Bangladesh Economy:Prospects & Challenges

by

Mohammad Monir Hossan

Snapshot Present Status of Bangladesh Economy Investment Climate, incentives and FDI in

Bangladesh Comparison of growth with World and Asian

Countries Future Prospects of Bangladesh Challenges of Bangladesh Possible Solutions Concluding Remarks

Present Status of Bangladesh Economy

GDP at current price 116 billion US$ GDP Growth Rate 6.32 percent GDP Composition:

Industrial Sector 31.26 percent Agriculture 19.29 percent Service Sector 49.45 percent

Exports 24.28 billion US$ Imports 35.51 billion US$ Trade Balance negative 11.22 billion US$ Remittance 12.84 billion US$ Foreign Exchange Reserve 10.36 billion US$ FDI Inflow 1.13 billion US$ Government Revenue 1183.9 billion BDT Gross Investment is 25.45 percent of GDP

All Data based on FY 2011-12

GDP

0

20

40

60

80

100

120

140

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Bil

lio

n U

S $

2002-03 51.91

2003-04 56.492004-05 60.37

2005-06 61.972006-07 68.442007-08 79.33

2008-09 89.042009-10 100.36

2010-11 110.652011-12 115.65

Year wise GDP in billion US$

GDP Composition

Service49.45%

Industry31.26%

Agriculture19.29%

Year Export Import2002-03 6548 96572003-04 7603 109032004-05 8655 131472005-06 10526 147832006-07 12178 171572007-08 14111 216292008-09 15565 225072009-10 16205 237412010-11 22924 336582011-12 24288 35516

Export and Import

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500010000

1500020000

25000

3000035000

40000

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Mill

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US

$

Export Import

Amount in Million US$

Percapita Income

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600

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2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

US $

Year Percapita Income

2001-02 361

2002-03 389

2003-04 418

2004-05 441

2005-06 447

2006-07 487

2007-08 559

2008-09 621

2009-10 687

2010-11 755

Amount in US$

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12000

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2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Worker's Remittance

Year Remittance2001-02 25012002-03 30622003-04 33722004-05 38482005-06 48022006-07 59782007-08 79152008-09 96892009-10 109872010-11 11650

Amount in Million US$

Foreign Exchange Reserve

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2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Mill

ion

US

$

Year Forex Reserve2001-02 15832002-03 24702003-04 27052004-05 29302005-06 34842006-07 50772007-08 61492008-09 78712009-10 107502010-11 10912

Amount in Million US$

42nd Largest Economy in the world 68th Largest Exporter of goods in the world 65th Largest Importer of goods in the world 2nd Largest Exporter of RMG in the world 6 percent average GDP growth rate for the last decade Positive and Stable outlook in S&P and Moody’s

ranking Included in Goldman Sachs’ “Next-11” Countries One of the JP Morgan’s “Frontier Five” Economies Bangladesh is no more included in “Basket Case” Many more………

Source: World Factbook-2012, WTO-2010

Country 2009 2010 2011 2012

World Output -0.6 5.3 3.9 3.5

Emerging & Developing Economies

2.8 7.5 6.2 5.3

Developing Asia 7.1 9.7 7.8 6.7

China 9.2 10.4 9.2 7.8

India 6.6 10.6 7.2 6.5

Pakistan 1.7 3.8 2.4 3.7

Bangladesh 5.7 6.07 6.7 6.3

Source: IMF-World Economic Outlook

Benchmark FY 2009

Target FY 2015

Target FY 2021

Annual Real GDP growth rate (%) 6.1 8.0 10.0Gross Investment (% of GDP) 24.4 32.5 38.0Gross National Savings (% of GDP) 30.0 32.1 39.1Total Govt. Revenue (% of GDP) 10.9 14.6 20.0Total Govt. Expenditure (% of GDP) 14.6 19.6 25.0Exports (US$ Billion) 16.2 38.8 82.0Imports (US$ Billion) 21.4 52.8 110.5Remittance (US$ Billion) 10.9 17.8 38.5CPI Inflation (%) 7.5 6.0 5.2Unemployment rate (%) 30.0 20.0 15.0Poverty (head count %) 31.5 22.5 13.5

Bangladesh is a liberal democratic country and has ahomogeneous society with no major internal or external tensions.

Population of the country are very resilient and living in harmonyirrespective of race and religion.

Broad non-partisan political support for market oriented reformand the most investor-friendly regulatory regime in South Asia.

Trainable, enthusiastic, hardworking and low-cost (even byregional standards) labor force suitable for any labor-intensiveindustry.

The geographic location of the country is ideal for global trade,with very convenient access to international sea and air routes.

Bangladesh is endowed with abundant supply of natural gas, waterand its soil is very fertile.

Most Bangladeshi products enjoy complete duty andquota free access to EU, Canada, Australia andNorway.

Though in limited scale, Bangladeshi productsalready found their access with lower duty in themarkets of Thailand, India and Pakistan.

Talks are underway with China, Russia, Malaysia andother neighboring countries in this regard.

