Making the most of a changing rural economy

Rural Bangladesh is changing. This change has happened quite rapidly over the past two decades. Rural activities change and the types of occupations change. The same goes for the way of life of the rural population. This was motivated by the income opportunities of a large number of the rural population beyond agriculture. Thus, the rural non-farm sector has become an important source of job creation.

Over time, significant structural changes have taken place in the economy of Bangladesh. Over the past five decades, the agricultural sector has been overtaken by the industrial and service sectors in terms of contribution to the economy. Many developed countries have experienced a similar structural transformation in their economies. Agriculture plays a much less important role than other sectors. As a result, the sector is no longer a major source of employment in these countries.

However, in Bangladesh, more than 40% of the total labor force is still engaged in agriculture, although the sector contributes only 13.65% to the Gross Domestic Product (GDP) of Bangladesh in 2019. This implies that there is a surplus of labor in the agricultural sector. who are underemployed. On the other hand, employment in the manufacturing sector, whose share in GDP is 35%, did not increase as expected but rather remained stagnant.

The Labor Force Survey and the Household Income and Expenditure Survey of the Bangladesh Bureau of Statistics indicate that in the financial year 2016-2017, the share of rural non-farm employment in the total rural employment was 48%. This figure rose from 37 percent in 2000. Rural people are engaged in several types of labour-intensive physical work such as independent cottage industries, handicrafts, wage employment in rural enterprises, transport and construction work, repairs, etc. are also professions with human capital which include monthly employees of public and private administrations, teachers in schools and colleges, lawyers, country doctors, midwives, etc. traders, etc. need both financial and human capital.

Most villages in Bangladesh are now connected to cities as economic needs have increased. Improved connectivity has facilitated this. It also changed the rural landscape. New activities and services such as tea rooms, cafes, restaurants, salons, beauty salons, nursery schools, coaching centers, health clinics, diagnostic centers, photocopying, printing , cyber cafes, communication, processing and many other vocations are available in and within the outskirts of the villages. This diversification also indicates the increase in purchasing power in rural areas. Furthermore, it suggests that the quality of human resources and the entrepreneurial spirit of rural people have improved now than before.

Limited land is an important push factor for rural people to engage in the rural non-farm sector. With a large population and limited land, land pressure is very high. The average farm size is also decreasing. In addition, many rural families are landless. As a result, for many, income opportunities from agriculture are shrinking. This led rural families to find activities beyond agriculture. Many migrated to cities in search of work and engaged in various informal activities. But not all of them can find a job. So they try to find work in the rural non-farm sector.

The education of the new generation is another factor encouraging rural people to leave the agricultural sector. Many families have been able to increase agricultural productivity through the use of technology despite the small size of the land. They invest this income in the education of children so that their future generation can move towards human capital-based activities rather than labor-based activities. Thus, the children of agricultural families make a transition from agriculture to livelihoods based on the non-agricultural sector.

Many initiatives have also facilitated the expansion of the rural non-farm economy. First, the programs of non-governmental and governmental organizations have helped non-farm activities to flourish. Organizations such as Grameen Bank, Brac, Palli Karma Sahayak Foundation and others like them have played an important role in helping rural people finance their businesses.

Second, improving infrastructure had an important role to play in creating new employment opportunities in the non-agricultural sector. Since the mid-1980s, improvements in roads, culverts and bridges have increased the speed of lives many times over. Thus, the time required to carry out the activities has decreased. Furthermore, access to electricity has also brought significant changes in rural areas. Rural electrification has facilitated the creation of several new employment and income opportunities. People could work at night and shops could stay open at night due to the availability of electricity in the villages.

Third, remittances sent by non-resident Bangladeshi workers were invested in non-agricultural activities. Remittances have also increased the purchasing power of rural populations. Rural wages have increased due to the influx of remittances, although productivity has not increased to an equal extent. Indeed, labor productivity in the agricultural sector is comparatively lower in Bangladesh than in many other countries. In addition to remittances, the expansion of the manufacturing sector in the cities where migrant rural workers were hired has also boosted rural wages. The export-oriented garment sector is a major source of employment for the rural population, including women.

Fourth, access to technology has created new opportunities. Cable television, computer, mobile phone and internet have brought drastic changes in rural areas. Rural people can get in touch with big cities and the world. Through technology, they can access information about their product markets, weather, jobs, healthcare facilities, and more.

Much of the potential for future transformation of the rural economy is still untapped. With greater investment, the sector can be further diversified and developed. During the ongoing Covid-19 pandemic, reverse migration has been observed in Bangladesh. Many people who had previously migrated to the cities returned to the villages after losing their jobs and income. Ironically, the big cities couldn’t accommodate them, but they could somehow survive in the villages. Not only is the cost of living lower in villages, but they have housing and a social support mechanism.

The pandemic has reminded us of the importance of the rural economy. In addition, the need for financial support for small businesses has increased. Most businesses in rural areas are very small and service and trade oriented. Many of them are unregistered and rely solely on local markets. Very few of them could extend their activities outside their region. Since many operate informally, they cannot take out loans from financial institutions. This was also seen in the case of the small business stimulus package announced by the government. Micro and small enterprises do not have bank statements, which discourages banks from granting them loans. However, if these businesses are not supported, many will not be able to survive. Therefore, special credit disbursement measures as part of stimulus packages are needed. Moreover, the role of microfinance institutions in the revitalization and modernity of the rural economy is also crucial.

A stronger and larger rural economy is crucial for job creation and poverty reduction. This in turn will contribute to reducing inequalities and achieving sustainable development.

Dr. Fahmida Khatun is executive director of the Center for Policy Dialogue.

The opinions expressed in this article are those of the author and do not necessarily reflect the position of his organization.

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