The sub-continent in Southern Asia is comprised by three of the most populated countries in the world: India, Pakistan, and Bangladesh.
In this guide we will talk about the smallest of the three, Bangladesh, and we will highlight the best business opportunies, but also the biggest risks of doing business in this populous country.
Bangladesh was part of the British India, the jewel of the British Empire. When India became independent in 1947, the Muslim part of the population formed Pakistan. At that time Bangladesh was part of it and was called Eastern Pakistan.
It became independent, not without fighting, only in 1971.
BUSINESS OPPORTUNITIES
First opportunity: large population
The first opportunity in Bangladesh is of course the size of the market: Bangladesh has been growing between 6% and 7% per year for the past 15 years, and this is a country of 160 million people which keeps growing by 1%, so it means that this country adds 1,600,000 people every year; to give an idea, this is the equivalent for Western Europe to add from scratches a city the size of Milan every year. And this tremendous growth occurs even if Bangladesh has a negative migration rate of 3/1000 individuals every year.
Source: World Bank
Second opportunity: cheap workforce
The second opportunity in Bangladesh is a consequence of this abundance of manpower, that is, the low cost of the workforce.
Bangladesh has the lowest cost of the labor force in the world, salaries averaging 160 USD per month, which is basically 1/4 of the manufacturing salaries in China. It is not surprising therefore that many labor-intensive businesses, especially in the textile industry, are relocating from China (where they established decades ago at the onset of the Chines economic boom) to Bangladesh.
If we consider the salaries of non-skilled people, this number can go as low as 40 USD per month, so this is a great place to outsource the production, for labor-intensive businesses.
As a result, Bangladesh has become the second largest textile hub in the world. The industry represents roughly 80% of the country’s exports, which makes Bangladesh one of the top exporters of textiles in the world.
The country hosts a large number of textile trade shows every year, and most of the B2B in Bangladesh occurs in this industry.
Source: Bangladesh Bank
Third opportunity: stable currency
The third opportunity is the currency: do you remember when I said before that the country has a negative migration rate?
That would be a risk, in general terms.
But in the case of Bangladesh, this might represent an opportunity.
This is because the country receives every year 13 billion USD in remittances, meaning Bangladeshi people working abroad and sending the money back; combined with 35 billion USD of exports (you see how important remittances are, they are almost 40% of the exports!) Bangladesh can bring in foreign reserves and to keep the currency afloat.
The policy of the central bank of Bangladesh in the past was to peg the Taka, the national currency, with the dollar.
But this did not really work; there had been huge devaluations, so the country decided to keep the currency balanced against the currencies of its main trading partners, and the Bank of Bangladesh never lets the currency appreciate.
What we see is a controlled devaluation which, as we said also for other export-oriented, developing countries, is good for the growth of the country, and even for investments in the country, especially equity investments: what you may lose because of the exchange rate, you will gain because of the growth of the country, and as a consequence the growth in your equity.
Source: xe.com
Source: Trading Economics
Fourth opportunity: infrastructure investments
Speaking of investments, this brings us to the fourth opportunity, which is investments in infrastructures.
Infrastructures are desperately needed in Bangladesh but, just to give an idea, the country invests more than 30% of its GDP in infrastructures every year.
We are talking about more than 75 billion USD of investments, so of course this represents a great opportunity in this country.
Source: CIA World Factbook
Fifth opportunity: no tariffs on exports to the EU
The fifth opportunity is the fact that Bangladesh is included in the Everything But Arms European program.
For the countries included in this program, the European Union does not levy tariffs or quotas.
Why this is so important for Bangladesh?
Because, as we just wrote, Bangladesh is highly specialized in the textile industry, which is an important sector in Europe, where most of the fast-fashion brands like Zara are located.
This means that European fashions houses can outsource their production to a low-cost textile manufacturer in Bangladesh, and then import to Europe without being penalized by import tariffs or duties.
Source: European Commission
BUSINESS RISKS
First risk: low-income country
The first risk has to do with the fact that Bangladesh is a poor country.
The country ranks 8th in the world as of population, but only 33rd as per GDP.
This is because the GDP per capita is so low, at 4,200 USD, that is lower than Pakistan 40% lower than India and only a quarter of that of China.
This occurs because most of the population is still employed in the agricultural sector, with low productivity, and unfortunately because of floodings that happen regularly.
This is one of the main reasons why people migrate from the countryside to the cities in search of a steady salary, for as little as it can be.
Source: CIA World Factbook
This takes us directly to the second and third risks, which are all related to what we just mentioned.
Second risk: poor infrastructures
The second risk lies in the poor state of Bangladesh infrastructures: only 60% of the population has access to electricity, and only 18% has access to the internet.
This is mainly true for people living in the countryside, but when we talk about cities, the capital Dhaka for example, most of the population has access by electricity and internet.
However, the country’s capital has a lot of problems of its own. If you have ever happened to attend an exhibition in Bangladesh you know what I am talking about.
This city is already home to 19 million people, and is expected to reach a population of 27 million inhabitants by 2030, just in 10 years. Will Dhaka and other big cities in Bangladesh have the infrastructures to host so many people? Will they become a huge slum?
Third risk: poor working conditions
That is really a challenge for the country and takes us to the third risk: labour working conditions.
We said that Bangladesh has the lowest cost of the labor force, and it is a great place where to outsource the production: true.
However, working conditions are extremely poor, and accidents happen. I mention here the accident that took place in Rana Plaza in 2013, when a factory collapsed, and more than 1,000 people died.
Unfortunaltely, it was not an isolated case; similar incidents happen in Bangladesh, and these carry that risk that governments in Europe and the United States may worsen trade terms with Bangladesh, not to mention the reputational damage in your home country, if you have decided to outsource the production to Bangladesh, but have not done the proper due diligence with regard to your supplier.
Fourth risk: corruption
The fourth risk is the high level of corruption in Bangladesh, which stands at 143 among 180 countries.
It is high in absolute terms: it is way higher than Pakistan, way higher than India, and this of course not good for attracting investments and for the long-term development of the country.
Source: Transparency International
And the long-term development will be important, and we go to the fifth risk, in terms of safety.
Fifth risk: safety issues
Although Bangladesh is a Muslim country, it has always been governed by secular politicians.
However, as the country develops, it will be particularly important to see how it is able to redistribute wealth, and to make sure that all its inhabitants are included in the growth of the country.
Otherwise, if Bangladesh experiences extreme inequalities as it continues to grow, the risk is that radical Islam might make a breach in the poorest part of the population.
While we are not saying that Bangladesh is not a safe country, there had been terrorist attacks, and it will be especially important to see how this country develops in the future.
CONCLUSIONS
This is our general view of Bangladesh, of course if you had the opportunity to carry on business in this country and you saw more opportunities or more risks that we have forgotten to mention, please write them in the comments below.
Overall, we think that Bangladesh is an attractive country, because of its huge internal market and its role as an investment hub for labor-intensive businesses.
There are risks of course driven by the high level of corruption, the lack of infrastructure, and the poor working conditions of its workforce.
You can find other info about Bangladesh in our Country Data page: Bangladesh
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