Bangladesh report 2011 12

International Business Environment: A Case Study of Bangladesh

Submitted by: Uzair Ahmad Reg#: 110842 Submitted to: Dr. Shahid Mansoor Hashmi E-mail: [email protected] 1 | P a g e

Air University Islamabad, E9 PAF Complex, Islamabad

Executive Summary

Bangladesh faces the challenge of achieving accelerated economic growth and alleviating the

massive poverty that afflicts nearly two-fifths of its 160 million populations. Strategies for

meeting this challenge have included a shift away from state-bureaucratic controls and industrial autarky towards economic liberalization and integration with the global economy. These policy reforms were initiated in the mid-1980s against the backdrop of serious macroeconomic

imbalances, caused in part by the declining level of foreign aid and in part by a preceding episode of severe deterioration in the country’s terms of trade. The policy reforms in the 1980s

included the withdrawal of food and agricultural subsidies, privatization of state-owned enterprises, financial liberalization, and withdrawal of quantitative import restrictions. The beginning of the 1990s saw the launching of a more comprehensive reform program, which

coincided with a transition to parliamentary democracy from a semi-autocratic rule. These later reforms were particularly aimed at moving towards an open economy – such as making the

currency convertible on the current account, reducing import duties generally to much lower levels, and removing virtually all controls on the movements of foreign private capital. Besides, fiscal reforms were undertaken including the introduction of the value-added tax.

During the 1990s, notable progress was made in economic performance. Along with

maintaining economic stabilization with a significantly reduced and declining dependence on

foreign aid, the economy appeared to begin a transition from stabilization to growth. In the 1980s, per capita GDP had grown slowly at the rate of about 1.6 per cent per annum; the growth

rate accelerated to 2.4 per cent in the first half of the 1990s, and further to 3.6 per cent in the second half of the decade. The acceleration in the growth of per capita income owed itself both to a slowdown in population growth and a sustained increase in the rate of GDP growth (which

averaged 5.21 percent annually during the second half of the 1990s). During this time, the progress in the human development indicators has been even much more impressive. Bangladesh

is in fact among the top performing countries in the 1990s in terms of the extent of improvement in the Human Development Index as estimated by the UNDP. 1 However, there are signs that continued progress in this respect may prove increasingly difficult, particularly in the absence of

strong international support and further consolidation of the economy's growth performance.

The relatively strong growth of the Bangladesh economy in the 1990s was underpinned

by even much stronger export growth. That performance has now been put to test by the global

economic recession and the threat of post-MFA competition in the export of readymade garment

- the country's flagship in the global market. Given the increased reliance on trade, the country's

overall economic performance has come to depend to a large extent on how well it can cope with

the risks and opportunities in the global market. Undoubtedly, the country will have to deal with

1 The absolute increase in the value of HDI for Bangladesh between 1990 and 2001 is surpassed only by that for China (and Cape Verde) among all the countries for which such estimates are available; cf. UNDP (2003), see the table on "Human development Index trends", pp. 241-44.




a whole range of internal policy issues, from public finance and the financial system to

governance and investment climate. But, much will also depend on the changes in the global

economic scenario and the way domestic policies respond to such changes. This paper is aimed

at particularly highlighting International business in the wider context of Bangladesh's economic

growth and future challenges.

Limitations of the report

All data given in the report has been collected from different internet sources. Although

the data has been collected carefully but most of the times it was hard to find updated data and

much harder part were to choose among different sources, therefore errors may be there.

Highlights of Bangladesh’s Performance

Economic Growth Bangladesh’s growth rate averaged 6.3 percent between 2004 and 2008 and was resilient despite the global downturn. But Bangladesh must

continue to improve labor and capital efficiency and increase investment rates.

Poverty Growth has been broad-based. Poverty is projected to fall to 31 percent in 2010, a significant decrease from 57 percent in 1991–1992.

Increasing regional disparities in poverty rates, however, need to be addressed.

Economic Structure

Output structure has remained fairly stable, with a slight decrease of agriculture’s share in GDP and a corresponding gain by industry. Agriculture’s share (18.6 percent) of GDP is less significant than in the

median of LI-Asia countries but it employs half the workforce. Inefficiency in labor allocation points to the need to stimulate job

creation in industry. Demography and Environment

A high population density and the pressure this creates on resources make controlling population critical. The population growth rate

declined from 1.6 to 1.4 percent over the last five-year period, leading to lower youth dependency rates. Also global warming poses a major

threat, making environmental conservation a high priority. Gender Bangladesh does not suffer from a wide gender gap in health or

education. Although low, women’s participation in the workforce is

increasing steadily. Fiscal and Monetary

Policy

The macroeconomic environment is stable, with low fiscal deficits and a

drop in the inflation rate in 2009 from double digits in 2008. Business Environment

Doing Business 2010 cited Bangladesh as South Asia’s top reformer. In most aspects of the institutional environment for doing business,

Bangladesh performs well compared to the regional median, and some




indicators show progress and reform.

