Bangladesh – An untapped opportunity

Friday, 03 June 2016

On the global economic radar, Bangladesh has long been overshadowed by its larger neighbour in the region, India. However, with a population exceeding 160 million, Bangladesh has been steadily building its economic strength and is now emerging as an attractive frontier growth market in South Asia. This presents a sizeable opportunity for organisations seeking to expand their global footprint and further establish a presence in the South Asia region. In this article, we explore some of the economic growth drivers for Bangladesh and potential opportunities for global companies to tap into.

 

The economy

Driven by robust domestic demand, the Bangladesh economy is rapidly expanding with an annual GDP growth rate of 6.5% in 2014 – 15[i]. Private consumption continues to be supported by strong inbound remittances, while public investment has also received a boost. Going forward, GDP is expected to grow at an average of 6.7% - 6.8% over the next 3 years, based on World Bank estimates. This shall be driven primarily by local demand as well as public spending due to increased public sector wages and large infrastructure investments in power, roads, communications and transportation.

Amongst other economic indicators, inflation eased to a tolerable limit thanks in particular to a bumper rice harvest in 2015. Declining global prices have limited food price inflation, offsetting the increase in non-food inflation brought about by higher minimum wages in the garment industry and recent tariff increases in power and gas. While oil prices have fallen globally, domestic retail fuel prices has only been reduced marginally in order to allow the state-owned Bangladesh Petroleum Corporation to recoup losses sustained in previous years and enabling the government to reduce the quantum of subsidies given to the fuel sector.

Bangladesh's international foreign reserves also continue to improve, rising to US$28 billion in March 2016, largely on the back of garment exports and remittances from Bangladeshi expatriates. This has also energised the rural economy with increasing employment (from the garment sector) and higher income from remittances. Inward remittances are in excess of US$15 billion despite a slowdown in source countries, especially in the Middle East. Exports are holding up with a 9% growth in the last 9 months, indicating a positive future ahead.

Overall, there has been a major focus on developing industries like food, consumer durables, electronic products and information technology in the private sector, while in the public sector there are large government investments in infrastructure development like roads, highways, mega-bridges, technology parks and deep-sea ports.

 

Areas of opportunity and challenges

According to Bangladesh Bank (the country’s Central Bank), net foreign direct investment (FDI) inflows in 2015 stood at US$2.24 billion compared to US$1.55 billion in 2014, a substantial increase of 44%. Robust economic growth and positive future prospects in Bangladesh have attracted significant interest from foreign investors, especially from the US, UK and Singapore which cumulatively accounted for 47% of net FDI inflows in 2015.  The top 5 sectors that attracted the most investment include – textiles and apparel, gas & petroleum, banking, telecommunication and power, accounting for 71% of the total, in 2015 (see figure below).

Blog Picture

Foreign companies are considering investments into Bangladesh from two perspectives – firstly, with Bangladesh as a manufacturing hub for exports, leveraging local capabilities, cost advantages and available incentives. Export processing zones (EPZs) have been built by the government to provide ready infrastructure, along with fiscal and non-fiscal incentives to attract investments. As a result, 18% of the total FDI in 2015 was focused towards EPZs. Secondly, global firms are increasingly focusing on serving the domestic market, especially in sectors with large potential such as food, banking and telecommunications, which is being driven by the emerging middle class. The Bangladesh Institute of Development Studies (BIDS) reported that 20% of the country’s total population are in the middle income segment with the share expected to increase to 33% by 2030.

There also exists significant business challenges for new entrants into Bangladesh, with the country ranked 174th (out of 189) in the World Bank’s ‘Doing Business 2016’ rankings. Areas such as dealing with permits, enforcing contracts, getting electricity and registering property are major challenges to businesses in the country. However, these are not unique to Bangladesh and can be seen in many other growth markets. Foreign companies can seek to navigate these challenges better by partnering with local firms who have a strong understanding of the domestic environment. Overall, global players can effectively tap into Bangladesh’s potential by creating and executing a well-crafted and detailed market entry / expansion roadmap that takes into consideration a holistic perspective of the business environment, value proposition, operating model as well as financial and human capital.

 

PwC in Bangladesh

Acknowledging the market opportunities and challenges to capturing these, PwC Bangladesh, a wholly owned subsidiary of PwC India, was incorporated in 2015 to establish a local presence and provide industry specific tax and advisory solutions to companies looking to expand their businesses in this exciting frontier market. PwC has recently opened an office in Dhaka, and the Bangladesh office is managed by Mamun Rashid who also has extensive knowledge and expertise in the region. PwC’s expansion into Bangladesh aligns to the firm’s commitment on supporting its clients successfully navigate the complex challenges which characterise the growth markets.

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[i] Bangladesh Economic Review, 2015

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