AT Capital Research
Bangladesh Bangladesh
17 April 2008
Growth,Investment,Opportunity
TheBangladeshparadoxhasbeenoneofsurprisingeconomicresiliencein thefaceofnaturaldisasters,poorgovernanceandpoliticalvolatility.Ineffect,
s r e n t r a P l a t i p a C r e g i T n a i s A
anentrepreneurialprivatesectorbasehascompensatedforalesssupportive macropoliticalenvironment.
Howeve However,a r,a key chall challeng enge e iswhether iswhether Bangla Banglades desh h can move move away away from from an economythatisanimpressiveunderdog,toonethatcantrul economythatisanim pressiveunderdog,toonethatcantrulyjointheranksof yjointheranksof thefastestgrowingeconomiesintheregion.IsitrealisticforBangladeshto followinthefootstepsofVietnamandbecomethenextAsianTiger?
ItisimportantthatBangladeshcanattractlongterminvestmentflowsthatwill helpbuildtheinfrastructureandproductivecapacityoftheeconomy.
The aim of this this paper paper isto provid provide e global global invest investors ors with with an outlin outline e on the challengesandprospectsfortheBangladesheconomy.Butalargeportionof thisreportisdedicatedtoourreviewofindustryprofilesandsectorreviews, reflectingourbeliefintheneedtofocusonspecificinve reflectingourbeliefintheneedtofocus onspecificinvestmentideas. stmentideas.
Wehopethisreport,thefirstofaseriesofmore Wehopethisreport,thefirstofaseriesofmoredetailedsec detailedsectoranaly toranalyseswe seswe intendtopublish,willreducesomeoftheinformationalasymmetriesthathave cons onstrai train ned FDI FDI flow flows s. We remai emain n opti optim misti stic tha that the the nex next phas phase e of
EDITORS
Bangla gladesh’s
economic
development
will
provi ovide
many any
pro profit fitable ble
opportunitiesforglobalinvestors. Ifty Islam Managing Partner +880 171 584 0112
[email protected] Syeed Khan Partner +880 172 726 1267
[email protected] Abdullah Ibneyy Shahid Research Associate
[email protected] abdullah.shahid@at-capital
Asian Tiger Capital Partners UTC Building, Level 16 8 Panthapath, Dhaka-1215 Bangladesh www.at-capital.com
1
AT Capital Research CONTENTS CONTENTS 1. 1.Overview Overview………………………………………………………………………………………………………………………………………………………………………. Overview Introduction A case for optimism The importance of developing an economic vision Improving manufacturing productivity Lessons from Vietnam The key enabling goals Conclusion
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2.OurTopInvestment nvestmentI deas………………………………………………………….………………………………………………………………………… 2.OurTopI nvestmentIdeas Ideas
19
3.FDIinBangladesh:Background Background………………………………………………………………………………………………………………………… 3.FDIinBangladesh: Background Trends in FDI flows Sector distribution of FDI flows FDI outlook
20
4.Capitalmarket…………………………………………………………………………………………………………………………………………………………… 4.Capitalmarket International diversification An emerging capital market A favorable environment for foreign investors
26
5.Banking…………………………………………………………………………………………………………………………………………………………………………. 5.Banking Banking sector performance The regulatory environment Opportunities in a developing economy
34
6.Energy…………………………………………………………………………………………………………………………………………………………………………… 6.Energy Energy review Meetingthecountry’senergyneeds
42
7.Infrastructure(non--Energy Energy)))………………………………………………………………………………………………………………………………….. ………………………………………………………………………………………………………………………………….. 7.Infrastructure(non -Energy Road, rail and ports Lessonsfromaroundtheworld Strengthening the nations backbone
49
8.Agriculture 8.Agriculture iculture…………………………………………………………………………………………………………………………………………………………………... A long tradition in agriculture Meeting the needs of the population Improving yields and product innovation
55
9.Textiles…………………………………………………………………………………………………………………………………………………………………………… 9.Textiles A success story Increasing global market share Exploringthevaluechain
61
10.Outsourcing………………………………………………………………………………………………………………………………………………………………. 10.Outsourcing Redefining the supply chain An enabling environment Acrediblepartner
67
11.Manpower…………………………………………………………………………………………………………………………………………………………………… 11.Manpower Increased global labour mobility Substantial opportunities for global competitiveness Enablinganinternationalworkforce
73
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AT Capital Research 12.Pharmaceuticals……………………………………………………………………………………………………………………………………………………… 12.Pharmaceuticals Competitive advantages ahead of 2016 A sustainable long term strategy
79
13.Healthcare……………………………………………………………………………………………………………………………………………………………….…. 13.Healthcare The current state of the market Prospects in medical tourism Developing private health care
85
14.Biotechnology……………………………………………………………………………………………………………………………………………………………. 14.Biotechnology The importance of biotechnology for Bangladesh Lessons from India Opportunities for investment
91
15.LightEngineering…………………………………………………………………………………………………………………………………………………… 15.LightEngineering Industry review Potential growth areas Building on a strong base
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16.HeavyEngineering:ShipBuilding..........……………………………………………………………………………………..………………. 16.HeavyEngineering:ShipBuilding A booming market Is growth sustainable?
102
17.Tourism……………………………………………………………………………………………………………………………………………………………………….. 17.Tourism Marketing and promotion strategies An overview of the hotels sector Developing an effective tourism strategy
106
18.Education……………………………………………………………………………………………………………………………………………………………………. 18.Education The enabling environment of education in Bangladesh Areas for focus
111
Appendices Appendices Appendix 1 1--Overview Appendix 1 -Overview Overview Figure1-10:VariousindicatorsondoingbusinessinBangladesh Figures11-22:InvestmentrelatedcostsinDhakavis-à-visvariousothercitiesaroundthe world
116
Appendix 2 2--Energy Appendix 2 -Energy Energy Figure1:PowergenerationmixinBangladeshinFiscalYear(FY)2006 Figure2:TrendinannualpowergenerationcapacityinBangladesh Figure3:CoalreservesinBangladesh
120
Appendix Appendix3 33-Infrastructure(non -Infrastructure(nonInfrastructure(non-energy) -energy) energy) Figure1:CompositionofdifferenttypesofroadsinBangladesh(2007) Figure2:RevenueearningsandexpenseofBangladeshRailway Figure3:TolltargetandcollectionbyJamunaMultipurposeBridgeAuthority Case1:ReformofBangladeshRailway
121
Appendix 4 4--Agriculture Agriculture Agriculture Appendix 4 - Agriculture Figure1:FoodgrainproductioninBangladesh Figure2:ExportofagriculturalcommoditiesfromBangladesh Figure3:ProductionandimportofchemicalfertilizersbyBangladesh Figure4:Employmentbroadeconomicsectors
123
3
AT Capital Research Appendix 5 5--Textiles Appendix 5 -Textiles Textiles Figure1:ReadyMadeGarment(RMG)exportsfromBangladesh Figure2:MainapparelitemsexportedfromBangladesh Figure3:StructureofBangladesh’sPrimaryTextileSector(PTS) Figure4:ComparativegrowthbetweenspindlecapacityandgrowthinRMG
124
Appendix 6 6--Manpower Manpower Appendix 6 -Manpower Figure1:EstimatedsizeofremittancesmarketinBangladesh Figure2:DifferentcategoriesofBangladeshimigrantworkers Figure2:DifferentcategoriesofBangladeshimigrantworkers Figure3:OverseasemploymentofBangladeshiworkersatvariousskilllevels Figure4:Thedemographicimplosionindevelopingworld(mn) Figure5:SourcesofRemittancestoBangladesh(inUSDmn)
126
Appendix 7 7--Pharmaceuticals Appendix 7 -Pharmaceuticals Pharmaceuticals Figure1.Worldmarketbygeographicregion Figure2:Top20manufacturersinBangladeshbysales Figure3:Top10TherapeuticsegmentsinBangladeshbysales Figure4:Top14moleculesinBangladeshbysales Figure5:MajorAPImanufacturersinBangladeshandtheirproducts
128
Appendix 8 8--Healthcare Appendix 8 -Healthcare Healthcare Figure1:Totalexpenditureonhealthasa%ageofGDPbycountries,2004 Figure2:Percapitaexpenditureonhealthinvariouscountries Figure3:DistributionofpatientsbymethodoftreatmentinBangladesh(%),2005
130
Appendix 9 9--Biotechnology Appendix 9 -Biotechnology Biotechnology Figure1:IndianBiotechsegments Case1:MajorMultinationalBiotechnologyplayersinIndia
132
Appendix 10HeavyEngineering(Shipbuilding) HeavyEngineering(Shipbuilding) Appendix 10 10--HeavyEngineering(Shipbuilding) Figure1:Growthofworldshipbuildingcapacities
132
Appendix 11Education Appendix 11 11-Education -Education Education Figure1:Bangladesheducationalinstitutes Figure2:Numberofpublicandprivatetechnical-vocationalinstitutes2005 Figure3:Numberofpublicandprivateprofessionalcollege2005
133
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AT Capital Research
w e i v r e v O
Overview Overview
TheBangladeshparadoxhasbeenoneofsurprisingeconomicresiliencein thefaceofnaturaldisasters,poorgovernanceandpoliticalvolatility.
s r e n t r a P l a t i p a C r e g i T n a i s A
However,akeychallenge However,akeychallenge iswhether Bangladeshcanmoveaway Bangladeshcanmoveaway from an economythatisanimpressiveunderdog,toonethatcantrulyjointheranks ofthefastestgrowingeconomiesintheregion.
Bangladesh
has
three
key
attractions
fo r
global
investors
and
multinati multinationals onals:a :a large baseoflow-costlabour,a baseoflow-costlabour,a largedomesticmark largedomesticmarketof etof 150mnpeople,andnearly3bnpeopleintheAsianregionthatithasmarket accessto.
Theaimofthispaperistoprovideglobalinvestorswithanoutlineonthe chal hallenge enges s and and pro prospe spects cts for the the Bangl angla ades desh econ conomy omy as well ell as investmentopportunities.
ThefactthatBangladeshislaggingintheeconomicdevelopmentchainisa potentialadvantageforpolicymakersintermsoftheabilitytolearnfromthe
experienceofothercountries.
VietnamsawitsFDIincreasefromUSD2bnin2000toanestimatedUSD 1
20bnin2007. it isimportantthatBangla isimportantthatBangladeshcanattra deshcanattractsimi ctsimilarlongterm larlongterm inve invest stme ment nt flow flows s that that will will help help build build the the infr infras astr truc uctu ture re and and prod produc ucti tive ve capacityoftheeconomy.
WebelieveitisrealisticforBangladeshtoachieveasimilartenfoldincrease overasevenyearperiod,increasingFDIfromaprojectedUSD700mnin 2008toUSD7bnby2015.
Thegrowthofprivateequityfirms(thosethatinvestinnon-listedsecurities) canpositivelyimpactBangladesh’sability,notonlytoattractFDI,butalsoto improvemanufacturingproductivity.
AdynamicprivatesectorandasubstantialincreaseinFDIflowislikelyto fail fail to delive deliver r the kinds kinds of econom economic ic growth growth gains gains Bangla Banglades desh h need’s need’s to becom become e a Middl Middle e Income Income Countr Country y (MIC) (MIC) unles unless s the govern governme ment nt and the regula regulator tory y author authoriti ities es can provid provide e a suppor supportiv tive e enabli enabling ng enviro environme nment nt in terms terms of infras infrastru tructu cture, re, corpor corporate ate govern governanc ance, e, capita capital l marke markets, ts, law and order,education,fiscalpoliciesamongotherfactors. . .
Wehopethisreport,thefirstofaseriesofmoredetailedsectoranalyseswe intend to publish, publish, will reduce reduce some of the informati informational onal asymmetr asymmetries ies that
IftyIslam IftyIslam ManagingPartner +(8801)715840112
[email protected]
have have constr constrain ained ed FDI flows flows. . We remain remain optim optimist isticthat icthat the next next phase phase of Bangl Banglad ades esh’ h’s s econ econom omic ic deve develo lopm pmen ent t and and will will prov provid ide e many many prof profit itabl able e opportunitiesforglobalinvestors.
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AT Capital Research Introduction Introduction
TheBangladeshparadox
TheBangladesh The Bangladeshparadoxhas Bangladeshparadoxhas paradox paradox hasbeen beenone one of surprising surprising economic econ omic resilience in the econo mic resilience faceof faceof natural natural natural disasters, disas disasters ters, ters, , poorgovernance poorgovernance and politicalvolatili politi politicalvolatility. calvolatility. ty. Evenif growth growth natural disasters,poorgovernanceandpoliticalvolatility. political cal volatili volatility. haslaggedanumberofothereconomiesinAsia,mostnotablyChina,Indiaand Viet Vietna nam, m, the the vola volati tili lity ty of Bang Bangla lade desh sh’s ’s grow growth th has has been been lowe lower. r. In effe effect ct, , an entrepreneurialprivatesectorbasehascompensatedforalesssupportivemacro politicalenvironment. Howe Howeve ver, r, a key key chal challe leng nge e is whet whethe her r Bang Bangla lade desh sh can can move ove away away from from an economythatisanimpressiveunderdog,toonethatcantrulyjointheranksofthe economythatisanimpressiveunderdog, fastestgrowingeconomiesintheregion.IsitrealistictoassumethatBangladesh canfollowinthefootstepsofVietnamandbecomethenextAsianTiger?
Optimismforbecomingmiddle incomecountryisjustified.
Webelieve Webelieveoptimism optimism thatBangladeshcanmoveintotheranksofMiddleIncome Webelieve optimismthatBangladeshcanmoveintotheranksofMiddleIncome th
count ountri rie es (defi define ned d as a per per capi capita ta incom ncome e of USD 875) 875) by 2021, 021, the 50 countries
anniv annivers ersary ary of its Indepen Independen dence, ce, is is justif jus just justif tified ifie ied. d.. this will will requir require e Bangla Banglades desh h ied. . But this movingfroma5-6%growthtrajectorytoaround7.5%.Thisisnotimpossiblegiven theexperienceofothercountriesintheregion.Butitisnotinevitable. Butitisnotinevitable.Muchwill Butitisnotinevitable. Muchwill dependontheabilityofBangladeshtoachievetheaccelerationinFDI(Foreign dependontheabili dep dependon depe endontheabilityofBangl ndon the abili abilityofBangla tyofBanglade tyofBanglades adeshtoac deshto shtoac hto achievetheaccelerationinFDI(Foreign Dire Direct ct Inves Investm tmen ent) t)) flow flows s seen seen in the rest rest of Asia Asia and and part parts s of Lati Latin n Amer Americ ica. a. tment ent) in the Vietnam,forexample,sawitsFDIincreasefromUSD2bnin2000toanestimated 1
USD20bnin2007. ItisimportantthatBangladeshcanattractsimilarlongterm investmentflowsthatwillhelpbuildtheinfrastructureandproductivecapacityof theeconomy.WebelieveitisrealisticforBangladeshtoachieveasimilartenfold increaseoverasevenyearperiod,increasingFDIfromaprojectedUSD700mnin 2008toUSD7bnby2015.
Buildinganenabling environmenttospurFDIand domesticprivateinvestment
TheroleofgovernmentshouldbetocreateanenablingenvironmentforbothFDI Theroleofgovernmen Theroleofgovernmentshouldbetocrea tshouldbetocreateanenablin teanenablingenviron genvironmentforbot mentforbothFDI hFDI anddomesticallygeneratedinvestmentcapitaltoprosper.Thiswillclearlyrequire anddomesticallygeneratedinvestmentcapitaltoprosper. regulatoryreforms,developmentofthecapitalmarkets,andgreaterinfrastructure expe expend ndit itur ure, e, espe especi cial ally ly on powe power r gene genera rati tion on. . But But Bangl Banglade adesh sh also also need needs s to markettheopportunitiesitofferstoglobalcapitalmarketsandmultinationalsmore effe effect ctiv ivel ely. y. Whil While e FDI FDI seem seems s to be a gener generic ic and nebu nebulo lous us conc concep ept t to many many, , ultimatelyitisanaggregateofaseriesofspecificinvestmentsacrossavarietyof industries. The The aim ai m this pape paper r is to prov provid ide e glob global al inve invest stor ors s with with an outl outlin ine e on the the aim m of this challengesandprospec challengesandprospectsforthe tsforthe Bangladeshecono Bangl adesheconomy. my. Butalargeproportionof Bangladeshecon omy. thisreportisdedicatedtoourreviewofindustryprofilesandsectorreviews.Thisis not accide accidenta ntal, l, but reflec reflects ts our belie belief f that that the range range and breadth breadth of invest investme ment nt opportunities,asBangladeshintegratesmoreeffectivelywiththeglobaleconomy ,isnotfullyappreciatedbymanyinternationalinvestors. We hope hope this this report report, , the first first of a series series of more more detail detailed ed sector sector analy analyses ses we intend intend to publis publish, h, will will reduce reduce some some of the inform informati ational onal asymm asymmetr etries ies that that have have constrain constrainedFDIflows.Weremainoptimi edFDIflows.Weremainoptimistic sticthat that thenextphaseofBanglades thenextphaseofBangladesh’s h’s econ econom omic ic deve develo lopm pment ent will will prov provid ide e many many prof profit itab able le oppo opport rtun unit itie ies s for for glob global al investors.
