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Wednesday, April 17, 2024

How rich are the rich in Bangladesh?

Abutting the Gulshan Club and overlooking the Gulshan Lake, a 12-storied building is nearing its completion. Construction workers donned in orange helmet and neon harness belts are detailing out the finishing touch as the building’s ornate façade glistens against its monochromatic concrete backbone.

This building, known simply as “Three”, is constructed by the elite real estate developer BTI Ltd, and is arguably the most expensive residential apartment building ever built in Bangladesh. Aside from having the most sought after zip code, the 11 apartments—each spanning a whole floor of over 7000 square feet—is stocked with amenities and gadgets that very few in Dhaka even heard of.

All the apartments, with a whooping base price tag of Tk 20 crore each, were well sold even before the construction started. That’s not all; BTI carefully needed to screen out its owners from over 50 applicants who all wanted an apartment there!

Crowded shopping malls like Jamuna Future Park, one of the largest in South Asia and new billboards that appear to cover every available space advertising things as diverse as packaged foods and smartphones are all evidences of the country’s rising disposable incomes. But this BTI building, perhaps more than anything else, speaks of the growing abundance of wealth among Bangladesh’s rich.

A study of Boston Consulting Group (BCG) says Bangladesh’s consumer class is swelling and dispersing and although only some 7 percent of the country’s current population can be classified as middle income or affluent (MAC), compared with 38 percent in Indonesia, MAC Bangladeshis will account for around 17 percent of the population by 2025.

Incidentally, while the South Asian nation, as a whole, have gone the distance from being Kissinger’s infamous basket case to one of the fastest growing economies in the world, it also at the same time bagged the unwanted reputation of having one of the most glaring wealth inequalities.

The Gini coefficient score—which is used to gauge income inequality in a nation—in Bangladesh over the period from 1983 to 2016 had increased from 26 to 32, reflecting almost a 25 percent rise, said the data of the National Human Development Report 2021 released by the Economic Relations Division under the ministry of finance.

To put that simply, the richest 5 percent of the Bangladesh population now owns nearly 30 percent of the country’s wealth while the wealth share of the bottom 40 percent is 21 percent.

The rise of the millionaires

According to a survey from the New York-based research firm Wealth-X, Bangladesh topped the list of countries with the fastest growth in the number of wealthy people between 2010 and 2019. The research said Bangladesh’s population with net worth of $5 million or more has grown 14.3 percent annually in that period. Vietnam, with 13.2 percent annual growth, was the second-ranked country in that category.

Wealth-X report also projected that the number of high net-worth (HNW) individuals in Bangladesh will rise by 11.4 percent in the next five years, making the country among the top five countries with HNW’s growth.

Another data of the Bangladesh Bank (BB) would help to understand the scenario: The number of millionaire bank account holders stood at 1,08,457 in the last quarter of 2022. It basically means the country has more than one lakh what colloquially known as “Kotipotis.” Just after the independence in 1971, the number of such Kotipotis was just 16.

However, the number of accounts with at least Tk 1 crore is not even one percent of the total bank accounts in the country, but they hold about 43.23 percent of the total deposits in the banks.

“Bangladeshi rich people are getting richer every day while the poor are scrambling to make a living,” economist Dr MM Akash told Fintech. “Contrary to what most people think, the growing number of people getting rich does not necessarily mean the economy is getting better. This is because only a small number of them reinvest their money.”

“Yes, overall we have gone through a massive development trajectory in the past few decades but the distribution of that wealth has remained significantly disproportional,” Dr Akash added.

In the last three years, more people have fallen into poverty as a result of pandemic-induced lockdowns, Ukraine-Russia war and the resulting economic slowdown. A number of surveys conducted by various organizations show that the number of poor and extremely poor people has increased significantly—though the estimates vary.  

Several economists like Dr. Akash, believe that the difference between rich and poor has grown as a result of unequal distribution of economic growth advantages and a development strategy that has made Bangladesh one of the top countries for the fastest rise of ultra-wealthy individuals.

