Bangladesh, economy and politics in imbalance

[During the month of December I wrote several articles in Bangladeshi newspaper about the runup to the election in 30th December. I am going to post some of these here so that BP readers may get a native perspective on what’s going on.]

As Bangladesh heads to parliamentary elections to be held on 30th December, only a risk-loving gambler would bet against the governing party returning to power. In its latest country report, Economist Intelligence Unit (EIU) expressed the conventional assessment that the Sheikh Hasina’s government will retain power easily. The analysis powerhouse based this expectation mostly on the strong economic performance of Bangladesh in the last decade under the current regime. Over the last ten years, GDP growth in Bangladesh averaged well over six percent and is projected to be even higher in the next few years. Foreign exchange reserve has increased more than fourfold, and the currency has remained steadfast against hard currencies. During the last ten years the Bangladeshi currency has lost only twenty percent of its value against US Dollar while the Indian Rupee lost thirty-one percent and Pakistani Rupee forty-one percent.

Not just in economy, Bangladesh has made great strides in social development. By World Bank estimates, national poverty rate dropped from forty percent to twenty-four percent in the ten years preceding 2017. By Bangladesh government estimates, by 2015 the country has already achieved many of the Millennium Development Goals, for example in nutrition, primary education, child mortality, maternal health etc., far ahead of most of the LDCs. These growth and developments were not urban-centric either, rural household income increased by forty percent from 2010 to 2016.

However, the ongoing pre-election period may baffle an outside observer because, despite strong economic growth and widespread expectations of a win, the regime is carrying out an unprecedented campaign of repression of political opponents. Not only the ruling party is visibly controlling every facet of the administration, including the election commission, but the party is using these state organs to directly thwart, attack, arrest, harass opposing candidates countrywide. This would not surprise regular observers of Bangladesh affairs because, along with the remarkable economic growth, the last ten years were also marked by clear democratic backsliding and authoritarianism. German research group Bertelsmann have been keeping tabs on democratic development in the world since 2005. Its indexes show that status of democracy in Bangladesh has been rapidly deteriorating since the non-competitive election of 2014 and in 2018 Bangladesh was downgraded from a highly defective democracy to a moderate autocracy.

The level of repression before the election suggests that the rosy economic and development numbers may not be providing a faithful representation of the economic well-being of the general people. A recent report by International Labor Organization (ILO) said that youth unemployment in Bangladesh grew by seven percent from 2010 to 2017, one of the worst unemployment growths in developing countries. In a pre-election assessment of the economy of last ten years, CPD, the venerable Bangladeshi thinktank, put forward the calculation that one-third of the educated youth are unemployed. In the recent years, the country has been rocked by several urban youth movements demanding more access to government jobs, for many the only avenue for upward mobility.

At the same time, several estimates from Bangladeshi sources say that as many as half million foreign nationals, mostly Indians, work in Bangladesh in skilled/white collar jobs. This lack of Bangladeshi educated and skilled workers is greatly explained by the dismal state of higher education in the country. Times Higher Education produces annual world university rankings with one of the largest coverage of universities. In the latest 2017 rankings, there are more than thirty Indian universities and five Pakistani universities among the top one thousand universities of the world. Bangladesh has zero. World Bank data shows that during the last ten years, Bangladesh annually spent only about two percent of its GDP in education while Pakistan spent near about three percent and India three and half percent.

Economists studying development argue that a country’s long-term economic growth comes mainly from two sources, investing in human capital and investing in physical capital.  From previous discussion, we have seen that human capital development in Bangladesh has been significantly below par to its neighbors. In investment, the picture is not much better either. The previously mentioned CPD report showed that in the last ten years both private investment and foreign direct investment growth in Bangladesh were anemic. Rather than investments, much of the ‘miraculous’ economic growth of Bangladesh have come from exports, consumption and government spending.

Export growth, in particular, has been spectacular; more than doubling from seventeen billion USD in 2009 to thirty-seven billion in 2017. For comparison purposes, Pakistan’s total export in 2017 was less than twenty-five billion USD. However, if we look at the composition of export, a stark imbalance appears like the elephant in the room. More than eighty-five percent of the total exports of Bangladesh is just from one product category, ready-made garments (RMG) and textiles. Any development economist would say that such high level export dependence on just one product is alarming for any country and any product. RMG may be an especially bad basket to put in all the eggs.

