Investment opportunities in Bangladesh

Bangladesh is one of the ten fastest growing economies in the world. A stable political environment, attractive investment incentives and a growing consumer market of over 170 million people make Bangladesh a goldmine for foreign investors. From infrastructure and renewable energy to manufacturing and information technology, business opportunities are as varied as the country's rich cultural heritage.

5 reasons why you should invest in Bangladesh

1. Sustainable economic growth

On track to graduate from LDC status by 2026, Bangladesh is on track to become a trillion-dollar economy by 2040, according to BCG.

2. Growing MAC Population

As Bangladesh undergoes a transformational transition from a rural to an urban economy with falling poverty levels, a prosperous and aspiring middle and rich class (MAC) is on the rise. This dynamic middle class is projected to grow at 10.5% per year, reaching 34 million people by 2025. Fueled by youth, technology savvy and optimism, they are actively investing in goods and services that improve their standard of living. With a growing MAC population, Bangladesh is projected to become the 9th largest consumer market by 2030.

3. Demographic dividend

Bangladesh's economic recovery is driven by its vibrant youth. 62% of the population is under 35 years old, and the average age is only 28 years. Currently supported by a workforce of 74.4 million, the economy is thriving on the potential of this population boom. As labor force participation rises, the economy is also becoming more inclusive, as the share of women in the labor force has increased from 36% to 42% over the past 12 years.

4. Strategic location

Located between the economic centers of China and India, and also part of the Belt Road Initiative (BRI), the country provides access to the 2.2 billion Asian consumer market. As an LDC, Bangladesh has preferential trade agreements with both China and India, gaining duty-free access to most exports. In tandem, Bangladesh is actively moving towards a Comprehensive Economic Partnership Agreement (CEPA) with India, aimed at optimizing product standards, improving the supply chain and expanding ties between the two countries.

5. Rapid digitalization

The adoption of mobile Internet (65%) and general Internet (75%) is showing significant growth. Bangladesh also ranks 12th for the lowest data costs, making the country more affordable than other countries such as Vietnam and Sri Lanka. Among other successes, positive trends in digitalization are helping to expand financial inclusion in the country. The state's rapid digitization, marked by 25% growth in digital payments and 205 million registered mobile financial services (MFS) accounts, is expanding financial access, strengthening connections and opening up new markets.

The country offers many promising areas for investment, the key sectors being:

Electronics and equipment

A huge domestic market with growing revenues along with favorable tax incentives provides huge opportunities for local manufacturers to supply electronics products at affordable prices and expand the market at a faster pace. In addition, the growth of the digital economy is driving further growth in the electronics and Internet of Things market. The total electronics and electrical equipment market is expected to exceed US$12 billion by 2025, and the consumer electronics market is expected to exceed US$10 billion by 2030.

The electronics and electrical equipment industry consists of a wide range of consumer and industrial electronic products. There are approximately 3,000 organizations involved in this sector, employing approximately 1 million people. The electronics industry in Bangladesh mainly produces consumer products such as mobile phones, home appliances such as refrigerators, air conditioners, televisions, electronic fans, radios, ovens, blenders, etc. Electrical equipment such as batteries, transformers are also manufactured and exported , diodes.

The industry is expected to grow at a rate of 15% per year and reach approximately US$12 billion by 2025. The consumer electronics market size is estimated at approximately US$2.4 billion in 2020 and is expected to reach US$10 billion by 2030. The most popular consumer electronics product is the mobile phone, followed by the refrigerator, television and air conditioner. The rechargeable batteries market is also growing rapidly.

ITES

ITES, which stands for Information Technology Enabled Services, involves the outsourcing of various business activities related to the Internet and information technology. It typically includes both back and front office tasks, e-commerce and marketing activities, supply chain management, graphic design tasks, web design and content management. The ITES/BPO sector can be divided into broad categories based on the skill level required for these services. In Bangladesh, a significant portion ofITES providers operate in the mid-skilled segment, offering services ranging from basic data entry and processing to rules-based data manipulation. This strategic focus improves the economic efficiency of the local workforce. Consequently, most of the ITES/BPO industry's revenue and export earnings are generated through fundamental and rules-based data processing tasks.

