Bangladesh's infrastructure dilemma and remedial must-dos

A one-of-its-kind political changeover in Bangladesh offers an opportunity to anatomize the policies of the fallen Awami League (AL) government, which governed the country for 15 years until imploded. Some scholars argue political stability is a prerequisite for developing countries to achieve economic progress. Bangladesh had experienced such stability under a single administration since 2009 until August 5, 2024 when student protests led to the Sheikh Hasina government's downfall.

Among the previous AL government's development initiatives, their focus on infrastructure-led growth was significant. The administration initiated and completed several large-scale projects, with some still ongoing. Notable examples of such megaprojects include the Padma Bridge, Dhaka metro-rail system, elevated expressways and highways, the third terminal at Dhaka's international airport, Matarbari deep-sea port, and Karnaphuli tunnel. These represent some of the most prominent infrastructure developments during their tenure.

The AL government's focus on infrastructure was indeed appropriate and necessary for the country's development. However, the methods employed and the individuals tasked with implementation significantly diminished the potential value of these initiatives. This paradox-of sound vision but flawed execution-contributed to the government's downfall and offers important lessons for Bangladesh's future and for other developing nations embarking on similar paths in development pursuit.

The true financial implications of these projects have yet to be fully understood. Globally, cost overruns frequently exceed 25 per cent and infrastructure projects typically have time horizons extending beyond political terms, making long-term planning and accountability challenging. The problems in Bangladesh's infrastructure development run deeper than mere cost overruns. Even the awarding of contracts required political guidance, potentially compromising the integrity of the selection process. Once established, the infrastructure failed to bring full benefits due to systematic contributions to political parties, further eroding potential gains.

As a result of these projects, the burden of foreign debt increased considerably. Combined with a rising dollar, this led to economic instability, making the middle classes uneasy and subjecting the poor to rising inflation. These economic pressures contributed significantly to the growing discontent that ultimately led to the government's undoing.

To give some context on the extent of irregularities, the most crucial of which was cost overrun, let's consider the celebrated Padma Bridge. This project was completed at a cost two to three times higher than that of comparable bridges in other countries. While it's not unusual for infrastructure -project costs to be revised upward due to rising input prices, the scale of cost escalation in Bangladesh's case is alarming.

This excessive cost was not solely due to justified increases in material prices or geographical challenges, as often claimed. Instead, every project in Bangladesh suffers from "shadow costs" that significantly inflate overall expenses. These include purchasing luxury vehicles like Pajeros for tasks that only require pickup trucks, misusing free fuel for personal purposes, and taking unnecessary foreign trips under the guise of "technology transfer." Moreover, even individuals not directly involved in project implementation are kept happy, with these practices extending to the highest levels of government and administration.

This pattern of inflated costs was evident across infrastructure projects like roads, expressways, and metro-rail systems. Alleged widespread corruption in bidding and implementation have inflated costs and compromised quality. Environmental concerns were often sidelined in the rush for development. A lack of accountability and good governance exacerbated these problems, escalating project costs and turnishing AL's goodwill among the public, ultimately eroding their political legitimacy.

For developing countries like Bangladesh, infrastructure development is a cornerstone of economic growth, poverty reduction, and improved quality of life. Studies show that public spending on infrastructure has a higher multiplier effect on the economy than tax cuts or fiscal transfers. Typically, this multiplier is 1.5, meaning one dollar of public investment leads to 1.5 dollars of economic activity. Given the lower infrastructure stock in developing countries, especially Bangladesh, public investment is likely to generate even higher returns.

Importantly, advanced infrastructure requires an educated and technically competent workforce of managers, officers, and entrepreneurs. However, due to the focused intrusion of political criteria, Bangladesh's education system was not generating these necessary human resources. Political nepotism compounded this problem, hindering the hiring of competent workers and firms. The middle-income trap comes often from a failure to develop the human capital needed to maximize the benefits of infrastructure. Bangladesh seems to risk falling into this trap for overlooking balanced development.

As Bangladesh enters a new political era, it's crucial to learn from these experiences. The interim government should focus on two key lessons from international practices. First, establish a systematic, transparent project-selection process, prioritizing projects with the highest payback and factoring in all externalities. Second, consider harnessing the private sector for capital and improved project management, developing standardised contracts and independent regulators to balance taxpayer protection with investor certainty.

The recent political upheaval offers a chance for course correction. While the vision of building infrastructure remains valid, its execution has been deeply flawed. A fundamental shift is needed to address these execution challenges and promote more effective governance. If one measure can ensure both democratisation and distributive justice, it is decentralisation. Decentralisation is the means to achieve higher productivity through better distribution. The new interim government, unburdened by entrenched interests, is uniquely positioned to initiate these crucial reforms.

One of the authors is a professor of economics at East West University, Dhaka, and the other is professor emeritus at the University of Illinois, Urbana-Champaign, respectively.

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