PPRC NewsletterIssue 1

Message from Chairman

Withthisissue,PPRClaunchesitsquarterlynewsletterseries.Togetherwithourwebsite(www.pprcbd.org)andFacebookpage(www.facebook.com/pprcdhaka),thenewsletterwillhelpustoconnecttoawidercommunity.Eachnewsletterwillhavealeadarticle.Inthisissue,thetopicisonindustrialdynamics.Bangladesh'seconomicfutureisintrinsicallylinkedwithitsindustrialfuture.Anin‐depthlookatwherewestandandwherewearelikelytogomakesforanexcellentleadarticlefortheintroductoryissueofthenewsletter.Fromthesecondissueonward,therewillbeasocialmediacornerinthenewsletter.AtPPRC,wevalueinteractingwithnewideasandnewfriends.WewelcomeyourfeedbackandopinionsonourFacebookpage.

-HossainZillurRahmanPhoto:TanzibAhsan

Editor:HossainZillurRahman

Articlecontributionsfrom:Prof.Dr.MATaslimAkibKhanAbulHossain

Editorialteam:ShaerReazTanzibAhsanUmamaZillurJoyantaKumarPaul

Website:www.pprcbd.orgWewillbelaunchingarevampedwebsitesoon,staytuned.

Email:hossain.rahman@gmail.compprc@pprcbd.org

House77A,Road12A,DhanmondiR/ADhaka1209,Bangladesh

Tel:+880‐2‐8119207,9146618Fax:+880‐2‐8144379

Contributors

PPRC events

People

Hossain ZillurRahmanmeetswithrepresentatives from theBangladeshBureauof Statistics.

S p e a k e r s a t P P RC ' snationalconsultationons u s t a i n a b l e h i l s h ac on s e r va t i o n a t t h eDaily Star ConferenceHall.

(18October,2014)

ShaziaOmar,apopularEnglishauthorandwomenempowermentactivist/advocacyadviserofSHIREE,cametoPPRCtoexplainthedigitaltrackingofbeneficiaries,anewinnovationinprogrammonitoring.

FourdelegatesofEcorysdroppedbytospeaktoHossainZillurRahman.

Contact us

www.facebook.com/pprcdhaka

“RoadSafetyinBangladesh:RealitiesandChallenges”

(BRACandPPRClaunchreport,onAugust13th,2014).

“Towards meaningfulr e a l i z a t i o n o f UHC ,Bang l adesh : Qua l i t yChallenges in MedicalEducation”

(April5th,2014)

Onthecover:SalauddinEngineeringWorksisasmalllightengineeringunitbasedinWestPanthapath.Inthephoto,Moinuddin,youngerbrotheroftheproprietor,takesananglegrindertoasteeltube.

Across‐sectionofstakeholdersatadistrictdialogueonUniversalhealthCoverage(UHC)organizedbyPPRCunderscoredhighhealth‐carecosts,irregularaccessandpoorservicequalitytobemajorhindrancestoeffectivepovertyalleviationandmeaningfulrealizationofUHC.PPRCorganizedtheeventattheShere‐BanglaMedicalCollegeConferencehallon30August,2014aspartofitsUHC‐focusedDistrictDialogueSeries.Participantsnumberingoveronehundredincludedvariousrepresentativesofthemedicalprofession–doctors,nurses,healthassistants,familywelfarevolunteers–aswellasgovernmenthealthadministrators,localgovernmentcouncilors,healthrightsactivists,NGOs,pharmaceuticalcompanyrepresentatives,diagnosticcentres,electronicandprintmedia.Formerhealthsecretary,notedchildsurgeonfromChittagongmedicalcollegeandhospitalandBRACrepresentativesalsojoinedatPPRC'sinvitation.PPRCChairmanintroducedtheissuesandmoderatedthedaylongdialogue.Theeventwaswidelycoveredinthelocalandnationalmedia.LeadingnationalEnglish‐languagenewspaperTheDailyStarrananonlineopinionpollonthemainargumentofthedialoguethatcostlyandpoorqualityhealthcarewasimpedingeffectivepovertyalleviationadayafterthedialogue.67%answeredintheaffirmative.

