December 23, 2008 / 11:01 AM / 12 years ago

ANALYSIS-Economy may give Bangladesh winners second thoughts

DHAKA, Dec 23 (Reuters) - Bangladesh’s Dec. 29 parliamentary election has no shortage of eager candidates, but whoever wins may have a few second thoughts when they try to cope with the Indian Ocean country’s looming economic challenges.

Around 40 percent of Bangladesh’s more than 140 million people live below the international poverty line.

Analysts say its economy needs to grow by more than 7 percent a year to become a middle-income country by 2020 and by more than 8 percent to halve poverty by 2015.

To help pave the way for such growth the incoming administration will need to tackle endemic corruption that distorts the economic playing field and scares away foreign investment, work to restore shaken business confidence, create jobs, and boost gas and energy production.

“These should be addressed efficiently to ensure good governance and overcome social, political and economic challenges,” said Wahiduddin Mahmud, a Dhaka University economics professor.

The country’s annual economic growth has hovered around 6 percent over the last few years while soaring food prices pushed inflation above 10 percent in the last fiscal year to June 2008.

And its main manufactured export, textiles, is bound to suffer from the global economic slowdown.

The parties of two ex-prime ministers — Sheikh Hasina’s Awami League and Begum Khaleda Zia’s Bangladesh Nationalist Party (BNP) — are leading contenders in the December vote.

The women and their parties rotated in power over 15 years to October 2006, shortly before political violence and instability led to a takeover in January 2007 by a military-backed interim authority that cancelled an election.

Both parties have pledged to drastically cut food prices if they form the next government.

Some analysts say this may be possible in the short run, not because of government fiat but due to sharply declining food and fuel prices globally, one plus from the worldwide slowdown.

PROBLEMATIC PRICES

However, others say reining in food prices could still be problematic. “These things do not improve overnight,” said Akbar Ali Khan, a former top bureaucrat and government adviser.

He wants government efforts to boost agriculture — the country’s biggest employer — through timely supply of fertiliser and improved seeds, loans to farmers and ensuring facilities to irrigate land at minimum costs.

Of more importance for long-term growth and cutting reliance on subsistence agriculture may be tackling energy shortages that plague the nation’s industry.

“The country must focus on exploration of untapped gas fields both on-shore and off-shore along with development of the coal fields before facing a serious crisis,” economist Mahmud said.

Bangladesh’s proven and recoverable reserves of natural gas, now at nearly 13 trillion cubic feet, will be fully exhausted over about 12 years unless new fields are found and drilled, experts say.

But they warn such fields take time to tap.

“To develop a gas field particularly at sea will take about 9 to 10 years, before it goes into production,” said Jalal Ahmed, a senior energy official.

Meanwhile hundreds of manufacturing facilities, mostly around the Chittagong port city and built at a cost close to $1 billion, are not operating for lack of gas supplies.

“Many investors are just waiting to switch on their machines and counting losses every day,” said Annisul Huq, one of the country’s top businessmen.

Bangladesh currently faces daily shortages of up to 2,000 megawatts of electricity and 250 million cubic feet of gas, officials say.

NO GO FOR COAL

Experts say northern Bangladesh has huge reserves of coal that could be an alternative to gas and other energy sources, but no government yet has finalised a policy to allow foreign companies, viewed as having the needed capital and expertise to tap it, to begin doing so.

The country has five coal fields with around 2.55 billion tonnes of reserves, according to official data.

Economics professor Mahmud told Reuters: “Independent power producers from abroad had dissatisfaction in the past due to a non-transparent and corrupt bidding process.”

“Similar experiences were seen in case of natural gas exploration, which pushed the country in a deep crisis,” he added.

The interim authority has also turned down investment proposals from India’s Tata group and Britain’s GCM Resources Plc (GCM.L), worth $3 billion each, out of concern about possible political backlash.

Tata proposed to invest in steel, power and fertiliser plants that would require up to 200 million cubic feet of gas a day to run, officials said.

“But no government probably can commit (to) this without a national consensus when the country itself is running short of gas,” said a senior official who asked not to be identified.

Another focus for the new government would be trying to keep up or increase the flow of foreign aid, which helps finance many development projects.

Maintaining aid was already a challenge during interim rule as some countries were reluctant to continue or boost help amid uncertainty about follow through on a promised election and restoration of political rights.

While that worry should end with the December vote, the global economic crisis poses a new threat.

“The government must keep in mind that international aid may not be handy in future as the world slips into a deep recession,” analyst Akbar Ali Khan said. (For a related factbox click on [nDHA275570]) (Writing by Anis Ahmed; Editing by Jerry Norton)

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