Bangladesh seeks big Indian investment in 13 sectors

Pallab Bhattacharya

Bangladesh has identified 13 sectors where it is seeking ‘mega investment’ from India in joint venture projects.

The sectors include agro-processing, automobiles, ceramics, chemicals, gems and jewellery, light engineering, ICT, hospital and medical equipment, pharmaceuticals, and textiles.

Syed Muazzem Ali, Bangladesh’s high commissioner to India, pointed out the sectors and urged Indian companies to make mega investment by taking advantage of the country’s impressive economic growth.

He spoke at a seminar in Kolkata on Monday organised to mark Bangladesh’s graduation from the least developed country’s category, said the high commission in a statement.

The Deputy High Commission of Bangladesh in Kolkata and the Merchants Chamber of Commerce and Industry (MCCI) jointly organised the seminar.

“The most practical cause of action would be to set up a series of buy-back projects where Indian investors will set up industries in Bangladesh and re-export to India and some other neighbouring countries,” said Ali.

He advised the Indian businesses to take advantage of Bangladesh’s competitive labour costs and closer proximity to India’s north-eastern markets.

Several Indian large companies such as Hero Honda, Tata Group and CEAT Tyres companies have already set up projects in Bangladesh. “But, these are small projects. What we need is much bigger investment. If we could engage in the bigger projects, it will also ensure the stability of our relationship,” Ali said.

The envoy said Bangladesh has seen a steadily upward run in almost every sector of governance, economy, politics and social upliftment.

“Today, Bangladesh is one of the fastest growing economies in the world with a record 7.28 percent GDP growth. Our growth rate is expected to reach 7.65 percent in the current fiscal year.”

The country which was once ridiculed as bottomless basket is now globally considered as a ‘development miracle’, Ali said, adding that Bangladesh’s socio-economic achievement is a global role model.

Jamaluddin Ahmed, general secretary of the Bangladesh Economic Association; Ramesh Agarwal, president of the MCCI; and Sheikh FazleFahim, senior vice president of the Federation of Bangladesh Chambers of Commerce and Industry, also spoke.

Bangladesh has stable economic outlook

Three rating agencies arrive at same verdict

Star Business Report

Bangladesh has held on to its stable credit profile from three global rating agencies, in what can be viewed as an endorsement of the way the central bank and the government are steering the economy.

For the ninth year in a row Moody’s and Standard & Poor’s gave Bangladesh ‘Ba3’ and ‘BB-‘ ratings respectively. Fitch gave a ‘BB-‘ for the fifth time.

The Bangladesh Bank published the country’s latest sovereign credit ratings from the three agencies on its website on Sunday.

However, the agencies have identified the banking sector, especially the state-owned banks, and the prospect of political uncertainty surrounding the upcoming general election as major risks.

“The stable outlook reflects our expectation that Bangladesh’s consistent economic growth trajectory and strong donor support will continue to raise average income and broadly sustain the country’s external profile over the next 12 months,” S&P said in its report.

The rating agency may raise the ratings if measures targeted at growing the revenue base and boosting collection efficiency materially improve Bangladesh’s fiscal performance.

It may also upgrade Bangladesh if the government significantly reduces energy, infrastructure and administrative bottlenecks, resulting in higher investment and eventually a sustained increase in trend growth for real per capita GDP.

Conversely, S&P may downgrade Bangladesh if fiscal slippages result in rising public debt and external donor support declines materially.

Low economic development, as represented by per capita GDP of $1,620 for 2018, is one of Bangladesh’s main rating constraints. This income level offers a weak and narrow revenue base, in turn limiting the fiscal and monetary flexibility needed to respond to exogenous shocks.

“Nevertheless, Bangladesh’s real per capita GDP growth of about 5.4 percent over the 2012-2021 period indicates consistently strong real GDP growth despite numerous structural impediments, in particular the shortage of power,” it added.

Moody’s echoed the same concerns about the narrow government revenue base.

“We expect Bangladesh’s government revenue to GDP ratio to remain among the lowest within our rated universe, given the delay in the implementation of the VAT law.”

Moody’s assessed Bangladesh’s economic strength as “Moderate (+)”, which is similar to Sri Lanka and Costa Rica.

It also assessed that Bangladesh’s banking sector risk as “Moderate (-)”, which indicated that the country’s banking sector is not performing well enough.

The country’s state-owned commercial banks account for 30 percent of banking system assets and exhibit significantly weaker asset quality, profitability, and capital adequacy than private commercial banks.

Gross non-performing loans of state-owned banks amounted to 29.3 percent of total loans in the third quarter of 2017, compared to 6 percent for private commercial banks, and have been rising since 2015, said the Moody’s.

“The banking sector’s health and governance standards are generally weak, particularly in public sector banks,” Fitch said in its report.

It also said Bangladesh exhibits one of the highest real GDP growth rates in the sovereign space.

However, the economy is less developed on a number of metrics than many of its peers.

The average per capita GDP remains low compared with the ‘BB’ range median of $5,611, although major improvements have taken place over the past decade on a number of social metrics.

Political and safety risks remain substantial, Fitch said.

“Continued strong political polarisation could again lead to widespread violence and blockades, especially nearer to the general elections.”

