The Green Economy in Bangladesh: Prospects, Challenges and Implications
Understanding the Green Economy: A theoretical Insight
Contemporary economists around the world have recognized climate change as one of the biggest and most ubiquitous form of market failure, stating that a failure to maximize social welfare arises when economic activities pose social costs in the form of environmental degradation which are borne by those excluded from the production and consumption process; more specifically, Third world nations. Right at the core of the Greenhouse Effect lies unrestrained carbon emissions, a lion’s share of which are contributed by industrial powerhouses whose economic pursuits exacerbate the vulnerability of nations highly prone to adverse impacts of climate change. From a theoretical perspective, at a micro level, destruction of the ecology via private production or consumption is a classic example of ‘Tragedy of the Commons’, as stated by American ecologist Gareth Hardin, who explained it as a situation when over-exploitation of natural resources by individual consumers driven by profit-maximizing interests lead to the depletion/exhaustion of shared resources.
Inevitably, the omnipresence of a decades old existential threat like climate change has given rise to academic streams that went on to coin terms such as ‘resilience’, ‘adaptation’ and ‘green economy’, amongst a few others. However, discussions about effective long-term strategies to address climate change must persist, and this is where the notion of ‘green economy’ emerges. As Bangladesh continues to grapple with a mounting frequency and ferocity of natural calamities every year, concurrently, implementation of policies in pursuit of climate resilience and adaptation measures are being scaled up.
The concept of ‘green economy’ today is no longer restricted to the fundamentals of environmental economics, rather has emerged a popular and frequently debated area of policy discourse. Centering around a new economic paradigm which strongly advocates against economic expansion at the cost of environmental degradation, resource depletion, and ecological destruction, the concept of green economy calls out for greater public-private engagement and interaction. Where governments can promote and incentivize production of ‘green’ products through taxes, subsidies, and restructuring of market mechanisms, the private sector can respond by exploring multi-sectoral opportunities arising out of a gradual transition to the green economy.
Private Sector Engagement: The Status Quo
For Bangladesh, ‘Vision 2021’ is an upcoming benchmark set for its progression towards ‘middle-income’ status, an aspiration fueled by private sector-led economic expansion. Despite the huge demand to meet the socio-economic needs posed by climate change, the annual budget for addressing climate change impact in rural areas (which was USD $ 1.46 billion in FY 201819) remains insufficient. In such a scenario, inclusion of private sector and a partnership between public-private intervention to tackle climate change is critical. In the international arena, UN Secretary General Antonio Guteress has emphasized on the role of the business community, civil society members and intellectuals as pressure groups with the bargaining power to persuade governments to formulate policies supporting private sector efforts to address climate change, as efforts by businessmen and financial leaders are fruitless unless supported by state sanctioned policies. Mr. Guterres opined that these enhanced Nationally Determined Contributions (NDCs) must include carbon neutral strategies and green initiatives in multiple sectors such as energy, industry, agriculture, housing and transport.
Private finance is very limited in the contextualized climate change discourse of Bangladesh. In fact, private sector finance in climate resilience and adaptation is not at all commensurate with the externalities generated by production lines in private corporations. As such, a major share of contribution needs to come from public financing of climate change. In the Bangladesh context, almost all of monetary disbursements come from national organizations and private sources of financing are strictly limited (World Bank, 2014). However, keeping in mind the criteria for SDG financing and the need to meet the current demands for the global population, it is extremely essential that private investment is drawn into climate discourse, without which it will be impossible to tackle the climate crisis, both nationally and globally.
Recent times in Bangladesh have witnessed a number of studies which have analyzed potential actors/stakeholders willing to bolster private sector engagement in the battle against climate change. However, the reality is that in Bangladesh and for 99% of corporates, climate change is perceived to be a sector of nominal importance or at best, another channel for Corporate Social Responsibility (CSR) funds.
Identifying the Barriers: What are they?
The private sector (i.e., business, industries, chambers of commerce, etc.) has been active in demanding good governance in the country, as they are especially active in areas related to industry such as market, labor regulations, reform, and involvement in opposing political events that disrupt businesses, such strikes and violent demonstrations. However, the otherwise thriving private sector has yet to implement initiatives to prepare for future climate induced hazards or to safeguard their investments. A very important constraint in private sector engagement in climate change related projects is the lack of capacity to evaluate or assess them, which in turn is an outcome of their lack of understanding of climate change investments and risk-profiles as well their inability to identify stakeholder/beneficiary groups. For example, most of the commercial banks in Bangladesh rely on short term deposits, and an asset-liability mismatch also limits their ability and willingness to structure financial products with the longer tenure that is typically needed for climate change investments. In Bangladesh, the market for climate change investments is largely donor-driven and involves collaboration with only a handful of risk-taking private enterprises willing to consider the marginalized population as target market. Despite the presence of a few micro and macro enterprises which have proved themselves as financially viable, opportunities to expand or upscale their operations are limited.
