Two recent lists show just how wide the gap is between Bangladesh's promise and its performance. In October, Berlin-based research organization Transparency International declared Bangladesh to be the most corrupt nation on Earth, along with Chad.

Then last month Goldman Sachs Group Inc. included it in a list of 11 developing countries that, according to its analysts, have the greatest potential to emulate the long-term economic success expected from China, India, Brazil and Russia.

Goldman's vote of confidence was entirely unexpected. What payoffs can investors expect from a country where the average daily income of citizens was just $1.20 last year? As Slate magazine summarized the current U.S. view of Bangladesh last month: "To most of us, Bangladesh seems like a remote mess -- poor and devoid of natural resources.'...

Bangladesh is also overpopulated

Some 144 million people, equivalent to about half of the US population, live in an area the size of New York state, situated on the Bay of Bengal and bordering India and Myanmar. Floods ravage the Bangladeshi economy once a year; corruption gnaws away at it every day.

In two out of five instances, parents must bribe officials to enroll their children in state schools; every second person needing an X-ray scan in a public hospital must make an illegal payment, according to a 2005 survey of Bangladeshi households by Transparency, which has ranked the South Asian nation as the world's most corrupt for five years in a row.

Suicide bombings

A poor, overpopulated, corrupt country with rising income disparity is fertile ground for extremism. Sectarian violence was always present in Bangladesh, though of late it has become a lot uglier.

The US State Department last month acknowledged the threat posed to American citizens and organizations by Jama'atul Mujahedeen Bangladesh, blamed by the government for a spate of suicide bombings since November 29 that have killed at least 17 people.

The group, known as JMB, has called for the establishment of an Islamic state in Bangladesh, where 83 percent of the population is Muslim and 16 percent Hindu. With so much going wrong, why should investors care about Bangladesh?

There are three good reasons.


Growth, demographics

First, no matter how bad things get, Bangladesh almost always manages to produce a decent economic growth rate of about 5 percent. In a sample of 151 countries studied by the World Bank, Bangladesh's gross domestic product expanded with the least volatility.

Second, almost 35 percent of Bangladeshis are now aged 15 years or younger. They will soon enter the workforce. Compared with three decades ago, when women, on average, produced six children, fertility rates have dropped below three children. That means the new workers won't have too many young dependents to care for. Household incomes and savings will rise, provided there's enough capital to employ the labor productively.

Third, for all the beating the legal system has taken from rampant corruption and entrenched special interest groups, it still has a healthy kernel in the form of a British common law tradition dating back to 1862, when it was part of British-ruled India. With some cleaning up, the Bangladeshi judiciary can be made to support a modern economy if only politicians would agree to create one.


Enforcing contracts

Enforcing a contract is 4 percentage points cheaper in Bangladesh than in China, where a creditor ends up losing 25 percent of the value of the debt in the process of trying to collect it legally, according to a World Bank assessment of economies and the ease of doing business in them. Not only are Bangladesh's investor protection standards far superior to China's, they're also better than what's available, on average, in rich countries, according to the World Bank Web site http://www.doingbusiness.org.

Bangladesh is also competitive on labor costs. Garment workers in Dhaka earn 39 US cents an hour, while the hourly wage for sewing and stitching in coastal China is 88 cents. Bangladesh is paying a price for not being open to trade. It takes 38 official signatures and 57 days to import anything into the country, compared with 24 days for China, 39 days for Pakistan and 43 days for India.


Middle class

Bangladesh shot itself in the foot in abandoning English as the language of instruction in publicly funded schools following the country's 1971 independence from West Pakistan. If it weren't for the superior courts, which staunchly resisted the frenzy to switch all judicial communication to Bengali, English may have been wiped out in the country. That partly explains why Bangladesh, unlike India or the Philippines, isn't able to benefit from global outsourcing of back-office jobs, which require English-language skills more than anything else. The neglect of English has also hindered the development of a strong middle class.

Nirvikar Singh, an economics professor at the University of California, Santa Cruz, has compiled estimates of the size of the middle class on the Indian subcontinent. The figures show that, at most, Bangladesh's middle class accounts for 9 percent of the country's population, or 13 million people. The estimates for Pakistan and India are 18 percent and 30 percent, respectively. Bangladesh needs to cut red tape and open up to foreign trade and investment so that more and better-paying jobs lead to a bigger middle class and stronger public institutions. Only then will the nexus between corruption, poverty, terrorism and general lawlessness be broken.

With sensible policies, the gap between Bangladesh's promise and performance can narrow, if not disappear. If Bangladesh receives its demographic dividend in full, Goldman Sachs may be proved right in its prediction.

Advertisement