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Bangladesh: Market Profile

Picture: Bangladesh factsheet
Picture: Bangladesh factsheet

1. Overview

Bangladesh has made great progress in reducing poverty, supported by sustained economic growth. Based on the international poverty line of USD1.90 per person per day, it reduced poverty from 44.2% in 1991 to 13.8% in 2016/17. However, while income growth, human development and vulnerability reduction efforts so far have been rewarding, Bangladesh still faces daunting challenges, with about 22 million people still living below the poverty line. Sustained economic growth has also rapidly increased the demand for energy, transport and urbanization.

Source: World Bank

2. Major Economic/Political Events and Upcoming Elections

October 2017
The number of Rohingya Muslims who have fled military action in Myanmar's Rakhine state and sought refuge in Bangladesh is estimated at one million.

Source: BBC country profile – Timeline, Human Rights Watch

3. Major Economic Indicators

Graph: Bangladesh real GDP and inflation
Graph: Bangladesh real GDP and inflation
Graph: Bangladesh GDP by sector (2016)
Graph: Bangladesh GDP by sector (2016)
Graph: Bangladesh unemployment rate
Graph: Bangladesh unemployment rate
Graph: Bangladesh current account balance
Graph: Bangladesh current account balance

Note: e = estimate, f = forecast
Source: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Bangladesh merchandise trade
Graph: Bangladesh merchandise trade
Graph: Bangladesh major export commodities (2015)
Graph: Bangladesh major export commodities (2015)
Graph: Bangladesh major export markets (2015)
Graph: Bangladesh major export markets (2015)
Graph: Bangladesh major import commodities (2015)
Graph: Bangladesh major import commodities (2015)
Graph: Bangladesh major import markets (2015)
Graph: Bangladesh major import markets (2015)

Source: WTO, World Bank WITS database

4.2 Trade in Services

Graph: Bangladesh trade in services
Graph: Bangladesh trade in services

5. Trade Policies

  • In 1978, Bangladesh joined the World Customs Organization and in January 1995 it became a member of the World Trade Organization.
  • In previous years, Bangladesh benefited from preferential access to the US market through the GSP programme, but in June 2013, then President Barack Obama suspended Bangladesh's membership in view of the government's insufficient progress in securing the rights of Bangladeshi workers. The US government has provided Bangladesh with a 16-point action plan which, if implemented, will provide a basis for the reinstating of GSP trade benefits.
  • Bangladesh continues to impose some high tariffs on imports which increase costs for businesses, with an average tariff rate of 10.7%, rising to 25% for some finished products. In addition, a 4% infrastructure development surcharge is levied on almost all imports, as well as VAT at 15%. Although some raw materials and capital goods imports are exempt from customs duties, these charges nevertheless increase the difficulties of operating in Bangladesh.
  • Bangladesh and India's joint membership of regional free trade areas eases the flow of goods between the two countries, with India providing an important source of imports for Bangladesh. Dhaka has attempted to improve its economic relationship with India in recent years by reducing trade barriers and improving connectivity.
  • Bangladesh imposes an export ban on raw hides and wet blue. Only exports of finished leather and leather goods are allowed.
  • In 2015, Bangladesh imposed a regulatory import duty of 20% on raw and refined sugar. The measure was initiated to protect local suppliers in times of falling global prices of sugar.

Source: WTO – Trade Policy Review

6. Trade Agreement

6.1 Trade Updates

Bangladesh and Sri Lanka have expressed interest to sign a Free Trade Agreement (FTA) in 2017 in an attempt to boost bilateral trade ties, according to the Bangladeshi Commerce Ministry. The two countries are set to benefit significantly from the FTA as Bangladesh produces textiles, pharmaceuticals, cement, paper, electrical items and jute products that are high in demand in Sri Lanka, and Sri Lanka is an important transhipment hub for the region.

Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC). Bangladesh has not ratified any bilateral free trade agreements (FTA) but started initial FTA discussions with Sri Lanka in March 2017. As a founding member of the World Trade Organization (WTO) and as a Less Developed Country (LDC), Bangladesh has been an active advocate for LDC interests in WTO negotiations.

6.2 Multinational Trade Agreements

Active

  1. In 1978, Bangladesh joined the World Customs Organization and in January 1995 it became a member of the World Trade Organization.

