Business environment & demographic dividend: Where is the marriage?

With a steady but high economic growth alongside other South Asia economies, Bangladesh is now undergoing a demographic transition. Its demographic structure is in such a stage when birth rate is decreasing with a declining death rate. This results in a lower age dependency ratio and hence there is an increase in the ratio of working age to non-working age population. Reaping benefits from this age structure is defined as demographic dividend.

Now, to take advantage of demographic dividend, the country must utilise its human resources. With a share of 19.36 per cent youth population aged between 15 and 24 years, Bangladesh needs to prioritise the provision of opportunities that are essential for the growth of young population. To do so, the country needs to create employment opportunities as well as proper business environment for the young entrepreneurs.

However, the recent trends do not show any sort of concentration in these aspects by the authorities concerned. Evidences from booming economies like Vietnam can imply that apart from making focus on amenities such as education and health, it is really important to have a sound business environment to utilise a healthy and skilled labour force.

An ideal business environment provides any kind of investors and entrepreneurs with proper incubation to run their business without any flaws and hence helps to flourish in minimum required time. Many variables including law and order and socioeconomic stability are associated with development of a certain sector. These conditions provide an investor or an entrepreneur with confidence to conduct his/her venture without any negative and/or external pressure that can hinder the process of growth.

In today's world, information is flowing from one end to another at an unimaginable speed and the growing youth population of any country is more informed than those of any other period in the past. With the help of rapid supply of information and availability of ideas, they concentrate on various innovative ventures keeping the rationale of socio economic stability and law and order in mind. These aspects are important as the youth cannot properly utilise their skills and good health without the existence of a sound business environment.

Recent trends show that a large pool of highly skilled young citizens of Bangladesh are migrating abroad to find better opportunities, either in the disguise of higher study or simply by getting permanent residence. It is necessary to emphasise the fact that not all of those who moved for higher studies stay back.

However, various sources of information give them clear idea about the existing opportunities to work in Bangladesh and eventually discourage them to come back. Opportunities to work using full potential and/or in good business environment, required to utilise their potential, are absent back home.

Why doesn't the existing business environment in Bangladesh work for them? We will try to provide an abstract answer to this pressing question.

We have cited the example of Vietnam in managing the demographic dividend for a certain reason. In 1984, Bangladesh and Vietnam had similar per capita gross domestic product (GDP) [$386 and $377 in 2010 constant US Dollars respectively]. However, in about three and a half decades, the picture has changed -- Vietnam's per capita GDP is 1.5 times higher than that of Bangladesh.

Such improvement is referred to as the outcome of an investment on their youth and infrastructure. Along with that the Vietnamese have maintained stable socio-economic conditions and improved at times. Graph 1 shows International Country Risk Guide (ICRG) rating on Socioeconomic Condition for Bangladesh and Vietnam from 1985 to 2016. It shows how Vietnam has improved on the socio-economic conditions over the last few decades compared to Bangladesh.

As law and order is an important determinant for a good business environment, ICRG data also show that Vietnam has established a sound law and order, which is a major contributing factor for this development of their economy (Graph 2). As our rationale says not only improving skills of the population is important but it is also an imperative to give them proper environment to flourish. It can be concluded from the two indicators that Vietnam has maintained such rationale to relish the positive effects of demographic dividend.

Now, to understand the difference in 'Business Environment' between these two countries, we will look into the World Bank's 'Doing Business' indicator which measures the business environment of a country based on several aspects. These aspects help understand the business environment of a certain country and specifically in which part of a business environment the country is lagging in or flourishing.

Bangladesh\s overall ranking in doing business indicator is 190 whereas for Vietnam it is 69. The score for Bangladesh, according to Doing Business report 2019, is 41.97 in s scale of 100 whereas Vietnam scores 68.36. This generalised score shows where Bangladesh stands compared to Vietnam in providing a sound business environment.

To utilise the demographic dividend, as we are asserting, Bangladesh has to concentrate more on improving this ranking, not just in numbers like growth conundrum, but by addressing the real life issues.

To drill through the problem with business environment, we looked into the subcategories of 'Doing Business' indicator. With no surprise at all, we have seen similar picture in each of the sub-categories as the overall ranking. Table 1 shows scores from different sub-categories of the doing business indicator. For most of these, Bangladesh's performance is alarming and is not concomitant with the idea of improvement that we expect for a better economic condition in Bangladesh in the near future.

As the data show, the institutions involved in the process of business initiation, are the reflection of declining interest of the youth to move towards a better institutional environment.

As one of the fastest growing countries in the world, Bangladesh should be looking to grow smoothly with steady GDP growth. Demographic dividend can place a major contribution to this achievement. But, to ensure the proper utilisation of human resources including the youth bulge consisting of a greater share of population, there is no way other than improving the business environment.

As the question of demographic dividend comes, we often talk about improving skills and health indicators. We hardly concentrate on improving the business environment, which is ultimately the field to reap the fruits of the dividend.

As the recent budget for fiscal year 2019-2020 shows little focus on improving the business environment specifically for the young labour force, we are being cautious in the sense that the high growth number will be redundant if we cannot provide proper facilities to the young labour force which, in turn, will help to solve Bangladesh's growth conundrum.

Of course, there are certain government initiatives to increase employment, such as setting up special economic zones. But does it interest the appetite for innovation and entrepreneurial ventures? Certainly not.

As government must ensure quality business environment, it should focus more at the micro levels of the problem like, providing services for initiating innovative businesses, reducing bureaucratic hassles, digitising registration and other administrative procedures to initiate business, encouraging coalition in innovative entrepreneurship across boarder, and reducing administrative hassle to get private financing like venture capital and crowd funding.

All that needed is realising the potential benefits of demographic dividend and reforming the existing rules and regulations to make the business environment more efficient.

Towhid Iqram Mahmood is Research Economist, SANEM

[email protected]

Nadeera Sultana is Research Associate, SANEM

[email protected]