Key Takeaways:
On July 16, student-led protests in Bangladesh turned violent, incurring military intervention. A media and internet blackout has been imposed, limiting access to information on the ongoing situation.
A curfew has been in place since July 18. While it is slowly being relaxed, local businesses and garment production have taken a hit as all economic activity was halted and only emergency services ran. Ceasing garment production is likely to result in global supply chain disruptions.
Increased political instability makes Bangladesh vulnerable to external intervention. Increased Chinese presence in the South Asian region will exacerbate Indo-Chinese relations, and improve Indo-Russian relations, both in the short and long term.
Overview of Events:
Bangladesh is under curfew and faces extreme violence and military intervention as riots continue across all major cities. The death toll has neared 180 as of 25 July, with some news sources claiming 200+. A country-wide internet and media lockdown was imposed on July 18, leaving local media unable to publish and families unable to contact those abroad. As of Tuesday, July 23, limited internet access has been allowed, and curfews are slowly being eased.
Mass, peaceful, student-led protests began in early July 2024 in response to the Awami League Government’s reintroduction of reserving 30% of jobs for descendants of veterans from Bangladesh’s war of independence from Pakistan in 1971. The demonstrations turned violent on July 16 after military action led to the deaths of 6 students; riots and arson attacks targeting government buildings, national infrastructure, and private vehicles spread through Dhaka. Government forces have adopted heavy-handed measures to contain the situation, including a shoot-on-sight order given to the military over the weekend.
While the government has agreed to scrap most of the proposed quotas, the violent demonstrations in Bangladesh have illustrated a demographic shift in opinions and demands, which are likely to have significant effects on business operations and investment opportunities in the short term (upcoming weeks) and the long-term (in the forthcoming years). The demonstrations were called off earlier this week, before Sheikh Hasina was given an ultimatum by the students. There has been no response to the ultimatum, and Bangladesh continues under an indefinite curfew.
Short-Term Effects:
The riots, curfew, and military violence across Bangladesh have shut down businesses and are likely to impact national economic performance, similar to the COVID-19 lockdown, as people are urged to remain indoors and only emergency services operate. KSG assesses this to be a short-term issue as the situation will likely diffuse in the next two weeks, with the government expected to make some compromises in order to quell the protests.
Bangladesh is the second-largest Ready-Made Garments (RMG) producer after China. KSG anticipates production setbacks in the RMG sector in the upcoming weeks due to the cessation of business operations and employees being encouraged to stay home. This could lead to minor global supply chain disruptions in the garment sector. GDP growth in the short term will likely be further hindered by the complete halt in business activities, especially as sectors like tourism, retail, and services take a hit.
KSG assesses that the risk to investment increases in the short-term, as the following political instability is highly likely in Bangladesh. Prime Minister Sheikh Hasina won her fourth consecutive term this past January, and her Awami League government has come under scrutiny and public ire for trying to implement the quotas. There have been demands to depose a government that blatantly favours its own political supporters through quotas rather than offering unbiased economic opportunities to all. This has a high potential of destabilising Bangladesh politically and socially, and therefore economically. A volatile environment is unpredictable and could quickly deter investments.
Long-term Outcomes:
Counter-intuitively, the long-term repercussions of this political unrest could be promising for investments and businesses. The underlying cause of the protests is the high unemployment rate in Bangladesh. A shift in public opinion and demands is likely to lead to changes in economic policies; demands for increased and unbiased employment opportunities increase the likelihood of trade liberalisation in Bangladesh.
As Bangladesh seeks to integrate with the global economy, a more liberal market can be expected, including increased demand for foreign direct investment. KSG assesses that demands for trade liberalisation will rise, thus enhancing opportunities for foreign investment, and the opportunity for the West to extend supply chain production beyond China.
KSG also assesses that an increased Chinese presence in Bangladesh is likely, as China has a stake in preserving political stability in Bangladesh to protect its investments under the Belt and Road Initiative. An increased political presence in a South Asian country is likely to exacerbate Indo-Chinese tensions in the region as both countries vie for economic hegemon status. This is likely to solidify Indo-Russian relations, as they work together to balance against China’s growing influence. Improved Indo-Russian relations could prevent Russian economic isolation, thereby allowing them to continue to wage war.
Looking Forward:
KSG assesses that political instability in the next few weeks will increase risks to investment in the region, as they demand a change in ruling government.
KSG assesses that growing public demands for trade liberalisation amidst increased unemployment is likely to result in trade liberalisation in the next decade, enhancing economic opportunities for foreign direct investment and diversified manufacturing sites
KSG anticipates increased Chinese presence in Bangladesh to preserve BRI investments, which will heighten Indo-Chinese tensions. This is likely to continue improved Indo-Russian relations as both nations choose to counter Chinese influence in Asia.
This is likely to further decrease chances of Russian economic isolation, allowing Russia to continue the war in Ukraine, sustained by oil exportation through India.
By Mehr Lamba, South Asia Analyst