Suitable Sectors of Investment in Bangladesh

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.

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.

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 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.

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.

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.

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

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.

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 spreading 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.

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.

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

• 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.

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.

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.

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 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.

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.

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).

• IT professionals working within the IT Industry: 20,000 +
• IT professionals working outside IT Industry: 35,000 + (In business enterprises, govt., telecom, NGOs, etc.)
• Yearly graduates from IT related subjects: 5,500+

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.

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.

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.

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.

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.

As of 2011, approximately 48.5% of the total population of Bangladesh enjoys electric facilities. The transmission and distribution lines have reached over 8,359 km and 266,460 km respectively, electrifying 53,281 villages.

Public and private sectors produce 63% and 37% of electricity respectively. The BPDB individually produces 46% of the total production.

• Tax Holiday: Exemption from corporate income tax for a period of 15 years.
• Customs Duty: Allowed to import plant/equipment and spare parts (up to 10% value) within 12 years of operation without customs duties, VAT, or surcharges.
• Repatriation: Full repatriation of equity and dividends allowed freely.
• Foreign Lenders: Exemption from income tax for foreign lenders to power companies.
• Tax Exemption: Exemptions on royalties, technical know-how fees, and interest on foreign loans.
• Expatriates: Income tax exemption for up to 3 years for foreign personnel and 50% salary remittance facility.

The government's roadmap targets 8,500 MW by 2013, 11,500 MW by 2015, and 20,000 MW by 2021.

Long Term Plan: Government expects to reach the destination of 20,000 MW by 2021 through an annual 10% production increment, aiming for a per capita consumption of 600 Kw.

Source: Power and Energy Sector Development Roadmap, Ministry of Finance (mof.gov.bd)

The pharmaceutical sector in Bangladesh has developed fast. Originally set up to cater for local needs as a manufacturer of patent medicines, the industry now exports drugs to highly regulated markets. Expansive international companies have established operations in the country as they seek to grow, promote exports, drive down manufacturing costs, and undertake research and development into reverse engineering of patented medicines.

Flourishing opportunities in this sector include pharmaceuticals, patented medicines manufacture, active pharmaceutical ingredients (API) production, and generic pharmaceuticals. The main advantages for investing in Bangladesh are:

• Skilled Workforce: Highly skilled workforce and internationally competitive cost base, with high-quality management resources fluent in English.
• Regulatory Environment: Ideal regulatory and tariff environment for pharmaceutical production.
• Strategic Location: Excellent geographical location close to emergent economic giants of China and India.
• R&D Potential: Significant potential for research and development, contract research outsourcing, and clinical trials development.
• Academic Support: Quality tertiary education producing a plentiful supply of top-flight scientific talent.