Building a resilient system calls for a change of mindset

There is a term called "Natural Resource Curse". This is when a country, endowed with natural resources, specifically fossil fuel, becomes dependent on those resources without a fallback plan and then faces systemic pressure once the resources run out. Stretching this definition to some extent, Bangladesh has relied upon natural gas reserve, ready-made garments and remittances for economic growth for decades. The country as a system runs without a contingency plan for the time when these sectors will present downward pressure at unison. These catalysts and the system depended on them are showing a declining trend and that is causing systemic pressures that we as a country did not plan for. 

To understand past and future trajectories of Bangladesh we should embrace a new approach to analyse the country -- Systems Approach. A country -- its populace and its environment together -- creates a complex system. The evolution of Bangladesh and possible future scenarios can be better explained by Complex Adaptive Systems (CAS).

CAS is dynamic and able to adapt in and evolve with a changing environment. There is no separation between a system and its environment in the sense that system always adapts to a changing environment (Complex Adaptive Systems, Serena Chan 2001).

As a complex adaptive system, Bangladesh should observe other such systems and adapt solutions considering local contexts and limitations.

Countries such as Saudi Arabia, Brunei and Kuwait used their resources to build infrastructures that improved the lives of their citizens. These countries did not, however, develop an alternative economic environment to sustain the economic growth. The infamous example is Nigeria; it used the revenue from its vast petroleum reserve for infrastructure development but failed to develop a fallback plan to maintain the growth. Moreover, systemic corruption weakened the internal governance and lack of political unity gave the scope to foreign powers to exploit the country for their benefit.

On the other hand, lack of natural resources inadvertently helped some countries to build a resilient system. Japan has limited natural resources and from early 1800 until now it has built on a well-established global system of trade, economic and political activities to maintain its resilience. Japan diversified its economy and trained its labour force to create a system of limited dependence. The recent slump in oil prices triggered economic shocks that affected many oil-rich countries while Japan remains resilient.

Singapore in the late 60s focused on export-oriented industrialisation and used low value-added manufacturing to engage its people and boost its economy. Between 1965 and 1984 Singapore invested its revenue on oil and chemical refineries. The goal was economic restructuring and integrating more tech-based industry. In 1985, Singapore faced recession due to its concentrated exports only in handful of sectors. Afterward for more than a decade Singapore carried out strategic diversification that shifted the economy to high-value service sectors like air transportation, telecommunications, logistics, shipping and cargo handling facilities. As a Complex Adaptive System, Singapore's strategy worked. During the 1997-1998 Asian Financial Crisis, Singapore felt the pressure but weathered the crisis resiliently. Systems approach thinking helped Singapore to reassess its strategy and it started to evolve into a "Knowledge-intensive economy".

Comparing the same timeline for the Netherlands provides a great insight into the gradual effect of economic dependence of a diversified economy. The Netherlands discovered vast natural gas field in 1959 and economic activity gradually shifted from manufacturing sector to gas field-related activities. At first the Netherlands specialised in extracting gas and built significant comparative advantage in energy industry. However, as its economy focused on one booming sector, technological growth and human resource development in other sectors suffered. This phenomenon is not only applicable for countries with natural resource dependence but also for countries like Bangladesh with other development factors such as foreign workers sending remittances, labour-intensive garment sector, etc. The systemic effect of this phenomenon in the long term is that the country's non-booming exports become comparatively expensive and then non-booming sector's imports become cheaper. This effectively makes the other sectors less competitive globally. This effect in a country's economy is now famously known as the "Dutch Disease".

Bangladesh is now at a crossroads as its energy sector is going through a fundamental shift. If we analyse Bangladesh as a Complex Adaptive System we find that it unfortunately has not strategised building resilience like Singapore. It has over-exploited the process of energy procurement and use of its precious gas reserve. Since 2010 it started facing natural gas deficit due to depletion of upstream reserves. International energy companies operating in Bangladesh gas fields confirmed much earlier the possibility of significant upstream pressure loss by 2016. The low upstream pressures require high performing compressors to draw gas and this significantly increases the extraction cost. This is one of the reasons behind the recent decision by Chevron to sell shares of its gas blocks in the Bay of Bengal.

Almost 60 per cent of natural gas extracted in Bangladesh is used for energy production. As the gas supply depletes, so does the need to find alternative energy solutions. In 2010, the government started a new policy of unsolicited tenders for oil-fired power plants. Since then there have been 40 such power plants and these are comparatively costly to run than regular gas- or coal-powered plants. The government is bringing the management of gas sector under its new "Gas Sector Master Plan 2017". The plan constitutes a medium-term plan for least-cost augmentation of supply and sustainable development of the gas sector. The plan undertaken is too late - maybe, by 10 years, but hopefully it will be implemented before we get used to caviar diet of expensive energy imports like LNG, which is already predicted to increase the energy cost almost 300 per cent 2030.

Readymade garment (RMG) and remittance have been main human resource-dependent contributing factors to Bangladesh economy. Gas export and its domestic use was natural resource dependency factor. Let us consider remittance, RMG and gas as "natural resources" that we have exploited to develop our economy. Then it is logical to equate the systemic problems we are facing with our over-dependence on these factors.

The government has stated long-term plans to overcome some of these fallout effects of dependency. As pure survival instinct, the government will plan and state what is needed. However, unless the whole society is on-board, then building a resilient system would be difficult. Accepting that fact and taking hard decisions to build a resilient country demands a change of mindset -- not only for the government but also for the people as a whole.

The writer is a Archer Fellow, Lee Kuan Yew Scholar.

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