Bangladesh The Next Asian Tiger 2015 Report

AT Capital Research
Bangladesh
17 April 2008 Growth, Investment, Opportunity
The Bangladesh paradox has been one of surprising economic resilience in

the face of natural disasters, poor governance and political volatility. In effect,
an entrepreneurial private sector base has compensated for a less supportive
macro political environment.
Asian Tiger Capital Partners
However, a key challenge is whether Bangladesh can move away from an

economy that is an impressive underdog, to one that can truly join the ranks of
the fastest growing economies in the region. Is it realistic for Bangladesh to
follow in the footsteps of Vietnam and become the next Asian Tiger?
It is important that Bangladesh can attract long term investment flows that will
help build the infrastructure and productive capacity of the economy.
The aim of this paper is to provide global investors with an outline on the
challenges and prospects for the Bangladesh economy. But a large portion of
this report is dedicated to our review of industry profiles and sector reviews,
reflecting our belief in the need to focus on specific investment ideas.
We hope this report, the first of a series of more detailed sector analyses we
intend to publish, will reduce some of the informational asymmetries that have
constrained FDI flows. We remain optimistic that the next phase of
EDITORS Bangladesh’s economic development will provide many profitable
opportunities for global investors.
Ifty Islam
Managing Partner
+880 171 584 0112
ifty.islam@at-capital.com
Syeed Khan
Partner
+880 172 726 1267
syeed.khan@at-capital.com
Abdullah Ibneyy Shahid

Research Associate
abdullah.shahid@at-capital.com
Asian Tiger Capital

Partners
UTC Building, Level 16
8 Panthapath, Dhaka-1215
Bangladesh
www.at-capital.com
1
AT Capital Research
CONTENTS
1. Overview……………………………………………………………………………………………………………………………………………………………………….
Overview 5
Introduction
A case for optimism
The importance of developing an economic vision
Improving manufacturing productivity
Lessons from Vietnam
The key enabling goals
Conclusion
2. Our Top Investment

Investment Ideas………………………………………………………….…………………………………………………………………………
deas 19
3. FDI in Bangladesh: Background…………………………………………………………………………………………………………………………

Background 20
Trends in FDI flows
Sector distribution of FDI flows
FDI outlook
4. Capital market……………………………………………………………………………………………………………………………………………………………
market 26
International diversification
An emerging capital market
A favorable environment for foreign investors
5. Banking………………………………………………………………………………………………………………………………………………………………………….
Banking 34
Banking sector performance
The regulatory environment
Opportunities in a developing economy
6. Energy……………………………………………………………………………………………………………………………………………………………………………
Energy 42
Energy review
Meeting the country’s energy needs
7. Infrastructure (non-
(non-Energy)
Energy)………………………………………………………………………………………………………………………………….. 49
Road, rail and ports
Lessons from around the world
Strengthening the nations backbone
8. Agriculture
Agriculture…………………………………………………………………………………………………………………………………………………………………...
iculture 55
A long tradition in agriculture
Meeting the needs of the population
Improving yields and product innovation
9. Textiles……………………………………………………………………………………………………………………………………………………………………………
Textiles 61
A success story
Increasing global market share
Exploring the value chain
10. Outsourcing……………………………………………………………………………………………………………………………………………………………….
Outsourcing 67
Redefining the supply chain
An enabling environment
A credible partner
11. Manpower……………………………………………………………………………………………………………………………………………………………………
Manpower 73
Increased global labour mobility
Substantial opportunities for global competitiveness
Enabling an international workforce
2
AT Capital Research
12. Pharmaceuticals………………………………………………………………………………………………………………………………………………………
Pharmaceuticals 79
Competitive advantages ahead of 2016
A sustainable long term strategy
13. Healthcare……………………………………………………………………………………………………………………………………………………………….….
Healthcare 85
The current state of the market
Prospects in medical tourism
Developing private health care
14. Biotechnology…………………………………………………………………………………………………………………………………………………………….
Biotechnology 91
The importance of biotechnology for Bangladesh
Lessons from India
Opportunities for investment
15. Light Engineering……………………………………………………………………………………………………………………………………………………

Engineering 96
Industry review
Potential growth areas
Building on a strong base
16. Heavy Engineering: Ship Building..........……………………………………………………………………………………..……………….

Building 102
A booming market
Is growth sustainable?
17. Tourism………………………………………………………………………………………………………………………………………………………………………..
Tourism 106
Marketing and promotion strategies
An overview of the hotels sector
Developing an effective tourism strategy
18. Education…………………………………………………………………………………………………………………………………………………………………….
Education 111
The enabling environment of education in Bangladesh
Areas for focus
Appendices
Appendix 1-Overview 116

Figure 1-10: Various indicators on doing business in Bangladesh
Figures 11-22: Investment related costs in Dhaka vis-à-vis various other cities around the
world
Appendix 2-Energy 120

Figure 1: Power generation mix in Bangladesh in Fiscal Year (FY) 2006
Figure 2: Trend in annual power generation capacity in Bangladesh
Figure 3: Coal reserves in Bangladesh
Appendix 3-Infrastructure (non-

(non-energy) 121
Figure 1: Composition of different types of roads in Bangladesh (2007)
Figure 2: Revenue earnings and expense of Bangladesh Railway
Figure 3: Toll target and collection by Jamuna Multipurpose Bridge Authority
Case 1: Reform of Bangladesh Railway
Appendix 4-Agriculture 123

Figure 1: Food grain production in Bangladesh
Figure 2: Export of agricultural commodities from Bangladesh
Figure 3: Production and import of chemical fertilizers by Bangladesh
Figure 4: Employment broad economic sectors
3
AT Capital Research
Appendix 5-Textiles 124
Figure 1: Ready Made Garment (RMG) exports from Bangladesh
Figure 2: Main apparel items exported from Bangladesh
Figure 3: Structure of Bangladesh’s Primary Textile Sector (PTS)
Figure 4: Comparative growth between spindle capacity and growth in RMG
Appendix 6-Manpower 126

Figure 1: Estimated size of remittances market in Bangladesh
Figure 2: Different categories of Bangladeshi migrant workers
Figure 3: Overseas employment of Bangladeshi workers at various skill levels
Figure 4: The demographic implosion in developing world (mn)
Figure 5: Sources of Remittances to Bangladesh (in USD mn)
Appendix 7-Pharmaceuticals
Figure 1. World market by geographic region 128
Figure 2: Top 20 manufacturers in Bangladesh by sales
Figure 3: Top 10 Therapeutic segments in Bangladesh by sales
Figure 4: Top 14 molecules in Bangladesh by sales
Figure 5: Major API manufacturers in Bangladesh and their products
Appendix 8-Healthcare 130

Figure 1: Total expenditure on health as a %age of GDP by countries, 2004
Figure 2: Per capita expenditure on health in various countries
Figure 3: Distribution of patients by method of treatment in Bangladesh (%), 2005
Appendix 9-Biotechnology 132

Figure 1: Indian Biotech segments
Case 1: Major Multinational Biotechnology players in India
Appendix 10-
10-Heavy Engineering (Shipbuilding) 132
Figure 1: Growth of world shipbuilding capacities
Appendix 11-
11-Education 133
Figure 1: Bangladesh educational institutes
Figure 2: Number of public and private technical-vocational institutes 2005
Figure 3: Number of public and private professional college 2005
4
AT Capital Research
Overview
Overview
The Bangladesh paradox has been one of surprising economic resilience in

the face of natural disasters, poor governance and political volatility.

economy that is an impressive underdog, to one that can truly join the ranks
of the fastest growing economies in the region.
Bangladesh has three key attractions for global investors and

multinationals: a large base of low-cost labour, a large domestic market of
150mn people, and nearly 3bn people in the Asian region that it has market
access to.
challenges and prospects for the Bangladesh economy as well as
investment opportunities.
The fact that Bangladesh is lagging in the economic development chain is a

potential advantage for policymakers in terms of the ability to learn from the
experience of other countries.
Vietnam saw its FDI increase from USD 2bn in 2000 to an estimated USD
1
20bn in 2007. it is important that Bangladesh can attract similar long term
investment flows that will help build the infrastructure and productive
capacity of the economy.
We believe it is realistic for Bangladesh to achieve a similar tenfold increase

over a seven year period, increasing FDI from a projected USD 700mn in
2008 to USD 7bn by 2015.
The growth of private equity firms (those that invest in non-listed securities)
can positively impact Bangladesh’s ability, not only to attract FDI, but also to
improve manufacturing productivity.
A dynamic private sector and a substantial increase in FDI flow is likely to

fail to deliver the kinds of economic growth gains Bangladesh need’s to
become a Middle Income Country (MIC) unless the government and the
regulatory authorities can provide a supportive enabling environment in
terms of infrastructure, corporate governance, capital markets, law and
order, education, fiscal policies among other factors..
intend to publish, will reduce some of the informational asymmetries that
have constrained FDI flows. We remain optimistic that the next phase of
Ifty Islam
Bangladesh’s economic development and will provide many profitable
Managing Partner
+(8801) 715840112 opportunities for global investors.
ifty.islam@at-capital.com
5
AT Capital Research
Introduction
The Bangladesh paradox The Bangladesh paradox has been one of surprising economic resilience in the
face of natural disasters, poor governance and political volatility. Even if growth
has lagged a number of other economies in Asia, most notably China, India and
Vietnam, the volatility of Bangladesh’s growth has been lower. In effect, an
entrepreneurial private sector base has compensated for a less supportive macro
political environment.

economy that is an impressive underdog, to one that can truly join the ranks of the
fastest growing economies in the region. Is it realistic to assume that Bangladesh
can follow in the footsteps of Vietnam and become the next Asian Tiger?
We believe optimism that Bangladesh can move into the ranks of Middle Income
Optimism for becoming middle th
countries (defined as a per capita income of USD 875) by 2021, the 50
income country is justified.
anniversary of its Independence, is justified. But this will require Bangladesh
moving from a 5-6% growth trajectory to around 7.5%. This is not impossible given
the experience of other countries in the region. But it is not inevitable. Much will
depend on the ability of Bangladesh to achieve
achieve the acceleration in FDI (Foreign
Direct Investment) flows seen in the rest of Asia and parts of Latin America.
Vietnam, for example, saw its FDI increase from USD 2bn in 2000 to an estimated
1
USD 20bn in 2007. It is important that Bangladesh can attract similar long term
investment flows that will help build the infrastructure and productive capacity of
the economy. We believe it is realistic for Bangladesh to achieve a similar tenfold
increase over a seven year period, increasing FDI from a projected USD 700mn in
2008 to USD 7bn by 2015.
The role of government should be to create an enabling environment for both FDI
Building an enabling
environment to spur FDI and and domestically generated investment capital to prosper. This will clearly require
domestic private investment regulatory reforms, development of the capital markets, and greater infrastructure
expenditure, especially on power generation. But Bangladesh also needs to
market the opportunities it offers to global capital markets and multinationals more
effectively. While FDI seems to be a generic and nebulous concept to many,
ultimately it is an aggregate of a series of specific investments across a variety of
industries.
challenges and prospects for the Bangladesh economy. But a large proportion of
this report is dedicated to our review of industry profiles and sector reviews. This is
not accidental, but reflects our belief that the range and breadth of investment
opportunities, as Bangladesh integrates more effectively with the global economy
,is not fully appreciated by many international investors.
intend to publish, will reduce some of the informational asymmetries that have
constrained FDI flows. We remain optimistic that the next phase of Bangladesh’s
economic development will provide many profitable opportunities for global
investors.
6
AT Capital Research
The need for a more positive A Case for Optimism - a long-

long-term perspective on economic potential
“Brand Bangladesh”
The image of Bangladesh for the rest of the world, what one mig might
ht define as
“Brand Bangladesh”, is likely to be one of natural
natural disasters, grinding poverty,
overpopulation and corruption.
corruption A more positive impression we believe is
appropriate, is a young population of 150mn people with very favourable
demographics resulting in one of the fastest rates of growth of labour supply in the
world; a country in the heart of Asia and juxtaposed strategically between India
and China; a very entrepreneurial culture as evidenced both by the resilience of
the textile sector to the end of MFA quotas.
Source: CIA Factbook2
When considering what might be possible in Bangladesh, global investors should

Economic history suggests
never underestimate the scope not overlook the scope for transformational shifts. One only needs to look at recent
for transformational change history for evidence that globalization has accelerated the potential pace of
economic change. Even the most optimistic Indian patriot would have been hard
pushed to forecast in 1992, when the country was almost bankrupt and going to
the IMF for emergency funding, that just 15 years later it would become a global
3
powerhouse in services with near USD 300bn in reserves.
Similarly with China, in th the

e immediate aftermath of the political uncertainty
following Tiananmen Square, very few economic forecasters would have predicted
that less than 20 years later China would be the manufacturing power house of the
world,
world, with more than USD 1.5tr of reserves.
As students of economic history, we are struck by the scope for profound changes
in a country’s competitive economic position over the longer-term.In 1825, China
and India constituted 50% of global GDP and by 2050 these two nations will again
constitute 50% of global GDP. US investment bank Goldman Sachs, who have
done much of the pioneering work on BRICs (Brazil, Russian, India and China)
noted in a recent report (“Brics and Beyond”, GS, 2007) when commenting on
3
India that:
“On the eve of the Industrial Revolution (around 1770), India was the second-
7
AT Capital Research
largest economy in the world, contributing more than 20% of total world output. By
the 1970s, after two centuries of relative economic stagnation, that share had
In 1770 India was the second
biggest economy in the world. fallen to 3% the lowest in its recorded history. From a long-term perspective, the
By 2050 it will overtake the US post-industrial economic decline of India (and China) is a historical aberration,
to reclaim 2nd place driven to some extent by a lack of openness. After independence in 1947, India
followed inward-looking and state-interventionist policies that shackled the
economy through regulations, and severely restricted trade and economic
freedom. The result was decades of low growth, pejoratively termed the Hindu rate
of Growth. Reforms beginning in 1991 gradually removed obstacles to economic
freedom, and India has begun to play catch-up, steadily re-integrating into the
global economy.”
They go on to forecast that India will overtake the US as the second largest
3
economy in the world to China by 2050.
The purpose of all this historical analysis is to re-

re-iterate that Bangladesh by 2021
could be radically different to the country you see today.
today Transformational change
is not inevitable but it is certainly possible.
Bangladesh’s geographic position gives it every opportunity to participate in the

“Asian Century”. We believe it is this potential that will increase the focus, interest
and opportunities for global investors.
Goldman Sachs bullish on Goldman Sachs in 2005, introduced the concept of the Next Eleven (N- (N-11) and
Bangladesh as part of their included Bangladesh
Bangladesh in that list. Their goal was to “identify those countries that
“Next 11” EM markets to follow could potentially have a BRIC-like impact in rivaling the G7”. Their main common
the BRICs ground and the reason for their selection was that they were the next set of large-
population countries beyond the BRICs. The result was a very diverse grouping
that includes Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria,
3
Pakistan, Philippines, Turkey and Vietnam.
JP Morgan also introduced the concept of the “Frontier five” and included
JP Morgan have added Bangladesh in that list. In their 2007 report (“Ho Chi Minh trail to Mexico”, JP
Bangladesh to their “Frontier 4
Morgan Research, 04 April 2007) they commented that:
five” on the basis of its
favourable demographics and “It is the demographics of Bangladesh that justifies its inclusion in the JPMorgan
large population Frontier Five. The country ranks fourth in growth in economically active population.
Five-year economic growth is strong at 6.1% (CAGR). Progress has been made
over the last few years to reduce poverty, increasing literacy levels and moderating
population growth to a more sustainable level. An assertive judiciary, active civil
society and a relatively free media have increased public accountability.”
8
AT Capital Research
Bangladesh population growth

rate one of the fastest in Asia
Source: globalis.gvu.unu.edu5
The growing number of global investment banks focusing on the opportunities in

Bangladesh clearly suggests increasing potential to step up both FDI and foreign
portfolio flows. But translating this rising interest by the foreign investor community
into substantial capital inflows will require a focused strategy to create both a
broad range of concrete investment opportunities/proposals along with a
supportive regulatory environment.
Bangladesh: The Importance of Developing an Economic Vision
There is little doubt that the success of the previous Asian Tigers has been
predicated on Economic Vision.
Vision In many cases, this has been at Government
level. Witness Chinese Paramount Leader Deng Xiaoping’s “Open Door” policy of
the early 1980s in moving the Communist economic system towards a more
Economic vision at both a market and export based strategy. Vietnam, the current favourite of the global
government and private level
key to the success of current investors buying into the Asian economic miracle, adopted its “Doi Moi” (roughly
and previous Asian Tigers translates as “change or something new”) or “Renovation” policy back in 1986 that
culminated in peak FDI flow 10 years later in 1996. The Asian crisis hit Vietnam
hard but the ability to grow FDI flow from USD 2bn in 2000 to USD 20bn in 2007
6
underlines the important foundations the “Doi Moi” policy made. Former PM
Mahathir adopted his “Vision 2020” strategy in 1994 of moving Malaysia from a
7
developing to an advanced nation.
But not all transformational economic vision comes at a government level. Take
South Korea, which has just celebrated moving to a per capita GDP of USD
20,000, a near trebling in just a decade. Indeed in 1995, Korea had a per capita
GDP of USD 10,000 that collapsed to USD 7800 in the aftermath of the 1997
Korean Chaebol have shown Asian crisis. But Korea managed to re-invent itself despite the collapse in GDP
the potential impact corporate
strategic vision can play in a and the crisis of national self-confidence. While the government played an
country’s economic important enabling role, it was the “Chaebol” or family conglomerates that had the
development “Vision” to help the country accelerate to first world status. When we think of Korea
now, we associate it with Samsung, LG and Hyundai. The private sector was the
catalyst for the dramatic economic recovery. The redefinition of Korea corporate
brands such as Samsung, away from being perceived as a cheaper alternative to
Japan, to being associated with the most cutting edge technology in electronics
from 70" plasmas to talking refrigerators should be an inspiration to any corporate
9
AT Capital Research
questioning the ability of their vision to impact a country. (n.b. In 1950, South
Korea’s GDP per capita was the same as Bangladesh!).
India was probably a hybrid between the two models of public sector versus
private sector economic vision. The economic crisis of 1992, when the country was
almost running out of reserves and forced to seek emergency IMF financing,
India’s hybrid economic vision forced a re-thinking on a socialist economic strategy. The “Hindu” rate of growth of
with government combining 3% and all the problems of the “License Raj” with a labyrinthine and suffocating
with NRIs helped provide the bureaucratic apparatus were increasingly viewed as misguided. It took the vision
foundation for the rapid
economic growth of today of the then finance minister (now prime minister) Manmohan Singh to create the
right environment for change that included cutting the excessive tariff barriers and
regulatory constraints on foreign ownerships and repatriation of profits that was
limiting FDI flows. Indeed when Bangladeshi corporates express skepticism about
their ability to work with policymakers to deliver necessary regulatory reforms, one
need only look to India, whose bureaucracy in the early 1990s was no less
unwieldy than Bangladesh’s regulatory framework today, for evidence of what can
be done when the public and private sectors develop a partnership/adopt a
mindset of cooperation.
But the Indian success story was clearly not all down to government reforms. The
Valley
private sector led by NRIs returning from Silicon Valle y to Bangalore, have also
played a pivotal role. Family companies like Tata and Reliance have re-invented
themselves. Wipro, now of the world’s leading IT and outsourcing companies was
originally an edible oil company.
The Bangladesh growth model is likely to be built on the dynamism of its

entrepreneurs/corporates, closer to the Korean experience, but one still needing a
supportive regulatory environment.
Bangladesh’s Economic Strategy
In formulating the likely economic strategy and hence investment opportunities,

A sustainable economic there have been two excellent and comprehensive reports that we would
strategy for Bangladesh recommend that global investors take a look at. The 2006 CPD paper “Bangladesh
Vision 2021” prepared under the Nagorik committee is an excellent and thought
provoking summary of many of the key issues. The July 2007 World Bank Report
“Bangladesh: Strategy for Sustained Growth” also provides plenty of food for
9
thought.
In the latter report, the World Bank suggested that Bangladesh could reach Middle
Income Country (MIC) status (defined as USD per capita of USD 875) by 2016 if it
grows 7.5% per year. The report highlighted three key mutually re-inforcing long-
9
term transitions as being integral to achieving this outturn including:
Key themes include shift away • A shift from agriculture to industry and services
from agriculture, greater
integration with global markets • Deepening integration with global markets
and the emergence of dynamic • The emergence of diverse dynamic urban centers
urban sectors.
The WB Report goes on to note that “the management of these transitions, in turn,
will require better economic governance and business environment without which
FDI will continue at low levels; continued macroeconomic stability; a commercially
10
AT Capital Research
viable energy sector that supports the country’s vast energy needs; deeper and
more efficient financial sector; and a greater emphasis on the quality of education
and labour skills”.
New strategic sectors for the The “Bangladesh Vision 2021” paper from the Nagorik Committee identified eight
economy include offshore light
inter-related goals. In terms of Goal Three, to help Bangladesh achieve MIC status
manufacturing, eco products, th
data processing, manpower by the time of its 50 anniversary from Independence in 2021, the Committee
and agro-businesses identified a number of new sectors assembled electronic goods, data processing,
developing the jute industry to benefit from the growing demand for eco-friendly
products. They also outlined the support for the expansion of existing leading
sectors of the economy including textiles, manpower, agro-food processing. They
emphasized the need to also support Small and Medium Sized Enterprises
8
(SMEs) in terms of access to credit and technology innovations.
The Importance of Improving Manufacturing Productivity
The World Bank also did a survey of 700 firms in five key industries where they
9
found six key factors that was likely to improve productivity:
i. Addressing energy supply constraints where they noted that a 1%
WB survey highlighted key
factors to improve productivity increase in the number of power outages in a year reduces the productivity
… of the average firm by 10%.
ii. Increase FDI since they found firms with any level of foreign ownership
were found to be 10% more productive on average than firms that are
….these included better wholly domestically owned.
infrastructure, increased FDI, iii. By lowering trade barriers since they found that firms that export the
more open trade, education,
majority of their output were 10% more efficient than those that are more
innovation, law and order
domestically focused. Experience gained in export markets was self-
reinforcing over time.
iv. Building human capital: Higher Education levels and better management
training were important contributors to firm productivity.
v. The WB also noted that new measures were needed to encourage the
application of a greater innovation and the adoption of more advanced
technologies.
vi. Strengthening law and order: the ongoing presence of “protection
payments” was a negative.
Source: CIA Factbook2
11
AT Capital Research
International Private Equity It is worth

worth noting that the arrival of international Private Equity firms (those that
firms can bring in substantial
efficiency for Bangladeshi firms invest in non-
non-listed securities) can positively impact Bangladesh on all of the
above with the exception of law and order. The major “value-added” from private
equity is likely to be from strategic capital. In a report on Private Equity, leading
10
strategy consulting firm McKinsey noted that:
“Several buyout firms now recognize that they can create value (in conjunction
with management teams) by participating more in managing the companies in their
investment portfolio and by developing cross-industry functional skills—including
marketing, pricing, lean manufacturing, and procurement and supply chain
management.” (McKinsey 2005)
Lessons from Other

Other Countries – Vietnam
The fact that Bangladesh is lagging in the economic development chain is a

positive in terms of the ability to learn from the experience of other countries both
in this region and in the emerging markets (EM) more broadly. For lessons
Bangladesh can learn from the rest of Asia, the UNDP 2005 paper “Report on
Identification of Employment Oriented Export Sectors” offers insights including
comparables with Thailand, Sri Lanka, Pakistan, Vietnam and Cambodia across
issues such as product and market diversification, trade promotion, IT,
11
Government-Private Sector forum and Investment Climate.
Vietnam increased FDI from However, the clear success story in Asia’s
Asia’s Vietnam,
Vietnam, which has seen FDI expand
USD 2bn in 2000 tenfold to 20bn in 2007 with in excess of USD 5bn
tenfold from USD 2bn in 2000 to USD 20bn
USD 20bn in 2007
recorded for Q1 2008. Vietnam’s growth in the 2000-2006 period has been 7.4%
6
second only to China at 9.5% and above India’s 6.7%.
What can Bangladesh learn and what are the lessons for potential global investors
in Bangladesh from the Vietnam experience?
experience?
A paper by Hsieh Weng-Jen (2005) “The Determinants of Foreign Direct
Investment in South East Asian Transition Countries” suggests that foreign
investors value political stability, clear government policies, local market size and
Vietnam benefited from its “Doi cost structures in considering FDI destinations. Vietnam’s political stability as a
Moi” policy with a pro-active one party state under the Communist Party has given some reassurance to
strategy to attractive FDI 2
investors. Since the “Doi Moi” policy was launched, the government has been
striving to implement policy measures to promote investment. As a recent Fitch
Ratings Report (February 2008) has noted, “(Fitch) believes that legal framework,
trade agreements, tax incentives and industrial facilities, are crucial for foreign
12
direct investment into Vietnam”.
Also, according to the World Bank’s “Doing Business Report 2008”, Vietnam’s
st
overall position improved to 91 (out of 178 countries) which was better than
th th
Bangladesh (107 ) though the latter was still better than India (120 ), and
th 13
Cambodia (145 ). Fitch also notes that since the introduction of the First Law on
Foreign Investment in 1987, Vietnam “has identified itself as a county determined
to attract FDI.” The FDI policy was further regulatory changes and amendments in
12
1990, 1992, 1996, 2000 and 2003. (see Appendix 1 for details on Bangladesh’s
“Ease of Doing Business” results).
12
AT Capital Research
To further enhance the country’s attractiveness as an FDI destination, Vietnam’s
Vietnam’s continues to government has also proposed cutting the standard corporate tax rate from 28% to
innovate FDI policy including
lowering corporate tax rates, 25% to create a more favourable business environment for FDI. The government
more industrial zones also continues to provide preferential incentives to projects investing in the
industrial, processing and economic zones. An additional 22 industrial zones were
6
set up in 2007 alone and the total now stands at 150.
Figure 4: Diaspora in 2006
Diaspora Total population Diaspora as a %

Countries (mn) (mn) of total population
Vietnam 3 84 4%
India 24 1,100 2%
China 39 1,300 3%
Bangladesh 4 142 3%
Source: Several sources compiled by Wikipedia14
Leveraging Diaspora
Vietnam’s Diaspora have
played a key role in its A recent Deutsche Bank Report (“Understanding Vietnam”, DB Research, July 26,
economic success 2007) suggested that an estimated 3mn Vietnamese live abroad mostly in North
American and Europe. This compares to 20-25mn and 55-60mn of the Indian and
Chinese Diaspora respectively. However, the relative size of this Diaspora is larger
at 3.6% of the population. Remittances from the Vietnamese Diaspora amounted
to 9.5% of GDP in 2006, second only to Philippines.
A strong educational system is also a major attraction for Vietnam

Vietnam as an FDI
Vietnam’s focus on education destination. Its literacy rate of 90% is similar to China’s and significantly higher
than India at 60%, Pakistan at 50% and Bangladesh at 43%. As the DB report
notes, due to Vietnam’s openness to foreign influence and reliance on trade, the
workforce’s English language proficiency compares favourably with many of its
6
neighbors, especially China.
On infrastructure, Vietnam is constructing six international airports with one

Vietnam’s has focused on Bangkok. An elevated railway
envisaged to be able to compete with Singapore or Bangkok
improving infrastructure, in is planned for Hanoi. The government plans seven new power plants by 2010, one
both power and
communications natural gas plant and one nuclear plant all with the help of foreign investors. This
6
will reduce reliance on hydropower from around 40% currently.
So in terms of Vietnam lessons for Bangladesh, a dynamic and proactive FDI

strategy is clearly important. Investment in education is another key focus.
Leveraging Diaspora is an area Bangladesh has done with remittances but it can
clearly do more, especially in terms of attracting higher skilled diasporas back,
leveraging NRB intellectual and commercial capital, rather than lower wage
workers sending money back to the country. But perhaps the greatest lesson
Bangladesh can learn is that in the same way Vietnam has clearly benefited from
the “China+one” policy of many global multinationals in terms of reducing their
dependence on China, Bangladesh should aim to position itself as “India+one”. It
has already done so to some extent in textiles. But in other areas such as
outsourcing, it has been far less effective.
13
AT Capital Research
Remittances is important for

Vietnam
Source: DB Research (2007)6
The Importance of a Supportive

Supportive “Enabling Environment”
A dynamic private sector and a substantial increase in FDI flow is likely to fail to
Creating an enabling
environment is the key. deliver the kinds of economic growth gains Bangladesh needs to become MIC
unless the government and the regulatory authorities can provide a supportive
enabling environment in terms of infrastructure, corporate governance, capital
markets, law and order, education, fiscal policies and so on.. An excellent report on
improving the enabling environment is the Bangladesh Enterprise Institute’s (BEI)
15
“Reducing the Costs of Doing Business in Bangladesh” (2003). Although the
paper is several years old, it offers a number of valuable insights that are still
relevant.
Enabling Environment Goal 1 – Better Infrastructure

5 enabling environment goals
Bangladesh needs to increase investments in its infrastructure both in power and
communications. Without this, it is self-evident that economic vision and a dynamic
corporate sector will remain capacity constrained. This involves significant
expansion of its power generation capacity. A recent ADB report suggested that to
grow at 7% GDP growth would necessitate Bangladesh adding 2000 MW of
Encouraging private sector capacity each year.
infrastructure investment
Additional investment in port facilities both in terms of greater private sector

participation to cut transit and processing times as well as potentially a deep water
port is also important. One major factor that has meant that Bangladesh has one of
the most inefficient ports in the region is the powerful labour unions which have
historically enforced wage and facility-fee increases and allowed corruption to
persist. Another constraint has been the lack of investment in equipment in ports
such as the addition of more automated gantry cranes.
Creating transparency and Enabling Environment Goal 2 – More effective Political, Regulatory
Regulatory and Corporate
accountability
Governance
The 2006 Nagorik committee recommended a transparent campaign financing
system and more accountable MPs to reduce the risks of corruption in government
procurement programs as a soft means of party financing. They also
8
recommended the establishment of an effective Anti-corruption commission.
Both the 2007 WB Report and the 2006 Nagorik Paper emphasized the need for
decentralization of government to improve the efficiency and remove bottlenecks
14
AT Capital Research
in government and the administrative bottlenecks that are an ongoing constraint
8,9
on economic development and a more dynamic private sector.
The regulatory authorities need to ensure better corporate governance which

should include more transparent, credible and reliable accounts from Bangladeshi
companies. Also greater protection of minority shareholder rights is required to
ensure more owner/managers focus on delivering efficiencies to maximize returns
for all shareholders and not just themselves as the majority shareholder.
Source: The Heritage Foundation16
More effective tax collection is also a key enabling goal. As the WB (2007) have
noted “The low revenue effort that stems from weak administration creates a chain
of disincentives to good governance, from low salaries for civil servants to
9
inadequate operations and maintenance.”
Enabling Environment Goal 3 – A more developed financial system/capital markets

A more developed financial
system, both in capital markets One of the biggest constraints for Bangladeshi business is the high cost of
and banking, will be an corporate capital. Even with interests around the world falling sharply, many
important foundation for more companies still have to pay 16%+ funding costs which make a number of
rapid growth
investment proposals unviable. This is partly a reflection of very wide
margins/spreads adopted by banks between deposit and lending rates.
Bangladesh Bank has been pressuring commercial banks to narrow their spreads
which is a positive step. It is also a reflection of a number of companies unwilling
to access the stock market as a form of cheaper financing. This is partly because
of what they perceive as unattractive valuations with IPOs being brought on a net
asset rather than a market price based valuation. The book building process for
the proposed sale of Grameenphone later in 2008 should alleviate some of the
concerns from owners of businesses about depressed valuations if they come to
market. Bangladesh also needs to develop a corporate bond market which in turn
requires greater development and liquidity of the government bond market.
15
AT Capital Research
Improving Law and Order as Enabling Environment Goal 4 – Law and Order/Political Stability
well as political stability will be On Law and Order, BEI notes that “Among the elements that add to the cost of
critical to increase foreign
investor confidence doing business in Bangladesh (is) the inordinate delay in the disposal of cases, by
the lower courts in particular, and the indifference or incapacity of the police in
enforcing law and order.” They recommend additional public sector investment in
expanding the judiciary as well as increasing the pay for the police force as well as
15
other law enforcement officials.
One might add that a move away from confrontational politics between the major
political parties that resulted in regular strikes that stopped business will also be
important if Bangladesh is to achieve its longer-term goals. As the 2007 WB
Report highlighted “The fractiousness of Bangladeshi politics contributes to
political uncertainty and heightens perceptions of economic risks among investors,
9
especially foreigners.”
Enabling Environment Goal 5 – Education

Improved education, especially
vocational training and English If Bangladesh wants to become the next Asian Tiger, it needs to develop a broader
language, key base of skilled workers and managers that can support the expansion into new
higher value activities such as IT outsourcing as well as offshoring. This should be
based on an expansion of secondary and tertiary education though the more rapid
benefits may well come from the establishment of a number of vocational training
colleges in IT, English Language and other specific areas such as nurses,
electricians, plumbers etc that might underpin a significant expansion in Manpower
exports. The very favourable demographics in Bangladesh with its young and
growing population contrast with Europe, Russia, China and Japan which will
suffer from a rapidly ageing population.
Conclusions: Investment Opportunities

Constraints create a window of
investment opportunities
Bangladesh emerged from the 1971 war of independence a free nation, but one
whose economy and infrastructure was shattered. It was notably described by US
Secretary of State Henry Kissinger as “an international basket case”. It’s
achievements over the past 37 years has been impressive, most notably in its
emergence as a major global textile and RMG exporter. More broadly, the low
volatility and consistency of growth in the past decade, despite political instability
and natural disasters is a testament to a dynamic and entrepreneurial private
sector.
We see the prospects for Bangladesh to accelerate its growth rate to 7%+ on a
consistent basis over the next 10 years which should take it towards a goal of
becoming an MIC. We outlined a number of enabling goals the government needs
to deliver on from substantial investment in infrastructure, to corporate and
regulatory governance reforms, capital markets and law and order. A more
focused education strategy is critical if Bangladesh is to leverage its favourable
demographics in terms of a young and rapidly growing labour force.
An aggressive strategy to reduce internet costs by a further 75% will be

necessary to act as a catalyst for the more rapid development of the IT sector if
Bangladesh is to position itself as a major beneficiary of India diversification – the
th
so-called “India+1” strategy. (see Appendix 1 for details on the JETRO 17 Annual
16
AT Capital Research
Report on the costs of doing business in Bangladesh versus other Asian
Countries).
Bangladesh has three key attractions for global investors and multinationals: a
large base of low-cost labour, a large domestic market of 150mn people, and
nearly 3bn people in the Asian region that it has market access to. We believe it is
credible for Bangladesh to emulate Vietnam’s FDI performance of a tenfold
increase over seven years. Assuming FDI of USD 700mn in 2008, this suggests
Bangladesh should aim for FDI of USD 7bn by 2015.
This will require among other things a more pro-active FDI strategy such as
marketing “Brand Bangladesh more effectively overseas, reducing regulatory and
tax disincentives for foreign investors, and encouraging the private sector and
capital markets to develop specific investment ideas foreign companies and funds
can actually invest in.
In the next section of this report we list what we believe are the most compelling
investment opportunities for global investors. In the remainder of document, we
provide more detailed analysis on the key sectors in Bangladesh including Capital
Markets, Banks, Energy, Non-Energy Infrastructure, Agriculture, Textiles,
Outsourcing, Manpower Exports, Pharmaceuticals, Healthcare, Biotechnology,
Light Engineering, Heavy Engineering , Tourism and Education.
References
1. Hsieh Weng-Jen. (2005) "The Determinants of Foreign Direct Investment

in South East Asian Transition Countries". Paper presented at National
Chung Kung University.
2. Central Intelligence Agency-the World Factbook available at

https://www.cia.gov/library/publications/the-world-factbook/index.html.
3. Goldman Sachs Global Economics Group. (2007). “BRICs and Beyond”.