Year Total Investment Public Sector Investment

Private Sector Investment

2002-03 703.5 186.3 517.22003-04 799.9 206.2 593.72004-05 909.2 230.1 679.22005-06 1024.8 249.3 775.52006-07 1155.9 257.3 898.62007-08 1321.3 270.4 1050.92008-09 1498.4 289.0 1209.42009-10 1695.1 348.2 1346.92010-11 2003.8 449.3 1554.42011-12 2327.8 576.7 1751.0

Amount in Billion TK

Sl. No. Country Amount in Million US$ (2011-12)

1. Egypt 152

2. USA 118

3. Netherlands 117

4. UK 116

5. South Korea 113

6. Hong Kong 105

7. Australia 73

8. Pakistan 71

9. Japan 47

10. Sri Lanka 32

Year FDI in million US$

2007 666

2008 1,086

2009 700

2010 913

2011 1,136

Source: BOI and BB

Agriculture Electronics Pharmaceuticals Light Engineering Power and Energy Frozen Foods Shipbuilding Garments and Textiles ICT and Business Services Leather and Leather Goods Ceramics

Bangladesh offers some of the world’s most competitive fiscal and non-fiscalincentives. These are:

Remittance of royalty, technical know-how and technical assistance fees. Repatriation facilities of dividend and capital at exit. Permanent resident permits on investing US$ 75,000 and citizenship on investing

US$ 500,000. Depreciation allowances

Accelerated depreciation for new industries is available at the rate of 50%,30% and 20% for the first, second and third years respectively, on the cost ofplant and machinery.

Tax holidays• In the Dhaka & Chittagong Divisions: 100% in first two years: 50% in the year

three and four: and 25% in the year five.• In the Rajshahi, Khulna, Sylhet, Barisal Divisions and three Chittagong Hilly

Districts: 100% for first three years, 50% for next three years, 25% for yearseven.

Cash and added incentives to exporting industries:

Businesses exporting 80% or more of goods or servicesqualify for duty free import of machinery and spares, bondedwarehousing.

90% loans against letters of credit and funds for exportpromotion.

Export credit guarantee scheme. Domestic market sales of up to 20% is allowed to export

oriented business located outside an EPZ on payment ofrelevant duties.

Cash incentives and export subsidies are granted on the FOBvalue of selected exports ranging from 5% to 20% on selectedproducts.

To become a Middle Income Country (MIC) by the year 2021 To become the 30th Largest Economy of world by the year

2030 To be the largest RMG Exporters in the world Youth generation (The age of about 60% of total population

is under 40 years) Huge market of non-traditional products Enhancing export volume through export diversification Huge demand and reputation of Bangladeshi

Pharmaceuticals around the world Shipbuilding Sector of Bangladesh Higher flow Remittance and Foreign Exchange Reserve

Lack of Infrastructural facilities Lack of deep sea port Lack of easy communication system Attracting handsome amount of FDI Ensuring Political stability Becoming a Middle Income Country by 2021 Enhancing share of export Effective utilization of foreign aids Maintaining lower inflation rate Balancing between Govt. revenue and expenditure Taking effective strategies to diversify export Minimizing corruption Poverty Reduction

The Inland Container River Terminal (ICT) at Pangaon, Keraniganj, willstart functioning soon and recently Japan has shown interest to invest inInland Container Terminal to be established in Narshingdi.

Setting up deep sea port is essential for the country. Some countries haveshown interest to invest in deep sea port project in Bangladesh.

Dhaka-Chittagong economic corridor, Integrated Multi-Modal TransportPolicy, Mass Rapid Transit for Dhaka and Chittagong, upgrading investment inrailway, road maintenance fund etc. should be implemented as early aspossible.

Special Economic Zones (SEZs) can help promote new businesses and attractmore investment in diverse sectors. The new Economic Zones Act 2010 hasopened up a new window and will allow the private sector to own, developand manage economic zones and establish infrastructure and services for thecompanies there.

The government is encouraging to invest in Public-Private Partnership(PPP) projects. A separate PPP office has been established under thePrime Minister's Office (PMO). Earlier, the government issued the Policyand Strategy for PPP, 2010. The government has also drafted a PPP Act-2013 to safeguard the interest of both the parties.

The land acquisition process should be made transparent and quick. Thegovernment of Bangladesh has taken some initiatives to ease theprocess.

Bangladesh Bank has recently declared a balanced monetary policy tomaintain lower inflation rate and ensure more investment to privatesector. A proper coordination between fiscal and monetary policy is alsovery much needed for business expansion through attracting moreinvestment.

Political stability must be ensured to attract handsome Foreign DirectInvestment (FDI) in Bangladesh.

The construction work of Dhaka-Chittagong four lane Highway is goingin full swing. It will ease the communication difficulties between thesetwo big cities.

Bangladesh economy is at a critical juncture, where the policymakers will haveto tackle the ongoing and emerging macroeconomic pressures.

Revenue mobilization has to be stepped up further to lessen the need forexcessive borrowing.

An agreement has been signed between Bangladesh and Russia to producenew 2000 MW nuclear power and the government is also encouraging solarpower production to remove the power related difficulties.

Creating new export markets to export traditional and non-traditionalproducts. The role of Bangladeshi Missions situated in foreign countriesshould be strengthened to enhance the export volume through proper exportdiversification.

Foreign aids must be utilized efficiently and effectively. Zero tolerance must be shown against all types of corruptions to have a

balance between govt. revenue and expenditure.

Bangladesh is a wonder of success in the world. It’s vastand energetic people through devotion and sincerity canmake the impossible task possible. Private sector of thecountry is considered as the engine of economy. DhakaChamber as the largest private sector of Bangladesh hasbeen trying its level best to escalate the country to aunique and prestigious position. We believe thatBangladesh has all the potentials to be one of the 30th

largest economies of the world by the year 2030. Toachieve the target, we need to effectively utilize thepotentials and face the challenges successfully.

THANK YOU