  2. Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area, comprising Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal – Apart from India, other developing Asian states are not key trade partners for Bangladesh, although this agreement creates opportunities to increase regional trade flows. (FTA in goods active since 2006, tariff-free zone under negotiation)

  3. South Asian Free Trade Area (SAFTA), comprising Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka – Apart from India, other developing Asian states are not key trade partners for Bangladesh, although this does ease regional trade flows. The agreement is an attempt to increase intraregional trade through the gradual dismantling of some tariff barriers, but it leaves out a large number of products denominated as sensitive, and it does not address non tariff trade barriers. Intraregional trade has the potential to increase the existing trade by over 300%. The growing demand in the region for agricultural products creates an opportunity for exploring new avenues of intraregional trade and investments in this sector. Bangladesh has taken steps to strengthen bilateral economic relations with India by reducing trade barriers and improving connectivity.

  4. EU-Bangladesh Cooperation Agreement – EU countries are major export markets and businesses enjoy duty and quota-free access for most goods exports to the bloc, under the 'Everything but Arms' agreement. The EU is Bangladesh's main trading partner, accounting for around 24% of Bangladesh's total trade in 2015. EU imports from Bangladesh are dominated by clothing, accounting for over 90% of the EU's total imports from Bangladesh. EU exports to Bangladesh are dominated by machinery and transport equipment (49%). From 2008 to 2015, EU28 imports from Bangladesh have almost trebled from EUR5.5bn to EUR15.2bn, which represents nearly half of Bangladesh's total exports. Thus, there will be increasing pressure on the government to improve working conditions in the garments industry as the EU will be closely observing Bangladesh. Several European importers have already come forward to help the country in improving safety features of RMG factories, which is a good sign for the country.

  5. Asia Pacific Trade Agreement (APTA) – Some 4,721 Bangladeshi products have been enjoying duty-free access in Chinese market under Asia Pacific Trade Agreement (APTA) since 2010. In 2013 Bangladesh again sought duty-free access for 17 more items. The country will have to grant duty-free access to Chinese products in its market, if FTA is signed.

Source: WTO – Trade Policy Review

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Bangladesh FDI stock
Graph: Bangladesh FDI stock
Graph: Bangladesh FDI flow
Graph: Bangladesh FDI flow

7.2 Foreign Direct Investment Policy

  1. The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with supervising and promoting private investment. The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs). BEPZA is the one stop service provider and regulatory authority for companies operating inside EPZs Investments that are wholly foreign-owned, joint ventures and wholly Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs.

  2. Some key sectors, however, are reserved for government investment such as defence equipment and machinery, forest plantation and mechanised extraction within the bounds of reserved forests, production of nuclear energy and certain media and security services. In addition, there are 17 controlled sectors that require prior clearance from the respective line authorities. These sectors include fisheries, banking, insurance and other financial institutions, power generation, supply and distribution of power in the private sector, minerals extraction, large-scale infrastructure projects, crude oil refineries, energy-intensive operations, transport services telecommunications and media.

  3. The Bangladeshi government is keen to attract more FDI and has set out an ambitious plan to build 100 special economic zones (SEZs) by 2030. The SEZs are areas with more business-friendly laws and aligned infrastructure provision. In January 2017, the Bangladesh Economic Zones Authority had approved construction of four SEZs in the districts of Madaripur, Faridpur, Noakhali and Kishoreganj.

  4. Under the Belt and Road Initiative, China intends to set up economic corridors in alliance with other countries – with one covering Bangladesh, India and Myanmar (i.e. the BCIM Economic Corridor). The Corridor will link India’s Kolkata with China’s Kunming, with Myanmar’s Mandalay and Bangladesh’s Dhaka among the key points. To this end, the Chinese government has pledged to finance multi-billion infrastructure projects in Bangladesh, including the construction of a 220-km oil pipeline in Bangladesh, which will reduce the time and costs of transferring and unloading imported crude oil to onshore facilities in the country.

Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), U.S. Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Export Processing Zones (EPZs) – general incentivesThe valued-added tax rate on exports is zero. For companies that only export, import duties are waived for imports of capital machinery and spare parts. For companies that primarily export (80% and above) an import duty rate of 1% is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export oriented industries for imports of raw materials consumed in production. Investors benefit from duty free import of construction materials, capital goods and certain raw materials.

