What car sales data tell about wealth distribution in Bangladesh
The sales of luxury cars, such as BMW, Mercedes-Benz, Audi, and Lexus, increased by a staggering 300% in FY23, according to importers
The New Year began with an ultra-wealthy businessman showing off his new luxury car, allegedly one of the 20 made in the world. While not so conspicuous, the mega-rich of the country have not fallen behind the trend of buying luxury cars, despite crippling inflation and import restrictions.
The luxury car showrooms in the capital's upscale neighborhoods feature vehicles from every premium brand in the world—all of which are imported, naturally, with dollars.
According to Bangladesh Bank, the nation's gross foreign exchange reserves fell to about $27 billion by 28 December, the last working day of 2023. And if we take the IMF's 6th edition of the Balance of Payment and International Investment Position Manual (BMM6), the reserve is only $21.44 billion, while net reserve now stands at around $18 billion.
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Inflation climbed to a 12-year high of 9.02 percent in the recently concluded FY23, while forex stocks stood at $29.944 billion in mid-July from a record $48.6 billion in August 2021.
21.11%—nearly one in every five people—is grappling with food insecurity.
And yet, amidst everything, luxury car imports in Bangladesh tripled compared to the previous year, despite the dwindling foreign exchange and restrictions on non-essential imports due to the financial crisis. Moreover, the market for brand-new cars achieved steady growth.
According to the Bangladesh Automobile Assemblers and Manufacturers Association (BAAMA), the import of brand new cars increased by 28% in FY23, compared to the previous fiscal year.
The sales of luxury cars, such as BMW, Mercedes-Benz, Audi, and Lexus, increased by a staggering 300% in FY23, according to the Bangladesh Luxury Car Importers Association (BLCIA).
The statistics look even grimmer when we take into account that overall automobile sales dropped 44% in the first six months of 2023, according to the Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA). Especially, the sales of reconditioned cars, used mostly by the middle class, have plunged.
"The decrease in both imports and sales of refurbished cars can be explained by higher prices linked to the appreciation of the US dollar as well as the ongoing macroeconomic fragility," said macroeconomist Jyoti Rahman, who is also the Director – International of the Sydney Policy Analysis Centre.
"It is self-explanatory and intuitive that anyone with a fixed income who has to pay their bills will find it hard to save up to buy a more expensive car."
However, he finds it counter-intuitive that the mega-rich are thriving. He says, "At hard times like this, such a vagrant display of wealth is perhaps unprecedented in the nation's history," adding, "Rather than trickling down, the benefits of economic growth in Bangladesh seem to have flowed upward, resulting in significant inequality, not just in income and wealth but also in consumption."
The disparity in car sales may be an excellent example of how wealth is being concentrated in the hands of a chosen few while the rest of the country is facing increasing difficulty in their everyday lives.
Bangladesh has seen the third-quickest growth in the number of high-net-worth individuals in the world between 2018 and 2023.
According to the Bangladesh Bureau of Statistics (BBS), the Gini coefficient (measures the dispersion of income or distribution of wealth among the members of a population. The lower the coefficient between 0 and 1, the higher the inequality) is now 0.50 in the urban areas, 0.54 in the sub-urban regions, and 0.45 in the rural areas. Simultaneously, income inequality has increased in the country.
Inequality is on the rise
The income Gini coefficient is 0.499 in 2022, compared to 0.482 in 2016 and 0.458 in 2010. On the other hand, the consumption Gini coefficient is 0.334 in 2022, 0.324 in 2016, and 0.321 in 2010. It shows that the concentration of income is increasing.
Meanwhile, the rich has seen a significant increase in their earnings, as the top 10% of the population now holds a 41%, about half of the nation's total income, while the poorest 10% claims a measly 1.31%.
According to SANEM (South Asian Network on Economic Modeling), the Palma Ratio, which measures the total income of the wealthiest 10% in comparison to the poorest 40%, has seen an 8.53% increase since the previous Household Income and Expenditure Survey (HIES) in 2016.
This increase signifies that the income of the top 10% is now 3.18 times higher than that of the bottom 40%, underscoring the prevalent income inequality.
The contrasting trends in Bangladesh's car market indicate the widening gap between the mega-rich and the middle class in terms of consumption patterns. And Rahman is of the same opinion regarding the matter.
"While the mega-rich are spending lavishly on expensive cars, the middle class is cutting back on their spending on essential and discretionary items. This gap is also evident in other sectors, such as housing, education, health care, and entertainment. The difference in wealth and income that has been exacerbated by the pandemic and its aftermath is reflected in the disparity in consumption in Bangladesh."
Rahman also pointed out that much of the luxury goods are imported, thus, such extravaganza may affect the crisis-striken economy.
"Even luxury services are imported – super rich do not go to Cox's Bazar, they go to Dubai. If consumption is dominated by the rich, then it is likely to increase import demand, which means more demand for dollar. At a time of dollar shortage, this makes things worse."
Why is this so concerning?
One of the main downsides of consumption inequality is that it reduces social welfare and happiness. As goes the Easterlin paradox, people's happiness depends not only on their absolute income but also on their relative income compared to others.
Therefore, when the rich consume more conspicuously, they are likely to create a higher reference point for the rest of society, making them feel relatively poorer and less satisfied with their lives. This can potentially lead to frustration, resentment, and lower self-esteem among lower-income groups.
A potential downside of consumption inequality has been stated by Rahman. He argues that it exacerbates income inequality and reduces social mobility.
"Rich people invest more in their own and their children's human capital through extracurricular activities, tutoring, private education, and elite networks. This is a direct result of their increased consumption of luxury goods and services. Because of this, they have an unfair advantage in the job market and the educational system, which enables them to steadily grow their wealth and income."
Meanwhile, the poor and the middle class have less access to these opportunities and face more barriers to upward mobility. This can create a vicious cycle of intergenerational inequality and a rigid class structure, of which Bangladesh can be a great example.
This may have a long-term adverse effect on the Bangladeshi economy and society, says Rahman.
"Furthermore, if the rich stays in their own world of gated communities with private security, educate their children in private schools, and goes overseas for holiday or medical treatment, they will have no stake in the Bangladeshi state. We already have one of the lowest tax-GDP ratio. Over time, the super-rich will resist any attempt to raise taxes. As the state around them decays, they could well hide behind their gates. The result could be the loss of much won development gains of the past generations."
The car market in Bangladesh is a mirror of the economic and social realities of the country. It shows how inequality in consumption has increased among different segments of society and how inflation and import restrictions have influenced consumer behavior.
It is merely an indicator that the fruits of development and prosperity are not being distributed as promised. Consumption inequality is not only a reflection of income inequality but also a cause of many social and economic problems.
It reduces happiness, hampers growth, and limits mobility. Therefore, it is important to address this issue through policy promotion to ensure more equal distribution of income and wealth, as well as more equal access to opportunities and public goods.