6
AT Capital Research Theneedforamorepositive “BrandBangladesh”
ACaseforOptimismalongtermperspectiveoneconomicpotential ACaseforOptimism- -along along--termperspectiveoneconomicpotential termperspectiveoneconomicpotential The Th The e image image of Bang Ba Bangl ngla nglade lade adeshfor desh sh shfor for for the rest re rest st st of the the worl world, d, what what one might mi mig ght ght define def defi define ine ne as as “Bra “B rand nd Bangl Ba nglade adesh sh”, ”, is likely lik ely ly to to be be one one of natural nat natu natu tu ural ral disasters, disas disast disasters ters, ers, , grinding grindi grindi grinding ng ng poverty, povert povert poverty, y, y, “Brand “Bran “Brand d Bangladesh” Bangladesh adesh”, ”, , is is like likely ly to be one on e of of natu na grind ing over overpo popu pula lati tion on and and and corrup corr co upti on. more posi positi tive ve impr impres essi sion on we beli believ eve e is overpo ove rpopul pulati ation on corrrup ruptio tion n. A more appr approp opri riat ate, e, is a youn young g popu popula lati tion on of 150m 150mn n peop people le with with very very favo favour urab ablle demographicsresultinginoneofthefastestratesofgrowthoflaboursupplyinthe world; world; a country country in the heartof Asia and juxtaposed juxtaposed strategica strategicallybetween llybetween India India andChina;averyentrepreneurialcultureasevidencedbothbytheresilienceof thetextilesectortotheendofMFAquotas.
Source:CIAFactbook 2
Economichistorysuggests neverunderestimatethescope fortransformationalchange
WhenconsideringwhatmightbepossibleinBangladesh,globalinvestorsshould notoverlookthescopefortransformationalshifts.Oneonlyneedstolookatrecent hist histor ory y for evid eviden ence ce that that glob global aliz izat atio ion n has acce accele lera rate ted d the the poten potenti tial al pace pace of economicchange.EventhemostoptimisticIndianpatriotwouldhavebeenhard pushedtoforecastin1992,whenthecountrywasalmostbankruptandgoingto theIMFforemergencyfunding,thatjust15yearslateritwouldbecomeaglobal 3
powerhouseinserviceswithnearUSD300bninreserves. Simi Simila rly y with with Chin China, ina, a, a, in the the imme immedi diat ate e after aft after afterma erma math th of the the polit politic ical al uncer unc unce uncert erta rtai tain aint inty nty ty y Sim milar illarl arly ly followingTiananmenSquare,veryfeweconomicforecasterswouldhavepredicted thatlessthan20yearslaterChinawouldbethemanufacturingpowerhouseofthe that lessthan20yearslaterChinawouldbethemanufacturingpowerhouseofthe world, 1.5trofreserves. world,withmorethan ,withmorethanUSD withmorethanUSD USD1.5trofreserves. 1.5trofreserves. Asstudentsofeconomichistory,wearestruckbythescopeforprofoundchanges ina country’s country’s competiti competitiveeconomi veeconomicpositionoverthe cpositionoverthe longer-term longer-term.In1825,China .In1825,China andIndiaconstituted50%ofglobalGDPandby2050thesetwonationswillagain constitut constitute e 50%of global GDP. US investmen investment t bank Goldman Goldman Sachs, Sachs, who have done much of the pioneering pioneering work on BRICs BRICs (Brazil,Russian, (Brazil,Russian, Indiaand China) China) noted noted in a recent recent report report (“Bric (“Brics s and Beyond Beyond”, ”, GS, GS, 2007) 2007) when when commen commentin ting g on 3
Indiathat:
“On “On the eve of the Indust Industria rial l Revolu Revolutio tion n (around (around 1770), 1770), India India was the second- second- 7
AT Capital Research In1770Indiawasthesecond biggesteconomyintheworld. By2050itwillovertaketheUS nd toreclaim2 place
largesteconomyintheworld,contributingmorethan20%oftotalworldoutput.By the 1970s, 1970s, after after two two centur centuries ies of relati relative ve econom economic ic stagna stagnatio tion, n, that that share share had had fallento3%thelowestinitsrecordedhistory.Fromalong-termperspective,the post-in post-indus dustri trial al econom economic ic decli decline ne of India India (and (and China) China) is a histori historical cal aberrat aberration ion, , driventosomeextentbyalackofopenness.Afterindependencein1947,India foll follow owed ed inwa inward rd-l -loo ooki king ng and and stat statee-in inter terve vent ntio ioni nist st polic policie ies s that that shac shackl kled ed the the econ econom omy y thro throug ugh h regu regula lati tion ons, s, and and seve severe rely ly rest restri rict cted ed trad trade e and and econ econom omic ic freedom.Theresultwasdecadesoflowgrowth,pejorativelytermedtheHindurate ofGrowth.Reformsbeginningin1991graduallyremovedobstaclestoeconomic freedo freedom, m, and India India has begun begun to play play catch-u catch-up, p, steadi steadily ly re-int re-integr egrati ating ng into into the globaleconomy.” They They go on to fore foreca cast st that that Indi India a will will over overta take ke the the US as the seco second nd larg larges est t 3
economyintheworldtoChinaby2050.
Thepurposeof allthishistoric allthishistoricalanalysi alanalysisistoresistoreiterat ethatBangladeshby2021 eshby2021 Thepurposeof allthishistoricalanalysisistore alanalysisistore sistore -iteratethatBanglad -iteratethatBangladeshby2021 iteratethatBangladeshby2021 couldberadicallydifferentto tothecountryyouseetoday thecountryyouseetoday.Transformationalchange couldberadicallydifferent to thecountryyouseetoday Transformationalchange isnotinevitablebutitiscertainlypossible. isnotinevitablebutitiscertainlypossible. Bangladesh Bangladesh’s ’s geographic geographic position position gives gives it every opportunity opportunity to participate participate in the “AsianCentury”.Webelieveitisthispotentialthatwillincreasethefocus,interest andopportunitiesforglobalinvestors.
GoldmanSachsbullishon Bangladeshaspartoftheir “Next11”EMmarketstofollow theBRICs
GoldmanSachsin2005,introducedtheconceptoftheNextEleven(N-GoldmanSachsin2005,introducedtheconceptoftheNextEleven(NGoldma Gol dmanSachs nSachs in2005, in2005,introduc in2005,intr introd introduce oducedthe ucedthe edthe dthe concep conceptof tof theNext Eleven Ele Eleve Eleven ven n (N-11)and -11)and included incl inclu uded ded Bangladeshin Bangladeshin des h inthatlist. that list. Theirgoalwasto Theirgoalwasto “iden “identif tify y thosecount thosecountrie ries s that that Bangla adesh deshinthatlist. couldpotentiallyhaveaBRIC-likeimpactinrivalingtheG7”.Theirmaincommon groundandthereasonfortheirselectionwasthattheywerethenextsetoflargepopulationcountrie populationcountries s beyond beyond the BRICs. BRICs. Theresult wasa verydiverse grouping grouping that that incl includ udes es Bang Bangla lade desh sh, , Egyp Egypt, t, Indo Indone nesi sia, a, Iran Iran, , Kore Korea, a, Mexic exico, o, Nige Nigeri ria, a, 3
Pakistan,Philippines,TurkeyandVietnam.
JP Morg Morgan an also also intr introd oduc uced ed the the conc concep ept t of the the “Fro “Front ntie ier r fiv five” and and inclu nclude ded d
JPMorganhaveadded Bangladeshtotheir“Frontier five”onthebasisofits favourabledemographicsand largepopulation
Bangla Banglades desh h in that that list. list. In their their 2007 2007 report report (“Ho (“Ho Chi Chi Minh Minh trail trail to Mexic Mexico”, o”, JP 4
MorganResearch,04April2007)theycommentedthat:
“ItisthedemographicsofBangladeshthatjustifiesitsinclusionintheJPMorgan FrontierFive.Thecountryranksfourthingrowthineconomicallyactivepopulation. Five-yeareconomicgrowthisstrongat6.1%(CAGR).Progresshasbeenmade overthelastfewyearstoreducepoverty,increasingliteracylevelsandmoderating populationgrowthtoamoresustainablelevel.Anassertivejudiciary,activecivil societyandarelativelyfreemediahaveincreasedpublicaccountability.”
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AT Capital Research
Bangladeshpopulationgrowth rateoneofthefastestinAsia
Source:globalis.gvu.unu.edu 5
Thegrowingnumberofglobalinvestmentbanksfocusingontheopportunitiesin T hegrowingnumberofglobalinvestmentbanksfocusingontheopportunitiesin Bangladesh clearlysuggestsincreasi increasingpotentia ngpotentialto lto stepupbothFDIand foreign foreign Bangladeshclearlysuggests portfolioflows.Buttranslatingthisrisinginterestbytheforeigninvestorcommunity into into substa substanti ntial al capita capital l inflow inflows s will will requir require e a focus focused ed strate strategy gy to create create both both a broa broad d rang range e of conc concre rete te inve invest stme ment nt oppo opport rtun uniities ties/p /pro ropo posa sals ls alon along g with with a supportiveregulatoryenvironment. Bangladesh:TheImportanceofDevelopinganEconomicVision Bangladesh:TheImportanceofDevelopinganEconomicVision Ther Th There The ere re e is litt li littl ttle ttle le e doubt do doub ubt ubt t that that the the succ succes ess s of the prev previo ious us Asia Asian n Tiger Tigers s has ha has s been been predicated predi predic cated ated on Economic Econ omic Vis Visiion. on. In many many cases cases, , this this has been been at Govern Governme ment nt Econo mic Vision level.WitnessChineseParamountLeaderDengXiaoping’s“OpenDoor”policyof
Economicvisionatbotha governmentandprivatelevel keytothesuccessofcurrent andpreviousAsianTigers
the the early early 1980 1980s s in movi moving ng the the Comm Communi unist st econ econom omic ic syst system em towa toward rds s a more more marke market t and export export based based strate strategy. gy. Vietna Vietnam, m, the curren current t favour favourite ite of the global global investorsbuyingintotheAsianeconomicmiracle,adoptedits“DoiMoi”(roughly translatesas“changeorsomethingnew”)or“Renovation”policybackin1986that culminatedinpeakFDIflow10yearslaterin1996.TheAsiancrisishitVietnam hardbuttheabilitytogrowFDIflowfromUSD2bnin2000toUSD20bnin2007 6
underl underlin ines es the impor important tant founda foundatio tions ns the “Doi “Doi Moi” Moi” polic policy y made. made. Form Former er PM Mahathiradopted Mahathiradopted his“Vision2020” strategy strategy in 1994of moving moving Malaysia Malaysia from a 7
developingtoanadvancednation. Butnotalltransformationaleconomicvisioncomesatagovernmentlevel.Take Butnotalltransformationaleconomicvisioncomesatagovernmentlevel. South South Kore Korea, a, whic which h has has just just cele celebr brat ated ed movi moving ng to a per per capi capita ta GDP GDP of USD USD 20,000,aneartreblinginjustadecade.Indeedin1995,Koreahadapercapita
KoreanChaebolhaveshown thepotentialimpactcorporate strategicvisioncanplayina country’seconomic development
GDP GDP of USD 10,000 10,000 that that collap collapsed sed to USD USD 7800 7800 in the afterm aftermath ath of the 1997 1997 Asian Asian crisis.But crisis.But Korea managed managed to re-inventitself re-inventitself despite despite the collapse collapse in GDP and and the the cris crisis is of nati nation onal al self self-c -con onfi fiden dence ce. . Whil While e the the gove govern rnme ment nt play played ed an importantenablingrole,itwasthe“Chaebol”orfamilyconglomeratesthathadthe “Vision”tohelpthecountryacceleratetofirstworldstatus.WhenwethinkofKorea now,weassociateitwithSamsung now,weassociateitwithSamsung,LGand ,LGand Hyundai.Theprivatesect Hyundai.Theprivatesectorwasthe orwasthe catalystfor catalystfor thedramatic economic economic recovery recovery. . Theredefinitionof Theredefinitionof Korea corporate corporate brandssuchasSamsung,awayfrombeingperceivedasacheaperalternativeto Japan, Japan, to being associate associated d with the most most cutting cutting edgetechnology edgetechnology in electronic electronics s from70"plasmastotalkingrefrigeratorsshouldbeaninspirationtoanycorporate 9
AT Capital Research questi questioni oning ng the abilit ability y of their their vision vision to impac impact t a countr country. y. (n.b. (n.b. In 1950, 1950, South South Korea’sGDPpercapitawasthesameasBangladesh!). Indi In India Ind dia ia a was was prob pr proba obab obabl ably bly ly y a hybr hybrid id betwe between ween en en the the two two mode mo model dels dels ls s of publi public c sect sector or vers versus us privatesectoreconomicvision. Theeconomiccrisisof1992,whenthecountrywas almost almost runnin running g out of reserv reserves es and forced forced to seek seek emerge emergency ncy IMF IMF finan financin cing, g,
India’shybrideconomicvision withgovernmentcombining withNRIshelpedprovidethe foundationfortherapid economicgrowthoftoday
forcedare-thinkingonasocialisteconomicstrategy.The“Hindu”rateofgrowthof 3%andalltheproblemsofthe“LicenseRaj”withalabyrinthineandsuffocating bureaucrati bureaucraticapparatus capparatus were increasin increasinglyviewed glyviewed asmisguided.It asmisguided.It took thevision thevision ofthethenfinanceminister(nowprimeminister)ManmohanSinghtocreatethe rightenvironmentforchangethatincludedcuttingtheexcessivetariffbarriersand regulatory regulatory constraint constraints s on foreign foreign ownershipsand ownershipsand repatriati repatriation on of profits profits that was limitingFDIflows.IndeedwhenBangladeshicorporatesexpressskepticismabout theirabilitytoworkwithpolicymakerstodelivernecessaryregulatoryreforms,one need need only only look look to Indi India, a, whos whose e bure bureauc aucra racy cy in the the earl early y 1990 1990s s was was no less less unwieldythanBangladesh’sregulatoryframeworktoday,forevidenceofwhatcan be done done when when the the publ public ic and and priv privat ate e sect sector ors s deve develo lop p a partne partners rshi hip/ p/ado adopt pt a mindsetofcooperation. ButtheIndiansuccessstorywasclearlynotalldowntogovernmentreforms.The privatesectorledbyNRIsreturningfromSiliconValleytoBangalore,havealso private private sector sector ledby NRIsreturning NRIsreturning fromSilicon Valle ValleytoBangalore,havealso privatesectorledbyNRIsreturningfromSiliconValle playeda playeda pivotalrole. pivotalrole. Familycompani FamilycompanieslikeTata eslikeTata andReliancehave andReliancehave re-invente re-invented d playedapivotalrole. themselves.Wipro,nowoftheworld’sleadingITandoutsourcingcompanieswas originallyanedibleoilcompany. The The Bang Bangla lade desh sh grow growth th model odel is lik likely ely to be buil built t on the the dyna dynam mism ism of its its entrepreneurs/corporates,closertotheKoreanexperience,butonestillneedinga supportiveregulatoryenvironment. Bangladesh’sEconomicStrategy Bangladesh’sEconomicStrategy In formulati formulating ng the likely likely economic economic strategy strategy and hence investment investment opportuniti opportunities, es,
Asustainableeconomic strategyforBangladesh
ther there e have have been been two two exce excelllent lent and and com compreh prehen ensi sive ve repo report rts s that that we woul would d recommendthatglobalinvestorstakealookat.The2006CPDpaper“Bangladesh Vision Vision 2021”preparedunderthe Nagorikcommitt Nagorikcommittee ee isan excellentand excellentand thought thought provokingsummaryofmanyofthekeyissues.TheJuly2007WorldBankReport “Bangl “Banglade adesh sh: : Strate Strategy gy for Sustai Sustained ned Growth Growth” ” also also provid provides es plenty plenty of food food for 9
thought. Inthelatterreport,theWorldBanksuggestedthatBangladeshcouldreachMiddle IncomeCountry(MIC)status(definedasUSDpercapitaofUSD875)by2016ifit grows 7.5%per 7.5%per year.The year.The reporthighlight reporthighlightedthreekeymutuall edthreekeymutuallyre-inforc yre-inforcinglonginglong9
termtransitionsasbeingintegraltoachievingthisoutturnincluding:
Keythemesincludeshiftaway fromagriculture,greater integrationwithglobalmarkets andtheemergenceofdynamic urbansectors.
•
Ashiftfromagriculturetoindustryandservices
•
Deepeningintegrationwithglobalmarkets
•
Theemergenceofdiversedynamicurbancenters
TheWBReportgoesontonotethat“themanagementofthesetransitions,inturn, willrequirebettereconomicgovernanceandbusinessenvironmentwithoutwhich FDIwillcontinueatlowlevels;continuedmacroeconomicstability;acommercially 10
AT Capital Research viable viable energy energy sector sector thatsupportsthe country’s country’s vast energy energy needs; deeper and moreefficientfinancialsector;andagreateremphasisonthequalityofeducation andlabourskills”.
