Dazzling delta

21

Transcript of Dazzling delta

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Acronyms BDT Bangladeshi Taka Bn Billion GBP Pound Sterling Kg Kilogram M MT Million Metric Ton Mn Million MT Metric Ton MW Mega Watt USD United States Dollar

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Table of Contents

Emerging Bangladesh – A Part of Your Global Growth Strategy ................................................................. 3

Bangladesh Apparel Export Industry – Clocking Ahead .............................................................................. 7

Building Bangladesh’s Future – Power Infrastructure ................................................................................ 9

Footwear Sector – Bangladesh’s Next Export Tiger .................................................................................. 11

Bangladesh Pharmaceutical Industry – The Thrust Sector ....................................................................... 13

IT Sector – Gateway to Middle Income Status .......................................................................................... 15

Footprints – Big names already with the Bandwagon .............................................................................. 17

Investing in Bangladesh – Government Policy Support ............................................................................ 18

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Emerging Bangladesh – A Part of Your Global Growth Strategy

The Economy has been experiencing steady growth over the last decade and prospects are

looking better for the coming one, with a booming RMG sector, flourishing remittance flow,

record high foreign currency reserve and international investors’ interest in FDIs. Geographic

proximity to emerging Asian powerhouses - India and China - will further add impetus to the

country’s drive towards middle income status.

Strong Performance Relative to Emerging Economies Bangladesh economy has performed well over the last decade with GDP growing by 6-7%, while many of its competitors have faltered and lost their ways (Growth has been over the median of ‘Ba’ rated countries and BRIC). The growth is considered impressive taking into account frequent instances of natural calamities and political unrest which have at times hindered economic activity. Inflation has remained stable over 2014 at 7.22% (Source: Bangladesh Bank) despite frequent supply chain disruption due to political unrest. Reining of inflation is attributed to declining growth of non-food inflation e.g. Rent, which has contributed to lower inflationary pressure. Bangladesh Bank has also adopted a tight monetary policy which has further led to lower inflation.

Moody affirms Bangladesh’s rating at Ba3 with Stable Outlook

Bangladesh has performed well compared to other comparable countries and sovereign ratings by both Moody’s and S&P are testament to the economy’s

resilience. The ratings are driven by a healthy economic outlook, progress on policy reform and limited vulnerability to fiscal and external funding stress. Local currency country risk ceiling is affirmed at Baa3, Long term foreign currency bond B2 and Bank Deposit ceiling at B1.

Bangladesh Economic Vitals are on Growth Trajectory Exports have been growing based on the blossoming RMG sector which has clocked USD 24.49 billion over 2014. Remittance revenues has grown to the tune of USD 14.2 Billion, albeit at a slower pace. However, import growth has declined at a relatively higher rate which contributed to positive current account balance. Bangladesh is experiencing record high forex reserve position, currently standing at USD 21.8 billion. The current reserve can comfortably cover 7 months of country’s import and the Forex reserve is expected to grow with steadily improving RMG export and growth in remittance earnings. Manpower export is also set to improve as the Malaysian labor market reopens and the Government undertakes measures to train and send more semi-skilled and skilled workers abroad.

Influx in Infrastructure Development Government has been investing heavily in infrastructure developments, especially in the field of power generation. Government has tackled the demand-supply gap by directly involving the private sector. Entrepreneurs have established quick rental power generation plants which have been regularly supplying to the national grid, contributing to lower electricity shortage. Additionally, government has reached an agreement with India to import

8.4%7.0% 6.6% 6.5% 6.4%

5.5% 5.4% 5.1%3.9% 3.8%

3.1%

Ch

ina

Nig

eria

Ban

glad

esh

Ind

ia

Ind

on

esia

Ph

illip

ines

Vie

tnam

Egyp

t

Bra

zil

Ko

rea

Pak

ista

n

SOURCE: IMF

Average GDP Growth (%): 2013-18

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electricity, starting with 500 MW per day. The existing installed capacity is 10,213 MW. Government has been working to improve efficiency of the Chittagong Port which has the potential of doubling its capacity. There also are long term plans of establishing a deep sea port in Sonadia and both Chinese and Indian investors have expressed interest in developing the sea port. Establishment of seaport can significantly reduce export lead times and earn steady flow of revenue for the government.

Expanding Consumer Market providing Growth Opportunities Spending power of Bangladesh is steadily enhancing and by 2021, Bangladesh is projected to become a middle income nation of 175m people.

With an emerging economy consumer spending, disposable income and personal savings are also experiencing positive momentum. Bangladesh is a mammoth sized consumer market consisting of almost 160 million consumers. This huge consumer base is being driven by catalytic factors like age and gender distribution (60% of the population being between 15-64 years of age), increasing urban population (growing at a rate of over 4%/year), expanding labor force (increasing purchasing power of the masses), increasing literacy rate (primary education enrollment of 95%+), rising middle class, growing white collar culture and globalization (youth influenced and linked with the globe via IT and social media).

