Eight months ago, a court in Bangladesh sentenced 84-year-old Muhammad Yunus to six months in jail.
On Thursday, he was sworn in as the interim leader of Bangladesh, while Sheikh Hasina, the prime minister whose government wanted to jail Yunus, has fled to India.
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What happened?
Sheikh Hasina has resigned and fled to exile after student protests grew into a national movement to oust her.
The protests originated from discontent over the government job quota system. It reserved 30% of government jobs, highly coveted by students, for relatives of veterans who fought in the war of independence in 1971.
Hasina has also been criticised for using authoritarian tactics in the past. There have long been allegations over her government’s alleged extrajudicial killings, jailing of opposition leaders and suppression of the press.
As the protests grew, so did the government repression. Universities were shut down, the internet was cut and a curfew was imposed. More than 100 people at least have died.
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By GlobalDataIn what came as a surprise, Hasina fled to India. Military personnel had warned her that the situation on the streets was becoming more volatile and that they would not be able to ensure the safety of her residence.
Regional implications
The hope is that Muhammad Yunus can bring some stability to the country. Yunus won a Nobel Peace Prize in 2006 for his work on microfinance that aimed to give small loans to the world’s poorest. He is lauded in the West and has strong support in Bangladesh.
India is the regional power with the trickiest situation to navigate. Narendra Modi’s government had very strong ties with Hasina’s, which has partly fuelled anti-India sentiment in Bangladesh. Hasina is also currently exiled in New Dehli, a stance that is unlikely to change.
Discrimination against Hindus within Bangladesh, who people often associate as being supporters of Hasina’s Awami League, is also a point of contention in India-Bangladeshi relations.
The Indian press reported that intelligence agencies had identified a Pakistani intelligence agency, with Chinese backing, as a “key player” in fuelling the protests. They claimed other groups that had an “anti-India stance and jihadist agenda” were also involved.
These claims have not been verified by international news agencies and have been reported as “misleading” and completely contrasting the reality on the ground.
TS Lombard’s EM macro strategy managing director Jon Harrison explains the nuance of India’s relationship with Bangladesh:
“Hasina’s government had been conducting a sort of balancing act. They were a middle ground for surrounding powers such as India, Pakistan and China. They had managed to be quite friendly with China while being sensitive to the situation in India. So, if there is tension with India, that is not good regionally.”
India and China relations have been fraught since a fatal border clash in 2020.
Supply chain threatened in the short term
Given Bangladesh’s global standing as a textile manufacturer, one of the immediate questions is the extent of the damage this will cause to the industry.
The losses incurred due to the past few weeks of violence and disruption are estimated at least $814m (Tk95.66bn).
An anonymous source cited as a “global industry executive” told the Financial Times that the unrest “will either mean late delivery for brands or dramatic overtime in the next week or two, which given the poor unionisation of workers, who knows what is going to be forced upon them?”
Supply chain disruptions coming from political unrest are nothing new in the foreign direct investment (FDI) world. The rise of conflict is seen as one of the factors feeding into the decline of manufacturing and a huge growth of services in the FDI sector.
On one hand, a new democratically elected government could bring stability to Bangladesh and calm perceptions about the risk of setting up manufacturing plants in the country.
On the other hand, it could feed into investors’ heightened perceptions of risk that have been in place, particularly since the Covid-19 pandemic.
Getting closer to the China
Bangladesh already has extremely close ties with China. It is one of its biggest trading partners and FDI investors.
Given India’s intake of Hasina and the misleading reports about the protests, China could stand to gain further influence with the textile exporter.
TS Lombard’s Jon Harrison highlights how “since China is no longer able to export as much to the US [because of tariffs] it is trying to find other partners. Western companies are also trying to find more countries to set up manufacturing operations.”
GlobalData analyst Carolina Pinto explains that it is unlikely that the new opposition government will break ties with China since they are “Bangladesh’s largest trading partner and has loaned it over $10bn (71.7bn yuan) towards infrastructure projects. Despite some disagreements over the years, even the opposition parties in Bangladesh recognise the importance of a strong relationship with China.”
What’s next?
As of now, the arrival of Yunus is likely to quell some of the anxiety about further unrest.
TS Lombard’s Jon Harris says that “indications are that this is an interim government, that there will be democratic elections after some period”.
Many questions remain to be answered: how long will the interim government take to set up elections? How will it deal with Hasina’s supporters that remain in the country? What will be the extent of the military’s role in returning the country to stability?
Garment factories reopened on Wednesday after losing four days of production. The readymade garment industry accounts for 83% of the country’s total export earnings, so the return to stability in this sector will be crucial.
From an FDI perspective, it remains to be seen if the shift to a new government will ease fears about political stability or exacerbate them further.
