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Shutdowns: Economy feeling the brunt?

Faaria Tasin
THE biggest challenge for individuals and firms nowadays is to work their ways around hartal due to its increased frequency. Hartal was popularised by Mahatma Gandhi during the 1920s and 1930s when he institutionalised it by categorising a series of anti-British movements under this term. Originally a Gujrati expression, the word 'hartal' can be translated as 'locking doors' or 'closing down shops.' However, in present day Bangladesh, hartals are often associated with stagnation of overall economic activity.
It is interesting to note that the intensity of political instability increases as the country approaches closer to election year. The repercussion of this is clearly reflected on the growth rate of Gross Domestic Product (GDP) in election years as it is lower than the preceding years. In fact, growth rate already starts to slide a year prior to election years, depicting the fall in consumer confidence, investment and economic growth during that period.
Investment - a crucial driver of growth - has been hindered as a result of political instability. This can be shown as there has been a significant decline in growth rate of loans taken by the private sector as well as the considerable amount of idle money lying in banks; private sector credit growth has fallen from 20.3% in July 2012 to 11.3% in
August 2013. Excess liquidity of Tk.820 billion existed as of August 2013. Private investors are refraining from making commitments and investing as they are uncertain about the length of political unrest, which makes it difficult for them to calculate the depth of their risks. Default loans may also rise since businesses are not able to recover their investments due to a slump in business activities which adjoins to a further decline in economic growth.
The readymade garment (RMG) industry is hurt the most by political turmoil; retail, wholesale shops and shopping malls experience a fall in sales as customers are afraid to come out on hartal days. One way the shops try to recoup the loss in sales is by keeping their shops open on their day-offs.
Although businesses have different coping strategies to make up for some of the loss due to hartal, however, what the industry most certainly cannot make up for is the lucid signal of an unreliable market. Skepticism regarding the economic health of the country may discourage foreign investors from investing as there are other countries offering competitive factors and better political environments.
Lower economic activity also translates into lesser revenue for the government; in the face of a high public expenditure, the government may have to borrow in order to bridge the fiscal gap, and this entails interest rates. Other costs of hartals include disruption in the transport system, which can lead to a rise in production costs as well as hamper transportation of goods. Export competitiveness may decline which can cause a fall in foreign trade.
The group which is most vulnerable to hartals is the daily earners. Day labourers failed to find work amidst shutdowns, and this is reflected in the wage inflation which declined to 9.02% last month from September's 9.27% (BBS). To add to these woes, disruptions in transport systems lead to a shortage in food supply, thus increasing prices. Food inflation in October accelerated to 8.38% from 7.93% in September this year. These kinds of effects of hartals tend to be 'regressive' in nature, implying that lower the wage of the individual, higher will be the burden of hartal.
In addition to economic costs, there are social and human costs associated with political instability. The education sector feels the brunt of hartals as there are costs associated with missed classes and exams postponed. It adversely affects the performance of students and hampers future growth prospects. Human costs exist in terms of lives lost and injuries, however, social and human costs are harder to quantify.
The Dhaka Chamber of Commerce and Industry (DCCI) conducted a sector-wise survey this year to estimate the cost of hartals. DCCI estimated that one day of shutdown causes a loss of Tk. 1,600 crore ($200 million). A total of 52 shutdowns this year imply that losses have been equivalent to approximately 8% of GDP in fiscal 2013.
Interestingly, different studies produce different costs of hartals and recent studies show a higher cost of hartal than previous ones. This can be due to a higher frequency of hartals. A variation in results may also occur as different methodologies were used for different studies. Moreover, a higher cost of hartal may also be a reflection of greater integration between industries in the economy. As interdependence between industries is higher than before, a slump in one industry is likely to adversely affect the other.
The writer is head of research, The Daily Star.
E-mail: faaria.ts@gmail.com