Economic Affairs: Trade and Investment

Introduction
Bangladesh is not yet seen 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. The positive side of developments in Bangladesh are less visible. For example, Bangladesh has had impressive economic growth figures over the last decade and could move into the space China is leaving. Some say Bangladesh could even be the next Asian Tiger.

To counter the current more dominant image of Bangladesh please find a more positive approach below.

PLEASE NOTE: this section 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 achieving several of the MDG targets by 2015.

4. Some observers say Bangladesh is ‘on the verge of take off’ and Bangladesh aspires to become a Middle Income Country by 2016 and halve poverty by 2021. However, it is estimated that this 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 potential of becoming one the world's largest economies in the 21st century along with the BRICs. 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 on average invests five times as much as public sector).

7. Labour costs are low.

8. 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. 

9. 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. Moreover, Bangladesh could potentially produce (parts of) a whole host of goods ranging from auto parts to toys.

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

11. 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.

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

Risks of doing business in Bangladesh

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.

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 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 and negative effects of corruption are big.

• 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

For relevant website on the Bangladesh economy click here
 

Basic facts on some potential sectors in Bangladesh

A. Shipbuilding/Maritime:

•  • Currently, two shipyards are building small size ocean going vessels for foreign clients. A report published by the Danish Embassy in Dhaka, predicts that another ten shipyards will start building for the international market within the next few years. Main advantage of Bangladesh is that it is perceived 15% cheaper then its main competitors- such as Vietnam- mainly due to low labour costs. For a link to the website of the Danish Embassy click here  

•  Moreover, Bangladesh offers opportunities in the component and service supplying industry. Currently, Bangladesh has to import 60% of the components needed to build vessels for local demand, and 90% of the components needed for ships for the international market.

B. (Renewable) energy, including oil and gas

• In the energy sector the current supply-demand gap is 1500 MW. Existing generation capacity is 4300 MW (also see ‘weaknesses/threats’). The government aims to overcome the demand supply gap by 2012 and increase generation capacity with 9500 MW, by 2015. It is eager to involve the private sector (4600 MW has to be generated by the private sector within 2014).  This requires an investment of approximately 9.5 billion USD for the 2009-13 period.

•  Proposed solutions are an increase of generation capacity, improvements in the gas sector, diversifying the energy mix including an increase of the share of renewable energy from 5% in 2015, to 10% in 2020. Improvement of energy efficiency does not play a prominent role while (smart) metering and energy saving technologies offer opportunities.

C. Agribusiness

•  Food processing sector in Bangladesh basically means processing of agricultural products, mainly for the domestic market, and fish and shrimps processing, mainly for the export market. The food processing sector relies on domestic agricultural production and is oriented mainly to domestic needs. It includes rice and wheat milling, sugar refining, production of edible oils, processing and preserving of fruits and fruit juices as well as fish processing, both white fish and shrimps.

•  Bangladesh has generally favorable climate and soil condition and in the agriculture sector huge efficiency gains can be made. For example; productivity of vegetable cultivation in Bangladesh is low with 2.85 MT yield/Acre compared to China 6.95, India 5.18, Vietnam 5.09 (FAO statistics, 2009).

•  Dutch companies might be able to bring in agriculture techniques and technologies needed to improve efficiency.

•  Shrimp is the second largest export earning sector of Bangladesh and the leading agro-export sector. It had an annual export of USD 445 Million in 2007-08. Over the years, freshwater shrimp production increased. But Bangladesh only caters to around 6% of worlds demand.

D. ICT

•   The ICT sector is not at the same level as neighbouring countries such as India, Pakistan or the Philippines, However the ICT sector is growing at a quick pace, with an increased involvement from local and foreign investors and companies. The sector consists of 3,000 local companies and the size of the Bangladesh ICT industry currently totals USD 160 million.

•   The ICT sector in Bangladesh has potential to develop because of the following comparative advantages. Cheap labour (attractive cost-effective wage level for programmers; about half of India) that is traditionally renowned for quick learning abilities. Bangladesh is producing about 7,000 ICT related graduates a year from 21 Public and 51 Private Universities; and a large number of Bangladeshi students are studying overseas in computer related subjects, especially in India.  Bangladesh gains as an outsourcing partner who can operate at the lower strata of outsourcing since neighbouring countries are moving up the ladder. Bangladeshis have generally better skills in English compared to Chinese and Vietnamese.

Websites with more information on (doing business in) Bangladesh

www.doingbusiness.org            

The World Bank Doing business Report.

www.enterprisesurveys.org       

The World Bank enterprise survey provides the world's most comprehensive company-level data in emerging markets and developing economies. 

www.bangladeshbusiness.biz    

This website provides up to date information on all relevant developments in the private sector of Bangladesh.

www.at-capital.com                  

AT Capital is one of the first financial institutions in Bangladesh focusing on Asset Management, Corporate Advisory and Macro-Economic Consulting. AT Capital believes that Bangladesh has the potential to be one of the next Asian Tigers. The name and ethos behind the company are driven by a common vision that Bangladesh can emulate the growth of China, India, Vietnam and Malaysia.

www.worldbank.org.bd            

World Bank Bangladesh country page on Bangladesh offers more information on Bangladesh and on World Bank (pipeline) projects.

www.imfbd.com                       

The website of the International Monetary Fund’s (IMF) resident representative office in Bangladesh provides up to date information on the macro economic situation in Bangladesh as well as on key structural economic reforms.

