Key Highlights:
- Edimon Ginting, the country director of the Asian Development Bank Bangladesh, highlighted that the export-oriented RMG sector has played a pivotal role in Bangladesh’s growth
- Over 30 local companies in Bangladesh use advanced technologies, meeting 97% of local demand, and exporting medicines to 157 countries annually
- Between 2013 and 2022, FDI in coal, oil, and gas exceeded 18%, whereas investment in renewable energy, notably solar power, remained below 2%
In a recent meeting, experts emphasized the imperative for increased foreign direct investment (FDI) in Bangladesh as it approaches its graduation to a middle-income country in 2026. Acknowledging the remarkable economic development in Bangladesh over the past two decades, the experts attributed much of the progress to the global ready-made garments (RMG) industry.
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This growth has yielded substantial benefits, including the creation of job opportunities, increased income levels, and a significant reduction in extreme poverty. Notably, manufacturing activity has surged from 5.5% of GDP during Independence to 22% in 2022, with a substantial expansion in the last decade.
Edimon Ginting, the country director of the Asian Development Bank Bangladesh, highlighted that the export-oriented RMG sector has played a pivotal role in this growth. The sector directly employs over 4 million people, contributing 12% to the GDP and constituting 84% of the country’s exports. However, investments in sectors such as pharmaceuticals, manufacturing, and other areas are equally vital.
Ginting also outlined challenges associated with the impending LDC (Least Developed Country) graduation, such as the potential loss of preferential market access in export destination markets. Currently, 75% of Bangladesh’s exports enjoy duty-free access in these countries.
“The anticipated decline in export earnings, exceeding 14% as indicated by a WTO analysis, is a consequence of the forfeiture of these preferences. Additionally, the potential alteration in terms, albeit possibly slightly less favorable, concerning the loss of special and differential treatment under the Trade-Related Intellectual Property Rights (Trips) agreement and access to development assistance financing should be observed. It is imperative to advocate for substantial liberalization across various sectors to attract investments, streamline land acquisition processes, fortify Intellectual Property Rights protection, and enhance the competitiveness of the tax regime.”
– Edimon Ginting, Country Director of Asian Development Bank Bangladesh.
Despite the progress, Ginting pointed out that Bangladesh still faces significant challenges affecting both domestic and foreign investment. Notably, investors are required to navigate through 23 government agencies to secure up to 150 regulatory services and approvals.
Bangladesh’s Pharma Future Beyond LDC
Crucial for Bangladesh’s pharmaceutical sector post-LDC status is investments from global pharma companies and collaboration with local manufacturers. As the country loses free patent benefits in 2026, strategic partnerships become essential.
Over 30 local companies in Bangladesh use advanced technologies, meeting 97% of local demand, and exporting medicines to 157 countries annually.
GlaxoSmithKline (GSK) relocated factories from the UK to Singapore to cut production costs. Bangladesh, however, offers a cost-effective alternative, producing medicines 30-40% cheaper than Singapore.
Notably, companies like Beximco sell Remdesivir for $10, significantly lower than the $1,000 in the US and Europe, maintaining high standards. This highlights Bangladesh’s pharmaceutical industry’s competitive advantage and cost-effectiveness.
Manufacturing’s Crucial Shift Post-LDC
Manufacturing has surged from 5.5% to around 22% of the GDP in 2022 and is set to further increase in the 8th five-year plan. This growth is primarily fueled by the country’s export-focused Ready-Made Garments (RMG) sector, now the world’s second-largest exporter, employing nearly 4.2 million people, with almost 80% being women in low-skilled roles.
To tackle post-LDC challenges, Bangladesh needs to diversify its manufacturing base and attract joint and foreign investment, including FDI. A recent study supported by the Organization for Economic Co-operation and Development (OECD) and conducted by the Asian Development Bank (ADB) reveals that about 75% of Bangladesh’s exports currently enjoy duty-free access.
The potential loss of these preferences is anticipated to result in over a 14% reduction in export earnings, particularly impacting the RMG sector. Even in the UK market, where preferences may persist for a while, more stringent Rules of Origin (ROO) post-graduation and the double transformation applicability for the RMG sector could create an unfavorable situation.
The Strategic Shift Needed in Bangladesh’s FDI Approach
Foreign Direct Investment (FDI) in Bangladesh predominantly focuses on the oil and gas sector, resulting in limited direct employment opportunities. To address the significant job creation demand, it is imperative to broaden the scope of FDI projects into more labor-intensive fields, given the annual influx of approximately 2 million individuals into the job market.
To tackle this challenge, Bangladesh should reconsider its industrial strategies and reshape bilateral policies with partner countries. A strategic emphasis on attracting greenfield FDI, particularly in the renewable energy sector, is crucial.
Comparatively, the proportion of FDI in green technologies in Bangladesh from 2013 to 2022 is substantially lower at 6%, in contrast to Cambodia, Vietnam, India, Indonesia, and Myanmar, where it ranges from 14% to 18%.
Between 2013 and 2022, FDI in coal, oil, and gas exceeded 18%, whereas investment in renewable energy, notably solar power, remained below 2%. A comprehensive policy approach is necessary, involving an increase in investments in various forms of renewable energy and the diversification of FDI away from traditional sectors like coal, oil, and gas towards other manufacturing domains.
As Bangladesh aims for substantial growth, particularly in trade and services, with a target of approximately $1 trillion by 2041, a strong logistics support system becomes imperative at this stage.
In specific sectors, such as telecom and insurance, foreign involvement is subject to limitations. The telecom sector restricts foreign shareholding to 70% in value-added services and telecom tower operating companies. In the insurance sector, while branches of foreign insurance companies are permitted, foreign shareholding in local insurers is capped at 60%. Additionally, fishing activities are reserved for local vessels majority-owned (51% or more) by Bangladeshi citizens.
While these restrictions may prioritize local business and services growth, they pose challenges to the diversification of business and investment opportunities from foreign entities. Recognizing the importance of accessing advanced services and technologies, the Bangladesh government should consider promoting a more conducive environment for FDI in critical sectors.
In conclusion, as Bangladesh approaches its graduation to a middle-income country in 2026, the imperative for increased foreign direct investment (FDI) becomes more apparent than ever. While celebrating the remarkable economic strides made, particularly in the ready-made garments (RMG) industry, Bangladesh must pivot its focus to diversify its investment portfolio and address impending challenges post-LDC status.