Strategic Location at the Heart of Asia Beneficial location at the crux of “Chindia”. Close proximity of India and China leads to strong trade

relations. Additionally, Bangladesh leverages on the exceptional growth environment in the region and commutable distance to key Asian cities – traction from the 975 million new Asian middle class market.

Economy Offering Long-term Growth Opportunities Bangladesh is developing as a key export hub in the heart of Asia. With Indian and Chinese consumer spending projected to grow by USD 2.6 trillion+ and USD 4.2 trillion+ in the coming decade – this powerhouses will become key markets for Bangladesh. Additionally, Bangladesh is one of the few locations that possess the capacity, access and cost-base to capture the manufacturing shift out of China. RMG continues its success story with USD 23 billion in exports, mostly to EU. With product diversification and new markets in Asia the volume may well exceed USD 40 billion by 2020. Bangladesh has competitive wage rates compared to other emerging markets.

Additionally, Bangladesh has one of the lowest Public Debt to GDP ratios compared to other frontier markets – even India and Vietnam.

374 520

818

1,284

2002 2007 2012 2018

SOURCE: IMF

GDP/Capita (USD)

69

71

73

78

79

80

91

138

262

Bangladesh

India

Sri Lanka

Vietnam

Pakistan

Cambodia

Indonesia

China Inland

China Coast

SOURCE: ILO

Min. Wage Rate in USD (monthly)

Italy, 132%

USA, 72%

UK, 91%

India, 52%

Vietnam, 48%

Bangladesh, 31%

SOURCE: INDEX MUNDI AND CIA FACTBOOK

Public Debt to GDP

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A Host of Emerging Sectors Bangladesh has started moving into diverse, higher value sectors. Light Engineering, Pharmaceuticals, Leather and IT services are exhibiting high potential. Non RMG exports stand at USD 5 billion now and expected to exceed USD 11 billion by 2025.

Next Investment Hub in Asia Bangladesh provides an opportunity space for foreign investors who can bring in technology and market access whilst the country provides a favorable cost base, trade terms and capacity for set-up of production facilities. Till date, Bangladesh is already producing motorbikes, consumer electronics (TVs, Refrigerators and Mobile devices) and even ships.

FDI Yet to Reach its Full Potential

Bangladesh has been experiencing increasing FDI over the last decade. FY 2013 inward FDI was USD 1.7 billion (highest in the manufacturing sector – USD 713 million).

Additionally, FDI is currently 1.2% of GDP which is low compared to the frontier market average.

Potential Gap of USD 2 billion +

Capital Market provides Long Positions and Risk Diversification for Investors Bangladesh capital markets have very low and even negative correlation with developed, emerging and other frontier equity markets. Therefore, an exposure to Bangladesh significantly improves risk adjusted returns. The market has returned 203% since Jan 2007 (16.33% p.a.). For long term investors looking to participate in the Bangladesh growth story – now is a good time to start investing.

Largest Stocks as of Nov 16, 2014

539

305

161

105

101

63

59

32

Shrimp

Leather Shoes

Leather Goods

Bicycles

ITES

Consumer Electronics

Pharma

Ceramics

SOURCE: EPB

Export - Emerging Sectors in mn (FY 2012-13)

0.28

0.80 0.74 0.79 0.77 0.96 0.91

0.78

1.19

1.73

FY 2

003-

04

FY 2

004-

05

FY 2

005-

06

FY 2

006-

07

FY 2

007-

08

FY 2

008-

09

FY 2

009-

10

FY 2

010-

11

FY 2

011-

12

FY 2

012-

13

SOURCE: BANGLADESH BANK

FDI (USD bn)

1.17%

2.90%

SOURCE: CIA FACTBOOK

FDI to GDP Ratio

0

20

40

60

0

5000

10000 Market C

ap (U

SD b

n)

DSE

X/D

GEN

SOURCE: DSE

Dhaka Stock Exchange Performance (Jan'07 to Nov'14)

DSEX

6.11

2.10 1.86 1.851.05

0.00

2.00

4.00

6.00

8.00

GP (Telenor)-Telco

BATB (FMCG) Square Pharma Lafarge Surma Titas Gas(Power)

Stock value in USD (Bn)

Bangladesh

Frontier Market

SOURCE: DSE

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Get Ready to Enter Bangladesh

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Bangladesh Apparel Export

Industry – Clocking Ahead

Bangladesh’s RMG sector has a bright future as close competitors like China are moving up the value chain, leaving value apparel manufacturing to cost effective players like Bangladesh. Mckinsey, a leading consulting firm, in their recent report on Bangladesh’s RMG sector, has testified to RMG sector’s growth potential. According to the report, RMG export is set to grow to USD 36 billion by 2020.