The country’s 8th Five Year Plan (FYP) candidly identifies various policy failures that have resulted in the continued existence of inequality in the country. Specifically, it refers to the failure of policies that ought to have provided a more equitable distribution of the nation’s newly acquired wealth.

For instance, Bangladesh’s Tax to GDP ratio stands at an abysmal 9 percent. The direct taxation system is hardly progressive, and tax evasion is rampant. As Dr Fahmida Khatun, Director, Centre for Policy Development, points out in an article, much of the wealth of the richer sections of the population is neither taxed and nor is it currently a matter of public scrutiny.

“Instead from taxing the richest, successive governments rather bow to the corporate community’s demands to decrease the existing taxes in the name of offering incentives,” said Dr Khondokar Golam Moazzem, research director of CPD adding that when workers take to the streets to demand a pay hike, the government sends in the troops on behalf of industry executives to suppress their voices.

According to a Finance Ministry research, 45-65 percent of Bangladesh’s assets are not taxed. As the super-rich have numerous ways to avoid paying their taxes, a major percentage of the government’s revenue comes from indirect taxation, such as value added taxes (VAT), which are levied on everyone regardless of wealth.

“It’s ironic that the impoverished spend a huge part of their money on taxes, whereas the wealthy spend only a little portion of theirs,” Dr Moazzem said also debunking the myth of “trickle-down” effect—an economic theory, which justifies huge tax breaks for the rich, in which the poorest somehow benefit as a result of the wealth increase of the richest.

The Bangladeshi billionaire conundrum

The concern of rising gap between the rich and the poor, as well as the unequal distribution of wealth meanwhile has gained traction in the world recently. Oxfam’s yearly inequality report probably serves as the most damning indictment of this rise in disparity.

According to their data, the wealthiest 1 percent of the world’s population reaped the benefits of 82.5 percent of the world’s total wealth creation in last year. But the bottom half of the population got absolutely nothing from it.

Interestingly, even though Bangladesh is the 35th largest economies in the world, it still hasn’t any officially recorded billionaire as of now. Forbes’ recently released World’s Billionaires list says there are 2,669 billionaires in the world, and none of them are from Bangladesh. Even Eswatini (formerly Swaziland), a small African economy 100 times smaller than Bangladesh, has a billionaire.

Among the 71 countries with at least one billionaire, 31 had a smaller economy than that of Bangladesh. For instance, seven billionaires came from Chile, which has an economy that is about 78% of Bangladesh’s one. On the other hand, Cyprus had four billionaires even though its economy was only one-fifteenth of ours.

Journalist Sheikh Rafi Ahmed argues that there indeed are billionaires in Bangladesh, but they are hiding all of their wealth in offshore accounts and real estate. The apprehension is justified given that 11 Bangladeshis were named in the Pandora Papers for doing precisely that. Large sums of capital outflow, as well as tax evasion in Bangladesh, make it difficult to estimate the real wealth of many individuals and this lack of reporting may be a contributor to Bangladeshi billionaires not being included,” he said.  

Dr Naznin Ahmed of Bangladesh Institute of Development Studies (BIDS) told Fintech that the existence of billionaires in a country has nothing to do with its GDP or policies.

“Since Forbes only records a billionaire’s nationality and not the primary source or region of his profits, it is possible for a person to never have made a penny in their own country but still be classified as a billionaire,” she said.

Pointing out the alarming rate of capital outflow through over and under invoicing of imports and exports, Dr Naznin said the ultra-rich in Bangladesh doesn’t keep all of their wealth within the country.

Capital outflow from Bangladesh has indeed been so tremendous that the Global Financial Integrity Report of 2017 put Bangladesh at the top of the list of least-developed countries in terms of “illicit financial flows.”

“The thing is, those who amass money in emerging Asia and Africa do it under the aegis of the state. Individuals who obtain preferential treatment from the state or have close ties to the state machinery might amass vast fortunes. Bangladesh is no different,” said Dr Naznin.

Read More Bangladesh’s economic crisis: A pall of gloom or shining lights ahead?

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