The missing middle in business

Staff Correspondent
Thursday, September 21st, 2017


 

When a $65-million theme park on the outskirt of Dhaka opened its gateway to Western-style amusement back in the early 2000s, it was seen by many as a strong evidence of the fast-growing middle class with diverse appetites. Soon after the gala opening of the fun park, economist Debapriya Bhattacharya told reporters that the financial viability of this theme park spoke about the emerging middle class and its new purchasing power. This middle class is said to be controlling around 40 percent of the national income.

 

The theme park, however, is one of major evidences of the long list that testifies the escalating financial strength of the Bangladeshi middle class. The list includes sprouting apartments, shopping malls, super markets, cafés and restaurants, local and international fast-food chains, resorts, and obviously the glittering car shops and the trail of private vehicles on city roads and highways.

 

Despite significant economic growth over the years, the support for the middle – access to capital, leadership, management or supply of skilled manpower – are all missing. Economists and business leaders say a key barrier to further growth of Bangladesh’s businesses is the missing middle phenomenon.

 

Bangladesh scenario

 

The recent report of the US Intelligence Council titled “Global Trends 2030: Alternative World” predicts that majorities of people in most countries will achieve middle class economic status by 2030. If we look at the increasing trend of middle class in Bangladesh, we see significant development with a steady economic growth in many areas in the past decades creates a sizeable middle class here. Some economists attribute the growth of the middle class to a rapidly growing service sector, steady inflow of remittances and the strengthening trend of self-employment and entrepreneurship.

 

Bangladesh Economic Association (BEA) president Abul Barkat in a study-paper estimates 47 million middle class people in the country, which shares 31.3% of the total population. He takes ownership of homestead of the rural population and the valuation of assets of urban people as the criteria to determine the number of people belonging to different socio-economic classes.

 

Another study of the Asian Development Bank (ADB) estimates the middle class in Bangladesh shares 10 percent of the population, which is lower than Pakistan’s 18 percent and India’s 30 percent. The data about the exact figure is sparse, but evidence is plenty and strong to suggest the rapid growth of the middle class in Bangladesh.

 

Why is this important?

 

Bangladesh was almost unscratched during the global economic turmoil in 2010 and 2011 excepting some ups and downs in foreign trade and inflow of foreign direct investment and remittances. The main strength that shielded the country from the global economic slowdown was the robust domestic demand driven by the middle class.

 

The strong desire among the middle class to lead Westernised lifestyle drives a rapid expansion of consumer demand and creates billion dollars domestic market, moving the economy even during the world-wide hiccups. This force of the middle class people demonstrates firmly that their presence is not only important, but indispensable in the process of attaining sustainable economic growth through endeavouring entrepreneurship whether it is for policy-making or its implementation. If things go otherwise, the very negative impact would hardly be avoidable in socio-political and economic fields.

 

Bangladesh Institute of Development Studies (BIDS) conducted a study on the growth of the middle class in the past two decades since 1990. The study was specifically designed to focus on the emergence of a sizable middle class and its economic implications. It understands that the middle class has not got much attention as a subject matter in studies of growth and distribution until recently. Most of the studies in Bangladesh were highly concentrated on poverty reduction issues with focus on the moderate poor and the extreme poor. The middle class people, who are above the poverty line, are vulnerable to downward mobility pressure.

 

The BIDS study, however, analyses the social and economic significance of the middle class and concluded that the middle class has economic implications for higher savings, productivity growth through development of new technologies, improved functions of cities, and for more broad-based growth. The study also revealed that addressing the proper growth of the middle class is highly important in transiting Bangladesh to a middle income status.

 

The middle class in business!

 

Traditionally, the lower middle class in Bangladesh is mostly job-dependent for making their living. Participation of thousands of people in every year’s BCS (Bangladesh Civil Service) examinations is a clear reflection that people in this country are eager to get a so-called secured government job than taking risk of entrepreneurships.

 

The people of this group for no reason believe that business is not their piece of cake. There is no study on the basis of this belief, but social observation suggests a lack of confidence in taking risk keeping the lower middle class out of the business circle. This class feels more comfortable with working for others than doing something to make own fortune.

 

Compared to the lower middle class, the people tagged as ‘have not’ showed significant success in doing business and entrepreneurships. Newspaper stories about such successes are very common nowadays that show many poor people are changing their fortune by establishing poultries, small dairies, fisheries and other small and medium enterprises.

 

However, presence in business of the mid-middle class people is getting prominence day by day. The people of this segment of society are doing business mainly in the field of manufacturing, retailing and service sectors including hotels and restaurants and trading firm produces and agriculture inputs. A good number of women entrepreneurs, mainly belonging to mid and upper middle classes, started business in the recent years and already showed success.

 

The big corporate houses belong to the upper middle class people who are considered as the richest people of the society. Beximco, Squire, Basundhara, ACI, City Group, Concord Group, Bengal Group, Nitol Group and many other big business houses are being run by the rich families in generations. Presence of mid middle class in this area is rare. The development of apparels industry has turned many middle class families into rich ones, but the large number of middle class people is doing business for years in other areas without achieving significant progress.

 

Business environment

 

Nihad Kabir, former Vice-President of Metropolitan Chamber of Commerce and Industry (MCCI) in a recent study paper noted that Bangladesh has an impressive macroeconomic track record. It experienced steady growth in domestic demand from 4% in the 1980s to 5% in the 1990s and 6% in the 2000s. As of 2011, its GDP was $100.6 billion.

 

The labour force is young and easy to train, and greatly available. Around 86% of the population is below 45 years of age, with at least two decades of work life ahead. Only Vietnam and India have comparable young populations. A National Skills Development Council was recently formed to help develop skilled manpower for domestic and international markets.

 

Major hindrances?

 

Many studies and experts’ opinion suggest that lack of startup financing and working capital and absence of institutional supports are the major barriers to start and run a business by middle class people. The people are neither poor enough to qualify for microcredit nor are they wealthy and influential enough to access to bank loans.

 

Every year, many young people of middle income group families come out from technical institutions and universities only to join in a long queue of unemployed pool of manpower. When some of them want to set up a business unit, they find hardly any financial help as the existing financial institutions have scanty fund and stringent mechanism to extend them credit.

 

Bangladesh Bank recently sent a directive to all scheduled banks and financial institutions to disburse loans from their various refinancing schemes to help women entrepreneurs. The directive was issued after the central bank received complaints from the field level that many branches of banks and financial institutions showed lack of interest in providing credit to women entrepreneurs from the refinancing schemes. The central bank earlier directed the banks and financial institutions to provide women entrepreneurs at least 10 percent of their refinancing funds, but the directive was not followed accordingly.

 

What are the remedies?

 

Like many other developing countries, Bangladesh cannot follow a US-style tax cut because of its limited internal resources and high dependency on taxes to generate revenue for public spending. The government, however, expands the ceiling of tax exemption every year to give middle income people bigger room for gathering savings. This tax relief, however, is still not enough to help flourish business as the amount is too little to support business.

 

Most countries around the world adopt specific policies for development of SMEs where people, mainly from middle income group, are involved. These policies include tax incentives, skill development and credit support. The growing middle class in Bangladesh can be a boon for economic growth if the government combats corruptions, facilitates investment and efficiently uses resources for development.

 

Some may wonder whether anyone can be an entrepreneur. The answer is NO if the anyone’ anyway refers to ‘everyone’. The reply, however, is affirmative in the case an individual provided with access to capital, backed by prudent policy and efficient institutional support.

Leave a Reply

  • National
  • International