Cheap labour, big young population bounties for investment in BD

Bangladesh is becoming an attractive destination for foreign investment for its steady economic growth, growing young population with cheaper labour market, incentives for FDI and increasing domestic consumption, says an expert evaluation report.

PricewaterhouseCoopers Bangladesh Private Limited released Tuesday its report titled 'Destination Bangladesh' that says the gateways of doing business in Bangladesh are expanding every day with determined government efforts, including the establishment of diplomatic ties and bilateral agreements.

These prospects and actions are paving the way for sustained economic growth in the country, now on the trajectory of graduation to higher status, notes PwC Bangladesh, a leading professional service firm in the area of technology consulting, tax consulting, and a wide range of advisory services.

The report mentions the country's economy grew at a robust 6-8 per cent annually during the 2015-2019 period to substantiate the note of optimism. "Supported by a demographic dividend, Bangladesh has thrived on readymade garment (RMG) exports, remittances and favourable macroeconomic conditions."

Also, it notes that the country bounced back to the pre-pandemic growth trajectory in 2021 with 6.9- percent GDP growth--the highest in South Asia.

In a comparative study on the labour market, the report says the minimum monthly wage for workers in the apparel-manufacturing sector in Bangladesh is 74 per cent and 35 per cent less than the minimum wages in China and India respectively which makes the country an attractive destination for FDI.

"This continues to provide a substantial manufacturing-cost advantage as compared to its regional peers," it says.

Over the past decade, the country has witnessed a sharp rise in the working-age population due to the 'demographic dividend'.

According to the report, Bangladesh's attractiveness as an outsourcing destination for services (following in the paths of India and the Philippines) continues to grow due to its capable working-age population.

"It is demonstrated in its improved ranking by two places to 35th in AT Kearney's Global Services Location Index 2021. Bangladesh is looking to create over 200,000 direct and 50,000 indirect jobs and earn USD 5 billion a year in the next decade through outsourcing."

To attract foreign investors in the energy sector, the government has implemented various incentives.

These incentives include tax exemptions on royalties, interest paid on foreign loans, and capital gains of foreign investors.

"Foreign investors also enjoy exemptions from double taxation based on bilateral agreements. Furthermore, expatriate personnel employed in approved industries are granted tax payment exemptions for up to three years. Relaxations on work permit issuance for project-related foreign nationals and employees have also been implemented. Facilities for the repatriation of invested capital, profits, and dividends are provided to foreign investors."

In a move to digitize government services and make them more accessible, the report says, the government is working to streamline the investment process. "The introduction of e-TINs has simplified the tax payment procedure, enhancing efficiency and transparency."

Bangladesh's graduation to middle-income status will result in the loss of existing preferential trade benefits. "However, the government is proactively engaging in bilateral trade agreements with major trading partners, such as Japan, to expedite Free Trade Agreement negotiations. These efforts are expected to yield positive economic impacts in the coming years."

The agency, however, has found Bangladesh struggling to bring foreign direct investment (FDI) into the country in comparison to its peers.

"FDI inflow into Bangladesh was the lowest for Bangladesh that constituted only 0.41 per cent of GDP, while Vietnam received the largest FDI of 4.6 per cent of GDP," it says on the flipside of trade and economy.

In order to sustain the projected prolonged economic-growth rate, the report suggests, Bangladesh needs to improve trade competitiveness, streamline urbanization processes and address financial sector vulnerabilities.

"Trade agreements covering tariff modernisation, increased trade facilitation, and services with the European Union (EU) and India can boost Bangladesh's GDP by 0.4 per cent and investment reforms by 0.5 per cent. "

The Destination Bangladesh report recommends that the capital market should be leveraged to achieve this aim.

It said the investments from the capital market are equipped with the potential to address this gap of financing in cottage, micro, small and medium enterprises (CMSME) and businesses that will be better off with long-term equity investments rather than traditional debt investments.

The PwC Bangladesh flagship report, 'Destination Bangladesh', contains an analysis of Bangladesh as an investment destination. It covers areas such as entering the Bangladesh market, funding opportunities and incentives to draw foreign investments, regulations, tax incentives and steps needed to operate business.

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