[🇧🇩] Bangladesh Economic Affairs & News

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EMERGING & FRONTIER MARKETS

Bangladesh: Riding The Growth Wave​

FEBRUARY 5, 2024
Author: Jonathan Rogers


There is one unignorable input to Bangladesh as an investment proposition: growth. The country’s growth data points are remarkable, with an average 7% GDP growth over the past decade and not a single year of contraction over the past 30 years.

Those figures have burnished the reputation of Prime Minister Sheikh Hasina, daughter of the nation’s founder and in power since 2009, who has championed the country’s textile industry as a powerful growth engine.

All has not been smooth sailing for the net oil-importing nation. Last year, rising fossil fuel prices increased inflation, shaving 1% off 7% forecast growth and creating a balance of payments crisis that led to intervention by the International Monetary Fund (IMF). But the country’s long-term growth trajectory remains intact.

When the country experienced an unprecedented reversal of its financial accounts last year, leading to a deterioration in the balance of payments and consequent pressure on Bangladesh Central Bank’s foreign exchange reserves and the taka, the bank, under program guidance from the IMF, tightened monetary policy, allowed greater exchange rate flexibility.

“Due to active intervention by the central bank, there has been some convergence of formal and informal exchange rates for the taka,” says Salim Afzal Shawon, head of research at BRAC EPL, a Dhaka stock brokerage. “Whereas we have seen different formal and informal rates with as high as a 14%-plus gap in between, it has narrowed a bit recently, with some sign of steadiness, which should help improve onshore dollar liquidity.”

Vital Statistics

Location: South Asia

Neighbors: India, Nepal, Bhutan, China, Myanmar, Pakistan, Afghanistan, Tajikistan, Kyrgystan

Capital City: Dhaka

Population (2021): 172.9 million

Official language: Bengali

GDP per capita (Est. 2023): $2,657

GDP size (Est. 2023): $446.3 billion

GDP growth (Est. 2023): 6%; forecast 6% 2024

Inflation (Est. 2023): 9.7%; forecast 7.2% 2024

Unemployment rate (Est. 2023): 9.5%

Currency: Taka

Investment Promotion Agency: Bangladesh Investment Development Authority (BIDA)

Investment incentives: All incentives are subject to various registrations and approvals. The industry must be registered with BIDA for corporate income tax (CIT) exemption (holiday and rebate), based on type of business and geographical location; CIT exemption subject to National Board of Revenue approval; import duty exemption on capital machinery and spare parts subject to BIDA registration and approval from the office of the Chief Controller of Export and Import. Accelerated depreciation allowance for plants and machinery.

Corruption Perceptions Index (2022): 147 (out of 180 countries)

Credit Rating: BB- Outlook negative (Fitch Ratings)

Political Risk: Civil protests are common but political stability is intact following the ruling party’s 2024 election victory, albeit amid criticisms of authoritarianism and a slide into one-party rule

Security Risk: Ongoing risks of opposition BNP-orchestrated violence and terrorist attacks.

PROS

Stable political backdrop

Young population (28% of which is ages 15-29)

Pro-business administration

Sustainability-friendly with strong underlying framework to support green transition, at-scale financial support from MDBs and other international development finance organizations

CONS

Highly vulnerable to climate change

Corruption endemic in a red tape-choked business backdrop

Ingrained negative perception among international investors

Confusing foreign exchange environment

Concentration risk to textile sector

Sources: IMF, Fitch Ratings

For more information on Bangladesh, click here.


“Due to active intervention by the central bank, there has been some convergence of formal and informal exchange rates for the taka,” says Salim Afzal Shawon, head of research at BRAC EPL, a Dhaka stock brokerage. “Whereas we have seen different formal and informal rates with as high as a 14%-plus gap in between, it has narrowed a bit recently, with some sign of steadiness, which should help improve onshore dollar liquidity.”

Meanwhile local commercial banks have grown their hard currency reserves, boosting system liquidity.

Textile Dependency​

Bangladesh’s most urgent economic need, close observers say, is to ameliorate the concentration risk from a too-great reliance on textiles, which account for 85% of the country’s exports and 10% of GDP. Given that the government appears to be well aware of the urgency of diversifying the economy, however, the backdrop for foreign direct investment (FDI) is ripe with opportunity.