Financial Sector The financial sector is underdeveloped compared to the financial sectors of comparator countries, and domestic credit to the private sector has

been hampered by high real interest rates. The Central Bank of Bangladesh has instituted directed credit and capped interest rates to spur investment.

External Sector The readymade garment sector accounts for 80 percent of the country’s exports, and higher-value products and diversification are needed.

Bangladesh has attracted a small fraction of the FDI attracted by comparator countries. Foreign exchange inflows from remittances rose in 2008 and 2009, despite the global downturn, and resulted in a record

current account surplus of 2.8 percent of GDP in 2009. Economic

Infrastructure

Despite improvement in air transport and telephone density, the quality

of infrastructure in Bangladesh is poor. Inadequate and unreliable electricity supply is often cited as a deterrent to investment. Bangladesh also lags behind comparators in roads and ICT usage.

Science and Technology

Science and technology capability in Bangladesh is below the low-income country global median and well below the capabilities of India

and Vietnam. Health Although life expectancy continues to increase, and child immunization

rates have held steady at 89 percent, government spending on health is

still low—1 percent of GDP. This lack of funding is evident in how few births are attended by skilled professionals and the high rate of maternal mortality.

Education Educational attainment at all levels is low, and adult literacy, at 53.5 percent, is cause for concern.

Employment and Workforce

The unemployment rate is deceptively low at 4.2 percent, which does not capture the extent of underemployment or the many Bangladeshis working abroad. The labor force continues to grow rapidly, and female

participation has improved, partially because of the increasing importance of the readymade garment and shrimp export industries.

Agriculture Agriculture employs half the labor force and supplies rice, the main food staple. Cereal yields have increased with higher fertilizer usage. Farmers in the southwest are cultivating shrimp and prawns for export.




Country Profile

Country Profile at Glance • Official Name: People's Republic of Bangladesh

• Location: South Asia

• Independence: 1971

• Capital: Dhaka

• No. Divisions: 7 (64 Districts)

• Share Border with: India, Burma and Bay of Bengal

• Area: 147,570 km²

• Population: 160 Million

• Population growth rate: 1.6%

• Density: 18th in world (1,200/km²)

• Currency: Taka (BDT

• Business Language: English

• Time Zone: +6

• Political Environment: Parliamentary Democracy

• Current Constitution: 4th November, 1972

The Formation of an Independent Bangladesh

Tension between East and West Pakistan existed from the outset because of their vast geographic, economic, and cultural differences. East Pakistan's Awami League, a political

party founded by the Bengali nationalist Sheik Mujibur Rahman in 1949, sought independence from West Pakistan. Although 56% of the population resided in East Pakistan, the West held the lion's share of political and economic power. In 1970, East Pakistanis

secured a majority of the seats in the national assembly. President Yahya Khan postponed the opening of the national assembly in an attempt to circumvent East Pakistan's demand for

greater autonomy. As a consequence, East Pakistan seceded and the independent state of Bangladesh, or Bengali nation, was proclaimed on March 26, 1971. Civil war broke out, and with the help of Indian troops in the last few weeks of the war, East Pakistan defeated West

Pakistan on Dec. 16, 1971.

Economic growth continues in Bangladesh, although at a slower pace, during the world

economic slowdown. Bangladesh has achieved steady economic growth at 5% or more per

year over the past decade. Its growth exceeded 6 percent in FY 2008, reached 5.9% in FY

2009, and is expected to slow slightly to 5.5% in FY 2010; however, more supportive




external conditions are expected to lead to an increase in growth to around 6% in FY 2011-

12.

GDP (2008 est.): $84.2 billion (official); $226.4 billion (PPP).

Annual GDP growth rate (FY 2008): 6.2%; (FY 2008 World Bank est.): below 6%.

Per capita GDP (2008 est.): $554 (official); $1,500 (PPP).

Inflation (December 2008): 6.03% (point-to-point basis) and 8.9% (monthly average basis).

Exchange rate: U.S. $1=69.03 BDT (Dec. 2009); U.S. $1=68.55 BDT (2008); U.S.

$1=69.89 BDT (2007).

Annual budget (2008 est.): $12.54 billion.

Fiscal year: July 1 to June 30.

Natural resources: Natural gas, fertile soil, water.

Agriculture (19.1% of GDP): Products--rice, jute, tea, sugar, wheat.

Industry (manufacturing; 28.6% of GDP): Types--garments and knitwear, jute goods, frozen

fish and seafood, textiles, fertilizer, sugar, tea, leather, ship-breaking for scrap,

pharmaceuticals, ceramic tableware, newsprint.

