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Dhaka Tribune

The prospects and challenges of investing in Bangladesh's economy

How an environment conducive for business paves the way to economic growth

Update : 19 Jun 2023, 09:24 PM

Bangladesh -- an intensely populated country in South Asia exceeding 171 million with a burgeoning middle-income group and a strategically advantageous geographical position -- has demonstrated noteworthy economic development in recent years rendering it a desirable location for international investors. 

The correlation between economic growth and business development is significantly influenced by the business environment shaped by the governing body's socio-economic policies and political determination. Increased investment and business ventures can stimulate economic activity, leading to job creation, poverty reduction, enhanced social cohesion, and economic growth. 

Bangladesh's advantageous geographical location between South and Southeast Asia renders it a propitious destination for enterprises seeking to broaden their business activities in these areas. The geographical proximity of the country to significant markets such as India and China provides favourable circumstances for enterprises to access and leverage these markets.

Bangladesh's competitive advantage in the global market lies in its abundant supply of low-cost labour, rendering it a desirable location for enterprises seeking to curtail labour expenses. The above-mentioned circumstances have resulted in a strong manufacturing domain emerging within the country, with a notable emphasis on the textile and ready-made garments (RMG) sectors.

Bangladesh is, without a doubt, one of the most promising economies in the region. As per research, for Bangladesh to achieve high-income status, it would be necessary to increase its investment-to-GDP ratio to approximately 40-44% of GDP. The investment-to-GDP ratio in Bangladesh is currently roughly 30%. According to forecasts by the US Boston Consulting Group and HSBC Global Research, the size of Bangladesh's economy will reach $1 trillion by 2040.

With a median age of 28, over two-thirds (68.4%) of the entire population are of working age, amounting to 114 million working age individuals. Bangladesh is the second-largest provider (650K FTE) of global online labor and houses 15% of the world's freelancers. Bangladesh is projected to be the fastest-growing consumer market globally in the next decade, emerging as the ninth-largest consumer market by 2030, outpacing established markets like the UK and Germany. Companies have significant opportunities to tap into this growing market.

Between 2016 and 2021, Bangladesh's GDP grew by 6.4%, surpassing major Asian counterparts such as Vietnam, India, the Philippines, Thailand, and Indonesia. Bangladesh is witnessing rapid urbanization and a burgeoning middle class, driving demand for new technologies and services. The growth of domestic manufacturing necessitates the up-skilling of low-skilled Bangladeshi workers.

The country hosts over 1,200 active start-ups across various sectors, including fintech, logistics, mobility, and e-commerce. Bangladeshi founders are driven, technically proficient, and possess relentless ambition. Bangladesh's start-up ecosystem has raised $700 million, with bKash Limited becoming the country's first unicorn after SoftBank Group Corp. acquired a 20% stake. Many more companies are on track to achieve unicorn status. 

Led by Sheikh Hasina, the government is actively engaged in positively shaping the nation's economic prospects, as public spending has more than quadrupled over the last decade. Between 2012 and 2021 mobile subscriptions nearly doubled, reaching around 177 million, while internet penetration grew by over 70% in the past 10 years.

Preceding the onset of the Covid-19 pandemic in 2020, the Bangladesh economy exhibited a significant growth trajectory, registering an annual expansion within the 8 percent range. Just as we started to recover from the fallout of the pandemic, the country started to face unprecedented challenges created by the Russia-Ukraine war. In the wake of the pandemic's aftermath, the country has been confronted with unparalleled obstacles stemming from the ongoing conflict between Russia and Ukraine.

The ongoing war has resulted in a significant surge in energy costs, modified worldwide trade, manufacturing, and consumption patterns, and impeded supply networks, thereby causing a worldwide escalation in prices. During the initial five months of the current fiscal year, Bangladesh experienced a negative balance of payments (BoP) due to escalating commodity prices, increased import payments, and reduced remittance flow.

Bangladesh faces significant infrastructure challenges, particularly emphasizing the underdevelopment of transportation and power supply systems. The circumstances may pose difficulties for enterprises seeking to conduct operations within the country, particularly those necessitating dependable power and transportation systems.

The bureaucratic system in Bangladesh has been observed to exhibit a sluggish and unwieldy nature, posing challenges for enterprises seeking to navigate the regulatory landscape. Additionally, corruption has been identified as a prevalent issue in the country. The persistence of corruption presents a significant obstacle, as confident investors have encountered obstacles in securing licenses and permits.

The economy has exhibited noteworthy growth trend in recent times, as evidenced by a 5.24% increase in its GDP in 2021. As per the Asian Development Bank's  Asian Development Outlook (ADO) report for April 2023, it is anticipated that Bangladesh's GDP will experience a growth of 5.3% during the fiscal year (FY) 2023.

The reduced projection for growth is attributed to restrained domestic demand and diminished export expansion, which can be attributed to the sluggish global growth that ensued after the Russian incursion into Ukraine. The anticipated economic expansion of the country is projected to persist in the forthcoming years, propelled by diverse determinants, such as an expanding middle-income population, escalating consumer requisites, and a proficient workforce.

Despite various challenges, Bangladesh offers noteworthy prospects for investors seeking to leverage its rapidly growing economy. The economic growth of Bangladesh is anticipated to continue in the upcoming years owing to its favourable investment environment, strategic geographical position, and expanding market. By gaining a thorough understanding of the challenges and implementing strategies to mitigate them, investors can successfully navigate the opportunities presented by investing in the economy of Bangladesh.

Md Ashikur Rahman and Anupom Sarker are postgraduate students, Public Administration and Governance Studies, Jatiya Kabi Kazi Nazrul Islam University. 

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