Balancing manufacturing and service sectors

The findings of the latest economic census present a disconcerting picture of the country's industrial landscape---a significant decline in manufacturing over the recent years. While non-agricultural business establishments have expanded substantially, the overall economic trajectory appears to be deviating from a sustainable growth pattern. Ideally, economic development follows a structured transition from agriculture to industry and then to the service sector. However, the current trend suggests a leap from agriculture to services, bypassing industrialisation. Data from the census highlight the stark imbalance between manufacturing and service sectors. Of the 4.06 million new businesses established over the past decade, only 3.42 per cent belong to manufacturing, while a staggering 96.58 per cent fall under the service category. This significant skew indicates a structural anomaly that could hinder long-term economic resilience. A well-balanced economy requires a strong manufacturing base to ensure job creation, enhanced productivity, and sustainable export growth.

The projected economic growth figures from the Bangladesh Bureau of Statistics (BBS) over the last decade were based on an anticipated expansion of manufacturing industries. However, the actual decline in manufacturing, coupled with the rapid rise of the service sector, reveals structural weaknesses, policy inconsistencies, inadequate investment in industrialisation and an increasing reliance on imports. Experts caution that insufficient emphasis on industrialisation could undermine economic stability, as manufacturing has traditionally played a crucial role in employment generation and GDP expansion. The census report indicates an overall rise in economic units, but employment growth has notably slowed over the past 11 years. The share of the manufacturing sector among economic units has dropped to 8.77 per cent, down from 11.54 per cent in 2013 and 12.14 per cent in 2003. In contrast, the service sector's share has surged to 91.23 per cent, up from 87.89 per cent in 2003. This shift underscores a troubling decline in industrial engagement, reflecting a structural imbalance in the economy.

A report by the Financial Express, citing the project director of the economic census, states that no large industrial factories have been established in the past decade. Instead, the growth has been confined to small industries, signalling sluggish economic progress. A major challenge for manufacturing investment is the unpredictability of tax and revenue policies, which creates uncertainty for businesses. Industry stakeholders argue that frequent policy shifts deter investors, making it difficult to forecast profitability and long-term viability in the manufacturing sector. As a result, many investors prefer the lower-risk options available in trading and services over the higher risks associated with manufacturing. Consequently, most new manufacturing ventures are small, informal units rather than large, structured industrial enterprises. Notably, 70.27 per cent of these units operate in rural areas, with only 29.73 per cent located in urban centres.

Given these circumstances, urgent policy interventions are needed to reverse the declining trend in manufacturing. The government must implement targeted measures such as stable policy frameworks, financial incentives, and robust infrastructure development to reinvigorate the sector. Strengthening this sector should be a top priority to ensure a balanced and resilient economic future.