Newstrategicsectorsforthe economyincludeoffshorelight manufacturing,ecoproducts, dataprocessing,manpower andagro-businesses
The“Bangladesh The“BangladeshVision2021”paperfrom Vision2021”paperfromthe the NagorikComm NagorikCommitteeidenti itteeidentifiedeigh fiedeight t inter-relatedgoals.IntermsofGoalThree,tohelpBangladeshachieveMICstatus th
by the time time of its its 50 anniv annivers ersary ary from from Indepe Independe ndence nce in 2021, 2021, the Commi Committe ttee e identifiedanumberofnewsectorsassembledelectronicgoods,dataprocessing, developingthe developingthe juteindustry to benefit benefit from thegrowing demand demand for eco-friendl eco-friendly y produc products. ts. They They also also outlin outlined ed the suppor support t for the expans expansio ion n of existi existing ng leadin leading g sectorsoftheeconomyincludingtextiles,manpower,agro-foodprocessing.They empha emphasi size zed d the the need need to also also supp suppor ort t Smal Small l and and Medi Medium um Size Sized d Ente Enterp rpri rise ses s 8
(SMEs)intermsofaccesstocreditandte (SMEs)intermsofaccesstocreditandtechnologyinnovations. chnologyinnovations. TheImportanceofImprovingManufacturingProductivity TheImportanceofImprovingManufacturingProductivity TheWorldBankalsodidasurveyof700firmsinfivekeyindustrieswherethey 9
foundsixkeyfactorsthatwaslikelytoim foundsixkeyfactorsthatwaslikelytoimproveproductivity: proveproductivity:
WBsurveyhighlightedkey factorstoimproveproductivity …
i.
Add Addre ress ssin ing g ener energy gy supp supplly cons constr trai aint nts s wher where e they they note noted d that that a 1% increaseinthenumberofpoweroutagesinayearreducestheproductivity oftheaveragefirmby10%.
ii.
Increase Increase FDI since since theyfound firms firms withany level level of foreign foreign ownership ownership were were found found to be 10% more more produc producti tive ve on average average than than firms firms that that are
….theseincludedbetter infrastructure,increasedFDI, moreopentrade,education, innovation,lawandorder
whollydomesticallyowned. iii.
By lowe loweri ring ng trade trade barri barrier ers s sinc since e they they foun found d that that firm firms s that that expor export t the the majorityoftheiroutputwere10%moreefficientthanthosethataremore domes domesti tica call lly y focu focuse sed. d. Expe Experi rien ence ce gain gained ed in expo export rt mark market ets s was was self self-reinforcingovertime.
iv.
Buildinghuman Buildinghuman capital:HigherEducatio capital:HigherEducation n levelsand levelsand better management management trainingwereimportantcontributorstofirmproductivity.
v.
TheWB also also noted noted that that new measur measures es were were needed needed to encour encourage age the applica applicatio tion n of a greate greater r innov innovati ation on and the adopti adoption on of more more advanc advanced ed technologies.
vi.
Stre Streng ngth then enin ing g law law and and orde order: r: the the ongo ongoin ing g pres presen enc ce of “pro “prote tect ctio ion n payments”wasanegative.
2
Source:CIAFactbook
11
AT Capital Research InternationalPrivateEquity firmscanbringinsubstantial efficiencyforBangladeshifirms
It is worth arrival of internation international al Private Private Equity Equity firms firms (those Itiswo rth noting that the arrival (those (those that inve invest st in nonlis listed ted d securi securitie ties) s) can positi positivel vely y impact impact Bangla Banglades desh h on all of the non-liste -listed listed ted abovewiththe abovewith abovewiththeexceptionoflawandorder. the exceptionoflawand exceptionoflawand order. Themajor“value-add Themajor“value-added”fromprivat ed”fromprivate e equityislikelytobefromstrategiccapital.InareportonPrivateEquity,leading 10
strategyconsultingfirmMcKinseynotedthat:
“Severa “Several l buyout buyout firms firms now recogn recognize ize that they they can create create value value (in conjunct conjunctio ion n withmanagementteams)byparticipatingmoreinmanagingthecompaniesintheir investment investment portfolio portfolio and by developing developing cross-industr cross-industry y functional functional skills—inclu skills—including ding marke marketi ting, ng, pric pricin ing, g, lean lean manu manufa factu cturi ring ng, , and proc procur urem emen ent t and and supp supply ly chai chain n management.”(McKinsey2005) LessonsfromOtherCountries therCountries– Vietnam Vietnam LessonsfromO therCountries – –– –Vietnam The The fact fact that that Bang Ba ngla lade desh sh is laggi lagging ng econom omic ic deve de velo lopm pmen ent chain n is a The Bangl nglade adesh gging ng in the the the econ devel dev elop opme ment ntt chai positiveintermsoftheabilitytolearnfromtheexperienceofothercountriesboth positiveinterm posit positiveintermsoftheabil positiiveintermsoftheabilitytolear veintermsoftheabilitytolearnfrom softheabilitytolearnfromtheexperi itytolearnfromtheexperie nfromtheexperienceofotherco theexperienceofothercoun enceofothercountri nceofothercountries untries tries es in this this regi region on and and in the the emer emergi ging ng mark market ets s (EM) (EM) more more broa broadl dly. y. For For less lesson ons s Bangla Banglades desh h can can learn learn from from the rest rest of Asia, Asia, the UNDP UNDP 2005 2005 paper paper “Repor “Report t on Identi Identific ficati ation on of Emplo Employm yment ent Oriente Oriented d Export Export Sector Sectors” s” offers offers insigh insights ts inclu includin ding g comparabl comparables es with Thailand, Thailand, SriLanka, Pakistan, Pakistan, Vietnamand Vietnamand Cambodiaacross Cambodiaacross issue ssues s such uch as prod produc uct t and and marke arket t dive diverrsifi ificati cation on, , trade rade prom promot otio ion, n, IT, IT, 11
Government-PrivateSectorforumandInvestmentClimate.
VietnamincreasedFDIfrom USD2bnin2000tenfoldto USD20bnin2007
However,theclearsuccessstoryinAsia ,whichhasseenFDIexpand whichhasseenFDIexpand However,theclearsuccessstoryin Asia’s Asia’sVietnam ’s Vietnam, Vietnam, tenfold tenfold fromUSD USD2bnin2000to 2bnin2000to 2bnin2000toUSD USD 20bn tenfoldfrom USD 2bnin2000toUSD20 USD 20bn in2007withinexcessofUSD5bn recordedforQ12008.Vietnam’sgrowthinthe2000-2006periodhasbeen7.4% 6
secondonlytoChinaat9.5%andaboveIndia’s6.7%.
WhatcanBangladeshlearnandwhatarethelessonsforpotentialglobalinvestors inBangladeshfromtheVietnamexperience? inBangladeshfromtheVietnamexperience? ence? A pape paper r by Hsie Hsieh h Weng Weng-J -Jen en (200 (2005) 5) “The “The Dete Determ rmin inan ants ts of Fore Foreig ign n Dire Direct ct Inve Invest stme ment nt in Sout South h East East Asia Asian n Tran Transi siti tion on Coun Countr trie ies” s” sugg sugges ests ts that that forei foreign gn investorsvaluepoliticalstability,cleargovernmentpolicies,localmarketsizeand
Vietnambenefitedfromits“Doi Moi”policywithapro-active strategytoattractiveFDI
coststructures coststructures in considerin considering g FDI destination destinations. s. Vietnam’s Vietnam’s political political stability stability as a one one party party stat state e under under the Comm Communi unist st Part Party y has has give given n some some reas reassu sura ranc nce e to 2
investors. Since Since the “Doi “Doi Moi” Moi” policy policy was was launc launched hed, , the govern governme ment nt has been been striving striving to implement implement policy policy measuresto measuresto promote promote investment investment. . As a recent recent Fitch RatingsReport(February2008)hasnoted,“(Fitch)believesthatlegalframework, trade trade agreem agreement ents, s, tax incen incentiv tives es and indust industria rial l facili facilitie ties, s, are crucia crucial l for foreig foreign n 12
directinvestmentintoVietnam”. Also, Also, accord accordin ing g to the World World Bank’s Bank’s “Doing “Doing Busine Business ss Repor Report t 2008”, 2008”, Vietna Vietnam’ m’s s st
overal overall l positi position on impro improved ved to 91 (out (out of 178 178 coun countr trie ies) s) whic which h was was bett better er than than th
th
Bangla Banglades desh h (107 (107 ) thou though gh the the latt latter er was was stil still l bett better er than than Indi India a (120 (120 ), and and th 13
Cambodia(145 ). FitchalsonotesthatsincetheintroductionoftheFirstLawon ForeignInvestmentin1987,Vietnam“hasidentifieditselfasacountydetermined toattractFDI.”TheFDIpolicywasfurtherregulatorychangesandamendmentsin 12
1990,1992,1996,2000and2003. (seeAppendix1fordetailsonBanglad (seeAppendix1fordetailsonBangladesh’ esh’s s “EaseofDoingBusiness”results).
12
AT Capital Research Tofurtherenhancethecountry’s Tofurtherenhancethecountry’sattractiven Tofurtherenhancethecountry’sattrac attractive attractivenessasan nessasan essasan FDIdestination, FDIdestination, Vietnam’s Vietnam’s
Vietnam’scontinuesto innovateFDIpolicyincluding loweringcorporatetaxrates, moreindustrialzones
governmenthasalsoproposedcuttingthestandardcorporatetaxratefrom28%to 25%tocreatea morefavourabl morefavourablebusiness ebusiness environme environmentforFDI. ntforFDI. Thegovernment Thegovernment 25% also also cont contin inue ues s to prov provid ide e pref prefer eren enti tial al ince incent ntiv ives es to proj projec ects ts inve invest stin ing g in the the industrial,processingandeconomiczones.Anadditional22industrialzoneswere 6
setupin2007aloneandthetotalnowstandsat150. Figure4:Diasporain2006
Countries
Diaspora (mn)
Vietnam
Totalpopulation Diasporaasa% (mn) oftotalpopulation
3
84
4%
India
24
1,100
2%
China
39
1,300
3%
142
3%
Bangladesh
4 14
Source:SeveralsourcescompiledbyWikipedia
Vietnam’sDiasporahave playedakeyroleinits economicsuccess
LeveragingDiaspora LeveragingDiaspora ArecentDeutscheBankReport(“UnderstandingVietnam”,DBResearch,July26, 2007)suggestedthatanestimated3mnVietnameseliveabroadmostlyinNorth AmericanandEurope.Thiscomparesto20-25mnand55-60mnoftheIndianand ChineseDiasporarespectively.Howev ChineseDiasporarespec tively.However,therelativesizeofthisDi er,therelativesizeofthisDiasporaislarger asporaislarger at3.6%of thepopulation.Remi thepopulation.Remittance ttancesfromthe sfromthe Vietnames VietnameseDiaspora eDiaspora amounted amounted to9.5%ofGDPin2006,secondonlytoPhilippines. A strong strong educat education ional al system system is also also a major major attrac attractio tion n for Vietnam Vietnam asan anFDI FD FDI FDII Vietna tnam as
Vietnam’sfocusoneducation
destinatio destination. n. Itsliteracy rateof 90%is similarto similarto China’sand China’sand significan significantlyhigher tlyhigher destination. than than Indiaat Indiaat 60%, 60%, Pakist Pakistanat anat 50% and Bangla Banglades desh h at43%.As the DB report report notes,duetoVietnam’sopennesstoforeigninfluenceandrelianceontrade,the workforce workforce’s ’s English English language language proficienc proficiency y compares compares favourabl favourably y with many of its 6
neighbors,especiallyChina. On infr infras astr truc uctur ture, e, Vi etnam am is cons constr truc ucti ting ng six inte intern rnat atio iona nal l airp airpor orts ts with with one one uctu ture re, , Vietn Viet nam ting ng six
Vietnam’shasfocusedon improvinginfrastructure,in bothpowerand communications
envisagedtobeabletocompetewithSingaporeorBangkok.Anelevatedrailway envisagedtobeabletocomp envis agedtobeabletocompetewithSin etewithSingaporeorBang gaporeorBangkok kok isplannedforHanoi.Thegovernmentplanssevennewpowerplantsby2010,one naturalgasplantandonenuclear naturalgasplantandonenuclearplantallwiththehelpofforeigninve plantallwiththehelpofforeigninvestors stors.This .This 6
willreducerelianceonhydropowerfromaround40%currently. So in terms terms of Vietna Vietnam m lesson lessons s for Bangla Banglades desh, h, a dynam dynamic ic and proact proactive ive FDI stra strate tegy gy is clea clearl rly y impor importa tant nt. . Inve Invest stme ment nt in educ educat atio ion n is anoth another er key key focu focus. s. Leveraging LeveragingDiaspora Diasporais is anareaBangladeshhasdonewithremi anareaBangladeshhasdonewithremittance ttancesbutit sbutit can clearly clearly do more, especiall especially y in terms of attractin attracting g higher skilled skilled diasporas diasporas back, back, leve levera ragi ging ng NRB NRB inte intell llec ectu tual al and and comm commer erci cial al capi capital tal, , rath rather er than than lowe lower r wage wage worker workers s sendin sending g money money back back to the countr country. y. But perhap perhaps s the greate greatest st lesso lesson n Bangladesh BangladeshcanlearnisthatinthesamewayViet canlearnisthatinthesamewayVietnamhascl namhasclearly earlybenefited benefitedfrom from the “China “China+on +one” e” polic policy y of many many global global multin multinati ationa onals ls in terms terms of reduci reducing ng their their dependenceonChina,Bangl dependenceonChina,Bangladesh adeshshouldaimtoposition shouldaimtopositionitselfas“India+on itselfas“India+one”.It e”.It has has alre alread ady y done done so to som some exte extent nt in text textil iles es. . But But in othe other r area areas s such such as outsourcing,ithasbeenfarlesseffective.
13
AT Capital Research
Remittancesisimportantfor Vietnam
Source:DBResearch(2007) 6
TheImportanceofaSupportive“EnablingEnvironment” TheImportanceofaSupportive“EnablingEnvironment” upportive“EnablingEnvironment”
Creatinganenabling environmentisthekey.
AdynamicprivatesectorandasubstantialincreaseinFDIflowislikelytofailto delive deliver r the kinds kinds of econom economic ic growt growth h gains gains Bangla Banglades desh h needs needs to become become MIC unless unless the govern governmen ment t and the regula regulator tory y author authoriti ities es can provi provide de a suppor supportiv tive e enabli enabling ng enviro environm nment ent in terms terms of infras infrastru tructu cture, re, corpor corporate ate govern governanc ance, e, capita capital l markets,lawandorder,education,fiscalpoliciesandsoon...Anexcellentreporton Anexcellentreporton improvingtheenablingenvironmentistheBangladeshEnterpriseInstitute’s(BEI) 15
“Reduc “Reducin ing g the Costs Costs of Doing Doing Busine Business ss in Bangla Banglades desh” h” (2003) (2003)..
Althoug Although h the
paper paper is several several years years old, old, it offers offers a number number of valua valuable ble insigh insights ts that that are still still relevant.
5enablingenvironmentgoals
EnablingEnvironmentGoal1– BetterInfrastructure EnablingEnvironmentGoal1 – –– –BetterInfrastructure BetterInfrastructure Bangladeshneed Bangladeshneedsto sto increaseinve increaseinvestme stmentsinitsinfrast ntsinitsinfrastruct ructurebothinpowerand urebothinpowerand communications.Withoutthis,itisself-evi communications.Withoutthis,itisself-evidentthateconomicvisi dentthateconomicvisionandadynamic onandadynamic corp corpor orate ate sect sector or will will rema remain in capa capaci city ty cons constr trai aine ned. d. This This invo involv lves es sign signif ific ican ant t expansionofitspowergenerationcapacity.ArecentADBreportsuggestedthatto grow grow at 7% GDP GDP grow growth th woul would d nece necess ssit itat ate e Bangl Banglade adesh sh addin adding g 2000 2000 MW of
Encouragingprivatesector infrastructureinvestment
capacityeachyear. Addi Additi tion onal al inve invest stme ment nt in port port facil facilit itie ies s both both in term terms s of grea greate ter r priv private ate sect sector or participationtocuttransitandprocessingtimesaswellaspotentiallyadeepwater portisalsoimportant.OnemajorfactorthathasmeantthatBangladeshhasoneof themost inefficie inefficient nt ports in theregion isthe powerfullabourunions powerfullabourunions which which have histor historic icall ally y enforc enforced ed wage wage and facili facilityty-fee fee increa increases ses and allowe allowed d corrup corrupti tion on to persist.Another persist.Anotherconstrain constrainthas thas beenthelackof investme investmentin ntin equipmentin equipmentin ports ports suchastheadditionofmoreautomatedgantrycranes.
