Quiet tiger
Bangladesh is making some great strides but requires major improvements in infrastructure and ease of doing business. By Erich Parpart in Dhaka
Mention Asian tiger economies and Bangladesh is probably the last place that comes to mind. But the World Economic Forum (WEF) this year conferred the designation on the South Asian country, alongside the likes of Hong Kong, Singapore, South Korea and Taiwan, citing its impressive growth in the past decade.
Still, many challenges remain in terms of infrastructure and ease of doing business to accommodate investors and tourists if Bangladesh is to realise its true potential. There are also tremendous opportunities in pharmaceuticals, shipbuilding and renewable energy.
Bangladesh’s gross domestic product expanded from US$8.75 billion in 1971, the year the country declared independence from Pakistan, to $221.4 billion in 2016. GDP growth has averaged more than 6% a year over the past decade, reaching a record 7.2% at the start of 2017.
Based on the international poverty line of $1.90 per person per day, the country has reduced poverty from 44.2% in 1991 to less than 14% now. Social security protection has expanded greatly, from 11 programmes and $142.8 million worth of coverage in 2006, to 145 programmes and $5.77 billion in coverage or 2.3% of GDP in 2016. This year, Bangladesh formally moved up from a least developed to developing-country status.
Nevertheless, the World Bank still believes Bangladesh is facing “daunting challenges” with about 22 million of its 165 million people still living below the poverty line.
And the WEF says the country remains “one of the hardest places in the world to conduct business” given corruption and poor infrastructure which makes it difficult to transport goods.
Meanwhile, 20% of its population or more than 30 million people are not connected to a power grid and blackouts are common. Bangladesh ranked 177th out of 190 countries on the latest World Bank Doing Business list, well behind Pakistan (147), Sri Lanka (111), Nepal (105) and India (100).
The bank has identified “more and better jobs” for more than 2 million youths who are entering the job market every year as the top priority for the Bangladeshi government.
In order to reach its GDP growth target of 8% per year by 2020, Bangladesh has to diversify out of the garment trade, the WEF has said. But the Bangladesh Investment Development Authority (BIDA) and Bangladesh Export Processing Zones Authority (BEPZA) still identify cheap labour as the country’s best comparative advantage but struggle to provide other inducements.
The list of global brands drawn to low-cost Bangladesh is a long one. It includes Nike, Reebok, H&M (Sweden), Gap, JC Penney, Walmart, Kmart, Ospig (Germany), Mother Care (UK), Lee, Wrangler, NBA, Tommy Hilfiger, Adidas, Free Spirit (UK), Miles (Germany), American Eagle, Hi-Tech (UK), Philip Morris & Son (UK) and Marks & Spencer.
Foreign journalists visiting the Viyellatex factory in Dhaka, a major supplier to Marks & Spencer, learned that the average basic pay for workers is around 6,600 taka ($78) per month, while most take home bout 8,000 taka ($95) with overtime.
A worker can earn as much as $173 per month if she can do labour-intensive work such as stitching, folding and ironing for 10 hours every day for 30 days. Workers at Marks & Spencer make more than their peers in other factories but either way, Bangladeshi workers are still among the lowest-paid in the world. The minimum wage for all sectors not covered by industry-specific agreements is only 1,500 taka ($17.70) per month, compared with 5,300 taka ($62.60) for the garment industry. Rates are reviewed every five years and the next review is scheduled for December this year.
Foreign investors are beginning to see potential in other sectors of the economy. Foreign direct investment (FDI) averaged less than $350 million a year from 1980-95 but has since been climbing steadily and reached $2.65 billion in gross inflows last year, with the a net inflow of $1.62 billion.
Net foreign portfolio investment on the Dhaka Stock Exchange jumped from just $7 million in the first half of fiscal 2016 to $184 million in the first half of fiscal 2017. The market capitalisation of the bourse is around $40 billion.
