Monday, March 23, 2020

Favorable Conditions, Markets in Bangladesh

Bangladesh can be considered as a rapidly emerging market pushed forward by its export industries: exports have grown by 40 % in the period from July 2010 to January 2011. This is remarkable in a time when most economies are still suffering from the effects of the global financial crisis. The main products responsible for this growth are knitwear and woven products, together responsible for over three-quarters of Bangladesh’s exports. Interestingly, the fastest growing sector in this period was shipbuilding (with almost 1,400 % growth).1 Apparel exports increased mainly because of the shift of international buyers from China to Bangladesh; due to the increasing costs of production in China, this country has a decreasing competitiveness, and significantly it is losing market to Bangladesh.2 The other opportunity that promises to strengthen Bangladesh’s position further is related to the new rules of EU’s Generalized System of Preferences (GSP), in particular the changed Rules of Origin, which are in place since the 1st of January 2011. In the frst two months of 2011 this has already resulted in a rise of exports of garment products.3 In addition, Japan is also planning to adjust its trade rules in favor of least developed countries (including Bangladesh) from April 2011.

The shift towards Bangladesh could have been much larger were it not for the energy crisis in particular the inability of the grid to meet the demand. As a result of the regular power outages potential new ventures are being deferred and private sector job creation is stalled; in addition, some reports indicate that Chinese, Taiwanese and Korean investors are delaying concrete plans to build factories in Bangladesh, especially in Export Processing Zones (EPZs), until the energy crisis is being solved, although the energy situation in EPZs is better than elsewhere.4 The government has announced plans to deal with the energy shortage on a priority basis, but progress seems slow. The political situation is currently quite stable, although the image of the country as an investment destination could be damaged if labor unrest and hartals fare up once too often.

Bangladesh as an emerging market ofers a number of favorable conditions to Dutch and other frms for doing business: it has a series of cost competitive advantages, it ofers a large domestic market and it has a strategic location near to the fastest growing economies of the world. At the same time, the main constraints will also be identifed. This chapter will be concluded with a brief indication of selected niche markets which deserve special mention..

Favorable Conditions 

Bangladesh is a cost competitive investment destination in several respects. Firstly, it offers a young, industrious workforce with the lowest wages in the region, and English is the second language after Bengla. Secondly, industrial estates, offices and housing for foreigners in the country are often cheaper than in other South and South East Asian countries. Thirdly, Bangladesh enjoys tariff-free access to the European Union (through EU’s Generalized System of Preferences, GSP), Canada, Australia and Japan. Fourthly, it has a proven export competitiveness that can be illustrated as follows:

- Bangladesh offers some of the world’s most competitive fiscal and non-fiscal investment incentives.

- Bangladesh offers the most liberal FDI regime in South Asia, allowing 100% foreign equity with unrestricted exit policy, easy remittance of royalty, and repatriation of profits and incomes.

- Bangladesh offers export-oriented industrial enclaves, Export Processing Zones (EPZ) with infrastructural facilities and logistical support for foreign investors. Bangladesh has recently embraced a more flexible and competitive economic zones regime with the enactment of the Economic Zones Act 2010 which paves the way for private economic zones.

- The Foreign Private Investment (Promotion & Protection) Act 1980 provides protection for investments made in Bangladesh

Lastly, in itself the energy prices in Bangladesh are the most competitive in the region; however, currently there is a shortage of electricity and gas supply (and a stop on new connections) which the government is trying to counter on a priority basis.

Recent international ratings are generally quite positive on Bangladesh’s economic potential (cf. Box 1.1). Also rather positive are the national indices and rankings concerning governance, gender and well being, but the rankings for Dhaka on livability, people risk and social networking are extremely low. With about 160 million inhabitants and a middle class that is rapidly growing in size compared to the other classes, there is an increasing domestic demand for example for consumer goods.

Bangladesh is strategically located near the emerging economic giants, India and China, and near to the ASEAN markets.At the same time, some economic data prompt a cautious outlook. Firstly, Bangladesh has the lowest FDI infow in South Asia (0.8% of GDP). Secondly, the country continues to add 2 million people to its labor force every year and unemployment is currently at 8% while underemployment is much higher.

No comments:

Post a Comment