Garments is a low-technology, labor intensive industry that mostly depends on ready-to-export, turn-key factory units. Although the industry employs a great number of factory workers, lack of learning and upgrading in jobs mean that workers have short shelf-life and are unceremoniously terminated after the end of productive years. The mature technology of RMG means there is little effort for innovation, R&D in the export industry. Thus, there is a lack of need for skilled and technology workers, which means that the industry provides little demand for development of human capital and technological capabilities in the country.

A particular feature of garments industry is that, unlike chemicals, machinery, IT services etc., it has very little input-output relations with other major export industries. This means that development of garments industry does not spill over to development of other more value-adding industries. Despite frequent boastful proclamations from regimes and entrepreneurs, industries like pharmaceuticals, electronics, IT services, chemicals etc., are prominent in the Bangladeshi export basket by their insignificance and absence.

Some economists argue that “countries become what they make”. The RMG industry, by dominating Bangladeshi economy for long time, has not only dramatically shaped the society but also the politics. This is a strikingly unequal industry with a few dominating large firms and many small firms servicing those large firms; there is a conspicuous lack of mid-sized and diverse firms. The industry creates a narrow business elite that can easily collude with the government for preferential treatment. The regime, in return from this privileged treatment of the industry, obtains assurance of steady and increasing revenue which it invests in building up the bureaucracy and infrastructure. This growing public investment not only help boost the GDP but also provide the political regime with means to buy off loyalty of bureaucracy and civic society. Regimes then use the RMG-fueled state and civic power to suppress political opposition and stage ‘managed’ elections. We have witnessed these intimately related events again and again in recent years, most notably in Cambodia, another RMG-dominated country, where the ruling regime just staged an election in 2018 where it ‘won’ hundred percent of the seats.

Many technology, economics analysts have argued recently recently that Bangladeshi garments industry is a prime candidate for severe incoming disruption from automation. Development of new automation technology, changes that are now within realistic realm, can wipe away advantages of cheap labor at a stroke and render millions of garments workers jobless worldwide. The spectacular growth of garments industry in Bangladesh explains source of the dominating power the ruling regime has over political opponents. At the same time, the uneven economic and social development from this industry and the very precariousness of the industry’s future, help us understand why there is simmering discontent among aspiring citizens. The puzzle of repression during times of plenty, is not so baffling after all.

 

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13 thoughts on “Bangladesh, economy and politics in imbalance”

  1. I want to congratulate you on a well written article.

    At the risk of sounding sexist, do you think south Asian women leaders such as Didi WB, Hasina, India, jayalalitha go overboard on repression more than male leaders for certain cultural or psychological reasons?

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    1. A very interesting question. It is important to note that almost all these South Asian female leaders reached the top by virtue of family connection, not rising through the ranks (except Mamata of course). Inspite of that they are porbably above average leaders with generally more decisive nature. It may be that females become above average decisive leaders after they pass certain time in political struggles. I wouldn’t say that women leaders are more repressive. I do not see such a correlation but it may be there.

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      1. Mayawati didn’t have any family connection either. She was the protegé of Kanshi Ram.
        Some would rate her as the best chief minister UP has had in the last 20 years notwithstanding the corruption charges. She really put a lid on crime.

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        1. Thanks for the informed perspectives Prats, Shafiq and Vijay.

          Desis have long had a “mataji” complex. In other words powerful older matriarchs dominate Desi extended families, spiritual organizations, civic organizations. Most Desis (especially young men and woman) have long been afraid of them. I think this is also true in an Islamic context. Gareeb Nawaz’ daughter ran things and was regarded as his spiritual successor rather than his three sons. Mohammed pbuh was clearly run by his wife Kadija and daughter Fatimah. Later his wives Aisha and Hafsa (maybe Zaynab too?) were also very influential. Jahanara is another example of a very influential Desi single muslim “mataji”.

