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Bangladesh: Market Profile

Picture: Bangladesh factsheet
Picture: Bangladesh factsheet

1. Overview

Bangladesh has an impressive track record for growth and development. It has made great progress in reducing poverty and has grown steadily over the past decade. Sustained economic growth has rapidly increased urbanisation as well as the demand for energy and transport infrastructure. To achieve its growth aspiration of becoming upper-middle income country by 2031, the country needs to urgently implement structural reforms, expand investment in human capital, improve domestic revenue mobilisation, increase female labour force participation and raise productivity through increased global value chain integration. Improving infrastructure as well as the business climate would allow new productive sectors to develop and generate jobs.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

October 2018
The opposition Bangladesh Nationalist Party (BNP) formed an alliance with other smaller opposition parties, creating the Jatiya Oikya Front (United National Front) to contest the next general election.

December 2018
Prime Minister Sheikh Hasina and the ruling Awami League secured a third consecutive term in the general election.

June 2019
A Joint Steering Committee of Nepal and Bangladesh agreed to jointly invest in some feasible hydropower projects and collaborate on alternative energy in Nepal. Joint investments would cover the 1.1GW Sunkoshi II and 536MW Sunkoshi III reservoir hydropower projects, among others. The two nations have also agreed to build a new high-voltage transmission line to Bangladesh through India. The committee also decided to hold talks with India for exporting power from Nepal to Bangladesh by utilising Indian electricity transmission lines. Bangladesh has already formulated a policy to buy 9GW of electricity from Nepal by 2040 and to achieve this construction of transmission line, selection of projects and cooperation on alternative energy were in the pipeline.

July 2019
The Japan International Cooperation Agency signed an agreement with the Government of Bangladesh to provide an official development assistance loan of around USD1.3 billion for the Matarbari power plant project in Dhaka. The project involved the construction of an ultra-supercritical coal-fired power plant with a rated output of 1.2GW in the Matarbari area of Cox's Bazar District. The project was expected to stabilise the country's power supply and promote energy efficiency. Coal Power Generation Company Bangladesh, Power Grid Company of Bangladesh and the Roads and Highways Department under the Ministry of Road Transport and Bridges are executing the project. The loan had a repayment term of 30 years along with a 10-year grace period. The project was expected to be completed in July 2024.

Sources: BBC Country Profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Bangladesh real GDP and inflation
Graph: Bangladesh real GDP and inflation
Graph: Bangladesh GDP by sector (2018)
Graph: Bangladesh GDP by sector (2018)
Graph: Bangladesh unemployment rate
Graph: Bangladesh unemployment rate
Graph: Bangladesh current account balance
Graph: Bangladesh current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, World Economic Outlook Database
Date last reviewed: July 19, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Bangladesh merchandise trade
Graph: Bangladesh merchandise trade

e = estimate
Note: 2018 data for imports is an estimate
Source: WTO
Date last reviewed: July 19, 2019

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)

Note: Latest available direct data is 2015; direct data not available for 2016 or 2017 from Trade Map
Sources: Trade Map, Fitch Solutions
Date last reviewed: July 18, 2019

4.2 Trade in Services

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

e = estimate
Source: WTO
Date last reviewed: July 19, 2019

5. Trade Policies

  • In July 1978, Bangladesh joined the World Customs Organization, and in January 1995, Bangladesh became a member of the World Trade Organization (WTO).

  • Bangladesh used to benefit from preferential access to the United States market through the Generalized System of Preferences (GSP) programme, but in June 2013 former president Barack Obama suspended Bangladesh's membership in light of the government's insufficient progress in securing the rights of Bangladeshi workers. The United States government has provided Bangladesh with a 16-point action plan that, if implemented, will provide a basis for the reinstating of GSP trade benefits. The United States  is the single largest export destination for Bangladesh. As a least developed country, 97% of goods originating from Bangladesh enjoy duty-free benefits on export to the United States. However, the country's main export items – garments – have not been included in this package despite comprising 95% of Bangladeshi exports to the United States per year. As a result, Bangladeshi exporters face a 15.6% tariff on export of apparel items to the United States, although some competing countries, such as Mainland China, Vietnam, Pakistan and India, face far lower tariffs.

