Bangladesh: Full Of Potential

The fast-growing nation is actively seeking FDI, but foreign investors must contend with endemic corruption and layers of bureaucracy.

For more information on Bangladesh, check out our Country Economic Reports.

In spite of several major drawbacks, Bangladesh has some basic characteristics that would otherwise appeal to a foreign direct investor. It has one of the fastest-growing economies in Southern Asia, according to Joynal Abdin, a development researcher in the planning, monitoring and evaluation wing at SME Foundation, a business development organization in Dhaka focusing on small and midsize enterprises. “We have 117 million people in the domestic market,” he says, noting that Bangladesh also has access to 1.3 billion people in the Indian market.

Bangladesh has a track record of steady GDP growth at 6.5% in fiscal 2011 and 2012, 6.0% in 2013 and 6.1% in 2014. It has a broad range of investment opportunities in a variety of sectors, especially in energy, power, pharmaceuticals, information technology, telecommunications and infrastructures, as well as the more familiar garments, textiles, leather goods and American-based consumer products. (The use of cheap labor periodically brings international criticism.)

The government also offers a broad series of investment incentives. (See sidebar)

However, huge drawbacks confront any foreign direct investor looking to take advantage of these opportunities, according to Jim Warren, a former member of the British diplomatic service with postings in emerging and frontier markets and currently an independent risk consultant on strategic and crisis planning.

Systemic corruption heads the list and affects businesses in several ways, including rampant bribery to obtain businesses licenses. The corruption trickles into customs and other costs at Chittagong Port, which is a major problem. “The Chittagong Port is a large part of it,” Warren says. “You find that 55% of all imports coming into the country go through one venue—Chittagong; there is no Plan B.”

A report by Transparency International’s Bangladesh chapter, titled Automation of Import-Export Process in Chittagong Port: Challenges of Governance and Way Out, released in 2014, estimated that unauthorized payments collected by the import-export staff in the Chittagong customs authority was $61,000 daily. At the port itsself, it was $22,000.

As well as contravening ethical business practices, paying bribes starts a vicious cycle, leaving the payer open to blackmail. “If you pay that bribe, you will find yourself paying more and more and more…as the bribe works its way through the system,” Warren says. “People know you paid the original bribe, so you are leaving yourself open.”

The Bangladesh government has made progress in reducing corruption, and there is an active anti-corruption movement.

Bureaucratic procedures also bedevil foreign direct investment. Bangladesh inherited a bureaucratic structure based on the British colonial model and has added layers to it over the years. “So they have this vast array of public servants or civil servants, and for the simplest of tasks you have to go through person after person after person,” Warren says, each step involving another bribe.

As an alternative FDI destination, companies eyeing opportunities in South Asia might consider Myanmar. It has recent ly transitioned from decades of military dictatorship to the democratically elected government of Nobel Peace Prize winner Aung San Suu Kyi. This change, combined with the continued easing of sanctions, should pave the way for new FDI opportunities. Vietnam also has several booming sectors, including tourism and manufacturing.