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 in 2019, and in 2020 it was still at 3.5 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.

More than half of Bangladesh's gross domestic product (GDP) is generated by the country's services sector, and almost 30 per cent by its industrial sector. 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. The textile sector accounts for almost 85 per cent of exports.

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 2021, migrant workers from Bangladesh transferred roughly 21.75 billion US dollars to their home country.

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. 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 textiles industry

Bangladesh is the world's 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 are frequent health and safety incidents. The most severe accident at a manufacturing facility in the history of the country occurred in 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. When it loses this status, it will no longer be granted these preferential trading terms. Bangladesh will then not only face stiffer price competition, it will also be competing with other competitors (for instance Vietnam). The country will 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 into the EU without having to pay full customs duty on them.