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Bangladesh – an Emerging Tiger bidding its time

By LightCastle Analytics Wing

Bangladesh making headway towards a middle income nation based on strong economic fundamentals

Bangladesh’s growth story is one that few saw coming. In the face of persistent challenges, the country’s stable economic growth has provided the bedrock for a prosperous future. With a forecasted growth rate that’s only second to India in the region, Bangladesh looks to stride towards middle income country status by 2021, banking on the shoulders of both established core industries such as the Ready Made Garments (RMG) sector as well as newer, rapidly growing sectors such as the Information and Communication Technology (ICT) industry.

The growing middle class, with its big appetite for consumerism, also has a large role to play in this future growth as well. A market of 160 million+ people is packed into a territory roughly one-quarter the size of Thailand (5thdense in the world). Geo-strategically positioned between India and China, Bangladesh consists of the world’s 8th largest population, where consumer spending is around USD 130 billion+ growing at 6% annually.

Growth prospects for 2017-18 is upbeat with ADB, World Bank and Government forecasts predicting GDP growth to hover within the 6-7% range. Currently, the country has USD 30 billion+ in foreign reserves, USD 210 billion in yearly GDP value and with USD 1,350 per capita income just entered the lower ranks of a middle income nation.

Recent regional connectivity agreements with neighboring countries – India, Nepal and Bhutan – will add further impetus on growth. Additionally, inauguration of the Padma bridge (expected to open in 2018) will be connecting the economically backward Northern region with the rest of the country, contributing to higher GDP trajectory.

Looking at Key Drivers and Prospects in Bangladesh

Ready Made Garments going strong as the 2nd largest exporter in the world Bangladesh apparel sector has presented itself as a matured contributor to country’s export and growth, contributing to 81% of country’s export (USD 28 Billion FY16-17) and employing 4.2 million people. The sector’s meteoric rise in global apparel market in early 90s onwards has been augmented by inexpensive labor, favorable government policies and preferential trade agreements. Bangladesh currently sits as the second largest player in the market after China with growing export forecast.

Information and Communication (ICT) Technology expanding fast as one of the priority sectors backed by the Government The ICT industry in Bangladesh has grown to 1500+ companies and revenues of USD 600 million. Based on BASIS statistics, projected ICT export for FY2016 stands at USD 435 million. Large growth in export is attributed to growing number of tech based startups backed by Government’s policy support. Comparison of IT based firms catering to different segments of the market shows skewness towards business process outsourcing and exportable services, cementing opportunities for future cross-border growth. During 2013-18, number of off-shore based development centers and online based freelancing has grown by 1,000%. Additionally, government has also taken a target to reach USD 1 billion in IT exports by 2018 and have provided incentives.

Strong Financial Markets – capital markets with long term growth opportunities and vibrant financing sector to drive business growth and consumer spending Bangladesh capital markets have developed steadily over time, although they still lack depth and breadth due to the absence of financial instruments such as derivatives. However, Bangladesh capital markets have very low and even negative correlation with developed, emerging and other frontier equity markets. Therefore, an exposure to Bangladesh significantly improves risk adjusted returns. The market has returned 203% since Jan 2007 (16.33% p.a.). For long term investors looking to participate in the Bangladesh growth story – now is a good time to start investing.

Bangladesh exhibits a highly vibrant financing sector with 56 banks (9 of them foreign including names like StanC, HSBC and Citi), 31 Non-bank financial institutions (NBFI), 62 insurance companies (including names like MetLife) and 1000+ microfinance institutions. With USD 100 billion+ in credits just in the banking sector – the market is expected to grow in the small enterprise segment and consumer products over the next five years.

The sector is further facilitated by high growth in mobile financial services – driven by strong mobile phone penetration (78% of the population) and projected to close at USD 30 billion annually in 2016 in terms of transaction volume – growing at 50%+ year on year.

The rising Middle and Affluent Class (MAC) consumers have been playing a pivotal role in this extraordinary growth story of the consumer industry. Though currently the total MAC population is only 7% of the total pie, the group is expanding rapidly at 10.5% annually. Considering Bangladesh maintains this growth pace by 2025, the MAC population is expected to triple to 34 million.

The consumer class is young, technologically adaptable and exhibits high engagement through the mobile internet. As an emerging economy, Bangladesh has embraced technology at a rapid pace. With the advent of third-generation (3G) wireless services in 2013, consumers have adopted smartphone and high-speed internet services rapidly. Of the 60 million+ active internet subscribers (BTRC Jul 2016), nearly 96% are on mobile and 12 million use smartphones. Bangladesh is also enjoying demographic dividend with 57% of the total population aged between 15-54 years and the median age being 26 years.

Robust privatized media and press drives communication and transparency

Bangladesh currently has 28 functioning private satellite TV channels in addition to two government TV channels. There are, in addition to government radio stations also 8+ privatized FM radio stations. There are about 40 newspapers including 25 daily newspapers- in Bengali and English on top 100+ local online news sites.

This wide presence of the media- print, electronic and broadcast- has created a demand for many training Institutes for journalists and others associated with the different facets, particularly within the electronic and on-line media. There are nearly 100+ Public and Private Universities in the country and most of them now have Mass Media and Communications Departments. However, there is scope for trading expertise within this domain.

Resilient human capital growth hinging on robust education structure

Based on strong government support and privatized education – currently the student population stands at 29 million and secondary education increasing at a rate of 34% over the last five years. Additionally, the government has high focus on women empowerment and strong emphasis in keeping female students in school. In the tertiary education sector there 112+ universities (78 private and 34 public) with 900,000+ students – especially the private universities (some with international affiliations) have made quality higher education available to a large base of students. However, domestic university capacity at present is almost 50% of high school graduates – thus opening exciting opportunities to invest in the sector here with a ready market.

Opportunities at the Cyber Security Industry

As Bangladesh goes through technology leapfrog with digital initiatives happening directly without going through analog (like mobile financial services’ rapid proliferation) – security in the cyber space has become a pertinent issue. The government with its increasing automation and digital network, vibrant financing sector and focus on overall digitization is giving rise strong need for security products, firewalls and systems to support digital growth.

Download full report here: www.lightcastledata.com/drive