During the 4th meeting of the Russia-Bangladesh Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation (IGC) in 2023, Bangladesh and Russia enhance their friendship through the adoption of a new G2G market system. However, they also express concern about the potential risk of currency dismissal. On a positive note, both countries find hope in securing and strengthening their bilateral relations amid the uncertain influence of the SWIFT ban. Russia’s interest in establishing their financial institute Sberbank in Bangladesh further contributes to this optimistic outlook.
Sberbank in Bangladesh
Bangladesh has a total of $1.23 billion in bilateral trade with Russia in FY 22-23
On the 6th of July, Russian Financial Institute, Sberbank Rossii PAO had a virtual meeting with Central Bank regarding their interest in establishing a fully functioning business-based financial system in Bangladesh.
Before this, the Russian delegation had an in-person meeting with Bangladesh’s Central Bank and also explored Bangladesh for potential business expansion based on the 4th Convention of Russia-Bangladesh Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation (IGC) held in March 2023.
The opening of Sberbank in Bangladesh may open a new window for Bangladesh to expand its global footprint strengthening the bilateral relation between both counties. As Bangladesh has a total of $1.23 billion in bilateral trade with Russia in FY 22-23.
The History of Bangladesh-Russia Cooperation
Recently, Bangladesh and Russia celebrated the 50th anniversary of their diplomatic relationship, which began when the Soviet Union recognized Bangladesh as an independent country in 1972. Subsequently, on December 29, 1991, Bangladesh acknowledged the Russian Federation as the successor state of the USSR. Over time, the bilateral cooperation gained momentum with the arrival of the Awami League government in Dhaka in 2009, led by Prime Minister Sheikh Hasina. She continued her father Sheikh Mujibur Rahman’s policy of fostering cooperation with Russia. Since then, both countries have nurtured this bilateral relationship through mutually beneficial agreements. Notably, they are jointly opposing the glorification of Nazism, the placement of arms in outer space, and the misuse of ICTs for criminal purposes. The ROSATOM State Corporation has played a significant role in supporting the development of Bangladesh’s energy sector. One of the most prominent joint projects is the construction of the Rooppur Nuclear Power Plant (NPP) in Pabna, which is being financed through a state credit provided by Russia.
The Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation (IGC)
The establishment of the Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation in 2017 played a crucial role in enhancing economic ties between Bangladesh and Russia. The Bangladesh Army and the Bangladesh Air Force have incorporated Russian-made military hardware into their operations, including the Yak-130 combat-training aircraft, Mi-17 and Mi-171 helicopters, BTR-80 armored personnel carriers, MiG-29 fighter aircraft, and other specialized equipment. Now the IGC cooperation is the key mechanism for bilateral economic relations between Bangladesh and Russia.
During the 2nd meeting of the Bangladesh and Russia Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation in 2019, the bilateral relationship progressed as Bangladesh proposed direct market access from Russia and sought permission to export goods directly to CIS markets.
Amidst the pandemic, the 3rd Bangladesh and Russia Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation convened in 2021. This meeting involved discussions between business organizations to foster cooperation, promote direct contact between businesses (business to business), address issues related to shipbuilding and railway industries, explore complex fertilizer production, establish agro-based industries, and modernize Ghorashal TPP Units 1 and 2.
The 4th meeting of the Russia-Bangladesh Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation (IGC) took place in 2023. The Russian delegation was led by the Head of the Federal Agency for Fisheries of the Russian Federation Ilya Shestakov, while the Bangladeshi delegation was headed by the Secretary of the Economic Relations Division, Ministry of Finance of the People’s Republic of Bangladesh Sharifa Khan.
Both parties stated that there is a significant potential for trade and economic cooperation, despite the logistical and financial difficulties arising due to the unrest between Russia and Ukraine. They noted with satisfaction the consistent implementation of the “Roop-pur” NPP project and the successful activity of “Gazprom EP International Investments BV” for gas exploration in Bangladesh.
