Impact of the Metro Rail Project on the economic growth of Bangladesh

Bangladesh has had tremendous economic growth in the recent past. The annual growth rate of the nation was as high as 7% (on average) during the pre-Covid-19 era and around 6% (on average) during Covid-19, despite the tremendous exogenous macroeconomic shock induced by the pandemic, which pulled down the economic growth of the entire world. 

The sustainability of the economy has been tested time and again by natural and manmade disasters. It has also been affected by external economic shocks that originated in foreign economies and passed through to the national economy. 

Despite these unfavourable circumstances, the country has been adept in identifying its infrastructural needs in order to catalyse the process of holistic macro and socio-economic developments, thus turning the country into a positive example to follow. 

Infrastructural excellence defines the modes, effectiveness and efficiency of transportation which is tagged with the internal capacity of every business to offer its goods and services effectively to the clients. 

As mentioned in the 8th Five Year plan of the country, the public sector spending priorities, which include development expenditure, healthcare priorities, education, power, energy, transportation, agriculture as well as rural infrastructure and integrated water resource management (excluding social security and non-development expenditure) has seen an increase in terms of GDP, taking the target to 17% of GDP in FY 2025 from its 2010's value of just 8.4%. 

Therefore, it is only rational that these investments are chosen carefully to ensure that the country's ability to withstand any sudden shocks arising from the costs of these projects can remain intact. Projects must also be taken based on priorities in view of the recent ongoing macroeconomic challenges of the economy that primarily unfolded due to exogenous factors such as the ongoing global inflation, the Russia- Ukraine war, and policy rate hikes in the developed economies.

The government's aims for undertaking infrastructure projects are amply supported by the recent initiatives, which range from building the Padma bridge to the most current project - the Metro rail initiative. Motijheel can be reached from Uttara by the Metro Rail in roughly 40 minutes. 

Such transportation options are anticipated to significantly contribute to the economic development of the nation by transforming people's lifestyles. 

Infographic: TBS

To understand the overall long-term economic impact of this project, BDRAL has developed a model that captures most of the important aspects that a national infrastructure project can offer. The model is shown below:

To comprehend the impact of a project such as the Metro Rail, it is important to understand several issues from the beginning. To start with, the "Big Push" theory. As suggested in this theory, the road to development is not smooth. It is rather lumpy. To move a stagnant economy forward, what is needed is a "Big Push" so that the initial inertia or the stagnation of the economy can be removed. 

Several infrastructure projects in Bangladesh, especially those which are being implemented simultaneously, are likely to offer a big push to overcome the inertia. These projects often do not directly offer benefits to different industries, but their indirect impact is significant in the long run. 

Interestingly, there is a long gestation period for these projects, which makes it difficult to realise their impact in the short run. Unless there is a certainty that essential supplementary investments will be made, any single investment proposal may be deemed too risky to proceed with. However, a massive investment program, conducted as a whole, might significantly increase national revenue. 

These projects are examples of external economies, and their benefits eventually transfer to industries which help expand their operations as well as create internal economies and offer cost reductions in other related ones that use the products or services of these first set of industries as inputs.

The accumulation of profits, as a result of such cost savings, will eventually offer expansions to the second set of industries as well offering holistic expansion in the economy of the concerned country. 

Alexander Gerschenkron, dubbed the significant advancement in the industrialisation of Russia as the "Great Spurt". He suggested that at the onset of this, the larger relative backwardness of the country experienced a rapid subsequent expansion in manufacturing, lowering contributions of the agricultural sector to the economy, slower increase in consumption, and greater stress on producers' goods compared to the consumers' goods. 

The scenario of Bangladesh seems similar if all these variables are compared to those of the economies from the developed world. 

Considering these, it is obvious that the Metro Rail project is also going to offer indirect benefits to the country (since this is a component of the Strategic Transport Plan and only one of many projects under it) with significantly lower risks and is likely to push the outputs of the manufacturing sectors up. This will increase these sectors' contribution to the GDP and reduce the relative contribution of agriculture in the long run. 

To clarify the benefits and costs of this project and offer further clarity to the concepts presented above, we can look at the Economic, Environmental, and Social (EES) model for national infrastructure projects and briefly discuss its components one by one.

