Investment Sectors

The economy of Bangladesh is primarily dependent on agriculture. About 84% of the total population lives in rural areas and are directly or indirectly engaged in a wide range of agricultural activities. Agriculture contributes about 20.29% (Source: Bangladesh Economic Review - 2011 Bangla Version) to the country’s GDP- 23%. About 43.6% (Source: Bangladesh Economic Review - 2011 Bangla Version) of the labor force is employed in agriculture with about 57% being employed in the crop sector.

The abundance of natural resources available in Bangladesh supports a range of highly profitable investment opportunities in agribusiness. Over 90 varieties of vegetable are grown in Bangladesh, yet in this fertile land there is under utilisation of the country’s agricultural capacity. This presents many opportunities for investors seeking to export agricultural products, or to meet the rapidly growing local demand.

Sector Highlights

Thriving in this sector are canned juices, fruits, vegetables, dairy and poultry. The country offers:

• Huge supply of raw materials exist for the agribusiness industry.
• A tropical climate for all year growing, a lot of fresh water, indeed a land interspersed with numerous rivers, available land with fertile soil.
• Government and NGOs conduct regular training programs to develop skilled manpower in the industry.
• Wide range of biodiversity exists for different crops.
• Agricultural commodities have a comparatively higher value added than non-agricultural commodities.

There is a wide variety of investment opportunities including:

• Cold storage facilities serving the supply chain, especially fresh produce for export.
• Fresh produce production for local and export markets.
• Production of fertilizers and cultivation of seeds.
• Eco-friendly jute production, supported by jute technology development institutes.
• Shrimp farming.
• Halal foods.
• Milk and dairy products.
• High value-added foods for export, including herbs, spices, nuts and pulses.
  
  

Bangladesh has the essential attributes for successful agri-based industries namely rich alluvial soil, a year-round frost-free environment, available water and an abundance of cheap labor. Increased cultivation of vegetables, spices and tropical fruits now grown in Bangladesh could supply raw materials to local agribusiness industries for both domestic and export markets.

Progressive agricultural practices, improved marketing techniques and modern processing facilities have raised the quality of agribusiness and expanded production levels significantly.

Industry Incentives

The government encourages development of the agricultural sector through measures to increase crop sector productivity and production of non-crop agriculture. To achieve this it provides increased credit, and facilitates greater access to inputs and modern technology. Investments in agribusiness industries in Bangladesh are encouraged with the following support measures:

• The Equity Entrepreneurship Fund for development of agribusiness industry.
• Special loan facilities available to set up an agribusiness.
• Agribusiness industry enjoys tax holidays.
• Any investment in this sector will enjoy similar tax amnesty as available in other sectors.
• Imposition of supplementary duty on mango, orange, grape, apples, dates and others to utilize the high quality and cheaper local resources.
• Cash incentives to the exporters ranges from 15% to 20% in various sub sectors.

The global ceramics industry is worth in excess of $10bn. Bangladesh is perfectly positioned to expand rapidly in this sector with its high quality:cost ratios and creative human resource base.

Thriving in this sector are tableware, sanitary ware and insulators. The country key advantages are these:

• Technical expertise and skilled manpower in tableware and other ceramics.
• Clean gas reserves in certain locations to fire kilns for competitive cost advantage.
• Bangladesh ceramic tableware has a good reputation in the international markets like North America and EU countries.
• Sanitaryware and insulators have a strong domestic demand as well as international market demand.

The global ceramic tableware industry is currently going through a phase of acquisition and consolidation as smaller firms in the developed countries are becoming uncompetitive and bankrupt. As a result, the big names like Noritake, Wedgewood, Lenox, Villeroy & Boch and Royal Doulton are all individually becoming billion-dollar operations.

Traditionally, the tableware industry is labor-intensive and companies in developed countries experience difficulties in remaining competitive. Bangladesh, being a gas-rich and low-labor-cost economy, is perfectly positioned to be a strategic partner in production and supply of ceramic products. Investment interests in this sector are strongly welcome.