Adopt efficient management practices in apparel: PwC

Star Business Report

The apparel industry in Bangladesh needs to adopt efficient management practices to improve productivity and efficiency to increase its global competitiveness, experts said at a programme yesterday.

“The ecosystem needs to undergo a transformation today,” Mamun Rashid, managing partner of PwC Bangladesh, said at the PwC Summit held in Chittagong.

“Issues around processes, technology and people need to be addressed together to accelerate growth in the sector,” he said at the event on “Driving transformation in Bangladesh’s apparel industry”.

“We must adopt global best practices, look out for market shifts and align ourselves to global trends.”

“Bangladesh’s garment industry is a key contributor to the country’s growth story. The declining export growth rate has been an area of concern for the industry and policymakers,” Rashid said in a press release.

Exports fetched $36.66 billion last fiscal year, but fell short of the government’s target of $37.5 billion.

Bangladesh’s main export earner, apparel shipments brought home $30.61 billion, up 8.76 percent year-on-year in 2017-18, according to data from the Export Promotion Bureau.

The garment sector accounts for 12 percent of the country’s GDP and 83 percent of its exports. The industry has huge growth potential thanks to the growing demand from international markets, experts said at the summit.

Manufacturers are embracing newer machinery and production technologies to stay relevant. These along with a skills upgrade of workers have led to a shift towards manufacturing of specialised garments in Bangladesh, they said.

However, a lot remains to be done to outperform global majors in the retail manufacturing space. The export growth rates are fluctuating and have shown a declining trend over the past few years.

Productivity in Bangladesh remains low as compared to other garment manufacturing nations like China and Vietnam, they said. There is an urgent need to revamp infrastructure too to aid the potential growth of the sector, according to the experts.

The growth in the sector needs to be sustainable and environment-friendly, said Pallab De, partner for management consulting of PwC India.

The industry has seen a significant rise in the number of Leadership in Energy and Environmental Design (LEED)-certified environment-friendly factories and this is exemplary in the global manufacturing industry, according to Pallab De.

“The country today boasts of the top three eco-friendly garment factories in the world. The government’s decision to subsidise interest rates to companies intending to set up green factories will provide the much needed boost.”

There is a significant scope to increase operational efficiency in the sector and help meet international standards, the analysts said. The seminar highlighted the upcoming trends in the garment sector.

The better businesses understand the landscape, the more they would be able to capitalise on the growth opportunities in the sector, said Hossain Zillur Rahman, chairman of the Power and Participation Research Centre.

He shed light on the importance of Chittagong as a business hub and requested the government and entrepreneurs to work together in order to expand the garment industry in the port city.

“The government should also undertake some initiatives to provide improved technical education to the workers that could lead to a skilled workforce.”

More than 50 industry stalwarts and representatives from trade bodies attended the summit.

Md Fazlul Hoque, a former president of Bangladesh Knitwear Manufacturers and Exporters Association, and SM Tanvir, a director of Bangladesh Garment Manufacturers and Exporters Association, also spoke.

Apparel to gain from Sino-US trade row

Bangladesh will be a China-alternative for US brands: survey

Star Business Report

The ongoing trade war between the US and China will be beneficial for Bangladesh’s garment sector as the American brands will place more work orders here to branch out their sourcing, according to a new survey.

Respondents in the ‘2018 Fashion Industry Benchmark Study’ expressed more interest in expanding sourcing from Bangladesh in the next two years as they actively seek China alternatives.

Some 75 percent of the respondents said they will source from Bangladesh. It was 61 percent in 2017.

Nearly half of respondents expect to somewhat increase sourcing from Bangladesh through 2020, up from 32 percent in 2017. Another 7 percent expect to strongly increase sourcing there, a record high since 2015.

“The “Made in Bangladesh” label enjoys a prominent price advantage over many other Asian suppliers,” said the study conducted by Sheng Lu, associate professor of the department of fashion and apparel studies of the University of Delware, in collaboration with the United States Fashion Industries Association (USFIA).

Like last year, respondents said Bangladesh offers the most competitive price, followed by Vietnam. Bangladesh was the fifth most preferred sourcing destination among American retailers due to price advantage, up from its previous position of seventh.

However, respondents still regard “risk of compliance” as a notable weakness.

The high level of media and public attention to the social responsibility problems remaining in the Bangladeshi garment industry, such as factory safety and treatment of workers, further adds to the complexity and sensitivity of the issue.

Since compliance is so important to American fashion companies, concerns about the compliance risks involved in sourcing from Bangladesh could hold companies back from giving more orders to the country, the study found.

The survey was conducted in the April-May period, when talks of a trade war by the Trump Administration were high.

For the second year in a row, respondents say the protectionist trade policy agenda in the US is their number one concern — up from a ranking for number 8 and 11 between 2014 and 2016.

China remains the top supplier for most US fashion companies. However, China now accounts for only 11-30 percent of companies’ total sourcing value or volume, compared with 30-50 percent in the past, according to the study.

Consistent with the official US trade statistics, China (100 percent of the respondents) and Vietnam (96 percent) continue to be the two most utilised sourcing destinations, followed by Indonesia (79 percent), India (75 percent), Bangladesh (75 percent) and Cambodia (61 percent).