Since 1975, the European Union (EU) has played a pivotal role in the development of Bangladesh, extending financial aid, technical expertise, and capacity building support across diverse sectors. However, despite the nation’s significant performance in relation to several key socioeconomic development metrics, it still has to face a number of challenges and vulnerabilities, including its dependence on the export of textiles and clothing products, international support measures, as well as the far-reaching effects of climate change. In this regard, as a key market for Bangladeshi export and an important international partner, the EU’s commitment is crucial in supporting the country’s transition and graduation from the least-developed country’s status which is estimated to happen in 2026, fostering the necessary reforms for a sustainable and equitable growth.
Towards the middle income status
Since its independence in 1971, Bangladesh has been telling a remarkable story of poverty reduction and development. From being one of the poorest countries at its foundation, it attained lower-middle income classification in 2015 and is now on track to graduate from the UN’s least developed country status in 2026, and to attain middle income status around 2040. As human development progressed in many areas, poverty decreased from 41.9 percent in 1991 to 13.5 percent in 2016. At the same time, the GDP in 2021-22 grew faster than in any other of the so-called “tiger economies”, while this growth continued despite the global pandemic. Bangladesh’s graduation, by meeting all three graduation criteria, namely GNI Per Capita, the Human Asset Index, and the Economic Vulnerability Index, demonstrates the country’s impressive track record of some key socio-economic development indicators.
The reason for this extraordinary development stems from three main factors: the textile industry growth, remittances of the Bangladeshis working abroad, and the role of non-governmental organisations providing a safety net and skills training to people in poverty. Moreover, the combination of an adult literacy above 70%, electricity supply above 300 kWh, and a fertility rate below three children, all represent prerequisites for industrial take-off, are provided in Bangladesh. The country’s economic growth has been driven by both foreign investments and national policies. From this conjunction, numerous initiatives have been taken to create job opportunities, while a number of projects have been inaugurated to enhance connectivity. In the field of education the Government of Bangladesh, with the support of development partners such as the World Bank and the Asian Development Bank (ADB), introduced among others the Female Secondary Stipend and Assistance Program (FSSAP) to increase rural female secondary school enrollment and completion and discourage early marriage. In agriculture, the major driver of poverty reduction in the country since 2000, the Government has taken initiatives to promote safe production and modernise agricultural policies, making commendable progress over the last 40 years in achieving food security despite frequent natural disasters and a steep population growth. Regarding communication, a significant number of projects in the last 13 years have been accomplished which have radically changed the communication system of the entire country.
The role of the EU in Bangladesh’s development
The European Union has played a pivotal role as a significant development partner to Bangladesh since 1975, extending financial aid, technical expertise, and capacity building support across diverse sectors. Since the creation of a Shared Vision in 2014, the EU+ (the 27 EU Member States, Switzerland, and Norway) have been working together on joint programming in Bangladesh in areas like nutrition, good governance, water, and labour conditions in the apparel industry. A new Global Strategy adopted by the EU in 2016 emphasised “becoming more joined up across our external policies, between Member States and EU institutions, and between the internal and external dimensions of our policies.” The partnership between the EU and Bangladesh concentrated on three major areas: democratic governance; food security and sustainable development; and education and human development. For this partnership, a total of 655 million EUR was allotted, and a high degree of absorption capability was shown, enabling many of the anticipated outcomes to be realised by the end of 2020.
Moreover, the EU has been a major supporter and financier of the 6th and 7th Five Year Plans (Bangladesh’s National Development Plan), using government systems, via budget support, in critical sectors like education, social protection, as well as governance and sustainable development projects. The EU’s major endeavours in the country include capacity-building for civil society organisations in the field of democratic participation, the development of a comprehensive Food and Nutrition Security Policy and progress in quality and inclusive primary education. Moreover, the EU’s direct financial support to Bangladesh is complemented by other means and facilities, notably on trade, through the generalised scheme of preferences (GSP) arrangement. Indeed, Bangladesh is by far the biggest beneficiary of the EU Everything but Arms (EBA) trade regime, which removes tariffs and quotas for all imports of goods (except arms and ammunition) until the country will graduate from the UN LDC status.