Available at http://www2.goldmansachs.com/ideas/brics/BRICs-and-
Beyond.html on April 7, 2008.
4. JP Morgan Research. (2007). “Ho Chi Minh Trail to Mexico-Launching the

JPMorgan Frontier Five and EM8”.
5. Official website of Globalis available at globalis.gvu.unu.edu.
6. DB Research. (2007). “Understanding Vietnam: a look beyond facts and

figures”. Available at www.dbresearch.com/PROD/DBR_INTERNET_EN-
PROD/PROD0000000000213377.pdf
7. Mohammad, M. B. (1991). “The Way Forward (Vision 2020)”. Paper

presented at the Malaysian Business Council. Available at
http://www.epu.jpm.my/New%20Folder/publication/the%20way%20forwar
d.htm.
8. Centre for Policy Dialogue (CPD). (2007). “Bangladesh Vision 2021”.

Prepared under the initiative of NAGORIK Committee 2006. Dhaka:
17
AT Capital Research
Centre for Policy Dialogue
9. The World Bank Office, Dhaka. (2007). “Bangladesh: Strategy for

Sustained Growth”. Bangladesh Development Series Paper No. 18.
10. Harper, N. W. C., & Schneider, A. (2004). "Private Equity's New

Challenge". McKinsey Quarterly, August 2004.
11. IRIS, University of Maryland. (2005). “Report on Identification of

Employment Oriented Export Sectors”. Prepared for UNDP Bangladesh.
Available at www.usaid.gov/bd/files/jobs_subsectors.pdf.
12. Fitch Ratings Report on Vietnam. (February 2008)
13. World Bank. (2008). “Doing Business 2008”. Available at

www.doi.gov/oia/procurement/reports/2008%20World%20Bank%20EoDB
%20Rankings.pdf
14. Wikipedia search: “Diaspora”.
15. Bangladesh Enterprise Institute. (2003). “Reducing the Costs of Doing

Business in Bangladesh”.
16. Official website of The Heritage Foundation at www.heritage.org.
18
AT Capital Research
Our Top Investment Ideas
Our Top Investment Ideas
Investment in Independent Power Producers (IPP) and Small Power

Plants (SPP).
(SPP) With significant energy needs in Bangladesh, power
generation is a key driver in economic development. Power Purchase
Agreements (PPA) with the government mitigates many external risks.
Investment in private commercial banks To comply with Basel II many

banks will struggle to meet capital requirements, and we anticipate
consolidation in the industry. This will give rise to many opportunities in
a sector that has yet to fully penetrate the wider economy.
Investment in Vocational Training Colleges. Key to the capitalizing on

global outsourcing and manpower exports, both low end and high end,
is targeted training. Bangladesh can develop its comparative
advantage given increasing labor costs in the traditional
outsourcing/offshoring destinations such as India and China.
Investment in country wide cold storage facilities. This will allow the
development of a higher value-added agriculture export market. For the
domestic market, it also reduces wastage and improves margins.
Investment in pharmaceutical plants with certification for developed

markets.
markets. Contract/toll manufacturing for bulk drugs with foreign joint
venture partners provides a means for leveraging a low cost base in
accessing a global market. This also provides opportunities for LDC
based pharmaceutical companies to develop international revenue
streams after the TRIPs patent protection lapses in 2016.
Investment in luxury hotels in Cox’s Bazar, Chittagong and Sylhet. Only

Dhaka benefits from high end hotels. Coupled with a coordinated
national branding and marketing effort, promoting tourism provides
significant investment opportunities.
Investment in weaving mills

mills and dyeing-
dyeing-finishing mills.
mills There is a large
demand-supply gap in fabrics and a shortage of weaving mills.
Investment in modern technology, new machinery and modern
production processes is a significant opportunity to profit from greater
backward linkage/vertical integration
Investment in world class medical facilities for medical tourism. With

medical tourism a growing sector, Bangladesh could capitalize on this
Syeed Khan
Partner global shift, benefiting from geographic proximity to tourist destinations
+(8801) 727261267 of South and South East Asia. Targeting NRBs should be a priority.
syeed.khan@at-capital.com
19
AT Capital Research
Foreign Direct Investment (FDI)

FDI
Over the last decade, FDI as a share of GDP in Bangladesh varied between
1.4% in FY98 and 0.5% in FY04. In FY05, it rose to 1.3% due mostly to the
large inflow of FDI to the telecommunications sector.
As a ratio of gross investment, FDI varied between a low of 1.2% in FY04

and a high of 3.2% in FY98.
Over the 1998-2007 period, the aggregate FDI inflow to Bangladesh was
USD 5.51bn.
There are three broad sectors of FDI inflows: infrastructure, manufacturing,

and services. The shares of the three sectors are 46%, 27% and 27%
respectively.
Some very large FDI proposals are currently pending with the government.
These include investment proposals made by Indian conglomerate Tata
(USD 3bn), United Arab Emirates based Abu Dhabi Group (USD 2bn), UK-
based Global Oil and Energy Ltd (USD 2.9bn), Malaysian Azimat
Corporation (USD 900mn), and Contech Ltd (USD 900mn).
Bangladesh has a number of positive attractions like low wage rate and
steady macroeconomic growth, that can successfully attract the attention of
foreign investors from both developed and developing countries.
For a developing country like Bangladesh, increasing the level of FDI is

likely to have a significant positive impact on export growth, the balance of
payments and facilitate knowledge transfer into the country.
Bangladesh has a bright future in terms of attracting a greater amount of

FDI provided improvements are initiated in areas like bureaucratic
processes, more effective marketing of “Brand Bangladesh” as well as the
development of infrastructure.
With a more focused FDI strategy, we believe it is realistic for Bangladesh

to replicate the Vietnam experience of a tenfold increase in FDI over the
2000-2007 period. This suggests a target level for Bangladesh of USD 7bn
annual FDI by 2015.
Md. Saif Noman Khan

saif.noman@at-capital.com
20
AT Capital Research
Why FDI for Bangladesh Foreign direct investment (FDI) is a key driver of a developing country’s economic
development. FDI not only brings investment capital, it also transfers a considerable
amount of technical and managerial knowledge and skills, not only to the investee
1,2
businesses, but also the wider economy and domestic enterprises.
Comparative analysis shows Bangladesh's investment incentives and regulations

for FDI appear competitive with those offered by similar EM countries in the rest of
Asia, at least theoretically. However, effective implementation of these measures,
which is key to attracting higher FDI inflows, needs significant institutional reforms,
radically reduced levels of control, better provision of essential infrastructure,
perceived improvement in investment climate, and sustained socio-political
1
stability.
FDI in Bangladesh: Background Several underlying factors have contributed to increasing the FDI inflow in
Bangladesh,
Bangladesh such as trade and exchange liberalization, current account
convertibility, emphasis on private sector led development, liberalization of the
investment regime, opening up of infrastructure and services to the private sector,
both domestic and foreign, and above all the interest of foreign investors in the
energy and telecommunication sectors. FDI however played a minor role in the
economy of Bangladesh until 1980, a crucial year of policy change. The
Government of Bangladesh (GOB) enacted the ‘Foreign Investment Promotion and
Protection Act, 1980’ in an attempt to attract FDI. Except five industries, which are
reserved for the public sector: defense equipment and machinery, nuclear energy,
forestry in the reserved forest area, and security printing and minting, FDI is allowed
1,2
in every sector of the economy.
FDI and export opportunities FDI also has a positive impact on a country’s foreign exchange reserves
reserves. One of
the reasons that FDI might be positive for a country’s reserve position over the
longer term is FDI-financed companies are largely export-oriented and one reason
for exporting a greater proportion of their output than their local counterparts is that
such FDI financed firms usually tend to have a comparative advantage in their
knowledge of international markets, efficiency of distribution channels, and their
FDI impact on import substituting
ability to adjust and respond to the changing pattern and dynamics of international
industries
markets. Consequently it can be argued that the inflow of FDI might play an
important role in Bangladesh in the long run in reducing the country’s existing trade
1
deficit.
FDI in Bangladesh still constitutes a low share of GDP Over the last decade, the
Share of FDI in domestic GDP
FDI/GDP ratio varied between 1.4% in FY98 and 0.5% in FY04. In FY05, the share
rose to 1.3% due mostly to the large inflow of FDI to the telecommunications sector
(Figure 1). As a ratio of gross investment, FDI varied between a low of 1.2% in
1,2,3
FY04 and a high of 3.2% in FY98.
21
AT Capital Research
Trend of FDI flow in Bangladesh
Source: Bangladesh Bank
From 1998 to 2007, the aggregate FDI inflows to Bangladesh were USD 5.51bn
5.51bn
(Figure 2). Of this, new capital investment was USD 2.99bn (54%), reinvested
earnings amounted to USD 1.63bn (nearly 30%), and intra-company loans
constituted USD 0.89bn (16%) (Figure 3).
Figure 2: FDI inflows and associated outward remittances (USD mn)

Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Total
Total FDI inflows 603 594 383 564 394 379 284 804 745 460 5,510
Equity 349 396 153 372 230 164 111 361 447 403 2,986
Reinvested earning 181 121 81 81 85 165 161 294 199 266 1,634
Intra-company loans 73 77 149 111 79 50 12 149 99 91 890
Outward remittances
Dividend/profit 40 83 149 175 195 355 338 418 396 569 2,718
Investment liquidation 0 3 1 1 3 2 11 3 4 5 31
*Estimated
After a relatively high inflow in FY98, there was a declining trend in FDI inflow up to
FY04 with the exception of FY01. In FY05, there was an sharp jump in FDI inflows
to USD 804mn. However, when FDI and debt inflows are seen in the context of
associated remittances on account of dividend/profit repatriation, disinvestments
and debt amortization, over the 10-year period (1998-2007), the outward
1
remittances constituted 65% of the total inflow.
22
AT Capital Research
Sector distribution of FDI inflows There are three broad sectors of FDI inflows: infrastructure, manufacturing, and
services. The shares of the three sectors are 46%, 27% and 27% respectively
services
(Figure 4). In infrastructure sector, gas and oil was the main recipient of FDI
amounting to USD 1.24bn (22.5%). On the other hand, there was rapid growth in
FDI inflow to the telecommunication sector in FY05 which continued till FY07.
Within manufacturing, the most significant recipient was the textiles sector
amounting to USD 0.9bn (16.4%) out of a total of USD 1.37bn. The third group is
the services sector where FDI inflows amounted to USD 1.35bn during the period
out of which trade and commerce was the highest recipient with USD 0.91bn
1,3
(16.5%).
Figure 4: Sector split of FDI f rom 1998 to 2007
27% Service
46%
Manufacturing
27%
Infrastructure
Over the 1998-

1998-2007 periods, gas and oil, textiles, and trade and commerce
dominated the first half in terms of FDI inflow whereas telecommunication sector
was the highest recipient during the second half of the ten year period. On the other
hand, gas and oil, and trade and commerce sectors showed better performance
during the last two years while the textiles sector experienced declining inflow of
FDI in the second half of the decade (Figure 5).
Figure 5: Sector Wise Distribution of FDI Inflows (USD mn)

Sector FY98* FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07** Total
Infrastructure 238 249 106 319 197 120 131 461 478 488 2,287
Gas and Oil 231 124 50 139 75 23 61 169 182 187 1,241
Power 0 101 56 175 101 35 26 30 28 29 581
Telecommunications 7 24 0 5 21 62 44 262 268 272 965
Manufacturing 145 150 163 134 123 160 64 219 107 109 1,374
Textiles 117 129 144 113 67 77 32 75 74 75 903
Fertilizer 2 0 0 4 25 5 23 51 16 16 142
Cement 3 2 5 13 28 77 6 87 16 16 253
Chemicals &
23 19 14 4 3 1 3 6 1 2 76
Pharmaceuticals
Services 220 195 114 111 74 99 89 124 160 163 1,349
Trade & Commerce 173 116 44 35 48 49 55 102 142 145 909
Other Services 47 79 70 76 26 50 34 22 18 18 440
Total 603 594 383 564 394 379 284 804 745 760 5,510
*FY= Fiscal Year; **Estimated
Figure 6 illustrates the total FDI inflow in Bangladesh over the last
last 11 years from
1997 to 2007 from different countries across the world.
world Figure 6 shows that near
about 90% of annual FDI has been received from only 11 countries.
23
AT Capital Research
Figure 6: Country-wise FDI inflow into Bangladesh, 1998-2007* (USD mn)
FDI inflow by source country Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Denmark 0.0 0.0 0.1 22.5 4.0 3.1 14.0 18.8 18.3 20.0 10.1
Egypt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.9 48.4 67.4 123.5
Hong Kong-China 21.6 13.1 20.5 14.8 5.8 17.1 11.7 13.9 53.1 43.5 63.4
Japan 51.3 15.7 35.0 10.5 2.2 11.9 17.5 30.0 46.4 22.6 28.8
Malaysia 6.1 5.0 2.9 6.2 0.3 11.4 13.4 39.0 33.1 25.7 45.7
Norway 0.0 23.7 3.3 0.0 0.0 26.4 21.9 59.6 53.5 53.4 77.4
Singapore 2.8 0.5 1.1 1.9 1.6 12.7 3.2 2.3 97.5 26.3 11.8
South Korea 34.6 70.9 101.4 31.4 16.8 30.7 24.5 18.5 29.9 50.1 30.1
UAE 0.1 0.2 1.6 0.0 0.9 0.0 16.7 12.8 55.5 100.5 62.0
UK 255.9 40.9 35.6 157.0 52.9 18.5 83.6 91.0 152.8 77.9 123.7
USA 67.6 232.9 66.9 29.3 29.1 24.5 32.1 61.8 141.8 187.6 161.5
Others 135.2 173.5 40.6 305.0 240.9 172.0 111.6 92.8 115.0 69.5 54.8
Total 575.3 576.5 309.1 578.6 354.5 328.3 350.2 460.4 845.3 744.6 792.7
*Calendar year data for 1997-2005. FY data for 2006 & 2007
This leaves scope for exploring new FDI inflow destinations for Bangladesh. The
recent flow of FDI from Egypt reflects their investment in the telecom sector of
Bangladesh. Though in recent times we can see increased flow of FDI from the
Middle East there remains scope for further FDI from that region. Though both UK
and USA both has been large contributors to the FDI inflow, considering their share
1,2
of FDI in other developing economies they might be a good source to tap further.
Large FDI pipeline Around half a dozen multi

multi-
ti-bn-
bn-dollar proposals of foreign direct investment (FDI) in
infrastructure, power, oil, gas and manufacturing sectors have been pending with
the government recently. These investment proposals include Indian conglomerate
Tata (USD 3bn), United Arab Emirates-based Abu Dhabi Group (USD 2bn), UK-
based Global Oil and Energy Ltd (USD 2.9bn), Malaysian Azimat Corporation (USD
4
900mn), and Contech Ltd (USD 900mn).
Macro factors favoring FDI in Bangladesh needs to undertake effective promotion measures to convince potential
Bangladesh: foreign investors that they can earn significant returns, they would be operating in a
favourable regulatory environment, and they can enjoy investment incentives that
are competitive with those offered by other countries in the region and the
developing world. The country needs to accelerate the adoption of investment-
friendly policies, simplifying regulatory practices, and removing inefficient
1
bureaucratic procedures.
FDI: Way forward for Bangladesh Increased FDI is likely to bring a significant net benefit to Bangladesh.
Bangladesh The most
important positive outcomes include integrating the domestic economy with the
global economy and in the area of technology and skill transfer. It is important,
therefore, for Bangladesh to ensure an investment climate that can attract more FDI
flows to the country. To be successful, progress in several policy areas are
1
important including:
Improvement of port services: The port services must be improved both in term of
service time and cost. Simplified custom clearance procedures along with
improvement in physical facilities and reforms in the labor management system
need to be initiated.
Setting up of industrial parks:

parks The development of new industrial parks can help in
creating a favorable environment of foreign investment. The availability of
infrastructure with a secure and enabling investment climate can act as a powerful
catalyst in attracting foreign investors for investment in profitable ventures.
24
AT Capital Research
Setting up of new EPZs: A phased government program of setting up new EPZs to
extend facilities to export oriented investors would attract FDI. The private sector
may also be further encouraged to set up new EPZs like the Korea EPZ.
Economic and commercial diplomacy:

diplomacy Strengthening economic and commercial
diplomacy is a key factor in attracting FDI in the present world characterized by
rapid globalization and increasing competition. In this respect, improved bilateral
relations with potential investor countries can act as a catalyst to increasing FDI
inflows to Bangladesh. Moreover, it is important not only to improve relations with
countries that have already invested in Bangladesh, but also to identify potential
investors in other countries and undertake appropriate measures to attract them to
invest in the country.
Bangladesh has a bright future in terms of attracting a greater amount of FDI

provided improvements are initiated in areas like bureaucratic processes, more
effective marketing of “Brand Bangladesh” as well as the development of
infrastructure. With a more focused FDI strategy, we believe it is realistic for
Bangladesh to replicate the Vietnam experience of a tenfold increase in FDI from
2001 to 2007. This suggests a target level for Bangladesh of USD 6-7bn annual FDI
by 2015.
References
1. Hossain, M. A. (2007). “Impact of Foreign Direct Investment on

Bangladesh's Balance of Payments: Some Policy Implication”. Bangladesh
Bank Policy Note PN0805.
2. Mortaza, M. G., & Narayan, C. D. (2007). “Foreign Direct Investment, Trade

Liberalization and Economic Growth: Empirical Evidence from South Asia
and Implications for Bangladesh”. Bangladesh Bank Working Paper Series:
WP 0712.
3. Robin, I. A. (2006). “Foreign Direct Investment: Impact on Sectoral growth

in Bangladesh”. Bangladesh Bank Policy Note PN0704.
4. http://www.bangladeshnews.com.bd/2007/06/14/mega-fdi-plans-hang-in-
limbo/ Accessed on March 15, 2008.
25
AT Capital Research
Capital Market
Capital Markets
Markets
The Bangladesh stock market has provided significant returns to investors over
the last five years. Five years CAGR of DGEN- the benchmark index of Dhaka
stock Exchange is 30%, while last year the index rose 86.6%, making it one of
the best performing markets in the world.
Despite the remarkable performance over the last five years, the market cap to
GDP ratio is only 19%, the lowest among the South Asian emerging markets.
Because of the size of the market, it has attracted little investor attention until
recently. Foreign portfolio investment increased by 839% in 2007 to USD
129mn, although this still accounts for less than 2% of total market cap.
Government plans to privatize State Owned Enterprises (SOEs), combined with

a large pipeline of IPOs, especially from the telecom sector, should underpin the
future growth of the stock market. We expect the market cap of the DSE will
double within the next few years.
The Bangladesh capital market is dominated by local investors, and is highly

uncorrelated with other markets. It was unaffected by India’s May 2006
meltdown, and has so far shown resilience against the sub-prime meltdown.
Despite the remarkable performance over the last few years and tremendous
potential for future growth, the market is still trading at low multiples, relatively
cheap versus other countries in Asia.
We believe that further investment inflows by foreign funds along with the
development of a larger domestic institutional investor base will cause market
direction and valuations to become driven to a greater extent by the underlying
fundamentals. The move away from “news” driven trading should reduce
volatility.
We also see a structural longer-term increase in demand for equities from

foreign investors as Bangladesh moves into frontier fund or even broader EM
indices.
However, some degree of caution is justified in the run up to the elections at the
end of the year which suggests there may be more attractive levels to build up
more substantial exposure in early 2009.
The near 40% decline in Vietnamese stocks in 2008, which is perhaps one of
the closest regional comparisons in terms of the relative dominance of retail over
institutional investors also gives grounds for a more defensive stance on
Bangladeshi equities in the near term.
Mohammad Hanif
mohammad.hanif@at-capital.com
26
AT Capital Research
The Bangladesh stock market-
arket- an overview
Dhaka Stock Exchange
comprises of 235 members The stock market in Bangladesh consists of two exchanges, the Dhaka Stock
Exchange (DSE) and the Chittagong Stock Exchange (CSE). The stock exchanges
function within the regulatory gamut of Securities Exchange Ordinance and related
by-laws and regulations.
Among the investment banking and brokerage entities the principal institutions are
the Investment Corporation of Bangladesh (ICB), the leading merchant banks, and
commercial banks who are active with their own portfolios. The 235 members of
the Dhaka Stock Exchange, the more important of the country’s two exchanges, fall
3
into this category..
The main institutional investors in the stock market of Bangladesh are insurance
companies, commercial banks, Bangladesh Shilpa Rin Shangstha (BSRS),
Bangladesh Shilpa Bank (BSB), Investment Corporation of Bangladesh (ICB),
5
provident fund, trusts, and pension funds of different organizations.
Banking sector comprises of The Bangladesh Stock Market has been growing rapidly and currently constitutes
48.3% of total market cap. about 19%
19% of the country's gross domestic product (GDP) in 2007 against only 6%
in 2006. On March 31, 2008, the total market capitalization of DSE was USD
3
11.8bn, compared to below USD 5bn in 2006.
Among listed companies, banks dominate.

dominate In March 2008 banks comprised 48.3%
total market cap followed by fuel and power (12%), and pharmaceuticals (9.9%). In
terms of turnover, financial sector (banks, NBFIs, Insurance) comprises of 58.9%
3
total turnover, while 39.1% of total turnover comprises only from banks.
Figure 1: Split of DSE market capitalization as of March 31, 2008
Bank Fuel & power Pharma Cement Others
24%
48%
6%
10%
12%
Source: AT Capital Research
DSE Performance
The DSE General Index rose 86.6% for the 12-month period ending 31 December
2007 vs. +37.7% for the MSCI Asia ex-Japan Index. The DSE General Index four-
year CAGR (2004 -07) was +46.1% vs. +34.5% for the MSCI Asia ex-Japan Index
for the same period. The DSE General Index correlation to the MSCI Asia ex-Japan
1
Index for the last 12-month period was positive, and strong at 0.9427.
27
AT Capital Research
Figure 2: DSE versus MSCI, 2004-

2004-2007 Figure 3: DSE versus MSCI, last 12 months
4 year CAGR of DGEN was

46.1%
In the 2nd quarter of 2007, DGEN rose 41.26% - the best performance globally.
April--July 2007
Fi gure 4: Stock market returns in selected c ountries, April
45
41.3
40
35 33.0
Return (%)
30.6
30 28.8
27.3 26.6
25 23.3
21.1 21.7
20
15
China
South Korea
Hong Kong
Slovenia
Ukraine
Bulgaria
Bangladesh
Thailand
Botswana
Source: Bloomberg6
The January 11, 2007 move to the army-backed caretaker government had an
adverse impact on the demand for bank loans with the anti-corruption drive
increasing risk aversion among business men. For the 1H07, banks (all listed
banks, excluding the govt and non- listed) lending growth was only 7%, whereas
deposit growth was 10%. At that time banks had excess cash and they invested
some of this money in the stock market. They were very active at that time by
offering margin loan to retail investors as well. So the market had excess liquidity
and there was a shortage of supply of good stocks, a combination that pushed
Bangladeshi equities sharply higher. This in turn triggered further retail buying.
Inward foreign remittance was also a factor behind the surge in the stock market in
2007. While institutional investors were active at that time and the market was rising
upward, retail investors were confident enough to invest in the market. A portion of
money that was sent to the retail investors by their relatives, who were working
abroad, was invested in the market, thus triggering a further surge in the market.
FPI increased by 839% in

2007 Foreign Portfolio Investment (FPI) increased significantly by 839% in 2007.
2007 The
benchmark DSE General Index saw a record 396% rise in turnover and a 139%
increase in value in 2007. In the same year, foreign investors bought shares worth
BDT 14.4 bn and sold shares worth BDT 5.5 bn. Foreign investors want growth-
28
AT Capital Research
oriented markets and always look for new quality issues in sectors like telecoms,
energy, power, gas and pharmaceuticals. The relatively stable political environment
is another factor behind the rise in portfolio investment in the country's stock market
by merchant banks. According to DSE sources, the banking, power, pharmaceutical
7
and cement sectors received most of the portfolio investment.
Stocks have shown resilience to both electoral

electoral risk and natural disasters.
Historically, the market showed resilience on various political/electoral scenarios.
For example, stocks were unaffected on the parliament election in 2001 (see
below). In addition, even in the face of recent devastating flood and hurricane- Sidr
in 2007, the market maintained its upward momentum.
Fi gure 5: Market performance during the natural disaster-

disaster-Sidr on November 15,
15 , 2007
3,150
3,100
3,050
3,000
2,950
DGEN
Sid r
2,900
2,850
2,800
2,750
2,700
1-Nov
3-Nov
5-Nov
7-Nov
9-Nov
11-Nov
13-Nov
15-Nov
17-Nov
19-Nov
21-Nov
23-Nov
25-Nov
27-Nov
29-Nov
Source: Dhaka Stock Exchange
Fi gure 6 : Market performance during the 8th National Parliament Election on October 01,
01, 2001
720
700
680
DGEN
660
8th National Election

640
620
600
1-Sep
5-Sep
9-Sep
4-Nov
8-Nov
13-Sep
17-Sep
21-Sep
25-Sep
29-Sep
12-Nov
16-Nov
20-Nov
24-Nov
3-Oct
7-Oct
11-Oct
15-Oct
19-Oct
23-Oct
27-Oct
31-Oct
Source: Dhaka Stock Exchange
Bangladesh capital market is Market Development

following the trend of Lessons can be learnt on the development of Bangladesh’s capital markets from
Pakistan capital market
development. the experience of Pakistan. The Bangladesh stock market can be compared to
2
Pakistan’s in the mid 90s by market cap/GDP. Their equity growth was primarily
driven by privatization and the liberalization of foreign investment. There were 108
public sector enterprises (out of a total of 128) initially marked for privatization
through public offering, outright auctions, and strategic sales to investors in 1994.
By 1996, the number of enterprises to be privatized increased to 118. The injection
of substantial public sector listings to the stock market has greatly transformed the
sector distribution. The market changed from being textile-dominated (22 % of
market capitalization in June 1992) to one that revolves around three to ten large-
29
AT Capital Research
capital stocks. None of these top 10 stocks comes from the textile sector.
Government has started In Bangladesh, the pace of privatization is increasing.

increasing In 2006, the government
floating SOEs to the capital floated DESCO and Power-grid with 25% shares of each already issued on the
market. public market and a further 15% of each will be off-loaded within short period of
st
time. In the 1 quarter of 2008, the government floated Meghna and Jamuna - two
other profitable State Owned Enterprises (SOEs) from the fuel and power sector.
Over the past five years, the Asian Development Bank (ADB), along with the
Securities and Exchange Commission, have developed new trading rules, public
issue rules, settlements systems, and bond issuance rules to govern the market
and introduce transparency. We believe, the capital market of Bangladesh is now
poised to achieve a higher degree of stability, maturity, and regulation.
Figure 7: Development initiatives at DSE

Year Development initiative
1998 Automated Trading System started
2004 DGEN Benchmark index introduced
2004 Started Central Depository Services
2004 DSE-20 Index introduced
2005 Started Govt bond market
2006 Direct Listing Rules initiated
Source: DSE Website3
As part of this development initiative, the SEC is about to introduce a new system of
To overcome the problem of IPO called “Book
Book-
Book-Building”.
Building It has been argued that the traditional IPO system has a
traditional IPO system, SEC
is about to introduce a new major drawback. In most cases, the offer price is determined by the NAV per share.
system called “Book-building” This traditional system of IPO pricing significantly undervalues the company and is
one reason why companies are reluctant to go public. Under this new book building
method, the price will be determined by the market and the issuing company is
expected to get a fair price for their stock offering.
The Bangladesh
Bangladesh Capital Market - short term outlook:
Last year 14 new companies have been listed on the DSE through IPOs
IPOs. Among
In 2007, 14 companies have them, Premier Bank (BDT 844mn) and International Leasing and Financial Services
been listed in DSE
(BDT112.5mn) were the largest.
The Bangladesh Stock market is small with 368 securities and market cap of USD
11.84
11. 84bn
84bn.
bn Government privatization of State Owned Enterprises (SOEs) combined
with a large pipeline of IPOs especially from telecom sector makes us optimistic
about future growth of the capital market.
Figure 8: Key DSE statistics over 2003-07

DSE statistics 2003 2004 2005 2006 2007
No of securities 267 256 286 310 368
No of public issue 14 3 17 7 14
Market capitalization 1.7 3.8 3.5 4.7 10.6
Average daily turnover (USD mn) 1.2 3.3 3.8 4.8 19.0
Source: DSE Website3
30
AT Capital Research
Expected
Expected future entrants to the market
The process of divestment of the 3 remaining state-owned banks has already

begun.
At least 8 large profitable SOEs mainly from the power and energy sectors
expected to be listed.
Foreign-owned Telecom giants such as Grameenphone are expected to be
IPOed in 2008.
Remaining large Telco’s are expected to come to the market in the next few
years.
The national airline (“Biman”) is expected to float 49% of its share to the public
in December 2008.
The Bangladesh Capital Market: long

long term prospect
The market
market capitalization
capitalization (of DSE) to GDP ratio is only 19%, one of the lowest in
the world.
world The current level of development of the Bangladesh market is similar to
that seen in Pakistan and SriLanka in the mid 90s and the early 2000s respectively.
Pakistan has a market cap to GDP ratio of 58% whereas it was around 15.6% in
2
1998. For Bangladesh, increasing FPI, new companies especially MNC and giant
Telco’s listing will help the capital market to grow.
The market is dominated by local retail investors.

investors Except mutual funds, participation
of institutions is very low. This can be compared with the development of the US
market in 1950 when institutional investors were only 4% of the market versus 80+
currently. We believe that the growth of the Bangladesh institutional market will
occur more rapidly. According to Dhaka Stock Exchange (DSE) statistics, foreign
investors from Europe and the US in 2007 injected BDT 8.9bn into the market, and
have benefited from impressive capital gains. This in turn should bolster their
confidence.
Favorable Investment climate for foreign investors:

Strong investor protection combined with favourable public policy climate has
significantly increased the number of foreign entrants over the last year.
Government investment regulations are firmly pro-business and pro-FDI, having
never annulled treaties, concessions, or agreements with the private sector or
foreign investors. Bangladesh has been ranked 17th in investor protection ranking
by the World Bank. Among the more noteworthy foreign investment
regulations/protections are:
• 100% foreign ownership of companies with no exit restriction

• 100% repatriation of investment and profit
• No tax on capital gain
• Tax rebate to encourage companies to be listed in DSE and CSE
• Reinvestment of repatriable dividend is treated as new investment.
Investment opportunities in the Bangladesh Capital Market:

The Bangladesh stock market provides significant opportunities both for local and
foreign investors.
31
AT Capital Research
• High return with low risk: Among emerging markets, Bangladesh’s risk-return
trade-off is very attractive. With less than 20% volatility, the DSE’s return in
2007 of 81.5% clearly exceeds the India, Pakistan, Hong Kong markets.
Figure 9: 12M risk and return, regionally
Source: Deutsche Bank report1
• Expected listing
listing of telecom companies: One aspect of growing the number of
publicly listed stocks is fiscal incentives. For example, the government has
decided to impose a 45% corporate tax rate on Telco’s if they do not list on
the stock exchange instead of 35% corporate tax. Grameenphone, the
country’s largest mobile phone operator is expected to be listed in this year
with the other major Telcos set to follow.
• International Diversification Opportunities: The Bangladesh stock market is

dominated by local retail investors, and is thus less correlated with the rest of
the world than other EM equity markets.
Figure 10: Correlation between indices in January 2008

Karachi S&P CNX HANG FTSE
SENSEX CSE NIKKIE STI DGEN
100 NIFTY SENG 100
Karachi 100 (Pakistan) 1.00 0.41 0.16 -0.09 0.39 0.80 0.23 0.37 0.15
SENSEX (India) 1.00 -0.05 0.27 0.94 0.91 0.29 0.87 -0.09
S&P CNX NIFTY (India) 1.00 -0.15 -0.75 -0.68 0.30 -0.69 -0.84
CSE (Srilanka) 1.00 0.46 0.25 0.57 0.59 0.01
HANG SENG (Hong Kong) 1.00 0.95 0.23 0.89 0.66
NIKKIE (Japan) 1.00 0.27 0.91 0.62
STI (Singapore) 1.00 0.40 -0.31
FTSE 100 (UK) 1.00 0.59
DGEN (Bangladesh) 1.00
Source: Dhaka Stock Exchange3
One reason behind the lower correlation of Bangladeshi stocks versus other
EM equities is that no big hedge funds or international institutional investors
are present in the market. One aspect of contagion is that when large
institutional investors such as hedge funds lose money in one market, they
are forced to sell other markets they hold to enhance their liquidity and
potentially meet margin calls. So for example, if big hedge funds incur losses
in US equities, they might try to recover the loss by selling in other markets
32
AT Capital Research
like Europe or even EM. Here in Bangladesh, as no such hedge fund or big
institutional investors are present, the market remains uncorrelated with the
rest of the world. This is an attractive reason for foreign investors to buy
Bangladeshi equities in terms of diversifying their portfolio.
• Pre-
Pre-IPO placement: As new companies are coming to the market, there is an
opportunity for pre-IPO placements. For example, Grameenphone, the largest
telecoms company is expected to be listed in this year. It is has been reported
that the value of Grameenphone is approximately USD 3.75bn. They may
look for private placement opportunities.
References:
1. Deutsche Bank. (2008). “Bangladesh Primer: Introduction to the Market”,

Deutsche Bank AG/Hong Kong.
2. Chou, C. “Reforming Pakistan’s Capital Market”. Available at

www.adb.org/Documents/Books/Rising_to_the_Challenge/Pakistan/3-pak-
cap.pdf. Accessed on 25 March 2008.
3. Official website of Dhaka Stock Exchange at www.dsebd.org.
4. Official website of Securities and Exchange Commission, Bangladesh at

www.secbd.org.
5. Primary sources: brokers, analysts, and the author’s personal experience with
Dhaka Stock Exchange.
6. Bloomberg at www.bloomberg.com. Accessed on 27 July 2007.
7. Financial Express. (2008). “Foreign portfolio investment encouraging in

2007”. Retrieved from the website of Equity Partners Limited at
http://www.eplbangladesh.com/guest_pdf_files/07/News.pdf.
8. http://www.doingbusiness.org/ExploreEconomies/?economyid=17.
33
AT Capital Research
Banking
Banking
Though the financial sector is dominated by banks, the vast majority of the
people do not have access to banking services. The banking system asset
base is USD 30 bn, roughly 42% of the country’s GDP. By comparison, this
ratio is more than 57% in Pakistan.
There are 48 banks in Bangladesh. Despite their late entry, private

commercial banks (PCBs) have the largest and fastest growing market
share. Government owned banks are losing their market share while foreign
commercial banks’ (FCBs) share is almost static.
Banks in Bangladesh mostly offer traditional commercial banking products

like deposits, trade finance, money transfer services and loan products.
Recently, there has been a surge among FCBs and PCBs in offering
technology driven products like ATMs, credit cards and debit cards.
There have been some improvements in credit risk management of the

banks in Bangladesh. Classified loans as a % of total portfolio has
decreased from 41% in 1999 to 14% in 2007.
Due to recurring losses, nationalized commercial banks (NCBs) collectively

have negative capital of BDT 31bn.
Fuelled by high trade and remittance growth, the commercial banking sector
is expected to maintain its rapid growth rate. With their superior customer
service and product capabilities, FCBs and PCBs are expected to benefit
from market growth.
Privatization of the NCBs will create large investment opportunities. The

government is likely to gradually undertake privatization of NCBs. With their
country-wide branch networks with access to large and varied customer
bases, NCBs can be attractive investment targets for investors.
To meet capital requirements under Basel II, the fast growing PCBs are
expected to resort to tier II capital. Large new investments in the form of
preferred stocks and subordinated debt are expected. Additionally, with
many small players in the market, consolidation is anticipated to meet Basel
II requirements.
Shahidul Islam, CFA

shahid.islam@at-capital.com
34
AT Capital Research
The financial sector is dominated by banks.
banks As the capital market is relatively
underdeveloped, banks play a strong role in financial intermediation. Total banking
system assets are approximately USD 30bn, whereas stock market capitalization is
4
USD 12bn. Sustained economic growth of 5%-6% and high growth of trade and
remittance in the last 12 years has helped grow the banking sector. The asset base
6
is approximately 42% of GDP, compared to 57% in Pakistan . There still remains
significant scope for further growth.
The high growth of PCBs and privatization of NCBs will create significant
investment opportunities in the sector.
Rupali Bank remains an acquisition opportunity.

opportunity The USD 450mn privatization of
Rupali Bank, a national commercial bank (NCB), was almost finalized recently.
However, the deal aborted with the buyer, a Saudi prince, pulling out. With the
fourth largest branch network covering almost the entire country, a restructured and
rationalized Rupali Bank under modern management and technology could provide
a significant investment opportunity.
Privatization of other NCBs The government has said it will privatize the other
NCBs. With unparalleled country wide branch networks, NCBs can be attractive
investment targets for investors. They provide significant opportunities for
operational improvements, through rationalization, reduction of nonperforming
loans and improved service provision.
USD 1.5 bn equity injections are
required as banks need to raise
equity or tier II capital to abide by Capitalization of PCBs Though most of the private commercial banks seem to be
Basel II norms, investment well capitalized to support their existing asset base, they need additional capital to
opportunities in the form of equity expand their businesses. All the PCBs, except two (Bangladesh Commerce Bank
or long-term subordinated debts
Limited and First Security Bank Limited), are listed and are expected to undertake
abound
rights issues, to raise expansion capital. Additionally, to meet the capital
requirement under Basel II Tier 2 requirements, many of them may have to issue
preferred stock and subordinated debts.
Consolidation in the banking sector.

sector. There are many smaller private commercial
banks (PCB) that fall short of Basel II capital requirements. Basel II could be a
driver for consolidation in the sector with benefits beyond simply shoring up balance
sheets, leveraging client bases and branch networks, cross selling of products and
cost synergies.
Presently there are 48 banks operating in Bangladesh.