Grass-root stakeholders atPPRC Barisal DialogueHigh healthcare costs and poor service quality major barriers to effective poverty alleviation

PPRCandBBSsignedaMOUon17thApril,2012toprepareanurbandata‐basetoassistmoreeffectiveurbanpolicy‐makingforBangladesh.ThefirstcomponentofthisworkisthepreparationofareportonDhakaCitybasedarepresentativesurveycarriedout in late2012.A jointPPRC‐BBSteamiscurrentlyanalyzingthedataandpreparingthereport.Thereport, firstof itskind, isexpectedtobe launchedinthefirstweekofDecember,2014.TheWorldBankissupportingthis initiative.

PPRC and BBS joint team preparing Dhaka City Report

AtwomemberPPRCteamconstitutedofconsultantmemberProfessorAbdulWahabofAgriculturalUniversity,MymensinghandSyedZiauddinAhmed,Director,ResourcePlanningwillvisitpartnerorganizationWWF,KolkataundertheIUCNsupportedBangladesh‐IndiajointinitiativeonEco‐systemsforlifeonOctober29‐31,2014.

PPRC team tovisit WWF, Kolkatafor Joint meeting October 29-31, 2014

PPRCLaunchesInternProgramAspartofitsoutreachaim,PPRChaslauncheditsinternprogramfromSeptember,2014.Md.AbuShaerReazandTanzibAhsan,bothstudentsattheDepartmentofEconomicsatDhakaUniversity,havejoinedasinternswithinitialassignmentondevelopingthePPRCNewsletter.

PPRC LaunchesIntern Program

PPRC News

Jean Tirole winsNobel Prize in EconomicsUnorthodoxeconomistwithhis feeton thegroundwinsthis year's Nobe lPrize inEconomics, and, for once,market failures rather thanstate failures are under thespotlight. Manipulating themarket is the open secretthat pundits so rarely talkabout.

PPRC congratulates JeanTirolenotonlyforshiningalightontheproblembutalsoforofferingnovelsolutions.

To ob ta in cop ie s o f ourpublications, please contactthePPRCofficeatHouse77A,Road12A,DhanmondiR/A,orcall 01552342291 for moredetails.

We also stock copies of ourolder publications. The twoarticles featured in this issueofournewsletterarefromthepubl icat ion “BangladeshUrban Dynamics.” If you areinterested in reading the fullart ic les and much more ,please request a copy of thepublication.

Our recent publications:

OurupcomingprojectsincludeareportonDhakaCity,aspartofPPRC’s“LiveableCities”program,whichisduetobelaunchedinDecember2014.PrepatoryresearchonhealthinsurancepilotforRMGworkersinGazipurisongoing.PPRChasalsocontractedtoinitiateastudyonrenderingmainstreamthehealthservicesforpeoplewithdisabilities. Followourquarterlynewsletterforupdatesonongoingprojects.