Creatingtransparencyand accountability
EnablingEnvironmentGoal2– MoreeffectivePolitical,Regulato MoreeffectivePolitical,RegulatoryandCorporate ryandCorporate EnablingEnvironmentGoal2 – –– –MoreeffectivePolitical,Regulato Governance Governance The 2006 2006 Nagori Nagorik k commi committe ttee e recomm recommende ended d a transp transpare arent nt campai campaign gn financ financin ing g systemandmoreaccountableMPstoreducetherisksofcorruptioningovernment procurem ureme ent progr ograms ams as a soft means of party financ ancing. They also 8
recommendedtheestablishmentofaneffectiveAntirecommendedtheestabli shmentofaneffectiveAnti-corruptioncommi corruptioncommission. ssion. Boththe2007WBReportandthe2006NagorikPaperemphasizedtheneedfor decentrali decentralizati zationof onof governmen government t toimprovetheefficien toimprovetheefficiencyand cyand remove remove bottlenec bottlenecks ks 14
AT Capital Research in government government and theadministrativ theadministrative e bottleneck bottlenecks s thatare an ongoing ongoing constrain constraint t 8,9
oneconomicdevelopmentandamoredynamicprivatesector. The regula regulator tory y author authoriti ities es need need to ensure ensure better better corpor corporate ate govern governanc ance e which which shouldincludemoretransparent,credibleandreliableaccountsfromBangladeshi companies companies. . Also greater greater protection protection of minority minority shareholde shareholder r rights is required required to ensuremoreowner/managersfocusondeliveringefficienciestomaximizereturns forallshareholdersandnotjustthemselvesasthem forallshareholdersandnotjus tthemselvesasthemajorityshareholder. ajorityshareholder.
Source:TheHeritageFoundation 16
Moreeffectivetaxcollectionisalsoakeyenablinggoal.AstheWB(2007)have noted“Thelowrevenueeffortthatstemsfromweakadministrationcreatesachain of disi disinc ncent entiv ives es to good good gove govern rnan ance ce, , from from low low sala salari ries es for civi civil l serv servan ants ts to 9
inadequateoperationsandmaintenance.”
Amoredevelopedfinancial system,bothincapitalmarkets andbanking,willbean importantfoundationformore rapidgrowth
EnablingEnvironmentGoal3– Amoredevelopedfinancialsystem/capitalmarkets Amoredevelopedfinancialsystem/capitalmarkets EnablingEnvironmentGoal3 – –– –Amoredevelopedfinancialsystem/capitalmarkets Amoredevelopedfinancialsystem/capitalmarkets One One of the the bigg bigges est t cons constr trai aint nts s for for Bang Bangla lade desh shi i busi busine ness ss is the the high high cost cost of corp corpor orate ate capi capital tal. . Even Even with with inte intere rest sts s aroun around d the the worl world d fall fallin ing g shar sharpl ply, y, many many comp compan anie ies s stil still l have have to pay pay 16%+ 16%+ fund fundin ing g cost costs s whic which h make ake a num number ber of investment proposals unvi nviable. This is part artly a reflection of very wide margi argins ns/s /spr prea eads ds adop adopte ted d by bank banks s betw betwee een n depo deposi sit t and and lendi ending ng rate ates. BangladeshBankhasbeenpressuringcommercialbankstonarrowtheirspreads whichisapositivestep.Itisalsoareflectionofanumberofcompaniesunwilling toaccessthestockmarketasaformofcheaperfinancing.Thisispartlybecause ofwhattheyperceiveasunattractivevaluationswithIPOsbeingbroughtonanet asset asset rather rather thana market market price based based valuation. valuation. Thebook building building processfor processfor the propos proposedsaleof edsaleof Grame Grameenp enphon hone e laterin laterin 2008 2008 should should allevi alleviate ate some some ofthe concernsfromowners concernsfromowners ofbusinessesaboutdepres ofbusinessesaboutdepressedvaluati sedvaluationsif onsif they come to market.Bangladeshalsoneedstodevelopacorporatebondmarketwhichinturn requiresgreaterdevelopmentandliquidityofthegovernmentbondmarket.
15
AT Capital Research ImprovingLawandOrderas wellaspoliticalstabilitywillbe criticaltoincreaseforeign investorconfidence
EnablingEnvironmentGoal4– LawandOrder/PoliticalStability EnablingEnvironmentGoal4 – –– –LawandOrder/Political LawandOrder/PoliticalStability Stability OnLawandOrder, OnLawandOrder, BEInotes BEInotes that that “Among “Among theelement theelementsthataddto sthataddto the costof costof doingbusinessinBangladesh(is)theinordinatedelayinthedisposalofcases,by the lowercourt lowercourts s inparticul inparticular, ar, and theindiffer theindifferenc ence e orincapaci orincapacityof tyof thepolice thepolice in enforcinglawandorder.”They enforcinglawandorder.”Theyrecommen recommendadditiona dadditionalpublicsecto lpublicsectorinvestm rinvestmentin entin expandingthejudiciaryaswellasincreasingthepayforthepoliceforceaswellas 15
otherlawenforcementofficials. Onemightadd Onemightadd thatamoveawayfromconfro thatamoveawayfromconfrontati ntationalpoliti onalpoliticsbetween csbetweenthe the major major politicalpartiesthatresultedinregularstrikesthatstoppedbusinesswillalsobe impo import rtan ant t if Bangl Banglad ades esh h is to achi achiev eve e its its long longer er-t -ter erm m goal goals. s. As the 2007 2007 WB Repo Report rt highl highlig ight hted ed “The “The frac fracti tiou ousn snes ess s of Bang Bangla lade desh shi i poli politi tics cs cont contri ribu bute tes s to politicaluncertaintyandheightensperceptionsofeconomicrisksamonginvestors, 9
especiallyforeigners.”
EnablingEnvironmentGoal5– Education EnablingEnvironmentGoal5 – –– –Education Education
Improvededucation,especially vocationaltrainingandEnglish language,key
IfBangladeshwantstobecomethenextAsianTiger,itneedstodevelopabroader base base ofskilled ofskilled worke workersand rsand manage managersthatcan rsthatcan suppor support t the expans expansion ion into into new highervalueactivitiessuchasIToutsourcingaswellasoffshoring.Thisshouldbe basedonanexpansionofsecondaryandtertiaryeducationthoughthemorerapid benefitsmaywellcomefromtheestablishmentofanumberofvocationaltraining coll colleg eges es in IT, IT, Engl Englis ish h Lang Langua uage ge and and othe other r spec specif ific ic area areas s such such as nurs nurses es, , electricians,plumbersetcthatmightunderpinasignificantexpansioninManpower export exports. s. The very very favoura favourable ble demogr demograph aphic ics s in Bangla Banglades desh h with with its young young and growi growing ng popula populatio tion n contra contrast st with with Europe, Europe, Russia Russia, , China China and Japan Japan which which will will sufferfromarapidlyageingpopulation.
Constraintscreateawindowof investmentopportunities
Conclusions:InvestmentOpportunities Conclusions:InvestmentOpportunities Bangladeshemergedfromthe1971warofindependenceafreenation,butone whoseeconomyandinfrastructurewasshattered.ItwasnotablydescribedbyUS Secr Secret etar ary y of Stat State e Henr Henry y Kiss Kissin inge ger r as “an “an inte intern rnat atio iona nal l bask basket et case case”. ”. It’s It’s achie achievem vement ents s over over the past past 37 years years has been impre impressi ssive, ve, most most notably notably in its emerg emergenc ence e as a major major global global textil textile e and RMG RMG export exporter. er. More More broadl broadly, y, the low volatility volatilityand and consistenc consistencyof yof growthin growthin thepastdecade,despitepoliti thepastdecade,despitepoliticalinsta calinstabilit bility y and natural natural disas disaster ters s is a testam testament ent to a dynam dynamic ic and entrep entrepren reneur eurial ial privat private e sector. We seethe prospects prospects forBangladesh forBangladesh toaccelerate toaccelerate itsgrowthrate to 7%+on a consis consisten tent t basisover basisover the next next 10 years years whichshoul whichshould d take take it toward towards s a goal goal of becominganMIC.Weoutlinedanumberofenablinggoalsthegovernmentneeds to deli delive ver r on from from subs substa tanti ntial al inve invest stme ment nt in infr infras astr truc uctu ture re, , to corp corpor orat ate e and and regu regula lato tory ry gove govern rnan ance ce refo reform rms, s, capi capita tal l mark market ets s and and law law and and orde order. r. A more more focused focused education education strategyis strategyis critical critical if Bangladesh Bangladesh is to leverage leverage itsfavourable itsfavourable demographicsintermsofayoungandrapidlygrowinglabourforce. An An aggr aggres essi siv ve stra strate tegy gy to redu reduce ce inte intern rnet et cost costs s by a furt furthe her r 75% 75% will will
be
necessarytoactasacatalystforthemorerapiddevelopmentoftheITsectorif Bangladesh Bangladeshisto isto positionitsel positionitselfas fas amajorbeneficiar amajorbeneficiaryofIndiadiversi yofIndiadiversificat fication–the ion–the th
so-called“India+1”strategy.(seeAppendix1fordetailsontheJETRO17 Annual 16
AT Capital Research Repo Report rt on the the cost costs s of doi doing busi busine nes ss in Bang Bangla lade desh sh vers versus us othe other r Asia Asian n Countries). Bangla Banglades desh h has three three key attra attracti ctions ons forglobal invest investors ors and multin multinati ationa onals: ls: a large large base base of low-co low-cost st labour labour, , a large large domest domestic ic marke market t of 150mn 150mn people people, , and and nearly3bnpeopleintheAsianregionthatithasmarketaccessto.Webelieveitis cred credib ible le for for Bangl Banglad ades esh h to emul emulat ate e Viet Vietnam nam’s ’s FDI FDI perf perfor orma manc nce e of a tenf tenfol old d increaseoversevenyears.AssumingFDIofUSD700mnin2008,thissuggests BangladeshshouldaimforFDIofUSD7bnby2015. This This will will requ requir ire e amon among g other other thing things s a more more propro-ac acti tive ve FDI FDI stra strate tegy gy such such as marketing“BrandBangladeshmoreeffectivelyoverseas,reducingregulatoryand tax disinc disincent entive ives s for forei foreign gn inves investor tors, s, and encour encouragi aging ng the privat private e sector sector and capitalmarketstodevelopspecificinvestmentideasforeigncompaniesandfunds canactuallyinvestin. Inthenextsectionofthisreportwelistwhatwebelievearethemostcompelling investment investment opportuniti opportunities es for global global investors investors. . In the remainder remainder of document, document, we providemoredetailedanalysisonthekeysectorsinBangladeshincludingCapital Marke arkets ts, , Bank Banks, s, Ener Energy gy, , NonNon-En Ener ergy gy Infr Infras astr truc uctu ture re, , Agri Agricu cult ltur ure, e, Text Textil iles es, , Outsourci Outsourcing, ng, Manpower Manpower Exports, Exports, Pharmaceut Pharmaceutical icals, s, Healthcare Healthcare, , Biotechnolog Biotechnology, y, LightEngineering,HeavyEngineering,TourismandEducation.
References References 1.
HsiehWeng-Jen.(2005)"TheDeterminantsofForeignDirectInvestment inSouthEastAsianTransitionCountries".PaperpresentedatNational ChungKungUniversity.
2.
CentralIntelligenceAgency-theWorldFactbookavailableat https://www.cia.gov/library/publications https://www.cia.gov/library/publications/the-world-factbook/in /the-world-factbook/index.html. dex.html.
3.
GoldmanSachsGlobalEconomics GoldmanSachsGlobalEconomicsGroup.(2007).“BRICsandBey Group.(2007).“BRICsandBeyond”. ond”. Availableathttp://www2.goldmansachs.com Availableathttp://www2.gold mansachs.com/ideas/brics/BRIC /ideas/brics/BRICs-ands-andBeyond.htmlonApril7,2008.
4.
JPMorganResearch.(2007).“HoChiMinhTrailtoM JPMorganResearch.(200 7).“HoChiMinhTrailtoMexico-Launchingthe exico-Launchingthe JPMorganFrontierFiveandEM8”.
5.
OfficialwebsiteofGlobalisavailableatglobalis.gvu.unu.edu.
6.
DBResearch.(2007).“UnderstandingVietnam:alookbeyondfactsand figures”.Availableatwww.dbresearch.com/P figures”.Availableatww w.dbresearch.com/PROD/DBR_ ROD/DBR_INTERNET_EN INTERNET_EN-PROD/PROD0000000000213377.pdf
7.
Mohammad,M.B.(1991).“TheWayForward(Vision2020)”.Paper Mohammad,M.B.(1991).“TheWayForward(Vision2020)”. Paper presentedattheMalaysianBusinessCouncil.Availableat http://www.epu.jpm.my/New%20Folder/public http://www.epu.jpm.my /New%20Folder/publication/the%20way%20forw ation/the%20way%20forwar ar d.htm.
8.
CentreforPolicyDialogue(CPD).(2007).“BangladeshVision2021”. PreparedundertheinitiativeofNAGORIKCommittee2006.Dhaka: 17
AT Capital Research CentreforPolicyDialogue 9.
TheWorldBankOffice,Dhaka.(2007).“Bangladesh:Strategyfor SustainedGrowth”.BangladeshDevelopmentSeriesPaperNo.18.
10. Harper,N.W.C.,&Schneider,A.(2004)."PrivateEquity'sNew Challenge".McKinseyQuarterly,August2004. 11. IRIS,UniversityofMaryland.(2005).“ReportonIdentificationof EmploymentOrientedExportSectors”.PreparedforU EmploymentOrientedExportSectors”.PreparedforUNDPBangladesh. NDPBangladesh. Availableatwww.usaid.gov/bd/files/jobs_s Availableatwww.usaid.gov/bd/files/jobs_subsectors.pdf. ubsectors.pdf. 12. FitchRatingsReportonVietnam.(February2008) 13. WorldBank.(2008).“DoingBusiness2008”.Availableat www.doi.gov/oia/procurement/reports/2008%20World www.doi.gov/oia/procur ement/reports/2008%20World%20Bank%20EoD %20Bank%20EoDB B %20Rankings.pdf 14. Wikipediasearch:“Diaspora”. 15. BangladeshEnterpriseInstitute.(2003).“ReducingtheCostsofDoing BusinessinBangladesh”. 16. OfficialwebsiteofTheHeritageFoundationatwww.heritage.org.
18
s a e d I t n e m t s e v n I
AT Capital Research
OurTopInvestmentIdeas TopInvestmentIdeas Our TopInvestmentIdeas
p o T r u O
Investment Inves Investmen tment tment t in Independent Independent Power Producers Producers (IPP) and Small Small Power Plants Plants (SPP). (SPP) P). With With signif significa icant nt energy energy needs needs in Bangl Banglade adesh, sh, power power (SPP) generationis generationis akey driver driver ineconomicdevelopme ineconomicdevelopment.PowerPurchas nt.PowerPurchase e Agreements(PPA)withthegovernmentmitigatesm Agreements(PPA)wi ththegovernmentmitigatesmanyexternalrisks anyexternalrisks. .
Investment Inves tmentin in privatecommer privatecommercialbanks cialbanksTo To complywithBasel complywithBaselII II many Investmentinprivatecommercialbanks banks banks will will strugg struggle le to meet meet capita capital l requir requireme ements nts, , and we antici anticipat pate e consolidationintheindustry.Thiswillgiverisetomanyopportunitiesin asectorthathasyettofullypenetratethewidereconomy.
s r e n t r a P l a t i p a C r e g i T n a i s A
Investment Inves Investmen tment tment t inVocationalTrainingColleg inVocationalTrainingColleges.Keyto es.Keyto thecapitalizin thecapitalizing g on lTrainingColleges. es. globaloutsourcingandmanpowerexports,bothlowendandhighend, is targ target ete ed trai traini ning ng. . Bang Bangllades adesh h can dev develo elop its compa ompara rati tiv ve advantage
given
increasing
labor
costs
in
the
traditional
outsourcing/offshoringdestinationssuchasIndiaandChina.
Investment Inves Investmen tment tment t in country country wide wide cold cold storage storag sto rage e facilities facili fac ilitie ties. s. This will will allow allow the stora ge facil ities. . This developmentofahighervalue-addedagricultureexportmarket.Forthe domesticmarket,italsoreduceswastageandi domesticmarket,italsoreduceswastageandimprovesmargi mprovesmargins. ns.
Invest Investme ment nt in pharmac pharmaceut eutic ical al plants plants with with certif certifica icatio tion n for develo developed ped maceuti eutical cal markets. kets. kets. Contra Contract/ ct/tol toll l manufa manufactu cturin ring g for bulk bulk drugs drugs with with foreig foreign n joint joint markets. ventur venture e partner partners s provid providesa esa means means for levera leveragin ging g a low costbasein costbasein access accessing ing a global global market market. . This This also also provid provides es opport opportuni unitie ties s for LDC based based pharm pharmace aceuti utical cal compan companies ies to develo develop p intern internati ationa onal l revenu revenue e streamsaftertheTRIPspatentprotectionlapsesin2016.
InvestmentinluxuryhotelsinCox’sBazar,ChittagongandSylhet.Only InvestmentinluxuryhotelsinCox’sBazar,ChittagongandSylhet. Dhak Dhaka a benef benefit its s from from high high end end hotel hotels. s. Coup Couple led d with with a coor coordi dina nate ted d nation national al brandi branding ng and market marketing ing effort effort, , promoti promoting ng touris tourism m provid provides es significantinvestmentopportunities.