The Growth Story of the RMG Sector The export oriented readymade garments (RMG) sector in Bangladesh started its modest journey as a small non-traditional sector of export in late 1970s. Within three decades, RMG has transformed itself as the country’s highest revenue generating sector, contributing 81% (USD 24.49 billion FY 13-14) of country’s total export. Bangladesh is currently the largest RMG exporter behind China and India having the potential for growing in the coming years. With GSP facility in EU and duty free access to Canada and Japan, Bangladesh is benefitting from competitive cost advantages which have translated into higher export revenue.

Bangladesh’s RMG export has spiked in the post MFA regime from USD 6.9 billion in 2005 to USD 11.8 billion in 2008. The global financial crisis also had minimal impact on Bangladesh’s export, initially stagnating at USD 11.8 billion in 2009 before increasing to USD 19.2 billion in 2011.

Emerging Markets for Bangladesh Apparel EU is Bangladesh’s largest RMG export destination constituting 58% of total export followed by US market with export of 23%. Bangladesh has recently diversified into emerging export markets including Australia, Brazil, China, Japan and South Africa accounting for 14% of total export.

Sustaining Competitive Costs Bangladesh RMG sector has flourished over the years catalyzing on inexpensive labor. The country still sustains the competitive advantage despite conceding 77% minimum wage hike in early 2014.

China, 34.0%

India, 5.4%Bangladesh

, 5.1%Vietnam,

4.7%Indonesia,

4.5%Turkey,

3.5%

SOURCE: United States international Trade commission

Global Apparel Exporters

-

5.0

10.0

15.0

20.0

25.0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

SOURCE: BGMEA & EPB

RMG Export Trend 2001-2013 (in USD bn)

Woven Knit

EU60%

USA21%

Canada4%

Emerging Markets

15%

BANGLADESH'S RMG EXPORT FY 2014

2.682.32

2.07

0.620.570.550.490.39

Turk

ey

Mex

ico

Ch

ina

Pak

ista

n

Ind

ia

Sri L

anka

Vie

tnam

Ban

glad

esh

SOURCE: Textile Ministry Research

RMG Wage Rate in USD/Hr

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Way Forward for Further Growth with Renewed Compliance RMG sector has undergone upheaval in 2013 mainly due to a series of industrial accidents which brought international attention towards factory compliance issues. Amid pressure from international retailers, Bangladeshi factories have undergone structural changes for adhering to strict compliance norms. Meanwhile, political unrest in the latter half of 2013 had a crippling effect on the sector. Despite the double whammy, RMG export has managed to register growth (c.10%), both in the last quarter of 2013 and first half of 2014. This indicates the resilience of the sector and buyer’s continued trust in Bangladesh as an RMG export destination. Bangladesh has recently signed the TICFA agreement with US and talks are underway to revive GSP facilities. The new GSP deal may also include tariff and quota free access of Bangladeshi apparel, which was missing in the previous GSP agreement.

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Building Bangladesh’s Future –

Power Infrastructure

Bangladesh’s annual economic growth of 7% calls for the scalability of its power infrastructure to keep up with the demands of industry and increased urbanization.

Heavy investment in energy infrastructure has made improvements but by 2030 Bangladesh’s power demand may well reach 34,000 MW. Meeting this increase will create a multibillion dollar opportunity for investment.

Current Status Quo The current demand in the country is around 6,264 MW with maximum demand having hit 8,250 MW in April 2013. The electricity demand is set to grow at 11% in the 2015-2020 period (PSMP 2010) and the installed capacity was 10,213 MW as of November 2013. However, there is a shortfall due to mismatch between fuel mixes and plant types. Moreover, 62% of the population is currently covered by the electricity grid with the rest of the population set to come online in the near future. This represents a still untapped market of 61 million people who will be connected to the national grid in the coming years as Bangladesh continues its growth trajectory out of the LDC category. The power industry is unique in the fact that overhauling it can impact all components across the vertical production chain. This presents ample opportunity for investment in areas ranging from electricity generation to distribution channels in the fuel sourcing function.

Insights on Fuel Sources The fuel mix of the power plants are heavily dependent on natural gas which is only enough to meet the power demands of the country until 2019. The power developments board’s master plan lays out a roadmap to reduce dependence on natural gas and move fuel priority towards coal with plans to generate 50% of total electricity using it by the year 2030.

Private units are operating in the market and comprise of 42% of the total installed capacity.

Quick Power Rental from Private Sector There were various quick rental power plants set up by these units that were aimed to reduce the generation deficit during the 2010/11 period with 22 plants in total by the private sector. These plants have high production costs due to exorbitant furnace oil prices and are set for replacement with alternative fuel sources.