Upcoming and ongoing projects

Industriallocationhasimportantimplicationsforurbanisation.Whenalargenumberofindustrieslocateinasuitableplace,entrepreneursandemployeesalsolocatetheremarkedlyincreasingthepopulationdensity.Inordertoprovidethesepeoplewiththeirvariousneedsotherbusinessentitiesalsosituatenearthem.Allthesepeopleneedtobeprovidedwithbasiccivicamenitiestheprovisionofwhichfurtherraisespopulationdensityandthesizeofthelocality.Thus,wefindthatallindustrialconcentrationsinBangladesharesituatedinornearmajorurbancenters.Underdevelopedareasarecharacterizedbyalackofindustrialgrowth.EconomicgrowthofBangladeshacceleratedwithliberalizationmeasuresintroducedintheearly1990s.Manufacturinggrewatamodestrateof7.8%during2000‐1and2009‐10.Onlythreeindustriesmaintaineddouble‐digitgrowth‐RMG,textilesandpharmaceuticals.Ironandsteelgrewatmorethan7%percent.Theperformanceoftherestoftheindustriesiseithermodestorpoor.AninterestingaspectofmanufacturinginBangladeshisthatmostindustriesservemainlythedomesticsmarket.Hence,theirstrengthliesinthebuoyancyofdomesticdemand.Thismightpartiallyexplainwhytheeconomydidnotsuffermuchfromthefalloutoftheglobalrecession.OnlyRMGisclearlypredominantlyexport‐oriented.Asubstantialpartoftextilemanufacturingproductsfeedtheapparelindustryandhencemayalsobedeemedtoservetheexportmarket.TheimportanceoftheexportindustriesshouldnotbeunderestimatedsinceRMGandtextilestogetheraccountfor45%oftheincomegeneratedbylargeandmediummanufacturingand32%oftheincomeofthemanufacturingsectorasawhole.Thereare28suchindustrieswhichgrewatannualrateofover5%.Ofthese,11aresubstantialindustriesthathavemorethan1%weightintheindustrialproductionindex.Pharmaceuticalsandcottontextile,withmorethan7%weightinthegeneralindex,grewveryrobustlyatnearly12percentperyear.Thehighestgrowthratewasachievedbysilkandsyntheticindustrythatgrewatawhopping18.75percent.Cementindustryalsogrewrobustlyatover12percent.Thegarmentsindustryachievedamodestgrowthrateofnearly8percent.Leatherfootweargrewatover8.5percent.Bangladeshisnowatthelowestrungoftheindustrialisationladder,capitalisingonhightariffsandcheaplabourtoproducebasicconsumergoods.Progresstohigherrungsinthefuturewillrequirebetterinfrastructure,greaterskillandmoresophisticatedtechnology.Theimpressivegrowthofindustriesproducingelectricalandnon‐electricalmachinery,vehiclesincludingoceangoingshipsandpharmaceuticalspresentsopportunitiesofgraduatingtotheproductionofmoresophisticatedgoods.Ofthetop10industrialemployers,onlytwoaremanufacturingindustriesasdefinedbyBSIC‐apparelsandricemilling.Thetop10industriesprovideemploymenttonearly4millionpersons.Manufacturingindustriesaccount

Industrial growth and location dynamics

M.A. TaslimAkib Khan

Thefullversionofthisarticlewaspublishedin“BangladeshUrbanDynamics”,apublicationbyPPRC,in2010.

Photo:TanzibAhsan

foronly18%ofthisemployment.Theotherindustriesbelongtotheservicesector.Thefourlargestserviceindustryemployers,viz.groceryandgeneralstores,tea‐stalls,activitiesofreligiousorganizationsandtailoringservicesaremainlyverysmallserviceproductionunits.Theyemployonaveragelessthantwopersonsperestablishmentandaremostlyfamily‐runenterprisesandinformalincharacter.Amajorcharacteristicoftheservicessectoristhatitessentiallyservesthedomesticmarketthoughsomeservicessuchastransportation,telecommunicationandbankingalsoserveoverseascustomers.Ananalysisofthespatiallocationofthemanufacturingindustriesshowsthatthemanufacturingestablishmentsareconcentratedinfourmajorindustrialdistricts.Theremaining60districtsprovideemploymenttolessthanaquarterofthetotalurbanmanufacturingworkforce.ThepreponderanceofDhakainemploymentgenerationisanindicationofthecentralizednatureofthecountry'seconomicdevelopment.MostbusinessrelatedfacilitiesareconcentratedinDhakaandpoliticalpatronageisalsodistributedfromhere.ConsequentlybusinessenterprisesflocktoDhakainordertoimprovetheirbottomlineorthechancesofsurvival.Industriesappeartohavelocatedalongasouth‐northcorridorstretchingfromChittagonginthesouthtoMymensinginthenorthwithagapatoldNoakhalidistrict.LocalizedindustrialhubsarealsobeginningtoappearinSylhet,Bogra,Rangpur,DinajpurandJessore.Concentrationofpeopleandindustriesinurbancentersgivesrisetosignificanteconomiesofscale.Agglomerationofindustriesleadstothegrowthofdemandforvariousinputsinlargequantities.Thegrowthofalargeurbancentrepermitsthesupplyoftheseinputsatreasonablecosts.Manyspecializedinputs,suchastaxconsultants,accountants,orspecializedtechnicalexpertsareavailableonlyinlargetownswheretheyhavelargeenoughclienteletosustainthem.Oneimportantadvantageofurbanagglomerationisknowledgespillover.PerhapstheearliestattempttoprovideatheoreticalexplanationofthelocationofindustriesisAlfredWeber(1909).Headvancedasimplebutintuitivelyappealinghypothesisthatindustriestendtolocatewheretheycanminimizethecostofproduction.Weberrecognizedthreetypesofcosts:(1)Transportcosts(2)Labourcosts(3)Agglomeration.Formanyproducts,however,labourcostsandagglomerationbenefitscanoutweightransportcostconsiderations.ThetwolargesturbanareasareDhaka(includingtheadjoiningdistrictsofGazipurandNarayanganj)andtheportdistrictofChittagong.Dhakahousesalargevarietyofindustries;italoneaccountsforover10%ofbothtotalindustrialandmanufacturingestablishmentsinthecountryand18%oftotalindustrialemploymentand28%ofmanufacturingemployment.Gazipur,whichiscontiguoustoDhaka,hasemergedinrecenttimesasalargeagglomerationofindustries.AsDhakabecamecongestedentrepreneurshadtomoveoutwardinsearchofsuitablelocationfortheirfactoriesorfacilities,andGazipurprovidedaconvenientalternative.ThethreeurbanagglomerationsofGazipur,NaryanganjandChittagongaccountfor21.5%ofallmanufacturingestablishments