“We must see how we can attain sustainable export growth. For that we have to find new markets across the globe. We have to diversify our products, and we have to induct new items in our export baskets,” Sheikh Hasina said last March as she addressed the 11th meeting of the National Committee on Export, eyeing the digital devices, pharmaceuticals, light and medium weight industries, motor vehicles and electronic motor vehicles, and food processing sectors.


“We have formulated a perspective plan which aims at making the country developed by 2041. For that we need to advance gradually and we have to work in this field,” she added.


That said, the country still suffers from long-standing preconceptions that hold back foreign investment, as highlighted in a United Nations Conference on Trade and Development (UNCTAD) report published in 2021: “Despite steady economic growth in the country over the past decade, FDI has been comparatively low in Bangladesh compared to regional peers. Bangladesh suffers from a negative image: The country is seen as being extremely poor, underdeveloped, subject to devastating natural disasters and sociopolitical instability.”


At the same time, UNCTAD noted the positives: the country’s macroeconomic stability, low levels of public debt (31% of GDP in December 2022), a low-cost workforce, a strategic geographic position as a gateway to Asia Pacific, a strong position in the global economy’s value chain, and a pro-business legislative environment.

Accordingly, the country attracted $900 million of FDI in calendar 2023, the Bangladesh Investment Development Authority (BIDA) said during a two-day Investment Expo held in conjunction with the Foreign Investors Chambers of Commerce (FICCI) in November.


That figure is impressive given the volatility that forced the country to seek a $4.7 billion IMF bailout early in 2022 to plug a balance of payments hole. The deal also required Bangladesh to enter a 42-month supervisory program aimed at strengthening its financial system and fostering sustainable economic growth.


The prior year, the textile sector recorded its highest-ever FDI—$1.23 billion, according to the central bank—while total FDI rose 20% to $3.48 billion, according to UNCTAD. Those new infusions bucked a declining overall FDI trend that saw global volume decline by 12% to $1.3 trillion due to the Ukraine war, rising food and energy prices, and debt service cost pressures.


“Bangladesh remains overreliant on garments, with around 85% of the country’s exports deriving from that sector,” says Florian Schmidt, founder and CEO of Singapore-based capital markets advisory Frontier Strategies. “The need therefore is to diversify into higher value-added industries—for example, pharmaceuticals or electronics.”

Encouraging FDI​

The government appears to be sharpening its approach. At the Investment Expo, Mohsina Yasmin, BIDA’s acting executive chairman, highlighted the launch of a one-stop service to encourage FDI and address business-related challenges; 90 different types of support are offered, with the aim of protecting foreign investors from harassment and excessive costs.


“We hold a broadly positive outlook for foreign direct investment inflows into Bangladesh,” says Tim Kerckhoff, senior analyst at London-based research firm BMI, a unit of Fitch Solutions, “which we think will be supported by policy continuity following the January 2024 general elections and increased demand for Bangladeshi garment exports.”


Kerckhoff points to the reelection of Sheikh Hasina, which augurs a continuation of the policies that have succeeded in attracting significant FDI flows. Weak macroeconomic conditions and weakened consumers purchasing power will shift consumer spending from mid-priced to low-priced clothing, he predicts, benefiting Bangladesh’s low-wage producers. “We expect that retailers’ efforts to diversify their supply chains beyond Mainland China will support FDI inflows into Bangladesh,” he adds.


Fitch Ratings downgraded Bangladesh’s BB- ratings outlook to negative in September, citing a deterioration in external buffers and a policy response insufficient to stem falling foreign exchange reserves. But that call might have been excessively gloomy, Shawon argues: “Our reserves cover around four months of imports, which should be sufficient to get through this cash flow strain, and our capital account is not open, which should guard against excessive downside taka volatility. Meanwhile, the upcoming loans from the IMF and other multilateral financial institutions would certainly help bridge the gaps.”


A wild card is Bangladesh’s high-risk exposure to climate change; the 2021 Global Climate Risk Index Report ranked it seventh among countries most affected by climate change between 2000 and 2019. That vulnerability may be a developmental capital blessing in disguise.

In December, the government established its Bangladesh Climate and Development Platform (BCDP), a collaborative initiative and the first of its kind in Asia, spearheaded by the Asian Development Bank and World Bank, aimed at mitigating and adapting to the effects of climate change and involving the participation of multilateral development banks and other bilateral partners—12 in total—including the Green Climate Fund.