Trade: Total imports (FY 2008)--$21.6 billion: capital goods, food grains, petroleum,

textiles, chemicals, vegetable oils. Growth rate over previous fiscal year: 25.95%. Total

exports (FY 2008)--$14.11 billion: garments and knitwear, frozen fish, jute and jute goods,

leather and leather products, tea, urea fertilizer, ceramic tableware. Growth rate over

previous fiscal year: 16.04%. Exports to U.S. (Jan.-Dec. 2008)--$3.74 billion. Imports from

U.S. (Jan.-Dec. 2008)--$468.1 million.

(Source: U.S. Department of State)

Geography

Bangladesh is a low-lying, riparian country located in South Asia with a largely marshy jungle coastline of 710 kilometers (440 mi.) on the northern littoral of the Bay of Bengal.

Formed by a deltaic plain at the confluence of the Ganges (Padma), Brahmaputra (Jamuna), and Meghna Rivers and their tributaries, Bangladesh's alluvial soil is highly

fertile but vulnerable to flood and drought. Hills rise above the plain only in the Chittagong Hill Tracts in the far southeast and the Sylhet division in the northeast. Straddling the Tropic of Cancer, Bangladesh has a subtropical monsoonal climate

characterized by heavy seasonal rainfall, moderately warm temperatures, and high humidity. Natural calamities, such as floods, tropical cyclones, tornadoes, and tidal bores

affect the country almost every year. Bangladesh also is affected by major cyclones on average 16 times a decade.

Urbanization is proceeding rapidly, and it is estimated that only 30% of the population entering the labor force in the future will be absorbed into agriculture, although many

will likely find other kinds of work in rural areas. The areas around Dhaka and Comilla are the most densely settled. The Sundarbans, an area of coastal tropical jungle in the southwest and last wild home of the Bengal tiger, and the Chittagong Hill Tracts on the

southeastern border with Burma and India, are the least densely populated.




Location: Southern Asia, bordering the Bay of Bengal, between Burma and India

Geographic coordinates: 24 00 N, 90 00 E

Map references: Asia, South Asia

Area: total: 144,000 sq km land: 133,910 sq km water: 10,090 sq km

Land boundaries: total: 4,246 km border countries: Burma 193 km, India 4,053 km

Coastline: 580 km

Climate: tropical; mild winter (October to March); hot, humid summer (March to June); humid, warm rainy monsoon (June to October)

Terrain: Mostly flat alluvial plain; hilly in southeast

Elevation extremes: lowest point: Indian Ocean 0 m highest point: Keokradong

1,230 m

Natural resources: natural gas, arable land, timber, coal

Land use: arable land: 62.11% , permanent crops: 3.07%

other: 34.82%

Natural hazards: droughts, cyclones; much of the country routinely inundated during

the summer monsoon season

Environment - current

issues:

many people are landless and forced to live on and cultivate flood-prone land; water-borne diseases prevalent in surface water; water pollution, especially of fishing areas, results from the use of

commercial pesticides; ground water contaminated by naturally occurring arsenic; intermittent water shortages because of falling

water tables in the northern and central parts of the country; soil degradation and erosion; deforestation; severe overpopulation

note: most of the country is situated on deltas of large rivers flowing from the Himalayas:

the Ganges unites with the Jamuna (main channel of the Brahmaputra) and later joins the

Meghna to eventually empty into the Bay of Bengal

Political system:

Parliamentary democracy: - The president's duties are normally ceremonial, but with the

13th amendment to the constitution, the president's role becomes significant at times

when Parliament is dissolved and a caretaker government is installed - at presidential




direction - to supervise the elections. The parliament is unicameral (with one legislation

chamber).

The prime minister is appointed by the president. The prime minister must be a Member

of Parliament (MP) who the president feels commands the confidence of the majority of

other MPs. The cabinet is composed of ministers selected by the prime minister and

appointed by the president. At least 90% of the ministers must be MPs. The other 10%

may be non-MP experts or "technocrats" who are not otherwise disqualified from being

elected MPs. According to the constitution, the president can dissolve Parliament upon

the written request of the prime minister.

POLITICAL CONDITIONS

Despite serious problems related to a dysfunctional political system, weak governance,

and pervasive corruption, Bangladesh remains one of the few democracies in the Muslim

world. Bangladeshis regard democracy as an important legacy of their bloody war for

independence, and they vote in large numbers. However, democratic institutions and

practices remain weak.

Bangladesh is generally a force for moderation in international forums, and it is also a

long-time leader in international peacekeeping operations. It has been the second- largest

contributor to UN peacekeeping operations, with 10,481 troops and police active in

November 2009. Its activities in international organizations, with other governments, and

with its regional partners to promote human rights, democracy, and free markets are

coordinated and high-profile. Bangladesh became a member of the United Nations

Human Rights Council in May 2006, and began a second term in 2009. However, an

explicit goal of its foreign policy has been to strengthen relations with Islamic states,

leading to actions such as voting against a December 2009 UN resolution to improve

human rights conditions in Iran.