Exemption of double taxation subject to Double taxation agreement.
EPZs Mongla, Ishwardi, Uttara – specific incentivesIncome tax exemption of 100% for first three years, 50% for next three years, and 25% for the seventh year.
EPZs Chittagong, Dhaka, Comilla, Adamjee, Karnaphuli – specific incentivesIncome tax exemption of 100% for first two years, 50% for next two years, and 25% for the fifth year.
Economic Zones: Mongla, Sirajganj, Anowara, Mirershorai, Maulvibazar– Income tax exemption of 100% for first two years, falling to 80% in the third year, and reducing by 10% increments each following year, to 10% in the 10th year

– Duty free import of construction materials, capital goods and raw materials

– Exemption from dividend tax

– Full repatriation of capital

– 50% exemption on stamp duty for leasehold land/factory space

– 50% tax rebate on income tax of employees for five years

– Exemption from capital gains tax

Source: BMI

8. Taxation – 2017

  • Value Added tax: 15%
  • Corporate Income Tax: 25%

Source: BMI

8.1 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax25% on profits for listed companies
35% on profits for unlisted companies
42.5% on profits for banks, insurance companies and financial institutions
45% on profits for mobile phone operators
Branch Remittance Tax20% on profits remitted abroad by a branch of a foreign company
Value Added Tax15% on sale of goods and services (variable)
Capital Gains Tax15% net earnings
Withholding Taxes (paid to non-residents)20% on dividend income
20% on royalties
20% on interest

Source: BMI, PwC

9. Foreign Worker Requirements

9.1 Localisation Requirements

The Bangladeshi Board of Investment (BOI) stipulates that private sector industrial enterprises desiring to employ foreign nationals are required to apply in advance.

Employment of foreign nationals is normally only considered for jobs for which local personnel are not available and the number of foreign employees should not exceed 5% of total employees (including management staff) in the industrial sector and 20% in the commercial sector.

In addition, employment of a foreign national is initially considered for a term of only two years, after which employment may be extended dependent on BOI approval.

9.2 Visa/Travel Restrictions

All foreign nationals seeking paid employment in Bangladesh must be in possession of a valid work permit – the tenure of a work permit for a foreign worker is generally two years.

Foreign citizens/nationals of India, Pakistan and South Korea travelling to Bangladesh by air with a valid visa for 90 days or more are required to register at the airport.

For work visa, foreign nationals must provide a Letter of employment from the employer in Bangladesh and letter of concurrence from concerned Ministry, Board of Investment (BOI), and Bangladesh Export Processing Zone (BEPZA).

9.3 Language/Cultural Barriers

Though foreign language skills, especially in English, are becoming more widespread, foreign workers based in more rural areas will face language barriers as most locals speak only Bangla.

9.4 Migrant Labour Regulations

Regulations on employment conditions and the access to basic social services, such as health care, education and justice are somewhat discriminative towards regular migrant workers and they are basically non-existent for undocumented migrant workers.

9.5 Security Considerations

Foreign workers will likely demand high hardship and danger pay in order to take on the risk of working in the country.

Security costs will remain elevated and businesses must employ private security companies to protect their personnel.

Source: BMI, government websites

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Ba317/04/2017
Standard & Poor'sBB-06/04/2010
FitchBB-11/01/2018

Source: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
174/189
176/190
177/190
Ease of Paying Taxes Index
67/189
104/190152/190
Logistics Performance Index
87/160
N/AN/A
Corruption Perception Index
145/176
143/180N/A
IMD World CompetitivenessN/AN/AN/A

Source: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index Rank57/202
Short-Term Economic Risk Score67.766.969.0
Long-Term Economic Risk Score62.262.663.4
Political Risk Index Rank111/202
Short-Term Political Risk Score61.060.058.1
Long-Term Political Risk Score62.660.460.4
Operational Risk Index Rank145/201
Operational Risk Score37.338.2
37.7

Source: BMI Research

10.4 BMI Political and Economic Risk Indices

BMI Risk Summary - Q2 2018

POLITICAL RISK

Islamist militancy remains a threat to security. That said, improving international relations with neighbouring India present a significant opportunity for closer economic integration.

ECONOMIC RISK

Bangladesh's low economic risk score reflects its generally high level of inflation and long-running fiscal deficit. Bangladesh's index could improve if the government introduces pro-business and pro-investment policies while reducing inflation and the budget deficit. Remittances from overseas workers help to cover the substantial goods and services trade deficit.

