Bangladesh: Recent Market Trends in Key Sectors

Bangladesh has a large manufacturing sector and is known for its garment sector in particular. The country depends on imports of raw materials such as cotton for manufacturing, but sources say that “bringing in raw materials for manufacture has become difficult,” explaining that “the government is controlling how much dollar is leaving the country.”

Before 2022, Bangladesh was already grappling with existing supply chain issues and an increased cost of raw materials triggered by the covid-19 pandemic. This difficulty in procuring materials has previously affected the garment manufacturing sector as well as imports of other goods and industrial raw materials such as fuel, electrical appliances, and construction materials.  

Since the Russia-Ukraine war began in early 2022, supply-chain disruptions have reportedly worsened, and the cost of raw material imports have sky-rocketed due to inflation. This has badly hit the manufacturing sector.

One source commented that “over the last year, the whole Russia-Ukraine crisis has really affected Bangladesh. It has become more difficult for companies to acquire credit, particularly to import goods. The Sri Lankan economic collapse also led to the Bangladesh government imposing restrictions on the banking sector.”  

A foreign reserve crisis starting in 2022 led to the government taking fiscal measures to curb the flow of money leaving the country. This has led to decreased output by the manufacturing sector, which in turn has worsened the situation regarding foreign reserves. Electricity shortage and higher fuel prices have further reduced the profits made by the manufacturing industry. 

After a dip in the first year of the Covid pandemic, Bangladesh’s GDP grew by 6.9% in the financial year ending 2021 and 7.1% in 2022. However, forecasts for 2023 predict much lower levels of growth.

A source reflects on how the country initially attracted investments: “After covid we saw a lot of small and medium businesses struggling and larger businesses saw this as an opportunity to acquire them. Then last year international investors saw opportunity to acquire small businesses.” They conclude that Bangladesh turned out to be “one of the most resilient jurisdictions.” 

However, the economic climate shifted over 2022 and one of the main sectors to be affected was infrastructure: “By late 2022, the effect of war in Europe started to show. Clients started to show a more cautious approach and especially so in infrastructure projects. They started to cut down on spending and a lot of construction projects got delayed.”  

Meanwhile, commentators predict an increase in renewable energy projects in the South Asian country: “There's a push for renewable energy. With the Ukraine war and dollar crisis, gas prices have gone through the roof and the government has found itself in a spot. It’s been a big problem, so they have started pushing for solar projects.”   

Bangladesh is a producer of natural gas but is also reliant on imports of LNG to meet its own energy demand. Last year’s increase in LNG prices, triggered by Russia’s energy war, has made it costlier for the government to purchase the fuel. Combined with a foreign currency crisis, the country has been unable to meet its energy demand and was forced to shed load.

Another source explains how delays by the government in paying independent power producers combined with the devaluation of Bangladeshi taka against the dollar has added to the problem: “Every single power plant in Bangladesh has been impacted by currency fluctuations. The government had been repaying private power producers but with just a little delay, but now the government is paying with more delay. Until now project companies were able to absorb the delays. Now the repayments are very much delayed, they are in a difficulty. It doesn’t look like this fuel crisis is going to better any time in the near future. This is why the government and project companies are looking to renewable energy.” 

2022 saw venture capital firms tightening their belts and this decrease in VC investments has been a global trend, although there are variations from country to country.

Bangladesh also experienced a decline in investments, with one source telling us that “There has been a global slowdown in VC and we are feeling that too but we envisage it will pick up by late 2023.” They add: “And we believe big-tech companies that have received VC investments will go on to acquire smaller companies. Basically, the smaller tech companies will not get funding because of the slow down. In fact, that has already been happening in India and we think it will happen in Bangladesh also.” 

Regardless of this slowdown, Bangladeshi startups in areas such as ed-tech, fin-tech and e-commerce have continued to raise pre-seed and seed and early-stage funding. Encouragingly, the government is already proposing policies to ease reporting burdens on startups and increase investments in them. With a younger and tech-savvy demographic and increasing digitisation, Bangladesh’s startups ecosystem is seen as having the potential to flourish in the right conditions. 

Our next Bangladesh rankings will be published in December 2023 when the 2024 Asia-Pacific Guide is launched.

Chambers covers Corporate & Finance, Dispute Resolution, Projects & Energy, Shipping and Intellectual Property as practice areas in Bangladesh. Chambers conducts research annually and the schedule for making a submission for the next round of research will be published in Autumn 2023.