Bangladesh lies at the strategic crossroads of South and Southeast Asia. Potential terrorist

movements and activities in or through Bangladesh pose a potentially serious threat to

India, Nepal, Bhutan, and Burma, as well as Bangladesh itself. Consequentially, the

Bangladesh Government has banned a number of Islamic extremist groups in recent

years. In February 2002, the government banned Shahdat al Hiqma, in February 2005 it

banned Jagrata Muslim Janata, Bangladesh (JMJB) and Jama'atul Mujahideen

Bangladesh (JMB), and in October 2005 it banned Harkatul Jehad Al Islami (HUJI).

Following the August 17, 2005 serial bombings in the country, the government launched

a crackdown on extremists. In 2006, seven senior JMB leaders were sentenced to death

for their role in the 2005 murder of two judges. Six of the seven were executed in March

2007; another leader was tried and sentenced to death in absentia in the same case. In

March 2008, the U.S. Government listed Harkatul Jihadi Islami (HUJI)-Bangladesh as a




foreign terrorist organization. In October 2009, the Government of Bangladesh added

Hizb-ut-Tahrir to the list of banned terrorist organizations. Given its size and location, a

major crisis in Bangladesh could have important consequences for regional stability,

particularly if significant refugee movements ensue.

Source: U.S. Department of State

Legal system:

- Based on English Common Law.

- All the Chief judges and other judges are appointed by the President.

- Legislation: In February 2004, Parliament passed the Anti-corruption Act, paving the

way for the establishment of an Independent body to fight corruption.

Main agencies involved in AC prevention, investigation, enforcement, education

- Anti-corruption Commission (replaces previous Bureau for Anti-corruption)

Public Service Commission Comptroller and Auditor general Tax Ombudsman

Elections Commission

Anti-corruption strategy:

Bangladesh had an abundance of public sector reform plans and strategies none of which

really materialized. ADB is assisting the new Anti-Corruption Commission with the

recruitment rules and regulations, and a new project focusing on a National Integrity

Strategy (NIS) has been developed to assist Anti-corruption commission Bangladesh.

International Trade Barriers

Historically, like many other developing countries Bangladesh relied on tariffs and

quantitative restrictions to protect domestic activities and raise revenue. Roughly 40% of

its total tax revenue still comes from import taxes. Average protective tariffs are currently

at 20.1%, with average agricultural tariff at 28.8% and non-agricultural tariff at 18.5%. A

noteworthy feature of the present tariff structure is the significant application of para-

tariff called supplementary duties, which account for about 31% of the average

protection. The average customs duty, which registers a decrease over t ime, is currently

13.8% with four non-zero duty slabs of 3%, 7%, 12% and 25%. Food stuff, fertilizer,

seed, plastic trays used in poultry and dairy, medicines and raw cottons are not subject to

any custom duty. Some consumer goods, mainly the non-food luxury items, have high

protective rates even up to 463%- well beyond the top custom duty rate.

While high- income countries still have the world’s lowest tariff barriers, many

developing countries are converging rapidly. Bangladesh still maintains a very restr ictive

trade policy. Bangladesh has ranked 113th and 107th in terms of Trade Policy and




Institutional Environment respectively out of 125 countries studied. Bangladesh ranked

slightly better for External environment where its position was 59th out of 125 countries.

Imports and exports of Bangladesh

Like many other third-world countries, Bangladesh relies quite heavily on exports to provide for

the needs of its densely populated nation. The same products sold locally will generally fetch a

much lower price than they would on the international market. This means that it is far more

profitable for the country to engage in exportation than it is to engage in local trade. While this

may mean that a large percentage of the country’s GDP is sent off abroad as Bangladesh exports

instead of being enjoyed by the country’s own people, it also allows for a steady influx of foreign

currency.

Currently Bangladesh’s main export items are garments, jute and jute-related goods, leather,

frozen fish and seafood. Just three years ago the country made over $2,000 billion from export

trade. The majority of the country’s trade is conducted with the USA but a small portion of

exports also sees its way to Germany, the UK, France and Italy. However these figures should

not mislead you into thinking that the country is well-off. As one of the poorest and most densely

populated countries in the world, the majority of these profits will generally make their way into

the pockets of a few wealthy while the rest will be thinly spread out amongst those involved in

the production of these goods. To add to this, the country’s economy depends on an erratic

monsoon cycle as well as drought and flooding which makes regular harvesting difficult.

Besides these Bangladesh exports, the country is also engaged in the production of rice, tea,

sugar wheat, ship scrap metal, textiles, fertilizer, pharmaceuticals, ceramic tableware and

newsprint. Though yields can at times be quite high, the country still faces widespread poverty

and it is struggling to free itself from this. Some progress has been made, but there are still many

people living below the breadline in Bangladesh.

Bangladesh Exports to U.S.

With a population of 151 million, Bangladesh exported US$3.3 billion worth of merchandise to the United States in 2006, up 21.4% from 2005 and up 53.2% in 4 years.