The other side of the coin: Bangladesh’s dependency on FDI and the consequences on work conditions
Although foreign development investments (FDI) in Bangladesh have represented one of the main drivers for development, offering impressive macro-economic gains and sizable profits for investors, Bangladesh’s dependency on FDI also risks to induce low wages and substandard labour conditions for workers. Especially in the leading sector of Bangladesh development, the ready-made garment sector, Bangladesh has tilted towards international trade and investment at the expense of the sustainable development goals and international non-governmental organisations advocacy. However, while providing the much needed capital for growth, profit maximisation and a cost-minimising agenda, FDIs also give sizeable profits to investors, encouraging lower pay and poorer working conditions for employees, exacerbating inequities.
The EU’s Generalised Scheme of Preferences’s purpose itself has been questioned. Indeed, even though it seeks to promote adherence to globally recognised norms for good governance, labour rights, and environmental protection by providing preferential access to the European market, the EU has been criticised for weak monitoring and enforcement procedures, and non-transparent data collection and consultation. The 2013 collapse of the Rana Plaza building in Dhaka, where more than a thousand people died, became a symbol of poor labour standards in the ready-made garment sector. Following the disaster, the European Parliament and the European Commission highlighted the importance of introducing mandatory due diligence for the supply chains in the industry and recognised the need to improve the working conditions and worker rights. Indeed, while the country has taken initiatives on labour rights, formulated legal frameworks, implementing those in accordance with global standards and closely working together with the International Labor Organization (ILO), Bangladesh still experiences a weakening of worker’s rights to living wages and limited investment in worker’s welfare and safety.
Bangladesh’s vulnerabilities and challenges
Despite the fact that Bangladesh’s graduation from the LDCs testifies to the nation’s remarkable performance in relation to several of the important socioeconomic development metrics, it is important to acknowledge that the country still has to face several challenges. In the 8th five year Plan, the Bangladesh government itself recognised the country’s vulnerabilities in dependence on remittances, labour migration, and relatively undiversified exports, without effective and scalable social protection systems. The country’s UN vulnerability profile demonstrates that, despite consistent growth and strong political willingness, there are several weaknesses to address.
First, Bangladesh’s exports over-rely on low-technology textile and clothing products, which account for 85% of Bangladesh export income, raising risks for the nation’s economy. Second, development is strictly linked to LDC-specific international support measures including the EU’s General Scheme of Preference (GSP). Third, Bangladesh is highly dependent on external development finance, predominantly in the form of migrant remittances, to support capital accumulation. Finally, the exposure to the far-reaching effects of climate change, notably in terms of sea level rise and heightened frequency/intensity of natural disasters, is a pressing issue. Bangladesh is also one of the most vulnerable countries to climate change, rated by the Global Climate Risk Index as the seventh most affected country in the world from extreme weather events. Climate change acts as a catalyst for crises and a threat multiplier, significantly exacerbating vulnerabilities and giving rise to long-term problems in countries that are already exposed to underlying weaknesses. The United Nations estimates that by 2050, 17% of the country will be submerged by rising sea levels leaving 20 million people without a home, while according to the World Bank by 2050, a third of agricultural GDP could be lost, and 13 million people could become internal climate migrants.
Therefore, in order to achieve its goal of reaching upper middle-income status by 2031, Bangladesh must undertake structural reforms to facilitate faster economic growth. These reforms should focus on various aspects, including job creation, promoting investments addressing climate vulnerabilities, fostering a competitive business environment, diversifying exports, enhancing human capital, improving infrastructure efficiency, strengthening the financial sector, and establishing favourable policies that attract private investment. Additionally, Bangladesh needs to adopt coordinated strategies and investments to effectively address the growing challenges posed by climate change. The 8th Five Year Plan itself identifies this situation by proposing important shifts in public spending priorities in key sectors such as health, education and social protection, but also digital transformation has come to the forefront.
