Sectors

To educate NRBs on Bangladesh’s industry sectors and investment opportunities, we have included profiles on the following sectors:

Agriculture
Banking
Climate Change
Energy
Infrastructure
Light Engineering
Manpower
Outsourcing
Pharmaceuticals
Technology
Telecoms
Textiles
Tourism

Agriculture

Overview

Agriculture, comprising crops, forests, fisheries and livestock accounts for more than 20% of GDP and employs over 63% of the workforce of Bangladesh.
The agriculture sector has a large, underserved domestic market that provides opportunities for many investments along the value chain.
There is a huge gap between the domestic demand and domestic supply of seeds and fertilizers that can be filled by large-scale investments.
Only 17% of the domestic demand for milk is met by the domestic supply. There is a scope for sizable milk production by importing high-yield breeds of cattle.
Only a few companies are exporting vegetables and potatoes to the Middle East, and European markets. A number of companies are looking for joint venture partners to expand their operations.
There is a shortage of cold storage facilities and those that exist are extremely profitable. This supply deficit, results in various vegetables, in particular, potatoes, being sold at more than a 25% discount. We believe 30-50 more cold storages with capacity of 4,500 metric tons each, can be set up in north Bangladesh.
Growing global demand for Halal food presents export opportunities. The only firm that exports Halal meat is looking for equity partners to expand its operations.
Global market trends for eco-friendly products favor investments in jute and jute-related industries. Private equity buyouts of distressed state-owned jute enterprises could provide investment opportunities.
Niche areas such as frozen fresh water fish and the production of aromatic rice also have significant potential.
Innovation opportunities exist in the areas of shrimp production in paddy fields, growing strawberries, and high-yielding crops.

Banking

Overview

Though the financial sector is dominated by banks, the vast majority of the people do not have access to banking services. The banking system asset base is USD 30 bn, roughly 42% of the country’s GDP. By comparison, this ratio is more than 57% in Pakistan.
There are 48 banks in Bangladesh. Despite their late entry, private commercial banks (PCBs) have the largest and fastest growing market share. Government owned banks are losing their market share while foreign commercial banks’ (FCBs) share is almost static.
Banks in Bangladesh mostly offer traditional commercial banking products like deposits, trade finance, money transfer services and loan products. Recently, there has been a surge among FCBs and PCBs in offering technology driven products like ATMs, credit cards and debit cards.
There have been some improvements in credit risk management of the banks in Bangladesh. Classified loans as a percent of total portfolio has decreased from 41% in 1999 to 14% in 2007.
Due to recurring losses, nationalized commercial banks (NCBs) collectively have negative capital of BDT 31bn.
Fuelled by high trade and remittance growth, the commercial banking sector is expected to maintain its rapid growth rate. With their superior customer service and product capabilities, FCBs and PCBs are expected to benefit from market growth.
Privatization of the NCBs will create large investment opportunities. The government is likely to gradually undertake privatization of NCBs. With their country-wide branch networks with access to large and varied customer bases, NCBs can be attractive investment targets for investors.
To meet capital requirements under Basel II, the fast growing PCBs are expected to resort to tier II capital. Large new investments in the form of preferred stocks and subordinated debt are expected. Additionally, with many small players in the market, consolidation is anticipated to meet Basel II requirements.

Climate Change

Overview

Climate change will exacerbate many of the current problems and natural hazards the country faces. It is expected to result in:
- Increasingly frequent and severe tropical cyclones with higher wind speeds and storm surges leading to more damage in the coastal region;
- Heavier and more erratic rainfall in the Ganges-Brahmaputra-Meghna system, including Bangladesh, during the monsoon season;
- Higher river flows – causing over-topping and breaching of embankments and widespread flooding in rural and urban areas
- River bank erosion – resulting in loss of homes and agricultural land to the rivers;
- Increased sedimentation – in riverbeds leading to drainage congestion and water logging;
- Melting of the Himalayan glaciers – leading to higher river flows in the warmer months of the year, followed by lower river flows and increased saline intrusion after the glaciers have shrunk or disappeared;
- Lower and more erratic rainfall – resulting in increasing droughts, especially in drier northern and western regions of the country;
- Sea level rises – leading to submergence of low-lying coastal areas and saline water intrusion up coastal rivers and into groundwater aquifers, reducing freshwater availability; damage to the Sundarbans mangrove forest, a World Heritage site with rich biodiversity; and drainage congestion inside coastal polders, which will adversely affect agriculture;
- Warmer and more humid weather, leading to increased prevalence of disease and disease vectors.
Over the last three decades, the Government of Bangladesh has invested over $10 billion (at constant 2007 prices) to make the country more climate resilient and less vulnerable to natural disasters
The BCCSAP 2008 is built on six pillars: food security, social protection and health, comprehensive disaster management, infrastructure, research and knowledge management, mitigation and low carbon development, capacity building and institutional strengthening.