1. Cotton apparel and household goods …US$2.2 billion (67.5% of Bangladesh to U.S. exports, down 29.2% from 2005)

2. Other textile apparel and household goods … $641.8 million (19.6%, up 5.6%) 3. Fish and shellfish … $192.6 million (5.9%, up 38.4%)

http://www.bangladesh.com/currency/

http://www.bangladesh.com/blog/the-untapped-potential-of-jute

http://www.bangladesh.com/economy/

http://www.mincom.gov.bd/

http://www.bangladesh.com/blog/the-muslin-from-dhaka




4. Sporting and camping apparel, footwear and gear … $139.1 million (4.3%, up 8.3%) 5. Wool apparel and household goods … $17.3 million (0.5%, down 27.4%) 6. Cloth, fabric and threads (wool and silk) … $11.3 million (0.3%, down 1.6%) 7. Abrasives, belting, boxes, glass … $11.1 million (0.3%, up 26.5%) 8. Toys, sporting goods including guns and bicycles … $8.6 million (0.3%, up 27.2%) 9. Fertilizers, pesticides and insecticides … $7.3 million (0.2%, down 78.9%) 10. Goods returned then re-exported to America … $5.6 million (0.2%, up 623%).

Fastest-Growing Bangladesh Exports to U.S.

Below are American imports from Bangladesh in 2006 with the highest percentage sales increases from 2005.

1. Non-textile floor and wall tiles … US$58,000 (up 2,880% from 2005) 2. Jewelry including watches and rings … $53,000 (up 1,225%) 3. Goods returned then re-exported to America … $5.6 million (up 623%) 4. Paper products … $114,000 (up 339%) 5. Fruits and preparations including frozen juices … $43,000 (up 291%).

Bangladesh Imports from U.S.

Bangladesh’s imports from the U.S. rose 4% to $333 million in 2006, up 23.6% since 2002. Of American exports to Bangladesh in 2006, the following product categories had the highest values.

1. Raw cotton … US$39.7 million (11.9% of Bangladesh from U.S. imports, down 6% from 2005) 2. Generators and accessories … $37.8 million (11.4%, up 49.3%) 3. Textile sewing machines … $23.4 million (7%, up 46.5%) 4. Steelmaking materials … $19.2 million (5.8%, up 162.7%) 5. Pulp and wood pulp … $14.6 million (4.4%, up 51.3%) 6. Drilling and oilfield equipment … $14.3 million (4.3%, up 287.1%) 7. Wheat … $11.4 million (3.4%, up 182.5%) 8. Other industrial machines … $9.8 million (3%, up 39.3%) 9. Industrial engines … $9 million (2.7%, up 49.7%) 10. Telecommunications equipment … $8.8 million (2.6%, down 66.3%).

Fastest-Growing Bangladesh Imports from U.S.

Below are American exports to Bangladesh in 2006 with the highest percentage sales increases from 2005.

1. Other agricultural manufactured products … US$134,000 (up 857% from 2005) 2. Corn … $359,000 (up 716%) 3. Unmanufactured agricultural farming … $1.8 million (up 589%) 4. Marine engine parts … $80,000 (up 567%) 5. Tanks, artillery, missiles, rockets, guns and ammunition … $58,000 (up 480%).




In terms of the merchandise flow between the two countries, Bangladesh’s trade surplus with America was $2.9 billion in 2006, up 57.5% from 2002. The Bangladesh’s trade surplus with the

U.S. increased 23.8% in 2006 – an improvement from the 17.9% surplus increase in 2005 from the year earlier.

Foreign Investment Policy

By quickening the tempo of policy reforms Bangladesh could expect to achieve a double

digit manufacturing growth. Adequate reforms would create the climate for raising the level of investment from the present 23 percent to 28 percent within the next three to five

years. With the adoption of market-friendly policies under a reformed policy environment, Bangladesh should also be able to attract sufficient foreign direct investment to finance the desired investment growth.

Foreign Investment Opportunities

Bangladesh is now trying to establish itself as the next rising star in South Asia for foreign investment. The government has implemented a number of policy reforms

designed to create a more open and competitive climate for private investment, both foreign and local.

The country has a genuinely democratic system of government and enjoys political stability seen as a sine qua non for ensuring a favorable climate for investment and

sustained development. Bangladesh has been quick to undertake major restructuring for establishing a market

economy, with the major thrust coming from the private sector. The country enjoys modest but steady economic growth. Its current development strategy is based on the

premise that the creation and distribution of wealth occurs through the acceleration of growth driven by competitive market forces, with the government facilitating growth and making a clean break from the practices of a controlled economy where private

investment is constrained. The government has been gradually withdrawing its involvement in this industrial and infrastructure sectors and promoting private sector

participation. The government has moved speedily to translate its policy pronouncements into specific

reforms. It has been consistently pursuing an open-door investment policy and playing a catalytic rather than a regulatory role.