“Bangladesh is at the lowest rung of the industrialisation ladder, capitalising on high tariffs and cheap labour to produce basic consumer goods. Progress to higher rungs in the future will require better infrastructure, greater skill and sophisticated technology.”

Growthratebyindustry(top10)(2003)

Figure1

and49.3%ofthetotalmanufacturingemploymentofthecountry.Intermsofgrossvalueaddition,highestcontributorisDhaka‐30%oftotalgrossvalueaddition–followedbyGazipur‐22%,Chittagong‐20%andNarayanganj3%.Thefourmajorindustrialdistrictstogetheraccountfor61%ofmanufacturingemploymentand75%ofmanufacturingvalueaddition.Gazipuristhelocationofthelargestandmostproductivemanufacturingindustries.ThegrossvalueadditiongeneratedbytheaverageestablishmentinGazipuristwiceaslargeasthatinChittagongandmorethanthriceaslargeasthatinDhaka.TheaverageworkerinGazipurismorethantwiceasproductiveasworkersinDhakaandChittagong.Narayanganjestablishmentsarethesmallestandtheleastproductive.Thegrowthofamanufacturinghubissometimesalsohelpedbythelocationdecisionofpioneeringentrepreneurs.RahimAfrooz,awell‐knownmanufacturinggroup,isarecentexample.Afewyearsagoitsetupalargeexport‐orientedbatterymanufacturingplantinIshwardiExportProcessingZonewheretherewerefewindustries.Obviouslyagglomerationbenefitswerenothighinitsconsiderationtosetuptheplantthere.NorwastransportationcostsaconsiderationsincebulkoftheoutputwasexportedoverseasthroughChittagongport.Perhapsotherfactors,suchasthepriceofland,werethemainconsiderations.However,asthismanufacturingfacilityflourishesitwillneedmanyinputsandservicessuchasrepairandmaintenance.Theseopportunitieswillattractmanynewbusinessenterprisestosetuptheirfacilitiesnearthebatteryplant.Theseenterprisesinturnwillattractotherenterprisestosupplytheirneeds.OvertimeIshwardicouldgrowintoaregionalbusinessagglomerationmuchlikeBogra.Lookingtothefuture,RMGanditsbackward‐linkageindustrieswillcontinuetobetheprincipaldriverofindustrializationintheforeseeablefuture.Otherindustriessuchaspharmaceuticals,plasticproducts,footwear,electricalgoodsandshipbuildingarealsoemergingasfastgrowingindustries.However,theopportunitiesthataresmilingonthecountrywillgobeggingifthesocialandphysicalinfrastructuresarenotquicklyimproved.Energyandtransportdifficultieshaveassumedseriousproportions.Legalcomplexitiesandbureaucratichasslesarehinderingeffortsofdomesticandforeignentrepreneurs.Thepaucityofaskilledlabourforce,especiallyatthemid‐managementlevel,isaconstraintthatisdifficulttoovercome.Thesolutiontotheseproblemsrequiresavigorouspro‐activegovernmentresponsethatmustbebuttressedbywillingcooperationofthestakeholders.