Investmentinweavingmillsanddyeing finishingmills.Thereisalarge Investmentinweavingmillsanddyeingillsanddyeing-finishingmills -finishingmills dema demand nd-s -sup uppl ply y gap gap in fabr fabriics and and a shor shorta tage ge of weav weavin ing g mills ills. . Inve Invest stm ment ent in moder odern n tec technol hnolog ogy y, new new machi achine nery ry and and moder odern n productionproces productionprocessesis sesis asignificantopportuni asignificantopportunityto tyto profit from greater greater backwardlinkage/verticalintegration
SyeedKhan SyeedKhan Partner +(8801)727261267
[email protected]
Investmentin Invest Investment Investment mentin in worldclassmedicalfaciliti worldclassmedicalfacilities es for medical medic al tourism. tourism. world world class class medical medical facilities facilities medicaltourism. medicaltourism. tourism. m. With medicaltouris medicaltourisma ma growingsector, growingsector, Bangladesh Bangladeshcouldcapital couldcapitalizeon izeon this globalshift,benefitingfromgeographicproximitytotouristdestinations ofSouthandSouthEastAsia.TargetingNRBsshouldbeapriority.
19
AT Capital Research
I D F
ForeignDirectInvestment(FDI)
Overthelastdecade,FDIasashareofGDPinBangladeshvariedbetween 1.4%inFY98and0.5%inFY04.InFY05,itroseto1.3%duemostlytothe
largeinflowofFDItothetelecommunicationssector.
s r e n t r a P l a t i p a C r e g i T n a i s A
Asaratioofgrossinvestment,FDIvariedbetweenalowof1.2%inFY04 andahighof3.2%inFY98.
Over the 1998-2007period, 1998-2007period, the aggregate aggregate FDI inflow inflow to Bangladesh Bangladesh was USD5.51bn.
TherearethreebroadsectorsofFDIinflows:infrastructure,manufacturing, and and serv servic ices es. . The The shar shares es of the three three sect sector ors s are are 46%, 46%, 27% 27% and and 27% 27% respectively.
SomeverylargeFDIproposalsarecurrentlypendingwiththegovernment. These These includ include e invest investmen ment t propos proposals als made made by Indian Indian conglo conglome merat rate e Tata Tata (USD3bn),UnitedArabEmiratesbasedAbuDhabiGroup(USD2bn),UKbase based d Globa lobal l Oil and and Ener Energy gy Ltd Ltd (USD (USD 2.9b 2.9bn) n), , Malay alaysi sian an Azim Azimat at Corporation(USD900mn),andContechLtd(USD900mn).
Bangla Banglades desh h has a number number of positi positive ve attract attraction ions s like like low wage wage rate rate and steadymacroeconomicgrowth,thatcansuccessfullyattracttheattentionof foreigninvestorsfrombothdevelopedanddevelopingcountries.
For a develo developin ping g countr country y like like Bangla Banglades desh, h, increa increasin sing g the level level of FDI is likelytohaveasignific likelytohaveasignificantposit antpositiveimpa iveimpactonexportgrowth ctonexportgrowth,thebalanceof ,thebalanceof paymentsandfacilitateknowledgetransferintothecountry.
Bangladesh Bangladesh hasa bright bright future future in terms of attractinga attractinga greater greater amount amount of FDI FDI prov provid ided ed impr improv ovem emen ents ts are are init initia iate ted d in area areas s lik like bure bureau aucr crat atic ic processes processes,moreeffective ,moreeffective marketingof“BrandBanglade marketingof“BrandBangladesh”aswellas sh”aswellas the developmentofinfrastructure.
WithamorefocusedFDIstrategy,webelieveitisrealisti WithamorefocusedFDIstrate gy,webelieveitisrealisticfor cfor Banglades Bangladesh h toreplicat toreplicate e the Vietnam Vietnam experi experienc ence e of a tenfol tenfold d incre increase ase inFDI over over the 2000-2007period.ThissuggestsatargetlevelforBangladeshofUSD7bn annualFDIby2015.
Md. Saif Noman Khan
[email protected]
20
AT Capital Research WhyFDIforBangladesh
Foreigndirectinves Foreig ndirectinvestmen tment(FDI)isa t(FDI)isa keydriverof keydriverof adevelopingcountry adevelopingcountry’seconom ’seconomic ic Foreigndirectinvestment(FDI) development.FDInotonlybringsinvestmentcapital,i development.FDInotonlybrin gsinvestmentcapital,italsotransfersacons talsotransfersaconsiderable iderable amountof amountof technicalandmanage technicalandmanagerialknow rialknowledgeandskil ledgeandskills,notonlytotheinveste ls,notonlytotheinvestee e 1,2
businesses,butalsothewidereconomyanddomesticenterprises. Comparativ Comparative e analysis analysis shows shows Bangladesh' Bangladesh's s investmen investment t incentive incentives s and regulation regulations s forFDIappearcompetitivewiththoseofferedbysimilarEMcountriesintherestof Asia, Asia, at least theoretica theoretically. lly. However,effecti However,effectiveimpleme veimplementati ntation on of these measures, measures, whichiskeytoattractinghigherFDIinflows,needssignificantinstitutionalreforms, radica radicall lly y reduce reduced d levels levels of contro control, l, better better provis provisio ion n of essenti essential al infras infrastru tructu cture, re, perce perceiv ived ed impr improv ovem ement ent in inve invest stme ment nt clim climat ate, e, and and sust sustai aine ned d soci socioo-po poli liti tica cal l 1
stability. FDIinBangladesh:Background
Seve ev evera eral ral all unde underl rlyi ying ng fact factor ors s have have cont contri ribu bute ted d to incr increa easi sing ng the the FDI FDI infl inflow ow in in Sever Bang Bangla lade desh sh, , such uch as trad trade e and and exch excha ange nge libe liberraliz alizat atio ion, n, curr curren ent t acc accoun ount Bangladesh conver convertib tibili ility, ty, emphas emphasis is on privat private e sector sector led led develo developm pment ent, , libera liberaliz lizati ation on of the investment investment regime,openin regime,openingup gup ofinfrastructur ofinfrastructureand eand servicestothe servicestothe privatesector privatesector, , both domest domestic ic and foreig foreign, n, and aboveall aboveall the intere interest st of foreig foreign n invest investors ors in the energy energy and teleco telecomm mmuni unicat cation ion sector sectors. s. FDI howeve however r played played a minor minor role role in the econ econom omy y of Bangl anglad ade esh unti untill 1980 1980, , a cruci rucial al year ear of poli policy cy chan change ge. . The The GovernmentofBangladesh(GOB)enactedthe‘ForeignInvestmentPromotionand ProtectionAct,1980 ProtectionAct,1980’inan ’inan attempttoattractFDI.Exc attempttoattractFDI.Exceptfiveindus eptfiveindustrie tries,which s,whichare are reservedforthepublicsector reservedforthepublicsector:defenseequip :defenseequipmentandmachi mentandmachinery,nucl nery,nuclearenergy earenergy, , forestryinthereservedforestarea,andsecurityprintingandm forestryinthereservedforest area,andsecurityprintingandminting,FDIisallowed inting,FDIisallowed 1,2
ineverysectoroftheeconomy. FDIandexportopportunities
FDIalso alsohasapositiveimpactonacountry’sforeignexchangereserves hasapositiveimpactonacountry’sforeignexchangereserves.Oneof FDI also hasapositiveimpactonacountry’sforeignexchangereserves the reason reasons s that FDI might might be positi positive ve for a countr country’s y’s reserv reserve e positi position on over over the longertermisFDI-financedcompaniesarelargelyexport-orientedandonereason forexportingagreaterproportionoftheiroutputthantheirlocalcounterpartsisthat such such FDI financ financed ed firms firms usuall usually y tend tend to have have a compar comparati ative ve advant advantage age in their their
FDIimpactonimportsubstituting industries
knowledge knowledge of internation international al markets, markets, efficiency efficiency of distributi distribution on channels, channels, and their abilitytoadjustandrespo abilitytoadjustandrespondtothechanging ndtothechangingpatternanddynam patternanddynamicsofintern icsofinternation ational al mark market ets. s. Cons Consequ equent ently ly it can can be argu argued ed that that the the infl inflow ow of FDI FDI might might play play an importantroleinBangladeshinthelongruninreducingthecountry’sexistingtrade 1
deficit.
ShareofFDIindomesticGDP
FDIin Bangladesh Bangladesh Bangladeshstillconstitutesalowshare stillconstitutesalowshare stillconstitutesalowshareof GDP GDP Overthelastdecade,the Bangladesh stillconstitutesalowshareof of GDP GDPOverthelastdecade,the FDI/GDPratiovariedbetween1.4%inFY98and0.5%inFY04.InFY05,theshare roseto1.3%duemostlytothelargeinflowofFDItothetelecommunicationssector (Figur (Figure e 1). As a ratio ratio ofgross invest investmen ment,FDI t,FDI varied varied betwee between n a low of 1.2% 1.2% in 1,2,3
FY04andahighof3.2%inFY98.
21
AT Capital Research
TrendofFDIflowinBangladesh
Source:BangladeshBank
From Fro From1998 m m1998 1998 1998 to2007,the aggreg aggregate ate FDI inflow inflows sto toBanglade toBangl Bangladeshwere Banglaadeshwere deshwere shwereUSD5 USD5 USD5.51bn regateFDIinflo ateFDIinflows ws Bangladeshwere deshwere USD USD 5.51bn .51bn (Figure (Figure 2). Of this, this, new capit capital al invest investme ment nt was USD 2.99bn 2.99bn (54%) (54%), , reinve reinveste sted d earn earnin ings gs amou amount nted ed to USD USD 1.63 1.63bn bn (nea (nearl rly y 30%) 30%), , and and intr intraa-co com mpany pany loan loans s constitutedUSD0.89bn(16%)(Figure3). Figure2:FDIinflowsandassociatedoutwardremittances(USDmn) Fiscal Year Tot al FDI inf lows TotalFDIinflows Equity Reinvested earning Intra-com pany loans Outwardremittances Dividend/profit Investm ent liquidation *Estimated
1998 603 349 181 73
1999 594 396 121 77
2000 383 153 81 149
2001 564 372 81 111
2002 394 230 85 79
2003 379 164 165 50
2004 284 111 161 12
2005 804 361 294 149
2006 745 447 199 99
2007* Total 460 5,510 403 2,986 266 1,634 91 890
40 0
83 3
149 1
175 1
195 3
355 2
338 11
418 3
396 4
569 2,718 5 31
Source:BangladeshBank
Source:BangladeshBank
AfterarelativelyhighinflowinFY98,therewasadecliningtrendinFDIinflowupto FY04withtheexcepti FY04withtheexceptionofFY01.InFY05 onofFY01.InFY05,therewasanshar ,therewasansharpjumpinFDIinfl pjumpinFDIinflows ows to USD USD 804mn. 804mn. Howeve However,whenFDI r,whenFDI and debt debt inflow inflows s are seen seen inthe contex context t of associated associated remittanc remittances es on account account of dividend/pr dividend/profit ofit repatriatio repatriation, n, disinvest disinvestment ments s and and debt debt amor amorti tiza zati tion on, , over ver the the 10-y 10-yea ear r per period (199 1998-20 8-2007 07)), the the outw utward ard 1
remittancesconstituted65%ofthetotalinflow.
22
AT Capital Research SectordistributionofFDIinflows
There There are three three broad broad sector sectors s of FDI inflow inflows: s: infras infrastru tructu cture, re, manufa ma nufactu cturin ring, g, and man ufactu servic services. es. The shares shares of the three three sector sectors s are 46%, 46%, 27% and 27% respec respectiv tively ely services (Fig (Figur ure e 4). 4). In infr infras astr truc uctu ture re sect sector or, , gas gas and and oil oil was was the main main reci recipi pien ent t of FDI FDI amountingtoUSD1.24bn(22.5%).Ontheotherhand,therewasrapidgrowthin FDI inflow inflow to the teleco telecomm mmuni unicat catio ion n sector sector in FY05 FY05 which which contin continued ued till till FY07. FY07. With Within in manu manufa fact ctur urin ing, g, the the most ost sign signif ifiicant cant reci recipi pien ent t was was the the text textil iles es sect sector or amountingtoUSD0.9bn(16.4%)outofatotalofUSD1.37bn.Thethirdgroupis theservicessectorwhereFDIinflowsamountedtoUSD1.35bnduringtheperiod out of whic which h trad trade e and and comm commer erce ce was was the the high highes est t reci recipi pien ent t with with USD USD 0.91 0.91bn bn 1,3
(16.5%).
Figure4:SectorsplitofFDIfrom1998to2007
27%
Service
46%
Manufacturing
27%
Infrastructure
Source:BangladeshBank
Over Over the the 1998 199820 07 07 peri period riods ods, ods, s,, gas ga gas s and oil, oil, text textil iles es, , and an and d trad trade e and comm commer erce ce 98-2007 -2007 2007 dominatedthe domi domina dominated natedthe ted the thefirst thefirs first t halfin half half interms interm terms term s of ofFDIinflow ofFDIinflo FDIinflow w whereastelecomm whereastelecommunica unicationsector tionsector firsthalfin firsthalfin termsof termsof FDI inflow inflow wasthehighestrecipientduringthesecondhalfofthetenyearperiod.Ontheother hand, hand, gas and oil, oil, and tradeand tradeand commer commercesecto cesectorsshow rsshowed ed better better perfor performan mance ce during the last twoyears while while the textilessectorexperienc textilessectorexperienced ed declining declining inflow inflow of FDIinthesecondhalfofthedecade(Figure5). Figure5:SectorWiseDistributionofFDIInflows(USD Figure5:SectorWiseDistributionofFDII nflows(USDmn) mn) Sector Infrastructure Gas and Oil
FY98* 238 231
FY99 249 124
FY00 106 50
FY01 319 139
FY02 197 75
Power Telecommunications Manufacturing Textiles Fertilizer Cement
FY03 120 23
FY04 131 61
FY05 461 169
FY06 FY07** 478 488 182 187
Total 2,287 1,241
0
101
56
175
101
35
26
30
28
29
581
7 145 117 2 3
24 150 129 0 2
0 163 144 0 5
5 134 113 4 13
21 123 67 25 28
62 160 77 5 77
44 64 32 23 6
262 219 75 51 87
268 107 74 16 16
272 109 75 16 16
965 1,374 903 142 253
Chemicals& Pharmaceuticals Services Trade & Commerce
23
19
14
4
3
1
3
6
1
2
76
220 173
195 116
114 44
111 35
74 48
99 49
89 55
124 102
160 142
163 145
1,349 909
Other Services Total
47 603
79 594
70 383
76 564
26 394
50 379
34 284
22 804
18 745
18 760
440 5,510
*FY= Fiscal Year; **Estimated
Source:BangladeshBank
Figure6illustratesthetotalFDI illustratesthetotalFDIinflowinBangladeshoverthel inflowinBangladeshoverthelast11yearsfrom ast11yearsfrom Figure6 illustratesthetotalFDI inflowinBangladeshoverthel ast11yearsfrom 1997to2007fromdifferentcountriesacrosstheworld.Figure6showsthatnear 1997to2007fromdifferentcountriesacrosstheworld about90%ofannualFDIhasbeenreceivedfromonly11countries.
