour compensation, Bangladesh will have to strike a balance between its manufacturing output capability and labour, utilities and infrastructure development, to sustain a its growth model.

Manufacturers will have to make money from their efficiency and quality, and not low wages. Sourcing of raw materials has to be processed domestically, as opposed to importing from India and China, to cut down on sourcing costs.

In the past decade, Bangladesh has made commendable development in domestic industrialisation, with a progressive economic upsurge. But should the political impasse continue, the country would end up as just another land of lost potential.

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