Industry Status

A few ceramic tableware manufacturers dominate the industry producing high quality products for the international brands. A pool of skilled manpower has been developed. The latest technological advancements in ceramics are also being utilised. Bangladesh produces high quality bone china, transferring the technology from Japan.

The high skill, low cost labor resource of the electronics sector in Bangladesh offers companies great returns on investment. Whilst the global market for semiconductors is worth in excess of $200bn and is dominated by the Asian economies, Bangladesh has significant financial and economic factors in its favor that make it the best choice for many companies.

• Manufacturing of semiconductors could be established as a stand alone industry.
• Bangladesh is going to be one of the largest cell-phone markets in South Asia.
• The home appliance market in Bangladesh is growing rapidly.
• The labor-intensive nature of the electronic industry matches the ability of Bangladesh to provide a high skilled labor source.
  

The electronics industry in Bangladesh mostly produces consumer items. Home appliances includes televisions, radios, DVDs and CD players, refrigerators, air conditioners, ovens, electronic fans, blenders etc. are being assembled to a large extent. To ensure the performance reliability, the key challenges in this sector are technical assistance and proper technology orientation of the industry. Developing the significant capacity and skill in assembly and manufacture of a wide range of electronic components and parts is crucial.

As yet, Bangladesh does not have any telecommunication equipment industry in the private sector. However, an urgent need for diversification and modernization is felt among the existing entrepreneurs, government and professionals. The government is keen to provide and ensure enabling assistance to the development of this sector.


Industry Outlook

Bangladesh's experience in basic electronics spans over two decades. In recent years, European and Asian electronic firms have established technical collaboration with their Bangladeshi counterparts to produce some electronic goods at competitive prices. This has tremendous potentiality for expansion.

The government of Bangladesh has adopted National Telecommunication Policy, 1998. Investment is encouraged through BLT-BOT/BOO/BTO* and other joint venture schemes which by greatly increasing the capacity, quality and type of services, will create improved efficiencies in other sectors such as transportation energy and the textile industry.

To meet the telecommunications' requirements of the country the government has been developing and expanding the systems and services of Bangladesh Telegraph and Telephone Board. Private sector operations in the rural telecommunication, paging, cellular telephones and riverine radio trunking have already been allowed. At present seven private operators are providing their services to about 100,000 customers. Government has allowed expanding 300,000 digital telephone lines in Dhaka by private sector participation through open tendering.

In accordance with overall national policy, liberalization of the telecommunications sector will continue. However, the government retains the sale authority to determine the number of competitions that are economically viable for certain services. The strategy is to provide equal and rational opportunities to all competitors.

Skilled, easily trainable and low-cost human resources are the main cost advantage of setting up electronic industry in Bangladesh. Growing domestic demand and international market access are some key attractive issues to the investors. In the economies like Malaysia, Singapore, Korea and Thailand, electronics contribute a major portion in the GDP. They are encouraging electronic industry to shift from low-end assembly operations with high import content of inputs to upstream higher value-added activities. In this context, relocation, outward investment and joint venture with Bangladeshi companies could be gainful strategies. To capitalize on the comparative advantages, substantial foreign investment from those countries is highly encouraged.

BLT-BOT/BOO/BTO=BOO refers to Build, Operate & Own. BLT refers to Build, Lease and Transfer while BOT refers to Build, Operate and Transfer.

Frozen foods is the second largest export sector of the economy. The massive natural resources available in Bangladesh make this sector particularly promising for investors looking to supply in international as well as in domestic markets.

The Public sector corporation and the private organizations have setup about 148 numbers of shore based export oriented fish processing plants at Dhaka, Chittagong, Khulna, Jessore, Satkhira, Bagerhat, Cox's Bazar, Chandpur, Kishoregonj, Syihet and Patuakhali. These plants produces Fresh Water shell On (FWSO), Ser Water shell On (SWSO), Peeled and Deveined (P&D), Peeled and Undevined (PUD), shrimp products under the most hygienic and sanitary condition under the supervision, control and guidance of foreign trained handling & processing experts. At all levels, USFDA registrations and directives of the European Communities concerning the production and exportation of frozen foods are strictly followed.

Sector Highlights

Thriving in this sector are shrimp farming and fish production.