Provision of Food commodities
In this last virtual convention in March, the Ministry of Agriculture of the Russian Federation proposed that they are interested in supplying food commodities to Bangladesh through government-to-government (G2G) arrangements. The Russian state-owned joint stock company Foreign Economic Corporation, which is under the Ministry of Agriculture, is particularly keen on strengthening ties with Bangladesh. Their primary focus is on supplying various food products like yellow peas, chickpeas, red lentils, green lentils, and sunflower oil to Bangladesh under the G2G framework. They aim to provide these items at competitive and comprehensive prices. The government of Bangladesh should consider this opportunity to import these commodities, which could be sold at affordable prices through the Trading Corporation of Bangladesh (TCB), benefiting low-income individuals.
Export of LNG
Russia has presented a significant proposal to export liquefied natural gas (LNG) to Bangladesh to assist with its long-term energy requirements. Currently, Bangladesh is grappling with a shortage of gas supply despite a demand for 3,500 million cubic feet of gas per day. While some gas is sourced domestically, a portion is imported as LNG from Qatar and Oman. Notably, this is the first time such a governmental-level arrangement has been put forward by Russia. As part of this proposal, Russia is offering to provide gas pipelines and equipment to Bangladesh and invest in upgrading existing power plants like Ghorashal Unit-1 and Unit-2. These older power plants, constructed during the Pakistan era, are presently operating at a reduced capacity, generating only 110 MW of power. Additionally, Russia is willing to directly supply materials for the modernization of Bangladesh’s energy projects, bypassing the need for a tendering process.
Bangladesh has ambitious plans to establish 100 economic zones by 2030 and is actively seeking Russian investments in Export Processing Zones (EPZ), Hi-tech parks, and joint ventures in various sectors such as fertilizers, LNG projects, fuel refineries, leather processing factories, pharmaceuticals, and tourism.
SWIFT Ban in Concern
The SWIFT ban against some Russian banks is one of the 2022 sanctions against Russia, imposed by the European Union and other Western countries, aimed at weakening the country’s economy to end its invasion of Ukraine by hindering Russian access to the SWIFT financial transaction processing system.
Now Bangladesh is actively seeking alternative payment systems to address the impact of multiple sanctions, including the SWIFT ban, imposed against Russia. Various state agencies, including the finance and commerce ministries and the central bank, are expected to strategize and choose a viable method for secure transactions.
The US-led Western sanctions against Russia have led the Bangladesh mission in Russia to propose alternative payment systems for exporting goods, as continued sanctions could lead to hyperinflation and economic turmoil, adversely affecting bilateral trade. The US and the EU imposed sanctions, including the SWIFT ban, on Russia following its invasion of Ukraine, isolating the country from the global nuclear power network and causing supply chain disruptions.
Is the Existence Russian Financial Institute Necessary in BD?
Under the recent SWIFT ban, there are concerns about secondary sanctions for doing business with Russia. As a result of the SWIFT ban, Bangladeshi exports to Russia started declining in March 2022, and there is an expected drastic fall in fiscal year (FY) 2022-2023. In July of FY 2022-2023, there was a negative export growth of 55.16%, with exports to Russia amounting to $638.30 million in FY 2021-22.
A proposal to conduct trade in national currencies between Bangladesh and Russia was discussed, based on which Sberbank is currently approaching Bangladesh’s Central Bank for establishing their branch over here and already had meetings regarding this.
Bangladesh is also considering this because nearly 90% of the country’s apparel exports fall under this category. The suspension of operations by major buyers like H&M and ZARA in Russia has led to a significant decline in orders for Bangladesh. Other major export items like jute, shrimp, and tobacco established in 3rd Bangladesh and Russia Intergovernmental Commission on Trade, Economic, Scientific, and Technical Cooperation meetings are also facing challenges due to high transport costs and a potential recession in Russia.
Anatoly Popov, the chairman of Sberbank’s executive board states that Sberbank is exploring all possibilities and formats for providing banking services at the request of Russian clients doing business with companies in Bangladesh.