Workers at the Zaber und Zubair Fabrics Ltd. textile company in Tongi, Bangladesh

Economic situation The economy is picking up

The economy of Bangladesh has been growing since the 1990s. In the past ten years, annual growth has increased according to the World Bank, reaching more than eight per cent, and in 2020/21 it was still at 3.8 per cent – despite the COVID-19 pandemic.

The main drivers of the country’s economic upswing are its cities and domestic demand, while exports dropped because of the pandemic. The economy, which is mainly focused on textile exports, has recovered rapidly from the slump caused by the COVID-19 pandemic, achieving economic growth of roughly seven per cent (2021/22). However, Russia’s war of aggression against Ukraine has pushed growth back down slightly again, with the World Bank now forecasting only around five to six per cent for 2022/23.

More than half of the country's gross domestic product (GDP) is generated by its services sector, and 30 per cent by its industrial sector (figures from 2021). Besides a growing textiles industry, Bangladesh also has new export-oriented sectors with further potential for growth, such as shipbuilding, ceramic wares, pharmaceuticals, bicycle manufacturing and the IT sector. Textile products still dominate exports, accounting for roughly 85 per cent.

One of the most important sources of foreign exchange, in addition to export earnings, are the remittances of Bangladeshis working abroad – in particular in the Gulf states. In 2022, official money transfers dropped by one billion US dollars compared to the previous year, reaching only around the equivalent of 21 billion US dollars. The reasons are economic fluctuations in Bangladesh and the emergence of informal channels for the transfer of money.

Obstacles to investment

A major cause of poverty in Bangladesh is underemployment. The government wants to create more jobs by fostering labour-intensive manufacturing industries, and is trying to attract foreign investors by offering them tax incentives and reduced customs tariffs (in particular in the country’s free trade zones). However, this reasonably favourable formal and legal environment must be set against inefficient bureaucracy, lack of transparency and corruption.

Workers building a new dam road in Khulna

Workers building a new dam road in Khulna

Workers building a new dam road in Khulna

The poor state of the country's infrastructure also puts off potential investors. Many roads and railway lines are congested and in a state of disrepair. Silted-up rivers and ports also hamper the transport of goods. A further brake on economic development is the inadequate power supply. The government’s objective of full electrification of the country has been almost achieved.

The textiles industry

Bangladesh is the second largest textiles and clothing manufacturer after China. The industry generates more than 85 per cent of the country's export earnings and employs around four million women and men. The main export customers of these textile goods are the EU (Germany) and the USA. Therefore, Bangladesh is a focal point of German initiatives relating to the garment industry, such as the Textiles Partnership and the Green Button certification mark.

However, because the health and safety standards in Bangladesh textile factories are very poor, there have been frequent health and safety incidents. The most severe accident at a manufacturing facility in the history of the country occurred on 24 April 2013, when the Rana Plaza building, a nine-storey factory and business premises near the capital of Dhaka, collapsed. More than 1,100 people were killed and over 2,000 were injured.

In response to international pressure, far-reaching fire safety and other building safety regulations were introduced in the textiles sector. The initiatives started in Bangladesh could have an impact well beyond the country's borders. However, in many places, the implementation of such safety standards is progressing more slowly than had been hoped.

As one of the world's least developed countries (LDCs), Bangladesh enjoys tariff-free access to markets within the EU. With trade preferences ending, the country will soon be losing this status. Bangladesh will then not only face stiffer price competition, it will also be competing with other competitors (for instance Viet Nam). The country will also have to comply with tougher standards on human rights, labour rights, environmental protection and good governance if it wants to continue to export its goods to the EU without having to pay full customs duty on them.

As at: 14/02/2023