• The government is promoting semi-intensive shrimp farming.
• Shrimp processing and export industry is largely dominated by the small business sector.
• Government has developed initiatives of quality assurance for frozen foods in co-operation with exporters.
• 15% cash incentive offered to shrimp export amount.

Exportable Products

The private organization and the public sector corporation offer the following products for export:

• Frozen shrimp & prawn
• Frozen fish
• Fresh & chilled fish
• Frozen fillets & steaks of fish, sharks shells skates & rays
• Shark fins & fish maws
• Salted & dehydrated fish
• Dry fish
• Live crabs & tortoises
• Fish meals & crushed
• Value added shrimp & fish products

Industry Outlook

This export oriented industry includes the following sub-sectors which are themselves promising investment opportunities:

• Hatcheries
• Sustainable aquaculture technology
• Feed meals plants
• Processing unit for value-added products.

Growth in Export of Processed Fish

Shrimp is the second largest source of export from Bangladesh which earned as much as 437.40 million US dollar in the year 2009-10. Commercial culture of shrimp increased rapidly in the coastal belt of Bangladesh and it went through several stages of transformation. During the last ten years, Bangladesh has earned international credibility by responding to the food-safety and quality requirements of its destinations, mostly, the United States and the European Union countries. Continuous investment has enabled the sector to progress in the teeth of competition from other countries.

There are 105,000 galda farms, mostly located in the Khulna area although this method of cultivation is spred ading rapidly in other parts of Bangladesh. Unlike brackish water cultivation of bagda (black tiger shrimp, Penaeus monodon), freshwater galda cultivation is not restricted to the coastal regions and is expanding at a rate of 10–20 per cent per annum.

Industry Situation

Following a period of strong investment in technology, processes and regulation the frozen foods sector has flourished and earned itself an excellent reputation with trading partners.

Exporters have earned credibility and trustworthiness in the global market and are committed to maintaining a competitive advantage in product quality. Continuing investment in technology, marketing and quality remain at the forefront of the industries' strategy to meet the challenges of international trade in price, quality, time and service.

From spinning to weaving, from knitwear to leisurewear and high street fashions, the textiles and clothing industry is Bangladesh’s biggest export earner with value of over $ 16 bn of exports in 2009-10. Our factories design and produce for the world’s leading brands and retailers. This rapidly growing sector of the Bangladeshi economy offers a unique competitive edge that supports profitable expansion into new strategic markets.

Key Statistics of RMG* Sector

RMG EXPORTS AND IT'S SHARE IN TOTAL EXPORT OF BANGLADESH

Data Source Export Promotion Bureau Compiled by BGMEA

Employment in RMG Sector

Data Source Export Promotion Bureau Compiled by BGMEA

Main Apparel Items Exported From Bangladesh (m US$)

Data Source Export Promotion Bureau Compiled by BGMEA

Sector Highlights

Cost and quality of products that are produced on time, reliably and very competitively with a highly skilled labor force.
A unique regional location for expansion into key Eastern and other markets.
Favored trading status with the EU and the USA.
Clusters of companies providing a local supplier base with real depth in skilled labor, training and technical development facilities.

The growing demand for yarn in the local market, comparatively low cost of doing business, lucrative incentive packages and a favorable investment policy regime are important reasons for investment in this sustainable sector.
RMG and Backward Linkages

The phenomenal growth in the ready made garment (RMG) sector in the last decade created many new factories and employment opportunities. Having enjoyed more than 70% of total investments in the manufacturing sector during the first half of the 1990s, RMG and knitwear now account for about 4,825 factories and a workforce of 3.1 m -80% of which are women. This sector now employs over 50% of the industrial workforce and accounts for 79% of the total export earnings of the country. The growing trend in the textile and the garments sector means that Bangladesh is perfectly positioned to appeal to foreign investors.