Game Plan for the Future Keeping pace with the level of economic growth in Bangladesh, the power authorities in the country have devised a master plan through the PSMP 2010 to upgrade the linkages in the sector and reach the optimum fuel mix. In addition, there have been major developments in the sector to ensure that demand is met adequately in the near future.

Regional Connectivity Bangladesh has started to move towards regional power grid connectivity, the first manifestation of which has been the start of electricity import from India. It was started on a pilot basis in October 2013

100112 116 123 131

0

2,000

4,000

6,000

8,000

10,000

2010 2011 2012 2013 2014

0

50

100

150

Po

wer

Dem

and

(M

W)

SOURCE: BPDB

GD

P (

bn

USD

)

GDP and Energy Demand

Peak Demand GDP

Natural Gas64%

Furnace Oil19%

Diesel7%

Coal 3%

Hydro 2%

Power Import

5%

Current Fuel Mix

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with import of 175 MW of electricity. This import has the potential to reach 1000 MW given the infrastructure in place. This gives Bangladesh a cushion in terms of energy security in the near term.

Alternative Sources of Power Coal: As a fuel source, coal consists of around 3% of the total composition. This is set to reach 50% within the year 2030 according to the master plan by the Power Development Board. This move into coal production is because of two reasons; first because there are huge reserves of coal in the Northern regions of the country, estimated to be around 3 Billion tonnes. Second, there is potential to import coal from neighboring countries to fulfill demand if necessary. Hydroelectricity: Drawing from the previous point of regional connectivity, there is huge potential for Bangladesh to tap in to Nepal and Bhutan’s huge potential hydroelectric generation capacity.

Renewable Energy (Solar): Bangladesh has successfully managed to implement one of the biggest Solar Home System (SHS) projects. Almost 3 million SHSs having being installed to date with a targeted installation base of 6 million by 2015. Currently renewable energy makes up 2% of the total electricity generation. Wind Energy: Having a 710 km coast line, Bangladesh is yet to take full advantage of wind turbines; upsides from this sector can be extensive.

LNG Import Facilities and Offshore Gas Reserves Liquefied Natural Gas (LNG) can augment the

country’s energy needs by allowing for import of liquefied natural gas and subsequent gasification on landing and distribution. The groundwork has been laid to construct Bangladesh’s first floating LNG terminal at Moheshkhali which is going to have a capacity to handle 5 million MT/year of LNG. The infrastructure that is going to be set up for this purpose will also act as a platform for offshore power exploration as well as subsequent extraction and transfer. Bangladesh has substantial reserves of untapped gas in its offshore wells.

Investment Potential Projected demand to hit ~ 34k MW by 2030. Total investment in the sector over the next 15 years is estimated at USD 70.5 bn.

10,283

17,304

25,199

33,708

6,170 10,382

15,749

21,910

2015 2020 2025 2030

SOURCE: BPDB

Demand vs Generation (MW)

Prj Demand Prj Elec Gen

Major investment

opportunities via BOO,

BOOT arrangements

under the PPP scheme

mechani

Overhaul of road,

waterway and

infrastructure to

facilitate fuel

transport

Overhaul of

Pipeline

Infrastructure to

carry imported

LNG and Drilled

Natural Gas from

sea to distribution

hubs

Commercial &

Household demand for

power set to reach

33,708 MW by 2030

Estimated investment

over 15 years: USD

70.5 bn

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Footwear Sector – Bangladesh’s

Next Export Tiger

Although Bangladesh export basket is heavily skewed towards RMG export, several new sectors have cropped up over the last decade. Footwear is one such sector which has tremendous potential to significantly boost country’s export while diversifying the economy’s export basket.

Global Footwear Industry is at an Upward Trajectory Given rising global demand for footwear which is expected to reach USD 211 Billion by end of 2018. (Source: Transparency market research), Bangladesh has the potential to tap into the growing market by offering quality output.

Local Footwear Market is Growing Bangladesh’s footwear export has doubled during 2010-13 and continues to rise further as illustrated below. Bangladesh is involved in export of components at various stages of footwear value chain ranging from raw materials to work-in-progress such as soles and finished goods like shoes.

Source: Export Promotion Bureau (EPB)

Eyeing the Global Leather Market

The sector has been growing over the last 5 years with exports increasing by 46% in 2011 followed by healthy 25% growth in 2013. Recently, total export has exceeded USD 1 billion mark for the leather sector which has been due to rising global demand and renewed interest amongst local entrepreneurs for manufacturing footwear. Some international investors have forayed in the sector setting up factories in local Export processing Zones (EPZs).

As illustrated above, Bangladesh has the potential to accommodate relocating footwear units from China, due to Bangladesh’s inherent input cost advantages. However, Bangladeshi labor needs to undergo the learning curve to improve their efficiency and productivity. Bangladesh has a distinct advantage in footwear production as it is involved in all stages of the value chain from raw leather to the final product. The annual export of these components is expected to reach a value of USD 5 Billion within the next decade.