Bangladesh The number has remained
Figure 1: The distribution of
unchanged in the last 8 years. Despite keen interest from local investors, new bank
branches of different bank
segments licenses have not been issued by current and previous regimes. The 48 banks
Urban Rural include 4 NCBs, 5 government owned specialized banks (SBs), 30 PCBs and 9
branches branches 4
FCBs. These banks have 6,576 branches.
NCBs 1,238 2,146
PCBs 1,295 490
The state owned NCBs and SBs have been losing their market share every year
FCBs 49 0
since the private banks started operations in the early 80s. Non Performing Loans
SBs 155 1,203
(NPL) have been a nagging problem for NCBs and SBs. NCBs and SBs used to
Total 2,737 3,839
Source: Bangladesh Bank wesite4
lend in the ‘priority’ sectors without a systemized and rigorous assessment of
creditworthiness of the obligors. In the past there have been concerns about
overall lending practices in the NCBs.
Private commercial banks are
increasing their market share
35
AT Capital Research
rapidly at the expense of the The PCBs are the newest entrants into the market but they are increasing their
government owned banks. Private market share rapidly. While the market share of FCBs remains almost unchanged,
banks as a group achieved 40% that of NCBs and SBs has fallen sharply in the recent years. PCBs have been a real
growth in operating profit in 2007
success story in Bangladesh. They have adopted new technology, gained efficiency
and continue to grow fast. Almost all the new bank branches in the country in
recent years were opened by private commercial banks. They account for roughly
half of Bangladesh’s stock market capitalization. Despite a tough business
7
environment in 2007, PCBs have shown 40% growth in operating profit in the year.
Some of them have been very successful and are enjoying sustained growth of
around 25% annually. The sector is not concentrated, with no single PCB enjoying
4
FCBs have not penetrated the more than 10% of the market share.
Bangladesh market as widely as
they have in other countries in the
Foreign commercial banks are less active in Bangladesh than in other countries in
region
the region. Their operations are concentrated in major urban areas like Dhaka and
Chittagong. Citi, HSBC and Standard Chartered are the major foreign banks
operating in Bangladesh, with Standard Chartered being the most dominant,
particularly in high-end retail banking. FCBs largely target large corporates and
local operations of multinational companies, acting as the counterparty in corporate
and interbank foreign exchange transactions and serving as correspondent banks
for local banks are major business for FCBs. Some regional and global players like
Wachovia, ICICI and Mashreq bank are not operating as scheduled commercial
banks in Bangladesh but are maintaining liaison offices in the country to support
their correspondent banking businesses (eg LC confirmation, maintaining nostro
accounts and executing fund transfer instructions).
The banking industry in the country is far less concentrated than it has been in the
past.. Four NCBs (Sonali, Agrani, Janata and Rupali) used to account for more than
past
70% of banking assets and deposits 20 years ago. They account for more than 2/3
bank branches but their share of assets and deposits are now less than 35%.
4
Sonali is the largest NCB and largest bank in the country.
Though corporate banking has been the major growth area for most of the FCBs
and PCBs, retail banking business is increasing. As corporate banking has become
increasingly competitive, some banks are targeting SMEs segments and increasing
their focus on retail banking. Banks are also taking exposure to the microfinance
sector through wholesale financing to micro finance institutions (MFIs).
Figure 2: The NPLs of Financial Indicators

different categories of banks
NPL % Bank deposits and credits have been growing 15- 15-16% annually in recent years.
years.
There has also been high growth in non-funded activities. Non-interest income in
NCBs 26.9
2005 was 1.8% of total assets employed, which increased to 2.5% in 2006. This is
PCBs 6.1 due to expansion in trade and remittances, the main sources of non-funded income
FCBs 1.5 for the banks. Non-interest income accounts for a larger share of total income
2
SBs 31.0 among foreign banks than local banks.
Total 14.0
Source: Bangladesh Bank2 The banking sector has made great progress in reducing classified loans. Overall,
classified loans were 41% of total loans in 1999, which has come down to 14% in
2007. This figure was 26.9% and 31.8% respectively for NCBs and SBs. The PCBs
2
and FCBs had classified loans of 6.11% and 1.5% of assets respectively.
36
AT Capital Research
The reduction in NPLs in recent years is partly due to writing off some NPLs but
also due to the implementation of more effective credit control processes and
systems. The development of a credit information bureau, the money loan court,
and improved risk management have facilitated greater efficiency. Credit
Information Bureaus help lenders identify clients who have defaulted on their
obligations to other financial institutions and Money Loan Court plays an important
role in the fast settlement of default cases.
Figure 3: Outstanding loans and capital
position of banks as of June 30, 2007 Capitalization
(BDT bn)
Most of the banks belonging to the FCB and PCB categories meet the capital
Loans Capital
adequacy requirements. However, the NCBs and SBs suffer from capital shortfalls
NCBs 499.4 -30.9 and some have negative capital. As per Bangladesh Bank (BB), the total capital of
PCBs 854.1 84.5 banks stood at BDT 100bn in June 2007 representing 6.2% of bank loans. Capital
FCBs 118.5 31.6 position of NCBs stood at BDT (-) 30.9bn, SBs BDT 14.8bn, PCBs BDT 84.5bn, and
SBs 125.1 14.8 FCBs BDT 31.6bn. NCBs are suffering from negative capital due to their sustained
Total 1,597.1 100.0 operating losses. Most of the PCBs and all the FCBs have adequate capital. The
Source: Bangladesh Bank2 capital of the banks is in the form of equity, paid up capital, statutory reserves, and
general provisions. Tier II capital in the form of preferred stock or subordinated
2
debts are almost non-existent.
Adoption of Modern Technology
The rapid adoption of modern and innovative technology-

technology-driven products and
services by the commercial banks is an encouraging trend.trend. ATM services are
gaining popularity very fast. Customers’ use of online banking (the ability of the
customers to execute transactions in any of the bank’s branches, not in the branch
where the account was opened) is also expanding rapidly. Internet banking and
tele-banking services are also growing fast.
According to the Financial Sector Review by BB, between June and December
2007, the monthly volume of credit card transactions grew by 124%, debit cards
increased by 112% and transaction through ATMs increased by 114%. During the
same period, transaction through POS and SWIFT grew by 111% and 61%
respectively. While FCBs and PCBs are introducing technology driven products in
Bangladesh, state owned banks are lagging in adoption of new technology and
2
associated efficiencies .
In certain segments competition is

Competition, Efficiency and Spread Shrinkage
forcing the banks to cut lending
rate and reduce fees for the
services. Interest rate and FX According to BB studies, the weighted average interest rate margin has shrunk
spreads are still higher than those slightly over the years. However, the current interest rate spread is still high in
in neighboring countries comparison to other countries. In September 2007, the weighted average interest
rate spread was 6.16% in Bangladesh, 91bp higher than the 5.25% spread in
Spreads are shrinking slowly while 2
volumes are growing fast. Some India .
banks are making extra ordinary
profits while others are failing. We Typical banking fees, like LC fees and guarantee fees, are shrinking fast. Spreads
believe corporate governance and in foreign exchange transactions are also narrowing. However, the fees and foreign
management effectiveness make
exchange spreads in Bangladesh are still higher than those in other countries in the
the bulk of the difference.
region.
37
AT Capital Research
Regulatory Environment
BB as a regulator has been fairly successful. The overall health of the banking
sector, especially capital adequacy and asset quality, has improved significantly in
recent years. However regulatory vigilance needs to be increased to avoid the
recurrence of events like the failure of Oriental Bank.
BB has been successful at improving corporate governance in banks. Financial

disclosure standards have improved. Bank directors are no longer allowed to get
involved in operational decisions of the banks. Lending to directors directly as well
as the companies they own has been stopped. BB has also promoted and
implemented Anti-Money Laundering rules.
In addition to its own ratings based on capital adequacy, asset quality, management
efficiency and liquidity, BB has made it mandatory for the banks to be rated by
independent rating agencies. BB has also made publication and public disclosure of
bank financial statements mandatory.
BB has defined the role of
chairman, the board and CEO
BB has issued a number of prudential guidelines regarding capital adequacy,
corporate governance and legal issues recently. These include strengthening a
bank’s capital base and making them better prepared for adopting Basel II
standards. In the near future, the banks will be required to maintain capital to risk-
weighted assets ratio of 10% as a minimum with core capital not less than 5%.
Currently banks need to maintain 9% capital on risk weighted assets. As tier II
capital is almost non-existent, bank capital is mainly in the form of equity. The paid
up capital and the statutory reserve of all bank companies has been raised to a
minimum floor of BDT 2bn. Basel II standards will be implemented from early
2009. Implementation of these regulations will help strengthen the financial system
and will help bring greater discipline in the activities of the banks and financial
2
institutions.
Corporate Governance
There has been significant improvement of corporate governance in banks in recent

years. Professionalism in management is more evident in banking than any other
sector in the country.
BB has taken some corporate governance initiatives recently. The number of

members in the board of directors has been restricted to thirteen. The role of the
CEO and role of chairman of the board have also been defined. As per BB
directives, the chairman of the board of directors or chairman of any committee
formed by the board or any director does not have jurisdiction for taking decisions in
executive matters.
BB has also made the CEO responsible for implementing the policies taken by the
board and looking after all administration. BB has also directed the banks to
establish audit committees formed by the board of directors. Several other reforms
have also been introduced by BB to ensure good governance in all institutions
4
operating in the financial sector.
38
AT Capital Research
Better asset liability management Liquidity and Interbank Market
and deeper interbank term money
market can help avoid occasional Banks in Bangladesh need to maintain 5% of their customer liabilities as cash
liquidity crunch.
reserves with their BDT clearing account (non interest bearing) with BB. In addition,
commercial banks need to invest 13% of their liabilities in government treasury bills.
Traditionally the overnight interbank call money market was the source of liquidity
for banks in Bangladesh. The repo facility with the central bank was introduced in
2002. Subsequently the interbank repo market has also evolved. However, the
4
trading volume of government treasury bills/bonds is still low.
The interbank term lending market is thin. Therefore, banks need to depend on the
call money market and repo window for liquidity management. Due to the absence
of an interbank money market and a secondary market of government treasury bills,
market liquidity and overnight interbank rates fluctuate abruptly. Overnight
interbank borrowing rates sometimes shoot up to 20%.
Risk management
Banks lacked professional credit risk management capabilities in the past. Most of
the banks did not have market risk management practices. As a result, some used
to take large speculative FX positions 7/8 years ago which triggered big losses and
depleted their capital. As a result, BB has introduced FX exposure related
guidelines to the banks.
Overall risk management of the banks in Bangladesh improved significantly in the

last few years. As mentioned earlier, classified loans as % of the total loan portfolio
have fallen from 41% in 1999 to 14% in 2007. Risk grading and risk-based pricing is
almost an alien concept among local banks. As a part of their global practice, large
FCBs perform risk grading, but the correlation between risk grades and loan prices
are poor. It is mandatory for all commercial banks to use a due diligence template
2
called Lending Risk Analysis (LRA).
BB has adopted several initiatives to improve the risk management practices of the
commercial banks. In 2003, BB circulated "Guidelines on Managing Core Risks" to
the banks for complying with five core risk management in banks. Those were a)
Credit Risk Management, b) Internal Control & Compliance, c) Asset & Liability
Management, d) Foreign Exchange Risk Management, and e) Money Laundering
Risk Management. The guidelines were minimum instructions for the banks and the
banks were asked to build up their own risk management manuals on the basis of
4
those guidelines.
Outlook
The sector is expected to maintain As access

access to financial services is still low in the country,
country, we believe there are
high growth and the branch tremendous growth and investment opportunities in financial services. As the
networks are expected to spread
towards rural areas fast economy modernizes, the banking sector may grow even faster. In addition, banks
are expected to increase their diversification towards capital market related
activities.
Banking services are also expected to spread into rural

rural areas. In the past, due to
fewer business opportunities, FCBs and PCBs were not convinced on the
39
AT Capital Research
attractions of opening branches in rural areas. Only NCBs, as per government
regulations and requirements, used to have a large rural network. However, things
are changing rapidly. Attracted by the high growth of foreign wage earners
remittances and rural savings, PCBs are expanding their branch network into rural
areas. Therefore, major players in the sector are expected to have presence all
over the country in the future. Recently a consortium of banks has decided to set up
9
a net work of 500 ATMs, 60% of which will be deployed in rural areas.
intensify. International and regional

The competition in the market is expected to intensify
players are expected to increase or expand their operations when the sector is
opened up. However, banks with technological and managerial superiority are
expected to continue to enjoy a high level of profitability in the medium term.
Consolidation is expected to happen in the medium

medium term. Players with automated,
country-wide operations are expected to enjoy a competitive advantage with foreign
remittances and internal money transfer a high growth business. Therefore, there
should be consolidation within the banking sector, especially among smaller, new
generation PCBs. Anticipating consolidation in the industry; BB has published
guidelines for bank mergers and acquisitions. It has been argued that uneconomic
factors, like a sponsors’ prestige associated with being a bank director, may be an
obstacle to consolidation in the near-term. However, we believe some smaller
players will be forced to consolidate if Basel II capital regulations are applied
stringently.
Islamic banking is growing faster The growth

growth rate of Islamic banking is expected to remain higher that of
than conventional banking. conventional banking. Currently 6 commercial banks are operating as full-fledged
Islamic bank. Ten other conventional banks including two foreign banks offer
Islamic banking products.
Priorities
NCB
NCB and SB Reforms While the recent corporatization of NCBs is a positive
development, timely privatization is necessary to facilitate the commercial
orientation of NCBs and SBs. The government’s decision to merge BSB and BSRS
is a positive development while steps towards eventual privatization should be
taken. Continued efforts to privatize Rupali Bank should be a priority for the
government.
Market Infrastructure: BB has undertaken a project to implement an automated

clearing system called Real Time Gross Settlement (RTGS). RTGS will eliminate
time consuming manual clearing operations of the banks and will bring efficiency in
money transfer and interbank settlement. Implementation of RTGS needs to be
expedited.
Risk Management: As mentioned earlier, thanks to some initiatives by BB, risk

management practices in banks have improved greatly in recent years. However,
banks need to manage their risk emanating from capital market exposure through
own-account trading or margin lending. BB should implement clear guidelines in
this regard.
40
AT Capital Research
Development of a Fixed Income Securities Market: Fixed income securities market
in Bangladesh lags behind those of its neighbors and other developing countries.
Though in recent years BB has taken some initiatives, like introducing repo
transactions, issuing longer tenor bonds and appointing primary dealers for acting
as intermediaries for dealing in government securities, the country lacks a vibrant
secondary market for government securities. This is important for establishing a
treasury yield curve which will be the basis for pricing other fixed income securities.
A vibrant secondary market for government securities can help bank treasuries
better manage their liquidity and avoid occasional spikes of overnight interbank
rate.
References:
1. World Bank Office, Dhaka (2008). “Bangladesh Strategy for Sustained

Growth”. Bangladesh Development Series Paper No. 18.
2. Bangladesh Bank, Dhaka. (2007), “Financial Sector Overview”. Volume III,

Series I.
3. Bangladesh Bank (2006-2007). Bangladesh Bank Annual Report 2006-

2007.
4. Official website of Bangladesh at www.bangladesh-bank.org.
5. Deutsche Bank. (2007). “Understanding Vietnam”. DB Research.
6. Akhtar, S. (2006). “Address by the Governor of the State Bank of Pakistan”

at the Pakistan Banking Association, London, 12 November 2006.
7. Reuters (2008). “Bangladesh private banks profit up 40 pct in 2007”.

Available at
http://in.reuters.com/article/companyNews/idINDHA10801020080116
8. The New Nation. (2008). “Rupali Bank dropped from privatisation list”. The
New Nation Article on March 11, 2008. Available
http://nation.ittefaq.com/issues/2008/03/11/news0841.htm. Accessed on
April 6, 2008.
9. Rahman, S. (2008). “Huge expansion of ATMs planned nationwide: Cash

Link Bangladesh, Euronet Worldwide tie up”. Published in The Daily Star
on March 28, 2008.
41
AT Capital Research
Energy
Energy
An effective energy policy is one of the most important supporting factors if

Bangladesh is to achieve more rapid economic growth. The energy shortfall in
Bangladesh is progressively getting worse and needs urgent government action
for both a short-term and long-term solution.
Significant investment is required in energy production and exploration.

Concerted and co-ordinated efforts by the government, regulatory and specialist
infrastructure agencies and the private sector are a key determinant of success.
To achieve GDP growth of 7%, it has been estimated that Bangladesh will need
to add at least 2,000 MW of electricity to the national grid every year. Increasing
this generation capacity only will cost around USD 1.4bn.
It is forecast that demand for electricity will grow at an annual rate of about 8%
for the next 10 years. The government estimates that USD 6.4bn of new
investment will be required by 2015 for new generation and transmission.
The Government opened the power sector for private investment in 1996.
Currently 1,397 MW of power is generated by the private sector which is around
25% of total installed capacity of the country.
Gas is the key source of energy in Bangladesh. Some estimate that the
country's proven reserve of 8.4 TCF gas will start depleting from 2012, and after
2015, the country will require new sources to meet the growing demand.
Bangladesh has a total of eight production sharing contracts (PSCs) with ten
International Oil Companies (IOCs). It will require an additional 24 trillion cubic
feet (TCF) gas output for attaining the projected 7% growth rate by 2025, which
will require investments of USD 8bn.
The coal production and reserves of the Barapukuria Coal Mine and the Phulbari
Coal Project mines could supply coal for power generation capacity in excess of
2,750 MW. However only coal fired power plants generating 250 MW are
currently in operation.
Experts forecast that 4,000 MW of new power plant capacity could be developed
using domestic coal. We believe, significant opportunities exist in investing in
coal fired power plants.
It has been estimated that alternative energy sources such as Wind energy, Bio
Gas and Solar energy could generate 2,200 MW of power. The government
plans to increase power output using renewable resources by 10%. However,
renewable energy remains relatively expensive compared to conventional power
generation. Government / first world subsidization is key to commercial viability.
Mohammad Emran Hasan

emran.hasan@at-capital.com
42
AT Capital Research
Overview
FDI increased by 72% from
1998 to 2007 in the energy Bangladesh has an installed capacity of 5,275 MW which is 71% higher than the
sector 1998 capacity of 3,091 MW. The private sector is generating around 25% of the
country’s generation while in 1998 all power generation came from the public
7
sector. FDI of USD 1,822mn was invested from 1998 to 2007 in the energy sector
8
of Bangladesh which accounts for 33% of total FDI in the period.
In 2007, peak demand stood at 4,500 MW, and while total theoretical generation
capacity was 4385 MW, average maximum peak generation was only 3,717 MW.
This resulted in service disruptions and blackouts on 364 days in 2007. With the
supply-demand deficit for electricity continuing to rise, we believe there are many
opportunities to invest in projects of varying sizes from traditional areas, such as
2
gas driven power plants, to more innovative sectors such as alternative energy.
Per capita electricity consumption Consumption of electricity is low compared to other developing nations with per
lowest among developing nations capita consumption of 147 KWh compared to India which has per capita usage of
480 KWh. Only Nepal has lower consumption (see figure below). This underlines
the need for power sector reform. If Bangladesh grows more rapidly, per capita
1
electricity consumption and hence the energy crisis, will get progressively worse.
Fi gure 1: Per capita consumption of electricity in 2005
2,000
1,800
1,600
1,400
KWh/year
1,200
1,000
800
600
400
200
0
Bangladesh
Thailand
Nepal
India
Pakistan
Sri Lanka
Source: International Energy Agency
Natural gas used for 86% of power Natural gas is currently the only significant source of commercial energy in
generation. Reserves are depleting Bangladesh, although proven reserves are estimated to start depleting from 2012.
Natural gas, the only widely used indigenous non-renewable energy source,
7
accounts for around 86% of the power generation of Bangladesh. Bangladesh had
recoverable (proven + probable) gas reserves of around 14 trillion cubic feet (TCF)
3,4
as at August 2007. The recoverable proven remaining reserve is around 8.4 TCF.
Currently 17 out of 23 fields are producing gas.
Since the last decade, gas consumption has been increasing at an average rate of
4
8% per annum. It is widely reported that about 500 MW power cannot be
generated daily due to a shortage of gas supply despite there being enough
generating capacity. Bangladesh has a total of eight production sharing contracts
(PSCs) with ten IOCs with companies like Shell, Chevron, Cairn, and Tullow who
have sizeable operations. Bangladesh is now offering its third offshore gas bidding
round which will end on May 7, 2008. Under the bidding model, the country's naval
43
AT Capital Research
area has been divided into 28 blocks for hydrocarbon exploration. Of the blocks,
2
eight are located in shallow waters and twenty blocks are in deep-sea areas.
Gas is government regulated Gas distribution

distribution remains regulated by Petrobangla,
Petrobangla, a statutory body, operating
under the administration of the Ministry of Power, Energy and Mineral Resources.
Petrobangla is responsible for the exploration and development of mineral
resources, overall control and coordination of mineral resources and
implementation of production sharing plans with International Oil Companies (IOC).
Currently there are eleven companies operating under Petrobangla, responsible for
oil and gas exploration, production, transmission, distribution, and development and
marketing of coal and hard rock.
Significant probable coal reserves Coal is a significant second source of energy. Five good quality, low sulphur coal
remain untapped deposits, with probable reserves of 3.3bn metric tons, have been discovered in
2
Bangladesh. A 250 MW coal-fired power plant was commissioned in December
2005 with coal supplied from Barapukuria.
London-based Asia Energy had submitted an investment proposal of USD 2.5bn in

October 2005 to develop the Phulbari mine in northern Dinajpur district through the
open pit system and set up a 1,000 MW power plant to be fired by its coal. But in
2006, the local community in Phulbari organized a large demonstration against the
proposed open pit mine due to concerns over social and environmental impact - this
halted extraction in the Phulbari coal mine. Further extraction of coal resources
remains delayed due to the lack of agreement over mining methods among
2
experts. The dislocation and environmental debate on coal extraction also
underlines the need for the government to develop a political consensus with fair
and equitable compensation for any local residents dislocated by new mines.
Around 8% of total power generation in Bangladesh uses liquid fuel. Bangladesh

Liquid fuel contributes to less than
imports about 1.2mn tonnes of crude oil along with 2.6mn tonnes of refined
10% of the power generation
petroleum products per annum. Only the Eastern Refinery in Chittagong, with a
capacity for 1.5mn tonnes of crude oil, meets the required standards. The Saudi
Hitech International Group is planning to set up a 5.1mn tonnes oil refinery in
Chittagong through a management partnership deal with Cosmopolitan Oil Refinery
Management Ltd. This refinery is expected to be three times bigger than the
Eastern refinery with investment of USD 3bn and forecast annual turnover of USD
8
7bn.
Renewable energy provides a significant potential source of energy with benefits of

Significant opportunities in
reduced negative environmental impacts, provision of electricity in remote locations
renewable energy
and reduced reliance on fossil fuels which are either imported or depleting. Power
Cell in a study paper has estimated that around 2,200 MW of power could be
generated using alternative energy sources. The government plans to increase
power output using renewable resources by 10%. Wind energy, bio gas and solar
energy are particularly suited to the Bangladesh climate. To make renewable
energy economically viable first world funds and government subsidy plays a vital
3
role.
Solar power introduced in 2002. Currently 4 MW of power is being produced by

home solar systems. Experts suggest that solar energy has the potential to provide
up to 300 MW of power. There are more than 100,000 solar home systems that
44
AT Capital Research
have been installed by providers including Grameen Shakti, Rahimafrooz and the
Infrastructure Development Company Limited (IDCOL). World Bank, Asian
Development Bank and Bangladesh government are subsidizing solar energy
3,10
mainly in off grid areas to encourage renewable energy expansion.
It has been estimated that 600 MW of powe

power
ower could be generated from bio mass and
around 300 MW from cogeneration.
cogeneration A project in the rural area of Gazipur is
generating power of 225 KW and serving 500 families using sugar cane and rice
5
husk as raw materials.
Wind energy utilization in Bangladesh is in the early stages

stages of development.
development Wind
turbines with generation capacity of 1 MW are operating in Feni and recently
another plant with a number of turbines has started its pilot operation in Kutubdia
10
Island with the same capacity.
Hydropower potential only for mini/micro units. Currently only 230 MW of

conventional hydro power is utilized in the Karnafuli Hydro Station, which is the only
conventional hydro-electric power plant in the country. The scope for conventional
hydropower generation is very limited in Bangladesh because of its flat terrain
except in some hilly regions in the northeast and southeast parts of the country.
However the abundance of canals, tributaries of main rivers (Karnafuli, Shangu,
Matamuhuri) as well as small waterfalls suggests there is significant potential for
7
developing mini/micro hydropower power generation.
Fiscal incentives to encourage private investment.

investment Significant features include the
exemption from corporate income tax for a period of 15 years, allowing repatriation
of equity freely, tax exemption on interest on foreign loans and the avoidance of
12
double taxation in case of foreign investors.
Investment Opportunities
Significant investment opportunities in off shore gas exploration. Experts are

optimistic that Bangladesh has prospects of discovering major petroleum resources
in the deep waters of the Bay of Bengal. However no tangible steps have been
taken so far to explore Bangladesh’s deepwater energy resources. India, Myanmar,
Thailand, all achieved significant successes after years of persistent efforts. By
contrast, resources in Bangladesh’s territorial waters remain largely unexplored.
According to Petrobangla statistics, if the country's proven reserve of 8.4 TCF gas
starts depleting from 2012, after 2015 the country will require new reserves to meet
growing demand. It has been estimated that 26 TCF of additional gas will be
required by 2025 to support an estimated 7% gross domestic product (GDP)
growth. International oil companies (IOCs) have been involved in exploration and
2
development of gas.
Investors can set up a refinery plants

plants in Chittagong or Mongla.
Mongla We believe investors
should focus on this sector as the Government-owned Eastern refinery, the sole
major refinery, is meeting only 40% of the country’s requirement, while the
remainder is imported. The Saudi Hitech International Group is planning to set up a
5.1 mn tonne oil refinery in Chittagong through a management partnership deal with
Cosmopolitan Oil Refinery Management Ltd. With rising oil prices the oil refinery
45
AT Capital Research
13
industry continues to look attractive.
Independent Power Producers (IPP) can be a very profitable investment for both
local and foreign investors.
investors Currently IPPs have installed capacity of 1397 MW
6
which is roughly 25% of the total installed capacity of the Country. At present major
IPPs in the market include AES, Summit Power Co. Ltd., Westmont and Bon
Consortium. The proportion of IPPs power generation is growing significantly. With
the Power Purchase Agreement (PPA) provided by the government, many external
risks are also mitigated, such as currency devaluation, gas price escalation,
regulatory risk and collection risk. Gas prices offered to IPPs are also very cheap at
11
around USD 1 / MSCF.
Small power plants

plants (SPP) provide a significant opportunity with lower capital
investment. IPPs with capacity of 10 to 50 MW are considered as SPPs. All the
IPPs are run with natural gas. It remains challenging to ensure a reliable source of
sufficient gas supplies for large power plants until new gas fields are discovered. As
SPPs require less gas, it is more feasible and profitable given current supply
constraints. SPPs are operated on a Build, Own and Operate (BOO) basis. They
require less time to complete the tender process and require investment of around
5
USD 7mn for a 10 MW plant with estimated IRRs between 30 to 40% . Currently 12
7
to 15 companies have invested in SPPs.
While political consensus over further coal mining remains anan unresolved issue,
issue, we
believe opportunities remain for using coal as a significant means of power
production. To quicken the process for utilization of coal resources the government
is planning to adopt a national coal policy. A review committee will be constituted to
finalize the draft coal policy, which was recently reviewed by an expert panel. The
coal policy would neither be company specific nor mining method specific. The
government is formulating an attractive financial incentive package for mine
developers. The draft policy aims at raising coal-fired power production to 20%,
2
from current 3% of the total power generation by 2015. As such there are
significant investment opportunities in coal extraction and coal fired power plants.
Aside from domestic supply, good quality coal can be imported from China and
Australia.
Bangladesh is planning to install a nuclear power plant by 2015,2015, with generation

capacity between 700 MW to 1,000 MW to meet the country's mounting electricity
14
demand. The total investment required in setting up a nuclear plant is anywhere
between USD 1.0bn and USD 1.5bn, according to sources from the Bangladesh
Atomic Energy Commission (BAEC). The supply chain for a nuclear power plant is
shorter than gas, coal or liquid fuel based power plants. Nuclear power plants
require multi-billion dollar investments for construction and maintenance though the
fuel required for such plants is very cheap compared to costly fossil fuel or gas
required by conventional power plants. Russia has offered to provide technical
support in the proposed nuclear power plant in Rooppur. Also, Daewoo
Engineering, a South Korean company, has reportedly offered to build and operate
8
a large-scale nuclear power generation plant in Bangladesh.
Installing environment friendly Solar Home Systems provide a compelling

investment case. Power Cell estimated that if all the roofs of Dhaka city install solar
panels this could generate around 300 MW of power which could serve the demand
46
AT Capital Research
11
for all fan and lights used residentially. Solar energy also provides a significant
opportunity for rural development, with 80% population of the rural area having no
access to electricity.
It has been estimated that if wind turbines were installed along the coast line, 1,000
MW of power could be generated. Bangladesh has 724 km long coastal belt,
around 200 km hilly coastline and about 50 islands in the Bay of Bengal. The strong
south/south-westerly monsoon wind, coming from the Indian Ocean and hitting the
coastal areas of Bangladesh from March to October, are a potential source for wind
energy. Wind energy could also be used in shrimp farming, salt / ice production,
3
vegetable irrigation and domestic/household use.
Biogas is a growing source of power generation. Biogas plants are operated by

Grameen Shakti, IDCOL, Local Government Engineering Department (LGED) and
Bangladesh Rural Advancement Committee (BRAC). Biogas can be produced from
pulp of sugar cane, rice husk, urban waste and poultry waste. The added
advantage of biogas is the slurry can be used as good quality organic fertilizer. This
9
sub sector is still in its infancy with many opportunities for growth.
Conclusion
The Government has taken many initiatives to encourage private and foreign
investors to invest in the energy sector in Bangladesh, particularly through IPPs and
SPPs. An adequate and reliable supply of electricity is an important pre-requisite for
increasing FDI and achieving Bangladesh’s aim of becoming a Middle-Income
Country. The Government has set the goal of providing electricity to all citizens by
2020. To achieve this ambitious target, broader participation of both local and
foreign investors in the power sector is critical, ensuring that all the energy sources
are maximized both locally and domestically. We believe energy remains one of the
most attractive sectors for global investors to consider.
References
1. International Energy Agency database of statistics on various countries

available at http://www.iea.org/Textbase/stats/index.asp. Accessed on March
29, 2008.
2. Website of Energy & Power at http://www.ep-bd.com/.. Accessed all the 29

issues from January 1, 2007 to March 15, 2008.
3. Website of Energy Bangla at http://www.energybangla.com/
4. Power Cell, Asian Development Bank, & Nexant. (2006). “Power System
Master Plan Update”. Available at http://energybangla.com/upload/Power.pdf
5. Primary sources: interviews with IDCOL Officials.
6. Website of Power Cell, a division of Ministry of Power, Energy & Mineral

Resources at http://www.powercell.gov.bd/
7. Power Cell. (2006). “Bangladesh Power Data Book”. Available at

energybangla.com/upload/Bangladesh%20Power%20Data%20Book.pdf.
47
AT Capital Research
8. Robin, I. A. (2006). “Foreign Direct Investment: Impact on Sectoral growth in
Bangladesh”. Bangladesh Bank Policy Note PN0704.
9. Website of Local Government Engineering Department (LGED) at

http://lged.org/sre.
10. Website of Renewable Energy Information Network at http://www.lged-

rein.org/database.php?pageid=21.
11. Primary sources: interviews with officials of Rural Electrification Board.
12. Ministry of Energy and Mineral Resources. (2004). “Private Sector Power
Generation Policy of Bangladesh”. Available at
www.powercell.gov.bd/images/additional_images/PSEPGPB.pdf
13. Website of Eastern Refinery Limited at http://www.erl.com.bd/erl-

website/home/corporateprofile.html
14. Rahman, M. A. (2007). “Nuclear power plant to be installed by 2015”. Article

published in The Financial Express on December 25, 2007). Available at
http://www.thefinancialexpress-
bd.com/search_index.php?page=detail_news&news_id=20570
48
AT Capital Research
Infrastructure (Non-Energy)
Infrastructure (Non-
(Non-Energy)
Bangladesh is a small country with a large population. It has very limited

resources and assets, i.e. restricted land area, capital and existing facilities
to build its infrastructure on. Investment in infrastructure system is critical if
the country is to sustain and improve its economic outlook.
Dhaka city is densely populated with severe traffic congestion. Due to the
low availability of land for road expansion, one government proposal is the
installation of an underground/subway metro rail. The high density of city
dwellers makes such an investment a potentially attractive commercial
opportunity.
Bangladesh with its high density of roads, makes road transportation

another possible investment opportunity. For example, with a relatively
underinvested bus sector with a large client base, a higher quality, large
scale national intercity bus operator is a commercially attractive proposition
for the private sector.
Mongla port has substantial expansion potential. The key to its revitalization
as the country’s second port is investment in its operations and in its
complementary infrastructure. There is a need for dredging the Pushur river
and building the Padma bridge which will connect the port to commercial
hubs, mainly Dhaka, Chittagong, and other major land ports of the country.
In Chittagong port, investment in setting up an adjacent private port and a

deep sea port in the Bay of Bengal, could make it a competitive and credible
regional commercial hub.
Bangladesh, if connected with the Asian Highway, has the potential to act
as the transit route for trans-national freight transport. Integration with the
Asian Highway is a prerequisite for investment in sea ports to be viable. It
will also facilitate the growth of other rapid growing large and medium scale
industries, such as transportation, support and maintenance facilities, hotels
and restaurants, and fuel companies. These are all further investment
opportunities for private sector players.
There are interesting lessons to be learnt from around the world in large
infrastructure projects such as rail and toll roads where Public Private
Initiatives have been extremely successful in achieving both operational and
financial success.
A M Ashfaque Bari Nahid

nahid.bari@at-capital.com
49
AT Capital Research
Major opportunities in A significant enabling factor in economic growth, and Bangladesh fulfilling its
infrastructure potential, is a robust and supportive infrastructure. The non-power sector, from
roads to bridges to rail and ports, has many opportunities for investment after years
of underinvestment. With a focused, long term, commercially viable, investment
strategy one could facilitate significant improvements to state owned and operated
transport systems, improve the operational efficiency of the two major ports and
position Bangladesh as a hub in the Asian Highway. Cooperation between the public
and private sector is key to its successful execution.
Subway
Underground metro rail in The Government, in the recent years, has taken the strategic decision to increase
Dhaka
private sector participation in infrastructure development. After a long consultation
period of considering various options (i.e. subway, flyovers, elevated expressway) to
alleviate congestion in Dhaka, the Ministry of Communications approved the
Strategic Transport Plan (STP) for installing an underground railway system in the
capital. Contech Ltd, a local firm, conducted a feasibility study last year and
proposed a 52 km subway with an estimated cost of BDT. 5200 crore (USD 750 mn).
The total subway project is forecast to take 10-12 years to complete. The initial
1
implementation of the STP will take 2 years to complete.
Metro rail: Lessons to be learnt Bangkok has both an elevated expressway and an underground metro. The
from Thailand
underground rail, Mass Rapid Transit (MRT), was built on a concession basis, by a
private company, Bangkok Metro Company Limited (BMCL). Largely, all civil
infrastructures were provided by government sector, the Mass Rapid Transit
Authority of Thailand (MRTA) and handed over to BMCL under 25-year concession
agreements. BMCL provides M&E equipments, including electrical trains, signaling
systems, SCADA, communications, and PSD for the subway project and fully
2
operates and maintains the system.
Similar kinds of arrangements with the private sector may facilitate faster completion
times with reduced levels of budgetary expenditure.
Railways
Bangladesh Railway: reform