Source: Director's Report 2009, Bangladesh Textile Mills Association

Favored Trading Status

Bilateral agreements with 28 countries and Generalised System of Preferences (GSP) of the EU are key reasons for Bangladesh RMG products having access to global markets. The current cycle of GSP applied from 1 January 2009 to 31 December 2011. Bangladesh is now a significant RMG supplier to North America and Europe. Bangladesh has also taken a better position in the USA market through competition. Bangladesh is expected to maintain its tariff-free access to EU under the European GSP, since the GSP is not covered by the Uruguay Round Agreement. Recently Canada has also provided tariff-free access for all the items from Bangladesh.

Meantime, the Bangladesh RMG industry has become very competitive as a global standard RMG source. Marketing investments have been made in trading partner economies; end users can often differentiate products with confidence.

Historically the Bangladesh RMG industry has depended largely on imported yarns and fabrics and produced only 10% of the export-quality cloth used by the garments industry. The need for establishment of backward-linkage industry has become an immediate concern to the government and the exporters and there are enormous opportunities to set up a composite textiles industry combining textile, yarn and garments.

Investment Opportunities and Government Support

Enormous investment opportunities exist in this sector. In the RMG industry demand for fabric significantly exceeds local supply and so is currently being met by imports. Backward linkage is a significant trading opportunity and is supported by a government backed incentive: 15% cash subsidy of the fabric cost to exporters sourcing fabrics locally.

Additionally the government has created a highly favorable policy framework for investment in these sectors offering investors the following choices:

• Establishment of new textile/RMG mill in the private sector
• Joint ventures with the existing textile/RMG mill
• Acquisition of public sector textile mills that are being privatised
• Indirect investment through financial services and/or leasing

The most beneficial public policy of introducing back to back LC* and bonded warehouse facilities provide a tremendous impetus to the export scenario in Bangladesh.

Spinning

The government is committed to fostering a strong spinning sector within the economy to support the robust textile and garment industry that has developed. The government is therefore supporting spinners by providing lower tariffs for machinery spares and raw materials, cash incentives, reduced tax rate, and low-cost funding etc.

*RMG=Ready made garments
LC=Letter of Credit

ICT and business services in Bangladesh is a vibrant sector supported by an enthusiastic culture and a government committed to providing a pro-business climate for all investors. Over 400 IT companies are now thriving in the country supplying to local and international markets worldwide.
Industry at a Glance

Industry at a Glance

IT Industry in Bangladesh

Though the current size of Bangladesh IT Industry and software/ITES industry in particular is still lot smaller compared to the overall economy and the number of population (over 150 million), over the last few years the industry has grown considerably and is expected to grow at that rate for some time. It is estimated that during the last five years the average yearly growth rate of software & ITES industry has been over 40%. The growth has been driven by both good export trends in recent years as well as the growing IT automation demand in domestic market (local demand has been led by large automation projects by telecom, banking sector and export oriented garments/textile industry). Currently there are over five hundred (500+) registered software and ITES companies in the country employing over 20,000 ICT professionals. Out of these companies, around 60% are mainly domestic market focused while 40% are mainly export focused (significant number of companies work for both local and export clients).

Total estimated IT Industry Size: US$ 120 Million (including export)

IT Workforce in Bangladesh

No. of IT professionals working within the IT Industry : 20,000 +

No. of IT professionals working outside IT Industry (including business enterprises, govt. telecom, NGOs etc.): 35,000 +

Yearly no. of graduates from IT related subjects: 5,500+
ICT & Business-Services

Bangladesh has a long established tanning industry which produces around 2-3% of the world’s leather from a ready supply of raw materials. The country is therefore an established and attractive location to source and outsource the manufacture of finished leather products. The leather industry is ideally suited to Bangladesh with its abundance of labor and natural resources at internationally competitive rates.

Sector Highlights

Flourishing in this sector are finished leather and leather goods.

• Abundant, low cost labor – ideal for labor intensive industry.
• Good quality domestic supply of raw materials, as by-products of large livestock industry.
• Government support in the form of tax holidays, duty free imports of raw materials and machinery for export-oriented leather market, export incentives.
• Tariff and quota free access to major markets such as the EU.

Industry Outlook and Investment Incentives

In 2008-09 total export of leather, leather goods was $381.14m.