  • Bangladesh continues to impose high tariffs on imports, which increases 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 a VAT of 15%. Although some raw materials and capital goods imports are exempt from customs duties, these charges increase the difficulty 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 has imposed an export ban on raw hides and wet blue leather. Only exports of finished leather and leather goods are allowed.

  • In August 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.

  • Vehicles imported into Bangladesh are subject to a 165% import duty and domestically assembled vehicles are subject to a 60% tax. Domestically assembled vehicles are, therefore, more affordable.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

  • Bangladesh and Sri Lanka expressed interest to sign a free trade agreement (FTA) in March 2017 in an attempt to boost bilateral trade ties. The two countries are set to benefit significantly from the FTA as Bangladesh produces textiles, pharmaceuticals, cement, paper, electrical items and jute products, which are in high demand in Sri Lanka. Sri Lanka is also an important transhipment hub for the region. The FTA is expected to be signed in 2019.

  • In October 2018, Brazil and Bangladesh agreed to sign an FTA to boost bilateral trade. Brazil also seeks to form a chamber of commerce and industry with Bangladesh to encourage private sector investors from both countries to enhance business communication. Exports from Bangladesh to Brazil are currently subject to duties of 35%. It is not yet certain when negotiations will begin.

  • Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area, the Asia-Pacific Trade Agreement (APTA) and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation. Bangladesh has not ratified any bilateral FTAs but has started initial FTA discussions with Sri Lanka and Brazil. As a founding member of the 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. SAFTA: SAFTA consists of Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. SAFTA entered into force on January 1, 2006, and covers trade in goods. The agreement is an attempt to increase intraregional trade through the gradual dismantling of some tariff barriers; however, the agreement leaves out a large number of products denoted as sensitive and does not address non-tariff trade barriers. Intra-regional 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 intra-regional trade and investment in this sector.

  2. European Union (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 cooperation agreement entered into force on March 1, 2001. 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, EU imports from Bangladesh almost trebled, from EUR5.5 billion to EUR15.2 billion, which is nearly half of Bangladesh's total exports. 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 ready-made garment factories, which is a good sign for the country.

  3. APTA: APTA consists of Bangladesh, Mainland China, India, Laos, South Korea and Sri Lanka. Some 4,721 Bangladeshi products enjoy duty-free access to Mainland China under APTA (in effect since September 1, 2006). In 2013 Bangladesh sought duty-free access for 17 more items. The country will have to grant duty-free access to products from Mainland China in its market if an FTA is signed between Bangladesh and Mainland China.
Under Negotiation

The Bay of Bengal Initiative on Multi-Sectoral Technical and Economic Cooperation (BIMSTEC): BIMSTEC is a regional organisation comprising Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. Apart from India, developing Asian states are not key trade partners for Bangladesh, although this agreement creates opportunities to increase regional trade flows. The organisation has been active since 2006. Negotiations for a tariff-free zone began between various actors at multiple points in 2014. Once in place, the agreement is expected to further integrate the seven-nation area and aid regional development.

Sources: WTO Regional Trade Agreements database, Asia Regional Integration Centre, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

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

Source: UNCTAD
Date last reviewed: August 7, 2019

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 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 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, mineral extraction, large-scale infrastructure projects, crude oil refineries, energy-intensive operations, transport services, telecommunications, and media.

  3. The government's industrial policy favours manufacturing and labour-intensive industries using local inputs. Various subsidies and other incentives are available to different industrial ventures, primarily in export sectors and, to some degree, import substitution sectors. The government also provides loans at concessionary rates through state banks and government-owned development banks for exports, cottage industries and agriculture.

  4. The Bangladeshi government is keen to attract more foreign direct investment and has set out an ambitious plan to build 100 special economic zones (SEZs) by 2030. In January 2017, the Bangladesh Economic Zones Authority approved the construction of four SEZs in the districts of Madaripur, Faridpur, Noakhali and Kishoreganj respectively.

