Governments love pointing at improvements in the economy during their tenure and suggest that all this is due to their policies, public investments, and other actions. It is true of Bangladesh; it is true of governments elsewhere. It is true now and it has been so in the past.
Of course, some actions of the government may have an impact in the short to medium term. Some may even impact immediately. But in many cases, what you see now can be traced to actions taken many years ago. By the same token, if a government takes some actions today, you may not see its impact, at least not the full impact, during the government’s current tenure. In brief, you may have policies today but see an impact only tomorrow. This is true of both good and bad policies.
So, what can an incumbent government do to leave a positive legacy? First, it can continue the good policies taken by previous governments, building upon these wherever there is a scope. Second, if good policies had been taken by a previous government but were not implemented well, the incumbent government can ensure its implementation. Third, it can do away with bad policies adopted in the past, replacing these with better policies. Finally, it can initiate its own policies and programs.
If we look at the history of policy making in Bangladesh, we see numerous examples of policies or programs initiated by a government, which were not only maintained by the governments that came after, but in many cases were built upon with the policy agenda taken forward. Yes, there were reversals too and I shall talk about these in a later article. Here I would like to show that there are many areas where successive governments have carried forward the baton, amplifying the impact of the policies.
In agriculture
Let us start with agricultural policy. Ensuring food security and reducing poverty was a central goal just after independence. This was to be achieved by increasing agricultural production. Given the limited scope to increase acreage in a land-scarce country, this had to come largely through productivity improvements. Since agriculture could not absorb all rural labour, it was also important to generate non-farm activities in the rural areas.
The rural economy was thus a prime focus of policy from the first decade of Bangladesh’s existence, ie, the 1970s. As the over-arching economic strategy shifted in the 1980s from heavy reliance on the public sector to leveraging the market and the private sector, we see its reflection in the evolution of policies impacting the rural economy. Indeed, it may be fair to say that it is in agricultural policies, especially those related to the agricultural input market, that we see the first big manifestation of the change in the over-arching development strategy towards a greater role for the market.
Several reforms were carried out to liberalize the markets for irrigation pumps, fertilizer, and seeds in the early 1980s. These led to a positive, but inadequate, market response. When agricultural growth stagnated in the mid-1980s, the same government went for bolder reforms to expand space for the private sector in agricultural input markets. These liberalizing policy actions of the 1980s, especially the bold reforms of the late 1980s, can be characterized as market-friendly policies. These helped strengthen the forces of competition in the rural economy even though some monopolistic and oligopolistic practices remained, and many economic transactions were still being carried out on unequal terms.
In industry and trade
Industry came next. The initial strategy, rolled out just after independence, was to use the industrial sector as the lynchpin of the broader attempt to establish a socialist economy. Sweeping nationalizations, especially of industry and banking, lay at the core of this strategy. Following the regime change in 1975, the goal of establishing a socialist economy was abandoned -- this is one of the few examples of a significant change in policy stance in Bangladesh.
However, while policy actions were taken to expand the space for the private sector, this was not to come at the cost of the public industrial sector. Policy actions in the second half of the 1970s consisted of a few business-friendly policies, but fell short of reversing the sweeping nationalizations of the first half. One had to wait for a new decade and a new government to see substantial privatization. This happened in the early 1980s.
In addition, a series of liberalizing measures were taken, modest at first and bolder after the mid-1980s. This further expanded the space for private industry. Political economy factors drove these policies, along with donor pressure. The 1970s was a period of primitive capital accumulation when a critical mass of Bangladeshi businesspeople acquired considerable capital primarily through trading. By the beginning of the 1980s, these people were eager to move into industry which was considered more prestigious. A new military ruler, eager to gain legitimacy and a political base, went for a series of policy actions to win over these aspiring industrialists.
Such a policy stance for the industrial sector may best be described as business-friendly, which makes life easier for businesses, rather than market-friendly, as was the case with agricultural input market liberalization. One area where progress was slow was trade liberalization. Some quantitative restrictions on imports were reduced in the late 1980s, but nothing much was done to reduce the burden of huge tariffs which made imports costly.
Once again, one had to wait for a new government to undertake deeper reforms. The first half of the 1990s saw very substantial liberalization of the import regime, building upon the modest steps taken by the previous government. These reforms focused on tariff reduction and rationalization. The average nominal protection rate fell from 73.6% in 1991-92 to 32% per cent in 1995-96. Later, the rate of progress slowed with increased use of para-tariffs, a case of policy reversal that I shall talk about in a future column.