Bangladesh's startup industry, often overshadowed by its more established neighbors in South Asia, is emerging as an emerging hotspot with enormous potential. From a macroeconomic perspective, Bangladesh's unique strengths come to the fore. The country is considered one of the most populous countries in the world. This demographic advantage results in a large consumer base, making the state an attractive market for startups looking to scale their operations.

Over 1,200 active startups are making a tangible impact on the daily lives of Bangladeshis through innovative products and services. Investment flows into the country have been steadily increasing, with a total of US$112 million invested in 2022, reflecting growing local and international interest. Notable deals such as the $65 million investment in ShopUp are a prime example of this trend. Social startups in Bangladesh are also attracting impact funds, although they make up a small share (0.6%) of total investment.

At the micro level, Bangladesh's startup landscape is diverse and spans sectors such as fintech, e-commerce, edtech, healthcare and agritech. Startups in the country are not only meeting domestic demand, but also solving unique problems faced by the population, such as improving access to financial services and improving the quality of healthcare.

Government support and incentives

Currently, there is a 10% cash incentive for overall exports in the IT/ITES sector. The Bangladesh Hi-Tech Park Authority (BHTPA) is the regulator for the development of Hi-Tech Park, Software Technology Park, and IT training and incubation centers across the country. There are currently 12 HTPs registered to encourage local and foreign investors offering the following benefits:

• 10-year income tax exemption for investors
• Exemption from duties when importing Capital Machinery equipment
• Income tax exemption on dividends, transfers of shares and royalties
• VAT exemption for goods produced by investors
• Customs warehouse station

Agroprocessing

In 2020, Bangladesh contributed 2% of the world's total cereal production and approximately 1% of the world's total major crop production despite occupying only 0.11% of the world's area. The country's agro-processing industry is undergoing significant transformation due to urbanization and industrialization trends. Rapid growth of the urban population at a rate of 3% per year indicates that by 2040 approximately 100 million people will live in cities. However, this shift is accompanied by problems associated with climate change, including salinity and unpredictable weather conditions, which negatively impact agriculture and food production. This presents a complex scenario; Available agricultural land is becoming scarcer, while demand for more nutritious food is growing. To cope with this challenging scenario, public and private sector players are focusing their efforts on increasing mechanization, adopting more efficient farming practices and developing infrastructure to increase productivity and create a more efficient value chain.

Rice remains the main crop in Bangladesh, dominating both in terms of production (38 million tons) and land use (77%). The country grows about 150 different vegetable crops, the most famous of which are onions, garlic, tomatoes, eggplants, cabbage, cauliflower, pumpkins and chili peppers. More than 6 million tons of vegetables are produced annually, including 2.2 million tons of summer vegetables and 3.8 million tons of winter vegetables.

Fruit production in the financial year 2021-2022 was 5.3 million tons. In addition, about 4 million tons of spices are grown in Bangladesh, including chillies, onions, garlic and ginger. The country also produced 8.4 million tonnes of jute and exported around 800,000 tonnes of raw jute and jute products in the 2021-22 financial year.

In Bangladesh's oilseeds agricultural sector, 94% of demand is met through imports.

The total value of imported crops in 2021–2022 was US$9.1 billion, with key imports including wheat, soybeans, edible oil, onions, garlic and tomatoes. Bangladesh exports products such as pickles, chutneys and fruit juices, with major markets including the Middle East, the UK and Italy largely catering to the Bangladeshi diaspora. These dynamics highlight the evolving landscape of the agro-processing industry in the state, characterized by changing consumption patterns, import dependence and export potential.

 Bangladesh has fertile lands and a favorable climate for growing various crops, which ensures a constant supply of raw materials for processing. Increasing agricultural productivity through mechanization and crop diversification helps increase the availability of raw materials for processing.

The government's focus on export-oriented agro-processing enterprises increases the sector's potential for international trade. Notably, local horticultural producers are increasingly interested in accessing export markets with products such as potatoes, tomatoes, eggplants, peppers, and processed fruits and vegetables, mainly including pickles, chutneys and fruit juices.