185 189 192 196 200 203 207 211

160

180

200

220

240

2011 2012 2013 2014 2015 2016 2017 2018

Source:Transparency Market Research on Footwear

Global Footwear Demand (USD bn)

68 88 95 123 159183 204 298 336

419

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Growth of Footware Exports of Bangladesh (USD mn)

Countries in the

European Union

Countires including

Japan, USA, India,

Australia

Regionwise Market for Bangladesh Leather Exports

Emerging market for footwear exports include Vietnam, Indonesia, Turkey, Costa Rica

Source: Export Promotion Bureau

China, $211

Bangladesh, $38.5

Bangladesh has the potentialto take a share of China's Footwear pie

0

50

100

150

200

250

Source: Transparency Market Research & EPB

Minimum Wage

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Leather Sourcing will be a Competitive Advantage Bangladesh produces superior quality leather from local livestock, which is subsequently processed by tanneries concentrated around the capital city. These inputs are then transformed into final products including footwear whose exports stood at USD 419 Million as of 2013. (Source: EPB) The annual production of leather hovers around 250 Million square feet each year with supply peaking during the religious festivals of Eid. In 2013 the supply of rawhide stood around 7 Million pieces with the tanneries struggling to keep up with the supply.

Bangladesh has Robust Backward Linkages In Bangladesh, incoming raw hides are sorted and processed in tanneries that are concentrated in the outskirts of the capital in Hazaribagh. These entities have come under criticism for being environmentally unfriendly prompting the government to build a 200 acre Leather Industrial Park in Savar at a cost of USD 60 Million. The park will include state of art Effluent Treatment Plants (ETPs) to treat the waste generated while processing the leather in the tanneries.

The Asian Market to drive Demand The domestic market in Bangladesh has potential for growth as well. This is due to rising per capita income which has recently passed the USD 1,000 mark. In addition, the economic conditions of the countries in this region is changing rapidly with increasing economic growth translating to higher per capita income and in turn, more purchasing power. This is going to pull the demand for products such as footwear upward as they move from being a necessity to a more brand and status oriented product.

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Bangladesh Pharmaceutical

Industry – The Thrust Sector The pharmaceutical sector in Bangladesh is one of the thrust sectors and plays a vital role for the country’s economy. The sector utilizes highly skilled manpower along with advanced machinery for manufacturing high quality generic medicines and vaccines for local and international markets at competitive prices. Currently, the market consists of around 150 pharmaceutical companies, out of which top 20 companies control 85% of the market share. The local manufacturers cater to 97% of the country's consumption with a market size of USD 1.2 billion and are continuously expanding their reach in the global arena.

Global vs. Local Market Synopsis IMS projects the global pharmaceutical market to reach USD 1.135 trillion from USD 953 billion at a compound annual growth rate (CAGR) of 3-6% during 2013-2017. Led by China, the BRIC countries (Brazil, Russia, India, and China) accounts for almost 70% of all pharmaceutical market sales. Parallel to the global picture, the emerging countries show a positive growth trend, where Bangladesh is one of the Tier 3 pharmerging countries that is forecasted to contribute to this industry growth by 6–9% between 2013–2017. The local market demand in Bangladesh differs significantly from the international market; about 85% of the drugs sold are generics and 15% are patented drugs. The market comprises of 83 active pharmaceutical companies, out of which top 20 companies control 85% of the market share. The local market size currently rests at USD 1.2 billion.

Market Demand and Supply Insights Bangladesh has one of the lowest per capita drug consumptions in the world. However, the onset of the sector growth was accelerated by the promulgation of the Drugs (Control) Ordinance, 1982 Act. Furthermore, the local demand for generic drugs sharply increased within past few years due to the development of health care infrastructure, increase of health awareness both in rural and urban areas, escalation in standard of living in general and increase in life expectancy. Incepta Pharmaceuticals Ltd, Renata Ltd, Drug International Ltd, Eskayef Bangladesh Ltd, Sanofi, Beximco Pharmaceuticals Ltd and Opsonin Pharma are the top market players. Square Pharmaceuticals stands out as the market leader with 19.3 percent market share with its close rivals being Incepta, Beximco and Opsonin.

Beximco has recently entered EU market and is enlisted in London Stock Exchange as well. These companies are also well known for exporting high end branded drugs such as anti-cancer drugs and cardiac medicines. High-tech insulin manufacturing plants have started operation to meet the country's growing demand.

