For generating employment in a relatively short time, it is essential to support the entrepreneurs through ensuring credit with flexible terms and conditions, at low interest rates
With the first detection of Covid-19 in the country in March and infections still showing a rising trend, economic activities have remained subdued for several months.
This has resulted in a loss in income and employment for millions of people, especially those engaged in small scale manufacturing employment and service sectors.
Given that as high as 85 percent of the labour force is engaged in informal employment, saving the livelihood of these people and generating employment opportunities for them are the key tasks ahead.
The challenges of employment against the backdrop of Covid-19 can broadly be related to a number of major avenues:
(i) Fall in domestic demand due to loss in income (including fall in remittances) and confidence among consumers
(ii) Fall in global demand
(iii) The influx of labour supply due to return migrants
(iv) Restricted productive activities in the domestic market
(v) The Slow pace of private investment
(vi) Loss in future capital accumulation due to the present crisis
The crisis in employment and income can, therefore, prolong even after the infection is under control. Thus it is crucial to understand the extent of employment crisis from both short and long term perspective (we may assume short term being three months from now, the medium-term being one year and long-term being two years).
In the short term, while the focus should be more towards meeting the basic necessities, in the medium to long run, from a macro point of view, employment generation can be considered too closely related to economic growth.
While considering a moderate employment elasticity of growth and even with a high growth scenario of 8.5 percent, an aggregate projection model reflects a large gap in potential labour force and employment which can be much higher with a pessimistic growth scenario of 3 percent.
In the case of youths aged 15 to 29 years, the projected gap is even larger, posing a threat to our capacity to realize a demographic dividend. In terms of growth projection, it is, however, worth mentioning that, in the proposed budget of 2020-21, though the GoB projected a growth rate of 8.2 percent, with
Covid-19 infection still at an increasing rate, domestic demand scenario does not appear to be promising.
In addition, with the global recession and lower price of petroleum, the future scenario of two major drivers of economic growth – RMG and foreign remittances – which are also major sources of employment is also quite uncertain at the moment.
Besides, with the addition of return migrants in the labour force, the challenge of employment generation is even greater. Another crucial element of our projection is that of employment elasticity – with employment elasticity gradually falling in recent years, the projected gap in employment could be even larger than that in Table. According to SANEM, from 2009/10 to 2017/18, employment elasticity of growth was estimated to be 0.25 percent.
Amidst the challenges of Covid-19, two major ways of generating employment are: (i) through stimulating private investment; and/or (ii) while encouraging small scale employment activities.
However, as for private investment growth in the next few years, high domestic financing, as proposed in budget 2020-21 and uncertainty in the business environment, is not proposing an optimistic scenario.
The government has already announced a number of incentive packages along with a number of incentives for the RMG sector in budget 2020-21.
On one hand, a careful re-designing of these incentives conditional on protecting the rights of the workers, while on the other, alternative strategies like creating a separate fund for providing credit to those who might get laid off in coming months (including the return migrants) is worth considering.
For generating employment in a relatively shorter time, it is, however, essential to support the entrepreneurs through ensuring credit with flexible terms and conditions and at low-interest rates.
In budget 2019-20, Tk100 crore was allocated for the start-ups of youths. Such incentives are essential to generate employment for urban youths in particular.
The GoB announced an incentive package of Tk 20,000 crore for the MSMEs and cottage industries. But due to the prevalent complexities as in the banking channels and proposed high rate of interest (9 percent shared by the government and the loan recipient), employment generation through this package is only possible if the terms and conditions are made favourable.
The budgetary allocation of Tk2,000 crore for overall employment generation in rural areas targeted towards the youths, farmers and return migrants is definitely a positive step towards encouraging self-employment activities.
However, given the widespread impact of the pandemic, particularly on those producing/offering products/services with income elastic demand and living on daily/weekly earnings, it is, however, not unlikely that many of those might have already lost their small capital base to safeguard their livelihoods.
It is therefore essential that all such incentive packages and budgetary allocations are accompanied with terms and condition favourable to those engaged in informal activities/petty trades and with small capital base.
Sayema Haque Bidisha is Professor, Department of Economics, University of Dhaka. Tanveer Mahmood is Research Associate, Bangladesh Institute of Development Studies (BIDS).