23
AT Capital Research Figure6:Country-wise Figure6:Country-wiseFDIinflowin Figure6:Country-wiseFDIinflowinto Figure6:Country-wiseFD FDIinflowintoBangladesh,1998-20 IinflowintoBangladesh,1998-2007 toBangladesh,1998-2007*(USDmn) Bangladesh,1998-2007*(USDmn) 07*(USDmn) *(USDmn)
FDIinflowbysourcecountry
Country
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Denmark
0.0
0.0
0.1
22.5
4.0
3.1
14.0
18.8
18.3
20.0
2007 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
34.6
70.9
101.4
31.4
16.8
30.7
24.5
18.5
29.9
50.1
30.1
0.1
0.2
1.6
0.0
0.9
0.0
16.7
12.8
55.5
100.5
62.0
255.9
40.9
35.6
157.0
52.9
18.5
83.6
91.0
152.8
77.9
123.7
67.6
232.9
66.9
29.3
29.1
24.5
32.1
61.8
141.8
187.6
161.5
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 *Calendaryeardatafor1997-2005.FYdatafor2006&2007
354.5
328.3
350.2
460.4
845.3
744.6
792.7
South Korea UAE UK USA Others
Source:BangladeshBank
Thisleavesscope for exploring exploring newFDI inflow inflow destinatio destinations ns forBangladesh. forBangladesh. The recent recent flow flow of FDI from from Egypt Egypt reflec reflects ts their their invest investmen ment t in the teleco telecom m sector sector of Bangla Banglades desh.Thoug h.Though h inrecent inrecent timeswe timeswe can see increa increase sed d flow flow ofFDI from from the MiddleEastthereremai MiddleEastthereremainsscope nsscopeforfurtherFDIfromthatregio forfurtherFDIfromthatregion.ThoughbothUK n.ThoughbothUK andUSAbothhasbeenlargecontributorstotheFDIinflow,consideringtheirshare 1,2
ofFDIinotherdevelopingeconomiestheymightbeagoodsourcetotapfurther. LargeFDIpipeline
Aroundhalfadozenmulti dolla rproposalsof sof of foreigndirectinves foreigndirectinvestmen gndirectinvestment tment(FDI)in t(FDI)in (FDI) Aroundhalfadozenmultiti-bn -bnbn-dollarproposal -dollarproposals dollarproposal tment(FDI) t(FDI) infrastruct infrastructure,power, ure,power, oil,gas and manufactur manufacturingsectorshave ingsectorshave beenpendingwith thegovernmentrecently.TheseinvestmentproposalsincludeIndianconglomerate Tata (USD 3bn),United Arab Emirates-b Emirates-based ased Abu Dhabi Group (USD 2bn),UKbasedGlobalOilandEnergyLtd(USD2.9bn),MalaysianAzimatCorporation(USD 4
900mn),andContechLtd(USD900mn). MacrofactorsfavoringFDIin Bangladesh:
Bangladeshneedstoundertakeeffectivepromotionmeasurestoconvincepotential Bangladeshneedstoundertakeeffectivepromotionmeasures foreigninvestorsthattheycanearnsignificantreturns,theywouldbeoperatingina favourableregulator favourableregulatory y environm environment,and ent,and they canenjoy investm investmentincentiv entincentivesthat esthat are are com competi petiti tive ve with with thos those e offe offere red d by othe other r coun countr trie ies s in the the regi region on and and the the develo developin ping g world world. . The countr country y needs needs to accel accelerat erate e the adopti adoption on of invest investmen menttfrie friend ndly ly poli polici cies es, , sim simplif plifyi ying ng regu regullator atory y prac practi tice ces s, and and remo removi ving ng inef ineffi fici cien ent t 1
bureaucraticprocedures. FDI:WayforwardforBangladesh
ncreasedFDI ncreasedFDI islikelyto bringa significan significant t netbenefit toBangladesh Bangladesh. Bangl Bangladesh Bangladesh. adesh Themost IIncreasedFDIislikelytobringasignificantnetbenefitto ncreasedFDIislikelytobringasignificantnetbenefitto impor important tant positi positive ve outcom outcomes es includ include e integr integrati ating ng the domest domestic ic econom economy y with with the global global econom economy y and in the area area of techno technolog logy y and skill skill transf transfer. er. It is impor importan tant, t, therefore,forBangladeshtoensureaninvestmentclimatethatcanattractmoreFDI flow flows s to the the coun countr try. y. To be succ succes essf sful ul, , prog progre ress ss in seve severa ral l poli policy cy area areas s are are 1
importantincluding:
Improveme Impro vementofport ntofport services: services:The The portservicesmustbeimpro portservicesmustbeimprovedbothintermof vedbothintermof Improvementofportservices: serv servic ice e tim time and and cost. ost. Sim Simplif plifie ied d cust custom om clea cleara ranc nce e proc proced edur ures es alon along g with with impro improvem vement ent in physi physical cal facili facilitie ties s and reform reforms s in the labor labor managem management ent system system needtobeinitiated. Settingupofindustrial Settin gupofindustrialparks:Thedeve parks:Thedevelopm lopmentofnewindustr entofnewindustrialpark ialparkscanhelpin scanhelpin Settingupofindustrialparks crea creati ting ng a favo favora rabl ble e envi enviro ronm nmen ent t of fore foreiign inve invest stm ment. ent. The The avai availa labi bili lity ty of infrastructurewithasecureandenablinginvestmentclimatecanactasapowerful catalystinattractingforeigninvestorsforinvestm catalystinattractingforei gninvestorsforinvestmentinprofitableventures. entinprofitableventures.
24
AT Capital Research SettingupofnewEPZs:AphasedgovernmentprogramofsettingupnewEPZsto SettingupofnewEPZs: extend facilitie facilities s to export export oriented oriented investors investors would would attract attract FDI. The private private sector sector mayalsobefurtherencouragedtosetupnewEPZsliketheKoreaEPZ. Economic Economic and commercia commercial l diplomacy: diplomacy: Strengthening ng economic economic and commerc commercial ial diplomacy acy Strengtheni diplom diplomacy acy is a key factor factor inattractin inattracting g FDI inthe presen present t world world charac character teriz izedby edby rapid globaliza globalization tion and increasi increasing ng competiti competition. on. In this respect, respect, improvedbilateral improvedbilateral relations relations with potentialinvestor potentialinvestor countries countries can actas a catalystto catalystto increasi increasing ng FDI inflowsto inflowsto Bangladesh Bangladesh.Moreover, .Moreover, itis importantnotonlyto importantnotonlyto improverelatio improverelationswith nswith countries countries thathave already already invested invested in Banglades Bangladesh, h, but alsoto identify identify potential potential investorsinothercountriesandundertakeappropriatemeasurestoattractthemto investinthecountry. Bang Bangla lade desh sh has has a brig bright ht futu future re in term terms s of attr attrac acti ting ng a great greater er amou amount nt of FDI FDI provid provided ed improv improveme ements nts are initia initiated ted in areas areas like like bureau bureaucra cratic tic proces processes ses, , more more effe effec ctive tive mark arketi eting of “Bra “Brand nd Bang Bangla lade des sh” as well ell as the the deve devellopm opment ent of infr infras astr truc uctu ture re. . With With a more more focu focuse sed d FDI FDI stra strate tegy gy, , we beli believ eve e it is real realis isti tic c for for BangladeshtoreplicatetheVietnamexperienceofatenfoldincreaseinFDIfrom 2001to2007.ThissuggestsatargetlevelforBangladeshofUSD6-7bnannualFDI by2015.
References References 1.
Hossain,M.A.(2007).“ImpactofForeignDirectInvestmenton Bangladesh'sBalanceofPayments:SomePolic Bangladesh'sBalanceofPay ments:SomePolicyImplication”.Bangl yImplication”.Bangladesh adesh BankPolicyNotePN0805.
2.
Mortaza,M.G.,&Narayan,C.D.(2007).“ForeignDir Mortaza,M.G.,&Nar ayan,C.D.(2007).“ForeignDirectInvestment,Trade ectInvestment,Trade LiberalizationandEconomicGrowth:Empiri LiberalizationandEconom icGrowth:EmpiricalEvidencefrom calEvidencefromSouthAsia SouthAsia andImplicationsforBangladesh”.BangladeshBankWor andImplicationsforBangla desh”.BangladeshBankWorkingPaperSeries: kingPaperSeries: WP0712.
3.
Robin,I.A.(2006).“ForeignDirectInvestment:ImpactonSectoralgrowth inBangladesh”.BangladeshBankPolicyNotePN0704.
4.
http://www.bangladeshnews.com.bd/2007/06/14/mega-fdi-plans-hang-inlimbo/AccessedonMarch15,2008.
25
AT Capital Research
t e k r a M l a t i p a C
CapitalMarkets CapitalMarkets s
TheBangladeshstockmarkethasprovidedsignificantreturnstoinvestorsover thelastfiveyears.FiveyearsCAGRofDGEN-thebenchmarkindexofDhaka stockExchangeis30%,whilelastyeartheindexrose86.6%,makingitoneof
s r e n t r a P l a t i p a C r e g i T n a i s A
thebestperformingmarketsintheworld.
Despitetheremarka Despitetheremarkableperfo bleperforman rmanceoverthelastfiveyears,themarke ceoverthelastfiveyears,themarketcapto tcapto GDPratioisonly19%,thelowestamongtheSouthAsianemergingmarkets.
Becauseofthesizeofthemarket,ithasattractedlittleinvestorattentionuntil rece recent ntly ly. . Fore Foreig ign n port portfo foli lio o inve investm stmen ent t incr increa ease sed d by 839% 839% in 2007 2007 to USD USD 129mn,althoughthisstillaccountsforlessthan2%oftotalmarketcap.
GovernmentplanstoprivatizeStateOwnedEnterprises(SOEs),combinedwith alargepipelineofIPOs,especiallyfromthetelecomsector,shouldunderpinthe future future growth growth ofthestockmarket.We ofthestockmarket.We expectthemarke expectthemarket t cap ofthe DSE will will doublewithinthenextfewyears.
TheBangladesh capital capital market market is dominatedby dominatedby localinvestors, and is highly highly unco uncorr rrel elat ated ed with with othe other r mark market ets. s. It was was unaf unaffe fect cted ed by Indi India’ a’s s May May 2006 2006 meltdown,andhassofarshownresilienceagainstthesub-primemeltdown.
Despite Despite the remarkable remarkable performan performance ce overthe last fewyears andtremendous andtremendous potentialforfuturegrowth,themarketisstilltradingatlowmultiples,relatively cheapversusothercountriesinAsia.
We belie believe ve that that furt furthe her r inve invest stme ment nt inflo inflows ws by fore foreig ign n fund funds s alon along g with with the the developme development nt of a larger larger domesticinstitutio domesticinstitutionalinvestorbase nalinvestorbase will causemarket directionandvalua directionandvaluationstobecomedrive tionstobecomedriventoa ntoa greaterextentbytheunderlyin greaterextentbytheunderlying g fund fundam amen enta tals. ls. The The move move away away from from “new “news” s” drive driven n trad tradin ing g shoul should d redu reduce ce volatility.
We also also see see a stru struct ctur ural al long longer er-t -ter erm m incre increas ase e in dema demand nd for equi equiti ties es from from foreigninvestorsas foreigninvestorsas Bangladesh Bangladesh movesinto frontier frontier fund oreven broaderEM broaderEM indices.
However,somedegreeofcautionisjustifiedintherunuptotheelectionsatthe endoftheyearwhichsuggeststheremaybemoreattractivelevelstobuildup moresubstantialexposureinearly2009.
Thenear40%declineinVietnamesestocksin2008,whichisperhapsoneof theclosestregionalcomparisonsintermsoftherelativedominanceofretailover insti institu tuti tion onal al inve investo stors rs also also give gives s grou ground nds s for for a more more defe defensi nsive ve stanc stance e on Bangladeshiequitiesinthenearterm.
MohammadHanif MohammadHanif
[email protected]
26
AT Capital Research TheBangladeshs market anoverview noverview TheBangladeshstock stock tockm marketarket- -a anoverview
DhakaStockExchange comprisesof235members
The The stoc stock k mark market et in Bang Bangla lade desh sh cons consis ists ts of two two exch exchan ange ges, s, the the Dhak Dhaka a Stoc Stock k Exchange(DSE)andtheChittagongStockExchange(CSE).Thestockexchanges functionwithintheregulatorygamutofSecuritiesExchangeOrdinanceandrelated by-lawsandregulations. Amongtheinvestmentbankingandbrokerageentitiestheprincipalinstitutionsare theInvestmentCorporationofBangladesh(ICB),theleadingmerchantbanks,and commercialbankswhoareactivewiththeirownportfolios.The235membersof theDhakaStockExchange,themoreimportantofthecountry’stwoexchanges,fall 3
intothiscategory.. The main institutio institutional nal investors investors in the stock stock market market of Bangladesh Bangladesh are insurance insurance com compani panies es, , com commerci ercial al bank banks, s, Bangl anglad ades esh h Shil Shilpa pa Rin Rin Shan Shangs gsth tha a (BSR (BSRS) S), , Bangla Banglades desh h Shilpa Shilpa Bank Bank (BSB), (BSB), Invest Investmen ment t Corpor Corporati ation on of Bangla Banglades desh h (ICB), (ICB), 5
providentfund,trusts,andpensionfundsofdifferentorganizations.
Bankingsectorcomprisesof 48.3%oftotalmarketcap.
TheBangladeshStockMarkethas TheBanglades TheBangladesh hStockMarkethas h Stock Markethas Markethas beengrowingrapidlyand beengrowingrapidlyand currentlyconstit currentlyconstitutes utes about19 ofthecountry'sgrossdomesticproduct ofthecountry'sgrossdomesticproduct(GDP) (GDP)in2007againstonly6% about19% 19% %ofthecountry'sgrossdomesticproduct (GDP) in 2006. 2006. On Marc March h 31, 31, 2008 2008, , the total total mark market et capi capita tali liza zati tion on of DSE DSE was was USD USD 3
11.8bn,comparedtobelowUSD5bnin2006.
Among listedcompanies,banksdominate listedcompanies,banksdominate.InMarch2008bankscomprised48.3% Amonglistedcompanies,banksdominate totalmarketcapfollowedbyfuelandpower(12%),andpharmaceuticals(9.9%).In terms of turnover,financial turnover,financial sector sector (banks, (banks, NBFIs,Insurance NBFIs,Insurance) ) comprises comprises of 58.9% 3
totalturnover,while39.1%oftotalturnovercomprisesonly totalturnover,while39.1%oftotalturnov ercomprisesonlyfrombanks. frombanks.
Figure1:SplitofDSEmarketcapitalizationasofMarch31,2008 Ban k
Fu e l & p o w e r
P h ar ma
C e me n t
O the r s
24 % 48 % 6% 10 %
12 %
Source:ATCapitalResearch
DSEPerformance DSEPerformance TheDSEGeneralIndexrose86.6% TheDSEGeneralIndexrose86.6%for for the12-monthperiod the12-monthperiodending31December ending31December 2007vs.+37.7%fortheMSCIAsiaex-J 2007vs.+37.7%fortheMSCIAsiaex-JapanIndex apanIndex.TheDSEGeneral .TheDSEGeneralIndexfourIndexfouryearCAGR(2004-07)was+46.1 yearCAGR(2004-07)was+46.1%vs.+34.5% %vs.+34.5%forthe forthe MSCIAsiaex-J MSCIAsiaex-JapanIndex apanIndex forthesameperiod.TheDSEGeneralIndexcorrelationtotheMSCIAsiaex-Japan 1
Indexforthelast12-monthperiodwaspositive,andstrongat0.9427.
27
AT Capital Research Figure2:DSEversusMSCI,20042007Figure3:DSEversusMSCI,last12 months Figure2:DSEversusMSCI,2004--2007Figure3:DSEversusMSCI,last12 2007Figure3:DSEversusMSCI,last12months months
4yearCAGRofDGENwas 46.1%
Inthe2ndquarterof2007,DGENrose41.26%-thebestperformanceglobally. Fi gur e4:Stockmarketretu e4:Stock e4:Stockmarket e4:Stockmarketreturnsin marketreturnsinselecte returnsinselected rnsinselected selectedc dc c ountries,Aprilountri ountries,April es,Apriles,April-July2007 -July2007 45
41.3
40
) % ( n r u t e R
35
33.0 30.6 28.8
30
27.3
26.6 23.3
25 21.1
21.7
20 15 h s e d a l g n a B
a i n e v o l S
e n i a r k U
g n o K g n o H
d n a l i a h T
a n i h C
a i r a g l u B
a e r o K h t u o S
a n a w s t o B
Source:Bloomberg 6 The Januar January y 11, 2007 2007 move move to the army-b army-back acked ed careta caretaker ker governm government ent had an adver adverse se impa impact ct on the the dema demand nd for for bank bank loan loans s with with the the anti anti-c -cor orru rupt ptio ion n driv drive e increa increasin sing g risk risk aversi aversion on among among busine business ss men. men. For the 1H07, 1H07, banks banks (all (all listed listed banks, banks, excludingthe excludingthe govtand non-listed)lendinggrowthwas only7%, whereas whereas deposit deposit growth growth was10%. At thattime banks had excesscash excesscash and they invested invested some some of this this money money in the stock stock market market. . They They were were very very activ active e at that that time time by offeringmarginloantoretailinvestorsaswell.Sothemarkethadexcessliquidity and there there was was a shorta shortage ge of supply supply of good good stock stocks, s, a combi combinat nation ion that that pushed pushed Bangladeshiequitiessharplyhigher.Thisinturntriggeredfurtherretailbuying. Inwardforeignremittancewasalsoafactorbehindthesurgeinthestockmarketin 2007.Whileinstitutionalinvestorswereactiveatthattimeandthem 2007.Whileinstitutionalinvest orswereactiveatthattimeandthemarketwasrising arketwasrising upward,retailinvestorswereconfidentenoughtoinvestinthemarket.Aportionof money money that that was sent sent to the retail retail invest investors ors by their their relati relatives ves, , who were were workin working g abroad,wasinvestedinthemarket,thustriggeringafurthersurgeinthemarket.
FPIincreasedby839%in 2007
Foreign Foreig Foreign n Portfolio Portfo lio Investmen Inves tment increased significan significantly tly by 839% in 2007. Portfolio Investment tmentt (FPI) increased 2007 The benchma benchmarkDSEGener rkDSEGeneralIndex alIndex saw a record record 396% risein risein turnov turnoverand erand a 139% 139% increaseinvaluein2007.Inthesameyear,foreigninvestorsboughtsharesworth BDT 14.4 14.4 bnandsoldsharesworth bnandsoldsharesworth BDT 5.5 bn. Forei Foreigninve gninvesto storswant rswant growth growth-28
AT Capital Research orientedmarketsandalwayslookfornewqualityissuesinsectorsliketelecoms, energy,power,gasandpharmaceuticals.Therelativelystablepoliticalenvironment isanotherfactorbehindtheriseinportfolioinvestmentinthecountry'sstockmarket bymerchantbanks.AccordingtoDSEsources,thebanking,power,pharmaceutical 7
andcementsectorsreceivedmostoftheportfolioinvestment.