Government support and political incentives

• Reduced Corporate Income Tax (CIT) for 5 to 10 years, depending on location, for processing locally grown fruits and vegetables.
• Full tax exemption on income from the production of rice bran oil for up to 10 years.
• Special 20% discount on electricity consumption for agricultural processing enterprises.
• Exemption from taxes on royalties, technical know-how/assistance fees and their repatriation.
• Exemption from import duties on capital equipment.
• Full repatriation of profits and initial investment.
• 50% tax exemption on income received from exports.
• No VAT on export goods.
• 20% export subsidy/cash incentive for exporters of locally processed agricultural products.

Automotive industry

Bangladesh is one of the most promising markets for the distribution of four-wheelers. The number of annually registered vehicles in 2019 was about 26,000 passenger vehicles and 37,000 commercial vehicles (excluding autorickshaws and auto carriers).

Although commercial vehicles dominate, the growing purchasing power of the middle-income population is driving passenger car registrations. Due to the steady rise in per capita income as well as rising economic activity, the demand for both passenger cars and commercial vehicles is expected to grow at a rapid pace.

The passenger car segment is dominated by imported complete units (CBUs), accounting for about 95% of sales. Refurbished vehicles account for 80% of the share in this segment. SUVs and hybrid vehicles are experiencing the fastest growth, with all brands focusing on the SUV market.

The commercial vehicle industry in Bangladesh includes the production, distribution, sale and maintenance of vehicles intended for commercial purposes, including trucks, buses, coaches, etc.

The automotive supply chain consists of four main stages: component suppliers, production, dealerships and end users. The industry categorizes suppliers into three main tiers: Tier 1 suppliers provide off-the-shelf parts specifically designed for vehicles. Tier 2 suppliers produce the same required components as Tier 1 suppliers, but their products are not exclusive to automotive applications. Level 3 includes companies that supply raw materials directly used in the production of cars.

In addition, by 2025, local vehicle assembly could reduce overall auto industry costs by 15-40%. In 2020, about 15% of commercial vehicles and 5% of passenger vehicles were assembled in the country. If these cost reductions are realized, a significant portion of the middle and lower middle class population will be able to purchase family and personal vehicles. Some companies have started locally assembling cars from foreign brands, for example, Pragati entered into a partnership with Mitsubishi around 2010 to locally assemble the second-generation Pajero Sport SUV. The Rangs Group Rangs Limited also independently assembles Mitsubishi Outlander SUVs.

The global auto industry is experiencing rapid growth in the market share of electric vehicles, while the share of traditional cars is declining. Accordingly, the adoption of electric vehicles in Bangladesh is on the rise. Various companies, including Nitol Motors and Bangladesh Auto Industries Limited, are actively working on locally assembled electric vehicles. Some of the major foreign brands assembled in Bangladesh — these are Mitsubishi Motors, Hino, Proton, Hyundai, Eicher, TATA, Ashok Leyland and Mahindra. Additionally, the government of Bangladesh is demonstrating a willingness to commit land and resources to support the growth of electric vehicle manufacturing within the country. For example, Omega Seiki, part of the Indian company Anglian Omega Network, has proposed investing about $10 billion in the creation of projects to develop electric vehicles in Bangladesh.

RMG and textiles

The history of Bangladesh's garment industry can be traced back to the late 1970s. The ready-made garment (RMG) industry began its journey by initially focusing on exports, following the efforts of Nurul Quader Khan, the pioneer of the garment industry. Han sent 130 trainees to South Korea to gain experience in ready-made garment manufacturing, and these trainees played a crucial role in establishing the first garment factory known as Desh Garments.

Today, Bangladesh is the second largest apparel exporter in the world, positioning itself firmly in the global apparel supply chain.

The country's apparel exports stood at US$46.99 billion in FY 2022-23, up 10.27% from the previous year and exceeding the FY target by 0.41%.

Despite its status as the world's second largest apparel exporter, the sector is heavily dependent on imports of raw materials including raw cotton, synthetic/rayon fibre, synthetic/blended yarn, cotton yarn, textile fabrics and clothing accessories from other countries Notably, the value addition in the knitwear sub-sector exceeds that of the woven segment: knitwear exporters source about 80% of their raw material requirements locally, while weaving entrepreneurs predominantly rely on imported fabrics.