The trade liberalization measures of the early 1990s can also be termed as market-friendly policies because this enhanced market competition, in this case from imports. This government also introduced the VAT, one of the important milestones in the history of policy evolution in Bangladesh. But it must be noted that initial thinking on VAT had started in the previous government. This is an example of a government picking up an agenda set by a previous government, however incipient it might have been, and running with it.
In telecommunications
The first half of the 1990s also saw the beginning of mobile telephony in Bangladesh with such services being offered from 1993. But here too the beginnings were made by a previous government. The company which started providing mobile telephony services in 1993 was granted the license to do so in 1989 when a different government was in office. While this was a welcome development, there was a problem with the arrangement -- it was a monopoly which charged high prices.
It fell upon the next government, which came to power in 1996, to introduce competition in the sector. It did so by awarding licenses to another three mobile phone operators. The government also started working on the policy and regulatory front. A National Telecommunications Policy was adopted in 1998 and the Bangladesh Telecommunications Act was enacted in 2001.
Despite all this, a decade after being the South Asia pioneer in allowing private entry, Bangladesh ranked last in the region in terms of both coverage and quality of telecommunications services. A major reason for this was a deficient policy and regulatory regime. Notwithstanding the reforms mentioned above, the policy, regulatory, and operational roles of government were not adequately separated in line with international good practices.
The 1998 Telecommunications Policy did call for such separation, but progress was slow. The Bangladesh Telephone and Telegraph Board, which wanted to retain its dominant role in the sector, understandably opposed such a move and was able to persuade the Telecommunications ministry to go slow. An unclear regulatory regime discouraged the private operators from making the lumpy investments needed to help the sector grow. As a result, the increased competition introduced in the second half of the 1990s was not having the desired impact. Bolder reforms were required.
These were undertaken by subsequent governments. The Bangladesh Telecommunications Regulatory Commission (BTRC) was established in 2002, thus formally separating the government’s regulatory role from its policy and service provision role. Donors helped BTRC develop and implement the needed regulations covering areas such as tariff reform, spectrum management, licensing, fair competition, universal access, interconnection, and dispute settlement.
Such measures helped put in place a policy and regulatory framework that clarified the rules of the game for the private operators who now felt comfortable going forward with the required investments. This is reflected in the trend in net inflow of FDI into the telecommunications sector, which is dominated by foreign-owned companies. During 1996/97-2000/01, the sector attracted an annual average net FDI of just under $10 million. As competition was introduced in the sector, there was a significant rise in net FDI flows. Average annual net inflows of FDI jumped to $131m during 2001/02-2005/06, rising further to $336m during 2006/07-2010/11.
In mobile banking
The spread of mobile phones created several opportunities, including in the provision of mobile financial services (MFS). In 2011, the government carried out regulatory reforms to enable the provision of such services. By issuing the "Guidelines on Mobile Financial Services for the Banks" in September 2011, the central bank sought to create space for the delivery of MFS, which was expected to particularly benefit those with inadequate access to financial services. Banks could now provide mobile banking services through regulated subsidiaries.
The market response to the 2011 reforms was swift and impressive. Within two years, ie, by the end of 2013, there were 188,647 agents and 6.5 million active MFS accounts. In December 2013, Tk66.4 billion changed hands through such transactions. The amounts have increased 10 times in 10 years: By May 2023, the number of agents had increased to 1.57 million, active accounts to 66.5 million and monthly transactions to over Tk1000 billion. It is clear that the 2011 regulatory changes enacted by Bangladesh Bank has had a far-reaching impact on the economy and on the lives of many ordinary Bangladeshis. The pioneering reforms of 2011 built upon reforms enacted by several previous administrations and were followed by additional legal and regulatory actions over the past decade.
Finally, one word on the ambitious economic zones program. The previous government set the ball rolling by enacting an Economic Zones Act in 2008. The current government ratified the Act in 2010 and has since then taken the agenda forward in an impressive manner. It has put in place the institutional and regulatory framework for the program, licensed a number of private zones, built several in the public sector, and attracted billions of dollars of investment into the zones.
These examples of policy and regulatory actions show how in many areas, policies evolved over time with successive governments taking steps to advance the agenda, building upon what their predecessors have done. Thus, all the good things we see in the economy today can’t be attributed to one government alone. It is the result of a collective effort over many decades and many administrations.
By the same token, we have not yet seen the full impact of the policies and programs being taken by the current government. We have begun to see some benefits from the ambitious infrastructure investments of the current government, but this may be just the tip of the iceberg. In the case of mobile financial services, we have seen very substantial results but even these may pale in comparison to what could come later.
As Ronald Reagan used to say “You ain’t seen nothing yet!”
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Syed Akhtar Mahmood is an economist, previously with an international development agency.