The importance of being poor!

The title may raise a few eyebrows. But the title justifies itself if we look at what is happening around us. Urban demand for consumer products continues to be sluggish around the world and to fill the void rural markets are growing faster in some of the largest emerging economies. To be precise, attention of the world is now focused on rural economies with an expanding market base.

Examples of China and India, the two leading economies of the present world, will illustrate the situation suitably. In India, 800 million rural residents spent $69 billion from 2009 to 2012, which is 25 per cent more than that of their urban counterparts. In addition, the present $12-billion consumer goods market in rural India is likely to hit $100 billion by 2025, according to recent estimates. Furthermore, demand in the countryside in China has already begun to overtake the demand in urban areas. Similar trend is in sight in such countries as Mexico and South Africa where rural residents are hopeful that their wages will exceed that of urban middle class in not too distant a future, which means, this will create an upward demand in consumer goods in these areas and an urge for higher standard of living will be created. This will foster higher economic growth in the regions. 

In this respect India has taken a few giant strides ahead. As personal disposable income is rising, the commodity market in India is making way to branded products, and more expensive goods are replacing entry-level versions. In addition, nearly 75 per cent of the factories that opened in India in the past decade were built in rural areas as observed by Credit Suisse. Rise in income of these people is largely due to the steady migration of manufacturing jobs to the countryside. This is what happened in India. 

The consumption trend in Bangladesh is also changing its pattern, as rural consumers with their increased purchasing power are no longer restricting themselves to locally manufactured products but are inclined to costlier branded ones manufactured by reputed national and multinational companies. They now account for almost 55 per cent of the country's manufacturing GDP (gross domestic product) and 70 per cent of all new manufacturing jobs. As a result, per capita GDP in the countryside has grown at a compound annual rate of 6.2 per cent since 2000, eclipsing the 4.7 per cent of urban growth rate.

Shift of focus from urban to rural markets has just started taking effect in Bangladesh. In recent years, there has been a rising awareness about the inter-linkage between rural and urban areas obviously necessitated by falling demand of urban markets. In addition, rising income of the rural people due mainly to remittance from migrant workers has created opportunity for higher consumption. Rural-urban linkages include flows of agricultural and other commodities from rural-based producers to urban markets or vice versa, for local consumers and for national and international markets. Conversely, urban-rural linkages consist of flows of manufactured and imported goods from urban centres to rural settlements. They also include flows of people moving between rural and urban settlements. Flows of information between rural and urban areas include information on market mechanisms e.g. from price fluctuations to consumer preferences, and information on employment opportunities for migrants. Financial flows include remittances from migrants to their relatives and communities, and also investments and credit from urban-based institutions. Overall, synergy between urban-based enterprises and rural markets could be a key to the development of more vibrant local economies and, on a wider level, to a greater regional economic growth. 

The urban market is shrinking and a growing demand for rural markets is slowly unfolding the importance of being poor.

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