How the EU can support Bangladesh sustainable and equitable growth
In light of Bangladesh’s vulnerabilities and needs, the European Union can play a fundamental role in helping the country to transition towards middle-income status. If the graduation from the LDC status reflects Bangladesh’s economic strength, highlighting the extent of economic and social progress achieved by the country, graduation also implies that certain exclusions for LDCs that were previously permitted under WTO trade and intellectual property (IP) regulations can no longer be claimed. This implies that the country must face new rules, potentially hurting not only economic growth in some sectors, but also the welfare of certain groups. In addition, Bangladesh stands out among all graduating LDCs as the largest economy and exporter, and as the graduating LDC that is likely to confront more challenges having the greatest impact on its exports, which is estimated to decline by 14%.
Considering that the European Union is a key market to Bangladesh export, the EU’s commitment to supporting the country’s sustainable and smooth transition in its graduation from the least-developed country (LDC) status is of utmost importance. Bangladesh’s graduation would lead to losing the eligibility for the EBA trade scheme, which has certainly contributed to the country’s impressive socio-economic development. While it is likely that it will still benefit from the GSP, this change is likely to impact garment exports from Bangladesh. In particular, for textiles and clothing, GSP requirements are stricter than those of the LDC-specific scheme. GSP beneficiaries must accomplish a two-stage process or double transformation from fabric to clothing whereas LDC beneficiaries are only required to undertake a one-stage process or single transformation from fibres to fabric. Moreover, Bangladesh will be affected by the EU’s Carbon Border adjustments mechanism (CBAM) which together with the loss of the EBA scheme could lead to a shrink by 28-30 % of its export to the European Union.
To mitigate the effects of the graduation from LDC status, which implies losing preferential tariff concessions in many export destinations, Bangladesh could potentially qualify for the EU’s GSP+ Scheme, the special EU’s incentive arrangement that supports vulnerable developing countries. In addition, Bangladesh’s remarkable performance in economic growth could give an impetus to consider starting the preparation of FTA negotiations with the EU, further strengthening the partnership between the EU and Bangladesh.
Nevertheless, rather than just focus on adapting trade preferences under the Generalised Scheme of Preferences (GSP) to make the LDC graduation smooth and sustainable, the EU could also concentrate on a long-term strategy helping Bangladesh diversify its export, to make it more competitive and become independent from tariff concessions and foreign investments.
To do so, as underlined by the United Nations, the key policy priorities to help Bangladesh in structural reforms include the enhancement of domestic resource mobilisation; investments in climate-resilient and digital infrastructure; the improvement of its business environment through the mobilisation of renewed investments in human capital and the science, technology and innovation (STI) ecosystem. Therefore, anchoring LDC graduation in the national policy strategies and industrial policy framework will help Bangladesh strengthen its economy beyond time-bound traditional provisions. The EU’s support to strengthen Bangladesh’s legislative and institutional capacity to accelerate the implementation of existing policies and programs should go hand in hand with a people-centric approach towards human capital development.
Moreover, Bangladesh and worldwide governance networks, including the EU, must adopt and standardise codes of conduct for ethical business practices, both within and beyond nations, to further improve worker rights, reduce exploitation, and promote equality in the industry.
There is a need for the European Union to enhance its monitoring and enforcement procedure, ensuring that not only the Bangladesh government fulfils the norms for good governance but also that the EU private companies meet the criteria of fair wages and proper labour conditions.
Such a scenario creates space for further cooperation, since the alignment of Bangladesh’s development in areas such as governance, human capital, and climate change adaptation and the EU’s sustainability goals present significant opportunities for advanced collaboration, foster innovation, and knowledge sharing.
Author: Aurora Bonini, EIAS Junior Researcher
Photo Credits: Pixabay