          Dharmic people often worship God as a woman or without gender. Even when they worship Shiva and Vishnu, they are regarded as half female and have many female avatars that are also worshipped. Buddhists worship woman too (such as Saraswati and Tara and Daakinis). Many of the great Buddhist masters were instructed by Daakini Gurus.

          Jains also have female leaders and masters, including female Tirtankaras (19th jumps to mind).

          Most woman are not “matajis”. Only a small number of super empowered woman who the general society is afraid of and obeys. Once a leader fits into the “mataji” archetype, they can easily be emperors, political leaders, religious leaders, civil society leaders, generals and extended family bosses.

          If I could give the example of a Kashmiri “mataji” . . . I would say Lalleshwari or Lal Ded. She is one of the most famous masters of Trika Kashmiri Shaivism and Kashmiri Sufism. Her disciple chains still are among the most influential and respected Sufis today.

          Bengalis have for thousands of years been a “mataji” culture. Hasina and Mamata Banerjee fit the archetype exactly.

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  2. Well written. There are surprisingly few commentators out there who point out the links between business/economics interests and political trajectories, especially in South Asia.

    I am surprised that there is no union movement among garment workers in Bangladesh. I also observed that there has been very little land reform there. In general, left political mobilization seems almost non-existent, which is surprising given its proximity to West Bengal.

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    1. There are virtually no large landowners in Bangladesh, even since 1976. As such, the average ownership is less than 2 acres. (as an example, see tables V and VI of http://bids.org.bd/uploads/publication/BDS/34/34-1/04quasem.pdf). Most of the land was disttributed in 50s through 70s.

      The lack of land-owner gentry is one of the main reasons that Pakistan and East Pakistan did not see eye-to-eye in the 60s.

      However a lack of garment worker unionism is not understandable given the Bengali nature. To be honest WB does not have a huge large industry sector and the smaller industry is also not unionized.

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      1. Mostly i have read that before partition the hindus were the main land owning folks who then moved to India, so there was least resistance to land redistribution after partition.

        Regarding unions something similar to Mumbai might have happened, where the left unions clashed with Shiv Sena and then the workers were divided into ethnic lines rather than worker-owner thing.
        The Jammat i have read was like Shiv Sena in Karachi initially before MQM who also divided the workers/students on ethnic lines. Also W Bengal was Unionized to a large extent and its only when there was flight of industries happened there were not many big industry in pvt sector to unionize.

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        1. Thank Allah Bangladesh doesn’t have strong unions.

          I suspect unions reduce total factor productivity and real wages over time. Far better to focus on product development and process innovation. Focus on increasing the size of the pie versus distribution of the pie.

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  3. This piece of information was a revelation to me:

    as many as half million foreign nationals, mostly Indians, work in Bangladesh in skilled/white collar jobs

    I did my college in West Bengal (Kharagpur, to be precise) and have known Bangladeshis who studied with me closely. One of the common complaints of Bangladeshi students was that it was next to impossible for them to secure visas to intern or work in various technology, consultancy, engineering firms etc in India. All Bangladeshis I know would have loved to work in India.

    I presume the Indian policy and attitude towards Bangladesh has not changed much since my college days. Yet it is v surprising for me to read about the sheer number of white-collar Indian immigrant workers in Bangladesh. If true, I’m almost certain this is not reciprocated by the Indian government.

    ~

    The reliance on one industry is not necessarily a bad thing. The sweat shop floor is *always* better than subsistence farming on a capricious daily wage, and diversification is the natural response of societies that industrialize work.

    Re comparisons with Indian/Pak education quality, unis in top 1000 is not a cogent measure. It says very little about common school education. Education indices in Bangladesh are clearly better than Pakistan (and I think India too). Places like UP/Bihar drag India down and Pakistan does worse than Bihar.

    What is worrying for Bangladesh is really a lack of well-oiled political setup. The authoritarianism does not bode well at all.

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    1. “One of the common complaints of Bangladeshi students was that it was next to impossible for them to secure visas to intern or work in various technology, consultancy, engineering firms etc in India. All Bangladeshis I know would have loved to work in India.”

