Agro-processing industries—the brightest prospect for development

The growth of gross national product (GDP) is important for increase in national output, income and last but not least, for employment generation. In this equation employment generation has a pivotal place. Without employment of people national output and income cannot be sustained, not to speak of increasing. It is the people in the labour force who adds to output and income, both as producers and consumers, when they are gainfully employed. Employment is crucial for a country like Bangladesh where poverty prevails for over 25 per cent of the population. Growth is possible without incremental increase in employment through labour-substituting technologies but it will not increase per capita income and welfare of people belonging to the army of the unemployed. Because of this the strength of an economy, both in developed and developing countries, is judged by the number of jobs created or conversely, by the number of people unemployed. As there are new entrants in the labour market, year-on-year, growth has to provide gainful employment to them so that the economy does not stagnate or poverty becomes widespread or acute.

Unlike the other parts of the equation (output, income) employment has a multiplier effect on the economy. It expands output, increases income and sustains GDP growth through uptick in consumer expenditure.

In the early stages of economic development agriculture, the primary sector, accounts for bulk of employment providing jobs to the majority. As the economy grows the contribution of agriculture to employment declines and manufacturing, the secondary sector, takes over its role in employment generation. At the mature stage of the economy, services sector becomes the major provider of jobs, exceeding manufacturing sector, leaving agriculture far behind. In practice the progression of the three sectors in their contribution to employment has not followed the scenatio predicted by economists like Colin Clark whether for developed or developing countries. Development of technologies in the information sector, diversification of financial services and growing availaability of leisure of the employed have led to the promotion of the services sector, upstaging the industries sector. Though this trend is symptomatic of the economic development in the developed countries, countries like Bangladesh are also going through the same transition, though less rapidly. But compared to agriculture (17 per cent of GDP), and manufacturing (33 per cent of GDP), the services sector in Bangladesh is leading accounting for 50 per cent of GDP.

The preponderance of services sector in the contribution to GDP together with its reliance on labour-intensive methods indicates its importance in employment generation. Unless it is overwhelmingly automated, the services sector will continue to be the major provider of jobs both in the formal and informal sector.

Growth of the three sectors in national economy depends on GDP growth, directly or indirectly. By the same token, their contributions to employment depends on their role in promoting GDP growth. If it is said that employment is crucial for sustaining GDP growth (through participation of labour in production of goods and services), it has to be admitted that it is equally important for GDP to support the sector that is creating the bulk of employment year-on-year. To make this happen the services sector should receive investment resources and other support (e.g. tax incentives, credit facilities) commensurate to its role. An investment strategy focusing on a sector that contributes fewer employment compared to the services sector will not achieve this goal.

A new study jointly by the Asian Development Bank (ADB) and the Internatiomal Labour Organisation (ILO) has come out with the finding that Bangladesh needs 8.0 per cent economic growth annually to absorb the surplus labour in economy in the next 15 years. In a study like this, it must appear as a great omission to overlook the changing pattern of labour force absorption by the various sectors. The present status of these sectors in this context would have given an insight into the prospucts for employment generation in the near term. Highlighting the role of the sectors separately for employment generation could be a more plausible starting point for projection of GDP growth required to absorb the unemployed in labour force.

The ADB-ILO study is right in saying that the manufacturing sector will continue to be the engine of growth and opining that the base of this sector need to diversify. But it has not identified the industries that have prospects for development in the near future in this context. The brightest prospect is in agro-processing industries which are not only of medium scale requring small amount of capital, they are also labour-intensive. These industires have the additional advantage of forging backward linkage giving boost to agricultural production. The omission of agro-based industries is surprising considering the fact that the study has observed that Bangladesh has been unable to create a large pool of jobs industries outside the garment sector. Regarding garment industries the recommendation in the study that being labour-intensibe it should continue to grow does not take into account the gradual increase in wages that will put it at a disadvantage in relation to competitors with lower wages. The limitation of garment as a major source of employment has already been brought to light by China.

The services sector providing the highest number of employment, both in the formal and informal sectors, has not been given adequate emphasis in the study in spite of its stellar performance in job creation. The study has merely observed that ‘some promising service sectors such as information technology, software, machinery repair and tourism have the potential to grow further if the right incentives are given’. The services sector, including financial services, transport, restaurants, retail shops and schools and colleges, are not only promising, they have already proved their capacity to absord both educated and half-literate individuals. The incentives for these sectors are already there in the form of demand. What they need is freedom from restrictive regulations.

The study has bemoaned the fact that although Bangladesh economy is growing around 7.0 per cent annually, the labour market is not growing. This is puzzling because growth of GDP has nothing to do with increase in labour forces. It is a function of population growth and demographic transition. The point for consideration here is whether growth of different sectors is commensurate with their potential for employment generation. Education has been discussed in some detail in the study both in relation to access to employment and reduction of income gap. This is a valid point but it underestimates the importance of the type of education in obtaining jobs in the market. Ordinary graduates should not be seen as superior to individuals with technical skills. Not only at home, migrant workers abroad have a better prospect for jobs when they have technical skills. In any discussion on employment in Bangladesh emphasis has to be given on skill formation rather than on general education.

The migrant workers and their contribution to the economy have been discussed in the study at great length giving information that is already known. In a discussion about the role of GDP in employment generation, the migrant workers should not figure boyond mere mentioning as they are not the effect but the contributor to GDP. The comments on migrant workers are all valid but as has been mentioned above they do not fit the bill here if the analysis is made of the basis of GDP’s contribution. Growth in GDP does not promote migration of workers rather it is the other way round. To conclude, the study has been descriptive, offering mostly facts that are already known.

What is more disappointing, it ignores the comparative employment generation roles of the three sectors and fails to assign priority on the sector that is leading in this area for a long time.

Source: The Financial Express. Date: 23 November 2016