  5. Under the Belt and Road Initiative, Mainland China intends to set up economic corridors in alliance with other countries – with one covering Bangladesh, India and Myanmar (the BCIM Economic Corridor). The corridor will link Kolkata in India with Mainland China's Kunming, Myanmar's Mandalay and Bangladesh's Dhaka (among the key points). The government from Mainland China has pledged to finance multi-billion USD infrastructure projects in Bangladesh, including the construction of a 220km 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, ITA, U.S. Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
EPZs – general incentives- The VAT rate on exports is 0%

-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 the duty-free import of construction materials, capital goods and certain raw materials

- Exemption from double taxation subject to double taxation agreements

- Full repatriation of capital
EPZs: Mongla, Ishwardi, Uttara – specific incentivesThere is an income tax exemption of 100% for the first three years, 50% for the next three years and 25% for the seventh year.
EPZs: Chittagong, Dhaka, Comilla, Adamjee, Karnaphuli – specific incentivesThere is an income tax exemption of 100% for the first two years, 50% for the next two years, and 25% for the fifth year
Economic Zones: Mongla, Sirajganj, Anowara, Mirershorai, Maulvibazar – specific incentives- Income tax exemption of 100% for the first two years, falling to 80% in the third year and reducing by 10% increments each following year to 10% in the 10th year

- Exemption from dividend tax

- 50% exemption on stamp duty for lease-held land or factory space

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

- Exemption from capital gains tax
General incentives- 50% tax rebate on export income

- Tax holidays of five-to-seven years for new enterprises in textiles, pharmaceuticals, plastics, ceramics, iron and steel, fertilisers, computer hardware, petrochemicals, and agricultural and industrial machinery

- Exemption from income tax for up to 15 years for new projects in the power sector

- Cash subsidies are offered to firms in the furniture sector (at a rate of 15%), plastic products (10%), textile products that are destined for eurozone markets (4-6%), and fruit and vegetable production (20%) to help improve their global competitiveness

- Non-coal fired independent power plants (IPPs) commencing production after January 1, 2015, are granted a 100% tax exemption for five years, a 50% exemption for years six-to-eight years and a 25% exemption for nine-to-10 years

- For coal-fired IPPs contracting with the government before June 30, 2020, and with a commercial operating date before June 30, 2023, the tax exemption rate is 100% for the first 15 years of operation

- For power projects, import duties are waived for imports of capital machinery and spare parts

Sources: Bangladesh Economic Zones Authority, Fitch Solutions

8. Taxation – 2019

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

Source: Bangladesh National Board of Revenue

8.1 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax- 25% on profits for listed companies
- 35% on profits for unlisted companies
- 40% on profits for listed banks, insurance companies and financial institutions
- 42.5% on profits for unlisted banks, insurance companies and financial institutions
- 45% on profits for mobile phone operators and cigarette manufacturing companies
Branch Remittance Tax20%
VAT15%
Capital Gains Tax15% net earnings
Withholding Taxes (paid to non-residents)- 20% on dividend income
- 20% on royalties
- 20% on interest

Source: Bangladesh National Board of Revenue
Date last reviewed: July 19, 2019

9. Foreign Worker Requirements

9.1 Localisation Requirements

The Bangladesh Investment Development Authority (BIDA) stipulates that private sector industrial enterprises wanting to employ foreign nationals are required to apply in advance. Foreign nationals can normally be employed 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, foreign nationals are initially considered for a term of only two years, after which employment may be extended dependent on BIDA 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 or nationals of India, Pakistan and South Korea travelling by air to Bangladesh with a valid visa for 90 days or longer are required to register at the airport.

Sources: Bangladesh Investment Development Authority, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Ba3 (Stable)
10/10/2018
Standard & Poor'sBB- (Stable)
06/04/2010
Fitch RatingsBB- (Stable)
06/12/2018

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

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
176/190
177/190
176/190
Ease of Paying Taxes Index
104/190152/190151/190
Logistics Performance Index
N/A100/160
N/A
Corruption Perception Index
143/180149/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index
N/A57/202
64/202
Short-Term Economic Risk Score
66.970.0
62.5
Long-Term Economic Risk Score62.663.461.4
Political Risk IndexN/A109/202109/202
Short-Term Political Risk Score60.058.1
60.6
Long-Term Political Risk Score60.460.4
60.4
Operational Risk IndexN/A142/201146/201
Operational Risk Score38.2
38.6
38.3

Source: Fitch Solutions
Date last reviewed: July 19, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Bangladesh has relatively low economic risk by regional comparison; this is a reflection of the country's high economic growth rate amid still-elevated inflation and its long-running fiscal deficit. Remittances from overseas workers help to cover the substantial goods and services trade deficit. However, the trade gap remains a risk to economic growth in the near term amid rising headwinds for the global economy.