Major foreign investors in Bangladesh are from the US, UK, Australia, South Korea and Netherland. South Koreans are the biggest investors in export processing zones with 76 companies in eight EPZs followed by China (39), Japan (32), Taiwan (29), Hong Kong (28), India (22), the US (18) and the UK (18).
Thailand’s Charoen Pokphand Group is investing in food processing and its Five Star chicken stands are already a common sight on the streets of Dhaka. There are currently only seven foreign poultry companies in the country, including five from India which controls 35-40% of the market, while China’s New Hope is another big player.
Italian-Thai Development is taking part in infrastructure development in Bangladesh, through a 2017 contract for the country’s first metro rail project worth $719 million, in collaboration with Sinohydro Corp Ltd of China.
Apart from garments, BIDA has identified agriculture, information and communications technology, leather goods and electrical goods as high-priority sectors. It also sees good potential in plastics, light engineering, shipbuilding, tourism, frozen food, renewable energy, ceramics, power, medical equipment and healthcare.
One success story is Square Pharmaceuticals, the largest company in Bangladesh worth $500 million with an 18% market share. The company is certified by the US Food and Drug Administration and the UK Medicines and Healthcare Products Regulatory Agency but it has also diversified into other fields such as hospitals, fast-moving consumer goods, textiles, information technology, financial services and agribusiness.
It supplies various healthcare and medical goods from simple tablets to insulin, inhalers, injectable and sterile products to 42 countries in Asia, Africa, Oceania, Central and South America and the UK. It is expanding production capacity to Kenya, with Vietnam and South Africa also on its radar.
“The Bangladesh pharmaceutical industry is developing at a good rate and we are seeing new investment every year. Since Square has been certified by the US FDA, the company is now ready to supply our products to the US market which is the largest in the world,” Prosenjit Chakraborty, deputy general manager of Square, told Asia Focus.
“In terms of the country, we are now self-sufficient in pharmaceuticals and collectively we are sending our products to more than 50 countries. We are attracting companies from India and US to come to invest in Bangladesh to create their products here and send back to their respective countries.”
In shipbuilding, the country is now championing the production of small and medium-sized vessels. Low production costs give Bangladesh a comparative advantage against the likes of China, according to Commander Enamul Hassan, deputy general manager of planning and design at the Dockyard and Engineering Works (DEW) of the Bangladesh Navy, which was established in 1922.
“Our specialisation is small boats and patrol craft, and if you want to build some yachts and composite boats then I think it will be much cheaper in our country,” he said. “If you can provide materials that we have to import, such as main engine, and the design, we can produce those and we have that confidence that we can work together in this field.”
The shipbuilding industry now employs 250,000 skilled and semi-skilled workers with more than 10,000 inland and coastal ships carrying more than 90% of all oil, 70% of cargo and 35% of all passengers in a country with 24,000 kilometres of navigable waterways.
The DEW can now dock vessels of up to 1,200 tonnes and 88.4 metres in length on the eastern bank of the Shitalakshya River in Narayanganj district, around 30 kilometres south of Dhaka. Its facilities include shipways, workshop cranes, shipbuilding and various other shops for building, repair, regeneration and repowering, engine overhaul, steel and civil works.
The DEW built its first water-jet powered high-speed aluminium boat in 2012 and also offers patrol craft, roll-on, roll-off ferries, survey boats, composite boats, tankers, launches, tugs, coasters and landing craft. It is preparing to export small and medium-sized ships in the near future with a vision to acquire technology and skills to build state-of-the-art medium-sized vessels by 2025. Its patrol boats used by the Coast Guard cost around $800,000 to build.
“The bigger private shipyards can supply larger-sized ships and they are exporting them now, but there is still a lot of demand from local sectors,” said Cmdr Sheikh Arif Mahmood, the DEW managing director.
“The DEW just came under the command of the Bangladeshi Navy in 2006 but we plan to export smaller-sized ships in future as we have gained certain standards and the confidence to do so.”
The World Bank has identified “more and better jobs” for more than 2 million youths who are entering the job market every year as the top priority for the government