The Interplay between Corruption and Development: Bangladesh’s LDC Graduation

Bangladesh has become a bit of a surprise for the international community. As measured by the UN, the country looks likely to be promoted from least-developed country (LDC) status to middle-income economy by 2024 due to its better health and education metrics and decreased economic vulnerability. The rate of poverty has fallen from 44.2 percent in 1991 to 14.8 percent in 2019. Also, other indicators such as life expectancy, literacy rate and per-capita food production have dramatically improved in the past few years.

The country has witnessed something of an economic boom. GDP growth over the past decade has averaged 6.5 percent. Most recently, the Asian Development Bank (ADB) estimated growth for the 2019 fiscal year at 8.2 percent, the highest in the Asia-Pacific region. Additionally, per-capita income increased from US$1,610 in 2017 to US$1,698. The country is visibly modernizing through a series of mega-projects, including the US$12-billion Rooppur nuclear power plant, the US$3.6-billion Padma Bridge, and the US$2.6-billion first phase of the Dhaka Metro.

Development despite corruption

Bangladesh’s evolution toward middle-income status may surprise those who still associate the country with such problems as deep poverty, famine, military coups, poor governance and corruption and are unaware of the strides that the economy has made in recent years, particularly in trade and investment. In the 2019 Corruption Perceptions Index published by international anti-corruption advocacy group Transparency International (TI), Bangladesh ranked 146th out of 198 countries and territories surveyed. This was up three places from the 2018 index, but lower than where it had been ten years earlier (139th out of 180).

The transformation of the Bangladesh economy challenges the World Bank orthodoxy that corruption is among the greatest obstacles to economic and social development. Adherents to this view point to the estimated US$20-40 billion stolen each year in low-income countries and to empirical studies that have found that corruption slows down economic growth. But since the 1960s, there is a school of thought in development studies that argues that corruption and development can co-exist, with bribery actually oiling the wheels of progress.

Bangladesh’s rapid economic growth in recent years raises an important question: How has the government managed to reduce poverty despite the prevalence of severe corruption?

Ready-made garments  The ready-made garments (RMG) industry in Bangladesh is worth US$30 billion annually, representing the output of the more than 4,600 member companies of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA) and their over 3.6 million employees. Bangladesh accounts for 6.5 percent of the global RMG market and is the second-largest apparel supplier in the world after China. Due to low wages and global demand for “fast fashion”, this sector is booming and making a significant contribution to economic development.

Foreign direct investment  FDI has been accelerating at a significant pace, especially in sectors such as power, food, banking, garments and textiles, and telecommunications. Net inflows in 2019 reached US$3.89 billion, compared with US$700 million a decade earlier. In 2016, the government set up the Bangladesh Investment Development Authority (BIDA) to broaden foreign investment into sectors that could drive new growth such as agribusiness, garments and textiles, leather goods, light manufacturing, energy, information and communications technology (ICT), and infrastructure. 

Regime longevity

The significant increases recorded in these three areas coincided with the election of the still-incumbent government in 2009. Prime Minister Sheikh Hasina Wazed, her ruling Awami League and its Grand Alliance partners are the longest continuously serving government in Bangladesh history. Regime longevity means political stability, which provides the time to build reputations, relationships, confidence and trust between public- and private-sector actors. Frequent regime changes since Independence in 1971 – sometimes abrupt and violent – had hampered the country’s political development.

In 1990, Bangladesh began a transition from military dictatorship to quasi-democratic rule. The country endured several government changes, which inevitably prevented policy consistency and hampered economic development. The political and administrative stability achieved over the past decade, arguably at the expense of a weakened and suppressed opposition, has therefore been a major factor in turbo-charging Bangladesh’s economic performance.

State of corruption

Bangladesh has experienced massive corruption from the country’s start. The establishment of a Dhaka office of TI in 1996 helped shine a spotlight on the issue. From 2001 to 2006, Bangladesh received the lowest score on the TI Corruption Perceptions Index that measures perceived levels of corruption in the public sector. Corruption at both petty and grand level has become severe and the change of government in 2009 made little difference. Instead, corruption became more systematic and the volume of grand corruption increased at an alarming rate. Since 2010, there have been several major fraud and corruption cases involving a triangular nexus of politics, business and the bureaucracy, and entities such as the Bismillah Group, Basic Bank, Hallmark Group, PK Halder and the Dhaka Stock Exchange.  

The NIS was rolled out in 2012 to launch an anti-corruption drive, setting out ten areas for action in the public sector and six in the private sector. Public-sector salary was doubled, many government departments went digital, and several state and non-governmental organizations fostered civic engagement to prevent corruption. The impact of these initiatives, however, was minimal, and they failed to prevent corruption in any significant way.

The anti-corruption efforts in Bangladesh have been driven mainly by following a donor-prescribed templates which do not provide for local solutions to local problems. These initiatives have had limited success because they have merely copied flagship campaigns that have not yielded meaningful results. They look good on paper but lack proper implementation.

The failures can be attributed to four factors: patronage-based politics; the “triangles” of political, bureaucratic and business elites; a lack of strong political will among government leaders; and the ability of policymakers to deploy a range of strategies to blunt anti-corruption efforts. Then there are micro-level problems such as the lack of resourcing for institutions which has severely reduced the effectiveness of any initiative they pursue.

Graduation – without redemption 

Bangladesh’s evolution from least-developed country to middle-income economy is a transformation that should be welcomed by both the elite and the masses. But it should not be regarded as a good-governance seal of approval. The country’s development strategy with its tolerance for rampant corruption may be yielding positive results but this may not be sustainable in the long run.

Recent Bangladesh Bureau of Statistics (BBS) data have shown that the gap between the rich and poor has widened significantly. This indicates that an elite group of people are accumulating wealth faster than the majority of citizens. The severe economic shock from the Covid-19 pandemic has underscored the consequences of having a health sector dominated by the business community and how coronavirus infection hotspots such as garment factories are in the hands of the very same elites. They have been able to counter any efforts to shut down these locations of potential virus clusters. As of July 15, Bangladesh has had 194,000 Covid-19 infections and 2,457 deaths. It has so far failed to flatten the curve of new cases. This has exposed how inefficient and dysfunctional governance systems can fumble badly in a crisis. Without a genuine anti-corruption effort, Bangladesh’s economic development, while impressive on paper, in reality remains fragile and brittle.