Stockshaveshownresiliencetobothelectoralriskandnaturaldisasters. Stockshaveshownresiliencetobothelectoralriskandnaturaldisasters. oralriskandnaturaldisasters. Historical Historically,the ly,the market market showed showed resilienc resilience e on various various political/el political/elector ectoral al scenarios scenarios. . For For exam exampl ple, e, stoc stocks ks were were unaf unaffe fect cted ed on the the parli parliam amen ent t elec electi tion on in 2001 2001 (see (see below).Inaddition,eveninthefaceofrecentdevastatingfloodandhurricane-Sidr in2007,themarketmaintaineditsupwardmomentum.
Figure5 Figure5:Marketperformanceduringthenaturaldisaster 5:Marketperformanceduringthenaturaldisaster:Marketperformanceduringthenaturaldisaster -SidronNovember -SidronNovember SidronNovember15 15, 15,2007 ,2007 3,150 3,100 3,050 3,000 N 2,950 E G D 2,900
Sidr
2,850 2,800 2,750 2,700
1 N o v
3 N o v
5 N o v
7 N o v
9 N o v
1 1 N o v
1 3 N o v
1 5 N o v
1 7 N o v
1 9 N o v
2 1 N o v
2 3 N o v
2 5 N o v
2 7 N o v
2 9 N o v
Source:DhakaStockExchange
Figure6 6:Marketperformanceduringthe :Marketperformanceduringthe :Marketperformanceduringthe88 8thNationalParliamentElectiononOctober thNationalParliamentElectiononOctober thNationalParliamentElectiononOctober01 01, Figure6 01 01,2001 ,2001 720
700
680 N E G 660 D
8th National Election 640
620
600
1 S e p
5 S e p
9 S e p
1 3 S e p
1 7 S e p
2 1 S e p
2 5 S e p
2 9 S e p
3 O c t
7 O c t
1 1 O c t
1 5 O c t
1 9 O c t
2 3 O c t
2 7 O c t
3 1 O c t
4 N o v
8 N o v
1 2 N o v
1 6 N o v
2 0 N o v
2 4 N o v
Source:DhakaStockExchange
Bangladeshcapitalmarketis followingthetrendof Pakistancapitalmarket development.
MarketDevelopment MarketDevelopment LessonscanbelearntonthedevelopmentofBangladesh’scapitalm Lessonscanbelearntonthedevelo pmentofBangladesh’scapitalmarketsfrom arketsfrom theexperienceofPakistan.TheBangladeshstockm theexperienceofPakistan.Th eBangladeshstockmarketcanbecomparedto arketcanbecomparedto 2
Pakistan’sinthemid90sbymarketcap/GDP. Theirequitygrowthwasprimarily drivenbyprivatizationandtheliberalizationofforeigninvestment.Therewere108 publicsectorenterprises(outofatotalof128)initiallym publicsectorenterprise s(outofatotalof128)initiallymarkedforprivatization arkedforprivatization throughpublicoffering,outrightauctions,andstrategicsalestoinvestorsin1994. By1996,thenumberofenterprisestobeprivatizedincreasedto118.Theinjection ofsubstantialpublicsectorlistingstothestock ofsubstantialpublicsec torlistingstothestockmarkethasgreatlytr markethasgreatlytransformedthe ansformedthe sectordistribution.Themarketchangedfrombeingtextile-dominated(22%of marketcapitalizationinJune1992)toonethatrevolvesaroundthreetotenlarge29
AT Capital Research capitalstocks.Noneofthesetop10stockscom capitalstocks.Noneofthesetop10stockscomesfromthetextilesector. esfromthetextilesector.
Governmenthasstarted floatingSOEstothecapital market.
In Bangladesh, Bangla Banglades desh, h, the the pace pace pa ce of privatiza priva tization tion is incre increasin asing. asing g. In 2006, the governmen government t desh, pac e of privatization is increasing floate floated d DESCO DESCO and PowerPower-gri grid d with with 25% shares shares of each each alread already y issued issued on the publicmark publicmarketand etand a furthe further r 15% ofeachwill beoff-load beoff-loaded ed withi within n shortperio shortperiod d of st
time.Inthe1 quarterof2008,thegover quarterof2008,thegovernmen nmentfloated tfloatedMeghnaandJamun MeghnaandJamuna- a- two otherprofitableStateOwnedEnterprises(SOEs)from otherprofitableStateOwnedEnterpris es(SOEs)fromthefuelandpowersector. thefuelandpowersector. Over Over the the past past five five year years, s, the the Asia Asian n Deve Develo lopm pment ent Bank Bank (ADB (ADB), ), along along with with the the Securities Securities and Exchange Exchange Commis Commission, sion, havedeveloped new trading trading rules, rules, public public issue rules, rules, settlement settlements s systems systems, , and bond issuance issuance rules to govern govern the market market andintroducetransparency.Webelieve,thecapitalmarketofBangladeshisnow poisedtoachieveahigherdegreeofstability,maturity,andregulation. Figure 7: Development initiatives at DSE Year 1998 2004
Development initiative Automated Trading System started DGEN Benchmark index introduced
2004 2004
Started Central Depository Services DSE-20 Index introduced
2005
Started Govt bond market
2006
Direct Listing Rules initiated 3
Source:DSEWebsite
Toovercometheproblemof traditionalIPOsystem,SEC isabouttointroduceanew systemcalled“Book-building”
Aspartofthisdevelopmentinitiative,theSECisabouttointroduceanewsystemof IPOcalled“Book BookBuilding”.IthasbeenarguedthatthetraditionalIPOsystemhasa Book-Building -Building majordrawback.Inmostcases,theofferpriceisdeterm majordrawback.Inmos tcases,theofferpriceisdeterminedbytheNAVpershare. inedbytheNAVpershare. ThistraditionalsystemofIPOpricingsignificantlyundervaluesthecompanyandis onereasonwhycompaniesarereluctanttogopublic.Underthisnewbookbuilding method method, , the price price will will be determ determine ined d by the market market and the issui issuing ng compan company y is expectedtogetafairpricefortheirstockoffering. TheBang BangladeshCapitalMarket ladeshCapitalMarket shorttermoutlook: TheBang ladeshCapitalMarket-- -s shorttermoutlook: horttermoutlook:
In2007,14companieshave beenlistedinDSE
Lastyear14newcompanieshavebeenlistedonthe DSEthroughIPO DSEthroughIPOs Lastyear14newcompanieshavebeenlisted onthe ontheDSEthroughIPO DSEthroughIPOs.Among s.Among them,PremierBank(BDT844mn)andInternationalLeasingandFinancialServices (BDT112.5mn)werethelargest. TheBangladeshStock BangladeshStockmarketissmallwith368 marketissmallwith368securitiesandmarketcapof securitiesandmarketcapofUSD USD The BangladeshStock marketissmallwith368 securitiesandmarketcapof securitiesandmarketcapof USD 11.84 Governmentprivati ntprivatizatio zationof nof State OwnedEnterpri OwnedEnterprises(SOEs ses(SOEs)combine )combined d 11.84bn 84bn. bn Governme witha large large pipeline pipeline of IPOs especially especially from telecom telecom sector sector makes us optimisti optimistic c aboutfuturegrowthofthecapitalmarket. Figure8:KeyDSEstatisticsover2003-07 DSEstatistics 2 00 3
2 004
20 05
20 06
20 07
26 7
256
2 86
3 10
368
Marketcapitalization
14 1. 7
3 3.8
17 3 .5
7 4.7
14 1 0.6
A v e r a g e d a i ly t u r n o v e r ( U S D m n )
1. 2
3.3
3 .8
4.8
1 9.0
Noofsecurities Noofpublicissue
3
Source:DSEWebsite
30
AT Capital Research Expectedfutureentrantstothemarket dfutureentrantstothemarket Expecte dfutureentrantstothemarket Theprocessof Theprocessof divestmen divestmentof tof the3 remaining remaining state-own state-ownedbankshasalready edbankshasalready
begun.
At least least 8 large large profit profitabl able e SOEs SOEs mainl mainly y from from the power power and energy energy sector sectors s expectedtobelisted. Foreig Foreign-o n-owne wned d Teleco Telecom m giants giants such such as Gramee Grameenph nphone one are expect expected ed to be
IPOedin2008. Remaining Remaining large Telco’sare Telco’sare expectedto expectedto come to themarketin thenext few
years. Thenationalairline(“Biman”)isexpectedtofloat49%ofitssharetothepublic
inDecember2008. TheBangladeshCapitalMarket:l BangladeshCapitalMarket:longtermprospect ongtermprospect The BangladeshCapitalMarket:l ongtermprospect Themarket (ofDSE) (ofDSE)toGDPratioisonly19%,oneofthelowest Themarketcap arket capitalization capitalization italization(ofDSE) (ofDSE)toGDPratioisonly19%,oneofthelowestin toGDPratioisonly19%,oneofthelowest in theworld.Thecurrentlevel theworld.Thecurrentlevelof of developmen developmentof tof theBangladesh theBangladeshmarketissimi marketissimilarto larto theworld thatseeninPakistanandSriLankainthemid90sandtheearly2000srespectively. PakistanhasamarketcaptoGDPratioof58%whereasitwasaround15.6%in 2
1998. ForBangladesh,increasingFPI,newcompaniesespeciallyMNCandgiant Telco’slistingwillhelpthecapitalmarkettogrow. Themarketisdominatedbylocalretailinvestors.Exceptmutualfunds,participation Themarketisdominatedbylocalretailinvestors ofinstitutionsisverylow.ThiscanbecomparedwiththedevelopmentoftheUS marketin1950wheninstitutionalinvestorswereonly4%ofthemarketversus80+ curren currently tly. . We belie believe ve that that the growth growth of the Bangla Banglades desh h insti institut tution ional al market market will will occur more rapidly.Accordi rapidly.According ng to Dhaka Dhaka Stock Exchange(DSE)statisti Exchange(DSE)statistics,foreign cs,foreign investorsfromEuropeandtheUSin2007injectedBDT8.9bnintothemarket,and have have benefi benefited ted from from impre impress ssive ive capita capital l gains. gains. This This in turn turn should should bolste bolster r their their confidence. FavorableInvestmentclimateforforeigninvestors: FavorableInvestmentclimateforforeigninvestors: Strong Strong invest investor or protec protectio tion n combin combined ed with with favour favourabl able e public public polic policy y climat climate e has sign signiific ficantl antly y incr increa eas sed the the num number ber of fore foreig ign n entr entran ants ts over over the the las last year year.. Government Government investme investment nt regulations regulations are firmly firmly pro-busines pro-business s and pro-FDI, pro-FDI, having having never never annull annulled ed treati treaties, es, conces concessio sions, ns, or agreem agreement ents s with with the privat private e sector sector or foreigninvesto foreigninvestors.Bangla rs.Bangladeshhasbeenranked17thininvestor deshhasbeenranked17thininvestorprotectio protectionranking nranking by
the
World
Bank.
Among
th e
more
noteworthy
foreign
investment
regulations/protectionsare: •
100%foreignownershipofcompanieswithnoexitrestriction
•
100%repatriationofinvestmentandprofit
•
Notaxoncapitalgain
•
TaxrebatetoencouragecompaniestobelistedinDSEandCSE
•
Reinvestmentofrepatriabledividendistreatedasnew Reinvestmentofrepatri abledividendistreatedasnewinvestment. investment.
Investmentopportunitiesin opportunitiesinthe the BangladeshCapitalMarket: BangladeshCapitalMarket: Investment opportunitiesin theBangladeshCapitalMarket: TheBangladeshstockmarket TheBangladeshstockmarket providessignifi providessignificantopportun cantopportunitie itiesboth sboth forlocaland foreigninvestors.
31
AT Capital Research •
Highreturnwithlowrisk: Highreturnwithlowrisk:Amongemergingmarkets,Bangladesh’srisk-return Highreturnwithlowrisk: Amongemergingmarkets,Bangladesh’srisk-return trade-offisveryattrac trade-offisveryattractive. tive. Withlessthan20%volati Withlessthan20%volatility lity,theDSE’sreturnin ,theDSE’sreturnin 2007of81.5%clearlyexceedstheIndia,Pakistan,HongKongmarkets. Figure9:12Mriskandreturn,regionally Figure9:12Mriskandreturn,regionally
Source:DeutscheBankreport 1
•
Expectedlistingoftelecomcompanies: istingoftelecomcompanies:Oneaspectofgrowingthenumberof Oneaspectofgrowingthenumberof Expectedl istingoftelecomcompanies: publiclylisted publiclylisted stocks stocks is fiscal fiscal incentive incentives. s. For example,the example,the government government has decidedtoimposea45%corporatetaxrateonTelco’siftheydonotliston the the stoc stock k exch exchang ange e inst instea ead d of 35% corp corpor orat ate e tax. tax. Gram Gramee eenph nphon one, e, the country’slargestmobilephoneoperatorisexpectedtobelistedinthisyear withtheothermajorTelcossettofollow.
•
International Diversification Opportunities: Banglades desh h stock stock marke market t is Opportunities: The Bangla dominatedbylocalretailinvestors,andisthuslesscorrelatedwiththerestof theworldthanotherEMequitymarkets.
Figure10:CorrelationbetweenindicesinJanuary2008 Karachi S&PCNX 100 SENSEX NIFTY CSE Karachi 100 (Pakistan) SENSEX (India) S&P CNX NIFTY (India) CSE (Srilanka) HANG SENG (Hong Kong) NIKKIE (Japan) STI (Singapore) FTSE 100 (UK)
1.00
0.41 1.00
HANG SENG NIKKIE
STI
FTSE 100 DGEN
0.16 -0.09 -0.05 0.27
0 .39 0 .94
0.80 0.91
0.23 0.29
0.37 0.87
0.15 -0.09
1.00 -0.15
-0.75
-0.68
0.30
-0.69
-0.84
1.00
0.46
0.25
0.57
0.59
0.01
1.00
0.95
0.23
0.89
0.66
1.00
0.27
0.91
0.62
1.00
0.40
-0.31
1.00
0.59
DGEN (Bangladesh)
1.00
Source:DhakaStockExchange3
OnereasonbehindthelowercorrelationofBangladeshistocksversusother EMequitiesisthatnobighedgefundsorinternationalinstitutionalinvestors are are pres presen ent t in the the mark market. et. One One aspec aspect t of cont contagi agion on is that that when when larg large e institutionalinvestorssuchashedgefundslosemoneyinonemarket,they are are forc forced ed to sell sell other other mark markets ets they they hold hold to enha enhanc nce e thei their r liqu liquid idit ity y and potentiallymeetmargincalls.Soforexample,ifbighedgefundsincurlosses inUSequities,theymighttrytorecov inUSequities,theymighttrytorecoverthelossbyselling erthelossbysellingin in othermarkets othermarkets 32
AT Capital Research likeEuropeorevenEM.HereinBangl likeEuropeorevenEM.HereinBangladesh adesh,asno ,asno suchhedgefundorbig suchhedgefundorbig institutionalinvestorsarepresent,themarketremainsuncorrelatedwiththe rest rest of the world. world. This This is an attrac attractiv tive e reason reason for foreig foreign n invest investors ors to buy buy Bangladeshiequitiesintermsofdiversifyingtheirportfolio. •
PreAsnewcompaniesarecomingtothemarket,thereisan Pre-IPOplacement: -IPOplacement: IPOplacement:Asnewcompaniesarecomingtothemarket,thereisan opportunityforpre-IPOplacements.Forexample,Grameenphone,thelargest telecomscompanyisexpectedtobelistedinthisyear.Itishasbeenreported that that the value value of Gramee Grameenph nphone one is approx approxim imate ately ly USD 3.75bn. 3.75bn. They They may may lookforprivateplacementopportunities.
References: References: 1.
DeutscheBank.(2008).“BangladeshPrimer:IntroductiontotheMarket”, DeutscheBankAG/HongKong.
2.
Chou,C.“ReformingPakistan’sCapitalMarket”.Availableat www.adb.org/Documents/Books/Risi www.adb.org/Documen ts/Books/Rising_to_the_Challenge/Pakist ng_to_the_Challenge/Pakistan/3-pakan/3-pakcap.pdf.Accessedon25March2008.
3.
OfficialwebsiteofDhakaStockExc OfficialwebsiteofDhakaStockExchangeatwww.dsebd.org. hangeatwww.dsebd.org.
4.
OfficialwebsiteofSecuritiesandExchan OfficialwebsiteofSecuritiesandExchangeCommissio geCommission,Bangladeshat n,Bangladeshat www.secbd.org.
5.
Primarysources:brokers,analyst Primarysources:brokers,analysts,andtheauthor’spersonalexperi s,andtheauthor’spersonalexperiencewith encewith DhakaStockExchange.
