Bangladesh in the Next Eleven

This was foreseen by one of the most respected and largest investment banks in the world, the venerable Goldman Sachs. In its Global Economics Paper, issue number 134 published on December 1, 2005, Goldman Sachs economic researchers have placed Bangladesh among the "Next 11" countries after Brazil, Russia, India, and China (BRIC), which have the potential to be substantial economies in the next decades.

If Bangladesh remains on track in economic reforms it could become the 22nd largest economy in the world in the year 2025, less than 20 years from now. The objective of this article is to share the content and lesson of this exciting Goldman Sachs research report with the inquisitive audience of Bangladesh.

In analyzing other countries that might have BRIC-like potential Goldman Sachs focused on demographic profiles which drive much of the research. Without a substantial population, even a successful growth story is unlikely to have a global impact. Hong Kong will never be a global power, nor Luxembourg, despite the very high levels of income and living standards that they have achieved. Goldman Sachs calls this larger developing-country set the Next Eleven (N-11), though whether they will emerge is still an open question for many. This group shows broad representation by region and includes Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, and Vietnam.

Goldman Sachs ran projections of US Dollar GDP, real GDP growth, income per capita, incremental demand and exchange rate paths for each of these economies. The composite projections reveal that, by 2050, the largest economies in US Dollar terms will look very different from today. China would become the largest economy, followed by the US, India, Japan, and Brazil. Mexico becomes the sixth-largest economy, slightly ahead of Russia, though Russia still emerges as the wealthiest BRIC nation in terms of GDP per capita. Indonesia, Nigeria and Korea could overtake Italy and Canada by 2050, but the other N-11 members do not catch up with the current G7 group. The rise of the N-11 will potentially be significant in absolute terms. Bangladesh ranks as the 22nd largest economy in the world by 2025.

In terms of income per capita, the picture is slightly different. By 2025, most of the BRICs and N-11 would be entering (or would have crossed) the US Dollars 3,000 threshold, a crucial sweet spot for consumption. By 2050, all of the BRICs and seven of the N-11 (Egypt, Iran, Korea, Mexico, Philippines, Turkey, and Vietnam) cross the high-income US Dollars 15,000 threshold. At the end of the period, Bangladesh's income remains by far the lowest of the entire group, at US Dollars 4,500. For the N-11 ex-Korea and Mexico, the productivity catch-up potential is even more important, as their demographics alone will not allow growth of BRIC-type proportions.

Deciding how plausible it is for a country like Bangladesh in the N-11 to be a candidate for a BRIC-type story, or somewhere close, highlights the importance of getting growth conditions right. A country's growth performance is a combination of its potential and its conditions. In general, developed countries have lower potential (they are already developed), but the chances of meeting that modest potential are good. Developing countries have much higher potential for rapid growth, but the difficulty is to achieve and sustain the conditions that allow that potential to be realized.

In order to rank countries' abilities to meet their growth potential, Goldman Sachs has developed a Growth Environment Score (GES) that aims to summarize the overall environment in an economy, emphasizing the dimensions that are important to economic growth. Relying on the large body of research on the determinants of economic growth, GES was constructed using 13 sub-indices, which can be divided into five basic areas:

• Macroeconomic stability: Inflation; government deficit; external debt.
• Macroeconomic conditions: Investment rates; openness of the economy.
• Technological capabilities: Penetration of PCs; phones; Internet.
• Human capital: Education; life expectancy.
• Political conditions: Political stability; rule of law; corruption.

The basic notion is that strong growth is best achieved with a stable and open economy, healthy investment, high rate of technology adoption, a healthy and well-educated workforce, and a secure and rule-based political environment. The GES shows that some of the N-11 are quite well-placed. Korea stands out as a better performer than the rest of the group. But Mexico and Vietnam (and to a lesser extent Iran, Egypt, and Philippines) also score relatively well currently in terms of growth conditions. At the other end of the spectrum, Nigeria, Bangladesh, and Pakistan all score relatively poorly. Turkey and Indonesia lie somewhere in between.

The Goldman Sachs report gives attention to two vital aspects. On the one hand, it talks about the tremendous potential Bangladesh holds to become one of the respectable economies of the world in the not-so-distant future. On the other hand, it also demystifies the growth conditions that need to exist for our economy to reach its full potential.

On the Growth Environment Score, Bangladesh stands among the group of the lower-performing countries. However, it is not the end of the story for Bangladesh. The tremendous amount of determination and resilience this country has shown in the past only reinforces the fact that it is also capable of substantially improving its growth conditions.

Bangladesh has already achieved remarkable success in developing human capital in terms of higher literacy rates, life expectancy, empowerment of women, etc. Technological capabilities have improved from the past but still lags behind some of its other South Asia counterparts. Penetration of PCs, phones and internet into the villages of Bangladesh should be ensured through policy mandates. The macroeconomic stability factors in terms of inflation, government deficit, unemployment and external debt management have relatively been well-managed in Bangladesh.

This country has also opened itself up to the world faster than its immediate neighbours and has started to see the benefits through increased flow of foreign capital. However, the critical growth environment where we have to make major improvement is political conditions in terms of stability, rule of law, and corruption.

Prolonged infighting and division between the major political parties could cost the country the possibility of reaching the position of respectability in world economy, denying the expert forecasts of Goldman Sachs.

Mamun Rashid is a banker.