Making Sense of Bangladesh’s Investment in Megaprojects: Development or Delusion?

26 October 2021 Assistant Professor Kazi Mohammad Jamshed, FDI Associate

Megaprojects are not the panacea for all infrastructural deficiencies, but they are one of the best available options for addressing Bangladesh’s particular infrastructure deficiencies, transport crises and power shortages in a sustainable manner.

 

Background

History shows that megaprojects often become landmarks for a country by having a transformational impact on the lives of its people. Infrastructural megaprojects are material drivers that accelerate the economic growth of developing countries. As Bangladesh has begun to cast off the nomenclature of “least-developed country”, the country has simultaneously begun to adopt a “megaproject culture” – the move to combine multiple projects into one megaproject. Although Bangladesh’s success story, especially in managing funds for “big-ticket megaprojects”, has been applauded worldwide, it faces criticism regarding the prudence of those investment decisions.

 

Comment

By prioritising eight mega-infrastructure projects, Bangladesh is planting the seeds for a sustainable future. These widely-discussed projects are the Padma Bridge and Rail Link, the Metro Rail project, the Chattogram-Cox’s Bazar Rail Link, the Rooppur Nuclear Power Plant, the Coal-Fired Power Plant of Matarbari and Rampal, and the Payra Sea Port.

To make the Vision 2041 of becoming a developed country a concrete realisation, Bangladesh has emphasised the timely implementation of its “flagship projects” since they are expected to raise the country’s GDP by four per cent when completed. Despite the economic fall-out triggered by the Covid-19 pandemic, the construction of those megaprojects has continued uninterrupted. The projects are expected to extend the country’s economic margin by upgrading existing physical infrastructure and creating an exemplary business environment.

The outlay of a big chunk of its resources on these projects has resulted in the biggest investment boom in Bangladesh’s development history, showcasing its economic rise and development. They are expected to transform the economic face of the country by creating new businesses and acting as an economic development engine. For instance, the Padma bridge will connect 21 southern districts with the capital, ensuring the cheap and regular supply of raw materials needed for industrialisation and the Matarbari port will boost cross-border trade by facilitating speedy port services and connectivity.

These “multi-billion-dollar projects” are expected to generate sustainable returns. The government’s effort to mobilise investors and donors to ensure investment sources created a big financial space for hard infrastructure development. The country is trying to utilise those projects as an inducement for further investment destinations by offering tangible benefits such as logistics support and non-tangible benefits such as a competitive environment.

These signature projects, if properly managed, will successfully address Bangladesh’s infrastructure deficiencies, transport crises and power shortages. But the “iron law of megaprojects – over budget, over time, over and over again” created the “megaprojects paradox” – giving birth to two opposite schools of thought regarding their impact on the community. One school criticises megaprojects, questioning their financial viability and complaining about cost overruns, environmental degradation and overburdening external debt. Another school justifies megaprojects, stating that the government usually conducts an extensive “cost-benefit analysis” before starting any giant-project and cancels any project if it is not economically viable or environmentally sustainable, such as scrapping the planned Sonadia deep-sea port.

Investing in megaprojects to stimulate economic development has been one of the most popular policy instruments since the Great Depression of the 1930s. Even the United Nations’ “Sustainable Development Goals Framework” emphasised spending about US$57 trillion on infrastructure by 2030 to ensure desired global GDP growth. Bangladesh envisaged implementing “large-infrastructure megaprojects”, even before “Agenda 2030” was adopted, to make the country the “investment hotspot” of South Asia. The East Asian Tiger economies, during their early development, invested heavily in ground-breaking megaprojects to deliver economic and social goods to the masses. To accelerate its economy and hasten national progress, Bangladesh is following in the footsteps of “The Asian Story of Grand Success.” Bangladesh may also profit from the lessons learned in the construction of the Gyeongbu Expressway in South Korea on how to generate maximum output from megaprojects.

These high-yielding projects could act as an economic game-changer through revenue generation for maintenance and capital accumulation for future funding, to move the economic growth rate to two-digits. These trait-making – not trait-taking – projects could change the social structure and landscape by exploiting economies of scale. The difficult challenge is to address cost escalations due to slow progress, while reducing bureaucracy to avoid a debilitating effect on implementation and preventing corruption to make sure that these initiatives do not fail. These projects may go off the rails due to over-complexity, over-optimism and poor execution, which also need to be addressed.

Megaprojects are not the panacea for all infrastructural deficiencies, but one of the best available options. It is the responsibility of the government to confirm that the tendencies for cost underestimation and benefit overestimation are avoided right from the planning stage. Megaproject promoters, while promoting them, could create a distorted perception, making it difficult to decide which projects deserve further examination and which not. These initiatives by the Government of Bangladesh are, however, just the beginning of a journey towards greater national prosperity.

About the Author

Kazi Mohammad Jamshed is a strategic affairs and foreign policy analyst, working as an Assistant Professor at the Department of International Business, University of Dhaka, Bangladesh.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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