- Bangladesh has been undergoing a significant shift that could have a dramatic impact on global supply chains and secure an economic miracle.
- COVID-19 could put a damper on growth by shutting down factories en masse.
- Bangladesh has tapped into global supply chains.
HONG KONG – Bangladesh is not known as a source of high technology manufacturing but a significant shift is underway, a change that could have a dramatic impact on global supply chains while keeping the country on track to pull of an economic miracle.
The change underway is visible in the headline numbers.
Bangladesh economic growth has been both rapid and steady for almost four decades, rising from 2.1% in 1982 to 7.8% in 2018. The World Economic Forum expects the economy to have registered 8% growth in 2019 and to repeat that in 2020.
The outbreak of the novel coronavirus that causes COVID-19 could put a damper on that growth but this is not a Bangladesh specific factor, although the country’s relatively undeveloped healthcare system and relatively large population puts it at significant risk. The country can ill-afford to shut down factories en masse. To date, the country has examined 102 samples from suspected cases but has not detected a positive case yet. The country has restricted entry from people in Italy, South Korea, Japan and Kuwait.
Bangladesh first became a country in 1971 after breaking away from Pakistan during the Bangladesh Liberation War. It was incredibly poor at the time, hitting the bottom of the wealth ranks.
The decade that followed was expectedly chaotic, with enormous swings in growth, but since the early 1980s the economy of Bangladesh has been on a steady curve upwards. The country of almost 170 million is now on the cusp of its next leap thanks to strong domestic consumption and stronger exports.
Bangladesh recorded the fastest growth rate in South Asia in 2019 and was poised to repeat that feat in 2020 thanks to strong private consumption and a rise in exports. Perhaps even more to the point, Bangladesh is making its way up the value chain.
Not just garment manufacturing
The country has tapped into global manufacturing supply chains, at first with low-cost products like T-shirts and other garments and, more recently, by moving into more complex manufacturing.
Last year, the first set of “Made in Bangladesh” smartphones shipped out, manufactured by Walton Digi-Tech Industries Inc. at a plant in Chandra, Gazipur. In March, a consignment of these phones went to the US. The Walton mobile phone plant was set up in 2017. The phones are original equipment made for a global brand. Walton also manufactures other electronics, like laptops, for foreign brands.
Easier and cheaper access to foreign components has facilitated the growth of Bangladeshi exports. The government recently slashed its import tax on equipment from as much as 100% to just 1%.
And global companies have shown themselves more than willing to set up factories in Bangladesh, which should set the country up to follow on the footsteps of the Asian Tigers.
Since 1974, the United Nations has considered Bangladesh one of the least developed countries but is on track to lose that classification by 2024. Primary school enrolment has spiked from 50% in 1971 to 116% in 2018. Life expectancy has risen from 46 in 1971 to 72 in 2017. Average per capita income was US$1,750 in 2018, almost two-thirds higher than the average for least developed countries, according to the World Bank.
And things are looking up for Bangladesh.
Companies from India, China, South Korea and Japan are already setting up shop in the country’s economic zones.
“The low cost of labour in Bangladesh and relative political stability compared to the region make it an attractive spot for investment,” said Waqas Adenwala, an Asia analyst at The Economist Intelligence Unit.
But the country still has a long way to go. Per capita incomes are still smaller than in India, about a fifth to similar measures in China and a tiny fraction of incomes in middle-income countries like Malaysia.
“Investments in infrastructure will also need to be made to make concrete progress, especially in electricity generation and transport,” said Adenwala. “Although the business environment is still far from optimal, the government remains keen to attract FDI.”
Jason Yek, Asia Country Risk Analyst at Fitch Solutions, believes that Bangladesh’s key attractiveness to foreign direct investments (FDI) lies in Bangladesh’s low labour costs and abundant pool of low-skilled laborers.
“Readymade garment exports account for more than 80 percent of total exports. Europe and North America account for about 66 percent and 20 percent of total external demand,” Yek said.