www.adb.org/Bangladesh         

The website of the Asian Development Bank (ADB) in Bangladesh provides quarterly economic updates, key indicators and an Asian Development outlook.

www.eiu.com                            

The website of the Economist Intelligence Unit (EIU) provides analysis and forecast on more than 200 countries, including Bangladesh.

www.mof.gov.bd                      

The website of the Bangladeshi Ministry of Finance (MoF) provides detailed budget information, monthly fiscal reports and yearly economic reviews (last: Bangladesh Economic review 2006).

www.bangladesh-bank.org        

The website of the Bangladesh Bank (Central bank of Bangladesh) provides, amongst other, economic data, information about the financial system, the money market and regulations and guidelines.

www.boi.gov.bd                       

The website of the Board of Investment (BOI), the principal private investment promotion and facilitating agency for both domestic and foreign investors, provides information on investment promotion (i.e. country/sector information) and on investment facilitation (i.e. registration/approval, utility connections, investment handbook).

www.epb.gov.bd                      

The website of the Export Promotion Bureau (EPB) provides information on sectors and products, export promotion, export performance, trade information, trade fairs etc. can be found. Its reports are very useful in identifying opportunities, bottlenecks, thrust sectors, scope, etc

www.nbr-bd.org                        

The website of the National Board of Revenue (NBR) provides information on taxes (VAT, customs and income tax), tax-policies, tax-laws, tariffs, duties and other revenue related fees/charges.

www.nbr-bd.org/nbrweb/customfiles/customshomepage.asp

The website of Bangladesh Customs falls under the umbrella of the NBR. The customs’ site provides detailed information on tariffs and custom related queries.

www.epzbangladesh.org.bd      

The website of the Bangladesh Export Processing Zones Authority, the official organ of the government to promote, attract and facilitate foreign investment in EPZs, provides information on the functioning and investment opportunities in the EPZs of Bangladesh.

http://ec.europa.eu/comm/external_relations/bangladesh/intro/index.htm

The website of the European Union relation’s with Bangladesh provides useful information on the country, its economic structure and trade aspects. Of particular interest is the section on economic co-operation in the mutual interest, as it provides a link to Asia Invest.

http://dhaka.usembassy.gov/doing_business.html

The website of the USA embassy in Bangladesh, the US trade centre provides a very useful country commercial guide.

Websites of Relevant business organisations in Bangladesh

www.dbcci.org                          The Dutch Bangla Chamber of Commerce and Industries (DBCCI) located in Dhaka is a bilateral chamber with formal and constitutional approval of the Government of Bangladesh. Currently DBCCI has approximately 90 member companies registered. The main objectives of DBCCI are to service businessmen interested in bilateral trade and investment between Bangladesh and the Netherlands.

www.dbcc.eu                            There is also a bilateral chamber located in the Netherlands. The Bangladesh-Dutch Chamber of Commerce (DBCC). The DBCC () is directly related to the Bangladesh-British Chamber of Commerce in London and Dhaka. The DBCC sees ample opportunities of investing in Bangladesh, both for small and big companies and in various sectors. The DBCC offers interested businessmen a wealth of information and matchmaking with parties in Bangladesh. In addition to the two bilateral chambers, the following chambers and business associations can assist (potential) Dutch traders and investors with relevant (sectoral / regional) business information.

www.bgmea.com                       Bangladesh Garments Manufacturing Export Association was established in 1977. BGMEA is the apex body of 3500 garment manufacturers and exporters, with the objective of ensuring a healthy business environment for mutually beneficial relationship among manufacturers, exporters and importers contributing to largest foreign exchange inflow from this sector. It has a broad range of activities to protect, promote and facilitate growth of this sector. It supports its members in all possible activities, maintaining relevant contact data base, organizing trade fairs, ensuring compliance issues, carrying out research and policy advocacy to the government.

www.bkmea.com                       Bangladesh Knitwear Manufacturing Export Association is an association of 1050 knitwear manufacturers and exporters. It has an extensive global network, primarily with its two major export destinations, Europe and USA. Its services are product and market promotion, social compliance, research and development, productivity improvement, arbitration, etc. It has a section on business opportunities on its website which may be interesting for traders/investors.

www.ficci.org.bd                       Foreign Investors Chamber of Commerce and Industries comprises of foreign companies having (at least 50% equity capital is foreign owned). Its tasks are to promote and protect the interests of its members, to render advice to the government of Bangladesh and its related agencies/authorities towards promotion of commerce, trade and industry of the country vis-à-vis the interest of foreign investors in general and those of the FICCI members in particular. FICCI maintains communication with the International Chamber of Commerce & Industry, Paris, International Trade Centre (ITC), Geneva and the World Trade Organization (WTO), Geneva. The Chamber comprises of approximately 140 member companies representing a wide range of different industries, trading houses, service companies, banks and financial institutions.

www.dhakachamber.com           Dhaka Chamber of Commerce and Industries has as a basic function the promotion and development of trade, commerce and industry with a focus to SME (small and medium enterprises). It prepares economic policy papers, organizes training courses, workshops, trade fairs, ad gives inputs to government policies relevant to import, export, investment, banking, insurance, annual budgets, etc and briefs on international and regional trade arrangements WTO, SAFTA, BIMSTEC, etc.

www.chittagongchamber.com    Chittagong Chamber of Commerce and Industries – is the pioneer Chamber in the country consisting of firms, companies, and corporate bodies engaged in trade and commerce in Chittagong, but also to protect and promote the trade, commerce and industry of Bangladesh in general.