      India urgently needs to change this to economically integrate Bangladesh into India and empower Bangladesh. India would benefit greatly by easing skilled immigration from the international community. [Including caucasians, east Asians, Africans, Latinos.] Many are drawn to India for spiritual and cultural reasons and their moving to India would greatly enrich Bharat.

      “The reliance on one industry is not necessarily a bad thing. The sweat shop floor is *always* better than subsistence farming on a capricious daily wage, and diversification is the natural response of societies that industrialize work.”

      Slapstik, over concentration in garments and farming (lack of economic diversification) is a dangerous thing for a country as large as Bangladesh and needs urgent addressing. Bangladesh is vulnerable to what economists call a terms of trade shock which leads to a negative technology or total factor productivity shock.

      You are right that Bangladesh has far too many farmers that need to find other professions. But many of these professions should be unrelated to garments.

      “Re comparisons with Indian/Pak education quality, unis in top 1000 is not a cogent measure. It says very little about common school education. Education indices in Bangladesh are clearly better than Pakistan (and I think India too). Places like UP/Bihar drag India down and Pakistan does worse than Bihar.”

      Can I break down education into four components?:
      —K-12 (Bangladesh has had some success by global standards, including relative to India’s post modernist cultural marxist rote memorization anti creativity K-12 nightmare)
      —Tertiary colleges (Bangladesh is a catastrophic fail like India and much of the world are . . . but at least Bangladesh isn’t worse than everyone else)
      —Secondary colleges (Bangladesh is significantly behind India/China/America and falling further behind)
      —Top colleges (Bangladesh is a catastrophic fail . . . while China/Hong Kong/US/Europe/India/Japan/South Korea/Singapore are sprinting ahead)

      Kudos to Shafiq for emphasizing the challenges with Bangladeshi top tier and secondary tier universities. I have wanted to share my thoughts on this subject for Bangladesh and West Bengal for a while, but don’t feel I know enough.

      Economic development or per capita income or real tax revenue per person (which determines governmental governance capacity) depend greatly on what my hero W. E. B. Du Bois called the talented tenth. Only a small fraction of the population do most of the innovation, work and leadership. Allowing the talented tenth to become self actualized is what allows a society to become developed, have tax revenue, have civil society/non profit, have culture, have spirituality etc. They literally pay a majority of the taxes to the state.

      In some very rich societies such as Singapore, the talented tenth expands into 20% or 30% of the population. To become truly rich, the talented tenth needs to expand as a percentage of the population.

      The talented tenth drive the success of the rest of society by serving as examples of emulation and inspiration. One example is worth a thousand words.

      Bangladesh’s weak secondary and top universities is making it harder for the talented tenth from reaching their true potential. This makes Bangladesh deeply dependent on the international community for many high end “enablers”. Including high end security ones and high end product development/process innovation enablers. It limits Bangladesh’s per capita income and tax revenue.

      “What is worrying for Bangladesh is really a lack of well-oiled political setup. The authoritarianism does not bode well at all.”

      I would like to learn more about this from you (Slapstik), Shafiq, Razib and others.

      +++++++++++++++++++++++++++++++++++++++++++++++++++++++

      Shafiq, Salut! Exceptional article. One of the best I have ever seen on BP. Will take some time for me to formulate intelligent responses.

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  4. I think it is still too early to claim that BD is out of woods. BD’s population pyramid is still too bottom-heavy. Meaning is has a high proportion of young population. Almost 40% of its population is under 19 years of age, meaning they have not even reached peak reproductive age yet. Such a population structure has inherent momentum in it. Just imagine what will happen when this young population reaches reproductive age.

    One false move (a military coup), or a natural disaster (devastating cyclone) can undo decades of progress. They need to maintain course.

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    1. Snake Charmer Bangladesh is absolutely not out of the woods yet for many reasons. However the young population is one of the greatest assets Bangladesh has.

      “One false move (a military coup), or a natural disaster (devastating cyclone) can undo decades of progress. They need to maintain course.”
      I can think of many more scenarios that could undo the Bengali economic miracle:
      —externally (Pakistani, Gulfie, even European) led Islamist resurgence or terrorist attack
      —rise of post modernism cultural marxism
      —an AI driven technology shock that reduces export demand for Bangladeshi garments
      —Bangladeshi weakness in BPO/IT, product development and process innovation outsourcing; or the goods and services of tomorrow
      —many others that need to be articulated in a stand alone articles.