Export Status Quo As a member of WTO and being enlisted as one of the LDCs, Bangladesh currently enjoys the benefits of intellectual property rights that allows producing generic drugs and exports until 2016 without compulsory licenses or paying the patent holders

1,776 2,043 2,349 2,701 3,104 3,573 4,108 4,725

5,433

FY2014

FY2015

FY2016

FY2017

FY2018

FY2019

FY2020

FY2021

FY2022

Source: The Pharma World

B a n g l a d e s h G r o w t h F o r e c a s t ( U S D m n )

SQUARE20%

INCEPTA PHARMA9%

BEXIMCO9%

OPSONIN PHARMA5%

ESKAYEF5%

RENATA5%

ACME4%

A.C.I.4%

ARISTOPHARMA4%

DRUG INTERNATIONAL4%

OTHERS

31%

Top 10 firms' Market Share

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and thus providing an advantage to the local manufacturers and exporters.

Source: EPB

The local manufacturers are determined to meet the local demand fully by 2014 and penetrate leading foreign markets. At present pharma companies’ exports to 85 countries in Europe, Asia, Africa and Latin America with export standing at USD 60 million in 2013. Due to the rise in demand in Southeast Asia, Asia Pacific and Africa, the pharma exports recorded a rise of 23.9% in FY 2012-13. Leading companies have already obtained accreditation from USFDA, UKMHRA, TGA and GCC and are endeavoring to penetrate into USA and other EU based markets.

Growth Incentives and Benefits

Healthy growth trajectory is boosting the pharmaceutical manufacturers towards R&D for newer generics with global standards in place. The DGDRA Bangladesh is playing the key role in inspecting the WHO, GMP and SOP of the pharmaceutical manufactures and enrolling the certifications for subsequent two years validity from the date of inspection.

At the moment companies import 80% of their raw materials (APIs) from India and China which significantly escalates the cost of production. However, currently 15 Bangladesh companies (such as Beximco, Square and Opsonin) are manufacturing active pharmaceutical ingredients (API). The government is taking significant steps to implement API Industries Park at Munshiganj, 40 km from the capital. About 40 industries will be established at the plant, which will include a central effluent treatment plant incinerator. Building this backward-integration is a giant leap for this sector as it will eventually give the local pharmaceutical manufacturers price competitiveness in the global arena. Furthermore, to meet the staggering local and international demand, the government has extensively imposed lower or zero import duty and VAT for certain raw materials/ items and certain capital machineries, and also allowed tax holidays of four to six years to investors in this sector.

Rapid Growth Poised to Stay The Bangladeshi pharmaceutical market is growing at a fast pace and has a promising future. According to Business Monitor International's latest report, Bangladesh has moved one step upward to occupy the 14th position amongst 17 regional markets. This sector offers an enormous investment opportunity and has the potential to export alongside the RMG sector in terms of value, catering to increasing consumption worldwide.

0.05%

1.11%

18.21%

79.40%

0.44%

0.78%

Itemwise Export in FY 2013Glands & extracts,secretions fororganotherapeutic uses

Human & animalblood; antisera,vaccines, toxins,micro-organism

Medicamentmixtures not indosage

Medicamentmixtures put indosage

40.49 44.38 48.31

59.85

FY 2010 FY 2011 FY 2012 FY 2013

SOURCE: EPB

Pharmaceuticals Products Export (USD Mn)

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IT Sector – Gateway to Middle

Income Status

Bangladesh IT sector has historically remained outside the limelight due to neighboring India’s spectacular IT success. The lack of adequate infrastructure and inadequate training facilities compounded the slow progress of the IT sector. However, over the last decade, there has been a proliferation of IT ventures earning foreign currency reserves for the nation. The government also undertook several development measures for improving overall infrastructure which resulted in more reliable and cheaper internet connectivity while ensuring training facilities for budding IT professionals.

Market is Growing with Greater Product Depth Currently there are over 800 IT and ITES companies

registered in Bangladesh with an estimated total

industry turnover of around USD 200 million. Nearly

76 percent of these companies are involved with

customized application development and

maintenance. The specialization of the local IT and

ITES companies is shown in the following figure

Source: BASIS

Whereas most Bangladeshi market players initially offered their services and products predominantly

on the domestic market, Bangladeshi software solutions and ITES are nowadays exported to other regions like Europe and Northern America.

Thriving Domestic ITES Market Recently, many large-scale automation projects have been implemented in sectors like banking, telecom, pharmaceutics, RMG and Textile sectors increasing the domestic demand for software and ITES solutions. Manufacturing sectors including garment, textile and pharmaceuticals have created sustainable demand for IT solutions like ERP, HR and Payroll management systems, and production and financial management software. As a result, the domestic IT service industry has grown by 20 to 30 percent per annum over the last few years (Source: BASIS).

