Keynote speech

Diversifying the Economy: Areas for Investment

Farooq Sobhan, President

Bangladesh Enterprise Institute

Bangladesh economy

Bangladesh is 44th largest economy, with the GDP size of $205.3Bn according to IMF World Economic Outlook Report of April 2015.

GDP and GDP Growth rate

[Source: World Bank national accounts data ]

The World Bank forecasts that there will be a growth of 6.3 percent for fiscal year 2015-16. The lower estimates put forward are attributed mainly to probable political unrest, slow growth of foreign investment.

Year GDP (current US$) GDP Growth

Rate (annual %)

2010 115.2 5.6

2011 128.6 6.5

2012 133.4 6.5

2013 150 6.0

2014 173.8 6.1

FDI in Bangladesh

[Source :Statistics Department , Bangladesh Bank]

Year FDI Inflows( in million

US$)

2010 913.32

2011 1136.38

2012 1292.56

2013 1599.16

2014 1526.7

Over reliance on RMG Sector

RMG (Ready Made Garments) exports have totaled

US $24.5 billion (FY 2013-2014) accounting for over

80% of the nation’s export earnings and employing

some 4.2 million workers.

It has helped Bangladesh cut its poverty rate.

RMG sector shows resilience in spite of political

turmoil, decreased value of products in world market,

depreciation of the euro, impact of Rana Plaza

collapse. RMG exports amounted to $25.59 billion in

2015 with around 4% growth.

Risks towards RMG sector

Fierce competition from India, Sri Lanka and

Vietnam for the market share in the predominant

markets of the USA, EU and Canada

RMG sector is heavily dependent on natural gas

of the country which is being exhausted at a

faster rate. Using diesel will increase production

cost and would not be able to compete in stiff

competitive international markets.

KEY AREAS OF INVESTMENT

Growth and

Thrust Sectors

Power Sector

Infrastructure

Skills Development and Entrepreneurship

Agro-busines

s

Fisheries

Pharmaceutical

s

Leather

Light and

Heavy Vehicles

Ship-buildin

g

IT & Telecom

Power Sector Current market size

FDI inflows in Power, gas and petroleum- $45.48 million (2.98% of Total FDI in FY 2013)

Potential Government plans to increase power generating by 12,853 MW over the next 5

years, of which 40 percent will be provided by the private sector.

Bangladesh now produces 7,500 MW of electricity against the country's installed capacity of 11,500MW, according to the Power Division.

Strength:

Government’s priority sector

PPP is highly encouraged

Exemption from corporate income tax for a period of 15 years.

Repatriation of equity along with dividends allowed freely.

Exemption from income tax for foreign lenders to such companies.

Fiscal Year 2008-

09

2009-

10

2010-

11

2011-12 2012-13 2013-2014

Total FDI Inflows (million

US$)

46.89 73.66 127.19 244.94 93.67 45.48

Infrastructure Bangladesh is situated between Central and Southeast Asia

A gateway for regional and Asian trade

Proposed Asian Highway Roadmap one:

Asian Highway Roadmap two:

Need for investment in infrastructure Bangladesh needs $100b till 2020 for infrastructural development

Bangladesh needs $36 billion to $45 billion for expanding its communication network

Power sector will require an investment between $11 billion to $16.5 billion

Supply and sanitation will need a flow of investment of $12 billion to $18 billion

Solid waste management needs $2.1 billion to $4.2 billion

Telecom needs $5 billion, and irrigation $7.7 billion to $11.6

Potential sectors: • Roads and Highways

• Inland Waterways

• Railways

• Traditional and Renewable energy

• Green and clean technology

• Water supplies

• Health, sanitation and waste management

• Telecom

• EPZs

Export Processing Zones(EPZs) Current EPZs in Bangladesh

Eight EPZs Five new special economic zones will be set up by 2016 Investments in the country's EPZs) amounted to

US$406.35 million in the fiscal year 2014-15, up by US$ 3.77 million a year ago.

BEPZA (Bangladesh Export Processing Zones Authority) signed investment agreement with 19 new companies in 2013-2014.

Two special economic zones (SEZ) to Indian investors-one at Mongla in Bagerhat and the other at Bheramara in Kushtia.

Special Features of EPZs Fast and duty free access to first world markets Strategic location of EPZs with excellent air and sea

connection Attractive and comprehensive incentive packages Up to date Environmental Management Plan (EMP) Essential civic amenities including housing and recreational

facilities in the zone Professional one-stop service

IT and Telecom Current market size

Total FDI for the year 2014 is 226.79 Million USD, which accounts for 14.86% of total FDI.

