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The Financial Express

Higher middle class density helps inclusive growth


Higher middle class density helps inclusive growth

A vast middle-class society has grown in the country during the last two decades following stable economic growth of over 6.0 per cent and service-sector boom in the country. A resilient economy has developed because of endeavouring people of the country, according to a study.

Faster growth was also witnessed in the number of middle-income and affluent consumers compared to some of its neighbours. Two million Bangladeshis join the rank of middle and affluent class (MAC) a year, said a global management consulting firm, in its report.

By the year 2025, the number of MAC is expected to triple to about 34 million from around 12 million at present.

The country's MAC population is expanding rapidly -- by an average of 10.5 per cent annually. That compares with 7.8 per cent in Indonesia, 7.9 per cent in Myanmar and 4.9 percent in Thailand. It is one of the most untapped growth markets in Asia, yet it has been off the radar of most major consumer-product companies, the study says.

Currently, only 7.0 per cent of Bangladesh's population of 160 million is middle-income or affluent, compared to 21 per cent in Vietnam and 38 per cent in Indonesia. But the MAC population is expected to be 17 per cent of Bangladesh's population by 2025, due to a decade of stable economic growth, a growing working-age population and strong upward mobility.

Another study conducted by the Bangladesh Institute of Development Studies (BIDS) says one-fourth, or 25 per cent, of the total population will belong to the middle-class income category by 2025, due to greater access to education, finance and IT services, and private sector employment.

Access to post-secondary education, especially English education, salaried jobs in the private sector, digital divide, access to financial saving and credit instruments, access to international migration and initial land or flat ownership appear to be separating the middle-class from the poor.

There is no denying the fact that the middle class community acquired self-identity through education in the past. But, currently education is not that important in terms of earning money, and against that backdrop, self-identity is also getting reduced. But nearly 80 per cent of Bangladeshi people believe in harmonious practice and coexistence of religions.

However, according to a World Bank assessment, one fifth of the country's population is said to be the middle-income group that is growing. The assessment noted that the growing consumption by the group helped the country to obtain a 6.0 per cent plus growth in the last one decade.

In fact, the growth of the middle class was phenomenal in the country. A recent study on 'Faltering middle class aspirations in Bangladesh' signifies that a growing number of Bangladeshis have been able to achieve a middle class consumer lifestyle  over the years, driving the foreign direct investment (FDI) in the consumer goods market.

Expansion in services, especially the retail, financial and public administration sectors, was responsible for the growth of middle class. The sectors grew between 8.0 per cent and 13 per cent compared to that of the growth in agriculture, leading to the creation of more jobs for the middle class.

The socio-economic changes that broadly explain the emergence of the middle class are increasing incomes, urbanisation, white-collar occupations, fuelling demand for consumer products and services. Government policies and the nature and level of spending have also otherwise influenced the pace of the middle class's creation.

Besides, house rent, cost of education and medical treatment and transport charges also saw a steady rise while the income of these groups remained static, making it harder for them to make ends meet. A large section of them are showing signs of being incapable of dealing with the sudden price hike of essential commodities.

The middle-class people want to lead their lives with dignity and that is why they give importance to housing and education first and then go for food, medical treatment and transportation. After spending the lion's share of their income on these, they cannot meet their food and other expenses with the amount left. This problem needs to be addressed.

The country's middle-class is otherwise a good component for inclusive growth. The nations with higher middle-class density are able to reduce poverty faster than those with lower density. The growth of middle-class has been driven by human capital accumulation and property price appreciation. Human capital accumulation means more people now possess post-secondary or higher levels of education.

If the present trend continues, the middle-class will comprise one-third, or 33 percent, of the national population by 2030. The middle class will be the driving force behind the country's economic development. By strengthening these people, a sustainable development is possible. 

Access to post-secondary education, especially English education, salaried jobs in the private sector, digital divide, access to financial saving and credit instruments, access to international migration and initial land or flat ownership appear to be separating the middle-class from the poor.

It has been observed that 48.4 per cent of the middle-class population is employed in the private sector and 20.4 percent in the public sector.

About 67 per cent of the middle-class population chooses Bangla as their medium for education, while 23.5 percent opts for English. Yet the researcher says that everybody needs to lay special emphasis on English and make it a second language after Bangla.

Describing the middle-class as a good component for inclusive growth, experts say the countries with higher middle-class density are able to reduce poverty faster than those with lower density. By strengthening the middle-class, a sustainable development will be possible.

Experts say assessment of Bangladesh's labour market showed some significant improvements in terms of employment growth and performance.

The decline of underemployment rate despite the high rate of growth of labour force reflects an increase in labour demand. This has resulted in the growth of real wage.

Another aspect of the performance of the labour market where improvements are required is the predominance of informal employment: Eighty per cent of all employment was of the informal sort.

Despite the observed shortcomings in the quality of employment, progress towards higher employment growth, especially women, can help both economic growth and social change in future.

According to another expert, the behaviour of foreign direct investment inflows to least-developed countries has changed in the 2000s.

The FDI inflows are not directed towards countries having natural resources in this decade; rather, they were diverted to the LDCs having higher trade openness, human capital and financial depth.

Maintaining macroeconomic stability, developing the financial sector and liberalising the trade regime could be important policy options for LDCs like Bangladesh to receive more external capital to finance development.

Internal harmonisation of policies would provide leverage to LDCs to bargain under the Istanbul Programme of Action (IPoA) for receiving more external financing for development.

 Nevertheless, the pipeline has been built up with undisbursed aid in many LDCs including Bangladesh due to poor project implementation capacity that led to delays and cost escalation.

Subsequently, the issue needs to be addressed with utmost importance for receiving more Official Development Assistants.

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