Infrastructure enhancements will underpin growth in Dhaka

• Dhaka, the capital of Bangladesh, is one of the largest and most rapidly growing cities in Asia.
• After years of delays and bottlenecks, The Economist Intelligence Unit expects the completion of a raft of infrastructure projects to bolster the country’s economic prospects.
• In particular, better transport links—within the city and with the rest of the country—will enhance connectivity and make the metropolis more liveable.

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Poor infrastructure has been a major constraint on growth in Bangladesh. According to our latest business environment rankings, Bangladesh is ranked 80th out of 81 countries on this metric, with a score of 2.3 out of 10 in 2016‑20. We expect the physical infrastructure of the country to undergo major improvements in the coming years, and forecast its global ranking to improve to 70th in 2021‑25, on the back of an increase in the score to 4.5. Much of this improvement will take place in Dhaka, the country’s political and commercial capital.

For decades, Dhaka grew rapidly in size and population without commensurate public or private investment in infrastructure. According to UN projections, the population of the Dhaka Metro Area has more than tripled (to 21m) in the last 30 years. This, coupled with years of underinvestment, has exerted extraordinary pressure on public infrastructure, particularly in the areas of transport, water, waste and energy. Since the early 2010s a combination of greater political will to invest in infrastructure, rapid economic growth and the availability of funding have put a number of big-ticket projects on track.

Dhaka’s primary economic and environmental problem is an inadequate transport system. The city’s traffic jams are among the worst in the world, and the associated public health costs are enormous. According to a study conducted by the World Bank, the economic costs of Dhaka’s near-permanent congestion are estimated to reduce Bangladesh’s annual output by as much as 7%. Much of the current investment—in public works programmes, public-private partnerships (PPPs) and donor-financed projects—is aimed at reducing this cost.

Physical infrastructure to improve considerably

After long delays (due to red tape and slow land acquisition in the densely populated city), many projects are well under way and set to be completed in the next few years, despite delayed progress in 2020 on account of the coronavirus (Covid-19) pandemic. The forthcoming celebration of the 50th anniversary of Bangladesh’s independence (in 2021) has added momentum to a re‑focusing of purpose in many infrastructure projects. The administration is also keen to demonstrate the development of the city—one of its key election promises in 2018.

One key transformative project is Dhaka Metro Rail—the city’s first modern urban rail transport network. Construction on the first line of the rail service (MRT‑6) began in 2016 and was originally planned for completion by 2021. It may now be delayed, in part as a result of the lockdown measures initially imposed in March 2020. MRT‑6 will run from north to south in the city, with around 16 stops, and is expected to carry 60,000 passengers an hour. This will reduce some of the pressure on the road network by easing congestion moderately. In addition to MRT‑6, the US$2.8bn project, funded by the Japan International Co‑operation Agency and the Bangladeshi government, comprises five other lines and is due for completion by 2024.

Another key infrastructure project is the 47‑km Dhaka elevated expressway, which will connect northern and southern parts of the city that are normally separated by traffic jams during rush hours. Under this US$1.2bn project, the plan is to construct the expressway in three stages: from Hazrat International Airport in the north to the neighbourhood of Banani; from Banani to Mogbazar in downtown Dhaka; and from Mogbazar to the southern parts of the city, where the expressway will link up with the highway to Chittagong, Bangladesh’s main port city. The first section was set to open in September 2020 but has been delayed. Land acquisition and bureaucratic hurdles have been cleared for the second section of the expressway, which is set to be completed by October 2021.

Other infrastructure projects connecting Dhaka with the rest of the country are also under way. The US$3bn Padma bridge project—the biggest infrastructure undertaking thus far—is set to open in 2022. The 6‑km bridge will connect western districts cut off by the Padma river to Dhaka (and the rest of the country). The government is also planning to build a 227‑km express railway connecting Dhaka with Chittagong, although the project remains stalled at the design stage amid the pandemic. This US$6bn China-backed project would reduce travel time drastically (from six hours to just one hour) and would boost export growth by connecting the capital with the main port city.

The rate of urbanisation will be rapid

Dhaka will continue to see rapid growth in urban infrastructure financed by multilateral donors, the Bangladeshi government and PPPs. The capital, along with the country at large, will experience decades of urbanisation, as less than 40% of the Bangladeshi population currently resides in cities, far below the Asian average. By 2050 Dhaka is likely to be the third-biggest city in Asia (after the Indian cities of Mumbai and Delhi), with an estimated 35m people, according to the UN. Much of this urbanisation will occur naturally and, in part, will be facilitated by infrastructure connecting Greater Dhaka, which accounts for a big chunk of the country’s income and employment, with the rest of the country.

Improvements in the physical infrastructure of Dhaka over the next five years will reduce bottlenecks to output growth and loosen one of the key constraints on economic growth. This will fuel further migration into Dhaka and raise its population, making it one of Asia’s megacities. The government is aware that infrastructure investment in Dhaka is needed if the country is to sustain its high growth rate and move up the international value chain. We expect the completion of these projects in the coming years to improve connectivity and to underpin a robust growth outlook. That said, most of the big public infrastructure projects will only become operational by 2022, and the proposed reduction in economic costs resulting from them will probably be felt only towards the end of the forecast period. Meanwhile, the quality of life in Dhaka might become relatively poor for most residents, as the ongoing issue of air pollution will be amplified by large-scale construction work in various parts of the city.