The Bangladesh Railway has a total network of 2,835-route kilometer (Broad Gauge
plan
659 km, Dual Gauge -375 km and Meter Gauge 1801 km). It has been incurring
significant losses for the last two decades. In the recent years, its yearly loss has
been around BDT 500 crore (BDT 5bn). In order to turn BR into a commercially and
financially viable organization, run in a more efficient manner, the Government has
given it more autonomy and changed its organizational structure. The ADB is set to
provide the Government with USD 430mn for its development and reform. The funds
are being given with the provision that Bangladesh Railway is turned into a public
3
limited company (PLC) when the reforms have been completed.
The Indian Railway has seen a marked turnaround from a huge loss incurring giant
Revolution in Indian Railway
to a profit making company. In a marked departure from its legacy, the focus on
capacity utilization, reduction in unit costs, and improvement of quality of service has
yielded remarkable results. Recognizing the need for substantial financial and
managerial capital, the Railways Ministry have been actively seeking and
encouraging increased private sector involvement. The first steps in this direction
50
AT Capital Research
have been the awarding of container operation licenses to 14 private players. Other
areas earmarked for Public Private Partnership (PPP) include projects like the
dedicated freight corridor, commercial utilization of surplus railway land, and creating
4
inland container depots and warehouses.
Bangladesh Railway could emulate this example by incorporating the private sector
into its operations. Outsourcing or selling, both core and supporting functions, to
private sector participants, leasing out its non-operating assets, building new rail line
tracks could bring significant commercial and operational advantages.
Roads
Maintenance of the vast road Bangladesh, though a small and densely populated country, has one of the highest
network road densities in the world. This indicates not only a greater need to maintain this
vast network of roads, but also the potential of commercially viable private sector
investments in maintenance/repair and new construction given its high density
usage.
F igure 1: Road densities in selected countries

80
70
60
(km roads per 100 km2)
50
Road Density
40
30
20
10
0
USA
Malaysia
China
India
Thailand
Nepal
Korea
Bangladesh
Sri Lanka
8
Source: Bangladesh: Public Expenditure Review, Roads, Highways and Rural Infrastructure, 2001
Recurrent flooding, high intensity rainfall, and a high incidence of tropical cyclones
provide a challenge in the construction and maintenance of a reliable road system.
Every year, miles of roads are destroyed and the Government of Bangladesh (GOB)
struggles to repair them as well as constructing new roads at the same time. There
are many areas where private sector participation could improve the transport
network. For example, with a relatively underinvested bus sector and given the large
client base, a higher quality, large scale national intercity bus operator is, we believe,
a commercially attractive proposition for private sector investors.
Privatized toll road The introduction of privatized toll roads can ease the stress on the current road
system and give the country a better maintained and operated transport network.
Valuable lessons for effective private participation in projects can be learnt from
around the world.
Toll roads in Argentina A case study of a successfully privatized Build, Operate and Transfer (BOT)
infrastructure project in Argentina is the Autopistas del Sol (ADS) project. Autopistas
del Sol was awarded in 1994, a 20-year BOT toll-road concession for the
construction and operation of the Buenos Aires city northern access highway
51
AT Capital Research
system. The project developers were Sideco Americana, Gragados Y
Construcciones, Impreglio and Iglys.
The initial project cost of approximately USD 400mn was financed by a bank
syndicated project financing facility arranged by Citibank and an export credit facility
provided by the sponsors. Additionally, the sponsors provided to the lenders full
guarantees covering completion risk and limited guarantees covering certain political
risk after completion. The security package consisted of a security interest over
accounts receivables as well as over indemnification rights of ADS payable by the
Argentine government in the event of expropriations, nationalization and early
termination of the concession. There was no governmental support provided for the
project and its financing.
The project was a success, both operationally and financially. From an operational
standpoint, the project facilities were completed according to schedule and
specifications providing Buenos Aires with a state-of-the-art highway system at a
reasonable cost for the consumers and without any significant cost for the Argentine
budget. From a financial viewpoint, approximately one year after project completion,
Citibank and ADS were able to arrange a two-tranche USD 380mn Yankee bond
offering for the purpose of taking out the commercial bank facility. Such a project
bond issue was the first Latin American Yankee bond toll road financing ever. It
successfully overcame hard selling challenges, such as no US GAAP-required
information (only Argentine GAAP), long-term maturity (12 years) compared to the
5
term of the concession (20 years), BB-credit rating and significant refinancing risks.
Inland Waterways and Ports
Inland water transport The private sector is the major player in inland water transportation sector. Most of
the vessels, both public and freight, are owned and operated by the private sector.
Investment in this sector, targeting the niche market of upper class luxury
commuters, can be a highly profitable venture, as could investment in operators
providing transport to the general population
Bangladesh currently has two major ports, Chittagong and Mongla. Chittagong is
Chittagong port: needs to handling more than 80% of the country’s export-import trade while Mongla port is left
expand its facilities
largely under-utilized. The export-import trade of the country is increasing by more
than 20% every year, but the capacity of Chittagong port has not been expanded in
line. Rather it is overloaded with the increasing number of ships coming to load and
offload. Investment is required to construct more jetties in the Chittagong port, build
private ports, and construct more container depots
A deep sea port in the Bay of Bengal will likely open up several other investment
The deep sea port
opportunities. Integration with the Asian Highway could place Bangladesh as a
regional commercial hub. If a fuel pipeline, connecting the deep water port with
transnational oil supply line is built, the port can flourish as a refueling station for
shipping lines.
The Malaysian Experience
The Port of Tanjung Pelepas is a deep water port for container ships located on the
eastern mouth of the Pulai River in south-western Johor, Malaysia. Receiving its
52
AT Capital Research
Success story: Port of Tanjung maiden vessel on 10 October 1999 on a three-month trial operation, it set a world
Pelepas of Malaysia record as the fastest growing port with 1mn TEUs (Twenty-Foot Equivalent Units) of
containers handled after 571 days of operations.
The port continues to enjoy spectacular growth. At the end of 1999, the terminal
handled 20,696 TEUs, which rose to 418,218 TEUs in 2000, 2.05mn in 2001, and
2.66mn in 2002, 3.87mn TEUs in 2003 outstripping Port Klang and establishing itself
as Malaysia's largest port. In 2004, it registered a 15.2% increase to 4,020,421
TEUs, and came in as the world's 16th busiest container port. In 2005, PTP handled
1
4.2mn TEUs, and in 2006 an estimated 4.6mn TEUs. In 2007, PTP handled a
further 5.5mn TEUs, a growth of 14.5% compared to 2006. It has achieved this
growth by providing alternative to the shipping lines, which were dependent on
6,7
Singapore.
Bangladesh, in a similar way, can provide an alternative option for the shipping lines
doing business in the region. The deep sea port could act as a transit port; vessels
can offload containers here for others ships to upload. Bangladesh can also, like
Singapore, Hong Kong and Malaysia, earn significant revenues from a deep water
port.
Mongla port needs investment Mongla Port, has the potential to be an alternative to the Chittagong Port, but has
been left largely under-utilized. This port can be a great source of revenue if an
effective road and rail network from Mongla to Dhaka and other commercial centers
of the country is established and the rivers of Pushur and Mongla are properly
dredged so that the incoming ships have the water depth that is needed for their safe
movement.
Selected Investment Opportunities
Underground metro system There is a large investment opportunity in the underground metro rail system in the
city of Dhaka. The Government of Bangladesh has recently approved the Strategic
Transportation Plan (STP) to build a 52 km subway in Dhaka which will require BDT
5,200 crore (USD 750mn). This project will take 10-12 years to complete. The
subway system will give the city dwellers an alternative mode of transport, which will
be free of traffic jams and take less time. The high population density and high
capacity of the subway system will bring the fare down to an affordable level, while
also making it an attractive commercial opportunity.
Mongla port has existing port facilities and huge assets (land, building structure etc.).
Mongla Port
There are investment opportunities in this port. Proper dredging of the Pushur river
(investment requirement of BDT 50 crore, about USD 1mn), construction of the
bridge over river Padma connecting Mongla with the major commercial centers,
including Dhaka, installing new container depots and modern technology support
would make Mongla port a profitable investment and revitalize Bangladesh’s second
port.
Integration with the Asian Pacific Consultants International has completed the first phase of a feasibility study
Highway of a deep sea port in the Bay of Bengal. According to the report, the deep sea port
will be constructed in three phases, it will require an investment of BDT 46,000 crore
(USD 6bn) and the entire project will be completed by 2055. While the government is
still considering this project, we believe investment in this project may offer
53
AT Capital Research
significant potential returns for the investors. Integration with the Asian Highway and
a fuel pipeline connecting this port with transnational fuel supply will open up global
trade opportunities and greater revenues for this port.
Conclusion
The strategic importance of infrastructure, large capital requirements and long term,
predictable revenue streams make infrastructure projects extremely attractive for
investors both locally and globally. After years of underinvestment coupled with
strong GDP growth, it is essential that investment is made in this sector. If
Bangladesh is to exceed its current trajectory and aim to be an MIC in the future.
The backbone in infrastructure, whether that be roads, rail or water, needs to be
improved. With vast global pools of infrastructure funds looking for projects to invest
in – more than ever before – the challenge for Bangladesh is to be able to package
and present the opportunities.
References
1. www.bangladeshnews.com.bd from the following links:
http://www.bangladeshnews.com.bd/2006/09/07/dhaka-subway-ministry-
asked-to-go-ahead-with-proposal/
http://www.bangladeshnews.com.bd/2008/01/15/52b-transport-plan-for-
dhaka-okayed/
2. Wikipedia search “Bangkok Metro”. Available at

http://en.wikipedia.org/wiki/Bangkok_Metro. Accessed on March 28, 2008.
3. The Financial Express, March 17, 2008, http://www.thefinancialexpress-

bd.com/search_index.php?page=detail_news&news_id=28296
4. KPMG. (2007). “International Railway Conference New Delhi: A Background

Note”.
http://www.kpmg.de/docs/International_Railway_Conference_Background_
Note.pdf
5. Buljevich, C. E., & Park, Y. S. (1999), “Project Financing and the

International Financial Markets”, pp 218-220. Springer.
6. Wikipedia Search. Available at

http://en.wikipedia.org/wiki/Port_of_Tanjung_Pelepas
7. Official Website of Port of Tanjung Pelepas at http://www.ptp.com.my.

Accessed on March 27, 2008.
8. World Bank & Public-Private Infrastructure Advisory Facility. (2003). “Private

Solutions for Infrastructure in Bangladesh”.
54
AT Capital Research
Agriculture
Agriculture
Agriculture, comprising crops, forests, fisheries and livestock accounts for

more than 20% of GDP and employs over 63% of the workforce of
Bangladesh.
The agriculture sector has a large, underserved domestic market that

provides opportunities for many investments along the value chain.
There is a huge gap between the domestic demand and domestic supply of
seeds and fertilizers that can be filled by large-scale investments.
Only 17% of the domestic demand for milk is met by the domestic supply.
There is a scope for sizable milk production by importing high-yield breeds
of cattle.
Only a few companies are exporting vegetables and potatoes to the Middle
East, and European markets. A number of companies are looking for joint
venture partners to expand their operations.
There is a shortage of cold storage facilities and those that exist are
extremely profitable. This supply deficit, results in various vegetables, in
particular, potatoes, being sold at more than a 25% discount. We believe
30-50 more cold storages with capacity of 4,500 metric tons each, can be
set up in north Bangladesh.
Growing global demand for Halal food presents export opportunities. The
only firm that exports Halal meat is looking for equity partners to expand its
operations.
Global market trends for eco-friendly products favor investments in jute and
jute-related industries. Private equity buyouts of distressed state-owned jute
enterprises could provide investment opportunities.
Niche areas such as frozen fresh water fish and the production of aromatic
rice also have significant potential.
Innovation opportunities exist in the areas of shrimp production in paddy

fields, growing strawberries, and high-yielding crops.
Abdullah Ibneyy Shahid

abdullah.shahid@at-capital.com
Abdullah-
Abdullah-Al-
Al- Farooq
abdullah.farooq@at-capital.com
55
AT Capital Research
The case for investment in A rapidly growing urban middle class in Bangladesh, rising food prices globally, and
agriculture is stronger than ever favorable global trends for Halal foods, organic foods and jute products make the
agriculture sector one with significant potential for large-scale investments. With
more than 50% of the land being arable, the largest workforce of the country
engaged in agriculture, and large domestic demand and supply gap along various
stages in the food value chain, the case for agricultural investments in Bangladesh
is stronger than ever.
The largest employer in the About 70 % of the population lives in rural areas, with 54 % of them employed in
country agriculture and the remainder in the rural non-farm sector. The rural economy
constitutes a significant component of the national GDP, with agriculture (including
crops, livestock, fisheries and forestry) accounting for about 21% and the non-farm
1,3,11
sector, also driven primarily by agriculture, for another 33% .
Crops dominate with rice Crops account for the major share of the agriculture sector. In 2006-07, key crops
occupying the major share such as rice, wheat and vegetables held the major share of agriculture GDP
(AGDP). Other crops include maize, pulses, oilseeds, tobacco, spices, jute,
11
sugarcane, potato, and barley .
Figure 1: The composition of AGDP of Bangladesh in 2006-

2006- 07
8%
14%
Crops & vegetable
Fishery
56% Livestock
22%
Forestry
Source: Bangladesh Economic Review 2007
Fisheries experienced rapid growth

Among
Among non-
non-crop agriculture, fisheries have experienced rapid growth from 1980 to
from 1980 to 2000
2000, increasing its share of AGDP from 10 % to 23%. Since 2000, however, growth
has slowed. Poultry experienced above 6% growth over the second half of the
1
1990s, while livestock has not grown.
Rice production commands the

Rice production contributes about two-
two-third of the total crop value.
value The yield in rice in
highest value addition among the
crops Bangladesh is lower than that in East Asian economies but better than that in India
and Pakistan. Wheat yields in Bangladesh are lower than those in the East and
South Asian economies. Maize production has grown significantly, due to
productivity from high yield variety (HYV) seeds and the high demand for maize as
poultry feed. There was 7% growth in potato production from 1990 to 2004, mainly
Rice and wheat needs productivity
boost due to the construction of the Jamuna Bridge, which connected rural growing areas
with central distribution systems in Dhaka. The growth in jute, sugarcane, oilseeds,
1
and pulses has fallen over a decade due to the lack of investment in technology.
Shrimp, the second foreign Shrimp is the second largest foreign exchange earner after the RMG industry and
exchange earner has become employs 600,000 workers. However, the growth in shrimp exports has stagnated
stagnant since 1996 due to the shrimp farmers’ inability to meet various sanitary, phyto-
1,11
sanitary, and other quality requirements of the buyers.
56
AT Capital Research
High import dependence in rice, Agricultural imports are mainly rice, wheat and oilseeds. Fertilizer constitutes 2.1%
wheat, and oilseeds of imports of the country. Imports of key agro-products such as rice, wheat, and
oilseeds grew 180% from 1995 to 2005 because of low levels of domestic
Rapid urbanization occupies more productivity, rapid urbanization using up cultivable land and diversion of resources to
1,3,11
cultivable land maize production.
Low-productivity persists because

of low technology
*This includes some agricultural capital machinery.

AGDP largely
largely consists of low value-
value-add items. The following factors impede
Primary activities continue to
occupy the major share of AGDP diversification towards high value-added crops: shortage of cold storage facilities,
lack of standardization, insufficient processing capacity and transportation
1,9,11
bottlenecks .
Opportunities in Bangladesh Agriculture
The agriculture sector offers ample business opportunities both in domestic and
international markets.
Increasing urban middle class in

The urban population is approximately 29mn people of which 22% are middle class,
the domestic market opens up
more business opportunities with an average annual household income of USD 3,254. In urban areas, 45% of
household income is spent on food and beverage items. A World Bank report found
that Bangladesh would need an additional 6.5mn metric tons (MT) of vegetables,
0.7mn MT of spices, 1.6mn MT of fruits, 1.9mn MT of fish, 1.4mn MT of meat and
eggs, and 2.6mn MT of dairy products by 2020 to meet domestic demand. Globally,
rising food prices and increasing demand for Halal foods and organic foods provide
2,9,12
new opportunities for agro businesses.
There is a huge gap between domestic demand and domestic supply of seeds and
fertilizers.
Large scale investment 95% of all agricultural seeds are imported and only 5% come from local private
opportunities exist for domestic sources. Large scale investments could expand on the success of the small
seeds and fertilizer production domestic producers. As for fertilizers, there is a distinct gap of at least 1mn MT per
year. The gap is currently filled by importing or purchasing from Karnaphully
57
AT Capital Research
Fertilizer Company at BDT 31,000 per MT vis-à-vis the local price of BDT 7,200 per
MT. Setting up fertilizer plants with a production capacity of 500,000 MT per year
12
would require an investment of USD 450m-500m.
Cold-storage facilities are an Lack of cold storage or a functioning cold chain provides opportunities for a
urgent necessity for greater countrywide chain of such facilities.
diversification into high-value
adding products
This will help export-oriented high value added agriculture businesses to grow.
According to Xian Zhu, World Bank Country Director in Bangladesh, “high-value
agricultural products tend to be highly perishable, and there are many risks
associated with marketing these commodities. Appropriate policies and investments
in key infrastructure are needed to make it viable for farmers to switch to these
commodities and increase production.” For example, every year potato farmers risk
large quantities of potatoes going to waste due to inadequate storage facilities. In
2007, there was a bumper harvest of potatoes, most of which farmers sold to
3,5,9
intermediaries at a 25% discount due to insufficient cold storage facilities.
Domestic production of milk cannot meet domestic demand.
The supply chain for milk is highly fragmented. More ventures like BRAC Dairy, Pran
Milk production does not meet Milk can help in filling up the gap between the demand and supply of milk. Dairying
domestic demand is profitable in certain parts of the country, where feed is more readily obtainable and
where there is a milk-marketing infrastructure. Importing better breeds of cattle
1
would improve yield.
Rapidly increasing
increasing consumption and demand for pulses cannot be met by the
current domestic supply.
Import substitution of pulses has Canada, Australia, and France are the key exporters of the domestic pulse
high potential consumption in Bangladesh. The low productivity in pulses is due to low investment
in technology and diversion of resources to rice and wheat. Businesses can
implement large scale production of pulses and use higher end technology to
1
compete with Canadian, Australian, and French exporters in the domestic market.
Exporting organic food could be a profitable option for the Bangladesh agriculture
sector.
The global market for organic food and drink reached USD 23bn in 2002. Increasing
Global organic market niche is on
the rise demand in North America helped fuel the 10.1% increase, as North America
overtook Europe as the largest market for organic food and drink. Continued growth
is predicted as organic foods customers are less price-sensitive and remain loyal if
offered quality products. Organic certification and labeling are needed to tap the
4
market effectively.
Growing demand for Halal food globally presents opportunities for exports
exports.
The global market for Halal food is estimated at USD150bn-USD 500bn. The
Demand for Halal food is estimate for the industry growth rate ranges between 10-20%. Given such demand,
experiencing sizable growth
the largest retailers in Europe such as Tesco are gradually increasing their stocks of
Halal foods. Halal meat processing presents a lucrative business opportunity. The
fragmented meat processing activities in the country can be organized and scaled
58
AT Capital Research
up to bring about considerable economies of scale. Bengal Meat Processing
Industries is a pioneer in meat processing for export. It has been reported that the
company is seeking joint venture partners for further expansion.
Global market trends for eco-

eco-friendly products favor investments in jute and jute-
jute-
related industries.
Globally, people are leaning towards the use of substitutes for wood as raw
Revival of jute is timely due to
favorable global market trends for materials for paper. Pulp for making paper can be made from natural fibres like jute.
jute-related products Also, large markets like China are looking for alternatives to plastics, the use of
which will be banned by mid 2008. Jute bags are an alternative. According to a
Nielsen Global Food Packaging Survey, “nearly one in two global consumers would
give up all forms of packaging provided for convenience purposes if it would benefit
the environment, which includes packaging designed for easy stacking/storing at
home (49%); packaging that can be used for cooking, or doubling as a re-sealable
container (48%); and packaging designed for easy transport (47%).
Bangladesh has developed a unique variety of jute seed that is expected to double
the current per acre yield of crop and act as model for other jute producing nations.
The seed named “O-9897” will give a significant boost to setting up of jute
businesses successfully. The following specific areas can be explored extensively:
jute handlooms, non-woven and industrial applications, jute rigid packaging, jute
reinforced plastic, composite jute, decorative jute products, jute based fabrics,
upholstery, blankets and other home textiles, jute blended yarns, fine blended yarns
7,10
using jute/ cotton, and jute based handicrafts.
Research and innovation is another area that private investor could

could explore for
further investments.
Scope for investment in Shrimp production in paddy field has been successful on a small scale. Scalability of
research and innovation the project should be investigated. Unused excess land of the tea gardens of
Bangladesh could be cultivated with long beans and French beans. Cultivation of
strawberries has been successful on small scale. Large scale emulation could be
undertaken.
Conclusion
Agriculture provides significant opportunities for investment across the entire value
chain, from seeds to processed foods. The increase in global food prices has made
the need for improved yields and new product innovation, more compelling than
ever, to alleviate the domestic supply shortage and to provide the potential for
entering new export markets. Opportunities in research, cold storages, Halal foods,
eco-friendly and organic products, milk, and better yielding crops make agriculture
an attractive investment destination.
59
AT Capital Research
References:
1. World Bank Office, Dhaka (2008). “Bangladesh Strategy for Sustained

Growth”. Bangladesh Development Series Paper No. 18.
2. Roy, S. (2008). “Shubir Roy: Global Food Shortage An Opportunity”.

Business Standard published on March 05, 2008.
3. World Bank. “Bangladesh: Priorities for Agriculture and Rural Development”.
4. Bodalia, J. (2007). “Organic Food Industry Guide”. Business & IP Center,

British Library.
5. World Bank. (2008). “Need to Increase Support for High-value Agriculture

and Agribusiness in Bangladesh”.
6. Merrett, N. (2007). “Malaysia plays host to Global Halal Forum”. Published

by www.meatprocess.com on May 8, 2007.
7. Khan, S. (2008). “Can lost glory of jute be revived?”. Published in Financial

Express on March 6, 2008.
8. Nath, D. K. (2008). “Investment in Agriculture to Attain Sustainability”.

Published in The Independent on March 26, 2008. Available at
http://www.theindependent-bd.com/details.php?nid=77102 -->
9. Zhu, X & Sur, M. (2008). “High-value agriculture and agri-business in

Bangladesh”. Published in The Daily Star on March 26, 2008. Available at
http://www.thedailystar.net/story.php?nid=23791 -->
10. World Bank. “Bangladesh Jute Industry: time to rise to the occasion”.
11. Government of Bangladesh. (2008). “Bangladesh Economic Review 2007”.
Ministry of Agriculture of the Government of Bangladesh website at

www.moa.gov.bd.
12. Agri Food Trade Services, Canada. (2005). “Agri Food-Past, Present, &
Future Report Bangladesh”. Available at http://atn-
riae.agr.ca/asia/4057_e.htm.
60
AT Capital Research
Textiles
Textiles
Bangladesh’s USD 23bn Textile and Clothing Industry is the country’s

1
largest export earner. In 2007, Ready-made Garments (RMG) exports
2
stood at USD 9.35bn making up 75.4% of total exports. The global market
stands at USD 340bn for textile and apparel. The bulk of RMG is exported
3
to the EU and US. Investment opportunities lie in diversifying, including
high-end items and exporting to largely untapped markets around the world.
Despite rising yarn prices, political uncertainty and a sluggish economy, the
two arms of the export-oriented RMG Industry - Woven and Knit - have
grown at a combined rate of 9.2% over the past year. The knit Industry has
lead growth (14.3%), helped by 90% of yarn requirements for the Knit sector
being sourced locally. Due to capital constraints, only 35% of the yarn
4
requirements in the Woven sector are sourced locally. Investment in the
Woven Backward Linkage Industry could provide significant opportunity for
returns in the local market.
High interest rates and a new VAT system have seen investment in the
5
Primary Textile Sector (PTS) decline by almost 43% in 2007 . Private equity
investment could allow this sector to grow substantially. The current low-
quality PTS provides investment opportunities for higher quality textiles for
RMG clothing as well as for the local market.
Investment in branded and high-end RMG accessories can move RMG up

the value chain. Currently, Paxar does this in Dhaka EPZ. Linking up with
established high-end US and European accessory companies would
provide the platform for doing so.
Bangladeshi garment workers are increasingly being sought after by other

countries, e.g. over 100 skilled garment workers have already left for
6
Romania in February 2008 and a further 1,000 will get jobs there . There
are investment opportunities to set up textile institutes to train more textile
workers for manpower exports.
Junaid Khan
junaid.khan@at-capital.com
Masum A Rahman
masum.rahman@at-capital.com
61
AT Capital Research
Many opportunities to further The USD 23bn Textiles and RMG sector has the potential to grow into a USD 50bn
expand the Textile Sector
sector. In terms of highlights, the industry is characterized by a high concentration
of low value-added products; a heavy dependence on imported intermediate inputs
7
and has a high regional concentration of exports (mainly USA and EU).
The RMG industry relates to the forward linkage of Bangladesh’s textile sector (e.g.
Woven wear and Knitwear) and has a largely export-oriented focus. The Primary
Textile Sector (PTS) relates to the backward linkage of the textile sector (e.g.
spinning, weaving, dyeing and finishing).
Current trends in the Textile and The Knitwear sector is particularly promising with 14.3% annual growth and has
Clothing Sector and Possible
Recommendations surpassed the Woven sector as the chief RMG export, with an average of 15 new
8
knit factories coming into operation every month in Bangladesh.
F igure 1: Comparative exports of woven and knitwear garments
5,000
Knitwear Export Woven Export
4,500
4,000
3,500
3,000
USD mn
2,500
2,000
1,500
1,000
500
0
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08*
Fiscal Year
*For the first four months

Source: The Daily Star4
Growth of spinning mills. On average, there has been double-digit growth in the
number of new spinning mills over the past few years.
F i gure 2: Number of new s pinning mills
35
30
25
Number
20
15
10
5
0
2005 2006 2007
Year
Source: BTMA19
The spinning mills produce yarn, polyester and blended fibers for the RMG Sector
and provide backward linkage support. The locally produced yarn provided by the
spinning mills to the knitwear industry reduces lead time, ensuring that the sector
remains competitive. As a result, local spinning mills cater to about 90% of the yarn
9
requirements for the knit sector, but only 35% of that of the woven sector.
62
AT Capital Research
Decline in investment in PTS. Investment in PTS declined by 42.8% in 2007 mainly

due to high interest rates. Entrepreneurs were not interested in making new
investments due to higher bank interest rates of 15-16%. Also, in the 2007-08
Fiscal Budget, 10% duty and 15% VAT on the import of raw materials (polyester
staple fibre, viscose staple fibre, acrylic staple fibre and pet-chips) were imposed
which was previously tax-free. Business confidence had eroded due to political
5
uncertainty and the government’s aggressive anti-corruption drive.
Fi gure 3: Investment in PTS

18,000
16,000
14,000
12,000
BDT mn
10,000
8,000
6,000
4,000
2,000
0
2005 2006 2007
Year
Source: The Daily Star5
Rising Yarn Prices. Since 2007, the price of yarn has risen considerably, mainly
due to global cotton price increases. Yarn is the main raw material for knitwear
manufacturing that makes up around 60% of export value, while local spinners
10
constitute 75-80% of the demand. RMG manufacturers are concerned that they
may lose international competitiveness due to the persistent price rises of yarn
domestically. However, yarn producers of the PTS say they have no choice, citing
the rise on the cost of raw materials. Cotton, the main raw material for yarn, has
registered a 30-35% hike in the international market over the last two to three
months and Bangladesh is struggling to import the yarn from China and India due to
11
the price rise.
Despite yarn being 25 cents cheaper in India, manufacturers hardly import yarn
through Benapole land port due to challenging problems in customs, bond licenses
11
and transportation . Relaxing bureaucratic procedures to allow efficient importation
from India would facilitate import. This measure will also put pressure on local yarn
manufacturers to increase their efficiency.
Training Programs. The government has set up special training sessions on

workers’ rights for garment factory managers in an attempt to counter the labor
unrest that has threatened the success of the RMG. Three sessions have already
been held with groups of around 30 managers in each. The government aims to
involve two-to-three key middle managers from each of the country's 4000
12
factories. Mistreatment of the workers and inappropriate handling of issues by the
mid-level managers has been one of the main reasons behind recent labor unrest.
Specific Opportunities for The Textile Sector provides ample opportunities for investment in a wide variety of
Investment in Textiles
fields. The specific investment opportunities are:
63
AT Capital Research
Investment in the PTS.
PTS Investment should be made in spinning mills for the woven
Primary Textiles Sector
sector to reduce dependence on imported yarn and reduce the 65% yarn
requirement that has to be imported. There would be three main advantages.
Firstly, it would reduce lead time, thus increasing efficiency and competitive
advantage. Secondly, foreign currency would be saved because only the raw
material (cotton) would have to be imported. Thirdly, there would be more local
value-addition thus enabling preferential access to Europe and America as well as
creating employment. Chinese investors have shown interest to produce fabrics for
13
the woven sector so Bangladesh could benefit from Chinese FDI.
The 356 medium-to-large weaving mills produce only about 50% of the total
9
requirement with the remainder imported . There is a lack of modern technology,
new machinery and modern production processes in the weaving mills. As a result,
the quality of fabric produced by the weaving mills falls far short of the requirements
of the export-oriented RMG sector. This fabric is used to cater to the local market.
There are significant opportunities for investment introducing new technology to
take the advantage of the available demand. Local dyeing-printing-finishing mills
meet around 25% fabric demand of the RMG units. Due to lack of quality fabrics
from the weaving mills, most of the dyeing-finishing units have to import the fabric.
Another constraining factor is the rising price of chemicals that are used in dyeing
and washing plants. For example, there was a 30-50 % rise in the last year.
Investment should be made to set-up dyeing-Finishing units with the latest
14
technology to meet the fabric demand for export as well as local markets.
Garment Accessories Investment in the Garment Accessory Industry. Currently 100 accessory
manufacturing firms meet 80% demand for accessories used in exportable
garments and knit items. However, local industries have failed to manufacture
costly accessories like ornamental stones, belt and clips for use in brand-exportable
15
garment items, which are now being imported mainly from Hong Kong .
Further research should be done to explore investment opportunities in high-end
garment accessory industry which is virtually untouched in Bangladesh. An
interesting feature of the garment accessory industry is that such plant investment
costs are low. For example, an entrepreneur can set up a full-fledged accessories
industry in Bangladesh at a cost of BDT 40 crore, whereas more than BDT 1bn is
15
required for setting up a small textile mill or woven factory.
Exporting Bangladeshi-
Bangladeshi-branded apparel.
apparel. Bangladesh’s RMG industry can benefit
from substantial investment to move up the value-chain and export branded
Bangladeshi-branded Apparel
clothing. Currently, the vast majority of exports are t-shirts, shirts, and sweaters.
Bangladeshi manufacturers focus their production on clothing for big global brands.
The industry has earned the reputation of being known simply as a “cut and paste”
manufacturer for foreign buyers and the international textile community have this
perception that Bangladeshi garment manufacturers lack ambition.
Bangladesh has the potential to export and market branded apparel since there are
already home-grown brands. Cats Eye, Monsoon Rain, Westecs, and Ecstasy are
some popular local brands, appealing to both upper-income and middle-income
Bangladeshis. Cats Eye Group has started developing sub-brands in order to
appeal to different segments of the local market. For example, its Monsoon Rain
label is aimed at executives, while its UNLIMITED brand is targeted at young and
64
AT Capital Research
modern buyers. Both Yellow and Cats Eye are now considering exporting their
designs and brands and setting up stores abroad. Fit Elegance is already exporting
16
its own range of suits, blazers and trousers to the UK. Investment is needed to
support the cost of developing and marketing Bangladeshi clothing brands in
European and US Markets.
State owned assets. At present, there are 21 textile companies under the BTMC in
Privatization of state owned mills the nationalized sector. They operate 24 spinning mills with an installed capacity of
17
490,892 spindles and 1,036 looms. These mills provide a lucrative private equity
investment opportunity through privatization.
Need for machinery. With almost 9,500 textile and RMG units in Bangladesh, there
Investment in Light Engineering is a large and growing potential for investing into textile light engineering support,
of Textiles
maintenance, repairs and spares for all the different machines and equipment used.
Investment in textile and fashion design institutes.

institutes Currently, the 46 public
vocational textile institutes and the 4 fashion design institutes provide training
Textile and fashion design courses such as fashion merchandising and production technology. These
institutes
institutes add value to merchandise exports from the industry through training
professionals at all levels, but they are inadequate to meet the demands of the
burgeoning textile sector. Every week about 15 new knit factories are set up alone.
There are investment opportunities for establishing new textile institutes to train
20
engineers and fashion designers to create locally designed fashion accessories .
Initiatives should also be undertaken to attract foreign young designers to forge
links with the institutes to widen experiences.
Investment in hand-
hand-knitted toy market. There is a growing demand for hand-knitted
Hand-knitted toy market children's clothes, blankets and birthday party decorations in the European and US
markets. For example, Hathay Bunano is a Bangladeshi hand-knit manufacturer
that exports certified Fair Trade products with the majority of the goods shipped to
European retailers such as Yellow label kids, Larkmade and UK-based Urchin. The
products are expensive but demand is quite high because customers outside
Bangladesh are prepared to pay for well-made, ethically produced toys - a box of
18
five knitted donuts sells at USD 34.99 (BDT 2,450) on the Yellow Label website .
The hand-knitting industry is attractive in many ways. There is no need for heavy
textile machinery, mns of rural women know how to knit and thus require little
training, and most importantly, hand-knitting can be done at home. Investment in
this segment would also open the doors of employment to mns of rural Bangladeshi
women who do not have the choice of working in a garment factory because of
family and farming duties.
Conclusion
Despite the textile sector already being Bangladesh’s key export industry, there
remains many investment opportunities. While the RMG industry is fairly
developed, an attractive strategy is in moving up the value chain with locally
branded products, high-end accessories and franchises with foreign brands. The
PTS remains undeveloped in many ways but has strong domestic demand and
private equity capital could be critical in developing this sector.
65
AT Capital Research
References
1. Interview with Mahmudur Rahman, Executive Chairman, Bangladesh

Board of Investment (circa 2005) and Malhotra, T. C. (2006). “Bangladesh:
A Growing Textile Economy”.
2. Official website of BKMEA at http://www.bkmea.com/facts_figures.php
3. The Indo-Italian Chamber of Commerce and Industry. (2007). “Overview of

the Textile Industry in India”.
4. Mirdha, R. U. (2008). “Knitwear emerges as No 1 export item”. Published

in The Daily Star on 6 January 2008.
5. Mirdha, R. U. (2008). “Political turmoil, import duty takes toll on primary

textiles”. Published in The Daily Star on 20 January 2008,
6. The Daily Star. (2008). “Romania to recruit more Bangladeshi RMG

workers”. Published in The Daily Star on 18 February 2008.
7. Sampath, P, (2007). “Intellectual Property and Innovation in Least

Developed Countries: Pharmaceuticals, Agro-Processing, and Textiles
and RMG in Bangladesh”. UNCTAD.
8. Mirdha, R. U, (2008). “Strong knitwear exports to exceed Govt targets”.