Prospect of Outsourcing is Positive

The ITC estimates that around 200 Bangladeshi ICT companies are serving international markets offering outsourcing services and project delivery models. In terms of export destinations, North America (Canada and the US) dominates, whereas European countries like the UK, Denmark, the Netherlands and Germany have emerged over the last few years as major export destinations (source: BASIS). According to the ITC Exporter Directory there are over 10,000 ICT freelancers active in Bangladesh as of 2014, billing

an export revenue of nearly USD 200 million. Source: BASIS

Big Names are Taking Notice Bangladesh’s prospects have been identified by several global ICT companies. For example, the Korean technology firm Samsung has opened a high-end Research and Development (R&D) center in Bangladesh employing over 250 engineers. VizRT,

76%

50%

45%

18%

17%

11%

7%

3%

3%

Customized Application

IT Enabled Services

E-commerce

Product Development

Mobile Application

System Integration

R&D Services

IT Infrastructure

Reseller

Specialization of IT & ITES Companies

68%

33%20% 18% 15% 9% 9% 8% 8% 8%

USA U

K

Can

ada

Au

stra

lia

Den

mar

k

Net

her

lan

ds

Ger

man

y

Ind

ia

Jap

an

UA

E

Top Export Destinations

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a Norwegian company that creates content production tools for the digital media industry, is building captive centers following acquisitions of ICT production companies in Bangladesh. Other global IT companies like AMD, LG and IBM are currently in the process of setting up either their captive R&D or support centers in Bangladesh.

Government is Strongly Backing the Sector Government’s “Digital Bangladesh” initiative has assisted in increasing export revenues in the IT sector from USD 35 million to USD 200 million over the last five years and also helping to set up infrastructure for enhanced connectivity, ICT based citizen service delivery and ICT based Education system, multiple internet connectivity. Initiatives like Digital World and BASIS Softexpo are playing a positive role in building awareness and promoting IT sector to both domestic and the international market. Internet connectivity has been vastly enhanced over the country.

The Sector Outlook is Optimistic With cooperation and support from both Government & the private sector; the sector is expected to reach export earning of USD 1 billion within the coming decade from the European and the US markets.

Source: BASIS

Booming Startup Community

Bangladesh is witnessing the rise of a vibrant startup ecosystem. Many initiatives from public as well as private sectors are being regularly held with the likes of Digital World 2014, A2I Innovation Fund, GIST Bootcamp, StartupBash, Startup Cup, DCCI

Innovation and Entrepreneur expo to promote the startup concept and support budding entrepreneurs. Local ventures like BDJobs.com and NewsCred have raised international funds with many local tech companies like chaldal.com raising seed finance from local and international investor networks. A host of freelancers are now setting up small teams and making their way towards setting up their own IT firms. With the right mentoring and access to market linkages, these local entrepreneurs can be the next generation of leading global startups.

26.1 24.1 32.9 35.4 45.370.8

101.6

200.0

-20%

0%

20%

40%

60%

80%

100 %

120 %

0

50

100

150

200

250

20

06-0

7

20

07-0

8

20

08-0

9

20

09-1

0

20

10-1

1

20

11-1

2

20

12-1

3

20

13-1

4

Yearly IT Export Earnings (USD mn)

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Footprints – Big names already

with the Bandwagon Many multinational companies are maintaining market presence as a precursor to more heavy involvement. However, some major international companies in different sectors have chosen to take the plunge and enjoy superior returns. Some of them are:

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Investing in Bangladesh –

Government Policy Support

Since economic liberalization of the Bangladesh economy in the early 90s, successive Governments have pursued a pro-investment policy with a view to increasing Foreign Direct Investment (FDIs). Special economic zones have been setup across the country and major foreign investors have been provided with subsidized lands, tax holidays, profit repatriation and priority in utility connections.

Bangladesh – Emerging Investment Hub Recently, attractiveness of Bangladesh as an investment destination has increased manifold, especially due to the country’s preferential trade status in major international markets, inexpensive labor and proximity to China and India. Increasing labor costs in China has further precipitated a shift of investment to neighboring regions. Given the backdrop, Bangladesh government is keen to attract investment not only to positively tilt the balance of payment position, but to further rejuvenate the economy through employment generation and GDP growth.

Investment Friendly Policy Framework A host of policies have been adopted to incentivize foreign investment. Tax Holidays: Foreign investors will receive tax holiday ranging from 5 to 7 years based on geographic location. For instance, for industrial enterprises located in Dhaka and Chittagong, tax holiday is for five years. While it is seven years for locations in Khulna, Sylhet, Barisal and Rajshahi divisions. Accelerated depreciation facility: Industrial units financed by foreign investors will enjoy an accelerated depreciation allowance post tax holiday period. Such allowance is available at 100 per cent cost of the machinery or plant if the industrial undertaking is set up in the areas falling within Dhaka, Chittagong and Khulna. If the industrial undertaking is set up elsewhere in the country, accelerated depreciation is allowed at the rate of 80

