DHAKA — For Bangladeshi businessman Mahbubul Alam and many of his countrymen, the future is suddenly an open book.
Until a week ago, this South Asian nation of 171 million was under the firm grip of Prime Minister Sheikh Hasina and her Awami League. Her increasingly autocratic governance stifled discussion of change even as cracks in the country’s economic model began to spread.
But following a short student-led uprising, Bangladesh now has an interim government headed by Nobel Peace Prize-winning economist Muhammad Yunus and a diverse, nonpartisan team of activists, academics and retired officials, including former central bank chief Salehuddin Ahmed.
As a result, even Alam, head of the country’s main business lobby group, is embracing the idea of radical change.
“It’s a new Bangladesh,” Alam, president of the Federation of Bangladesh Chambers of Commerce and Industry, told Nikkei Asia. “The spirit of the youth who fought to bring change and the experience and connections of the Nobel laureate with the global community will help achieve an economic revolution.”
Bangladeshis celebrate the ouster of Prime Minister Sheikh Hasina on Aug. 5 in front of her vandalized portrait in Dhaka. © ReutersAlam, who owns companies exporting steel and shrimp and another importing pharmaceutical ingredients and packaging, is keenly aware of how dependent Bangladesh is on international trade and of the impact of the bloodshed Hasina unleashed as she fought to squash the student movement.
“Our image abroad has experienced a big blow,” Alam said. “Since Dr. Yunus is a globally acclaimed person, we need to utilize his image to regain confidence among the international community.”
All told, at least 400 students and other demonstrators were killed over the course of nearly three weeks of clashes with security forces and Awami League toughs. To try to contain the protests, initially sparked by the restoration of quotas reserving most civil service positions for the children of veterans of the country’s 1971 war of independence and other favored groups, Hasina’s government imposed a curfew and cut off internet services for 10 days.
The unrest also affected air and sea traffic in and out of Bangladesh. The Foreign Investors’ Chamber of Commerce & Industry has assessed the economic impact of the turmoil at over $10 billion.
The timing of the blow is awkward for Bangladesh. The country is less than halfway into a three-and-half year, $4.7 billion financial aid program that the International Monetary Fund launched to alleviate the squeeze on Bangladesh’s finances from the impact of the Ukraine war and the COVID pandemic.
Despite the cash infusion, Bangladesh’s foreign reserves continue to decline. As of the end of June, its remaining holdings were enough to cover only 3.3 months of imports, according to rating agency S&P Global, which downgraded Bangladesh two weeks ago.
S&P forecast that further net outflows will shrink the country’s import cover to 2.6 months over the next two years. Within the same time frame, Bangladesh is also set to lose the trade preferences that undergird its exports of clothing to Europe, the country’s main source of foreign exchange.
Yet sensing Hasina’s exit as a moment of opportunity, many are optimistic about where Bangladesh is headed. The DSEX Index, Bangladesh’s stock market benchmark, rose 15% last week over the four trading sessions following the prime minister’s departure for India.
“You always have to be hopeful,” said Sohela Nazneen, a Bangladeshi development scholar now with the U.K.’s University of Sussex, before detailing a list of areas needing attention including depoliticizing institutions like the police and judiciary and setting in motion an inclusive democratic process to create a new governance framework since the major political parties have been discredited.
“We also have to ensure the economy is stable,” she added.
Students direct traffic in Dhaka on Aug. 8 in the absence of police: Many Bangladeshi institutions are in need of depoliticization. © ReutersTo some observers, the challenges look all too daunting.
In an update on Aug. 7, S&P said the events of the preceding week in Bangladesh had “further undermined sovereign credit support” and that the protests had “exacerbated downside risks to economic growth, fiscal performance, and external metrics.”
Hasnain Malik, managing director for emerging and frontier markets strategy at investment research company Tellimer, called the transition so far “deceptively swift and smooth” in a note to clients.
“In a nutshell, the unity of the army leadership, student protesters, and opposition parties behind dethroning Sheikh Hasina and the Awami League may prove fleeting,” he said, warning of the powerful “impulse for retribution.”
Within Bangladesh’s business community, many worry that the effects of the unrest could linger.
The internet cutoff was particularly devastating for the country’s fledgling IT services industry, which competes with India in serving international businesses.
“The internet is the lifeline of our business,” said Russell T. Ahmed, president of the Bangladesh Association of Software and Information Services. “As the internet connection was cut suddenly, I could not even let my buyers know about the situation by sending an email.”
While estimating the business impact from the first five days of the internet cutoff at 5 billion taka ($42 million), Ahmed worries that many clients will abandon Bangladesh. “Our competitors are always luring buyers by saying that Bangladeshis have no predictability,” he said.
Hundreds of IT workers temporarily crossed into India and Nepal to access stable internet connections, according to the Bangladesh Freelancer Development Society. Even when internet service was restored in Bangladesh, Hasina’s government continued to block certain social media platforms including Facebook. The e-Commerce Association of Bangladesh calculated the cost of such disruptions at $150 million.
