How to overcome the barriers to green and inclusive growth in Bangladesh

Illustration: TBS

Innovative technologies, products, services and business models are required to realise the synergy between inclusion and greening of businesses. The barriers in the way of green and inclusive business ventures may be political, technical, financial, or managerial.

Based on cases and global experiences, recent literature focuses more on the barriers that are associated with supportive policies and incentive structures, bureaucracy, conventional thinking, and resistance to changing old practices. 

Greenness and inclusivity may be ensured by undertaking appropriate steps irrespective of the size of the businesses and entrepreneurships. Greening and inclusivity are already visible in industries like RMG in Bangladesh.

However, it is the micro and small enterprises, and the smaller entrepreneurship activities of the agriculture sector that play a remarkable role in optimising the benefits of green and inclusive enterprises in Bangladesh. Contribution of smaller enterprises and the agriculture sector is particularly crucial in the developing world. Low income and rural inhabitants have remarkable engagement and association with these ventures.    

Agriculture is a major economic driver in Bangladesh. Even though the sector's contribution to GDP has decreased (around 14%) over time, the rural population is still engaged with it. Despite the decline in growth rate and GDP contribution, productivity in agriculture has increased manifold and that is why the country is now self-sufficient in food production, and agricultural export has also increased over the last decade.

The contribution and productivity of the agriculture sector are associated with the country's food security, which employs close to 40% of the country's labour force. The industry is also a significant contributor as a provider of raw material sources for other sectors, such as poultry and livestock feed, leather, frozen food, canned food, etc. It is the core of the Bangladesh economy and plays an essential role in reducing poverty.

Climate change poses risks to agricultural output, and there are several challenges associated with value chain and marketing, financing, and development of processes without harming the environment. As a low-lying country situated on a delta, Bangladesh can expect increased flooding, salt water intrusion, drought and other natural disasters.

According to an estimation, Bangladesh is losing around 1% of its arable land each year - faster than its population growth. For food security reasons, it is imperative for farmers to deploy innovative and sustainable practices.

The potential of the sector is obvious with Bangladesh among the top 10 producers in several agriculture products. Globally, the demand for food is expected to go up by 60% by the year 2050.

Financial sustainability is crucial for the big section of the low income agricultural producers of the country, and to attract capable entrepreneurs to the sector. By ensuring inclusivity and greenness in the agriculture sector, its full potential can be harnessed and also benefits can be maximised.

Despite remarkable development, the agriculture sector has not reached its fullest potential, weathering challenges such as fluctuations in food prices, natural disasters, broken supply chain, volatile international markets, and more. There are scopes for improving agricultural productivity.

The pandemic has dealt the most significant blow to the agricultural productivity of the country, and according to an estimation by Brac, four core sectors of agriculture, fisheries, poultry, livestock, and crops and vegetables, have lost an approximate income of Tk656 billion ($6.7 billion) over the Covid-19 crisis.

Absence of robust supply chain and fragmented commodity market is disincentive to the farmers and agricultural producers. Over dependence on high-yielding seeds that cause fertility loss in the soil, and fragmented lands are also barriers. Despite remarkable efforts and contribution on the part of central bank, banks/NBFIs, and microfinance institutions (MFIs), barriers to access institutional finance remain a challenge.

In several instances, agricultural producers are not using modern crop production methods due to a lack of awareness and technical support regarding proper water resource management, irrigation, use of fertiliser and chemical pest control. The producers have a technology and knowledge gap when it comes to converting raw produce into high value processed food for greater benefits.

Migration from rural to urban, and agriculture to non-agriculture might prove to be big challenges if the sustainability of the agriculture sector is not ensured.  Poverty, food insecurity, lack of employment, climate change and environmental degradation are among the root causes of migration.

Agricultural credit facilities need further push, however demand side challenges are the major barrier to avail green and inclusive financing measures of the central bank for supporting marginal farmers, landless farmers, and sharecroppers.

Inclusive agri-business should work towards attaining food safety and food security where rural income people are involved both as the consumer and participant in the production process. The benefits of inclusive business include higher profitability, larger market share, lower operating cost, new consumers, better marketing of products and the ease of doing business.

The benefits for the poor are jobs and income opportunities, increased access to the market, empowerment of women and genders, access to innovation and technology, and better access to credit. Adoption of an environmentally favourable approach is associated with addressing climate change challenges, and safe and healthy production. Such a green and inclusive agri-business has direct contribution to the green and inclusive growth - the key macroeconomic goal of Bangladesh.

Contribution of SMEs is well recognised in developing countries like Bangladesh. SMEs are a very important economic force in a developing country because of their formidable role in creating employment, contributing to export earnings, reducing poverty, and spurring product innovations. Considering the importance, policymakers in almost all economies have been undertaking policies and strategies to promote SME sectors. 

In emerging economies, SMEs are contributing about 40% of the GDP and create 7 out of 10 jobs. According to the SME Policy 2019 from the country's Ministry of Industries, the SME sector in Bangladesh is made up of about 7.8 million enterprises that contribute close to 25% of the country's GDP.

A significant number of these entrepreneurs were found to be women who are playing a significant role in reducing poverty and unemployment. Contribution of SMEs is also significant to the country's export expansion. The share of RMG exports is approximately 83% of the total exports, and a good number of RMG factories are small factories and SMEs are also involved with the manufacturing of different types of garment accessories.

A significant portion of the workers' remittance goes to the SME sector. Families of most of the migrants live in rural areas, and a portion of these vast remittances is spent on productive SME investments activities that engage local communities and stakeholders.

SMEs can contribute to poverty eradication by creating job opportunities for villages and complement entrepreneurship in the agriculture sector. In doing so they can help improve the rural economy. Easily available raw materials and local resources may be used by the SMEs.

Sometimes SMEs play a role in the large industry; wastage and unused materials of large industries are often used by SMEs as raw materials. Planned development of SMEs might prove to be a remarkable force for improving inclusion and green growth.

As in most other developing countries, SMEs of Bangladesh confront a number of inherent challenges covering inadequate access to market and start-up capital; lack of bankable attributes; lack of collateral security; diseconomies of scale; and being highly vulnerable to business and economic turmoil.

SMEs generally use local technology to produce goods but these are not productive enough to fulfil the market demand, as a result, many SME entrepreneurs are losing their livelihood. Low productivity and lack of modern skills and knowledge of technology and marketing are said to be common difficulties with SMEs in the country.

Cluster-based SME business development might help solving a number of these problems. Clustering is a recognised strategy to strengthen and consolidate SMEs through promoting interconnectedness, competition, and cooperation.

Under cluster-based SME business development, policy and operational coordination would help to stimulate innovations, manage resources efficiently, ensure access to finance, promote marketing and supply chain, and can help environmental and social challenges.

Policy framework is particularly crucial in handling the green and inclusive business barriers. Policymakers matter in providing physical infrastructure, and also regulatory frameworks that are stable and secure, yet flexible enough to allow room for experimentation.

Market mechanisms may be influenced by designing subsidy and incentive systems for green and inclusive innovations, and to allow players to realise market-wide strategies and economies of scale. And it is also about facilitating cooperation and partnerships to fight the barriers. Coordination efforts and partnerships may crucially support this process - driven by actors such as grass-root intermediaries and entities, donors and policy-makers.

Sketch: TBS

Dr Shah Md Ahsan Habib is a Professor of Bangladesh Institute of Bank Management.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.