Regulatory controls and constrains have been reduced to a minimum. The government has steadily liberalized its trade regime. Significant progress has been achieved in

reducing non-tariff restrictions on trade, rationalizing tariff rates and improving export incentives. The introduction of VAT has helped rationalization of the import tariff and

domestic tax structures. The tariff structure and the import policy are kept under constant review to identify areas where further improvements are called for.




Motivated by the simple realization that state-owned enterprises are a drain on its scarce resources and that these are generally inefficient, very costly and slow in responding to

changing markets and consumer desires, the country has embarked on a privatization program, offering substantial opportunities for international investors.

Foreign investment is particularly welcome in the export-oriented industries such as textiles, leather goods, electronic products and components, chemicals and

petrochemicals, agro-based industries, green jute pulp, paper, rayon products, frozen foods (dominated by shrimp farming), tourism, agriculture, light industries, software and

data processing. Foreign investment is also desired in high technology products that will help import

substitution or industries that will be labor as well as technology intensive.

Some of the foreign private investment opportunities are:

- Direct (100%) foreign investment or joint venture investment in the Export Processing Zones (EPZs) or outside EPZs.

- Portfolio investment by purchasing shares in publicly listed companies through

the stock exchange.

- Investment in infrastructure projects such as power generation (private power

generation policy announced); oil, gas and mineral exploration, telecommunication, ports, roads and highways.

- Outright purchase or purchase of shares of state-owned enterprises, which are

under process of privatization.

- Investment in private EPZ.

The country's drive for foreign investment is being spearheaded by the Board of Investment, which was created to facilitate the setting up of manufacturing and other

industries in the private sector, both local and foreign. It is a promotional organization dedicated towards providing investment assistance to all investors.

The Board is headed by the country's Prime Minister and it includes Ministers and Secretaries from the concerned ministries as well as representatives from the private

sector. The Board has launched an investment promotion drive at home and abroad to attract

investors. The BOI has been assisting in the implementation of new projects as well as providing services.

In order to stimulate rapid economic growth of the country, particularly through industrialization, the government has adopted an 'Open Door Policy' to attract foreign

investment to Bangladesh. The Bangladesh Export Processing Zones Authority (BEPZA) is the official organ of the government to promote, attract and facilitate foreign

investment in the Export Processing Zones.




Bangladesh is on the verge of a significant breakthrough in terms both of international investor confidence and significant inflow of new investment funds.

The main export destinations are USA, Germany, UK, France and Belgium

The main import partners are China, India, Kuwait, Singapore, and Hong Kong

o Major Exports are garments, jute and jute-related goods, leather, frozen fish and seafood.

o Major Imports are machinery and equipment, chemicals, iron and steel, foodstuffs and

petroleum products to cement.

MNC’s and its contribution

There is very large list of MNCs operating in Bangladesh, where I have selected some very common to all.

Unilever Bangladesh Ltd Tetra Pak Asian Emerging Markets Standard Chartered Bank

Novartis Bangladesh Ltd Saudi Bangladesh Industrial and

Agricultural Investment Company Ltd (SABINCO)

British American Tobacco Bangladesh Ltd

Hewlett-Packard Bangladesh

Glaxo SmithKline Ltd American Express Bank

Banglalink (Orascom Telecom Holdings)

British Power Industries (BPI)




Country Competitiveness

To launch WEF’s Global Competitiveness Report 2011-12 in Bangladesh. The report was

globally launched on 7 September, 2011. Global Competitiveness Index (GCI) is an index of weighted average of 12 different pillars

Basic requirements sub-index: (4 pillars) factor-driven stage

Efficiency enhancers sub-index: (6 pillars) efficiency-driven stage

Innovation and sophistication factors sub-index: (2 pillars) innovation-driven stage

GCI is estimated on the basis of moving averages of two years

Each sub-index has different weights considering country’s stages of development

Bangladesh is considered at factor-driven stage Joint Research Centre of the European Commission (JRC) has examined the GCI for 2010, and

termed the index to be robust to changes in weights

S

Stages of

development

Factor Driven

Stage 1

Transitions

form Stage 1-2

Efficiency

driven stage 2

Transition from

Stage 2-3

Innovation

driven stage 3

GDP per-

Capita (US$)

< 2,000 2,000-2,999 3,000-8,999 9,000-17,000 >17,000

Basic

requirement

60% 40-%-60% 40% 20-40% 20%

Efficiency

enhancements

35% 35-50% 50% 50% 50%

Innovation and

sophistication

5% 5-10% 10% 10-30% 30%

Global Competitive Index 2011-2012 Major Findings A total of 142 countries have been assessed in 2011 (139 in 2010) newly including Belize, Haiti

and Yemen where Libya could not be covered due to resent unrest. Top 10 countries in GCI 2011-12 have been dominated by European countries, major shuffling

has taken place in their rankings.




o Switzerland retained its 1st position by maintain its strength in innovation, technological readiness and labor market efficiency.

o Singapore moved up to 2nd position, continued to be leader among the Asian countries Best institutions in the world, highly efficient in goods and labor market efficiency;

strong infrastructural base; strong focus on education. o USA continued falling in the rank. Down to 5th position from top in 3 years.