Bangladesh boasts of nearly 500 spinning mills and 828 spinning/weaving mills, with local spinning units collectively capable of processing approximately 13.43 million bales of cotton per year. About 80% of the yarn produced in these spinning mills is pure cotton yarn and the remaining 20% is blended yarn of cotton and man-made fibres. Consequently, there are more than 4,000 garment factories in the country.

Apparel dominates the country's export industry, accounting for about 82% of total export value. Bangladesh currently exports garments to more than 150 countries. The United States is considered the main export destination of Bangladeshi garments, accounting for approximately 21.50% of the total exports. They are followed by the European Union with countries such as Spain, Germany, Italy, France, Belgium and the Netherlands as key destinations, followed by the UK and Canada. The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has set an ambitious goal of achieving an export target of $100 billion by 2030. To ensure sustainable growth of the RMG industry in the country, it is important to diversify the range of apparel products in the export portfolio. Such diversification could potentially increase export earnings and extend the current growth trend.

Moreover, the technical textiles sector presents an attractive opportunity for Bangladesh to explore and expand its business. The global technical textiles market is projected to reach $298.1 billion by 2030. Europe is the largest regional market for technical textiles, accounting for approximately 28.8% of the global market.

The country's largest industry is represented by the Ha-Meem Group, which operates 26 garment factories throughout Bangladesh. Another well-known clothing company — Beximco, which started its operations in 1997. BAL — is a 100% export oriented clothing manufacturer specializing in the production of woven fabric garments. DBL Group — a leading diversified apparel and textiles company with approximately 35,000 employees. Other important players include — Faki Group, Square Fashions LTD and Epyllion Group and others.

Currently, more than 100 international brands source clothing from Bangladesh. Top clothing brands that source from this country include Marks & Spencer, Calvin Klein, Lee, H&M, Supreme, American Eagle, Zara, Gap, Tommy Hilfiger and many others.

Government support and incentives

• Garment factories that are 100% export oriented have the advantage of using duty free trade through bonded warehouses to easily import required fabrics and accessories.
• Bangladesh Bank plays an important role in helping the garment industry meet compliance requirements through the Green Transformation Fund (GTF). In accordance with the guidelines of the Export Policy Order (EPO), authorized dealers are entitled to issue domestic back-to-back letters of credit in favor of local suppliers of raw materials.
• The cash incentives have been set as follows: 4.0% for the export-oriented garment sector, 4.0% for the small and medium garment industry and 3.0% for the expansion of new markets or new products in the garment industry.
• National Adaptation Plan (2023-2050), promoting "green" banking and sustainable green finance decisions. ETPs (wastewater treatment facilities) are installed at 80% of the 2,894 industrial enterprises that were built in 2023.

Shoes and leather

The tanning and leather goods industry in Bangladesh, one of the oldest industries in the country, has contributed significantly to the national economy over the years. This industry serves both domestic and international markets, ranking second in terms of export earnings. Despite its significant potential, almost 40% of local demand is met by imports. Bangladesh ranks 18th in the global footwear market. In the global leather and leather products market, Bangladesh holds a 3% share and accounts for 10% of the global leather market. In 2020, the local footwear market was valued at approximately US$2 billion, with an annual production of 378 million pairs and local market demand of approximately 200-250 million pairs per year.

This industry covers four main product segments: leather products, finished leather, leather goods and leather footwear. The country produces a variety of products such as bags, wallets, suitcases, belts, jackets and shoes, with footwear being an important product category in Bangladesh. According to the Leather Products Association, the industry includes about 3,500 small, 90 medium and 15 large manufacturers, as well as 220 tanneries. The footwear and shoe components sector plays a significant role in the leather industry: there are 2,500 footwear companies and 90 large firms. The leather industry in Bangladesh is mainly concentrated in the Hazaribagh district near Dhaka, followed by Bhariyab and Chattgram.

Bangladesh has a significant amount of local raw materials, including a significant number of cattle (about 1.8% of the world total) and goats (3.7% of the total). The country has the potential to supply significant volumes of raw leather.