      The national disaster scenario you referenced reflects key weaknesses in Bangladeshi national security, civilian governance, and infrastructure enablers. Accentuated by weaknesses in top tier and secondary universities that teach the bleeding edge of these disciplines. [Bangladeshi tertiary colleges are not worse than tertiary colleges around the world, I think.]

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  5. “the regime is carrying out an unprecedented campaign of repression of political opponents. Not only the ruling party is visibly controlling every facet of the administration, including the election commission, but the party is using these state organs to directly thwart, attack, arrest, harass opposing candidates countrywide.”

    Why? I don’t get it. How much of this is due to Islamist threats or post modernist marxist threats? How much of this is due to other things? What is Hasina’s long term objective?

    “German research group Bertelsmann have been keeping tabs on democratic development in the world since 2005. Its indexes show that status of democracy in Bangladesh has been rapidly deteriorating since the non-competitive election of 2014 and in 2018 Bangladesh was downgraded from a highly defective democracy to a moderate autocracy.”

    This is a sensitive question. Most global human rights organizations and institutions (UN, UNICEF, Google, Amazon, Facebook, Patreon, PayPal, Microsoft, Hollywood, Bollywood) have recently been c-opted and hijacked by post modernist cultural marxists who oppose freedom (whether classical european liberalism or eastern philosophy) with a vengeance and assess countries and institutions by how post modernist they are becoming.

    How much of the freedom backsliding in Bangladesh is real? How much is Bangladesh cracking down on post modernists and marxists? How much is because of Bangladesh being politically incorrect?

    ” A recent report by International Labor Organization (ILO) said that youth unemployment in Bangladesh grew by seven percent from 2010 to 2017, one of the worst unemployment growths in developing countries.”
    I am calling this as complete ILO nonsense and intentional lies. 2009 was the bottom of the last Bangladeshi recession. Unemployment fell between 2010 and 2017 for cyclical reasons alone. The cyclical boom driven partly by the surge in real exports.

    “In a pre-election assessment of the economy of last ten years, CPD, the venerable Bangladeshi thinktank, put forward the calculation that one-third of the educated youth are unemployed.”

    In a way this is a good thing. Most people should not have jobs. Most people should run their own businesses. No one has a right to a job or to a net profit on their business. This is what economic freedom means.

    “In the recent years, the country has been rocked by several urban youth movements demanding more access to government jobs, for many the only avenue for upward mobility.”
    This is dangerous marxist post modernist thinking. Bangladesh needs to maximize the productivity of government spending. Part of this is to reduce the number of government jobs and increase real compensation to employees and suppliers. Better to have fewer, better trained, smarter, and more creative workers. [The same is true with police and militaries.] Government employment is not a jobs program. Only the best and the brightest should be allowed to work for the government. Hiring should be as meritocratic as possible.

    Having said this, I support sharply increased government spending and taxation as a percentage of GDP provided the productivity of government spending is high and provided government spending is focused on public goods with high external real rates of return.

    Bangladesh needs to sharply increase education spending over time. Any and all substandard teachers need to be fired. Only the best and the brightest should be allowed to teach.

    If Bangladesh lacks internal talent, Bangladesh should meritocratically hire millions of highly capable foreigners. The objective should be to maximize the rate of return for government spending.

    Students (including middle aged students in jobs training programs) should having very challenging curriculum aimed at increasing their intelligence and problem solving process. Including exercise, stretching, breathing, brain sound therapy and meditation (or electro brain/nervous system therapy). Including demanding that students think different and accepting nothing less than excellence. Demanding an increase in merit, capacity and competence.

    Tough love is real love.

    If this is how government functions then I support deficit government spending on public goods. If this is not have government functions than the government that governs least governs best.

    Shafiq, can we collaborate on an article about Bangladeshi education reform?

    Arguably the most courageous and boldest economist working on education is Roland Fryer. Would you, Shafiq, after writing a detailed essay about Bangladeshi education reform, like to interview Roland Fryer on the subject of Bengali education reform as part of Brown Cast? The vast majority of economists are too afraid to study education for fear of being called racist, nazi, sectarian and the rest of the post modernist alphabet soup.