A number of escalating weaknesses have lowered US rankings: low trust in politicians,

government’s poor ability to maintain relation with the private sector; less transparent policy making and burdensome regulations.

A comparative analysis of selected Asian Countries

o Among the BRIC countries, China continues to lead and improved its position to 26, Followed by Brazil (53),

India (56), and Russia (66). All slipped in 201. o In South Asia, Sri Lanka, Pakistan and Nepal advanced

well. Sri Lanka jumped up by 27 positions within two years and ranked 52nd (last year 62nd)

o Bangladesh and India failed to retain their year’s

position. Bangladesh dropped one position securing 108th rank in 2010 (107th in 2009) Slid by one position

in two consecutive o Among other Asian countries; Cambodia superseded

Bangladesh by 9 positions from 2 positions behind

o Vietnam, Indonesia and Thailand decelerated

Bangladesh in GCI Ranking and Changes in GCI Score.




Bangladesh in GCI Ranking and Changes in GCI Scores Bangladesh dropped by one position, ranked 108th in GCI 2011-12

Among the same set of countries as of 2010-11 (139): rank remained the same Bangladesh’s GCI score has increased by 2.5%; scores of all indices and

subindicese except financial market sophistication and innovation increased

Bangladesh’s rank and scores improved in basic requirement sub- index Both ranks and scores of public institutions and macroeconomic stability improved

Ranks fell for infrastructure by 1 position and health and primary education by 2 positions although their scores increased

Rank and score dropped in efficiency enhancer index

Goods and labour market efficiency, and technological readiness experienced rise Financial market sophistication and market size experienced decline in ranking

Dropped by 4 positions in innovation and sophistication index (from 109 to 113)

Improved: business sophistication Fall: Innovation




Identification of Problematic Factors of Bangladesh.

Top three problematic factors have been rearranged with further concentration in the level of perception (58.4% in 2011 vis-a-vis 51.8% in 2010)

Inadequate supply of infrastructure remained top (22.6% vis-a-vis 23.8% in 2010)

Corruption came up as second-most important factor with significant rise at the perception level (18.5% vis-a-vis 12.6% in 2010)

Inefficient government bureaucracy though considered to be strong in terms of level of perception but came down to third (17.4% vis-a-vis 15.4% in 2010)

Problematic Factors in Trading • Export of Bangladeshi products is perceived to be affected by the following factors: lack of proper identification of markets/buyers, use of inappropriate technologies,

poor access to imported inputs at competitive prices • Import by local entrepreneurs is affected by a number of factors:

Burdensome import procedures, tariffs/NTBs, delays in domestic transportation

Concluding Remarks on GCI Bangladesh slipped one rank and became 108th out of 142 countries in the GCI of 2011.

Although positive changes were discerned in different indicators, these changes were insignificant to create enough forces to run the wheel of the economy at required pace.

Without having sufficient ‘push’ in the wheel of ‘basic requirements’ growth in rank of GCI is likely to remain at snail pace.

Bangladesh should set a strategic target to lift its ranking upwards in a gradual manner.




It should set target to reach its ranking at least at 90.

To reach 99th ranking in GCI, Bangladesh needed to improve its GCI score from 3.73 to 3.84.

Basic Requirements score: from 3.81 to 4.08, Efficiency Enhancer score: already

reached; Innovation and sophistication score: from 3.04 to 3.55

Suggestions for improving GCI ranking.

First and most important focus should be on infrastructure development, creating efficient public institutions, reducing corruption and human resource development in order to

enhance productivity.

Strong political stance is required against corruption, wasteful or delayed

public spending and strengthening of local government system

Trade facilitation measures should be strengthened

Government’s initiatives in the last two years were perceived to be inadequate to

build Digital Bangladesh by 2021

Focus should be put in place on time bound implementation of action plan of ICT policy 2009; investment in ICT infrastructure development; access of internet services at

village/school level should also be improved.

Controlling corruption will be a major challenge for the government in the coming years.

Ensuring discipline in the financial sector is a major issue for growth and development.

Difficulty in obtaining credit, poor monitoring and supervision both in banking and

capital markets, weak regulation, poor financial auditing and reporting), and rise of money laundering- are major concerns.

Domestic competition and company level operations are being circumvented by the same

traditional practices with little dynamism in technology, process and marketing.

Investment in heavy industries, ensuring availability of high and sophisticated process

equipment/machineries, cluster development (SMEs), R&D for product and process development and market penetration should be the focus of industrial development.