OPERATIONAL RISK

Bangladesh's low operational risk score reflects its underdeveloped transport sector as well as severe barriers to trade and investment. That said, the country's large youthful population and competitive labour cost structure are two key factors that make it prime investment destination for businesses with labour-intensive operations such as agriculture and manufacturing.

Graph: Bangladesh short term political risk index
Graph: Bangladesh short term political risk index
Graph: Bangladesh long term political risk index
Graph: Bangladesh long term political risk index
Graph: Bangladesh short term economic risk index
Graph: Bangladesh short term economic risk index
Graph: Bangladesh long term economic risk index
Graph: Bangladesh long term economic risk index

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskLogistics RiskTrade and Investment RiskCrime and Security Risk
Bangladesh Score37.7
50.1
38.929.832.1
South Asia Average41.6
43.7
44.038.939.7
South Asia Position (out of 8)6
2
6
7
6
Asia Average48.9
50.6
47.1
47.7
50.0
Asia Position (out of 35)27
17
22
31
30
Global Average49.8
49.8
49.35049.9
Global Position (out of 201)145
102
137
176
159

Note: 100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Bangladesh vs global and regional averages
Graph: Bangladesh vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Logistics Risk IndexTrade and Investment Risk IndexCrime and Secruity Risk Index
Bhutan51.7
44.5
51.2
48.5
62.5
Sri Lanka
50.0
45.0
57.7
46.3
51.1
India
49.4
44.6
61.9
51.0
40.0
Maldives
48.5
50.3
40.9
43.4
59.3
Nepal
37.9
40.9
35.5
35.4
39.7
Bangladesh
37.7
50.1
38.9
29.8
32.1
Pakistan
34.7
36.9
44.3
36.8
20.9
Afghanistan22.7
37.3
21.1
20.1
12.4
Regional Averages41.6
43.7
44.0
38.9
39.7
Emerging Markets Averages46.8
48.0
45.8
47.5
46.1
Global Markets Averages49.8
49.8
49.3
50.0
49.9

Note: Higher score = Lower risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Bangladesh

Graph: Bangladesh major export commodities to Hong Kong (2017)
Graph: Bangladesh major export commodities to Hong Kong (2017)
Graph: Bangladesh major import commodities from Hong Kong (2017)
Graph: Bangladesh major import commodities from Hong Kong (2017)
Graph: Bangladesh merchandise exports to Hong Kong
Graph: Bangladesh merchandise exports to Hong Kong
Graph: Bangladesh merchandise imports from Hong Kong
Graph: Bangladesh merchandise imports from Hong Kong

Year
Growth rate (%)
Number of Bangladeshi residents visiting Hong Kong5,260 (2017)
-13.99
Number of Bangladeshi residents in Hong Kong450 (2016)
1.35

2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,4823.46
Number of South Asia residents in Hong Kong36,680
1.55

Source: BMI, UN

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Bangladeshi companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

11.3 Treaties and agreements between Hong Kong and Bangladesh

Hong Kong concluded an air services agreement with Bangladesh in 2000, with the negotiation on a double taxation agreement in progress.

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Bangladesh Chamber of Commerce & Industry Hong Kong (BCCIHK)

Address: Room 1913-1916 China Merchants Tower, Shun Tak Centre, 200 Connaught Road Central, Hong Kong
Email: info@bccihk.org
Tel: (852) 2812 1528 / (852) 2834 1991

Source: Bangladesh Chamber of Commerce & Industry Hong Kong (BCCIHK)

Consulate General of the People's Republic of Bangladesh in Hong Kong

Address: 13/F, Kyoto Plaza, 491 Lockhart Road, Causeway Bay, Hong Kong SAR
Email: bangladt@netvigator.com
Hours of Business: 9:00 am - 5:00 pm (Monday to Friday)
Head of Mission: Mr. Mohammad Sarwar Mahmood
Tel: (852) 2827 4278-9
Fax: (852) 2827 1916

Source: www.bangladeshconsulate.hk

11.5 Visa Requirements for Hong Kong Residents

People travelling on a Hong Kong passport need a visa to visit Bangladesh.

Source: IATA

Content provided by Picture: BMI Research
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