    “Economists studying development argue that a country’s long-term economic growth comes mainly from two sources, investing in human capital and investing in physical capital.”
    Can I discuss with you offline. You are no doubt a math wizard. Can I depict the relationship with math?:

    Income = Function(Technology, Human Capital, Physical Capital)
    where:
    dIncome/dTechnology = positive
    dIncome/d(Human Capital) = positive
    dIncome/d(Physical Capital) = positive

    By far the most important of the three is “Technology” or productivity or creativity or product development or process innovation or thinking different or intelligence. This is the secret sauce that most economists are fascinated by but understand so little about.

    The focus of Bangladeshi economic policy should be:
    —1) increasing technology
    —2) increasing human capital (increased productivity of education spending and increasing education spending)
    —3) increasing savings (which leads to physical capital accumulation)
    —4) reducing structural unemployment (unemployment during cyclical peaks)
    —5) maximizing globalization
    In that order.

    “More than eighty-five percent of the total exports of Bangladesh is just from one product category, ready-made garments (RMG) and textiles.” This is incredibly dangerous in a world with artificial intelligence and robotics. Most RMG will soon be automated with humans relegated to product development and process innovation (including being managers of the artificially intelligent robots).

    Sharply increasing education spending and the quality of education spending and the number of Bangladeshi students studying abroad (especially in the short run) has to be the top Bangladeshi education priority.

    “A particular feature of garments industry is that, unlike chemicals, machinery, IT services etc., it has very little input-output relations with other major export industries. This means that development of garments industry does not spill over to development of other more value-adding industries.”

    True and worrying.

    “Despite frequent boastful proclamations from regimes and entrepreneurs, industries like pharmaceuticals, electronics, IT services, chemicals etc., are prominent in the Bangladeshi export basket by their insignificance and absence.”

    Incredibly worrying. These industries only need human capital, smart humans and a pro entrepreneurship climate to flourish in Bangladesh. West Bengal venture capital, private equity, corporate bus dev investors can provide capital, management services and networking services. Bangladesh can easily hire foreign skilled workers (especially bideshi bengalis) to facilitate rapid economic growth.

    Bangladesh is incredibly lucky to have access to the golden goose of foreign Bengali talent (mostly in India but also around the world). There is a Bengali association that meets in the US that brings over 10,000 Bengalis together annually. They have a large and influential business track. Many large VCs, private equity, I Banks, consulting companies, global MNCs, academics, entrepreneurs and global luminaries attend. The Bangladeshi government should intimately involve itself with all major global bengali associations which interface business networking. And pan Deshi ones too while they are at it.

    But again this is contingent on rapidly improving the Bangladeshi education system.

    “Some economists argue that “countries become what they make”.
    Agreed and true.

    “The RMG industry, by dominating Bangladeshi economy for long time, has not only dramatically shaped the society but also the politics. This is a strikingly unequal industry with a few dominating large firms and many small firms servicing those large firms; there is a conspicuous lack of mid-sized and diverse firms. The industry creates a narrow business elite that can easily collude with the government for preferential treatment.”
    True Worrying. Political economy or crony capitalism follows.
    “The regime, in return from this privileged treatment of the industry, obtains assurance of steady and increasing revenue which it invests in building up the bureaucracy and infrastructure. This growing public investment not only help boost the GDP but also provide the political regime with means to buy off loyalty of bureaucracy and civic society.”
    I would argue that this reduces potential GDP ceteris paribus. Because investment in other areas would have a higher real risk adjusted return on investment. This is a lost opportunity cost.

    “Regimes then use the RMG-fueled state and civic power to suppress political opposition and stage ‘managed’ elections. We have witnessed these intimately related events again and again in recent years, most notably in Cambodia, another RMG-dominated country, where the ruling regime just staged an election in 2018 where it ‘won’ hundred percent of the seats.”

    Scary. Are you trying to freak us out! 🙂

    Again, would love to collaborate with you on Bangladeshi articles in the future Shafiq.

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