OPERATIONAL RISK
Bangladesh's large population, competitive labour costs and proximity to key source markets are significant pull factors for businesses looking to set up labour-intensive operations. The country offers promising opportunities for investment in the oil and gas, power, pharmaceutical, ICT, agribusiness and infrastructure sectors. However, Bangladesh's underdeveloped transport sector and barriers to trade and investment constrain the country's overall investment attractiveness.

Source: Fitch Solutions
Date last reviewed: July 19, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

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

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: July 19, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Bangladesh Score38.3
51.7
29.039.0
35.5
South Asia Average42.0
44.3
40.4
43.4
40.0
South Asia Position (out of 8)6
1
7
6
7
Asia Average48.2
49.7
48.2
46.0
49.1
Asia Position (out of 35)26
14
32
21
30
Global Average49.6
50.3
49.8
49.0
49.2
Global Position (out of 201)14696
175
132
155

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions 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
Trade and Investment Risk IndexLogistics Risk IndexCrime and Secruity Risk Index
India52.1
45.9
53.661.8
47.0
Sri Lanka51.0
46.049.3
58.2
50.5
Bhutan49.1
43.6
44.7
51.0
57.3
Maldives
44.9
46.5
45.739.5
47.8
Pakistan
39.8
43.3
38.3
43.1
34.4
Bangladesh38.3
51.729.0
39.0
33.5
Nepal
36.4
37.833.334.9
39.7
Afghanistan24.5
39.529.0
19.7
9.7
Regional Averages42.0
44.3
40.4
43.4
40.0
Emerging Markets Averages46.9
48.6
45.447.4
46.1
Global Markets Averages49.6
50.3
49.8
49.049.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: July 19, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Bangladesh

Graph: Major export commodities to Bangladesh (2018)
Graph: Major export commodities to Bangladesh (2018)
Graph: Major import commodities from Bangladesh (2018)
Graph: Major import commodities from Bangladesh (2018)

Note: Graph shows the main Hong Kong exports to/imports from Bangladesh (by consignment)
Date last reviewed: July 19, 2019

Graph: Merchandise exports to Bangladesh
Graph: Merchandise exports to Bangladesh
Graph: Merchandise imports from Bangladesh
Graph: Merchandise imports from Bangladesh

Note: Graph shows Hong Kong exports to/imports from Bangladesh (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Trade Statistics, Census and Statistics Department
Date last reviewed: August 7, 2019


2018
Growth rate (%)
Number of Bangladeshi residents visiting Hong Kong5,2840.5
 2017Growth rate (%)
Number of Bangladeshis residing in Hong Kong450
1.4

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affaris - Population Division


2018
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong61,043,57612.0
 2017Growth rate (%)
Number of South Asia residents residing in Hong Kong36,680
1.6

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affaris - Population Division

11.2 Commercial Presence in Hong Kong


2018
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 has an air services agreement with Bangladesh which entered into force October 24, 2005.

  • Bangladesh has a double taxation agreement with mainland China, which entered into force on April 10, 1997.

  • Bangladesh has a bilateral investment treaty with mainland China, which entered into force on March 25, 1997.

Sources: Fitch Solutions, Inland Revenue Department, Investment Policy Hub, OECD Tax Treaties

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 / 2834 1991

Source: Bangladesh Chamber of Commerce and 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
Email: bangladt@netvigator.com
Tel: (852) 2827 4278 / 2827 4279
Fax: (852) 2827 1916

Source: Consulate General of The People's Republic of Bangladesh Hong Kong

11.5 Visa Requirements for Hong Kong Residents

Hong Kong residents need a visa before arrival when visiting Bangladesh.

Source: Consulate General of The People's Republic of Bangladesh Hong Kong
Date last reviewed: July 19, 2019

·      Vehicles imported into Bangladesh are subject to a 165% import duty and domestically assembled vehicles are subject to a 60% tax. Domestically assembled vehicles are, therefore, more affordable.

Content provided by Picture: Fitch Solutions – BMI Research
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