The BCDP will “generate a robust pipeline of climate projects, integrated with a financing strategy” and the initiative aims to attract private capital via risk mitigation and direct funding, according to an IMF prepared statement. The initiative includes a Project Preparation Facility, which aims to coordinate development partners and support scalability in order to attract private investment.

 

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Chinese bank in Bangladesh to facilitate yuan trade​

Woman holds Chinese Yuan banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration

State Minister of Commerce Ahsanul Islam has urged the Chinese government to initiate the operations of a Chinese bank in Bangladesh to facilitate the use of yuan for bilateral trade.

"The Chinese currency has been recognised by the government as the official currency since last month to facilitate trade with China for Bangladesh," he mentioned during the Economic Reporters Forum (ERF) and China Bangladesh Chamber of Commerce Industry (BCCCI) Journalism Award ceremony held at the Sonargaon Hotel in the capital on Sunday.

Conducted by ERF General Secretary Abul Kashem, the event featured speeches from Minister Counsellor and Deputy Chief of Mission at the Embassy of China in Bangladesh Hualong Yan, Federation of Bangladesh Chambers of Commerce and Industry President Md Mahbubul Alam, BCCCI President Gazi Golam Murtoza, its Secretary Al Mamun Mridha, and ERF President Refayet Ullah Mirdha."

Mentioning that Bangladesh has the potential to become a global trade hub, Ahsanul said, "The bilateral trade gap with China is substantial – around $22 billion. Increasing China's investment in the country is essential to narrowing this gap. We can potentially reduce this disparity by re-exporting products made through China's investment."

He added that achieving the goal of smart market management requires identifying and addressing the issues in market management.

"Increasing China's investment in the country is essential to narrowing this gap. We can potentially reduce this disparity by re-exporting products made through China's investment."
Ahsanul Islam, state minister of commerce

He said the commerce ministry oversees both imports and exports, implementing business-supportive policies aimed at safeguarding consumer interests. Specific initiatives, particularly concerning Ramadan products, have been introduced. The National Board of Revenue has been urged to consider reducing duties on essential items such as oil, chickpeas, chilies, pulses, and onions.

"The prime minister also supports this stance, and we anticipate that the supply of these products will remain uninterrupted," he mentioned.

The state minister assured, "There is a sufficient stock of food products for the upcoming Ramadan. Proposals have been submitted to the prime minister to reduce import duties on some other products, with the hope that they will positively impact consumers during Ramadan."

He mentioned that the country currently has 18 lakh tonnes of rice in stock, and an additional 13 lakh tonnes of food grains have been imported. The supply of various products is expected to remain normal during the month of fasting.

"We are engaged in coordinating efforts at the production, import, and export levels. Collaborative endeavours with all stakeholders are ongoing," he added.

FBCCI President Mahbubul Alam stated that Bangladesh has grown from a $90 billion economy to a $470 billion one. The country is now on the path toward becoming a trillion-dollar economy.

"The China Chamber has been encouraged to collaborate in order to boost Chinese investment in Bangladesh," he added.

BCCCI President Gazi Golam Murtoza said, "We regularly present awards in collaboration with ERF. This initiative is commendable for the people of the country, especially the journalists."

At the ceremony, the State Minister for Commerce presented crests, certificates, and checks to 15 journalists, including The Business Standard Chief Reporter Abbas Uddin Noyon and Senior Reporter Jahidul Islam.

A total of 68 news articles were submitted in five categories for the BCCCI-ERF Journalism Award this year. According to the scores given by the six-member jury board, 12 winners were awarded first, second, and third places in four categories.

In another category, the first and second-place winners were one each, but the third place was held jointly by three winners. Altogether, 17 journalists received awards in five categories.

The award was jointly launched by BCCCI and ERF in 2020 to highlight the growing trade and economic ties between Bangladesh and China.

 

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The secret behind the phenomenal success of Bangladeshi conglomerate Pran-RFL group that has turnover of over a thousand crore (Tk. 10 Billion or about USD 91 Million) per year.

Chairman Ahsan Khan Chowdhury explains in Bengali.

 

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Over 100,000 foreigners in Bangladesh, step to make visa difficult​

The government is losing significant revenue from income tax due to the illegal residence of many of these foreigners, while job opportunities for local workers are also diminishing as a result, said Tofazzal Hossain Miah, the Principal Secretary to the Prime Minister.