Over 800 registered ICT companies generated total revenues of approximately $250 million

The International Trade Centre estimates that approximately 200 companies export their products and services to international markets (USA 68 percent, UK 32 percent, and the Netherlands 9 percent)

55,000 + IT experts in the country

Potential Software Development and Solutions Telecom Equipments

Strength: Government’s priority sector and part of digital revolution. New mobile internet connections grew 121 percent year-on-year in the

first six months of 2015, taking the total number to 4.6 crore. Bangladesh has a cheaper and rapidly growing IT workforce.

Young, well educated workforce, flexibility to scale up production capacity and cost advantages in general

Skills and Entrepreneurship Development Current Issues

The Bangladesh manpower export industry is worth USD $15.31 billion a year with an increase of $1.8 billion compared to last year.

The Global Manpower industry will be USD 600bn, and Bangladesh has an opportunity to capture 5%

The manpower agencies and other supporting services revenue is estimated to be between USD 250mn to USD 400mn

Bangladesh can develop its comparative advantage given increasing labor costs in the traditional outsourcing/off shoring destinations such as India and China.

Investment potential

Need for world-class training centers for integrated training & HR services exist

The current manpower recruitment agency sector remains relatively undeveloped and unregulated

Investment in Technical and Vocational Training Institutes are critical in developing a more profitable manpower exports further up the value chain.

Agro-based Industries Current market size

About 84% of the total population lives in rural areas and

are directly or indirectly engaged in a wide range of

agricultural activities.

Agriculture contributes about 20.29% of the country’s GDP.

Strengths

There is a substantial demand supply gap in the agro-

based industry.

Domestic demand for quality agro and dairy product is very

high

Pharmaceuticals Current Market value

In 2014, the size of the Bangladeshi pharmaceutical market grew 11.37% to

US$ 1.4 billion in terms of production, and it is expected to grow at 10% per

annum

Bangladesh is exporting more than 67 different countries of the world.

450 generics/substances registered in Bangladesh.

Strength

Pharmaceuticals sector is one of the fastest growing sectors in Bangladesh.

Annual growth rate of 34%

Fulfilling 97% of the total medicine requirement of the local market.

Now more than 200 registered pharmaceutical manufacturers in Bangladesh.

The US Food and Drug Administration has approved Bangladeshi

pharmaceutical companies Square and Beximco.

Fisheries Sector Bangladesh has huge water resources, covering area

of 4,575,000 hectares.

Marine Capture 34%

Inland Capture 18%

Inland Culture/Aquaculture

48%

Major Sources of Fisheries

Strengths

Vast water resources Favorable climate Cheap manpower Huge domestic demand

Feasible investment in- fish grow out process with international branding

and traceability, hatchery industry, feed industry, values added products (like fish fillets), cold chain management testing laboratory.

Leather Industries Market value

In 2014-15 total export of leather, leather goods was $1.13 billion

making it second highest contributor to national exports after garment.

Bangladesh produces between 0.5% of the world’s leather good

market worth $215 billion.

Strength

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

Adequate government support in the form of tax holidays,

duty free imports of raw materials, machinery for export-

oriented leather market and also established a separate

Leather Zone.

Light and Heavy Vehicle

Manufacturing

FDI in Light and Heavy Vehicle is rising:

Strength

A growing and increasingly affluent middle class indicates demand for consumer durables.

Domestic demands for cheaper cars and transport utility vehicles have gained momentum in the past few years.

Need for public transport has created a demand for domestic production

Fiscal Year Total FDI Inflows (million

US$)

2008-09 4.77

2009-10 6.19

2010-11 5.47

2011-12 13.10

2012-13 31.34

2013-2014 25.56 (Source: Bangladesh Bank)

Shipbuilding Sector

Market Size

Export of ships rose 7.35 percent year-on-year to USD

4.81 billion in fiscal 2013-14, according to Export

Promotion Bureau.

Bangladesh ship builders meet country’s internal demand

for ships worth USD 0.25 billion per year.

The global market for small vessels (3,000 to 12,000

DWT) is about $400 billion with China, India and Vietnam

as the main competitor to Bangladesh.

The shipbuilding industry receives government subsidies

of 5%.

Potential

Bangladeshi ship builders now add 30 to 40 percent value

to a ship. If a Towing tank can be established, the value

addition will improve.

Concluding Remarks

Government is committed to encourage

PPP and FDI

Need to diversify investment to combat

over reliance on RMG sector.

Large potential for untapped domestic

market with rising income.