Sunday, March 22, 2015

No End in Sight for Bangladesh Unrest

Photo: A Bangladeshi policeman (L) looks on as government party activists (R) wield sticks against activists of the Bangladesh National Party in Dhaka on Jan. 5.(HASAN RAJA/AFP/Getty Images)

Widespread violence and strikes across Bangladesh will soon enter their third month, extending a stranglehold on the economy that has cost the country billions. The world's second largest ready-made garments exporter, Bangladesh began the year courting investment to diversify its primarily textile-oriented manufacturing base to include low-end electronics and automobile assembly. But opposition political forces led by the Bangladesh Nationalist Party began an extended campaign of social unrest following the anniversary of last year's disputed Jan. 5 elections. The military, which has been the historical mediator of Bangladesh's deep political divisions, has repeatedly denied calls from the opposition to intervene and preside over fresh elections. The country faces an extended battle of attrition between the Bangladesh Nationalist Party and the Awami League government. The unrest challenges the growth the national economy and textile industry have experienced in recent years.

Bangladesh is a poor, developing nation situated at the north of the Bay of Bengal. It is almost entirely surrounded by India and shares a short border with Myanmar. The country sits along the fertile floodplain of the Ganges River Delta, and its geography has greatly affected its economic development. Bangladesh is one of the most densely populated countries on Earth, but the same swampy, fertile land that supports its growing population has also made infrastructure development notoriously difficult, resulting in one of the most bottlenecked transportation systems in the world.

Since the country gained independence from Pakistan in 1971, Bangladesh's history has been marked by deep political divisions, frequent military coups and decades of instability. This instability has helped keep the country poor and wages low. These circumstances gave rise to a textile manufacturing sector looking to take advantage of Bangladesh's favourable labour costs and geographic position within the broader Indo-Pacific region. But Bangladesh is still a victim of its weak political system and deep social divisions between the nationalist and centre-right and conservative Islamist elements of its society, resulting in the violent social unrest that has gripped the country for much of the current year.

The months leading into 2015 saw the Awami League enter a cautious dialogue with the opposition led by the arch rival Bangladesh National Party. Western capitals — including Washington and several EU members — that had decried the January 2014 elections and the Awami League's violent suppression of rival political demonstrations used their economic support to persuade Bangladeshi Prime Minister Sheikh Hasina's government to seek a compromise. This support is necessary for Bangladesh's economy; the European Union and United States are two of the largest markets for the country's ready-made garment exports. Especially concerning for Dhaka was the lifting of preferential trade conditions as a result of the controversy surrounding the 2014 elections. A primary motivator that influenced Hasina's government to negotiate with the Bangladesh National Party was Washington's decision to rescind Dhaka's Generalized System of Preferences status and EU threats to do the same.

The Awami League's cautious re-engagement with the Bangladesh National Party and the potential for a more politically and socially stable Bangladesh did not just offer benefits for the country's textile and garment industry. New Delhi was one of the few backers of the Awami League government in 2014. The closer ties between India and Bangladesh led to power transmission deals and the settlement of a long-lived maritime boundary dispute — one that expanded Dhaka's claims to a section of the Bay of Bengal, which may hold untapped deposits of natural gas, a significant boon to the electricity-starved economy. Dhaka also began expanding special economic zones along the coastal regions, wooing Chinese and Japanese investors drawn to Bangladesh's low wages in addition to its loose safety and environmental standards.

However, buoyed by rising international interest, Hasina's Awami League offered only token concessions to the opposition, which is led by the Bangladesh National Party's Begum Khaleda Zia. Noting the strong economic drivers behind the Awami League's outreach, the opposition coalition, which includes Islamist organization Jamaat-e-Islami, remained steadfast in its call for fresh elections overseen by a neutral caretaker Cabinet and its demand that Hasina step down as prime minister. The impasse carried over into 2015, with the opposition striking directly at the government's greatest vulnerability: the national economy and Bangladesh's highly vulnerable infrastructure system.

The Economic Impact of Unrest
Bangladesh's opposition parties, led by the right-of-centre Bangladesh Nationalist Party and its traditional Islamist partner Jamaat-e-Islami, launched a series of strikes, blockades and violent clashes coinciding with the first anniversary of the Jan. 5, 2014, national elections. Last year's polls represented a significant shift in Bangladesh's post-independence history. The incumbent centre-left Awami League sidelined the opposition through a series of constitutional changes, which include removing the military's ability to legally intervene in the political system, and by prosecuting Jamaat-e-Islami's leaders. The Bangladesh National Party and its political allies boycotted the elections, allowing the Awami League to claim a landslide victory despite criticism from the international community.