Energy

Overview

In 2007, demand stood at 5,500 MW, and while total theoretical generation capacity was 4385 MW, average maximum peak generation was only 3,717 MW. This resulted in service disruptions and blackouts on 364 days in 2007.
Demand for electricity is rising 8% annually but the actual generation capacity is increasing around 6% for the previous 6 years resulting rising supply demand deficit which is currently around 1,500 MW.
Consumption of electricity is low compared to other developing nations with per capita consumption of 147 KWh compared to India which has per capita usage of 480 KWh.
Natural gas accounts for around 88% of the power generation, followed by 7% from liquid fuel, 3% from Hydro and 1.67% from coal.
The private sector is generating around 25% of the country’s generation with the public sector generating around 75%.
There are five good quality, low sulfur coal deposits, with proven reserves of more than 2.5bn metric tons and probable of around 3.3bn metric tons, have been discovered in Bangladesh.
We estimate that 5,000 MW of new power plant capacity can be developed using domestic coal that can generate power for up to 66 to 90 years.
The government is finalising the National Coal Policy, which we expect will open the way for importation of coal in the short term until the domestic coal is extracted over the coming years – this will lead to investment in large scale coal plants.
Government is introducing PPP framework, with >USD300mn already allocated for a fund for PPP investment in energy and infrastructure

Infrastructure

Overview

Modal share of roads and highways increasing at the expense of rail and water traffic.
Large amount of investment needed in building and maintaining a comprehensive road network
Dhaka city is already one of the most densely populated cities in the world with more than 10mn people and projected to have a population of more than 20mn in the next 10 years.
The roads of Dhaka city occupy only 8% (2,230 km) of the total surface area whereas at least 25% is required to facilitate a smooth transport system.
Installation of alternative rapid transport systems has become unavoidable with huge investment needed.
A broad-based reform initiative is underway to turn the Bangladesh Railway into a profitable entity.
Chittagong port is running to the full capacity while Mongla port is almost sitting idle.
Private sector participation in the Bangladeshi water supply and sanitation sector remains limited to small businesses providing the service in rural and semi-urban areas.

Light Engineering

Overview

The sector consists of over 7,000 SME firms, employs 800,000 persons and generates annual revenues of around BDT 95bn (USD 1.6bnn). This contributes to 2.15% of national GDP.
The LES supply chain comprises firms engaged in metal sourcing, metal preparation, metal cutting, forming & finishing, parts manufacturing, assembly & production of finished goods for a large variety of industrial and household applications.
Declared as one of the five ‘Highest Priority Sectors’ by the Government of Bangladesh
Export-oriented production in light industries is gaining momentum in the past few years.
The plastic industry has experienced significant export growth 117% in 2007. Products worth USD 209mn were exported during the 2007, from USD 96.5mn in 2006.
There is a large low-wage labor force employed in the sector. However, due to insufficient infrastructure they lack adequate education and training. Investment is in Technical Training would be lucrative as the sector expands.
The firms in the sector lack adequate access to finance, access to research, adequate development and quality testing facilities.

Manpower

Overview

The global manpower industry will amount to USD 600 bn by 2015. A recent report by DANIDA has estimated that Bangladesh could capture 5% of this – USD 30bn. To gain 5% market share by 2015, Bangladesh would have to send 0.8 mn-0.9 mn people abroad annually.
The industrialized world is aging and facing negative growth in population, Bangladesh with a young and energetic population has a huge opportunity to benefit.
There is substantial demand for unskilled/semi skilled jobs such as masons, cleaners, fabricators, carpenter and garment operators. For skilled jobs these include doctors, computer programmer, engineer, teacher, surveyors and managerial jobs. With focused investment in training Bangladesh could capitalize on these opportunities.
The current manpower recruitment agency sector remains relatively undeveloped and unregulated. There are substantial opportunities to create stand-alone recruitment agencies and Manpower Consultancy firms which provide integrated training & HR services.
Vocational Training Institutes are critical in developing a more profitable manpower exports further up the value chain.

Outsourcing

Overview

Bangladesh, with a favourable demographic in terms of a large, young, population (Age: 15-64, 95mn) compared to the ageing population in the developed world can play a role in the global outsourcing industry.
Bangladesh has nearly 1mn students enrolled in tertiary level education.
IT and outsourcing is emerging in Bangladesh. Last year the country earned USD 28.6mn from the sector.
It has been forecasted that the wage advantage that India is enjoying versus many Western labour markets will diminish by 2020.
Connections and networks are crucial for the industry to flourish. Leveraging the NRB base could also help to win clients for local companies.
Government initiatives like industrial parks will help the sector. Venture capital investment can also play a crucial role.
The Government has put increasing emphasis on outsourcing with the introduction of licensing for call-centers. BTRC is giving priority to create an enabling environment in which call-centers can grow.