“Consequently business enterprises flock to Dhaka in order to improve their bottom line or the chances of survival. Industries appear to have located along a south-north corridor stretching from Chittagong in the south to Mymensing in the north with a gap at old Noakhali district.”

Figure2

Spatialdistributionofurbanemployment(2003)(rankedbyemployment,top10)

Photo:TanzibAhsan

TheproprietorofFaridaEngineeringWorks ‐65yearoldMr.Badal ‐ isoneof the leadingentrepreneurswhopaved theway foragro‐basedmachineriesandequipmentproductionandmarketing inBogra.A life‐storyapproachwasadopted to capture thedynamicsofhisentrepreneurial journey.1952-1974:Withonly threeyearsof formal schooling,Mr.Badal joined the leading local industrialenterprise ‐BograBhandaryCottonandSpinningMill ‐ in the1960satamonthly salaryofTaka15.Mr.Badalhonedhis skillson the jobandby themid‐1960shadgainedagoodreputationasa competentmechanic. Inhisownwords, "Thenon‐Bengali (Urdu‐speaking twoengineers)anda Japaneseengineer,whowere the leadingpersonsof theMechanicalunit,used to likemeverymuchas Iwasverymeticulous inmyworks. In1971, theNon‐Bengali engineers left the industry.Theproductiondeclineddue towar.After theindependence the Industrywasnationalized in1972.Productiondeclinedheavily, and in1975 the 'BograBhandaryCottonandSpinningMills'wascloseddown."1976-1984:Badalbecameunemployed thereafterandreturned tohisvillage ina suburbofBogra town.Using skills learnedat themill,hebeganproducingspareparts forvariousmachineriesusing rudimentarytoolsandgraduallybuiltupa localmarket forhisproducts.Byearly1980s,Badalhada sufficiently sizeablebusiness toafford thepurchaseof3 lathemachines forTaka1 lacandshiftedhisenterprise fromhisvillageto rentalpremises inBogra town.Naminghis industryFaridaEngineeringWorks,hehired fourunskilledworkersand trained themhimself andbeganmakingandsellingcentrifugalpumpsaswell asvarious spareparts.Hisbusinessgrewso thathewasable tobuyapieceof land (1bigha) forhis industryata costofTaka30 lacs.1985-1999: 1n1985,he shiftedhis industry tohisown land,andgeneratedemployment forabout25persons.The industry startedproducingpower tillerparts, trolleys, ironwheels,paddy threshersandvariousagro‐basedequipment.Badalappearedasan icon forproducingagro‐equipmentandmachineswithin4/5years inBogra.2000 tillnow:CurrentlyBadalemploysawork forceof40nearlyallofwhomare skilledworkers.Hisproduct rangehas54equipment itemsmostly related toagriculture.These include ironwheel (used forplowingby tractor inmonsoon),paddy thresher,harvestingmachine,brick splittingmachine,mixturemachine, andvarious sparepartsofwaterpumps.Theenterprise isvery solventproducing10pairsof ironwheelsperdayatamarketpriceofTaka6000each.Hismarket reachhas transcended the localeconomyand isnowextended to thenationalmarket. Froman initial capitalofTaka1 lac invested in1976,FaridaEngineeringWorks' current capital standsatTaka12million (excluding land).WhollyownedbyMr.Badal, theenterprise reliesonself‐finance ratherthanbank finance.Theenterpriseemploys40skilledworkers, all localandallmale.30%of theworkersreside in the factorycompound.Theenterpriseusesas its rawmaterials scrap iron, recycleddieselengines;theseare sourced fromChittagongand localmarkets.Energy isnotabigproblem for theenterprise; itusesbothgridelectricityaswellowngenerators.Theenterprisehas trade license, environmental certificate,TINand insurance, export license.

SuccessStories:FaridaEngineeringWorks,Bogra

Abul Hossain

Thefullversionofthisarticlewaspublishedin“BangladeshUrbanDynamics”,apublicationbyPPRC,in2010.