In summary, the bottlenecks to private sector engagement in the climate change-related interventions can be categorized as following
Governance or policy barriers: As explained above, opportunities to invest are more often inhibited by an absence of concrete policy infrastructure.
Financial barriers: A major constraint in private sector engagement in projects targeting climate change adaptation and resilience, is the lack of capacity of financial institutions to evaluate cost and benefits associated with potential investments. Additionally, it also lacks the information on the challenges and opportunities of climate change business.
Information Barriers: A lack of comprehensive understanding of specific types of climate change investments and their risk profiles means that actors operating in the private sector often find it difficult to develop and manufacture appropriate product and/or service lines. As a result, there is a lack of consensus on how private service can be scaled up or capitalized for meeting local demands.
Infrastructural barriers: However, more than the availability of funds, the root of the problem remains in the lack of appropriate structural mechanisms in place through which the private sector can play a role in climate change mitigation and adaptation. Climate relevant investments, especially in low-income markets, still remain limited due to the longer-term risk in generating a lower financial return, which results from an absence of institutional framework.
What to do: Exploring ‘Green’ Opportunities
Today, Bangladesh strives for ‘inclusive’ growth, and to sustain a development dynamic that truly leaves nobody behind, there is no alternative to systemic diversification by shifting focus on untapped sectors which are burgeoning and can address the persistent problems of poverty and unemployment in Bangladesh. Despite its priority sectors contributing over six million jobs and close to $50 billion revenue from the domestic and international markets annually, Bangladesh’s primary dependency on the Ready-made Garments (RMG) exposes it to multiple shocks, thus further reinforcing the need to expand its comparative advantage.
Sectors such as energy, information, communication, and technology (ICT) and tourism are on a fast-paced growth trajectory, exhibiting double-digit growth annually, and have the potential to be game-changers by contributing to the rapidly expanding need for renewable energy and ‘green’ technology. Echoing the Digital Bangladesh vision of the incumbent government, the ICT and outsourcing industry alone, earned $1.7 billion in the last fiscal year and created around 940,000 jobs. The notion of ‘ecotourism’ has caught on very quickly, with the tourism industry registering a robust annual revenue of $5.3 billion in 2019.
One of the biggest upcoming industries is agri-business and agri-technology, which in turn has the potential to expand the market for climate resilient agriculture/adaptation technology through extensive research and development. Successful prototypes include hydroponics, crab and sunflower; however, potential stakeholders must take into consideration the context-specificity, cultural specificity, cost-effectiveness, local availability and environmental sustainability before investing in any new product line. Building backward and forward linkages to overcome infrastructural barriers can help local/small-scale farmers willing to cultivate such products, engage with the large agro-processing farms which will ensure easy access to local SMEs and financial institutions. State-sponsored training in improved farming methods, pesticide usage and post-harvest storage techniques can make pivotal contributions in terms of capacity-building. At the macro-level, government bodies willing to facilitate the promotion of these products in the international market can play a significant role by helping the private sector attain international certifications and standards.
Conclusion: The Time for Nature
Global behemoths spend billions of dollars every year, in their endless quest to make more money by capitalizing on toxic, unbreathable air, destroyed forests and habitats. And yet, who could have thought that a submicroscopic parasite like the Covid-19 would so unabashedly reveal our naked vulnerabilities, all hidden behind fallacies of supposed human progress. It is about time that we realize that magnanimous investments must be made into businesses that are environmentally and climate sensitive, and learn the importance of building back better, in a greener way, so that economic development and environmental sustainability go hand in hand.
Change, however, must be full-fledged and comprehensive. Our academic disciplines should incorporate a new lens to measure profit, and students must be taught to think beyond the traditional 3Ps of profit-profit-profit and understand the analytics of the new 3Ps- people-planet prosperity. New generation private sector leadership must be guided by the ‘New MBA’, which will educate a younger, more conscious generation of businessmen and leaders to be sensitive to the social and environmental consequences of every action.
The Covid-19 must be treated as a clarion call for the world. For Bangladesh, the pandemic period saw overarching challenges materialize in the form of Cyclone Amphan, to be ensued by intense floods inundating north-eastern regions of the country. As we ponder over our recovery strategies on all fronts, we must keep in mind that the transition to the ‘new normal’ needs to be tied to two key parameters of growth-sustainability and resilience.
About the Author:
Lamia Mohsin is currently working as a Junior Consultant in the United Nations Development Programme, (UNDP), Bangladesh Country Office. Her areas of interest include climate change resilience, public policy and governance. She can be reached at lamimohsin95@gmail.com