Approximately 85% of Bangladesh's leather and leather products are sold to international markets. Most of these exports are destined for countries such as the European Union (EU), USA, Australia, Japan, Singapore, South Korea and others. When it comes to footwear exports, the European Union (EU) leads the way, accounting for the largest share at 60%, followed by Japan with a 30% share. In the broader leather and leather goods category, the EU claims a significant share of 33%, while Japan holds approximately 8% market share. In addition, the government has set a target of increasing leather export earnings from US$1 billion to US$10-12 billion by 2030.

Once local demand is met, surplus shoes are exported to international markets. As a result, such well-known global brands as ABC Mart, Adidas, Aldo, Esprit, Hugo Boss, H&M, Kate Spade, K-Mart, Michael Kors, Marks & Spencer, Nike, Steve Madden, Sears, Timberland and many others rely on Bangladesh as a supplier of leather goods and footwear. Moreover, Apex Footwear is now one of the largest footwear manufacturers in South Asia, accounting for approximately 15% of Bangladesh's leather footwear exports as of 2022.

Government support and incentives

The Leather and Leather Products Development Policy 2019, unveiled in August 2019, includes a number of incentives aimed at increasing the industry's export earnings. The government is setting up three industrial zones dedicated to leather and tannery industries in Rajshahi, Savar and Chattogram.

The industry provides the following benefits:

• Reduced corporate income tax (CIT) for a period of 5 to 10 years, depending on location.
• Exemption from import duty on capital equipment.
• Exemption from regulatory/surcharge duties for footwear manufacturers using certain materials such as tubing, pipes, plastic, PVC mesh and textile/knitted fabrics.
• 50% tax exemption on income received from exports.
• No value added tax (VAT) on exported goods.
• Providing customs warehouses for the import of significant volumes of materials.
• Cash incentive of 15% on the export value of leather goods and footwear, plus an additional 5% on crust leather from Savar Estate.

Plastic

Plastic — one of the key industrial sectors of Bangladesh, contributing significantly to the country's economy. There are approximately 5,000 plastics manufacturing units in Bangladesh, employing approximately 1.2 million people and producing a variety of products for both the domestic and export markets. Plastic is a key component of many products in other economic sectors such as textiles, healthcare, construction, electronics, energy, automotive, etc. Bangladesh mainly produces household goods and packaging products for the food, pharmaceutical and FMCG industries, bags and clothing accessories, toys, hygiene products and construction products, including PVC pipes.

Construction

Bangladesh has experienced rapid urban development for decades. The capital Dhaka has become one of the fastest growing metropolises and needs to accommodate almost 600,000 people annually, equivalent to 120,000 households per year. At the same time, a number of mega-infrastructure projects are underway, and Bangladesh is expected to spend about $8-10 billion a year to bring its power grid, roads and water systems in line with the needs of its growing population. Infrastructure development (including large-scale megaprojects) and urbanization have fueled the growth of both the construction and real estate sectors in Bangladesh, which has maintained high and sustained annual growth rates (8% and 4% respectively) of the sector's GDP over the past five years creating huge demand for construction materials such as steel and cement.

Steel industry

Bangladesh is one of the emerging steel markets in Asia and has a growing demand for quality steel materials and technologies. The industry consists of a number of steel rolling mills producing "long products" and a limited number of types of “flat products” using imported hot-rolled coils. The steel industry is experiencing a structural shift with large rolling mills integrating the electric arc furnace process due to lower import tariffs on scrap metal. The industry still needs to import hot rolled coils (semi-finished products) to make flat products as the hot rolling process is not established in Bangladesh. In addition, some types of long products, such as large sheet piles for construction, rely heavily on imports.

Cement industry

Demand for cement has grown by 12% per year over the past five years. This growth is projected to continue with increasing urbanization and the development of megaprojects; General public infrastructure projects account for 35% of the country's total cement consumption, with the rest consumed by the private sector. Among the existing 100 cement plants, 35 are operational today, of which the top 10 companies currently hold 80% of the market share due to consolidation over the years. The cement industry is heavily dependent on imports of its main material, 'clinker', on which the government maintains low import duty to reduce imports of cement products. In Bangladesh, Portland cement predominates, which requires less clinker compared to ordinary Portland cement, while cements characterized by waterproofing and long-term strength have not yet penetrated the market.