per cent in the first year and 20 per cent in the second year. Concessionary duty on imported capital machinery: No import duty will be charged for imported machinery for industrial units which are 100% export oriented in nature. For the rest, 5% import duty will be charged for initial installation or BMRE/BMR of the existing industries. Full repatriation of Capital: Full repatriation of capital invested from foreign sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their dividends and or retained earnings, those will be treated as new investments. Legal protection: The policy framework for foreign investments in Bangladesh is based on 'The Foreign Private Investment (Promotion & Protection) Act. 1980, which ensures legal protection to foreign investment in Bangladesh against nationalization and expropriation. It also guarantees non-discriminatory treatment between foreign and local investment, and repatriation of proceeds from sales of shares and profit. Despite change in government, there has been a continuity of policies with regards to attracting foreign investments. Bilateral agreement and treaty: The Government of Bangladesh has a series of bilateral investment agreements with a number of countries in Asia (China, India, Japan, Singapore, South Korea, Sri Lanka, Thailand, Iran, Malaysia, Pakistan, Philippines), Europe (Belgium, Denmark, France, Germany, Poland, Romania, Sweden, The Netherlands, United Kingdom, Italy, Romania, Switzerland, Turkey) and North American (Canada, USA). In addition, Bangladesh is a signatory to MIGA (Multilateral Investment Guarantee Agency), OPIC (Overseas Private Investment Corporation) of USA, ICSID (International Centre for Settlement of Investment Disputes) and a member of the WIPO (World Intellectual Property Organization) permanent committee on development co-operation related to industrial property. Preferential Trade Agreements: Bangladesh has a number of preferential trade agreements with

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countries having significant market size e.g. GSP with EU, quota and tariff free access to Canada and Japan. Alongside, Bangladesh has recently signed Trade and Investment Co-operation Framework Agreement (TICFA) with the US where bilateral trade issues will be discussed. Currently, talks are underway to revive the GSP suspension imposed by the US government last year.

Gateway to Bangladesh International investors can undertake investments seamlessly through the Board of Investment (BOI) and Central Bank’s support.

Entering the Capital Markets Foreign investors can also invest directly in Bangladesh’s vibrant Capital market which can hedge investor’s portfolio risks in the event of global economic downturn. The following steps need to be taken by foreign investor for investing in the capital market:

A Foreign Currency (FC) Account is needed for inward and outward remittance.

A Non-resident Investor’s Taka Account (NITA) is required for converting foreign currency into Taka.

All Capital Market investors are required to conduct trading through a Stock Broking Account maintained with any Stock

Broker/Member of the respective Stock Exchange.

In order to trade dematerialized shares listed with the Stock Exchanges, investors must have a Beneficiary Owners (BO) Account with CDBL.

NRB & Foreign Investors may choose to appoint a Custodian to ensure trade execution and safe custody of shares.

Set-up of plant:

- Purchase/lease of factory land

- Import of machinery

- Industrial Adhoc IRC

- clering of capital machinery

- Environmental Risk clearance

- Fire license

- Connection of utility lines

Step-3

Application to BOI will include:

- BOI prescribed form

- Project profile

- Memorendum of Artices of Association

- Certificate of incorporation

- TIN/ VAT registration

- Trade license

Step-2

-Opening bank account as per 'Foreign Exchange transactions 1996.

- Trade license

- Tin Certificate

- Company formation

Step-1

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About us: LightCastle Partners (LCP) is a business data firm. We work at the intersection of market data and company specifics to simplify decisions and drive business growth. Till date, we have served several reputable clients including Mitsubishi, Generac, Asian Capital Advisors, Care Inc., Swiss Contact Katalyst and top tier local corporates among others. The founding partners have backgrounds in Corporate and Investment Banking, Audit and Advisory with firms like Citi, HSBC, StanC, KPMG and Delloite. All information contained herein is obtained by LightCastle from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein “As IS” without warranty of any kind. LightCastle adopts all necessary measures so that the information it uses is of sufficient quality and from sources LightCastle considers to be reliable including, when appropriate, independent third-party sources. However, LightCastle is not an auditor and cannot in every instance independently verify or validate information received in preparing publications.

Analysts:

Asif Khan, CFA Bijon Islam, Co-founder LightCastle Kashif Choudhury, Business Associate LightCastle Raitul Rabith, AVP LightCastle Saifur Rahman, Co-founder LightCastle Sazzad Hossain, Business Associate LightCastle Tanzina Moktadir, VP LightCastle Zahedul Amin, Co-founder LightCastle

For queries or comments, please contact: LightCastle Partners FR Tower 19 Floor 32 Kamal Ataturk Avenue Banani Dhaka 1213, Bangladesh Mail @ [email protected] Read our blog at http://www.lightcastlebd.com/blog Visit us at http://www.lightcastlebd.com/