Strategic government investments, but managed by a range of private public partnerships (PPP) has seen Bangladesh become one of the fastest growing economies in the world. Today, Bangladesh is a booming economy, recently making the list of low-middle income countries as published by the World Bank. According to the IMF, the Bangladeshi economy is projected to grow from $180 billion to $322 billion by 2021. The total size of the GDP in 2017 was $249.86 billion and the gradually escalating growth rate was 7.28%. High growth domestic markets, government support, lower valuations of takeover targets and ready access to capital have all provided unprecedented opportunities for investors across the world to explore new markets in the country. In addition, Bangladesh is already one of the leading foreign direct investment (FDI) targets in the Asia Pacific region. In the last six years. Net FDI inflows into Bangladesh have grown enormously, hitting $2.65 billion in 2016-17, and in this financial year alone, the Bangladesh Investment Development Authority received registration of $23.25 billion for investment from domestic, foreign and joint venture sources – 66% more than the previous year. The national foreign reserve has increased more than five times in last 10 years from $6.14 billion in 2007-08 to $32.21 billion in March 2017 and $33 billion in August 2017. So what is it that Bangladesh seems to be doing right? Answer: Essentially 3 things: 1) Focus on domestic manufacturing with priority to export oriented industries; 2) Preferring investment over debt; and 3) Ensuring a greater role of the private sector in managing national capital.
It is an open secret by now that Bangladesh’s pivot of development since the 80s has rested on establishing labor-intensive export oriented industries. Regardless of which government has been in power, this policy has been pursued single-mindedly. If you get a chance to go to Bangladesh you will observe that export is almost a way of life there and the commitment to an exporting operation is extreme – the wheel of the export engine should not stop come what may, everything else is secondary. And it is this mindset, which has taken Bangladesh from almost negligible exports in 1971 to $35 billion today – textiles lead the way despite the fact that the country produces no cotton. However, the story of its industrialization is no longer limited to textiles. Following an astute policy of prioritization on industrial development, the incoming investment has been channeled in a way that the most required industries get developed first. For example, keeping to the government’s plan, in the last five years bulk of the investment has gone to 4 sectors: the energy sector, followed by the health sector, then the housing & real estate, and finally tourism & hospitality, i.e. a national spend in the prescribed order. The government is giving highest priority to developing the energy sector by committing itself to provide uninterrupted power to ‘all sized’ local industry and to all citizens by 2021. Within the health sector, the strategy has been to promote the national pharmaceutical industry. Valued at about $1.5 billion in 2013, with the government’s push, it is now expected to grow 3 times the rate of GDP growth. Based on IMF World Economic Outlook GDP projections and a 3.3% higher growth rate of pharmaceutical industry than the national GDP growth rate, the pharmaceutical industry is expected to grow at a rate of 23% for the next 10 years, with revenues reaching $10 billion by 2020.
Likewise, in the real estate sector, the number of registered members of Real Estate & Housing Association of Bangladesh (REHAB), an association of the real estate developers has increased from 11 in 1991 to 1062 in 2018. Going hand in hand with this is the tourism and hospitality sector, where dedicated tourist zones and recreational spots have been established by creating a tailor made environment that attracts visitors from the developed economies.
As discussed in the beginning, Bangladesh’s has consciously preferred investment over debt. This increased emphasis on investment, but with a low leaning on sovereign guarantees, is facilitated by various legislations aimed at providing “tax holidays” to new businesses, establishing of 47 economic zones to facilitate both local and foreign investments/businesses, and a host of measures for the new investors, like exemption from local government taxes, doing away with registrations requirements, of any type, with the investment authorities, enactment of the One Stop Act 2018 for facilitating foreign investment, relatively free profit repatriation procedures cum regulations, eased labor legislations, etc. all in order to reduce the cost of doing business. Even China (as per the Chinese Ambassador to Bangladesh) is planning to increase FDI in Bangladesh by 50% in 2018-19, in a way that will not add to the country’s debt. Also quite interestingly, following India’s footsteps, Bangladesh is encouraging its companies to undertake foreign acquisitions and mergers, which as we know can unleash a process of global connectivity, ultimately serving as the catalyst to attract even higher FDI inflows.
Finally, to the third and the very important factor, pointing to the fact that whatever Capital, that has come the country’s way has been utilized in a fairly optimal manner. Meaning, big ticket spending on projects: infrastructure, energy and the pharmaceuticals, has been primarily done through the PPP – there is enough empirical evidence to establish that government is never the most efficient user of Capital and some very pertinent recent corporate success stories of the world (China, UAE, Russia, India, Brazil, etc.) point to the wonders that can be achieved by intelligently combining the state’s might and resources with private sector’s entrepreneurial juices. A rough measure of this as per the Asian development bank (ADB): “though on a narrower base, still the private sector of Bangladesh has grown at a pace 3 times that of the public sector,” and this after accounting for the PPP.
There was a time when Pakistan was also well on its way to the ‘takeoff’ stage, providing a range of opportunities for local and foreign investors to explore and was set to establish itself as an attractive destination for global investors. A flash back to the 60s and the Bangladeshi policies are mostly what Pakistan was also pursuing back then: industrialization, dams, a vibrant private sector, job creation, and as a society practicing moderation over extremism. However, sadly somewhere along the journey we lost the way and it has been downhill ever since!
The writer is an entrepreneur and economic analyst.