Bangladesh produces between 2% and 3% of the world’s leather. Most of the livestock base for this production is domestic, which is estimated as comprising 1.8 % of the world’s cattle stock and 3.7 % of the goat stock. The hides and skins (average annual output is 15m sq.m.) have a good international reputation.

Foreign direct investment in this sector along with the production of tanning chemicals appears to be highly rewarding due to this presence of basic raw materials for leather goods including shoes, a large pool of low cost, trainable labor, and a tariff concession facility to major importing countries under Generalized System of Preferences (GSP) coverage. Thus Bangladesh is an ideal offshore location for leather and leather products manufacturing with low cost but high quality.

The government is in the process of setting up a separate Leather Zone, relocating the existing industry sites to a well-organised environment. Exports include some ready-made garments, although that aspect is confined mainly to a small export trade in "Italian-make" garments for the US market. Footwear is more important in terms of value addition. This is the fast growing sector for leather products.

The burgeoning domestic market and the prospect of significant cost reductions for companies sourcing components and finished goods for international markets makes Bangladesh a compelling choice for investors.

Sector Highlights

Thriving in this sector are machinery parts and consumer items.

• Increasingly affluent middle class creating demand for consumer durables.
• About 40,000 small scale light engineering enterprises existing over the country.
• Export-oriented production has experienced strong growth in past few years.
• Currently about 10,000 types of different items are manufactured for the local industry.
• As demand grows for engineering and electronic goods, so does demand for light engineering products.
• Government provides cash incentive facilities to exporters of value-added light engineering products.

Industry Situation

The light engineering industry in Bangladesh continues to grow each year. This labor-intensive sector produces a diverse range of items, including import substitute machinery spares, plant machineries, small tools, toys, consumer items and paper products for the domestic market. Most of these enterprises are located in and around Dhaka metropolis. Entrepreneurs from China, Japan and Korea have taken advantage of Bangladesh's cheap and easily trainable labor and its infrastructure facilities to manufacture products for the export market.

Bangladesh is progressing through a phase of development where automation is the key to its economy and business. As the country continues to industrialise the importance of power generation and electricity supply becomes a key government priority.

Power industry in recent times

Government vision for the power industry

Fiscal incentives

Facilities and incentives

Power industry development plan

Power Industry in recent times

At present, 48.5% of the total population of Bangladesh is enjoying the electric facilities. As of April 2010, the total numbers of transmission and distribution lines are recorded to 8,359 km and 266,460 km respectively. However, 53,281 villages have been electrified so far. In Bangladesh per capita generation is 220 KW hr which is comparatively lower than other developed countries in the world.

Recent Status:

Figures other than Installed Capacity and Maximum Generation are of June 2010.

Source: Bangladesh Economic Review 2011(Bangla version), www.mof.gov.bd

Public and private sector produces 63% and 37% of electricity respectively. Public sector produces electricity through Bangladesh Power Development Board (BPDB), Ashuganj Power Station Company LTD (APSCL) and Electricity Generation Company of Bangladesh (EGCB). On the other hand, private sector produces power through small independent power producers and rental that government buys at a constant price. BPDB individually produces 46% of the total production.

Electricity Production, 2010, by Sector

1 Bangladesh Power Development Board

2 Ashuganj Power Station Company Limited

3 Electricity Generation Company of Bangladesh

4 Smal Independent Power Producer

5 Rural Electrification Board

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance

Electricity Production (Public), 2010, by %

Bangladesh Power Development Board

Ashuganj Power Station Company Limited

Electricity Generation Company of Bangladesh

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance

Electricity Production (Private), 2010, by %

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance

Raw material used to produce electricity, 2010, by %

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance

Government Vision for the Power Industry

Electricity is a key ingredient for the socio-economic development of the country. The government has given top priority to development of the sector considering its importance in the overall development of the country. The government has set the goal of providing electricity to all citizens by 2021. Adequate and reliable supply of electricity is an important pre-requisite for attracting both domestic and foreign investment.

As the power sector is a capital-intensive industry, huge investments are required in order to generate addition to the capacity. Competing demands on the government resources and declining levels of external assistance from multilateral and bilateral donor agencies constrained the potential for public investment in the power sector. Recognizing these trends, the government of Bangladesh amended its industrial policies to enable private investment in the power sector.

