India's eastern neighbour may be under-developed, but has tremendous opportunities in power, leather, IT, electronics and telecom, says a report prepared by the Department of Economics and Statistics, Tata Services

Bangladesh is a small nation and India's neighbour to the east. With immense natural resources, particularly in natural gas (NG), the country has an immense potential to emerge as a developing economy from its present status of a least developed country (LDC). The necessary political will from its government can make Bangladesh an attractive investment destination by minimising inherent risks, and bringing in foreign investment. Indian companies could invest in Bangladesh for the mutual benefit of both countries.

Political scenario
Bangladesh is currently ruled by a coalition government led by the Bangladesh Nationalist Party (BNP). The Awami League (AL) is a strong opposition party and is determined to topple the present government. It has boycotted the Parliament since June 2003 and staged a series of strikes and demonstrations. General elections are due in 2006. Though the ruling BNP is likely to complete its term till 2006, post-election uncertainties cannot be ruled out.

Despite a coalition government, economic reforms are being pursued, albeit slowly. The government has liberalised industrial and investment policies in recent years, by reducing bureaucratic control over private investment and opening up many areas.

Economy
The country's real GDP growth was 5.3 per cent in 2004 and is expected to grow at the same rate in 2005. Bangladesh's economy is basically an agrarian one. Agriculture accounts for one-fourth of the country's GDP and over two-thirds of the population depends on it.

Bangladesh is rich in several mineral resources including natural gas, limestone, hard rock, coal, lignite, silica, etc. There is also a strong possibility of oil deposits. The country's principal industries are jute (of which it is the largest manufacturer in the world), tea, textiles, garments, paper, fertiliser, leather and leather goods, and sugar.

Traditional exports include raw jute, jute manufactures, tea and leather products, and non-traditional export items include garments, frozen shrimp, paper, naphtha and urea. The country's principal import items include wheat, oil, petroleum, raw cotton, fertilisers, cement, iron and steel, and capital goods.

Being an LDC, the nation enjoys certain concessions in terms of subsidies and preferential treatment for its exports. In Bangladesh, a foreign investor can set up either wholly owned ventures or joint collaborations with local partners. Major areas of investment are textiles, IT, electronics, natural gas-based industries, frozen food, leather, ceramics, light engineering and agro-based industries.

The government is keen to expand the industry base and encourage both domestic and foreign investment especially in export-oriented, technology-intensive, labour-intensive industries that can take advantage of indigenous products.

Fertilisers
Attaining food security is a key government objective. Over the years, substantial changes have been made in agricultural policy, and special emphasis is given to the private sector's role in the import and distribution of fertilisers, as well as production, processing and marketing of seeds. Fertiliser consumption per hectare of arable land is 166.2 kg, higher than in India (107.4 kg). Domestic demand for fertilisers is expected to increase and natural gas as raw material for producing urea is available adequately. Urea fertiliser based on natural gas is today recognised as the cornerstone of the country's food security and political stability.

Natural gas
Natural gas is the country's most significant source of commercial energy and it is estimated to have proven gas reserves of 20 trillion cubic feet (tcf). The US Geological Survey has estimated that the country has an additional 32.1 tcf of undiscovered reserves. Analysts expect demand for natural gas to grow by about 6 per cent over the next 20 years.

Power
Bangladesh faces a power shortage. Only about one-third of the total population has access to electricity. The government's goal is to ensure power for all by 2020. Under the new power policy, private power companies are exempt from income tax for 15 years.

NG is a major source of electricity generation. More than 90 per cent of electricity is generated from NG while hydro (about 4 per cent) and petroleum fuels (about 5 per cent) account for the rest. The power sector is the single largest consumer of gas, accounting for 48 per cent of total gas sales.

At present, 15 new power stations are under construction in the public sector to produce 2,610 MW of power. In addition, several projects are being implemented in the private sector to generate 1,390 MW of electricity.

Information technology
Sub-segments in the IT sector include data processing and software development, and investment is mostly confined to information processing. Bangladesh has a low-cost and rapidly growing IT workforce, and is keen on creating IT-related infrastructure.

The availability of a substantial number of qualified and experienced young people in various branches of engineering, science and technology has opened up the scope of profitable investment in these sectors.

Steel sector
Bangladesh has about 295 manufacturing units. Of these, 293 are fully indigenously owned and two are foreign or joint ventures. The country's steel products include billets, finished long products like buyer rods, rebars, plain rounds, squares, plates, hot-rolled and cold-rolled coils and sheets, and galvanised sheets.

Domestic demand for steel in 2003 was 4 million tonnes per annum (mtpa), and is estimated to be 5.1 mtpa in 2007. The ship breaking industry is the main source of raw material for the steel industry, since Bangladesh does not have a domestic source of iron ore, though it has about 2.5 billion tonnes of high-quality coal deposits.

But the steel industry faces the problem of irregular power supply, as well as rising prices of imported steel owing to rising global steel prices. The government wants to privatise some state-owned iron and steel producing mills, including the Dhaka Steel Works, Chittagong Steel Mill, and others.

Leather
Bangladesh has a domestic supply of good quality raw material, as hides and skins are a by-product of a large livestock industry. Incentives for the export-oriented leather market include tax holidays and duty-free imports of raw materials and machinery. But the industry lacks domestic technology and expertise, and local support industries like chemicals are still under-developed.

There is already a substantial domestic leather industry, mostly for exports. At present, Bangladesh accounts for between 2 to 3 per cent of the world's leather market.

The government is in the process of setting up a separate 'Leather Zone', relocating existing industry sites to a well-organised location. FDI inflow is highly encouraged, and foreign investors are welcomed.

Electronics/telecom
Some sub-segments for the sector are semiconductors and cell phone assembly among others. Bangladesh is also likely to emerge as a major cell phone market in South Asia.

In recent years, European and Asian electronics firms have established technical collaborations with Bangladeshi firms to produce electronics goods at highly competitive prices. This has tremendous potential for expansion.

To meet the country's telecom requirements, the government has been developing and expanding the Bangladesh Telegraph and Telephone Board's systems and services. Private sector operations in rural telecommunication, paging, cellular telephones and reverie radio trucking have already been allowed.

At present, seven private operators provide services to about 1 lakh customers. The government has allowed an expansion of three lakh digital lines in Dhaka by private sector participation, through open tendering.

Uploaded on March 29, 2006