Bangladeshi Unrest and the Textiles Industry
Bangladesh's population of more than 150 million people relies on a congested and limited network of rail, road and ferry ways to move goods and people throughout the country. Groups of protesters burning tires and piles of trash have formed blockades across the country, effectively halting the movement of goods and people, often for days at a time. The economic impact can be seen everywhere. Crops have rotted in the field, garment factories have closed because of lost contracts and unemployment is rising as workers return from the cities to rural villages unable to find work. Domestic estimates place the economic cost of the unrest of the past three months at nearly $10 billion, a staggering sum given that Bangladesh's GDP is $150 billion.

Neither Hasina nor Zia have shown a willingness to negotiate. Traditionally, the military has been the arbiter in Bangladesh's often-chaotic political disputes, but the military leadership wants to avoid getting mired in the conflict for now because it could risk triggering greater unrest and violence. Zia's current strategy is to either force Hasina to capitulate or push the military to act, but the Awami League and the military are not likely to change their positions without a significant increase in violence and unrest.

Moreover, the military might not be the deciding factor in Bangladesh's current episode of unrest. During the past decade, professional organizations representing textile bosses have gained influence. Textiles and ready-made garments represent a significant portion of Bangladesh's economic activity, accounting for more than 60 percent of the country's industrial labor force and more than 80 percent of its annual exports by value. They are Dhaka's primary source of foreign currency revenue, which helps to lessen its negative trade balance. (Bangladesh still imports much of the basic resources needed for its garments trade, such as cotton, yarn and cloth, in addition to foodstuffs and fuel.)

Leaders of the three largest trade associations — the Bangladesh Garment Manufacturers and Exporters Association, Bangladesh Knitwear Manufacturers and Exporters Association and Bangladesh Textile Mills Association — have enjoyed close ties to the Awami League and the Bangladesh National Party governments. Both parties have been careful to cultivate these relationships. But the Awami League now faces rising demands from the associations regarding better tax benefits, looser wage and safety restrictions, and subsidized electricity and fuel to offset losses from unrest. The associations also met with the U.S. ambassador to Bangladesh on March 5 to aid efforts by foreign governments and corporations to appeal to economic partners, rather than political ones, to pressure the government and the opposition to resume peaceful negotiations.

Economic Pressure Unlikely to Force a Deal
Bangladesh's current bout of political instability and violence is likely to continue during the months ahead. Political polarization, especially between the Bangladesh Nationalist Party's camp and the Awami League government, will remain as both sides extend their brinksmanship. Hasina seeks to exhaust opposition supporters, relying on arrests, crackdowns and threats of legal action against Bangladesh National Party and Jamaat-e-Islami leaders. The Bangladesh National Party hopes to make the economic pain unbearable, though it risks alienating the business community and Western governments as well; U.S. Secretary of State John Kerry has repeatedly asked the opposition to stop resorting to violence, even as he thanked the current Awami League government for its help in combating terrorism in late February. This is where the Awami League's slight advantage over the opposition become apparent, at least in its own eyes. The ruling government's stronger ties to neighbouring India, better counter-terrorism record and traditionally strong links to labour unions have all contributed to its decision to maintain its absolutist stance.

Recent statistics from the Bangladeshi government's Export Promotion Bureau show that garment exports are still rising, with year-on-year growth of 7.8 percent in January and 6 percent in February. While industry associations have tracked a nearly 50 percent decline in short-term orders from international companies — to the benefit of competing industries in Vietnam, Cambodia and Laos — Bangladesh's textile and ready-made garment industries have shown a remarkable resilience, even despite the political uncertainties of the past two years. The military remains cautious about triggering a widespread backlash against a coup and agitating rising Islamist tendencies. But with the economy still growing and support declining with every Bangladesh National Party call for strikes and shutdowns, there is not enough incentive for the military to get involved in a difficult and chaotic political competition it has not been able to resolve in the past 40 years. With the military repeatedly announcing that it has no plans to end the current impasse and the Awami League choosing to consolidate its power at the cost of delaying investment and economic revitalization, Bangladesh sees no quick or easy exit from instability.

First published in STRATFOR Global Intelligence, March 20, 2015