Garment manufacturers, whose earnings are crucial to the flow of foreign exchange into Bangladesh, are worried about losing business to overseas rivals, too.
MB Knit Fashion, a producer of shirts and pants based on the outskirts of Dhaka, finalized a $1 million order for a U.S. customer just before the internet was cut off. Managing Director Mohammad Hatem, who also serves as executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, said the client then put the order on hold amid the uncertainty that enveloped the country.
“This is happening now in the case of most apparel exporters,” Hatem said, warning that industry orders could fall 30% to 40%. “Foreign buyers have lost confidence in Bangladeshi manufacturers.”
The timing of the turmoil has been terrible for clothing companies as August is usually when international buyers place orders for the northern winter holiday shopping season.
“The medium- and long-term impacts of the latest disruptions will be huge as the whole world saw what happened in Bangladesh lately,” said Nasir Khan, vice president of the Leathergoods and Footwear Manufacturers & Exporters Association of Bangladesh.
S. Ahmed Mazumder, who heads up a trade group for companies making bags and other products from jute fibers, said many buyers were already shifting orders to Indian producers. “The buyers are highly concerned since many factories have failed to send goods on time,” he said. “They will rethink placing fresh orders in future.”
Bangladeshis gather outside the president’s residence in Dhaka on Aug. 8 as Muhammad Yunus is sworn in to head the interim government. © APEven before the unrest, American companies were beginning to favor India over Bangladesh for clothing orders, according to a survey by the U.S. Fashion Industry Association conducted between April and June.
Survey respondents rated India higher in terms of vertical integration, minimum order size, flexibility and speed. With respect to Bangladesh, the association said in its report on the survey that “the high social compliance risks involved in sourcing from the country remained a key concern.”
Meanwhile, amid last month’s bloodshed, the EU said it would postpone a negotiating round scheduled for September on a partnership and cooperation agreement that would potentially allow Bangladesh to preserve preferential access to the bloc’s clothing market. Citing “the prevailing situation,” EU spokesperson Nabila Massrali said no new date had been set.
Yet some observers expect export orders to quickly rebound.
“Of course, Bangladesh is no stranger to political unrest — if stability was a big concern for investors, it is unlikely they would have entered the country in the first place,” wrote economists Gareth Leather and Shilan Shah of Capital Economics in a client note last week.
“It’s very hard to find another Bangladesh today,” Tellimer’s Malik told Nikkei, referring to the country’s combination of a large, young, available workforce and attractive wages. “Today, it’s not replaceable.”
Even so, the new government faces the challenge of bringing down inflation and youth unemployment while working to diversify business investment and exports and widen its tax base.
Ruchir Desai, a fund manager with emerging markets-focused group Asia Frontier Capital, is optimistic about Bangladesh, given the groundwork laid by reforms Hasina’s government adopted in May under IMF guidance. These included relaxing controls on the movement of interest rates and exchange rates, reducing energy subsidies, increasing the autonomy of the central bank and improving the transparency of economic data.
“Bangladesh has already done much of the hard work,” Desai said. He expects more reforms to come in the following months in areas including banking, telecommunications and stock trading. “That should all be positive for the economy overall.”
Much of the hopes for the future are riding on the 84-year-old shoulders of Yunus, who has taken the title of chief adviser to the government at the request of leaders of the student movement and with the consent of Army chief Gen. Waker-uz-Zaman.
Yunus and his team have so far said little about plans for the economy so far. “This is our responsibility to build the new Bangladesh,” Yunus said on Saturday after meeting with the family of Abu Sayed, one of the first students killed by police during the protests.
Three days earlier, as he prepared to return from France to Bangladesh, Yunus said: “This is our beautiful country with lots of exciting possibilities. We must protect and make it a wonderful country for us and for our future generations.”
Muhammad Yunus with student activists after landing in Dhaka on Aug. 8: He has so far said little about plans for the economy. © ReutersYunus is best known for his work with Grameen Bank, which traces its origins to small unsecured loans he began making to poor families in 1974. The microcredit model he pioneered has since spread to more than 100 countries.
Referring to this model, Yunus told Nikkei Asia in 2020, “The financial system of the new economy will be dominated by social business banks and financial institutions which will be based on zero personal profit.”
In his 2017 book, “A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions,” Yunus wrote, “The existing capitalist engine is producing more damage than solutions.” He called for a “redesigned economic engine” based around social business, entrepreneurship and supporting “people at the bottom of the economic ladder.”
Syed Nazrul Islam, first vice president of the Bangladesh Garment Manufacturers and Exporters Association, is among those counting on Yunus’ prestige to bring better days.
“We are hopeful that he will be able to strengthen Bangladesh’s economic base using his connections” with the West, he said. “We believe the country will go forward by making good use of his connections.”
source : asia.nikkei