Published in The Daily Star on 9 March 2008.
9. Sarker, A. H, (2007), “Backward Linkage in Promoting Textile & Clothing-

Challenges from a Practitioner’s View”, BTMA Annual Report 2007,
Dhaka, Bangladesh, page 24.
10. The Daily Star. (2008). “22pc rise in yarn price to hit knitwear exports”.
Published in The Daily Star on 14 February 2008.
11. The Daily Star. (2008). “BTMA defends yarn price hike; Terms allegation
of price manipulation as baseless”. The Daily Star on 20 February 2008.
12. Khan, J. U. (2008). “Govt moves to train RMG managers to counter labour
unrest”. Published in The Daily Star on 06 February 2008.
13. The Daily Star. (2008). “China keen to invest in textile sector”. Published in
The Daily Star on 13 March 2008.
14. Sarker, A. H. (2007), Backward Linkage in Promoting Textile & Clothing-

Challenges from a Practitioner’s View, BTMA Annual Report 2007, Dhaka,
Bangladesh, page 26..
15. Mirdha, R. U. (2007). “Local garment accessory industry meets 80pc

demand”. Published in The Daily Star, 13 December 2007,
16. Mirdha, R. U. (2007). “Local clothes are cool”. Published in The Daily Star,
on 25 March 2008,
17. Khan, K, (2008). “Business can be child's play”. Published in The Daily
Star on 21 March 2008..
18. BTMA. (2007). “BTMA Annual Report 2007”, BTMA: Dhaka, Bangladesh.
19. Primary sources: interviews with BTMC officials.
66
AT Capital Research
Outsourcing
Outsourcing
The global offshoring market is estimated to be USD 300bn of which USD

110bn will be offshored by 2010. There are significant opportunities for
Bangladesh to take increase its presence in this sector.
Bangladesh, with a favourable demographic in terms of a large, young,

population (Age: 15-64, 95mn) compared to the ageing population in the
developed world can play a role in the global outsourcing industry.
Bangladesh has nearly 1mn students enrolled in tertiary level education.
It has been forecasted that the wage advantage that India is enjoying
versus many Western labour markets will diminish by 2020.
The Government has put increasing emphasis on outsourcing with the

introduction of licensing for call-centers. BTRC is giving priority to create an
enabling environment in which call-centers can grow.
Connections and networks are crucial for the industry to flourish.

Leveraging the NRB base could also help to win clients for local companies.
Government initiatives like industrial parks will help the sector. Venture
capital investment can also play a crucial role.
The opportunity for investment in the education sector will be significant as

there is a clear need for skilled workers. Demand for such professionals will
be much higher than current supply.
IT and outsourcing is emerging in Bangladesh. Last year the country earned

USD 28.6mn from the sector. There are over 100 companies in this sector
in Bangladesh. We see significant growth opportunities ahead.
Ashek Ishtiak Haq

ashek.haq@at-capital.com
67
AT Capital Research
Growing attention on Bangladesh Increasing global attention. Recently Crain’s New York Business ran a front page
article titled “Outsourcing moves to Bangladesh”. This enthusiasm about the
Bangladeshi BPO industry is not isolated. Industrial analysts from Goldman Sachs
to Cisco Systems are also predicting that Bangladesh has the potential to follow in
the steps of India. As the latter loses its labour cost advantage, opportunity for
Bangladesh is becoming increasingly clear. With investments in universities and
vocational training colleges there are many commercial prospects in the BPO and
4
KPO space.
A potential USD 300 bn global The 2005 NASSCOM-

NASSCOM-McKinsey Report suggests that the total potential market for
industry global offshoring is approximately USD 300bn
300bn,
bn, of which USD 110bn
110bn will be
offshored by 2010. India is forecast to generate export revenues of approximately
USD 60bn by growing at 25% year-on-year till 2010. China, Vietnam and Sri Lanka
3
are emerging as preferred offshoring destinations.
Fi gure 1: Global spending on IT and BPO outsourcing

260 BPO IT
240
220
USD bn
200
180
160
140
2006 2007 2008
Year
Source: Economist1
The phenomenon
phenomenon of global wealth creation.
Global wealth creation Diana Farrell of the McKinsey Global Institute termed Outsourcing as the
“Phenomenon of global wealth creation”. Bruce Herald of IBM estimated that
globally companies between them spend USD 19tr each year on sales and general
and administrative expenses; only USD 1.4tr of this has been outsourced to other
firms. McKinsey in a survey found that software engineering, banking and IT
services between them employ more than 20mn workers worldwide. In 2004, 16%
of IT service work, 6% of software work and only 1% banking work are done
remotely. McKinsey has also forecast that as much as half of the work could be
moved abroad. A java programmer in India only costs USD 5,000 whereas the US
programmer costs USD 60,000. US trained and licensed radiologists in India can
1,2
read X-rays, MRIs and CT scans for less than half their US counterparts cost.
India is slowly losing its IT outsourcing and BPO advantage.

advantage
India is losing its cost advantage Wages are rising in India. For example, 10,000 keystrokes of data entry may take
around USD 10 in India whereas the same work can be done at half the rate in
8
Bangladesh. Some researchers believe that the wage difference enjoyed by India
will be completely gone by 2020. Arman Rousta of Blue-liner Marketing, a New
York online-marketing consultant comments, “India is almost oversaturated, but
9
Bangladesh is up-and-coming”. Additionally the Indian Budget 2008-2009 has
removed some of the incentives that the country used to provide for the export units
under the Software Technology Parks (STP) and also imposed a minimum alternate
5
tax since April 1, 2007.
68
AT Capital Research
The global outsourcing focus is shifting towards Philippines, China, Vietnam, Sri
The market is getting bigger
Lanka, Israel, Pakistan and Bangladesh.
Bangladesh
Nikhil Rajpal, VP, global services practice, Everest Group said ‘India cannot
possibly handle all the work it gets. And with rising costs, smaller players can look
9
to Bangladesh as an alternative centre’. The total size of the ITES sector in
Bangladesh which includes both export and domestic BPO is only USD 150mn.
9
Industry experts forecast it to be double or triple in the next three to five years .
Global player Cisco also believes that Bangladesh could get 10% of the estimated
USD 142bn IT and back-office outsourcing market. According to BASIS, software
export has seen significant growth in recent years. BD firms’ major exporting
destination is the North American market but recent new ventures are with
European and East Asian (mainly Japan) markets. At least 30 companies have set
up joint venture or ODCs (Offshore Development Centre) with 100% foreign
4
investment.
Figure 2: Value of Bangladesh's exports of software and ITES

30
25
20
USD mn
15
10
0
2002-03 2003-04 2004-05 2005-06 2006-07
Fiscal Year
A new hope.
hope. According to NASSCOM, in 2007 companies worldwide spent USD
Outsourced call centres 280bn on outsourced call-centre services. There has been a recent push for
Bangladesh to enter this market; BTRC has started to issue call-center licenses at a
5
very low price.
An enabling environment
environment
The recent
recent boom in private universities (from a handful few in 1993 to about 54 at
the end of 2007) has expanded the pool of relevant human capital in Business
Increasing knowledge base
Administration, English, Pharmacy, Environment, Law and Computer Engineering,
at both undergraduate and graduate levels. Each year educational demand in these
4
fields is increasing creating a need for more quality educational institutions.
Figure 3: The graduate workforce of Bangladesh
Upcoming Fresh Addition
Computer science and software engineers 15,000 2,500
IT-related field, IT-related engineers 40,000 5,500
4
Source: BASIS
69
AT Capital Research
Figure 4: Potential workforce in Bangladesh for BPO and ITES
Skills type Size of the workforce
Graphics (2D/3D), animation, website design 12,000 or more
New media, DTP, website publishing 8,000 or more
CAD (Architecture, mechanical, construction) 5,000 or more
4
Source: BASIS
Scope of joint ventures The growth of information-

information-technology (IT) related universities, institutions, and
training centers has led to the emergence of about 400 IT and Information
Technology Enabled Services (ITES). There are more than 100 companies
exporting to around 30 countries. Three major categories are: custom software
development and maintenance, multimedia software development, and website
development. There is significant opportunity here to develop joint ventures with
credible global players. There is cost saving incentive for the global player and the
4
benefit of knowledge transfer for the local firm.
Bangladesh already has a large number of NRBs working in IT related professions

Leveraging NRBs
around the world.
They can be encouraged to set up IT enterprises in Bangladesh through various
incentives e.g. tax benefits, access to funds etc. Their enthusiasm to come back
has been reflected in the recent NRB conference in Dhaka. Industry promotion
offices can be set up in key cities around the world. The involvement of NRBs with
expertise and experience from Silicon Valley, for example, will enhance the
credence of Bangladesh’s ability to provide quality services. It will take credibility,
capability and cross-cultural understanding to achieve operational efficiencies.
Rajendra Bhandari of IIM, Bangalore studied five European firms who have
outsourced to Sri Lanka; they chose that country because a well-placed Sri Lankan
The government’s role 1
worked for the European firms.
The Government continues to set up EPZs EPZs to facilitate different industries. Similar
industrial parks for the IT sectors with appropriate fiscal incentives will create an
advantage for entrepreneurs.. Government, as well as private venture funds, may
provide financing. Such a strategy will remove the problem of low access to finance
for such unconventional businesses from the traditional banks. The government of
India did the same to encourage BPO in India. Growing importance towards the
sector will open up infrastructure investment opportunity for the investors.
Changing perception
Capable human capital shouldshould be developed by setting up training centers for
English, IT and other necessary skills.
skills A partnership between the industry and the
academia should be formed to increase availability of graduates with the right kind
of skills. Educational institute providing custom made programs consisting of three-
year degree courses supplemented by one-year technical certificates can be
formed to meet industry demand.
BPO has a wealth of business opportunities for local businesses such as selling of
various products and services for various companies, provision of technical support,
help-desk service online and general information, follow-up sales support and
service, directory assistance, database development, market research, handling of
credit and billing problems, telemarketing, credit card sales, human resources
functions, loan processing, account management, medical claims processing, hotel
and airlines reservations, that can be done in a cost effective manner in
70
AT Capital Research
Bangladesh. Businesses need to be informed of the opportunities they may be able
to leverage from their existing operations.
Global opportunities
opportunities
Case Study: GraphicPeople’s Danish Alliance10
GraphicPeople started its operation in Bangladesh in 2004 as a subsidiary of Danish
communication house PeopleGroup. The firm offers a full range of DTP solutions. After two
years of operation, its success is reflected in its positive bottom-line growth. Between, 2005-
2006 revenue has doubled, while the number of employees has risen from 20 in 2005 to 34
in 2007. Its client list includes international brands such as Dell and Intersport. The firm
enabled its clients to cut as much as 80% expenses without sacrificing quality. It has been
established in collaboration with Danida, which has supported the project through its B2B
program.
Setting up universities and training colleges to cater to the significant demand.

Experts forecast by 2015, there will be a need for 850,000 more IT professionals in
11
Europe. Most of these jobs will be outsourced. Soaring demand for IT graduates
will make such universities and training colleges highly desired. International
accredited training centers will also be in high demand. Bangladesh according to an
industry analysis produces 200,000 graduates every year but, only 10-20% of these
9
are BPO ready. The country has yet to have the capability, credibility and cultural
understanding about the industry as India but it can offer significant cost advantage
and also diverse expertise. With focused training the knowledge gap can be closed.
Joint ventures
ventures can provide knowledge transfer.
transfer. These can be developed with global
players in outsourcing. Proximity to India should be leveraged. Such relationships
will diversify risks in the JV partners cost base and provide much needed credibility
for the local partner.
Call centers opportunities The BTRC is facilitating the development of call centres
with the issue of new licenses. Centres developed in tandem with English speaking
classes, may provide an opportunity from the overspill from India’s resource
constrained market. Although the sector has yet to flourish Nikhil Rajpal foresees in
9
the next 2-5 years, nearly 10,000 to 20,000 call centre jobs will be generated.
Knowledge process outsourcing

outsourcing (KPO) work can be a developed Recent growth in
private universities is providing us with graduates who could be utilized for
intellectual property or patent research, content development, R&D in
pharmaceuticals and biotechnology, market research, equity research, data
research, database creation, analytical services, financial modeling, animation and
simulation, medical content and services, remote education, publishing and legal
support. With additional focused vocational training coupled with end user specific
development, skills could be developed in all these areas.
Conclusion
With a growing global outsourcing and offshoring market, and diminishing cost
advantages of the traditional providers, there are substantial opportunities for
Bangladesh. With low cost human resources and the development of quality
education and technological infrastructure, we believe Bangladesh can capture
significant market share if the necessary focused investment strategy is in place.
71
AT Capital Research
References
1. The Economist (2004). “Survey on Outsourcing”.
2. Corbitt, M. F. (2004). “The Outsourcing Revolution: Why it Makes Sense

and How to Do it Right”. Chicago: Dearborn Trade Books.
3. NASSCOM-McKinsey Report (2005). “Extending India’s Leadership of the

Global IT and BPO Industries”.
4. BASIS, Content & Publication Department.
5. Financial Express (2008). “Call centre licences from next month”. Article
th
published in the Financial Express on 20 March, 2008.
6. The World Bank. (2008). “Doing Business in 2008”. Available at

http://www.doingbusiness.org/documents/FullReport/2008/DB08_Full_Rep
ort.pdf.
7. Walling, E. R. (2007). “50 Management Ideas”. London: Quercus.
8. CiteHR Human Resource Management Community (2008). Available at

http://www.citehr.com/knowledge-process-outsoucingkpo-vt4579.html.
rd
Accessed on 23 March, 2008.
9. Sachdeva, S.D. (2008) “Bangladesh to issue call centre license”. Article

th
published in The Times of India on 20 February, 2008. Available at
http://timesofindia.indiatimes.com/Business/India_Business/Bangladesh_to
rd
_issue_call_centre_licences/articleshow/2796515.cms. Accessed on 23
March, 2008.
10. Ministry of Foreign Affairs Denmark, Embassy of Denmark, Dhaka., 2008.

Danish Success with Outsourcing In Bangladesh. Available at
http://www.ambdhaka.um.dk/en/menu/DevelopmentIssues/Businesstobusin
ess(B2B)Programme/B2B+Case+Stories/Case+Story+no+1+GraphicPeopl
th rd
e/. Article published on 8 November, 2007. Accessed on 23 March.
11. Ray, S., Sinha, A. K., & Chaudhuri, S. (2007). “Making Bangladesh a
Leading Manpower Exporter: Chasing a Dream of USUSD 30 bn Annual
Migrant Remittances by 2015”. India: Indian Institute of Management
Calcutta.
72
AT Capital Research
Manpower
Manpower
The global manpower industry will amount to USD 600 bn by 2015. A recent
report by DANIDA has estimated that Bangladesh could capture 5% of this –
USD 30bn. To gain 5% market share by 2015, Bangladesh would have to
send 0.8 mn-0.9 mn people abroad annually.
The industrialized world is aging and facing negative growth in population,

Bangladesh with a young and energetic population has a huge opportunity
to benefit.
Emerging Europe as well as Central Asian economies are sending their own
manpower to more prosperous economies which is creating a vacuum in
their own countries. Bangladesh can fill this labour shortage.
There is substantial demand for unskilled/semi skilled jobs such as masons,

cleaners, fabricators, carpenter and garment operators. For skilled jobs
these include doctors, computer programmer, engineer, teacher, surveyors
and managerial jobs. With focused investment in training Bangladesh could
capitalize on these opportunities.
The current manpower recruitment agency sector remains relatively

undeveloped and unregulated. There are substantial opportunities to create
stand-alone recruitment agencies and Manpower Consultancy firms which
provide integrated training & HR services.
Vocational Training Institutes are critical in developing a more profitable

manpower exports further up the value chain. Bangladesh could aim to
emulate the Philippines’ story and develop more nurses targeting an aging
demand in developed economies.
Ashek Ishtiak Haq

ashek.haq@at-capital.com
73
AT Capital Research
Bangladesh can grow its The Bangladesh manpower export industry is worth USD 8bn a year.
year In a country
manpower industry from USD with GDP USD 70bn, remittances are a significant contributor. A recent report
8bn to USD 30bn
sponsored by the Royal Danish Embassy estimated that the Global Manpower
industry will be USD 600bn, and Bangladesh has an opportunity to capture 5%, or
USD 30bn, of the market (it now has a 1.8% share). The manpower agencies and
other supporting services revenue is estimated to be between USD 250mn to USD
400mn. By 2015 it could reach USD 1bn if Bangladesh can capitalize on the
opportunity. Through focused and targeted training and investment in HR
1
consultancies we believe it could achieve this goal.
Global mobility is increasing A 2003 UN report suggests about 3% of people are on the move in the world.
Global remittances through official channels were estimated to be USD 268bn in
2006. This is forecast to expand to USD 400bn by 2010 and cross USD 600bn by
2015. Developing countries’ share is forecast at 70% of the total. WTO’s GATS
Mode 4 agreement will grant much greater freedom of movement of temporary
workers. The cumulative, temporary or permanent migration figure will cross 80-
100mn.
With the inclusion of unrecorded flows it has been estimated that remittances
exceed FDI flows to developing countries. Among the global top 20 remittance
receivers, 8 are from developing countries. Countries receiving the most
remittances are Mexico (over USD 25bn), India (USD 23.5bn), and China (USD
22.5bn). The main competition for Bangladesh will be from India, Nepal, Pakistan,
Sri Lanka, Indonesia and the Philippines. In recent times Nepal and Vietnam have
1
emerged as new sources of labor supply.
F i gure 1: Top 15 remittance earners
2005 2006
25,000
20,000
15,000
USD mn
10,000
5,000
0
Bangladesh
Philippines
Romania
Spain
Lebanon
Serbia
France
Germany
China
Belgium
Mexico
India
Morocco
Pakistan
UK
Source: Ray, Sinha & Chaudhuri (2007)
Bangladesh started to send manpower abroad in the 1976.

1976 Since then a total of 4mn
Remittances have grown
three fold from 2001 to 2006 workers went abroad with 300,000 added annually. Remittance earnings have
grown three fold between 2001 and 2006, from USD 1.6bn to USD 4.8bn accounting
for 6% of the increase in GDP, 30% of export earnings and 20% of import earnings.
The top destinations are Saudi Arabia and UAE. In 2006 Bangladesh received USD
4.8bn in remittances, up 25% from the prior year. Including contributions coming
1
through informal channels it could exceed USD 8.0bn.
74
AT Capital Research
Figure 2: Top destination countries for Bangladeshi workers in 2006
4%
5% 9% UAE
6% 36% K.S.A
Kuwait
10%
Malaysia
Singapore
30% Bahrain
Others
Manpower can provide more Manpower exports can provide

provide significant national benefits.
benefits. While remittances are
benefits than just remittances
widely seen as the key economic benefit, free of local economic downturns, one
cannot underestimate the value derived from returning migrants bringing back
managerial skills and technical know-how. The community abroad creates
1
significant international networks.
Bangladesh’s comparative Bangladesh has a strong presence in manpower exports

exports in many countries.
countries Its
advantage as a destination workers have a good reputation and are known to be loyal, disciplined, hardworking
for manpower
and adaptable and have a propensity to save. One of the key competitive
advantages is the low average age of the workers. 95m citizens are between the
1,4
ages of 15-64, who suffer from domestic unemployment rate of 39.9%.
Fi gure 3: Manpower exports by profession
6% Labour
8%
8% Cleaning
43% Driver
10% Technical Personnel
Agriculture
15%
Construction Labour
10%
Catering Services
Challenges
To capture market share of the growing manpower industry, industry, Bangladesh has to
A structural change where invest in human capital through education and training. Most Bangladeshi migrants
destination countries are are young, male, unskilled, aged between 15-30 years and poorly educated. Only
looking for higher skills; 10-20% are certified vocationally trained and less than 10% general college
targeted vocational training key
to move up the value chain graduates are exportable. Training has become a necessity with the structural shift
towards activities demanding higher skill and the emergence of automation. With the
current deficiency in vocational training, training Institutions serving targeted labor
pool such as mason, cleaner, fabricator, carpenter and garment operators can
create more profitable manpower which can be a more lucrative export. Bangladesh
can learn from the Philippines’ story and develop more nurses targeting western
aging population demand.
75
AT Capital Research
Case study:
study: The Philippines’ Revolution.
The Philippines have dominated the manpower export industry since the 1970s. The
government has been treating temporary labor migration as a foreign policy priority in both
bilateral and regional trade negotiations for the past three decades. They have established
LINKAPIL to enable migrants to support development projects at home, in infrastructure,
education, and healthcare. Through the organization the migrants have invested USD 1bn
in the economy. LINKAPIL floated development bonds targeting migrant workers, special
pension funds which include resettlement and medical services for returning migrant
workers. Philippines remittance earnings for 2006 were USD 14.9bn more than triple
Bangladesh’s official remittances. This success story has become possible due to several
factors. The Philippines have one of the most enviable education systems in Asia. They
have over 800 higher education institutes. The Philippines have 190 universities and
colleges training 9,000 nurses each year. They produce 50,000 teachers per year. English
is the primary medium of instruction. For years The Philippines’ teachers have successfully
met and cleared US teacher licensure examination. They have exported 9,000 household
workers in 2006. 25% of the world’s seafarers are from Philippines. The government’s
recent initiatives regarding the industry are upgrading worker skills, orientation courses on
country specific culture and language, ensuring health and safety at the job-site, obliging
the employers to pay for travel fees, increasing the minimum wage from USD 200 to USD
400 and interviewing the employer.1
The identification, screening and regulation of recruitment agencies in

Reforming the recruitment Bangladesh and at destination locations is a priority.
priority The sector suffers from a
agency sector
poor local and international image with a reputation of charging excessive fees,
dishonesty and inappropriate contract negotiation. The Bangladesh Association of
International Recruiting Agencies (BAIRA), an association of 700 member
agencies, should ensure better monitoring. A computer databank can play a vital
role here, compelling the agent to recruit from listed workers. Tying the agent’s
commission to salary negotiated will align their interest with that of the employees.
Policy level relationship Another essential objective is building trust and through a superior brand image.
image
building Strategic ties and relationships with countries where migrants go to work should
be developed. Trade attaches have to proactively promote Bangladesh. A
combined marketing effort both from private and public sector showcasing the
substantial manpower resources needs to be formulated and executed.
The emergence of newer competition:

competition New countries such as Turkey, Poland,
The emerging competition Romania, Bulgaria, Sub-Saharan Africa, Morocco, Somalia, Tunisia, Mexico,
Jamaica, Colombia, Vietnam, Fiji, and Nepal with the older competitors such as
India, China, and Philippines are making the market more competitive.
Bangladesh needs to position itself effectively increasing its skills base and
retaining its traditional comparative advantages over other suppliers.
Increasing channeling of remittances through legal channels can be facilitated

Effective and economic through reduction in transaction costs using financial instruments. People refrain
financial channels required from the formal channels because of better exchange rates, time savings, low
for legitimate remittance
transaction costs and ease of remittance. Restructuring the existing system and
transfer
developing new products can attract forex e.g. exchange rate incentives for
migrants, efficient and customized delivery system of remittances. Changed
economic policies and incentives may encourage migrants to send more
remittances home. Also recent initiatives like Western Union joining the postal
1
service to deliver money will facilitate money transmitted through legal channels.
76
AT Capital Research
As the workers from Emerging European economies are leaving for better
New EU member nation opportunities in Western Europe, Bangladesh has the opportunity to serve this
migration provide an market. Recently Romania has been seeking Bangladeshi workers for its
opportunity for Bangladesh to garments industry. Similar opportunities can be found in Poland, Estonia, Hungary
fill the gap
and Bosnia. For example Poland has seen an outflow of carpenters, plumbers and
electricians to the UK and is suffering from shortage in its own market.
The current
current surge in labor demand has been prompted by faster and cheaper
Developed nation
demographic is and transportation, the expansion of global labor markets, a shortage of highly
continues to age; new educated workers and an aging workforce in industrialized countries. Until now,
markets are opening up Bangladesh has been able to access 20% of the global manpower market. The
most attractive countries in terms of unemployment rate, low birth rate, and
income equality are the EU, Japan, USA and South Asian countries. For example,
the US will need 21mn more workers by 2014. Seven of the ten occupations with
the fastest growth are in low-wage services that require minimal training (e.g.
sales rep, janitors, waiter, nursing, orderlies). It has been forecast that by 2015
there will be demand for 850,000 IT or E-skill workers in Europe. OECD will
require 25mn workers by 2014 and 50mn by 2020. Focused targeting of these
1
markets provides significant investment opportunities.
Aligning training need with the opportunities can present the local entrepreneurs
Targeted high quality
vocational training institutes with prospects
prospects in vocational training institute. The most sought after unskilled
could be very lucrative worker jobs are for mason, cleaner, fabricator, carpenter and garment operators.
For skilled workers this includes doctors, computer programmer, engineer,
teacher, surveyors and managerial jobs. Entrepreneurs providing these vocational
skills will have significant investment opportunities.
The financial
financial industry can target manpower employees with innovative products,
Banks could position
themselves for growing deposit schemes or bonds. Philippine government has used the government body
transaction fees with tailored LINKAPIL program to float development bonds targeting migrant workers, and
products also special pension fund. Both government and private sector can take similar
initiatives for the migrant workers.
High quality one-

one-stop training and HR
HR consultancy providers for prospective
One stop shop for manpower
migrants will certainly help the industry. A fully integrated high quality service
exports
focusing on the migrants’ vocational and cultural training, recruitment and career
consultancy could provide a more comprehensive service to workers and users.
Joint venture
venture alliances
alliances with a reputed international placement agency for skilled
workers can open up a profitable market for higher value human resources. For
Leveraging international example engineers, software programmers, scientists, managers, teachers,
networks and experience
accountants are in higher demand all over the world. International network can
1
provide more options for their placements.
Conclusion:
Conclusion: As demand increases for manpower globally, Bangladesh could take
5% or USD 30bn of the global market. With a large, young and dynamic
population suffering from high unemployment domestically, foreign employment is
a significant opportunity. Targeted skills training, an efficient and transparent
employment agency industry and alliances with international agencies, could
propel Bangladesh further up the value chain.
77
AT Capital Research
References
1. Ray, S., Sinha, A. K., & Chaudhuri, S. (2007). “Making Bangladesh a

Leading Manpower Exporter: Chasing a Dream of USUSD 30 bn Annual
Migrant Remittances by 2015”. India: Indian Institute of Management
Calcutta.
2. The Daily Star. (2008). “Romania to recruit more Bangladeshi RMG

th
workers”. Article published in the Daily Star on 28 February, 2008.
Available at http://www.thedailystar.net/story.php?nid=23894. Accessed
th
on 25 March, 2008.
3. CIA Factbook. Available at https://www.cia.gov/library/publications/the-

th
world-factbook/geos/bg.html. Accessed on 25 March, 2008.
4. Mahmud, M. (2004). “Youth lost to Joblessness”. Article published in The

th
Daily Star on 13 October, 2004. Available at
http://www.thedailystar.net/2004/10/13/d4101301011.htm. Accessed on
h
25t March, 2008.
78
AT Capital Research
Pharmaceuticals
Pharmaceuticals
With a USD 600mn industry and an average annual growth rate of 12%, the
Bangladeshi pharmaceutical industry is the biggest (in volume) amongst all
the LDCs.
Primarily a generics industry producing about 8,000 different brands which

meet 97% of the domestic demand. Local companies enjoy 86% market
share. Of the 245 registered pharmaceuticals, the top ten players account
for 65% market share.
According to the WTO TRIPS agreement, LDC’s are exempted from “Patent
Protection” until 2016 allowing legal reverse engineering and sale of
patented products. This provides a unique opportunity for Bangladesh over
India and China, who are under the patent regime.
Bangladesh has made significant progress in the export market. Between

2003 and 2006 pharmaceutical exports increased to about 61 countries
from 51 and quadrupled in value from USD 7.9mn to USD 36.5mn.
Since many companies have acquired international certifications like

USFDA, UKMHRA and TGA, Bangladesh can penetrate into regulated and
unregulated markets.
With the demise of reverse-engineering in India and China, Bangladesh is

in a position to emerge as one of the regional R&D centres for
Pharmaceutical Research.
Bangladesh provides a strong platform for off-shoring/outsourcing generic

bulk and formulation drugs due to a cheap labor force and established
infrastructure.
Through the establishment of modern technical facilities, the industry can

emerge as a regional hub for pre-clinical testing and clinical trials.
Establishment of adequate reverse engineering and API manufacturing

facilities provide a substantial market for import substitution as currently
80% of the APIs are imported.
Local manufacture of vaccines and injectables will enable Bangladesh to

become self sufficient in the production of formulations.
Sanwar Ahmed
sanwar.ahmed@at-capital.com
The Patent exemption through TRIPS and the government endorsement as
a thrust sector have presented a perfect platform for the industry to launch
Dewan Ashrakat Hossain itself into the global arena.
ashrakat.hossain@at-capital.com
79
AT Capital Research
The global pharmaceutical industry is expected to grow to USD 1.3t
1.3tn by 2020. The
The Bangladesh Bangladeshi market, though currently small from a global perspective, is growing
Pharmaceutical Industry
rapidly at an average rate of 12%. Bangladesh has the largest pharmaceutical
industry among the Least Developed Countries (LDC). The TRIPS agreement has
given it an advantage as an LDC to legally reverse-engineer patented products and
sell in the local market. India has recently been subjected to patent protection in
2005. This places Bangladesh at an advantage in the generics market until 2016.
Given this position, investment in various areas such as adequate reverse
engineering facilities and API (Active Pharmaceutical Ingredients) plants will help
1,3
the industry compete on a globally.
Nepal, Pakistan and Sri Lanka have the capability to make finished products
(formulations) from imported ingredients (bulk drugs). India has the capability to
produce both bulk drugs and formulations in the South Asian region. Currently, the
Indian pharmaceutical industry is one of the largest generic pharmaceutical
industries in the world. However, with the new patent regime MNC dominance is
13
anticipated with the need for more R&D.
Import of bulk drugs in Pakistan meets 90% of its bulk drug requirements through imports from China,
neighboring countries
Japan, the UK, Germany and India. Bangladesh imports 80% of its bulk drugs
mainly from India, China and Europe. Sri Lanka meets 98% of its drug requirements
through imports mainly from India. Although Bangladesh, Nepal, Pakistan and Sri
Lanka can produce formulations, only Bangladesh and Pakistan have self-
13
sufficiency in the formulation segment.
Brief comparison with India Figure 1: Comparison of the Indian and Bangladeshi
Market size Growth rate API industry Export share
(USD mn) (%) (USD mn) (%)
Bangladesh 600 11.6 28 0.35
India 6,000 10.0 210 4.10
9,10
Source: DDA & USITC
white--collar labor employer.

The Bangladesh pharmaceutical industry is the largest white employer
It is primarily a generics market, producing both patented and off-patent products.
In 2007 the market was worth USD 600mn and has grown at an average rate of
12% over the last five years. The industry is dominated by local manufacturers who
account for 86% market share. The top two domestic manufacturers, Square and
Beximco Pharmaceuticals have a combined market share of over 27%, while the
top ten domestic manufacturers constitute about 64% of the total pharmaceutical
1,4
market in Bangladesh.
Steady Growth in Market Size Figure 2: Bangladesh pharmaceuticals market (USD mn)
2004 2005 2006 2007
1st quarter 94.1 95.8 123.7 142.2
nd
2 quarter 110.6 120.4 136.8 156.6
3rd quarter 107.5 128.2 157.9 154.2
4th quarter 104.4 145.6 91.6 137.6
Total 416.5 490 510 590.6
1
Source: IMS Report,4th Quarter - 2007
80
AT Capital Research
Over the last few years the Bangladeshi pharma industry has seen a significant
increase in exports. At present Bangladesh exports to over 65 countries around the
world, the majority of which are LDCs. Export destinations include Japan, Canada,
9
Italy, Korea, Saudi Arabia, Malaysia, the UK and the USA .
In terms of finished formulations, the pharmaceutical industry in Bangladesh

accounts for 97% of local demand with the balance relating primarily to the import
of vaccines. Bangladesh, however, has to import a large portion of API required for
finished formulations. Although 21 local pharmaceutical companies are producing
41 APIs, around 80% of the total API required by the industry comes from
4,11
imports.
Increasing Penetration of Figure 3: Export statistics (USD mn)

Exports Finished Raw No. of
Year products materials countries
2001 4.5 0.20 17
2002 5.9 0.60 32
2003 7.9 0.30 51
2004 20.3 0.02 62
2005 20.6 0.10 67
2006 36.5 0.10 61
2007 35.9 n/a 65
Source: Primary Interview, DDA
Competitive Advantages Patent exemption In 2002, the ‘Doha Declaration’ of TRIPs was adopted. LDCs
were exempted from ‘Pharmaceutical Patent Protection’ until Year 2016. This
means that Bangladesh can legally reverse-engineer patented products and sell
them in the local market as well as export to other LDCs. The TRIPS agreement
can be used to ensure access to innovation, invention and affordability of
4
pharmaceutical products and processes by developing nations.
Regulatory environment The local drug ordinance established in 1982 was

designed in a manner to protect the local players. One clause states that if 4 or
more local companies manufacture a certain drug, no MNC can import that drug.
The TRIPS agreement along with the national drug policy gives the local companies
9
in the generics market a significant advantage.
Strong manufacturing base Among the LDCs Bangladesh is the only country which
is almost 100% dependent on drugs produced locally. Bangladesh also has the
largest market size among the LDCs giving Bangladesh a strong manufacturing
base. Only 49 LDCs, including Bangladesh, are able to export their patented drugs.
Other countries, including India and China will not be able to export their patented
4
drugs, as the facility will be reserved for LDCs until 2016.
No license fees Due to its LDC status and the fact that Bangladesh has no patent
protection for pharmaceutical products, no license fees are payable for
manufacturing and for export to other LDCs. License fees would be applicable for
export to any non-LDC where the patent holder has registered his patent. No such
fee has to be paid, either because the patent is not filed or because it is not
4
enforced.
81
AT Capital Research
Low logistics costs According to the World Bank’s Doing Business report, inland
transportation and handling costs are very competitive in Bangladesh at USD 150
per standard cargo compared to USD 404 in India, USD 520 in Tanzania and USD
12
600 in Ethiopia.
Low-cost energy Fuel and energy is highly subsidized in Bangladesh, making

Low-
4
prices very competitive.
Competitive labor force Bangladesh is internationally very competitive in terms of

labor cost. Labor cost may account for up to 50% of the overall manufacturing cost
for APIs. Since Bangladeshi manufacturers are not fully backward integrated, they
4
can capture only part of this competitive advantage.
Export regulations & prospects Currently, there are no restrictions on the export of
pharmaceuticals. The country’s existing “Export and Import Policy” is followed.
According to the new three-year Export Policy for FY07 to FY09 pharmaceutical
products were included in the list of thrust sectors. Outbound passengers will be
able to carry USD200 worth of products with them abroad. The allowable limit for
pharmaceutical samples export is USD10,000. The government has plans to
introduce a policy to boost export of pharmaceuticals in the near future. Import
license of raw materials are issued to all manufacturers which allow them to import
6, 7, 8
from most parts of the world.
10
Case Study : Success in Outsourcing 10
Success in outsourcing Facing lagging sales of patented drugs by MNCs like GSK and Pfizer in their
home markets, declining R&D revenues, and rising costs, many MNCs have
turned to contract manufacturing and research services (CRAMS), co-
marketing alliances, outsourcing of research and clinical trials to reduce costs,
increase development capacity, and trim the ‘time to market’ for new drugs.
These strategies permit MNCs to focus on their core competencies, such as
drug discovery and marketing, rather than on manufacturing. India has
emerged as the principal destination for global pharmaceutical companies.
Over the last 5 years the CRAMS industry has been contributing close to 8%
of the total Indian pharmaceutical business. Developed countries are
expected to further propel the CRAMS industry to grow at nearly 32% from
2006 to 2013
Investment in R&Das&India
bulk offers
drug / global pharmaceutical
API facility companies
- Although as an LDC, both quality is
Bangladesh
and cost
allowed advantage. patented products, it is difficult to source raw materials or
to manufacture
APIs to produce patented drugs. As countries like India, China and Brazil are all
sources of raw materials and signatories of WTO, it is expected that they will not
Development of domestic API produce raw materials of patented products. In order to take full advantage of the
market ‘Post-2005 Opportunities’, Bangladesh needs to invest in ‘DMF Standard API
Facilities’ with all basic infrastructures, amenities and special facilities. API facilities
will not only play a significant role in import substitution, it will also open the doors
4
to mass scale exports.
To be able to do this, proper R&D is required. Bangladesh currently has to import

80% of the API from countries including India and China as the local R&D required
82
AT Capital Research
for the reverse engineering is not adequate. Of the top 15 API molecules, only 6 are
locally manufactured which does not include the highest revenue generating
molecule. The rest are imported. India and China have been involved in
pharmaceutical R&D for several years. In Bangladesh, there is no such R&D
facility. In order to take full advantage of the Post-2005 opportunities, Bangladesh
needs to invest in R&D for reverse-engineering of patented drugs. Since 2005,
India has had to abide by patent protection. Thus, the vast reverse engineering
sector in India which is more technically adept than Bangladesh is at a loss.
Bangladesh should aim to capitalize on the redundancy of India’s generics
1
industry’s’ significant resource.
Outsourced R&D - leveraging Investment in R&D outsourcing facilities.

facilities. Due to low skilled labor costs and other
a low cost base
factors such as subsidized power, Bangladesh has an advantage as a location for
possible outsourced R&D. Bangladesh might collaborate with global players and
perform outsourced R&D activities for them.
Developing a toll manufacturing Investment in contract manufacturing facilities

facilities.
ities Considering the large number of
sector medium and small sized pharmaceutical firms in Bangladesh requiring funds to
setup production units for specific drugs, a potential investment opportunity lies in
establishing such plants. Bangladesh could become a contract manufacturing
venue for global players. The toll manufacturing industry in India was worth
3
USD350 mn in 2007.
R&D for new drugs key to Investment in R&D for developing new drugs. Investment in R&D facilities would
developing competitive enable Bangladesh to develop its own molecules and drugs once the ‘patent
advantage post 2016
exemption period’ will be over in 2016. In order to compete with global players, the
industry has to come up with its own portfolio of product patents. The concept of a
privatized common R&D facility can prove to be very promising as a majority of the
local companies might not be able to establish self-owned R&D facilities.
India has recently started investments in new drug development after entering the
patent regime. In 2005, Dr. Reddy’s committed 14 % of its annual sales to R&D,
10
whereas, Ranbaxy allocated approximately 7 %.
Plant certification for foreign Investment in plants for certification in developed markets. Bangladesh has export
markets
opportunities in the developed and regulated markets in the form of contract /toll
manufacturing and under-license manufacturing. In order to capitalize on these
export opportunities, manufacturers of Bangladesh need to invest in manufacturing
plants and apply for certification (e.g. USFDA, UKMHRA and TGA) in regulated
markets. Optimum capacity utilization and investment in plants is important for
3
penetrating the export market.
Injectables, Insulin and vaccine

production Investment in injectables, insulin and vaccine plants. To take full advantage of the
Post 2005 opportunities, the country should invest in injectables, insulin and
vaccine plants, none of which are currently present. This would ensure substantial
import substitution.
83
AT Capital Research
Conclusion
The pharmaceutical industry in Bangladesh is currently the largest among the LDCs
which are not required to comply with patent rights. As a result, local companies
can take advantage of reverse engineering and produce patented products at lower
cost. Furthermore, India has recently been (2005) included into the patent regime.
This makes the generics market of Bangladesh much more attractive than that of
India and China. Vaccine and injectable product lines remain relatively
underdeveloped. As Bangladesh imports a major share (80%) of its API, there is a
scope for the setting up of API manufacturing plants which will reduce the cost of
finished goods making the Bangladesh Pharmaceutical Industry much more
competitive in the domestic and export market as well.
In the long term Bangladesh should prepare for the “Post 2016” phase. Heavy
investment in R&D is essential. It is likely that a majority of the companies will not
be able to afford quality R&D facilities. The Contract Research And Manufacturing
Services (CRAMS) structure in India can be seen as an example as Bangladesh
presents similar advantages as an outsourcing destination for manufacturing and
research. The global pharmaceutical markets will more than double in value to
USD1.3tn by 2020 and the emerging markets are expected to grow at double digit
figures in the near future. With the right strategy Bangladesh has every chance of
capturing a substantially larger market share.
References
References:
1. IMS. (2008). “IMS Quarterly Review, 4th Quarter 2007”.