The Power Cell, created under the Power Division of Ministry of Power, Energy and Mineral Resources, received the mandate to lead private power development. The government is strongly committed to attract private investment for installing new power generation capacity on build-own-operate basis.

Fiscal Incentives for Private Power Companies

A number of fiscal incentives are provided to the private power companies. Some of them are as follows:

• Exemption from corporate income tax for a period of 15 years.
• Allowed to import plant and equipment and spare parts up to a maximum of ten percent (10%) of the original value of total plant and equipment within a period of twelve (12) years of commercial operation without payment of customs duties, VAT and any other surcharges as well as import permit fee except for indigenously produced equipment manufactured according to international standards.
• Repatriation of equity along with dividends allowed freely.
• Exemption from income tax for foreign lenders to such companies.
• The foreign investors will be free to enter into joint ventures but this is optional and not mandatory.

Source: Private Sector Power generation Policy of Bangladesh , Ministry of Power, Energy and Mineral Resources

Facilities and Incentives for Foreign Investors

There are number of facilities and incentives would be provided to the foreign investors. Some of them as follows:

• Tax exemption on royalties, technical know-how and technical assistance fees, and facilities for their repatriation.
• Tax exemption on interest on foreign loans.
• Tax exemption on capital gains from transfer of shares by the investing company.
• Avoidance of double taxation case of foreign investors on the basis of bilateral agreements.
• Exemption of income tax for upto three years for the expatriate personnel employed under the approved industry.
• Remittance of up to 50% of salary of the foreigners employed in Bangladesh and facilities for repatriation of their savings and retirement benefits at the time of their return.
• No restrictions on issuance of work permits to project related foreign nationals and employees.
• Facilities for repatriation of invested capital, profits and dividends.

Source: Private Sector Power generation Policy of Bangladesh , Ministry of Power, Energy and Mineral Resources

Under the Private Sector Power Generation Policy, so far power plants with a capacity of 1,290 MW have been established and are under operation. Moreover 1,590 MW of electric power are planned to be generated in the near future.

A list of existing Independent Power Producers (IPPs) is shown here:

* Based on indicative Gas price: 2.40 US$/GJ.

Source: Ministry of Power, Energy and Mineral Resources

Power Industry Development Plan

In order to realize the government's vision to provide electricity to most of the population at a reasonable price and to achieve overall socio-economic development of the country, the government of Bangladesh has initiated a Power and Energy Sector Development Roadmap (2010-2021) which targeted to produce 8,500 MW by 2013, 11,500 MW by 2015 and 20,000 MW by 2021. However, to ensure overall and balanced development of this sector government has taken various plans in terms of duration. The plans have been developed based on a techno-economic analysis and a least-cost option. These plans include balanced development in generation, transmission and the distribution system to achieve a desired level of reliability of supply. A summary of the development plan is given as follows:

Short Term Plan (2011)

According to the short-term plan, liquid fuel based 12-24 months of implementable power stations will be established. However, government has initiated to implement a power station with a capacity of 920 MW.

Mid Term Plan (2012-2015)

Under this plan, government has taken into account to establish 3 to 5 years of implementable coil based power stations with a capacity of 2,600 MW to the total capacity of 7,714 MW.

Long Term Plan

As of the Power and Energy Development Roadmap (2010-2021), government expects to meet the desire destination (20,000 MW by the year 2021) through the increment of 10% production per year towards reaching the per capita consumption to 600 Kw.

Projected Surplus Electricity Production (Yearwise)

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance

Projected Electricity Demand and Supply (Yearwise)

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance

Bangladesh is steadily climbing up the development ladder. Energy and power needs to act as a key catalyst in helping Bangladesh in this endeavour. Industries are being automated and the country is gradually moving from a labor-intensive economy to a capital intensive one. Electricity and power are vital to the nation at such a stage. Bangladesh has a vast market as far as power and electricity is concerned and good prospects for constructing power generation plants exist in the country in terms of resources available and government policies.

Source: Power and Energy Sector Development Roadmap (June 2010), Ministry of Finance