Doing Business in Bangladesh

Summary of doing business in Bangladesh

I take about 19 days to start a new business, with following 7 procedures (Bangladesh’s ranking 86). Dealing with construction permits (Bangladesh’s ranking 82) procedure required

11 and no of day for construction are 201. Getting electricity (Bangladesh’s ranking 182) 7 procedure with 372 days. Registering property (Bangladesh’s ranking 173) procedure 8 and 245 days will be required. Getting Credit (Bangladesh’s ranking 78) where strength of legal

rights index is 7. Protecting investors (Bangladesh’s ranking 24). Paying taxes (Bangladesh’s ranking 100) no of payments per year is 21. Trading across boarder (Bangladesh’s ranking

115) Enforcing contracts (Bangladesh’s ranking 180) and resolving insolvency (Bangladesh’s ranking 107) time will be 4 years at a recovery rate of 25.8 cents on the dollar.




How Bangladesh ranks on Doing Business topics

How Bangladesh and comparator economies rank on the ease of doing business




Market Overview

Bangladesh is a semitropical riverine nation with fertile soil and a high vulnerability to floods and cyclones.

Most Bangladeshis live in rural areas and make their living from agriculture, although there has been heavy migration to the cities, primarily to Dhaka, the capital.

With over 140 million people crowded into an area the size of Iowa, Bangladesh has

the highest population density of any country, except city-states such as Singapore. Bangladesh has experienced fairly robust economic growth during the last decade,

which saw the restoration of a democratically elected government and a steady, albeit slow, liberalization of the economy.

For the past 15 years, Bangladesh has seen trend growth in annual real GDP of

around five percent. Real GDP growth for FY2005 (ended June 30) is provisionally reported as 5.38%. These growth rates, however, fall short of the estimated 7-9%

annual real GDP growth needed to significantly reduce the poverty that afflicts one in three Bangladeshis.

Inflation rates have continued to rise, averaging 6.48% FY2005 (Source: Bangladesh

Bureau of Statistics). U.S. exports to Bangladesh in ten months (January-October 2005) were 276.4

million, while imports from Bangladesh during this period were $2.25 billion. (Source: U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washington, D.C. 20233)

An estimated eight million Bangladeshis have annual incomes well in excess of $10,000. Heavily concentrated in Dhaka and Chittagong, they represent a sizable

market for a wide range of goods and services.

Market Challenges

Despite a relatively good performance in the last decade, the economy is beset with

many structural weaknesses, which the government has yet to address. Chief among these weaknesses are the undercapitalized financial sector, an

unproductive and chronically money losing public sector, poor infrastructure, lack of

export diversification, and pervasive corruption at all levels of society. In October 2005, for the fifth time, Transparency International reported that

Bangladesh is perceived to be the most corrupt country in the world. The failure of the political system to address these long-standing economic problems

has adversely affected the business environment and investment climate.

The initial impact of the end of the Multi-Fiber Arrangement on Bangladesh's textile and garment sector has been limited. In the medium term, many firms are well

positioned to compete and are undertaking new investment, while marginal manufacturers face consolidation or closure. Exports have grown, especially in the knitwear subsector.




Market Opportunities

The leading commercial sectors for U.S. exports and investment are:

Electrical Power Systems

Textile Machinery/Equipment

Oil, Gas and Mineral Exploration/Production Services

Computers/Peripherals and Computer Software

Architectural, Construction and Engineering Services

More generally, Bangladesh needs significant infrastructure development. Many infrastructure projects are financed by the multi- lateral development banks. Interested

companies should monitor the web sites of these organizations for tender opportunities. The leading agricultural sectors for U.S. exports are:

Cotton

Wheat

Vegetable Oil

Apples

Market Entry Strategy

Personal relationships are important to selling products in Bangladesh. Many companies

license dealers or distributors, or hire local agents to represent their products on an exclusive or non-exclusive basis.

As companies become more established in the market, they may choose to open a branch or subsidiary.

Many other companies service Bangladesh from their offices in the region, either in India or in Southeast Asia.

Some consumer goods companies have established manufacturing facilities in Bangladesh.

Some companies have begun granting franchise licenses in Bangladesh, including for casual theme restaurants, clothing, health spas and specialty goods.

Successful companies adapt their products to the demands of the local marketplace. This may include smaller packaging to reduce retail pricing and marketing strategies that position the product as an inexpensive indulgence or unique gift.

Major Finding of Bangladesh International Business

Bangladesh is least developed countries; therefore it has access to many developed nations and global markets.

Low labor cost in Bangladesh.

Relatively high literacy rate. Skilled labor.

Inadequate climate is a risk. 4-5 hours electricity short fall may suffer business activates but still providing

competitive position to it’s industries.

Textile and readymade garments are it’s strength. However frozen fish and other sea food are also high trading and GDP contributor.

Political stability may be a risk for investors.




Recommendation

Although recommendations are given at the end of GCI to gain its lead in the global market, however in short Bangladesh needs to

Improve literacy rate. Protect intellectual property rights.

Bangladesh report 2011 12

Economy & Finance

Transcript of Bangladesh report 2011 12