2. Begum, R. (2006). “Pharmaceutical industries: Potential and Possibilities”.
NDC Journal. Available at http://www.ndc.gov.bd/pdf/2007/73-89.pdf.
3. Hassan, N. (2005). “Post WTO opportunities & Bangladesh Pharma
Sector”. BAPI, February 2005.
4. GTZ. (2007), “Study on the Viability of High Quality Drugs Manufacturing in
Bangladesh”. Federal Ministry for Economic Cooperation and Development.
5. IMS. (2006). “Intelligence. 360-Global Pharmaceutical Perspectives”.
6. Official website of Board of Investment Bangladesh at www.boi.gov.bd.
7. Primary sources: interviews with officials of GSK Bangladesh.
8. Official website of Export Promotion Bureau at www.epb.gov.bd.
9. Official website of Directorate of Drugs Administration (DDA) at
www.ddabd.org.
10. Greene, W. (2007), “Emergence of India’s Pharmaceutical Industry and the
Implications for the U.S. Generic Drugs Market”. USITC: Office of
economics working paper.
11. Primary sources: interviews with officials of Directorate of Drug
Administration.
12. World Bank. (2007). “Improving the Competitiveness of the
Pharmaceuticals Sector in Bangladesh”. World Bank Draft Policy Note.
13. Official website of Centre of Trade and Development at www.centad.org.
84
AT Capital Research
Healthcare
Healthcare
The global healthcare industry was worth USD 4.5tn in 2006 and is still
expanding. Medical tourism in Asia is experiencing a growth rate of 20-30%.
India, Thailand, Malaysia, South Korea and Singapore are attracting the
maximum number of medical tourists by providing quality medical service at
economic prices.
Bangladesh can take advantage of its weak currency and strategic location
in the Asian hub to attract medical tourists. Bangladesh needs to invest
heavily in health care infrastructure, travel and accommodation facilities.
World class medical service providers like KPJ Healthcare (Malaysia),

Bumrungrad (Thailand) and Apollo Hospitals have opened operations in
Bangladesh.
Bangladesh has made significant progress in the healthcare sector

including absolute eradication of polio, the lowest maternal mortality rate in
South Asia, a sizeable reduction of fertility and child mortality rates.
Substantial investment is required in Bangladesh if it is to reach the

standards of neighboring countries in terms of the medical infrastructure
and facilities.
The growing purchasing power of a sizable middle class provide

opportunities for investments in hospitals, diagnostic centers, laboratories,
insurance companies and fitness centers in Bangladesh.
As developed countries are forecast to run short of their domestic supply of

medical staff, there are significant opportunities in training and exporting
manpower from Bangladesh.
Global pharmaceutical giants can lower their research and development

costs by shifting the pre-clinical trials of drugs to cheaper locations like
Bangladesh.
Firoz Ahmed Ph.D
firoz.ahmed@at-capital.com
Telemedicine can be a means to provide superior medical services to 70%
of the total population residing in the rural areas of Bangladesh. This will
Tami Zakaria
tami.zakaria@at-capital.com require significant support from information and communication technology
infrastructure.
Ahmad Sajid
ahmad.sajid@at-capital.com
85
AT Capital Research
With its large population of around 15
150mn people needing improved healthcare,
Bangladesh has significant investment opportunities. These are wide ranging and
span across various subsectors. For example, medical tourism for the NRBs, health
A vast customer base for healthcare
insurance for more than 98% of the non-insured population, telemedicine for the
geographically dispersed population, pre-clinical trial centers for local and global
drug manufacturers and export of trained medical staff to developed countries.
Bangladesh has made excellent progress in many of the key health indicators. It
has fully eradicated polio and 97% of the population has access to safe drinking
water. This has been possible with the increased participation of the private sector,
Polio has been fully eradicated mainly NGOs and MFIs. The population growth rate is now 1.54% down from 2.5%
in 1990. The infant mortality rate is lower than India, Nepal and Pakistan. The
proportion of underweight children has gone down from 72% in 1986 to 51% in
1
2000.
Tertiary healthcare is mostly Dhaka city based. Outside Dhaka primary and
preventive healthcare is provided by community health clinics, Upazilla Health
complex, Government hospitals and healthcare centers of NGOs. Most of the
specialist doctors are stationed in Dhaka and work with private hospitals. The
medium sized hospitals and clinics based all around the country refer patients to
private and government hospitals in Dhaka, especially for heart surgery, organ
12
transplants and other major treatments.
Areas for improvement:

Lack of world-class medical infrastructure support, especially in diagnostic
facilities. Mostly patients go abroad for diagnosis of disease and ultimate
treatment.
Inadequate number of skilled manpower. The doctor to population ratio is
1:3,169 and nurse to population ratio is 1:6,442. The number of specialist
doctors with international recognition is few.
Health insurance plans are rare. WHO statistics show that 0.1% of the
population was insured in 2005. This sector is unprofitable due to lack of
0.1% of the Bangladeshis are control over costs, resulting from lack of standardization of treatment
insured2 2
charges at hospitals.
Figure 1: Key health indicators of Bangladesh, 2005

Total population (mn) 140
Hospital beds per 10,000 population 3.43
Physicians per 10,000 population 3
Population per nurses 6,442
Total expenditure on health (THE) as % of GDP 3.4
Public expenditure on health as % of THE 31
Private expenditure on health as % of THE 69
13
Source: Ministry of Health and Family Welfare, Government of Bangladesh
Bangladesh has attracted number of reputed international healthcare service

Joint venture hospitals received providers in the last 5 years. KPJ Healthcare of Malaysia operates as a joint
USD 110mn investments in past 5
venture partner with United Hospitals Ltd. Square Hospital in Dhaka has an
years
affiliation with Bumrungrad Hospital of Thailand. Asia’s biggest healthcare service
14
provider Apollo has been operating in Bangladesh since 2005. These hospitals
86
AT Capital Research
attract patients who are in need of tertiary medical care. As the middle income
groups of the population are gaining purchasing power, they are being targeted by
top medical service providers.
There are mixed results regarding performance of these hospitals.
3, 15, 16
Case study:
study: Apollo Hospital – India vs Bangladesh experience
Apollo Hospitals Group of India has become the largest healthcare service
provider with 41 hospitals in and around India within 25 years since
inception. Some of the key facts about Apollo in India are:
• Employs over 4,000 specialists and super-specialists and 3,000

medical officers spanning 53 clinical departments in patient care.
• Achieved a 99.6% success rate in cardiac bypass surgery
• A 70% success rate in Bone Marrow Transplant
The success of Apollo in India comes from the combination of world

renowned doctors, adoption of the latest technology and strong customer
focus. Apollo Hospitals’ joint venture with German company Deutsche
Krankenversicherung (DKV) is expected to tap into the nascent health
insurance market in India from FY’08. Apollo DKV Insurance Company offers
comprehensive cover products, out-patient products and hospital cash
policies.
Apollo’s experience is quite different in Bangladesh since its arrival in 2005,

where lower take up and occupancy has somewhat limited investment in
associated products and services. While occupancy rates in India are around
77% they are much lower in Dhaka. There is less provision of related
services in Dhaka – for example telemedicine and medical tour plans are
available in India while they are not in Dhaka.
The global healthcare

healthcare industry is currently undergoing significant change.
change. Total
Global healthcare trends are health care expenditure across the world was USD 4.5tn in 2006. Of this, US &
changing
OECD countries account for USD 4.2tn. Global pharmaceutical sales account for
USD 602bn, with an annual growth rate of 7%. The biotechnology industry has
mushroomed since its inception and at present is equivalent to USD 50.7bn. China,
4
USA, India, Australia, and France are market leaders in biotech.
Although the tourism sector as a whole is growing by 4-

4-6% a year in Asia, medical
tourism is growing between 20-
20-30% year on year. With increasing medical costs in
developed nations and increased rate of non-insured population, medical tourism is
a growth area. With an estimated 1.5mn people visiting countries like Thailand,
Singapore, India, South Korea and Malaysia for medical purposes today, the sector
5
is expected to swell to USD 4bn in Asia by 2012.
Globally, the clinical trial industry

industry is estimated to be worth over USD10
USD10bn
10bn and is
growing at 15% a year. It takes around USD 800mn to bring a new drug to market,
Clinical trial industry growing at 15% 6
40% of which goes behind drug testing. The pharmaceutical giants are striving to
per year
find cheaper sources of facilities for developing new drugs. In India, with low capital
costs and less time required to recruit volunteers for clinical trial centers, this
business sector is expected to grow at a CAGR of 36% from 2006 to 2011 and be
7
worth USD 1bn.
87
AT Capital Research
Opportunities for Investment
The healthcare sector in Bangladesh has moved a long way during the last few
decades. As the global healthcare industry is experiencing shifts, it is the right time
to work out a comprehensive plan by involving both the public and the private
sector to maximize the opportunities that lie ahead.
Establishing a world-
world-class hospital The primary target market will be the upper
The need for world class credible income section of Bangladeshis who go abroad for medical treatment and the
hospitals for medical tourism 4,000,000 NRBs worldwide. Taking advantage of the weak currency and strategic
location in the Asian hub, Bangladesh can also attract significant number of medical
1
tourists from developed countries.
Different approaches may be taken for establishing the hospitals either as a green-
field project or acquisition of existing non-performing hospitals in both the public
and private sectors. Joint ventures with leading healthcare providers like Parkway
Hospitals in Singapore would provide credibility and access to leading service
provision. To attract tourists a comprehensive range of treatments would need to be
available - for various disease classes including cardiology, nephrology,
ophthalmology, neurology, dental, orthopedic, ENT and cosmetic surgery facilities.
Staffing the
the hospital with a pool of specialist doctors,
doctors such as reputed NRB doctors
based in the UK or the USA, will be a key factor in determinant of success. Both
Attracting foreign and NRB doctors
public and private incentives should be developed to make Bangladesh an
attractive destination.
The hospital should be backed by a world class diagnostic center.

center The diagnostic
State of the art technology in center will be equipped with state of the art technology in diagnosing every major
diagnostic centers is required disease class. This is another precondition for this hospital to be successful.
Health insurance administration In Bangladesh, the health insurance market is still

ill explored. Delta Life Insurance has a hospitalization insurance scheme. Some of
the corporate houses offer group insurance for their employees. NGOs like
The health insurance market Grameen Bank provide micro health insurance schemes for rural Bangladeshis. As
remains undeveloped; an
opportunity for JV’s with foreign health care services are becoming more expensive there is an opportunity for
insurance providers expanding health insurance market. Joint ventures with foreign insurance
companies, third party administrators and specialized health insurance plans (Plan
for diabetics for instance), can pave the way for the development of the health
18,20
insurance market.
mid-range hospital A mid range hospital may be established to tap a

Establishing a mid-
large and growing middle income section and could be located in all major cities. It
Provision of medical care for large
and growing middle class
has been estimated that the middle class accounts for 22% of the urban
8
population.
Creating telemedicine centers in different

different districts With 80% of the population being
rural, access to treatment in remote locations is required. Telemedicine involves the
Telemedicine, accessing the rural
population remote diagnosis, monitoring and treatment of patients via video conferencing over
19
the internet.
88
AT Capital Research
Establishing pre-
pre-clinical trial centres
centres A pre-clinical trial centre could be created for
Development of preclinical trial local drug makers and also for global pharmaceutical companies wishing to
centres offshore their operations. Most of the pharmaceutical companies in Bangladesh do
BE (Bio-equivalence) testing of drugs in India for export permission. If such facilities
are developed in Bangladesh, locally manufactured drugs will be more competitive
12
in the global market.
Medical education facility By the year 2010, the global shortage in nurses is
forecast to cross 300,000 across the globe, with highest shortage experienced in
USA, Canada, Australia, and the Saudi Arabia. Bangladesh has a large young
Nurse training centres: a global population, both men and women, who can be trained as nurses/medical
shortage in supply of nurses assistants. Even the major exporter countries of trained nurses, such as
Philippines, are facing nurse shortage for their domestic markets. Training and
educational institutes need to be established to feed this opportunity. As well as
being a primary supplier, Bangladesh can also become a supplier to current
9,10,11
supplier nations.
An integrated one stop solution, a “Medical City”. Suitable locations could be Uttara,
Tongi, Gazipur or Chittagong. The idea of this medical city is to create an
Medical City: One stop shop establishment which will be a comprehensive solution for healthcare service in
Bangladesh, integrating pre clinical, clinical and post surgical after care.
Conclusion
Bangladesh, with its large and economically diverse population, requires a targeted
investment approach. For example, while international health care companies have
entered into the market, affluent Bangladeshis still travel to the far east for medical
care. JVs with foreign companies have not met expectations with initial occupancy
rates remaining lower than anticipated. Evolving the correct business model,
improving service provision and changing perceptions are critical factors of
success. Despite the challenges faced, Aureos Capital have recently taken a stake
in the Apollo hospital – recognizing the substantial opportunity for private equity, in a
sector with high initial capital outlays, with longer pay back periods.
Healthcare provides substantial avenues for investment in various sub sectors from
primary care to education. Investment in enabling avenues such as education and
insurance coupled with the establishment of high quality hospitals and diagnostic
centers provides opportunities locally as well as for medical tourism, capitalizing on
the global shift in healthcare.
89
AT Capital Research
References:
1. Official website of World Health Organization available at

http://www.searo.who.int/en/Section313/Section1515_6922.htm.
2. Official website of World Health Organization available at

http://www.who.int/nha/country/BGD.pdf.
3. Official website of Apollo DKV Health Insurance available at

http://www.apollodkv.co.in/home/EasyHealthIndi.aspx.
4. Official website of Themedica available at http://www.themedica.com/industry-

overview.html.
5. Official website of hotelmarketing.com available at

http://www.hotelmarketing.com/index.php/content/article/060410_medical_touris
m_asias_growth_industry.
6. Goozner, Merrill (2004), “Thee USD800 Mn Pill: The Truth Behind The Cost of
New Drugs”. University of California Press.
7. http://www.prlog.org/10036648-booming-clinical-trials-market-in-india.html.
8. Agri Food Trade Services, Canada. (2005). “Agri Food-Past, Present, & Future
Report Bangladesh”.
9. New Zealand Trade and Enterprise (2007), “Global Trends and Issues in the
Corporate, Industry and Government Training Markets”.
10. Official website of BMJ at http://www.bmj.com/cgi/content/full/320/7241/1030.
11. Journal of Advanced Nursing available at

http://www.efnweb.org/version1/en/documents/PressRelease-
Europeannursingshortage.pdf.
12. Primary sources: interviews with Lecturers of Institute of Health Economics,

University of Dhaka; Director, Ministry of Health and Family Welfare.
13. Official website of Ministry of Health and Family Welfare, Government of

Bangladesh at www.mohfw.gov.bd.
14. Scoop. (2005). “Philips helps provide rural healthcare in India”..
15. Official website of Apollo Hospitals Group at www.apollohospitals.com.
16. Primary sources: telephone interviews with officials of Apollo Help Desk, Dhaka.
17. Several Sources Compiled by Wikipedia.
18. Official website of Grameen Bank at http://www.grameen-

info.org/bank/index.html.
19. United Nations. (2006). “The World Urbanization Prospects: The 2005 Revision”.
20. Ford Foundation. (2000). “Roundtable on Microinsurance Services in the Informal

Economy: The Role of Microfinance Institutions”.
90
AT Capital Research
Biotechnology
Biotechnology
While the global biotechnology industry is booming, Bangladesh is at an

early stage of development. However, we believe there is significant
potential in this sector, especially in the agricultural and healthcare sectors.
The potential areas of development and commercialization of the

biotechnology sector in Bangladesh were studied by a Thai Biotechnology
team.
The team identified several areas in the agricultural sector, such as

Ornamental Plants and Cut Flowers, Food Processing Industries,
Mushroom Cultivation Technology, Medicinal Plants and Herbal Products
Technology, Microbial Seed Cultivation Technology, Fruit Crop Production,

Potted Plants and Cut Foliage Production, Bamboo and Potato Starch
Industries.
Bangladesh should pay special attention to the TRIPS agreement (Trade

Related Aspects of Intellectual Property Rights) before the year 2016 is
over, and upgrade its’ generic pharmaceutical sector by integrating
biotechnology-driven pharma products.
Knowledge development and transfer is critical. Leveraging the NRB

platform, investment in education and research is important.
Bangladesh should proactively form partnerships with the international

Biotech industries especially in the agricultural and health care sectors, e.g.
Thailand’s National Center for Genetic Engineering and Biotechnology,
Monsanto (USA), Serum Institute of India Ltd, and Biocon India Group, etc.
The suggested areas of investment opportunities are in the agro-

biotechnology which include cotton production and processing (backward
linkage to RMG/Spinning Mills), potato, rice, and in medicinal biotechnology
in vaccine and recombinant insulin manufacturing.
Mir Firoz Ahmad, Ph.D.

firoz.ahmad@at-capital.com
91
AT Capital Research
Biotechnology can play a significant role in Bangladesh’s
Bangladesh’s push for new export
sectors.. Unlike its neighbor India, Bangladesh has yet to develop a significant
sectors
1
biotechnology industry and capitalize on a fast growing USD 100bn global industry.
Agriculture and pharmaceuticals are key sectors with specific and proximate
applicability in Bangladesh. Agricultural biotechnology, be it plant biotechnology,
animal biotechnology, fisheries or aquaculture could positively impact the country’s
Biotechnology could revolutionize
agriculture and pharma sectors largest sector by enhancing product yield, innovation and resistance to natural
hazards. Many of the next generation of medicines (e.g. antibiotics, antibodies,
hormones and vaccines) will be biotechnology derived – if the local pharmaceuticals
industry is to remain competitive in export markets, after the TRIP’s market
protection lapses in 2016, investment in R&D and new product development is
critical. How can Bangladesh learn from and leverage from its proximity to India.
The global biotechnology industry has expanded rapidly over the past five years,
with annual growth rates consistently above 15%. Revenues of publicly listed
biotech companies worldwide grew 18 % in 2005 to USD 63.1bn, an all-time high in
the sector's 30-year history. In India for example, there has been a biotech
Global biotechnology revenue was revolution, which continues to expand fast, with already 280 biotech companies and
USD63.1 bn in 2005, an all-time 180 bio-product suppliers contributing to 2% share of the global market. The Indian
high in the sector's 30-year history
biotech product market is forecast to be USD 4.2bn in the year 2010 with
2,3
investment opportunities of USD 2bn over the next five years.
The application of biotechnology With 150mn people in Bangladesh, the demand

for basics such as food, drugs, clothing and health care, is substantial. With use in
yoghurt to rice to leather and vaccines biotechnology has wide and varied
applications.
Biotechnology and agriculture in Bangladesh While biotechnology and GM

innovation have revolutionized product development globally with high yielding,
disease free crops, resistant to adverse environmental conditions, Bangladesh has
not benefitted from such advances to the extent it could, due to limitations in
investment in business and research infrastructure. The scientific community,
NGOs and the government created the National Institute of Biotechnology (NIB) in
1999 which introduced a bio-safety guideline.
The successful introduction of GM products require research and field testing to

develop tailored products and to ensure there are limited negative impacts to the
surrounding ecosystem. Given the importance of agriculture in its economy and the
current shortfall in production for domestic consumption, Bangladesh could benefit
significantly if agricultural output could be increased.
Rice is the staple food for about 150mn people and is grown on about 10.5mn
hectares. Bangladesh produces about 25mn tons of rice annually. With the
population forecast to grow by 2mn annually. Bangladesh is expected to need
Bangladesh’s rice production has to about 30mn tons of rice annually in the year 2021 while total rice growing area is
increase to support the growing
population forecast to shrink to 10.3mn hectares in the same period. Rice yield would need to
4
increase from the present 2.44 to more than 3.75 tons/ha. GM rice strains capable
of being grown all year round coupled with improvements in irrigation area,
technology and mechanized cultivation can provide the solution.
In 2003, a four member expert team from Thailand (sponsored by SEDF and
92
AT Capital Research
BIOTEC) undertook a study to assess the prospect for commercialization of
biotechnology in Bangladesh and to identify areas for development and promotion.
Thai biotech study group assessed 5
the prospects for the They highlighted the following areas:
commercialization of biotechnology Ornamental Plants and Cut Flowers
in Bangladesh
Food Processing Industries
Mushroom Cultivation Technology
Medicinal Plants and Herbal Products Technology
Microbial Seed Cultivation Technology
Other small-scale agro-businesses were also identified as having significant

TRIPS (Trade Related Aspects of
Intellectual Property Rights) potential for business promotion:
agreement ends in 2016 Fruit Crop Production
Potted Plants and Cut Foliage Production
Bamboo
Potato
Similar initiatives need to be made in the area of food production, especially, rice,
corn and pulses.
There is a need for more science

graduates Biotechnology and Pharmaceuticals in Bangladesh.
Bangladesh. Many of the next generation
medicines will be biotechnology derived, especially in the areas of antibiotics,
antibodies, hormones and vaccines. There have been no significant initiatives from
any of the pharmaceutical companies to incorporate biotechnology derived product
lines in their portfolio. Companies are largely engaged in producing generic
medicine. The TRIPS (Trade Related Aspects of Intellectual Property Rights)
Field testing and preclinical trial agreement exemption lapses in 2016 – as such the generics market will be lost and
investment most of the companies will lose business to the foreign companies.
Infrastructure constraints in Bangladesh.

Bangladesh. There is a shortage of qualified scientists
in the biotechnology area. In the last 50 years Dhaka University has produced
approximately 5,000 Life Science graduates, many of which work abroad. The
government has recently taken initiatives starting with 12 science universities.
There are 11 research organizations where biotechnology has relevance, although
Lessons to be learnt from India this has not been applied extensively.
Biotechnology does not come without its risks. It is imperative that sufficient field
studies, in the case of agriculture, and preclinical and clinical trials, in
pharmaceuticals are conducted. Impact on the population and ecosystems has to
be assessed. Releasing and utilizing biotechnology derived products without testing
and pilot studies, be it plant or animal, run potential risks such as bug resistance,
food chain pollution and medical side effects.
India’s success in biotechnology sector – lessons to to be learnt.

learnt. India has been
7
successful in growing its industry for many reasons:
A skilled workforce 3mn graduates, 700,000 post graduates and 1,500 PhDs
qualify in scientific streams each year in India. 15,000 scientists are
estimated to be engaged in India’s biotechnology sector.
NRIs - It is estimated that 15% of the scientific population of pharmaceutical
and biotechnology companies in the US are of Indian origin. Knowledge
transfer has been facilitated by NRIs going back to India or by arranging
entry/alliances of foreign companies.
93
AT Capital Research
Alliances and joint ventures with leading global names such as Monsanto,
Roche, and Agilent Technologies to name but a few.
Active government support - the Indian government provided incentives for
biotech firms and fostered relationships with international institutes such as
the National Institute in Health (NHI) in the US.
World-class education and research infrastructure - an excellent network of
research laboratories
Stakeholder collaboration in R&D is necessary

necessary.
essary. Effective international collaboration
Collaboration in R&D is in research and development would form the base for technological knowledge
fundamental
transfer. Currently most R&D initiatives are at the individual level, The government
needs to be proactive to attract foreign technical expertise. The Government,
private sector and NGOs need to collaborate in order to succeed.
Leverage NRB platform Leverage NRB knowledge.

knowledge. The Bangladesh government and private sectors should
create viable opportunities to attract suitably qualified NRBs back to Bangladesh in
areas of biotechnology such as genetic engineering, cell culture, cell fusion, protein
engineering and enzyme technology.
Investment in education Investment in education and research.

research. Bangladesh needs to produce more
graduates and post-graduates in this rapidly advancing field and introduce suitable
training that would allow research ideas to evolve and produce marketable
products.
Targeted international investment for knowledge transfer.

transfer. Target partnerships/joint
Knowledge transfer through JVs;
Leverage proximity to India’s ventures with global firms who have already formed JV’s with firms in Asia. For
booming biotech industry example, in India, in the agricultural sector, with Mahyco Monsanto Biotech (India)
Ltd (MMBL) to produce and market cotton to support Bangladesh’s garment sector,
or with Serum Institute of India to produce vaccines for the health
care/pharmaceutical sector. The prospects of access to a large domestic market
may appeal to MNCs.
Deepen existing Thai interests Thai investment in Bangladesh:

Bangladesh Thai businesses have conducted research and
invested approximately USD 60mn in the past 5 years in Bangladesh in various
2
sectors including, agriculture and poultry products . Further specific investments
Some products to focus on and partnerships with Bangladesh by the Thai entrepreneurs in the agro sector are
potential investment areas.
Specific products The following are the specific areas of investment opportunities:
Agro-
Agro-biotechnology
• Cotton production and processing (backward linkage to RMG/Spinning Mills)
• Potato
• Rice
Medicinal biotechnology
• Vaccine manufacturing
• Recombinant insulin
94
AT Capital Research
Conclusion
Biotechnology applies to many sectors – producing new products, improving yields
and protecting against environmental risks. With a large domestic population,
Agriculture and Pharma sectors could benefit significantly. Biotechnological
research in Bangladesh has been initiated only recently. But with active government
support, infrastructure development, investment in technical skills could transform
this sector and other connected sectors. Knowledge transfer, leveraging the NRB
platform and alliances and joint ventures internationally should be developed. The
potential benefits for the private sector and wider society is considerable.
References
1. RNCOS. (2005). “Indian Biotech Industry 2005”. Available at

http://www.piribo.com/publications/biotechnology/indian_biotech_industry_
2005.html
2. Pharmaceutical and Hospitality Optimization, Onco life Sciences Pvt. Ltd.
3. Conference Reports, The Joint UK Biotechnology Company Showcase/

Genesis VII, Queen Elizabeth II, Conference Centre, 13th December 2007,
London, UK. http://www.pharmaprojects.com/conference_reports/Joint-UK-
Biotechnology-Show-jan2008.htm
4. Rice in Bangladesh, July 1, 2007, Bangladesh Rice Knowledge Bank,

http://www.knowledgebank-brri.org/riceinban.htm
5. National Center for Genetic Engineering and Biotechnology. (2003). “The

Potential Commercialization of Biotechnology in Bangladesh”. Prepared
for South Asia Enterprise Development Facility (SEDF), Bangkok,
Thailand.
6. Choudhury, N., & Islam, M. S. “Biotechnology in Bangladesh”, Asian

Biotechnology and Development Review, National Institute of
Biotechnology, Bangladesh Atomic Energy Commission, Ramna, Dhaka-
1000. Available http://www.ris.org.in/abdr_nov4.pdf
7. BIOTECHNOLOGY. (2005). “Unprecedented Growth Opportunity”.

Available at
http://72.14.235.104/search?q=cache:thAAZDk98bEJ:ibef.org/download/bi
otech19jan.
95
AT Capital Research
Light Engineering
Light Engineering
The annual revenue generated by the sector amounts to around BDT 9,500
crores (USD 1,600mn). This contributes to 2.15% of national GDP.
A growing and increasingly affluent middle class indicates demand for

consumer durables. As the demand and usage of engineering and
electronic goods increases, the demand of light engineering goods is also
increasing
Export-oriented production in light industries has gained momentum in the

past few years. The plastic industry has experienced significant export
growth 117% over the last year. Products worth USD 209mn were exported
during the last fiscal, from USD 96.5mn in the previous year.
At 3.6 kg per capita a year, plastic consumption in Bangladesh is one of the

lowest in the world. With rapid economic development this figure is bound to
increase significantly as demand for plastic increases.
Currently, 40% of the raw materials required for plastic production are
imported. There is a probable USD 260mn import-substitution industry that
can be met through recycling plants.
The Agro-tools sub sector of the LES is worth USD 217mn with potential
imports substitution market worth USD 289mn. Furthermore, as India
becomes more industrialized, it presents an added potential export market.
There is a large low-wage labor force employed in the sector. However, due
to insufficient infrastructure they lack adequate education and training.
Investment is in Technical Training would be lucrative as the sector
expands.
Chinese and Indian bicycles control over 100% of the domestic market. The
three bicycle manufacturers in Bangladesh manufacture high quality
bicycles for the US and EU market. In 2007 Meghna Bicycles won a USD
13mn export order to Germany. The sector presents significant
opportunities for further expansion into the local and export markets.
Sanwar Ahmed
Sanwar.Ahmed@at-capital.com
Dewan Ashrakat Hossain

Ashrakat.Hossain@at-capital.com
96
AT Capital Research
The primary sub-sub-sectors of the Light Engineering Sector (LES) in which
The LE Industry in Bangladesh
Bangladesh currently
currently has a strong presence are bicycle manufacturing, agro-
agro-tools,
capital machinery parts and plastics.
plastics LES output plays a critical role in key national
sectors such as agriculture, transportation, construction and RMG. Every year, USD
200mn worth of spare parts are imported. Bangladesh is a country poised to further
develop its light engineering industry to meet both local needs and explore export
1,2
markets.
In Bangladesh,
Bangladesh, the LES has grown with informal cottage status over the years years.
Light engineering businesses have been principally set up through private initiatives
with little assistance from the government. The sector is characterized by small,
family based businesses, which operate in small scale using back-dated
6
technology.
The plastic industry has grown at over 20% per annum over the last decade.
decade The
The plastic sub-sector is growing
significantly domestic market was valued at approximately USD 116mn in 2006. In 2007, total
exports were worth USD 209mn of which USD 145mn was through the RMG sector.
There are currently around 3,000 small, medium and large plastic manufacturing
4
units operating across the country.
Figure 1: Average per capita consumption of plastic

Consumption – kg/year
Bangladesh 3.6
India 5.0
China 24.0
North America 90.0
World 20.0
Source: Katalyst11
Figure 2: Comparison of the placit market of India and Bangladesh

Bangladesh India
Market size USD 116mn USD 6bn
Growth rate 20% 12%
Contribution to GDP 0.16% 0.70%
Source: Katalyst11
The agro-tools sub-sector is yet to The agro-

agro-tools industry is one of the largest industries in the LES.
LES Annual average
explore export markets production of agro machinery, tools, equipment and spare parts is around USD
217mn with imports of USD 289mn. There are over 2,400 enterprises in
Bangladesh involved directly with the Agro-tools industry. Of the total cultivable
land in Bangladesh, 5.2% uses tractors, 32.9% power tillers and 23.8% spraying
and threshing. Furthermore, neighboring countries like India, China, Pakistan, and
3
Myanmar, also agrarian economies could be potential export targets.
LE is an important support sector for the RMG & Textile industry. There are almost
LE plays a critical role in
Bangladesh’s largest export earner 9,500 units in the RMG & Textiles industry in Bangladesh. The LE sector supports
these units and also 148,342 (SME) units in the domestic handloom industry
through regular maintenance, repairs, replacement spares, as well replacement
and expansion of the different machines and equipment used. The rapid growth of
the RMG & Textile sectors bring forth a promising opportunity for the expansion of
the LE Sector.
97
AT Capital Research
The key dynamics of the LES Access to technol
technology
echnology is one of the main determinants of competitiveness.
competitiveness Use of
dated technology in the LES hampers productivity and degrades the quality of the
7
output making them unable to compete with international products.
The SMEs in the industry lack adequate access access to finance. Banks and other
financial institutions are reluctant to finance these small setups due to the lack of
6
collateral, proper documentation and risk associated with these ventures.
Access to research, development and quality testing is inadequate.

inadequate. Due to the lack
of adequate capital, most of the light engineering firms invest in R&D activities. The
current standard of the quality testing facilities at BANSDOC, BUET and BSTI are
1
inadequate in meeting international standards.
The firms in the LES

LES lack management structure. The management structure of the
LES firms lack sophistication with small firms having 1-3 employees. These small
and medium firms are largely family owned with 70% being sole proprietorships.
Due to a lack of structured management, the enterprises are unable to expand their
6
businesses.
On-
On-the-
the-job learning is the primary form of training. In all areas of the LES sector,
although owners (59%) and plant managers (73%) have some work relevant
technical qualifications, the workers are all virtually unskilled when they enter the
sector, learning their trades is through informal, on-the-job training. Despite this, the
3,9
workforce is highly adept and skillful at emulating products.
The LE sector relies heavily on recycled metals.