Pharmaceutics

Over the last decade, Bangladesh's pharmaceutical industry has grown significantly, contributing 1.83% to the country's GDP. Notable expansion of the industry only began in the 1980s when Bangladesh was granted patent exemption in the pharmaceutical sector after it was recognized as a developing country. Currently, domestic pharmaceutical manufacturers can provide 98% of the country’s total need for medicines. The market size of this sector has reached approximately US$3.5 billion as of 2022 and is projected to exceed US$6 billion by 2025. Over the past five years, the industry has achieved an impressive compound annual growth rate (CAGR) of 15. 6%.

Bangladesh currently produces more than 450 generic drugs under 5,300 well-known brands and meets 4% of the country's anti-cancer drug needs. According to the Director General of Drugs Regulatory Authority (DGDA), the pharmaceutical sector comprises 3,657 registered generic allopathic drugs, 2,400 registered homeopathic drugs, 6,389 registered Unani drugs and 4,025 registered Ayurvedic drugs. Approximately 71% of pharmaceutical sales come from the generic drug market. More than 150 enterprises are engaged in the production of recipes, of which 30 are engaged in export.

In addition, about 40 companies are engaged in the production of bulk drugs, and there are more than 40 manufacturing facilities producing active pharmaceutical ingredients (API).

Due to its LDC status, patented products imported into Bangladesh are priced significantly lower than in many other countries, allowing them to be re-exported to developed countries. Bangladesh also exports active pharmaceutical ingredients (APIs). Moreover, according to the Bangladesh Bureau of Statistics (BBS), individual health expenditure in Bangladesh has tripled over the previous decade, rising from $15.8 to $41.9 per person.

In FY 2022, $188.8 million worth of exports were sent to 157 countries in Asia, Africa, North America, South America and Europe. Notably, 90% of the drugs supplied to the US are supplied by Beximco Pharmaceuticals. More than 20 pharmaceutical companies from Bangladesh, including Incepta, Beacon, Square, Popular, Eskayef, Beximco, Opsonin, ACI, Renata and Ziska, are reported to have exported COVID drugs, with a particular increase in exports of antiviral drugs such as Remdesivir and Favipiravir .

Currently, the pharmaceutical sector in Bangladesh is aiming to capture 10% of the global market. Recognition and authorization were granted by international organizations such as the World Health Organization (WHO), the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO) to six national organizations. The domestic market consists of more than 60% of the ten largest firms in this industry and more than 80% of the twenty largest.

Government support and political incentives

• In 2018, the Ministry of Commerce introduced the National Policy for the Production and Export of Active Pharmaceutical Ingredients (APIs) and Laboratory Reagents to promote the production of APIs. Under this policy, all local and joint venture manufacturers of APIs and laboratory reagents were given an unconditional tax holiday for a period of five years, from 2017 to 2022. Manufacturers producing a minimum of five molecules per year were entitled to a 100% tax holiday. while those producing at least three molecules can benefit from a 75% tax holiday from 2022 to December 2032.
• A cash incentive of 20% was offered to manufacturers who added a minimum of 20% to the value of their products. The conditions related to added value were planned to be revised after 2026. Moreover, raw material producers were able to retain 40% of their export earnings, and API producers were eligible to receive back-to-back letters of credit.
• In 2019, the National Board of Revenue (NBR) granted local API manufacturers a 15% VAT exemption until December 2025, provided they achieve a minimum value addition of 60% to imported raw materials. However, recognizing that 60% value addition may not be feasible for all pharmaceutical products as some only require 30–40% value addition, the NBR adjusted the value addition ratio to 20% in January 2020.
• To further support API producers, foreign exchange assistance was provided, and the period for overdue payments for imports of raw materials was increased from 180 days to 360 days. In the case of equipment imports, the payment window was increased to 360 days and could be extended to 3 years in case of irregular payments.

Bangladesh is rapidly gaining recognition as a global supplier of cost-effective and high-quality generic medicines, and the country is well positioned to take advantage of this trend. Moreover, expanding the free trade area with Cambodia, Japan, Brazil and other countries will lead to increased access to these markets even after graduation from the LDC category. Expanding API production capacity will significantly reduce Bangladesh's over-reliance on imports and increase its competitiveness in the global market.