Doing business in Bangladesh

Introduction
Bangladesh is not yet known as an emerging market offering business opportunities to Dutch firms.

The image of a country hit by natural disaster suffering from poverty and corruption prevails. This image has its roots in reality. Cyclones hit Bangladesh on a regular basis, Bangladesh ranks 139th position on the Transparency International list out of 180, and 40% of Bangladeshi live below the poverty line.

However, the positive side of developments in Bangladesh are not well known. Some even say Bangladesh could be the next Asian Tiger. To counter the dominant image of Bangladesh, please find a more positive approach below.

Please note: this website constitutes work in progress and will be updated regularly.
 

Opportunities of Bangladesh

1. Since the 1990s, economic growth in Bangladesh has been robust at 4% to7% annually, with relatively low inflation and stable domestic debt, interest, and exchange rates.

2. The GDP growth rate has accelerated by 1 percentage point every decade, despite floods, cyclones and droughts.

3. Bangladesh is thus far weathering the global financial crisis well and is on track to achieving several of the MDG targets by 2015. It aspires to become a Middle Income Country by 2016 and halve poverty by 2021.

4. Some observers say Bangladesh is ‘on the verge of take off’. However, take-off defined by becoming middle incoming country, requires growth rates of approximately 8-9%.

5. Some important global institutions have made their assessment of the prospects of Bangladesh:

   1. Goldman Sachs indicated Bangladesh as one of the ‘Next Eleven’ emerging markets in December 2005. Indicating its high potential of becoming one the world's largest economies in the 21st century along with the BRICs. The bank chose these states, all with promising outlooks for investment and future growth. Goldman Sachs used macroeconomic stability, political maturity, openness of trade and investment policies, and the quality of education as criteria. The N-11 paper is a follow-up to the bank's 2003 paper on the four emerging "BRIC" economies. Other countries in this N-11 list are Turkey, Vietnam, Egypt, and Indonesia.  

   2. In 2007, JP Morgan listed Bangladesh next to Vietnam, Nigeria, Kazakhstan, and Kenya as a Frontier Five country with impressive economic and investment potential.

   3. Standard and Poor and Moody’s provided the first sovereign credit rating of Bangladesh, early 2010. Moody's rating put Bangladesh on a par with the Philippines, Vietnam and Turkey. In the South Asian context, Bangladesh's position is higher than Pakistan and Sri Lanka, but below India.  The rating reflected Bangladesh's reasonable level of robustness in finance and balance of payments, and the prospects for continued micro-economic stability.

6. The private sector is dynamic and has been the engine for growth in Bangladesh (private sector invests five times as much as public sector).

7. The most important industrial sector is the garment sector responsible for 75% of export with a total value of around 12.5 billion USD in 2009, contributing to approximately 15% of GDP. 

8. There is a potential for Bangladesh to move into the space that China will be leaving behind. Already knitwear (labor intensive) producers are shifting production to Bangladesh. Bangladesh could potentially produce (parts of) a whole host of goods ranging from auto parts to toys.

9. Bangladesh itself offers a huge potential domestic market of 160 million people.  The relative small middle class has impressive  absolute numbers in Bangladesh.

10. The other major driver for economic growth is remittances (in 2010 remittances constituted around 10 billion USD). Bangladesh mainly exports unskilled labour which offers potential for further increase of remittances if Bangladesh would tap into skilled labour market.

For basic information on a number of potential sectors (shipbuilding, renewable energy, agribusiness, and ICT) click here (annex 1)

Lack of infrastructure:

• Bangladesh is confronted with a severe energy crisis. The current demand-supply gap is 1500 MW, which constitutes 1/3 of total generation capacity. Load shedding can be up to 1800 MW on a daily basis. Only half of all households have access to electricity which greatly harms human resource development. Per capita energy consumption is approximately 1/3 of India and Vietnam, 1/2 of Sri Lanka, and 1/30 of the Netherlands.

• Lack of energy is the main bottleneck according to the global competiveness report of the World Economic Forum. The crisis jeopardises growth in the manufacturing and agriculture sector and hampers human resource development. The pressure on government to act is building as the consequences of indecision become more evident every day. Moreover, the energy crisis poses a serious threat to maintain economic growth rate of the last decade.

• However, IF the government implements (a large part) of its policy this will be a critical achievement for enabling growth figures required to achieve middle income status. Implementation of this policy will also create opportunities for involvement of the Dutch private sector.

  o    Link to global competiveness report: http://www.weforum.org/documents/GCR09/index.html
   

Weak governance

• Serious lack of capacity of the Bangladesh government to implement policy and lack of ability to reform the civil service is a crucial barricade for full ‘take off’ of the economy. Perceived lack of sense of urgency on the part of the authorities to act is another serious concern.

• Bangladesh ranks 119 out of 183 countries on the World Bank Doing Business list 2010. But Bangladesh scores better then India (133) or Indonesia (122). According to the enterprise survey of the World Bank (2007) lack of electricity, access to finance, and political instability score are important constraints for doing business in Bangladesh.

• For more information from the Worldbank on doing business in Bangladesh:

o    Doing Business Report World Bank: http://www.doingbusiness.org/

o    Enterprise Survey World Bank: http://www.enterprisesurveys.org/ExploreEconomies/?economyid=17&year=2007

Corruption

• Corruption is an important barrier for doing business in Bangladesh. Bangladesh is in the lower ranks of the Transparency International index (link to website transparency international BD) and negative effects of corruption are big. However, Bangladesh is not unique in dealing with problems of corruption. According to Transparency International Bangladesh is at a similar level as Pakistan and the Philippines, Russia and Kenya (146) are further behind and Vietnam (120) not far ahead.

• For more practical information on corruption in Bangladesh visit the business anti corruption portal: http://www.business-anti-corruption.com/
  This is a comprehensive and practical tool tailored to meet the corruption risk management needs of small and medium sized companies (SMEs) operating in or considering doing business in emerging markets and developing countries