metals A large majority of the raw
materials are sourced from the ship breaking industry. The materials, some 20
years old or more, are sorted, recycled and sold without testing or certification. Raw
materials, parts, and components for machinery have to be imported at very high
import duty. The National Board of Revenue needs to design policies that will
3
ensure cheaper imports of raw materials.
Lack of market intelligence

intelligence.
ntelligence The firms in the LES receive very little or no market
information about the international or domestic market. There is no sophisticated
system which provides this information resulting in an inability to promote their
1,
products overseas.
LE is one of the Thrust Sectors The Export Policy 2006-

2006-09 recognizes the LES as one of the thrust sectors.
sectors
According to the export policy the government has devised several policies to
promote the LE sector. These include project and export loans with reduced interest
rates on a priority basis; Income tax exemptions; and subsidies for utility services
13
such as electricity, water and gas.
The LES presents several strengths through which it can emerge as one of the
Strengths of the LES
leading industries for the country. The local market is unsaturated and there is
sufficient demand within the various manufacturing concerns such as textile mills,
railways, jute mills, shoe manufacturers, sugar mills, RMG and washing plants. The
cheap workforce, low start up cost and simple production process provide
significant incentive for growth. Last but not least, as a Thrust Sector, the
Government provides substantial incentives for the sector to develop as an export
98
AT Capital Research
1,3,4
based industry.
study:: A Success Story

Case study Trans--world Bicycles Co. & Meghna Bangladesh Ltd5
Story--Trans
Trans-world Bicycle Co Ltd and Meghna Bangladesh Ltd, both part of the same
group, have been exporting bicycle parts and full bicycles, to Europe for more than
a decade. The companies' roots lie in the privatization of the former government
owned Bangladesh Cycle Ltd.
In October 2007, it was announced that the companies had won a USD 13 mn
export order at the 'IFMA Cologne Show' in Germany. Chinese and Indian
manufactures supply almost one hundred % of Bangladesh's domestic demand for
bicycles, and the Chinese in particular have dominated export markets in the West.
This has meant that Trans-World Bicycle and Meghna Bangladesh Ltd have
needed to be extremely competitive. It has not just been a question of the cheap
availability of labor in Bangladesh, but of the need to ensure a high and consistent
quality level. Exports have also been helped by a system of bonded warehouses
and by duty free access to the European market.
In the LE Sector Training Centers can be a lucrative investment. Due to the current lack of proper
training facilities, there is a demand for institutions that will provide technical
knowledge and job-specific training to the semi-skilled labor force in this sector.
Technical Training Institutes (TTIs) can act as the source of skilled labor that the
industry currently lacks.
Investment metal testing, R&D facilities/ private testing iinstitute.

nstitute. The industry
currently lacks adequate metal testing or R&D facilities, making it impossible to
judge the quality of the raw materials. Metal testing facilities can ensure the quality
of local products meet international standards.
Recycling plants for plastics. For the plastic manufacturers, the price of raw
materials is by far the major cost component. Many plastic products are made from
recycled plastics raw materials. This keeps the price of lower quality goods
competitive and it reduces the amount of plastic waste in the environment. The
present demand for plastic resin is 540,000 tons/year, the supply is only 438,000
tons of which 40% is met through imports. Recycling plants can be a cost-
competitive substitute to imports in meeting the increasing demand of raw materials
for the plastic industry.
Investment
Investment in a LE Industrial Park. An industrial park is a large-scale cluster of LE
firms working in a common area with access to infrastructural and cost leverage
that they cannot acquire on their own. Firms can benefit from research and testing
facilities; technical training facilities; access to modern technology and all other
infrastructural resources. Also, the small firms will be able to outsource to each
other which will increase productivity through possible specialization of labor. As a
majority of the LE firms are small in size, an industrial hub will ensure increase in
production efficiency and quality assurance, cheaper access to raw materials;
greater subcontracting and access for export facilities.
99
AT Capital Research
The industry can move into larger
larger scale production. The Bangladeshi LES currently
operates in a very small scale, targeting primarily import-substitution. There is
immense potential for the country to export many LE products including agro-tools,
plastic goods, bicycles and automobile spare parts. Investments will enable the
industry to enjoy economies of scale and compete with the foreign products.
Foreign Manufacturers can setup OEMs. Since LES in Bangladesh is already an

established industry; it has the potential to act as an outsourcing destination for
various Original Equipment Manufacturers (OEMs). Major OEMs are now focusing
more on R&D of new models of vehicles and the engineering work (mainly labor
and process oriented steps) has been outsourced to suppliers, such as India and
Pakistan who have excelled in this area. With investment in the LES, Bangladesh
can provide the same capability. Consequently, the size of the automobile sector in
8
India is USD 15mn with exports worth USD 2.9bn. The Indian industry is moving
towards automobile manufacturing presenting an opportunity for outsourcing of
spare parts manufacturing to Bangladesh.
Conclusion
The LES is a sector of significant opportunity. As a supporting industry to many of

the other sectors, it has a considerable impact on the overall development of the
country. The competitiveness of the LES has been proven on the international
scene with the recent success of the plastic sector. Moreover, the Export Policy for
FY07 to FY09 has included the Light Engineering Sector as one of the thrust
sectors. A low-wage semi skilled labor force, low infrastructure costs and
government initiatives provides a significant platform for the industry to move into
large scale production and export diversification. The industry requires investment
and innovations if it is to fulfill its true potential.
100
AT Capital Research
References
1. Islamic University of Technology. (2006). “Helping and Advising SME

Sectors for Employment Generation”. Available at www.iutoic-
dhaka.edu/.../4.%20Helping%20and%20Advising%20SME%20Sectors%20
for%20Employment%20Generation.pdf.
2. http://www.sedf.org/light_engineer.php.
Katalyst. (2005). “Sector Brief – Agro Tools Industry”. Available at

http://www.katalystbd.com/downloads.php?catid=6.
3. Katalyst. (2005). “Sector Brief – Plastics”. Available at

4. Uddin. S. S. (2007). “Riding to export success, local bicycle makers go

global”. Published in The Daily Star on 13 November 2007.
5. Alam, M. S., & Ullah, M. A. (2006). “SMEs in Bangladesh and Their

Financing: An Analysis and Some Recommendations”. The Cost and
Management, Vol 34, No. 3, May-June 2006, pp.57-72.
6. Adhikary, D., & McVay, M. (2006). “Market Development in Practice -

Sector Development & Business Services Strategy-Experience of SEDF,
Bangladesh”. Dhaka: South Asian Enterprise Development Facility (SEDF).
7. ACMA. (2007). “Indian Automotive Component Industry -Engine of Growth

Driving the Indian Manufacturing Sector”. A presentation by the Indian
Automotive Components Manufacturers Association.
8. IRIS, University of Maryland. (2005). “Report on Identification of

Employment Oriented Export Services”. Prepared for UNDP Bangladesh.
9. Action For Enterprise. (2002). “Review of Sub Sector Work in Bangladesh”.

Prepared by Action for Enterprise (AFE) for USAID Bangladesh.
10. Katalyst. (2006). “Plastic Waste Recycling & Its Opportunities In

Bangladesh”. Available at
11. Nerve News of India. (2007). “Bangladeshi bikes go to Europe, but India
rules at home”. Published in The Nerve News of India on 13 November
2007. Available at http://www.nerve.in/news:253500114546.
12. Official website of Export Promotion Bureau Bangladesh. Available at

http://www.epb.gov.bd/export_policy2003-06.html.
13. Plastindia. (2006). “Indian Plastic Industry – Review and Outlook”. A

presentation by the Plastindia Foundation.
101
AT Capital Research
Heavy engineering- Ship Building
Heavy Engineering - Ship Building
The Global ship building industry is enjoying strong growth. All major ship
building nations are running at or near full capacity to meet the demand for
ships. There is an increasing ship delivery backlog as the demand has been
outpacing supply. Prices for ships have risen sharply.
Global ship building capacity is rising fast, and by 2013 is forecast to make
three times as many ships as in 2004. China has been the most aggressive
in increasing its capacity as it aims to be the world’s largest ship maker by
the next decade.
Bangladesh has recently become a player in the global ship building

market, with two companies winning USD 250mn worth of orders.
The two companies, Ananda Shipyards Limited and Western Marine

Shipyards Limited have received orders for small ships that are expected to
run up to 2010.
Ananda Shipyard Limited is expanding their capacity and aims to be the

leading ship builder in the country.
Bangladesh has the most competitive labour rates amongst the existing and
new ship building nations and technology is being adopted increasingly into
the industry and its use will provide significant productivity gains for the
future.
Investment into technology and the modernization of the ship building

infrastructure is key to ensuring competitive advantage in this sector.
Ahmad Sajid
ahmad.sajid@at-capital.com
102
AT Capital Research
Bangladesh is enjoying a boom in ship building. Driven by rising demand and a
global supply shortage, existing players in the market have been able to capitalize
on a global backlog in orders and sharp rises in prices. While investment in existing
shipyards provides significant investment opportunities, investment in new yards
may less compelling given two to three year lead times, a forecast fall in demand
from 2011 and global dominance from China. However, leveraging its low cost
base, adopting new technologies, coupled with government incentives and a
strategic focus on areas such as small ships, Bangladesh could carve itself out a
profitable niche.
Shipbuilding industry is The global shipbuilding

shipbuilding industry has been on the rise since 2000.
2000 From 2001-2005,
experiencing rapid growth the industry grew at an annual compounded rate of 8.3%, compared to 2.8% over
gloablly 1
the years from 1985 to 2005. Strong demand for ships has led to an increase of the
2
global backlog from 71.1mn tons in 2000 to158.97mn tons in 2005.
Shipbuilding has been moving Shipbuilding has been shifting to Asia The shipbuilding industry has been based in
to lower cost locations Europe and the USA historically, but has been moving to Korea, Japan, China, and
various developing countries, seeking low cost building and the abundance of labor
supply. The government of Vietnam has identified shipbuilding as one of the main
priority sectors for the country and has made various facilities available. India,
3
Indonesia, Malaysia and countries from the Middle East have entered the market.
Strong demand, high prices Prospective new entrants to the market should be cautious as the market becomes
expected to tail off in medium saturated New shipyards in Korea and China will commence operations in the next
term
2-3 years nearly tripling capacity. In 2004 the world shipyard capacity was around
60mn dwt (dead weight tonnes) per annum, by 2013 it is forecast to be around
200mn dwt per year. By 2010 China aims to have 15 mega builders, 20 mid-sized
builders and a number of small ship makers as well. Although the current ship
building industry is ripe for investment in the near term, once a downward cycle
begins - experts say this could be after 2011- supply and demand scenario will not
be so rosy. In the past, ship builders from Korea and China have been known to sell
4
their ships at or even below capacity when down cycles have arrived.
Figure 1: Global share of ship building by region/country (figures in %)

Year 1995 2000 2004 2005
EU 18.9 12.4 8.3 6.9
Other European countries 4.2 2.4 3.5 2.8
Japan 41.7 38.2 36.1 35.0
South Korea 27.8 38.9 36.8 37.7
China 3.3 4.7 11.6 13.8
Other countries 4.1 3.3 3.7 3.9
Source: Ludwig & Tholen (2006)
Traditional East Asian Experts pointed out that ship building in East Asian countries has become costly
manufacturers see labour costs due to high wages. The industry is gradually shifting towards developing countries
rise
mainly for availability of cheap labour force. Countries like Vietnam are now
benefiting. Vietnam is now one of the main destinations of foreign ship buyers. All
ship building plants in Vietnam have been booked until 2010.
Lessons to be learnt from The ship building industry is also one of the main priority sectors of the government
Vietnam of Vietnam. Most recently, the government has made USD 750mn available for the
103
AT Capital Research
sector to finance the development of a modern industry that can meet future
international quality demands. The government has decided to make shipbuilding a
key export industry through the Shipbuilding Industry development Program 2002-
2010. It aims to export USD 5bn worth of ships by 2010 and extend the shipbuilding
capacity to container ships of 1500 TEU, cargo ships of 100,000 tonnes, oil tanker
of 100,000 tonnes and ship repairing of 400,000 tonnes. Vietnam aims to be the
5
fourth largest shipbuilder within the next decade.
Bangladesh has two players in world

world ship building - Ananda Shipyards Limited and
Bangladesh joins the global
ship building industry Western Marine Limited.
Limited Meghnaghat based Ananda Shipyards has signed
agreements worth around USD 180mn and Chittagong based Western Marine has
total orders worth more than USD 70mn. Ananda have signed deals worth around
USD 100mn with two German shipping companies to build eight vessels with
capacity for 325 containers by June 2010, and have recently signed deals worth
USD 82mn. Ananda are planning to invest around BDT 1.10bn to set up two dry
docks in their shipyard with a planned completion by early next year. Once in
operation Ananda claims it take orders up to USD 500mn. Ananda has also set up a
modern slipway on the river Karnaphuli, has also signed a letter of intent with two
6
foreign companies to construct 14 small vessels at a cost of around USD 150mn.
The ship building industry in Bangladesh would benefit from government support
Experts in Bangladesh have advocated the establishment of deep-draft ports, duty
Other countries benefit from
subsidies exemption for import of capital machinery, bonded warehouse facilities, special
financial subsidy and providing green channel for importing raw materials to ensure
healthy growth of the sector. India is provided 30% financial subsidy to aid its ship
building industry, while Vietnam is providing 40% financial subsidy to its ship
makers. Duty free import of steel against a bond system is especially relevant. The
material would be used only for export purposes, and it would create scope for
6
export orders facilitating use of the country’s cheap labour force.
Bangladesh lower labour costs Since ship building is a labour intensive industry, Bangladesh stands to gain from
a key advantage its highly competitive wage rates. Regional comparables show that, hourly
minimum wage is 38 US cents in China, 45 cents in Vietnam, 39 cents in India, 35
cents in Pakistan and 27 cents in Sri Lanka. Bangladesh has lower wage rates that
7
is19 cent an hour. The ship building industry is rapidly modernizing, with increased
use of technology and machinery greatly improving productivity. Bangladesh should
also start improving its technology by incorporating computer aided design
elements in its processes as low wage rates alone will not keep the country
competitive forever.
104
AT Capital Research
Figure 2: Wages per m onth in 2002
1,800
1,600
1,400
1,200
1,000
USD
800
600
400
200
0
Japan South Singapore China India Bangladesh
Korea
Country
Source: Ludwig & Tholen (2006)
Conclusion
With ship prices at an all time high and all major ship producing countries running at
full capacity, Bangladesh stands to gain from joining the ship building industry. The
two current Bangladeshi players today are expected to keep bringing in more
business from around the globe over the next five years. To remain competitive,
they also must incorporate technology and machinery into their businesses to have
an edge.
References
References:
ferences
1. Equitymaster.com. (2007). ”Global shipbuilding: An overview”. Article
published on February 15, 2007. Available at
http://www.equitymaster.com/detail.asp?date=2/15/2007&story=1.
2. The Shipbuilders’ Association of Japan. (2005).” Global Shipbuilding

Industry: Status and Challenges”. Paper presented at The IMF Shipbuilding
Action Group meeting, November 14 – 16, 2005.
3. Wu, D. (2007). “Overview of Maritime Industry in Hubei Province, China.”

Available at
www.maritimepartenariate.com/download/1266/x/Hubei%20Marine%20Indu
sry%20Overview%20210307.ppt.
4. Primary sources: interviews with an international shipbroker.
5. Maritime Vietnam. (2007). “Industry Market Outlook – Shipbuilding, Ports and

Logistics”, February 25, 2007. Available at
http://www.maritimeshows.com/vietnam/Vietnam_Country_Information-
270907.pdf.
6. Financial Express. (2008). “Bangladesh set to emerge as new

shipbuilding hub”. Article published in the Financial Express on February 5,
2008.
7. Jackson, R. (2008). “Wage rates – China’s rising costs make buyers think
twice”. Article published in Ethical Corporation Magazine on March10, 2008,
8. Ludwig, T., & Tholen, J. (2006). “Shipbuilding in China and its impacts on
European shipbuilding industry.” University of Bremen & Intitute of Law
and labour Germany.
105
AT Capital Research
Tourism
Tourism
Tourism in Bangladesh provides a number of untapped opportunities

relative to other comparables in the region.
Bangladesh is home to Cox’s Bazar, the longest natural unbroken beach

strip in the world. In the Southwest region are the Sundarbans, the world’s
largest natural mangrove forest.
However, relatively few people globally are aware of the existence of

these locations due to poor marketing and inadequate infrastructure.
The country’s proximity to other key tourist spots such as India, Nepal, and
Thailand may also provide an opportunity as a combination location with
these countries. With a marketing push, Bangladesh could place itself as
an alternative destination as tourists seek exotic locations.
Consistent economic growth and development of export businesses such

as ready-made garments have encouraged an increasing number of
business-related trips from abroad. In order to cater to this growing
demand, new luxury hotels, including two foreign chains since 2006, have
entered the market.
Given the relative immaturity of the market, there are significant areas for
investment in an industry which could show substantial growth in the
future.
S Adeeb Shams
adeeb.shams@at-capital.com
106
AT Capital Research
Figure 1: Regional Tourism Comparables
International Tourist International Tourist
Country Arrivals (Thousands) Receipts (USD Millions)
1990 2000 2004 1990 2000 2004
Thailand 5,299 9,579 11,737 4,326 7,483 10,034
India 1,707 2,649 3,457 1,513 3,460 6,121
Sri Lanka 298 400 566 132 248 513
Nepal 255 464 385 64 158 230
Bangladesh 115 199 271 11 50 67
Source: World Tourism Organization (WTO), 20051
While tourism in Bangladesh has grown in recent years, the opportunities for
investment in projects remain significant.
Proper marketing and promotion Cox’s Bazar,

Bazar, one of the country’s most popular tourist attractions, is the world’s
needed in top tourist locations longest sea beach stretching 120km. Although there has been some growth in
terms of new accommodation over the past decade, development has focused on
mid-quality hotel development. The beach area lacks international standard
restaurants and facilities for recreation that would attract foreigners. The only luxury
hotel in the region, the Seagull has some basic amenities, such as a swimming pool
and a fitness center, but would not meet international expectations of a high end
traveler and lacks provision for making reservations online. Some hotels in the
Cox’s Bazar area do have websites, although they lack professionalism and are
rarely maintained/updated. Areas of interest apart from the main sea beach in Cox’s
Bazar are Inani, Maheskhali, St. Martin’s Island and Teknaf. There are some
packaged tours currently available but are poorly promoted on international travel
sites.
Sundarbans, the world’s largest

largest mangrove forest,
forest, is spread across Bangladesh and
West Bengal. It covers an area of approximately 6,000 square kilometers in
Bangladesh. Inducted as a UNESCO World Heritage site in 1987, the Sundarbans
is home to the Royal Bengal Tiger, spotted deer, crocodiles, snakes and a variety of
different species of birds. Places of interest in the Sundarbans include Katka, Hiron
Point, Dublar Char and Tiger Point. However, the situation is quite analogous to
that of Cox’s Bazar in that the physical infrastructure, in terms of tourist facilities, is
inadequate and information on these areas is not readily available to tourists
internationally. The Sundarbans present many prospects for Ecotourism provided
there is some initiative from the private sector to introduce package tours to
2
visitors.
Good quality hotels are being Two new international luxury hotels, the Westin and Radisson Water Garden, have
introduced in Dhaka
opened in Dhaka since 2006. For many years Dhaka was home to only two
international luxury brand hotels, Pan Pacific Sonargaon and Dhaka Sheraton, both
owned by the Government. In 2007, Radisson Water Garden Hotel generated
revenue of USD 13.4 mn and an operating profit of USD6.7 mn, making it the most
successful hotel in Bangladesh in its first full year of operations. Starwood Hotels
and Resorts announced its decision to discontinue managing Dhaka Sheraton from
2009, by deciding against extending its current contract with Bangladesh Services
Ltd (BSL). This was despite the Dhaka Sheraton making an operating profit of USD
3,4,5
4.2 mn in 2007. Starwood also operates the Westin Dhaka.
107
AT Capital Research
International projects have been delayed. The construction of a Hilton at
Maghbazar, along with an Intercontinental Hotel and a Holiday Inn adjacent to Zia
International Airport, had begun in the past couple of years. However, these
developments have been stalled. It is believed that BSL is currently in search of a
5
new international operator from 2009.
A few other luxury hotels in the capital. Dhaka has some other luxury hotels, such
as the recently opened Dhaka Regency, owned by three NRBs from the UK, Hotel
Sarina in Banani, Best Western La Vinci in Kawran Bazar and Purbani in Motijheel.
With the exception of La Vinci, all of the other hotels are very poorly marketed
outside Bangladesh and have limited provisions for making online reservations.
Chittagong is yet to have an international hotel. Hotel Agrabad had been

Chittagong’s premier hotel for many years. The Peninsula Chittagong, which
opened in early 2006, is widely believed to be the best hotel in the port city at
present, but is not of an international standard. The Thai Ambassador in March
2008 announced that Dusit Thani has plans to set up a property in Chittagong.
Representatives of the Thai luxury hotel chain have already started discussions
with the Bangladeshi Government in this regard. If successfully completed, this
6
would be the first foreign-managed hotel in the port city.
Development
Development of a Tourist Industry
Tourism Master Plan.
Plan. Bangladesh has suffered from poor planning, inadequate
What might be done to promote investment in infrastructure and a focused promotional programme. Bangladesh
Tourism? can learn about the development of Tourism activities from its neighboring
countries. For example the Maldives, a small nation with a population of under half
a million, has prepared three detailed tourism plans over the past few decades, the
latest of which was published in 2005 containing a comprehensive outline of the
Tourism industry. It has a thorough analysis of budgeting, existing finances, private
sector contributions, development of existing facilities and services, human
7
resource development, environmental hazards, sales and promotion.
Establish the country

country as a transit location for Tourism.
Tourism. Encouraging tourists to
spend a few days in Bangladesh during a stopover trip to neighboring countries
such as India, Nepal and Thailand might generate a positive response. Key to the
success of such an initiative would be in the investment and refurbishment of Zia
International Airport with complementary investment in supporting accommodation
and leisure facilities in adjacent locations. Opportunities may arise from the recent
introduction of local airliners, as a majority of these have plans of introducing
international routes by the end of 2008. The recent Air Services Agreement signed
between the Bangladeshi and Indian Governments, whereby there might be a
maximum of 61 flights per week, to and from cities in either country, may provide
8
further opportunities.
Rebranding Bangladesh Parjatan Corporation (BPC) and greater private sector

participation. The Government earlier this month announced plans of rebranding
BPC as the National Tourism Authority. Privatizing BPC has been on the
Government’s agenda for many years, although a firm plan has yet to be drawn up.
Under private sector management, Parjatan could be more competitive with private
9,10
hotels.
108
AT Capital Research
There needs to be a concerted effort also from the private sector over the longer
term. There are no notable tourism promotion organizations other than BPC. There
are numerous agencies in other countries in the region such as Malaysia, Thailand
and India. These organizations have contributed considerably towards the
development of tourism in those countries, as they have been extensively marketed
and promoted across the globe. Additionally, the introduction of booths at airports in
Dhaka, Chittagong, Sylhet, along with the Benapole intersection bordering India.
Extensive marketing in these areas will provide tourists with access to information
that is presently not available in Bangladesh.
Investment in infrastructure and state owned hotels. Public-private initiatives,

investment in infrastructure, strengthening the existing highway network,
particularly on the Dhaka-Chittagong and Dhaka-Sylhet routes is required
complemented with setting up facilities such as food outlets and rest areas. To
remain competitive, investment is required in the current state-owned
establishments dedicated towards tourism, such as Pan Pacific Sonargon, Dhaka
Sheraton, Parjatan properties and other tourist attractions.
Better marketing of local hotels.

otels. With the exception of foreign brands, local hotels
are hardly found in the most popular travel sites on the Internet such as Expedia,
Orbitz and Travelocity. Even though they might be better marketed within the
country, the top local brands even in Dhaka, such as Sarina and Regency, have
minimal global recognition.
Need for more luxury hotels

hotels outside Dhaka. Attracting and partnering with world-
class hotel brands in tourist areas such as Cox’s Bazar and the Sundarbans is a
viable option. The few luxury hotels that exist in the country are restricted to Dhaka.
These hotels will target the rapidly growing upper-middle class population locally,
as well as foreign tourists.
Targeting the Non-

Non-Resident Bangladeshi (NRB) base in the US and the UK is an
excellent opportunity for additional revenue from tourism. This would inevitably
provide the NRBs a greater incentive of visiting their native land, in addition to
visiting friends and family. Marketing holidays in areas in London and New York
with high concentrations of NRBs, providing integrated packages where NRBs can
visit relatives and also enjoy holiday breaks in, for example, Cox’s Bazar and the
Sunderbans, would be an attractive proposition to NRBs.
Attracting an international hotel to Cox’s Bazar will provide some much needed
competition for the Seagull, the only luxury hotel in the area. For example, Berjaya
Hotel & Resorts specifically specialize in setting up properties in beach areas and
they presently have a reasonable presence in South East Asia. This hotel may
cater to the growing middle-class population in Bangladesh. Setting up a higher end
Shangri La, specifically targeting the higher-income group from Dhaka, foreign
tourists including NRBs, provides a great opportunity in turning Cox’s Bazar into a
luxury destination.
109
AT Capital Research
Conclusion
Bangladesh needs to have a tourism-specific identity, such as Malaysia Truly Asia

or Incredible India. Negative connotations traditionally associated with Bangladesh
need to be dispelled and a coordinated national branding plan needs to be devised.
As a large developing Muslim nation, Bangladesh needs to find the right blend
between maintaining its Muslim traditions and being an attractive tourist destination.
Tourism in Bangladesh is characterized by a lack of proper infrastructure. Despite
the recent advent of international hotels, particularly in Dhaka, there remains a
severe shortage of good quality accommodation facilities throughout the country.
The road network connecting larger metro areas needs to be improved and air
transport, despite recent positive developments, requires substantial investment.
Bangladesh has all the pre-requisites to turn locations such as Cox’s Bazar and the
Sundarbans into world-class tourist destinations. Investment in infrastructure, a
coordinated marketing effort and attracting world class operators provide the
backdrop for developing a vibrant sector.
References
1. Khan, M. R., & Haque, M. (2007). “BIMSTEC – Japan Cooperation in
Tourism and Environment: Bangladesh Perspective”. India: CSIRD
Discussion Paper # 27.
2. Salam, M. A., Ross, L. G., & Beveridge, M. C. M. (2000). “Eco-tourism to
protect the reserve mangrove forest the Sundarbans and its flora and fauna”.
UK: Institute of Aquaculture, University of Stirling.
3. The New Nation. (2008). “2nd anniversary celebrated: Radisson Hotel earns
USD6.72m operating profit”. Article published February 6, 2008.
4. Akter, S. (2008). “Dhaka Sheraton keeps up pace in battle for guests”. Article
published in The Daily Star on February 29, 2008.
http://thedailystar.net/story.php?nid=25403.
5. Reza, S. I. (2008). “Sheraton Hotel to get new name next year”. Article
published in The Financial Express on Feb 26, 2008.
http://www.thefinancialexpress-
bd.com/search_index.php?page=detail_news&news_id=26444.
6. Khan, J. U. (2008). “Thai investment plans for hotels, highways and oil”.
Article published in The Daily Star on March 4, 2008. Available at
http://www.thedailystar.net/story.php?nid=26049/
7. Ministry of Tourism and Civil Aviation. “Maldives Third Tourism Master Plan
2007 – 2011”. Available at www.tourism.gov.mv/downloads/ttmp.pdf.
8. Hasan, R. (2008). “Public, private airlines lock horns over deal with India”.
The Daily Star on February 26, 2008.
http://www.thedailystar.net/story.php?nid=24986.
9. The Daily Star. (2008). “Privatizing commercial activities of BPC under
consideration”. Article published in The Daily Star on March 14, 2008.
http://www.thedailystar.net/story.php?nid=27623.
10. UNB, Dhaka. (2008). “Parjatan Corporation to be National Tourism
Authority”. Article published in The Daily Star on March 25, 2008. Available
at http://www.thedailystar.net/story.php?nid=29171.
110
AT Capital Research
Education
Education
The education sector accounts for 14.2% of total government expenditure in

Bangladesh.
The education system in Bangladesh is characterized by the co-existence of

three separate streams: a vernacular-based secular system, known as
Bengali Medium, an Islam-based religious system known as Madrassa and
an English-based system modeled after the British education system, using
the same curriculum.
Poor quality English-based education makes the market ripe for growth in
this sector.
Though many small private players are mushrooming in the primary,

secondary and tertiary levels, the quality of education is variable.
The acute shortage of both the number and quality of teachers at all levels
highlights an investment opportunity for upgrading existing public and
private teachers’ training institutes or establishing new ones.
There is scope to drive country wide growth through
 Scaling up large number of English medium primary and secondary

educational institutes e.g. Scholastica, Sunbeams,etc.
 Investing in Indian Institute of Management (IIM) type business and

management schools in Bangladesh that can produce global standard
managers.
 Setting up Vocational Training Institutes (VTIs) linked to manpower

export companies in the field of nursing, technical, teacher’s training,
and English language which will introduce skilled workers for the Export
Processing Zones (EPZs), local job market, and international market.
Syeda Tasnuva Akhter

syeda.tasnuva@at-capital.com
Masum A Rahman
masum.rahman@at-capital.com
111
AT Capital Research
Expenditure on education Education is primarily funded by the Government with support from
from development
development
partners and the private sector. However, Government expenditure on education in
Bangladesh is currently the lowest in South Asia (2.3% of GNP, compared to a
1
3.5% regional average).
From the outset, some have argued that the educational system needs better
planning so as to improve the quality and relevance of the education and training
offered. There are specific reasons for the poor quality of education at all levels:
• The recruitment and placement process of teachers is not up to the mark.
• The absence of academic supervision hampers the academic environment in
the schools resulting in poor performance of the teachers.
• Large scale private tuitions by the teachers at the primary and secondary
levels have made classroom teaching-learning practically redundant for
passing the exams.
• The main problem with technical education is the lack of linkage with
employers and the job market. Employers complain that the training
institutions do not develop or deliver the skills that employers require.
The way forward for

The way forward
forward
the education sector
A summary of the structure of educational institutions can be found in the

appendices. But we would suggest the following:
• More emphasis should be given on technical and vocational education
programmes at secondary/higher secondary levels and also at the university
level to enlarge the technological skill base which will be an important
foundation for economic development,
• The quality of science and English language education at secondary and
higher secondary levels should be improved.
• The efficiency and standard of teachers should be improved through intensive
training.
• The gap in educational facilities between urban and rural areas should be
reduced.
• Suitable job-oriented subjects at the secondary level should be introduced to
enable students to be self-employed.
• Private investments in the education sector should continue to focus on
improving the quality and relevance of education through capacity-building,
improving policies and the institutional environment.
Investment opportunities The ineffectiveness of some areas of the current public and private education
system in Bangladesh offers significant investment opportunities in this sector.
These include:
• Training institutions/colleges can be established so that the National

University students can receive vocational training in various global trades
(accounting and financial services, hotel management and tourism, graphic
design, call centre, animation, IT, etc.). This will create opportunities for the
students to enter in the local and international job market.
• Investment may be made in institutes and universities specializing in
advanced technology, management, engineering and business for developing
skilled workers required by emerging industries. Academic collaboration with
112
AT Capital Research
leading foreign universities will enhance the academic and training standards
of the students.
• English-medium residential schools may be established in every district to
provide quality education to students living in district towns all over
Bangladesh. This should prove to be a profitable investment opportunity since
many people outside Dhaka are interested in educating their children in
English-medium schools but do not have easy access.
• Customized vocational training programs can be designed for specific job
descriptions of local and foreign employers. Investment in vocational training
centres for paramedics, nurses, plumbers, electricians, drivers, car
mechanics, gardeners, industrial workers including textile & RMG workers,
cleaners, welders, etc. interested in working overseas (Malaysia, Korea, UAE,
Saudi Arabia, Singapore etc.) can change the picture. Apart from technical
training, these centres can provide relevant foreign language training
including English which will facilitate the communication skills of the workers.
• Investment opportunities also exist in establishing teachers’ training institutes
for school, college and university levels.
• With global standards, and examinations under international boards, English-
medium schools have provided an alternative stream of education in
Bangladesh to the state-run system.
English Medium schools:

Regional Expansion The huge growth in the number of English Medium schools in the past decade is
Opportunities certainly one of the more encouraging trends in the private education sector. This
trend can be expected to continue given:
• The population growth with a higher %age of young children

• The rapid economic growth leading to greater disposable income and
purchasing power to spend for children’s education.
• The growing popularity of the English Medium education system continues,
especially among the urban middle and upper middle class, given their high
international standards and increased prospects for gaining entry to overseas
degrees.
Among the existing schools in Dhaka, Scholastica, Sunbeams, Sunnydale, South

Breeze, Maple Leaf, Green Herald, Mastermind and Aga may be considered
among the top ones in terms of performance of the students/popularity. The fee
structures of these schools are also considerably higher than the other English
medium schools as these schools tend to target the premium segment of the
market.
It is worth noting that 10,000 Bangladeshi children are studying at about 200 English
medium schools in Darjiling, Shiliguri and Kurseong in India. This is because the
admission fees, tuition and other expenses associated with English-medium
schooling in Dhaka have gradually risen beyond the reach of many middle-class
families. One of the better schools in Dhaka takes BDT 20,000 to BDT 30,000 as
admission fees, BDT 10,000 to BDT 15,000 in annual fees and up to BDT 7,500 in
monthly fees totaling to an annual fees of BDT 1,20,000. There is no uniform
curriculum for English medium schools in Bangladesh. On the other hand, all English
3
medium schools in India follow the same curriculum prescribed by Delhi Board.
113
AT Capital Research
We believe there are investment opportunities in setting up new English medium
schools, in major cities in the provinces, which would make inroads into the huge
untapped education market outside the capital. The strong selling point of these
English medium schools will be international standard education which will be
achieved by bringing in foreign trainers from the UK and US to train the teaching
staff, establishing an academic collaboration and exchange program with foreign
schools and providing boarding school facilities for students who are too far away
from home.
The Indian private equity firms are focusing more on the education firms these days
targeting the domestic market. The talent shortage in the job market is compelling
these firms in investing more in education sector. The requirement of talent is 200mn
4
over the following six years. As a result, the recent trend in investment is towards
training in tutoring services, coaching centers and vocational skills although
previously the focus was on export-oriented education.
Private equity investments in Education is emerging as a key investment sector for venture capitalists in India.
the Indian education sector There are a lot of local and international PE firms which have already invested or are
trying to invest in India.
4,5,6,7
Case Study:
Study: Private Equity Investments in Indian Education Sector
• India-focused private equity firm GCP invested USD8.25 mn in education and

career counseling entity Career Launcher.
• In 2007, Bangalore-based TutorVista, Education India Pvt. Ltd, Mumbai-based

Hurix Systems Pvt. Ltd and 24×7 Learning Solutions Pvt. Ltd, have together
received funding of more than USD 12mn.
• Helix investments invested USD 12mn into preparatory education company Mahesh
Tutorials and SAIF partners, USD 10mn in English training academy Veta, plus an
undisclosed sum in another vocational training company, ICA Infotech.
• Berggruen Holdings, a New-York based fund, plans to invest USD 300mn in India
over the next three years, in training schools.
• Sequoia Capital India has invested in two e-learning companies-TutorVista and

Brainvisa.
• Footprint Ventures, Novak Biddle Venture Partners, the ICICI Bank-supported IFMR
Trust and industrialist Gautam Thapar are interested to invest in school education
and assessment with Educational Initiatives Pvt Ltd (EI), an effort by a group of IIM
alumni.
Conclusion
Despite the proliferation of private schools and universities in recent years, there
still remains a large investment opportunity in the education sector. Much has been
written recently regarding the successes Bangladesh has experienced in increasing
access to education. While these achievements should not be underestimated, it is
imperative to recognize that there are still many challenges that must be met and
wide range of investment needs to be made to enhance equity and access in the
education sector.
114
AT Capital Research
References
1. UNESCO. (2007). “Secondary Education Regional Information Base:

Country Profile Bangladesh”. UNESCO Asia and Pacific Regional Bureau for
Education, 2007, Bangkok.
2. Ministry of Education. (2005). “Education Statistics 2005”. Available at the

official website of Ministry of Education, Government of Bangladesh at
http://www.moedu.gov.bd.
3. Sarker, R. (2004). “Exodus for education to India”. Article published in The