Special Correspondent
Dhaka
Updated: 07 Feb 2024, 00: 00

Many foreign nationals are residing in Bangladesh without obtaining a work permit, and they face minimal hindrance. This situation arises due to legal loopholes and the absence of a comprehensive database containing information about foreign nationals living in Bangladesh.

Consequently, many of these individuals earn income in the country but do not fulfil their tax obligations properly.

Authorities express concern over the significant number of foreign nationals remaining in Bangladesh even after their visas expire. The deterrent to overstaying is relatively weak, as the fine for visa violations is only Tk 30,000. This low penalty encourages individuals to prolong their stay, often by changing visa categories to circumvent enforcement measures.

The topics discussed in the meeting titled 'Determining what to do about foreign nationals staying in Bangladesh without work permits,' which took place at the conference room of the Bangladesh Investment Development Authority (BIDA) in Agargaon, in the capital.

During this meeting, it was decided to address the issue by creating a central database and implementing fines on a daily basis against foreign nationals residing illegally in Bangladesh.

Additionally, measures were decided upon to penalise those who offer employment, lodging, or housing to foreign nationals residing illegally in the country.

Chaired by Tofazzal Hossain Miah, the Principal Secretary to the Prime Minister, the meeting saw the participation of Executive Chairman Lokman Hossain Mia, as well as secretaries from relevant ministries and departments, and other high-ranking officials.

Also Read

‘No foreigners to be allowed to work without work permit’​

During the meeting, the Special Branch (SB) of the police provided information indicating that as of 31 December, a total of 107,167 foreign nationals were residing in Bangladesh, entering the country under four visa categories.

Among them, 10,485 foreign nationals arrived on business and investment class visas, some 14,399 on employment visas, 6,827 on education visas, and 75,456 on tourism and other visas. Among these, Indian citizens constituted the largest group, totaling 37,464 individuals, followed by Chinese citizens with 11,404 people.

Responding to a question at the conclusion of the meeting, Principal Secretary Tofazzal Hossain Miah informed Prothom Alo that due to incomplete information, estimates suggest that there could be between 400,000 to 500,000 foreigners in the country.

The government is losing significant revenue from income tax due to the illegal residence of many of these foreigners, while job opportunities for local workers are also diminishing as a result, he added.

Legal weaknesses within Bangladesh's policy​

According to the information presented in the meeting, individuals intending to work while staying in Bangladesh must obtain permission from the government and fulfil income tax obligations. However, the current visa policies exhibit weaknesses.

The 2006 visa policy remains in effect despite the formulation of a new policy in 2019, which is yet to be implemented by the government. Additionally, foreign nationals have the option to change their visa classifications while residing in Bangladesh.

It was highlighted in the meeting that many individuals enter and engage in employment, business, and investment activities, as well as tourism, under various visa categories, without facing stringent conditions or requirements outlined in the visa policy.

Consequently, visa holders often do not adhere to the necessary procedures. Many individuals continue to extend their stay in Bangladesh, exploiting loopholes in the visa system. Furthermore, discussions during the meeting addressed instances where foreign embassies facilitate the issuance of new passports for blacklisted individuals.

Decisions made in the meeting​

During the meeting, Principal Secretary to the Prime Minister, Tofazzal Hossain Miah, announced the decision to create a central database accessible to various government entities, including the Security Services Division of the Ministry of Home Affairs, Ministry of Foreign Affairs, Bangladesh Bank, National Board of Revenue (NBR), Bangladesh Investment Development Authority (BIDA), Bangladesh Export Processing Zones Authority (BEPZA), Bangladesh Economic Zones Authority (BEZA), Hi-Tech Park Authority, Bureau of NGO Affairs, National Security Intelligence (NSI), Department of Immigration and Passports, and Police Special Branch (SB).

This database aims to prevent foreigners from working without permission.

The Principal Secretary to the Prime Minister outlined plans to digitise and automate the visa issuance process in Bangladeshi missions. Additionally, it was decided that fines would be imposed on foreigners, who possess visas different from their intended class, hold expired visas without work permits, and stay in hotels unlawfully. Fines will be levied on illegal foreign nationals on a daily basis, proportional to their length of stay. Companies found employing illegal immigrants will also face penalties. Moreover, details of individuals blacklisted by the Security Services Department will be published on a designated website.

Tofazzal Hossain Miah expressed confidence that the decisions regarding foreigners will generate additional revenue of Tk 10 to 12 billion annually.