Economic Costs and Benefits:

Time and other cost savings: 

The Metro Rail project, on average, will save 100.6 minutes per person per day (Average travel time using Bus = 146.8 minutes, Using Metro rail = 46.2 minutes).  If all of the Dhaka dwellers, 22.50 million people, use the services of the Metro rail of Bangladesh, savings will be as high as Tk73,575 million or Tk7,357.5 crore. Besides, the Metro Rail project will also save USD 2.4 billion each year, which is equal to 1.5% of the national GDP.

Revenue:

Fare revenue was set up based on the results of the traffic demand forecast and fare rate, which is set as Tk5 per km for passengers. An extra stream of revenue will be arriving from retail sales activities and advertising, which is likely to be equal to 10% of fare revenue. 

Costs and Financing:

Major costs of the project came from the Escalation factor, Tax and import duty, and Land acquisition costs. In total, the cost of the project was estimated to be Tk220 billion. JAICA gave 75% of the funds at 0.01% interest and the Bangladesh Government offered the rest. 

Increased Fuel costs during the construction phase:

The construction phase of the Metro Rail projects have already caused huge traffic congestion in several locations of the city pushing up travel time and fuel consumption.  

Long-term impacts on businesses:

• During, prior and post the construction period, there will be significant benefits offered to the businesses from Bangladesh. 
• For example, the roof trusses, which are prefabricated structures designed to support roofs, of the stations of the Dhaka metro rail project were made locally by McDonald Steel Building Products. These sorts of events will expand the business operations of some businesses and may also offer economies of scale reducing their production costs. 
• It will offer other businesses who use their products as inputs at a possibly lower cost offering profit accumulation and further opportunity for growth for the latter (as per the suggestions of the Big Push theory). 
• Moreover, savings in travel time will offer physical, mental and economic benefits for the working population of Bangladesh which increases the efficiency and productivity of the employees at different business units. It will also help increase savings for individuals, which will be used to consume more products and services in the future. It is  also likely to increase private investments in the years to come.  
• We have not assessed the possibility of carrying freight using metro rails. These will certainly add a significant stream of revenue in the years to come. It is stated that the metro rail will carry potentially 60,000 per day. 
• If we consider an average weight of 80KG per person, it is equivalent to carrying 5,291 tons of weight per day. If this volume of freight can be carried at night, freight costs for different businesses will be reduced, offering even more earnings to the Government, and creating less pollution and traffic too at night. Saving on transportation costs will also offer greater efficiency to certain businesses, improving their chances of enhancing profit and growth.  

Environmental Impacts:

1. It has been estimated that Bangladesh can save USD 2.6 billion if we can reduce 60% of traffic congestion in Dhaka. If the Metro Rail gets the expected level of acceptance, this scenario is very likely.
2. The environmental aspects should have received more importance. The possibility of using renewable technologies at the stations should have been considered. Since the line is a large extended one covering major land areas in Dhaka city, it can be easily used for solar energy harvesting. These can save costs and resources for the country. 
3. However, environmental pollution (arising from dust and other particles) during the construction phase is certainly adding to the costs of pollution. But this can be offset by carbon reduction which can be achieved following the completion of the project due to lowered traffic congestion. 

Social Impacts:

1. Employment generation at the pre, during and post construction phases will offer significant social benefits.
2. Safety is another major social issue that the project is going to offer to the passengers of Dhaka city. This should have also been reflected in the discussions and documentation surrounding metro rail.
3. Increased losses in terms of physical, and psychological forms due to traffic congestion. 
4. Safety is another major social benefit that the project is going to offer to the passengers of Dhaka city. Travelling using the metro is significantly safer in contrast to using buses. 

Country Branding:

The implementation of this project will indicate that Bangladesh is moving towards remarkable economic development and is a viable market for international Trades & Investments. The automatic country branding achieved through this project is likely to increase the volume of trade & investment as well as add to the national tax revenue resulting in an increase in the GDP of this country.  

These discussions offer a layout of how the metro rail project, one of the most important development projects of the country, may offer long-term benefits in terms of the economic growth of Bangladesh. If we can build on the benefits offered by this project, we will also be able to sustain this growth in the years to come.  

Dr Syed A. Mamun, FCMA, CSRS is the CEO of Bangladesh rating Agency Limited (BDRAL), a subsidiary of Dun and Bradstreet South Asia Middle East Limited. 

Md. Kamrul Bari, MIPA AFA is a First Assistant Vice President at BDRAL at the Advisory, Research, and Training (ART) unit. 

Ashish Kumar Ghosh ACMA is an Assistant Vice President of BDRAL.