Daily Star on December 1, 2004.
4. The Economic Times. (2007). “Talent crunch: PEs bet big on education
sector”. Article published in the Economic Times on November 15, 2007.
5. India Today, December 26, 2007.
6. India Private Equity. (2008). “IIM-A alumni’s EI gets venture funding”. Article
published in India Private Equity on March 7, 2008.
7. Educational Initiatives. (2008). “Learning assessment company gets venture

capital funding”. Available at http://www.ei-india.com/archives
115
AT Capital Research
Appendices
Appendix 1- Overview
Figure 1: Ease of doing business in Bangladesh
Indicators of doing business with ease Rank in 2007 Rank in 2008 Change
Doing business (average) 107 102 -5
Starting a business 92 75 -17
Dealing with licenses 116 113 -3
Employing workers 129 117 -12
Registering property 171 168 -3
Getting credit 48 45 -3
Protecting investors 15 15 0
Paying taxes 81 76 -5
Trading across borders 112 139 27
Enforcing contracts 175 175 0
Closing a business 102 93 -9
Source: Doing Business 2008, World Bank
Figure 2: Launching a business in Bangladesh

Bangladesh Region OECD
Procedures (number) 8 7.6 6
Duration (days) 74 33.4 14.9
Cost (% GNI per capita) 46.2 40.7 5.1
Figure 3: Ease of dealing with licences

Indicator Bangladesh Region OECD
Procedures (number) 14 16.3 14
Duration (days) 252 247.3 153.3
Cost (% of income per capita) 751 3,230.00 62.2
Figure 4: Difficulties faced in hiring and firing workers

Difficulty of hiring index 44 23.6 25.2
Rigidity of hours index 20 17.5 39.2
Difficulty of firing index 40 40 27.9
Rigidity of employment index 35 27 30.8
Non-wage labour cost (% of salary) 0 6.7 20.7
Firing costs (weeks of wages) 104 66 25.7
116
AT Capital Research
Figure 5: Ease with which business can secure right of property
Procedures (number) 8 6.4 4.9
Duration (days) 425 134.1 28
Cost (% of property value) 10.3 6 4.6
Figure 6: Ease of credit information sharing and legal rights of borrower and lender
Legal rights index 7 3.9 6.4
Credit information index 2 1.9 4.8
Public registry coverage (% adults) 0.7 0.7 8.6
Private bureau coverage (% adults) 0 1.9 59.3
Figure 7: Dimension of protecting investors

Disclosure Index 6 4.3 6.4
Director Liability Index 7 4.3 5.1
Shareholder Suits Index 7 6.4 6.5
Investor Protection Index 6.7 5 6
Figure 8: Cost and procedural ease with regards to trading across border
Documents for export (number) 7 8.6 4.5
Time for export (days) 28 32.5 9.8
Cost to export (US$ per container) 844 1,179.90 905
Documents for import (number) 9 9.1 5
Time for import (days) 32 32.1 10.4
Cost to import (US$ per container) 1,148.00 1,417.90 986.1
Figure 9: Ease or difficulty of enforcing commercial contacts

Procedures (number) 41.0 43.5 31.3
Duration (days) 1,442.0 1,047.1 443.3
Cost (% of claim) 63.3 27.2 17.7
Figure 10: Time and cost required resolving bankruptcies

Time (years) 4 5 1.3
Cost (% of estate) 8 6.5 7.5
Recovery rate (cents on the dollar) 23.2 20.1 74.1
117
AT Capital Research
Source: The 17th Survey of Investment-Related

Related Cost Comparison, Source: The 17th Survey of Investment-Related
Investment Cost Comparison,
JETRO, 2007 JETRO, 2007

Related Cost Comparison, Source: The 17th Survey of Investment--Related Cost Comparison,

Related Cost Comparison, Source: The 17th Survey of Investment-Related
Investment Cost Comparison,
118
AT Capital Research
Source: The 17th Survey of Investment-Related Cost Comparison, Source: The 17th Survey of Investment-Related Cost Comparison,
119
AT Capital Research
Appendix 2 - Energy
Source: Bangladesh Power Data Book 2006 by Power Cell
Source: Bangladesh Power Data Book 2006 by Power Cell
Figure 3: Coal reserves of Bangladesh

Location Year of Number of Depth Proven
discovery drilled wells (meter) reserves
(MT)*)
Barapukuria 1985-87 31 118-509 390
Khalaspir, Rangpur 1989-90 4 257-483 685
Phulbari, Dinajpur 1997 1 150-240 386
Jamalganj, Joupurhat 1962 10 640-1158 1053
Dighipara, Dinajpur 1994-95 3 328-407 N/A
Source: Power System Master Plan Update, Power Cell & Asian Development Bank
120
AT Capital Research
Appendix 3 - Infrastructure (non-
(non-energy)
Source: Bangladesh Economic Review, 2007,
Figure 2: Revenue earnings and expense of Bangladesh Railway

900
Revenue Earnings & Expenditure
800 Revenue Earnings Revenue Expense
700
(in crore BDT)
600
500
400
300
200
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Source: Bangladesh Economic Review, 2007, Ministry of Finance
121
AT Capital Research
Fi gure - 3: Toll target and collection by Jamuna Multipurpose Bridge Authority
180
160
Target & Collection
140
(in crore BDT)
120
100
Target
80 Collection
60
40
1998 - 99
1999 - 00
2000 - 01
2001 - 02
2002 - 03
2003 - 04
2004 - 05
2005 - 06
2006 - 07
Source: Bangladesh Economic Review, 2007
Case 1: Reform of Bangladesh Railway
In Bangladesh, projects in the railway sector require more time and funds to bear fruit than do projects in the road
and other sectors. For this and other reasons, the government of Bangladesh has scarcely made any new
investments in railway development since independence in the 1970s. Consequently, virtually all railway facilities and
equipment now in use were developed during the British colonial period (up to 1947). Indeed, they have become so
old and decrepit that they are unable to fully capitalize on the railway’s inherent strengths – massive, rapid, punctual,
safe, and environment friendly – resulting in reduced transportation volume, poorer service and a smaller role for the
railway in the overall transport sector.
In parallel with the robust GDP growth (5–6%) in recent years, demand for freight transportation has steadily
increased by 5–6% annually in Bangladesh, showing particularly rapid growth in the demand for transport in the
Dhaka–Chittagong section, connecting Dhaka, the capital city and political and economic hub of the country, and
Chittagong, the second largest city and industrial hub with the country’s largest seaport. Since 2001, the amount of
cargo handled at the port of Chittagong has been increasing by more than 10% annually, but if the port facilities are
expanded and enough private companies are attracted to the Export Processing Zone (EPZ), the demand for
transport in the Dhaka–Chittagong section can be expected to increase even further. Whereas the government has
high expectations for the railway – as an alternative mode of transportation to roads – to play a leading role in meeting
this increasing demand, it seems difficult, both in terms of transportation volume and quality of service, for the current
railway facilities to meet such expectations, thus posing a bottleneck for the economic growth in the years ahead.
Additionally, in order to achieve sustainable development that takes the environment into consideration, a modal shift
from road transportation to environment friendly railway transportation is indispensable. (The railway’s CO2 emission
per ton-kilometer is less than 1/8 of that of the automobile.)
The government of Bangladesh is scheduled to formulate the Railway Development Plan, which will include the plan
for implementing projects in the railway sector over the next 20 years. In addition, the government plans to take up
sector reforms through organizational, administrative and institutional improvements of Bangladesh Railway (BR),
and has formulated long-term planning and organizational realignment proposals (collectively designated as the BR
Reform Program) with an eye to changing BR to a public corporation. World Bank, Asian Development Bank and
Japan bank for International Cooperation are jointly funding the project.
Source: Japan Bank for International Cooperation,
http://www.jbic.go.jp/english/oec/before/2007/pdf/bangladesh02.pdf
122
AT Capital Research
Appendix 4 - Agriculture
Figure 1: Food grain production in Bangladesh (in 100,000 metric tonnes)
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Aus 19.2 18.1 18.5 18.3 15 17.5 15.1
Aman 112.5 107.3 111.2 115.2 98.2 108.2 108.4
Boro 119.2 127.6 122.2 128.4 138.4 139.8 145.0*
Total rice 250.9 243 251.9 261.9 251.6 265.5 268.5
Wheat 16.7 16.1 15.1 12.5 9.8 7.4 7.4
Maize 1.5 1.5 1.7 2.4 3.6 5.2 8.5*
Grand total 269.1 260.6 268.7 276.8 265 278.1 284.4
Figure 2: Export of selected agricultural commodities from Bangladesh from Fiscal Year (FY) 1990-91 to FY 2004-05
Fiscal Jute Fruits Vegetables Tea Total
Year Thousand bales BDT (mn) MT* BDT (mn) MT BDT (mn) MT BDT(mn) BDT (mn)
1990-91 1,360.0 3,670.0 613.0 36.3 2,675.0 295.9 26.5 1,523.6 5,525.8
1991-92 1,394.0 3,250.0 457.0 27.2 0.0 427.9 23.6 1,230.8 4,935.9
1992-93 1,513.0 3,510.0 0.0 1,475.3 0.0 431.2 33.1 1,597.0 7,013.5
1993-94 1,003.3 1,896.0 0.0 8.0 0.0 438.3 36.9 1,781.1 4,123.4
1994-95 1,682.0 3,180.0 0.0 0.0 0.0 0.0 27.2 1,313.0 4,493.0
1995-96 1,570.7 2,968.0 0.0 0.0 0.0 0.0 25.9 1,254.0 4,222.0
1996-97 2,351.0 4,442.2 0.0 0.0 0.0 0.0 28.5 1,380.0 5,822.2
1997-98 1,739.0 3,188.5 60.5 3.6 7,412.9 820.7 57.1 2,760.0 6,772.8
1998-99 1,748.0 3,442.0 0.0 0.0 13,106.0 848.2 22.7 1,850.0 6,140.2
1999-00 1,738.0 3,588.0 0.0 0.0 1,027.3 701.2 12.9 886.2 5,175.4
2000-01 1,500.0 3,621.0 0.0 0.0 9,509.3 689.2 17.8 1,163.2 5,473.4
2001-02 1,283.0 3,509.5 0.0 0.0 12,751.4 879.1 13.9 998.0 5,386.6
2002-03 1,995.6 4,774.6 0.0 0.0 9,792.0 766.6 10.4 895.9 6,437.1
2003-04 1,878.4 4,698.8 0.0 0.0 16,143.8 1,456.3 12.3 932.1 7,087.2
2004-05 2,268.6 5,916.4 0.0 0.0 29,100.0 2,665.4 11.1 974.5 9,556.3
Total 25,024.6 55,655.0 1,130.5 1,550.4 101,517.7 10,420.0 359.9 20,539.4 88,164.8
Source: Ministry of Agriculture, Government of Bangladesh
*MT=metric tonne
Figure 3: Production and import of chemical fertilizers by Bangladesh (in 1000 metric tonnes)
Production Import
Year Urea TSP SSP NPKS ASP Gypsum Total Urea TSP MP DAP *Others Total
2000-01 1,883.0 67.7 119.3 10.0 5.9 77.6 2,163.5 302.0 363.0 123.0 126.0 50.0 964.0
2001-02 1,545.4 65.6 136.4 13.0 8.0 73.4 1,841.7 522.4 340.9 247.9 87.7 79.8 1,278.6
2002-03 2,056.7 65.2 135.4 30.0 6.1 0.0 2,293.4 285.7 327.6 278.5 118.5 47.2 1,057.4
2003-04 1,986.2 67.0 141.0 57.0 5.8 32.7 2,289.7 235.0 359.0 271.5 101.0 11.0 977.5
2004-05 1,878.3 53.8 162.5 100.0 7.8 40.5 2,242.9 567.3 451.4 407.3 176.0 32.7 1,634.7
2005-06 1,730.3 56.4 135.1 125.0 4.9 46.9 2,098.6 770.3 373.9 208.1 125.2 59.5 1,537.0
Source: Ministry of Agriculture, Government of Bangladesh
*Others mean Gypsum, NPKS, and Zinc
Note: TSP= Triple super phosphate; SSP= Single super phosphate; NPKS= composition; ASP= Ammonium sulphate; MP= Melamine
phosphate; DAP= Diamonimum phosphate; NPKS= a composition of nitrogen, phosphate, potassium, and sulphur; MP= Melamine phosphate;
DAP= diamonimum phosphate
123
AT Capital Research
Figure 4: Employment (persons 15 years and over) by broad economic sectors from 1999 to 2000
Male Female Total
mn % mn % mn %
Agriculture 17.4 53.7 15.2 78.3 32.6 62.9
Non-agriculture 15.0 46.3 4.2 21.2 19.2 37.1
Total 32.4 100.0 19.4 100.0 51.8 100.0
Source: Bangladesh Bureau of Statistics: Labour Force Survey Bangladesh 1999-2000, August 2002
Appendix 5 - Textiles
Figure 1: Ready Made Garment (RMG) exports (in USD mn) in 2006 and 2007
Woven Knit Total (Woven+Knit)
Annual Annual Annual

growth rate growth gate growth rate
Month 2006 2007 (%) 2006 2007 (%) 2006 2007 (%)
January 354.2 330.4 -6.7 296.7 275.0 -7.3 650.8 605.4 -6.9
February 352.4 415.3 17.9 282.9 343.1 21.3 635.3 758.5 19.4
March 349.7 391.8 12.1 314.3 355.1 12.9 663.9 746.9 12.5
April 293.4 308.8 5.2 322.9 325.9 0.9 616.4 634.7 3.0
May 391.0 368.4 -5.8 387.7 406.1 4.8 778.7 774.5 -0.5
June 437.1 474.7 8.6 421.4 486.5 15.5 858.5 961.2 11.9
July 451.9 345.2 -23.6 452.9 346.8 -23.4 904.9 691.9 -23.5
August 461.9 417.0 -9.7 446.9 445.0 -0.4 908.8 862.0 -5.1
September 351.9 353.7 0.5 349.0 412.5 18.2 700.9 766.2 9.3
October 311.4 314.6 1.1 351.7 387.3 10.1 663.1 701.9 5.9
November 330.3 417.1 26.3 315.0 442.1 40.4 645.3 859.2 33.2
December 459.7 471.1 2.5 447.2 516.6 15.5 906.9 987.7 8.9
Total 4,544.8 4,608.4 1.4 4,388.7 4,741.9 8.1 8,933.5 9,350.3 4.7
Source: Export Promotion Bureau, compiled by BGMEA
Figure 2: Main apparel items exported from Bangladesh (Figures in USD)
Fiscal Year Shirts Trousers Jackets T-Shirt Sweater Total

2000 - 01 1,073.6 656.3 573.7 597.4 476.9 3,378.0
2001 - 02 871.2 636.6 412.3 546.3 517.8 2,984.3
2002 - 03 1,019.9 643.7 464.5 642.6 578.4 3,349.0
2003 - 04 1,116.6 1,334.9 364.8 1,062.1 616.3 4,494.6
2004 - 05 1,053.3 1,667.7 430.3 1,349.7 893.1 5,394.2
2005 - 06 1,056.7 2,165.3 389.5 1,781.5 1,044.0 6,437.0
2006 - 07 943.4 2,201.3 1,005.1 2,208.9 1,248.1 7,606.8
Source: Export Promotion Bureau, compiled by BGMEA
124
AT Capital Research
Figure: 3 Structure of Bangladesh’s Primary Textile Sector (PTS)
Sub-Sector No of Mills Installed Capacity Production Capacity
Spinning Mills:
Cotton yarn mills 311 6,250,000 Spindles 1,040mn Kg
Synthetic yarn mills 11 NA 50mn Kg
Silk yarn mills 1 2,888 Reeling 0.06mn Kg
Total Spinning Mills 322 NA 1,090.1m Kg
Weaving and Knitting Mills:
Weaving mills (grey fabric) 400 25,000 Looms 1,400mn meters
Specialized textiles & power loom mills 1,066 23,000 Looms 300mn meters
Handloom mills 148,342 498,000 handlooms 837mn meters
Knitting, knit dyeing mills 17,000 Knit/Dye Machines
2,800 4,100mn meters
Total Weaving and Knitting Mills 152,608 6,637mn meters
Total Dyeing and Finishing Mills 310 NA 1,720mn meters
Source: Adapted from BTMA Annual Report 2007
Figure 4: Comparative growth between spindle capacity and growth in RMG

Fiscal Year Growth in spindle capacity (%) Growth in total RMG exports (%)
2000 - 01 34.5 11.7

2001 - 02 2.8 -5.7
2002 - 03 44.1 7.2
2003 - 04 0.9 15.8
2004 - 05 4.9 12.9
2005 - 06 25.6 23.1
2006 - 07 11.4 16.6
Source: BTMA Annual Report 2007, page 27
125
AT Capital Research
Appendix 6 - Manpower
Figure 1: Estimated size of remittances market in Bangladesh

2006 2015
Bangladesh Remittance Figure (USD bn) 4.8 30
Average Transaction Size (USD) 200 400
Transaction Volume (mn) 24 75
Average Price per Transaction (USD) 10 10
Average foreign exchange (FX) spread 1% 1%
Transaction Revenue (USD mn) 240 750
FX Revenue (USD mn) 48 300
Total System Revenue (USD mn) 288 1,050
Source: Ray, S., Sinha, A. K., & Chaudhuri, S. (2007). “Making Bangladesh a Leading Manpower Exporter: Chasing a Dream of US$ 30 billion
Annual Migrant Remittances by 2015”.
Figure 2: Different categories of Bangladeshi migrant workers

Years Professional Skilled Semi-skilled Unskilled
1976-1985 6.34% 34.76% 7.35% 51.54%
1986-1995 4.72% 32.12% 20.18% 42.97%
1996-2004 3.90% 32.01% 15.19% 48.88%
Source: Bureau of Manpower, Employment and Training
Figure 3: Overseas Employment by Profession

Worker's Category
Year Professional Skilled Semi-skilled Un-skilled
1995 6,352 59,907 32,055 89,229
1996 3,188 64,301 34,689 109,536
1997 3,797 65,211 43,558 118,511
1998 9,574 74,718 51,590 131,785
1999 8,045 98,449 44,947 116,741
2000 10,669 99,606 26,461 85,950
2001 5,940 42,742 30,702 109,581
2002 14,450 56,265 36,025 118,516
2003 15,862 74,530 29,236 134,562
2004 12,202 110,177 28,327 122,252
Figure 4: The demographic implosion in developing world (mn)
Population Estimated population in Absolute population loss,

in 1999 2050 1999-2050
Japan 126.5 104.9 -21.6
Italy 57.3 41.2 -16.1
Ukraine 50.6 39.3 -11.3
Spain 39.6 30.2 -9.4
Germany 82.1 73.3 -8.8
Rumania 22.4 16.4 -6.0
Bulgaria 8.2 5.7 -2.5
Hungary 10.1 7.5 -2.6
Poland 38.7 36.3 -2.4
Source: UNDP, 2000
126
AT Capital Research
Figure 5: Sources of Remittances to Bangladesh (in USD mn)
Country 1995 2000 2001 2002 2003 2004 2005
Saudi Arabia 485.9 933.0 980.9 1,244.5 1,313.0 1,463.3 1,609.3
U.S.A 104.4 248.2 265.0 423.5 470.1 477.6 673.7
U.A.E 78.0 143.2 186.9 276.5 349.3 390.5 496.5
Kuwait 165.2 246.5 254.8 322.4 338.5 380.4 445.3
U.K 39.8 68.9 63.9 170.8 234.8 342.6 404.1
Qatar 68.6 61.2 76.7 103.4 110.2 125.3 153.3
Oman 82.5 87.1 90.6 110.8 114.3 123.3 147.4
Others 34.4 47.9 46.6 30.6 83.6 92.7 108.0
Bahrain 32.9 42.8 49.2 57.6 64.0 62.6 70.2
Singapore 3.8 10.5 8.2 25.3 28.9 35.3 56.0
Italy 0.0 0.0 0.0 4.9 5.9 25.2
Malaysia 71.6 45.6 31.9 49.1 33.5 35.4 22.4
Germany 6.3 3.9 4.8 7.9 8.7 12.6 11.1
Japan 27.7 16.1 11.6 15.1 18.8 19.2 10.8
Hong Kong 0.0 0.0 0.0 2.3 1.3 0.0 6.7
S. Korea 0.0 0.0 0.0 1.3 1.0 0.0 4.8
Australia 0.0 0.0 0.0 1.8 1.2 0.0 4.2
Iran 0.2 0.0 0.0 0.1 0.3 0.4 0.9
Libya 0.3 0.1 0.0 0.1 0.1 0.2 0.2
Total 1,201.5 1,955.0 2,071.0 2,847.8 3,177.6 3,561.4 4,249.9
127
AT Capital Research
Appendix 7 - Pharmaceuticals
Figure 1. World market by geographic region - 2007

Value Annual growth
(USD bn) % of total (%)
USA 288 44 9
Europe 185 28 6
France 35 5 4
Germany 33 5 3
UK 21 3 3
Italy 21 3 7
Japan 62 10 -3
Asia Pacific 46 7 14
Latin America 32 5 21
Middle East, Africa 22 3 13
Canada 17 3 19
Total 652 100 8
Source: GlaxoSmithKline Annual Report, 2007
Figure 2: Top 10 manufacturers in Bangladesh by

sales - 2007
Sales (USD mn) Share (%)
Square 106 18
Beximco 54 9.2
Incepta 44 7.4
Acme 32 5.4
Eskayef 27 4.5
Drug INT. 23 3.9
Aristopharma 23 3.9
sanofi-aventis 22 3.8
A.C.I. 22 3.8
Renata 21 3.6
Total 374 63.5
th
Source: IMS Report, 4 Quarter – 2007
Figure 3: Top 10 Therapeutic segments in Bangladesh by sales - 2007

Sales ( USD mn) Share (%) Growth (%)
Alimentary T.& Metabolism 189 32 20.4
Systemic Anti-Infectives 147 24.9 5.4
Nervous System 53 8.9 17.4
Respiratory System 47 7.9 20.8
Musculo-Skeletal System 31 5.2 14.9
Dermatologicals 15 2.5 21.9
G.U.System & Sex Hormones 12 2.1 19.4
Hospital Solutions 12 2.1 7.4
Blood + B.Forming Organs 12 2 13.5
Parasitology 11 1.9 13.6
Total 591 100 15.8
th
Source: IMS Report, 4 Quarter – 2007
128
AT Capital Research
Figure 4: Top 14 molecules in
Bangladesh by sales 2007
Yearly sales
(USD mn)
Omeprazole 32
Ranitidine 31
Ciprofloxacin 21
Cefradine 18
Amoxicillin 16
Paracetamol 15
Cefixime 13
Ceftriaxone 12
Diclofenac 11
Azithromycin 11
Amlodipine 9
Salbutamol 8
Cefuroxime Axetil 8
Pantoprazole 7
Source: IMS Report, 4th Quarter – 2007
Figure 5: Major API manufacturers in Bangladesh and their products -

2007
Company List of API Products

Beximco Pharmaceuticals Ltd. Amlodipine, Amoxycillin, Ampicillin,
Celecocib, Rofecoxib, Paracetamol,
Diclofenac, Cloxazillin, Flucloxacillin,
Cetirizine Fluconazole, Ciprofloxazin,
Ranitidine, Cephalexin
Square Pharmaceuticals Ltd. Amoxycillin, Paracetamol, Diclofenac,

Cloxazillin, Flucloxacillin, Cephalexin
Drug International Ltd. Amoxycillin, Diclofenac, Cloxacillin,
Flucloxacillin, Cephalexin
Globe Pharmaceuticals Ltd. Amoxycillin, Diclofenac, Cloxacillin,
Flucloxacillin, Cephalexin
Gonoshashtaya Pharmaceuticals Amoxycillin, Paracetamol, Diclofenac,
Ltd. Cloxazillin, Flucloxacillin, Cephalexin
Sunipun Pharmaceuticals Ltd. Paracetamol
Opsonin Chemicals Ltd. Amoxycillin, Paracetamol, Diclofenac
Source: GTZ. (2007). 'Study on the Viability of High Quality Drugs Manufacturing in Bangladesh.'
Federal Ministry of Economic Cooperation and Development
Source: GTZ. (2007). 'Study on the Viability of High Quality Drugs Manufacturing in Bangladesh.'
Federal Ministry of Economic Cooperation and Development
129
AT Capital Research
Appendix 8 - Healthcare
Figure 1: Total expenditure on health as a % of GDP in 2004

8%
7%
6%
5%
4%
3%
2%
1%
0%
Bangladesh Maldives Thailand Sri Lanka India Nepal Myanmar Indonesia North Korea
Source: Official website of World Health Organization
Figure 2: Per capita expenditure on health in 2004

500
400
300
USD
200
100
Source: Official website of World Health Organization
130
AT Capital Research
Figure 3: Use of different methods of treatment in Bangladesh
in 2005
Different Methods %
Pharmacy/dispensary/compounder 38.7
Private doctor 24.4
Govt. doctor (private practice) 15.1
Govt. doctor (Govt. institution) 7.6
Homeopathic doctor 4.7
Kabiraj/hekim/ayurbed 1.4
Govt. health worker 1.1
Family treatment 0.7
Self treatment 0.5
NGO doctor 0.5
NGO health worker 0.3
Peer/fakir/tantric/ojha/baidya 0.2
Others 5.0
Total 100.0
Source: Bangladesh Bureau of Statistics
131
AT Capital Research
Appendix 9 - Biotechnology
Figure 1: Indian Biotech segments

Types %
Bio-IT 2.1
Bio Agro 7
Bio Industrial 6.7
Bio Service 9
Bio Pharma 75.2
Total 100
Source: www.ibef.org
Case 1: Major Multinational Biotechnology players in India
The Indian Biospace is dotted with a growing number of Multinationals like Eli Lilly, Novo Nordisk,
AstaZeneca, Baxter, and Roche.
• Opportunities in the agro-biotech sector have also brought in world’s major biotech companies into India.
For instance, Maharashtra Hybrid Seeds Corporation (Mahyco) Ltd and Monsanto India have formed a
50:50 joint venture called Mahyco Monsanto Biotech (India) Ltd (MMBL) to market Bollgard cotton,
developed by Monsanto. Some of the other leading MNCs present in India’s bio-agri segment are Advanta,
Indo American Hybrid Seeds and Syngenta.
• The clinical research is another field, wherein international companies like Quintiles Transnational have
actively proceeded to leverage the India advantage.
• The other international CRO and bioservices companies operating in India include Covance, Parexel,
ClinTec, Clinworld, MWG, Neeman Medical International, RCC, Simbec and Pharmanet.
Appendix 10 - Heavy Engineering (Shipbuilding)

Figure 1: Growth of world s hipbuilding capacities f rom 2004 t o 2010
50
45
Cumulative Gross Tonnage (mn)
2004 2010
40
35
30
25
20
15
10
5
0
Japan South Korea China Europe Others World
Source: Ludwig, T. & Tholen, J. (2006). “Shipbuilding in China and its impacts on European shipbuilding industry.” University of Bremen &
Institute of Law and labour Germany.
132
AT Capital Research
Appendix 11 - Education
Figure 1: Bangladesh educational institutes

Type of Management No. of Institutions No. of Teachers No. of Students
Institution
Primary Public 37,672 162,084 9,483,891
Private 42,725 182,705 6,741,767
Total 80,397 344,789 16,225,658
Secondary Public 317 7,434 221,887
Private 18,183 225,495 7,176,665
Total 18,500 232,929 7,398,552
College Public 261 11,274 511,869
Private 2,899 79,439 858,109
Total 3,160 90,713 597,688
Madrasa Public 3 82 2,738
Private 9,211 151,885 3,450,483
Total 9,215 151,967 3,453,221
University Public 26 6,852 115,929
Private 56 3,487 91,648
Total 82 10,339 207,577
Technical- Public 180 2,939 48,976
vocational Private 2,548 15,246 192,360
Total 2,728 18,185 241,336
Professional Public 60 1,629 17,526
Private 162 2,529 42,517
Total 222 4,158 60,043
Teacher Public 80 917 21,893
Training Private 108 1,215 14,372
Total 188 2,132 36,265
Source: Education Statistics 2005, Ministry of Education, Government of Bangladesh
Note:
• Teacher and Students of National University and Open University are not included in Public Universities.
• 23 new Polytechnic Institutes excluded above have already been established but are yet to open.
133
AT Capital Research
Figure 2: Number of public and private technical-vocational institutes 2005
Type of institution Management No. of Institutions No. of Teachers No. of Students
Polytechnic Institutes Public 37 1,189 17,836
Private 97 465 9,682
Technical School & Colleges Public 64 792 8,548
Institute of Glass & Ceramic Public 1 10 174
Institute of Graphics Arts Public 1 16 255
Textile Institutes Public 6 45 856
Textile Vocational Centers Public 28 331 5,097
Technical Training Centers Public 13 359 4,867
Survey Institutes Public 2 17 557
SSC (Vocational) Schools Private 1,224 7,511 95,458
HSC (Business Management) Institutes Private 1,180 6,120 79,935
Commercial Institutes Public 16 68 3,683
Agricultural Training Institutes Public 12 112 7,103
Figure 3: Number of public and private professional college 2005

Type of institution Management No. of Institution No. of Teachers No. of Student
Medical Colleges Public 15 1,218 11,731
Private 27 1,037 6,954
Dental Colleges Public 1 56 358
Private 8 198 782
Nursing College Public 1 18 252
Homeopathic Colleges Public 1 27 486
Private 29 442 14,684
Unani/ Ayurvedic Colleges Public 2 32 312
Private 14 124 1,288
Nursing Training Institutes Public 39 232 3,324
Private 5 29 515
Textile College Public 1 31 628
Leather Technology College Public 1 15 435
Law Colleges Private 70 625 17,787
Art Colleges Private 7 54 407
Music Colleges Private 2 20 120
134
AT Capital Research
The AT Capital Team
Ifty Islam Managing Partner (880)-1730058920 ifty.islam@at-capital.com

Syeed Khan Partner (880)-1730058921 syeed.khan@at-capital.com
Zarif Munir Senior Advisor +13124044252 (US) zarif.munir@at-capital.com
Mir Firoz Ahmad, Ph.D. Senior Investment Advisor (880)-1714134552 firoz.ahmad@at-capital.com

Junaid Khan Investment Advisor (880)-1715563100 junaid.khan@at-capital.com
Shahidul Islam, CFA Investment Manager (880)-1713032155 shahid.islam@at-capital.com
Saif Noman Khan Investment Advisor (880)-1715058104 saif.noman@at-capital.com
Mohammad Hanif Research Associate (880)-1715244932 mohammad.hanif@at-capital.com

Mohammad Emran Hasan Research Associate (880)-1730058929 emran.hasan@at-capital.com
Syeda Tasnuva Akhter Research Associate (880)-1730058930 syeda.tasnuva@at-capital.com
Ahmad Sajid Research Associate (880)-1730058927 ahmad.sajid@at-capital.com
Abdullah Ibneyy Shahid Research Associate (880)-1730058926 abdullah.shahid@at-capital.com
S Adeeb Shams Research Associate (880)-1713452242 adeeb.shams@at-capital.com
A. M. A. Bari Nahid Research Associate (880)-1715954318 nahid.bari@at-capital.com
Abdullah-Al-Farooq Research Analyst (880)-1730058933 abdullah.farooq@at-capital.com

Masum Abdullah Rahman Research Analyst (880)-1730058935 masum.rahman@at-capital.com
Tami Zakaria Research Analyst (880)-1730058936 tami.zakaria@at-capital.com
Sanwar Ahmed Research Analyst (880)-1730058943 sanwar.ahmed@at-capital.com
Tasmiah T. Rahman Research Assistant (880)-1713486688 tasmiah.rahman@at-capital.com

Ashek Ishtiak Haq Research Assistant (880)-1720594959 ashek.haq@at-capital.com
Minul Islam Research Assistant (880)-1911116930 minul.islam@at-capital.com
Rasidul Hasan Research Assistant (880)-1712532644 rasidul.hasan@at-capital.com
Syed Najibullah Research Assistant (880)-1718310778 syed.najibullah@at-capital.com
Md. Zahidur Rahman IT Analyst (880)-1730058937 zahidur.rahman@at-capital.com
© Copyright 2008. Asian Tigers Capital Partners Limited, Level 16, UTC Tower, Panthapath, Dhaka –
1215, Dhaka, Bangladesh. All rights reserved. When quoting please cite “AT Capital Research”. The
above information does not constitute the provision of investment, legal or tax advice. Any views
expressed reflect the current views of the author, which do not necessarily correspond to the opinions of
Asian Tigers Capital Partners or its affiliates. Opinions expressed may change without notice. Opinions
expressed may differ from views set out in other documents, including research, published by Asian
Tigers Capital Partners Limited. The above information is provided for informational purposes only and
without any obligation, whether contractual or otherwise. No warranty or representation is made as to the
correctness, completeness and accuracy of the information given or the assessments made.
135

Bangladesh The Next Asian Tiger 2015 Report

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Bangladesh The Next Asian Tiger 2015 Report

Diunggah oleh

Hak Cipta:

Format Tersedia

AT Capital Research

The Bangladesh paradox has been one of surprising economic resilience in

However, a key challenge is whether Bangladesh can move away from an

Abdullah Ibneyy Shahid

Asian Tiger Capital

2. Our Top Investment

3. FDI in Bangladesh: Background…………………………………………………………………………………………………………………………

15. Light Engineering……………………………………………………………………………………………………………………………………………………

16. Heavy Engineering: Ship Building..........……………………………………………………………………………………..……………….

Appendix 1-Overview 116

Appendix 2-Energy 120

Appendix 3-Infrastructure (non-

Appendix 4-Agriculture 123

Appendix 6-Manpower 126

Appendix 8-Healthcare 130

Appendix 9-Biotechnology 132

The Bangladesh paradox has been one of surprising economic resilience in

However, a key challenge is whether Bangladesh can move away from an

Bangladesh has three key attractions for global investors and

The fact that Bangladesh is lagging in the economic development chain is a

We believe it is realistic for Bangladesh to achieve a similar tenfold increase

A dynamic private sector and a substantial increase in FDI flow is likely to

However, a key challenge is whether Bangladesh can move away from an

The need for a more positive A Case for Optimism - a long-

Source: CIA Factbook2

When considering what might be possible in Bangladesh, global investors should

Similarly with China, in th the

The purpose of all this historical analysis is to re-

Bangladesh’s geographic position gives it every opportunity to participate in the

Bangladesh population growth

The growing number of global investment banks focusing on the opportunities in

Bangladesh: The Importance of Developing an Economic Vision

The Bangladesh growth model is likely to be built on the dynamism of its

Bangladesh’s Economic Strategy

In formulating the likely economic strategy and hence investment opportunities,

The Importance of Improving Manufacturing Productivity

Source: CIA Factbook2

International Private Equity It is worth

Lessons from Other

The fact that Bangladesh is lagging in the economic development chain is a

Figure 4: Diaspora in 2006

Diaspora Total population Diaspora as a %

A strong educational system is also a major attraction for Vietnam

On infrastructure, Vietnam is constructing six international airports with one

So in terms of Vietnam lessons for Bangladesh, a dynamic and proactive FDI

Remittances is important for

Source: DB Research (2007)6

The Importance of a Supportive

Enabling Environment Goal 1 – Better Infrastructure

Additional investment in port facilities both in terms of greater private sector

The regulatory authorities need to ensure better corporate governance which

Source: The Heritage Foundation16

Enabling Environment Goal 3 – A more developed financial system/capital markets

Enabling Environment Goal 5 – Education

Conclusions: Investment Opportunities

An aggressive strategy to reduce internet costs by a further 75% will be

1. Hsieh Weng-Jen. (2005) "The Determinants of Foreign Direct Investment

2. Central Intelligence Agency-the World Factbook available at

3. Goldman Sachs Global Economics Group. (2007). “BRICs and Beyond”.

4. JP Morgan Research. (2007). “Ho Chi Minh Trail to Mexico-Launching the

5. Official website of Globalis available at globalis.gvu.unu.edu.

6. DB Research. (2007). “Understanding Vietnam: a look beyond facts and

7. Mohammad, M. B. (1991). “The Way Forward (Vision 2020)”. Paper