Pharmaceuticals

Overview

2008 sales of Bangladesh’s pharmaceuticals were over BDT 40bn (approximately USD 600mn) with average growth of 12% over the last five years.
Bangladesh pharmaceuticals have the potential to be a USD 1bn market by 2018 according to an IMS forecast.
Pharmaceutical exports have grown but the total export volume is still only approximately USD 50mn. However, more than USD 100mn is spent annually on importation of API.
The 245 companies licensed have registered 450 generic drugs that are marketed in over 5,300 brands with over 8,000 dosage forms and strengths.
The top 3 local companies Square, Incepta and Beximco account for a third of the sales and the top 30 companies generate about 90% of the sales.
Fifty new factories were established or upgraded in recent years at a capital expenditure of over USD 250mn.
Manufacturing facilities built recently have acquired international certifications like US FDA, UK MHRA and TGA. This is strategically aligned to developing exports to some of the larger regulated markets.

Technology

Overview

Current net software exports is around $ 30mn
IT enabled services sector (IT-ES). IT-ES currently represents about 30% of total ICT capacity in
Bangladesh. The other 70 % being composed mainly of IT software programming services and a small number of specialised hardware producers.
The computer market in the country is growing 30% a year, with the number of internet users expected to double in 2009 from the 2006 level.
Bangladesh’s closest competitors in the Anglophone world are India, Vietnam, Philippines and China. India is unable to fulfill the supply shortfall in this market and is actively trying to “outsource” business to suppliers in Bangladesh.
Five major constraints in the growth of a sizeable ICT/ITES industry in Bangladesh:
- Insufficient E-HR – A lack of IT labour supply with the requisite critical mass of technical skills.
- High Internet Costs – The delayed acquisition of a submarine fibre optic cable relative to other countries in the region was believed to be the primary factor behind one of the highest broadband costs in the region.
- Poor Country Image – Brand Bangladesh is associated with political instability, corruption, natural disasters and poverty.
- Lack of credible domestic tech player – There are too many small companies (more than 300 companies in a $ 30mn export sector) and none with the scale or critical mass to meet the demands of major global multinational outsourcing contracts.
- Ineffective Marketing/Distribution – Weak sales effort/front end in key client markets such as in Silicon Valley.
Bangladesh’s IT infrastructure investment and reforms have been disappointing – table 1 from the World Economic Forum/INSEAD Network Readiness Ranking, 2008 shows Bangladesh slipping to 124 out of 127 countries ranked.

Telecoms

Overview

6 Mobile Operators; 2 Wimax License Operators; 14 Landline Operators; 159 Licensed ISPs
2 Wimax licenses awarded at cost of USD 31mn. Roll out in Dhaka in 2009. 3rd License to yet to be taken.
Landline operators struggling – staying afloat through VOIP.
ISPs – fragmented market, but top players are pushing forward with country wide investment plans – Fixed Wimax and Fibre to the Home solutions
46mn telephone subscribers: 44.8mn mobile subscribers; 1.2mn fixed line subscribers
Mobile subscriber CAGR of 111% between 2003 & 2007
Penetration is only 30% where as in Pakistan it is around 50%
Six mobile phone operators in the country – Grameenphone (Telenor) ; Banglalink (Orascom) ; Aktel (NTT DoCoMo); Warid (Dhabi Group); CityCell (Singtel); Teletalk
Teletalk is state owned, while the 5 others are wholly owned or Joint ventures between foreign telcos and local companies.
Industry revenue of USD 1.3bn in 2007
95% of revenue is from voice, and is growing around 5% per year. Non voice revenue growing at 30% a year. Major non voice services are SMS, Internet, PRBT
Industry ARPU is USD 3.5

Textiles

Overview

During the last fiscal year the sector earned close to USD 10bn in export earnings.
The textile and clothing sector grew by 16% in 2008.
Export earnings from textiles stood at USD 6.3bn in the first five months of the fiscal 2008- 2009 recording more than 25% growth over the same period of the last fiscal.
EPB forecasts USD 25bn textiles exports by 2013.
It is estimated that the Textiles sector contributes 11-15% to GDP of BD
38% of the industrial value added comes from the sector
80% of total export earnings comes from textiles
Around 4.5mn workers work in the sector of which 80% are poor women
Around 4.5mn workers work in the sector of which 80% are poor women.
Compared to regional competitors, BD’s main strengths are a low-cost labor advantage, an efficient and skilled workforce, low overhead costs and quality products
The RMG exporters are receiving a 5% cash subsidy against their exports

Tourism

Overview

Bangladesh is home to Cox’s Bazar, the longest natural unbroken beach strip in the world. In the Southwest region are the Sundarbans, the world’s largest natural mangrove forest.
However, relatively few people globally are aware of the existence of these locations due to poor marketing and inadequate infrastructure.
The country’s proximity to other key tourist spots such as India, Nepal, and Thailand may also provide an opportunity as a combination location with these countries. With a marketing push, Bangladesh could place itself as an alternative destination as tourists seek exotic locations
Consistent economic growth and development of export businesses such as ready-made garments have encouraged an increasing number of business-related trips from abroad.
Given the relative immaturity of the market, there are significant areas for investment in an industry which could show substantial growth in the future.