Is the time right for a Bangladesh breakthrough?

Bangladeshi entrepreneurs have a similar sense of excitement about business opportunities in the country to those Indian business people experienced 20 years ago. However, according to experts familiar with the country, its weak infrastructure cannot cope with the fast economic growth.

At an estimated 7.3%, Bangladesh has one of the fastest growing economies in the world in 2019, surpassing China (6.3%) and India (7.25%), according to the IMF. The country recorded the highest economic growth among a list of 26 countries worldwide in the last decade, according to The Spectator Index.

Since 2009, Bangladesh’s GDP has expanded by 188% at current prices, comparing favourably with other leading countries by this measure such as Ethiopia (180%), China (177%), India (117%) and Indonesia (90%). Bangladeshi GDP has expanded by an average of 6.45% a year between 2005 and 2018, according to the IMF.

On the rise

Today, Bangladesh has a $315bn economy – a similar size to that of Colombia or the Philippines – and a population of 166 million. The country received a record $3.61bn in FDI in 2018, up by 68% on 2017, according to investment promotion agency the Bangladesh Investment Development Authority (BIDA). China was the leading investor with $1.03bn, followed by the Netherlands ($692m), the UK ($371m) and the US ($174m). 

The energy sector alone attracted investments valued at $1.01bn – of which China contributed $834m – followed by $730m in the food sector and $430m in the textiles sector.

“There is a very strong sense of excitement among the business community in Bangladesh at the moment,” says Joydeep Datta Gupta, a Deloitte Bangladesh board member. “Entrepreneurs are very positive about the economy and the opportunities. They are eager to diversify the economy, and very keen to develop the IT and software sectors, for example.

“A large number of our global clients now have a presence in Bangladesh and their interest in the country is growing rapidly. Industrial sectors that have been attracting a lot of investment include construction, energy and power. But other sectors – including banking, consumer, and pharmaceuticals – are also attractive to our clients. The middle class is growing fast and its purchasing power is shooting up. That creates enormous opportunities for any consumer-facing businesses in the country.”

Bangladesh is now on the radar of many investors worldwide. The country’s strategic location, comparatively young population, special incentive package for FDI and huge domestic market are all attractive to foreign investors. However, this fast growth is creating many challenges. For example, it can take up to two hours to travel between meetings across the capital, Dhaka, due to traffic congestion. It is also the one of the world’s polluted city with regards to air quality, according to AirVisual. 

At the Bangladesh Economic Forum conference in Dubai in mid-September, investors from the United Arab Emirates pledged to invest about $10bn in the country’s energy, ports, power and infrastructure sectors. The UAE and Bangladesh have signed memoranda of understanding on establishing a port, an industrial park, a liquefied natural gas terminal and five special economic zones (SEZs) in the country. 

SEZs and hi-tech parks

Bangladesh has set the ambitious target of establishing 100 SEZs and 28 hi-tech parks by 2030, in a programme spearheaded by Bangladesh Economic Zones Authority and Bangladesh Hi-Tech Park Authority. SEZs are being set up throughout the country to stimulate regional economic growth outside Dhaka and the country’s second largest city, Chittagong. 

The SEZs offer various fiscal and financial benefits and provide serviced industrial plots. The government believes they will generate a total of an additional $40bn in foreign exports. In November 2018, Japanese automotive giant Honda began manufacturing motorcycles at Abdul Monem Economic Zone in Munshiganj district in central Bangladesh. The company has set up a plant on 10 hectares of land and invested $27.1m.

Another huge SEZ, Bangabandhu Sheikh Mujib Shilpa Nagar, is being developed at Mirsharai Upazila in the country’s south-east. It will cover 12,000 hectares and is expected to create jobs for up to 1.5 million people and export earnings of $15bn within the next 15 years, according to Bangladesh’s Centre for Policy Dialogue.

Bangladesh requires $24bn-worth of investment in infrastructure annually to achieve its Vision 2021 goals, according to the Asian Infrastructure Investment Bank (AIIB). Transaction activity in the country’s infrastructure sector reached $46bn in 2018, up from $31.4bn in 2017, according to AIIB. It is estimated that Bangladesh needs a total of $320bn in investment in its infrastructure if it wants to achieve its objective of becoming the world’s 30th largest economy by 2030.

A growing attraction

“Bangladesh has not experienced negative economic growth in the past 30 years. It has been growing at about 5% or 6% annually,” says Shah Mohammad Mahboob, director (foreign industries) at BIDA, which provides foreign investors with a one-stop service that carries out 22 different services. 

“We have set the goal of becoming a lower-middle-income country by 2021 and a higher-middle-income one by 2031. The ready-made garment industry is still very big in the country and accounts for more than 80% of exports but the economy is diversifying fast. We are seeing a lot of foreign investment in SEZs, which provide investors with tax holidays of between five and 10 years," he adds. 

“There are other factors that are attracting foreign investors to the country. There is a huge domestic market. Utility or power costs are low here. There is plenty of supply, so there is no risk of power cuts. Managers’ wages are comparatively low. The salaries for technical staff remain very competitive. Profitability is very high. Companies make very impressive returns in Bangladesh.” 

The government believes that many opportunities for foreign investors exist in the ready-made garment sector but it is also promoting ICT and agriculture-based industries as sectors that investors should consider. The country’s agricultural sector has become much more productive during the past decade, with Bangladesh now the world’s third largest vegetable producer, the fourth biggest rice producer, and seventh in mango production.

According to the World Bank’s Doing Business 2019 ranking, Bangladesh stood at 176th out of 190 countries, after placing 177th the previous year. Though improvement by this measure may be gradual, Bangladesh's stellar economic growth will continue to stand out to investors.