The Fundamentals of the Bangladesh Economy Remain Strong

Bangladesh is one of the most dynamic economies in Asia, with HSBC projecting it will be the world’s 26th largest economy in the next decade. In recent years the country has been hailed as the next “Asian Tiger,” drawing comparisons to the rapid economic development of countries like South Korea, Singapore, and Taiwan. This transformation is underpinned by several key factors that position Bangladesh as a powerhouse in the region.

The economy is growing fast: Consistently achieving growth rates exceeding 6-7% annually, ranking it as one of the fastest growing economies globally, Bangladesh has grown faster over a longer time than even China. This steady GDP growth can be attributed to robust export performance and burgeoning consumption demand. GDP per capita has also steadily increased, exceeding India’s in recent years. Most of this growth has been driven by consumption - Bangladesh is one of the top 10 consumer markets in the world.

The economy is diverse and diversifying: While the economy is largely supported by its robust ready-made garment manufacturing (RMG) sector, the second-largest in the world after China, Bangladesh has been diversifying its economy into new sectors such as pharmaceuticals, electronics, shipbuilding, and Agro-processing.

The population is young: Over half of Bangladesh’s population is under the age of 25. This "demographic dividend" allows Bangladesh to reap the benefits of a young, dynamic workforce that is increasingly skilled and educated. Investments in human capital are creating a more competitive and adaptable workforce, ready to drive the country into more value-added industries.

Poverty levels have fallen dramatically: Bangladesh has made significant strides in reducing poverty, improving healthcare, and raising literacy rates. Between 2000 and 2020, the country halved its poverty rate, and extreme poverty now affects less than 10% of the population. On social development indicators, Bangladesh outperforms every country in the region, thanks to progress in education and healthcare.

Bangladesh has grown faster over a longer time than even China.

Bangladesh is resilient and capable of thriving in our poly-crisis future — just look at what it’s accomplished in the last 12 months as well as the last 30 years. It has transformed before and it is doing it again now. The fundamental factors that drove Bangladesh’s evolution from a low-income, agrarian economy to a thriving industrial and digital powerhouse are still intact.

The new administration's commitment to reform and anti-corruption is already having a positive impact on the economy

International agencies such as the World Bank, the IMF, the Asian Development Bank, JICA, and others are committed to supporting Bangladesh’s next chapter. The World Bank has already committed USD 2B to help the government’s reform agenda.

The government is already well on its way to managing interest rates, shoring up the balance of payments, pruning fiscal commitments, and rebuilding revenues.

The following regulatory reform and anti-corruption agenda items are also top priorities:

Banking Sector Reforms: The Bangladesh Bank, Bangladesh’s central bank, has already taken aggressive measures to strengthen oversight of the banking sector, including stricter regulations on loan disbursements, enhanced scrutiny of non-performing loans (NPLs), and increased transparency for financial institutions. The Bangladesh Bank must be made fully independent.

Anti-Money Laundering Measures: Efforts to tighten anti-money laundering (AML) laws and compliance have been implemented to prevent financial crimes. The Financial Intelligence Unit (FIU) of Bangladesh is tasked with monitoring suspicious transactions and enhancing the overall financial regulatory framework.

Anti-Corruption Commission (ACC): The ACC is empowered to investigate high-profile corruption cases.

Judicial Reforms: Judicial reforms must ensure that corruption cases are handled swiftly and fairly, which would improve the overall accountability of public and private sectors. The independence of the judiciary must be guaranteed.

Commitments to International Standards: Bangladesh is under pressure from international agencies and others to adhere to global standards for transparency and anti-corruption. This includes compliance with international agreements like the Financial Action Task Force (FATF) recommendations.

Kerry Breen, a private equity investor seasoned in emerging markets, Senior Director, Brummer & Partners, best summed up the value-based mindset towards Bangladesh today: “The future of the country can be very bright indeed. Bangladeshis are very entrepreneurial and have helped power strong economic growth for decades already. The right enabling environment would unlock even greater growth.”

Bangladesh’s economy is too big to ignore

A seminal BCG report aptly titled: “Bangladesh: The Surging Consumer Market Nobody Saw Coming” long predicted this moment in time. Today, Bangladesh’s GDP is approximately USD 450B and is expected to exceed USD 750B by 2029. The size of the market itself, and the size it is expected to achieve in the coming years, make it a force in the global economy that cannot be ignored.

HSBC forecasts that Bangladesh will become the 26th largest economy in the world by 2030; and in PricewaterhouseCoopers’ report entitled "The World in 2050", PwC projects Bangladesh to be among the fastest-growing economies and could rise to the 28th largest economy by 2030.

Where there is instability there is opportunity: the market is on sale

Opportunistic investors realize that the misperceptions of instability create a pricing gap; valuations are bottoming out as things can’t get much worse. The recent changes can only boost the long-term fundamentals of the economy. There is also a learning curve in any emerging economy, so now is the time to take advantage of entry at a time when deep learning is available at lower prices. As Mr. Butler (Sturgeon) notes, “Business is never ‘normal’ in a developing economy, so most companies are well placed to handle the current dislocation.  The long-term opportunity remains, and in the short-term, there is a mispricing due to a gap between perception and reality.”

Bijon Islam, CEO of Light Castle Partners, further points out: “If you haven’t invested in Bangladesh before and you don't start now, you won't develop the understanding of the market that will enable you to take advantage when the economy fully recovers, reforms happen and Bangladesh becomes a geographical hotspot.”

Risk always needs to be managed, in the same way everywhere

Emerging markets are a long-term play; Bangladesh is no exception. Strike before the iron gets hot: There were few institutional investors in India at the turn of this century, but those who entered the market twenty years ago are reaping the benefits today. Investors are ultimately risk managers, and the recent regime change is merely one other factor to take into account when determining whether and when to invest.

There is always some element of political risk that needs to be managed in these markets, but no informed observer could consider Bangladesh chaotic even after recent events. On macro factors and investment climate, Bangladesh has better investment prospects than Egypt, Nigeria, and Kenya — which are economies of comparable size. In the region, markets such as Pakistan and Sri Lanka remain much riskier.

The time is now to take note and make a bet on Bangladesh. Value-based investors know well that uncertain times create the best opportunities.