6.
Bloombergatwww.bloomberg.com.Acces Bloombergatwww.bloom berg.com.Accessedon27July2007. sedon27July2007.
7.
FinancialExpress.(2008).“Foreignportfolioinves FinancialExpress.(2008).“Foreignportfolioinvestmentencouragingin tmentencouragingin 2007”.RetrievedfromthewebsiteofEquityPartnersLimitedat http://www.eplbangladesh.com/guest_pdf_files/07/News.pdf.
8.
http://www.doingbusiness.org/ExploreEconom http://www.doingbusines s.org/ExploreEconomies/?economyid=17. ies/?economyid=17.
33
g n i k n a B
AT Capital Research
Banking Banking
Thoughthefinancial Thoughthefinancialsectorisdomi sectorisdominatedbybanks natedbybanks,thevastmajor ,thevastmajorityofthe ityofthe peopledo peopledo nothaveaccesstobanking nothaveaccesstobankingservic services.Thebanki es.Thebankingsystem ngsystemasset asset
s r e n t r a P l a t i p a C r e g i T n a i s A
baseisUSD30bn,roughly42%ofthecountry’sGDP.Bycomparison,this ratioismorethan57%inPakistan.
Ther There e are are 48 bank banks s in Bang Bangla lade desh sh. . Desp Despit ite e thei their r late late entr entry, y, pri private vate comme commerci rcial al banks banks (PCBs) (PCBs) have have the larges largest t and fastes fastest t growi growing ng market market share.Governmentownedbanksarelosingtheirmarketsharewhileforeign commercialbanks’(FCBs)sha commercialbanks’(FCBs)shareisalmoststatic. reisalmoststatic.
Banksin Banksin Bangladeshmostl Bangladeshmostly y offertraditionalcomm offertraditionalcommercia ercialbankingproduct lbankingproducts s like like deposi deposits ts, , trade trade financ finance, e, money money transf transfer er servic services es and loan loan produc products ts. . Rece Recent ntly ly, , there there has has been been a surg surge e amon among g FCBs FCBs and and PCBs PCBs in offer offerin ing g technologydrivenproductslikeATMs,cr technologydrivenproduct slikeATMs,creditcardsanddebitcards editcardsanddebitcards. .
There There have have been some some impro improvem vement ents s in credi credit t risk risk manage managemen ment t of the bank banks s in Bang Bangla lade desh sh. . Clas Classi sifi fied ed loan loans s as a % of tota total l port portfo foli lio o has has decreasedfrom41%in1999to14%in2007.
Duetorecurringlosses,nationalizedcommercialbanks(NCBs)collectively havenegativecapitalofBDT31bn.
Fuelledbyhightradeandremittancegrowth,thecommercialbankingsector isexpectedtomaintainitsrapidgrowthrate.Withtheirsuperiorcustomer service service andproduct capabiliti capabilities, es, FCBs and PCBs are expectedto expectedto benefit benefit frommarketgrowth.
Privatiz Privatization ation of the NCBs NCBs will create large investme investment nt opportuniti opportunities. es. The governmentislikelytograduallyundertakeprivatizationofNCBs.Withtheir countr country-w y-wide ide branch branch netwo networks rks with with access access to large large and varied varied custom customer er bases,NCBscanbeattractiveinvestm bases,NCBscanbeattractiveinvestmenttargetsforinvestors. enttargetsforinvestors.
To meet meet capita capital l requir requireme ements nts under under Basel Basel II, the fast fast growi growing ng PCBs PCBs are expect expectedto edto resort resort totierII capita capital.Large l.Large new invest investmen mentsin tsin the formof formof prefer preferred red stock stocks s and subordi subordinate nated d debt debt are expect expected. ed. Addit Addition ionall ally, y, with with manysmallplayersinthemarket,consolidationisanticipatedtomeetBasel IIrequirements.
ShahidulIslam,CFA ShahidulIslam,CFA
[email protected]
34
AT Capital Research The financ financial ial sector sector is domina dominated ted by banks banks. ban banks banks. ks As the capita capital l marke market t is relati relativel vely y underdeveloped,banksplayastrongroleinfinancialintermediation.Totalbanking systemassetsareapproximatelyUSD30bn,whereasstockmarketcapitalizationis 4
USD12bn. Sustainedeconomi Sustainedeconomic c growth growth of 5%-6% andhigh growth growth of trade and remittanceinthelast12yearshashelpedgrowthebankingsector.Theassetbase 6
isapproximately42%ofGDP,comparedto57%inPakistan .Therestillremains significantscopeforfurthergrowth. The The high high grow growth th of PCBs PCBs and and pri privati vatiza zati tion on of NCBs NCBs will will crea create te sign signif ific ican ant t investmentopportunitiesinthesector. Rupali Rupali Bank remainsan remainsan acquisitio acqui acquisiti acquisition sition on n opportunity. opportunity. 450mnprivatizationof RupaliBank opportunity nity TheUSD 450mnprivatizationof Rupali Rupali Bank, Bank, a nation national al comme commerci rcial al bank (NCB), (NCB), was almost almost finali finalized zed recent recently ly. . Howeve However, r, the deal deal aborte aborted d with with the buyer, buyer, a Saudi Saudi princ prince, e, pulli pulling ng out. out. With With the fourthlargestbranchnetworkcoveringalmosttheentirecountry,arestructuredand rationalizedRupaliBankundermodernmanagementandtechnologycouldprovide asignificantinvestmentopportunity. Privatizat Privatization ion of other oth other er NCBs NCBs The The gove govern rnme ment nt has said said it will will priv privat atiz ize e the the othe other r NCBs NCBs. NCBs. With unparallel unparalleled ed country country wide branch branch networks, networks, NCBs NCBs can be attractiv attractive e inve inves stmen tment t targ target ets s for for inve invest stor ors s. They They prov provid ide e sign signif ific ican ant t oppo opport rtun unit itie ies s for for operati operational onal impro improvem vement ents, s, throug through h ratio rational naliz izati ation, on, reduct reduction ion of nonper nonperfor formi ming ng USD 1.5 bn equity injections are required as banks need to raise equity or tier II capital to abide by Basel II norms, investment investment opportunities in the form of equity or long-term subordinated debts abound
loansandimprovedserviceprovision. CapitalizationofPCBs CapitalizationofPCBsThoughmostoftheprivatecommercialbanksseemtobe wellcapitalizedtosupporttheirexistingassetbase,theyneedadditionalcapitalto expandtheirbusinesses.AllthePCBs,excepttwo(BangladeshCommerceBank LimitedandFirstSecuri LimitedandFirstSecurityBankLimi tyBankLimited),areliste ted),arelistedandare dandare expectedtoundertak expectedtoundertake e righ rights ts issue ssues, s, to rais raise e expa expans nsio ion n capi capita tal. l.
Addi Additi tion onal ally ly, , to meet eet the the capi capita tall
requirementunderBaselIITier2requirements,manyofthemmayhavetoissue preferredstockandsubordinateddebts. Consolidati Consolidation on in the banking banking sector. sector. many smaller smaller private private commercia commercial l sector r. There are many banks banks (PCB) (PCB) that fall fall short short of Basel Basel II capita capital l requir requireme ements nts. . Basel Basel II could could be a driverforconsolidationinthesectorwithbenefitsbeyondsimplyshoringupbalance sheets,leveragingclientbasesandbranchnetworks,crosssellingofproductsand costsynergies. Presentlythereare48banksoperatinginBangladesh thereare48banksoperatingin thereare48banksoperating in Bangladesh. Bangladesh.The The numberhasremained numberhasremained Presently thereare48banksoperatinginBangladesh Figure1:Thedistributionof branchesofdifferentbank segments Urban branches
Rural branches
unchangedinthelast8years.Despitekeeninterestfromlocalinvestors,newbank licens licenses es have have not been been issue issued d by curren current t and previo previous us regim regimes. es. The 48 banks banks includ include e 4 NCBs, NCBs, 5 govern governme ment nt owned owned specia specializ lized ed banks banks (SBs) (SBs), , 30 PCBsand PCBsand 9 4
FCBs.Thesebankshave6,576branches.
NCBs
1,238
2,146
PCBs
1,295
490
Thestate owned NCBs NCBs andSBs have beenlosingtheir market market share every every year
FCBs
49
0
sincethe sincethe privatebanksstart privatebanksstartedoperati edoperationsintheearly80s.NonPerform onsintheearly80s.NonPerformingLoans ingLoans
155
1,203
2,737
3,839
SBs Total
4
Source: Bangladesh Bank wesite
(NPL)havebeenanaggingproblemforNCBsandSBs.NCBsandSBsusedto lend lend in the ‘priori ‘priority ty’ ’ sector sectors s withou without t a syste systemi mized zed and rigoro rigorous us asses assessm sment ent of cred credit itwo wort rthi hine ness ss of the the obli obligo gors rs. . In the the past past ther there e have have been been conc concer erns ns about about overalllendingpracticesintheNCBs.
Private commercial banks are increasing their market share
35
AT Capital Research rapidly at the expense of the government owned banks. Private banks as a group achieved 40% growth in operating profit in 2007
ThePCBsare thenewest thenewest entrant entr ants s into into the market market buttheyare increasin sing g their their entrants ants butthey are increa marketsharerapidly.WhilethemarketshareofFCBsremainsalmostunchanged, marketsharerapidly. thatofNCBsandSBshasfallensharplyintherecentyears.PCBshavebeenareal successstoryinBangladesh.Theyhaveadoptednewtechnology,gainedefficiency and contin continue ue to grow grow fast. fast. Almost Almost all the new bank bank branch branches es in thecountry thecountry in recentyearswereopenedbyprivatecommercialbanks.Theyaccountforroughly half half of Bang Bangla lade desh sh’s ’s stoc stock k marke arket t capi capita tali liza zati tion on. . Desp Despit ite e a toug tough h busi busine ness ss 7
environmentin2007,PCBshaveshown40%growthinoperatingprofitintheyear.
Some Some of them them have have been been very very succes successfu sful l andare enjoy enjoying ing sustai sustained ned growth growth of around25%annually.Thesectorisnotconcentrated,withnosinglePCBenjoying FCBs have not penetrated the Bangladesh market as widely as they have in other countries in the region
4
morethan10%ofthemarketshare. ForeigncommercialbanksarelessactiveinBangladeshthaninothercountriesin theregion.TheiroperationsareconcentratedinmajorurbanareaslikeDhakaand theregion. theregion. Chit Chitta tagon gong. g.
Citi Citi, , HSBC HSBC and and Stand Standar ard d Char Charte tere red d are are the the majo major r fore foreig ign n bank banks s
opera operati ting ng in Bang Bangla lade desh sh, , with with Stan Standa dard rd Char Charte tere red d bein being g the the most most domi dominan nant, t, particularl particularly y in high-end high-end retail banking. banking. FCBs largely largely target target large corporates corporates and localoperationsofmultinationalcompanies,actingasthecounterpartyincorporate andinterbank foreignexchangetransa foreignexchangetransaction ctionsand sand servingas servingas correspond correspondentbanks entbanks forlocalbanksaremajorbusinessforFCBs.Someregionalandglobalplayerslike Wachov Wachovia, ia, ICICI ICICI and Mashre Mashreq q bank are not operat operating ing as schedul scheduled ed commer commercia cial l banks in Bangladesh Bangladesh but aremaintaining aremaintaining liaisonofficesin liaisonofficesin the country country to support support their corresponde correspondent nt banking banking businesse businesses s (eg LC confirmati confirmation, on, maintainin maintaining g nostro nostro accountsandexecutingfundtransferinstructions). Thebankingindust Thebankingindustryinthecount ryinthecountryisfarless ryisfarlessconcent concentratedtha ratedthanithasbeeninthe nithasbeeninthe ratedthanithasbeen nithasbeeninthe past. FourNCBs(Sonali,Agrani,JanataandRupali)usedtoaccountformorethan past..FourNCBs(Sonali,Agrani,JanataandRupali)usedtoaccountformorethan 70%ofbankingassetsanddeposits20yearsago.Theyaccountformorethan2/3 bank bank bran branch ches es but but thei their r shar share e of asse assets ts and and depo deposi sits ts are are now less less than than 35%. 35%. 4
SonaliisthelargestNCBandlargestbankinthecountry.
ThoughcorporatebankinghasbeenthemajorgrowthareaformostoftheFCBs andPCBs,retailbankingbusinessisincreasing.A andPCBs,retailbankingbusi nessisincreasing.Ascorporatebankinghasbecom scorporatebankinghasbecome e increasinglycompetitive,somebanksaretargetingSMEssegmentsandincreasing theirfocusonretailbanking.Banksarealsotakingexposuretothemicrofinance sectorthroughwholesalefinancingtomicrofinanceinsti sectorthroughwholesalefinan cingtomicrofinanceinstitutions(MFIs). tutions(MFIs).
Figure2:TheNPLsof differentcategoriesofbanks NPL%
FinancialIndicators FinancialIndicators Bank Bank deposi dep ositsand tsand credit credits s have have been growing ng 15annual annually ly in in recent recent years. years. deposit depo sits s andcredits andcredi ts been been growi 15-16% -16% 16% annually years Therehasalsobeenhighgrowthinnon-fundedactivities.Non-interest Non-interestincomein
NCBs
26.9
P C Bs
6 .1
duetoexpansionintradeandremittances,themainsourcesofnon-fundedincome
F CB s
1 .5
for the banks. banks. Non-in Non-inter terest est income income accou accounts nts for a larger larger share share of total total income income
SBs
31.0
T o ta l
2005was1.8%oftotalassetsemployed,whichincreasedto2.5%in2006.Thisis
2
amongforeignbanksthanlocalbanks.
14.0 2
Source:BangladeshBank
Thebankingsectorhasmadegreatprogressinreducingclassifiedloans.Overall, Thebankingsectorhasmadegreatprogressinreducingclassifiedloans.Overall, classifiedloanswere41%oftotalloansin1999,whichhascomedownto14%in 2007.Thisfigurewas26.9% 2007.Thisfigurewas26.9%and31.8%respectively and31.8%respectivelyforNCBsandSBs.ThePC forNCBsandSBs.ThePCBs Bs 2007. 2
andFCBshadclassifiedloansof6.11%and1.5%ofass andFCBshadclassifie dloansof6.11%and1.5%ofassetsrespectively etsrespectively..
36
AT Capital Research The reductionin reductionin NPLs in recentyears recentyears ispartlydue to writingoff writingoff some NPLs but also also due to the imple implemen mentat tation ion of more more effecti effective ve credit credit contro control l proces processe ses s and systems.Thedevelopmentofacreditinformationbureau,themoneyloancourt, and and impr improv oved ed risk risk mana manage gem ment ent have have faci facili lita tate ted d grea greate ter r effi effici cien ency cy. . Cred Credit it Infor Informa mati tion on Bure Bureau aus s help help lend lender ers s ident identif ify y clie client nts s who who have have defau default lted ed on their their obligationstootherfinancialinstitutionsandMoneyLoanCourtplaysanimportant roleinthefastsettlementofdefaultcases. Figure3:Outstandingloansandcapital positionofbanksasofJune30,2007 (BDTbn) (BDTbn)
Capitalization Capitalization Most of th Most the e ban banks ks belo long ngin ing g to th the e FC FCB B an and d PC PCB B ca cate tego gori ries es meet et th the e ca capi pita tal l bank ba nks s be ries es me the
Loans
Capital
NCBs
499.4
-30.9
andsomehavenegativecapital.AsperBangladeshBank(BB),thetotalcapitalof andsomehavenegativecapital. AsperBangladeshBank(BB),thetotalcapitalof
PCBs
854.1
84.5
banksstoodatBDT100bninJune2007representing6.2%ofbankloans.Capital banksstoodatBDT100bninJune2007representing6.2%ofbankloans. Capital
FCBs
118.5
31.6
positionofNCBsstoodatBDT(-)30.9bn,SBsBDT14.8bn,PCBsBDT84.5bn,and
SBs
125.1
14.8
FCBsBDT31.6bn.NCBsaresufferingfromnegativecapitalduetotheirsustained
1,597.1
100.0
Total
adequacyrequirements. However,theNCBsandSBssufferfromcapitalshortfalls adequacyrequirements.However,theNCBsandSBssufferfromcapitalshortfalls
operatinglosses.MostofthePCBsandalltheFCBshaveadequatecapital.The
2
Source:BangladeshBank capitalofthebanksisintheformofequity,paidupcapital,statutoryreserves,and
general gene ral pro provis vision ions. s. Tie Tier r IIcapit IIcapitalin alin theform of pre prefer ferred red sto stock ck orsubor orsubordin dinated ated 2
debtsarealmostnon-existent.
AdoptionofModernTechnology AdoptionofModernTechnology The rapid rapi rapid d adoptio adop adopt adoptio tion ion n of of modern mod mode modern ern rn and and innova inn innov innovati ovativ ative tive ve e techno tec tech techno hnolog nolo logygy ydriven produc products ducts ts ts and The logy y-driven -driven servic services es by the comme commerci rcial al banks banks is an encour enco en encou cour oura urag ragi agin ging ing g trend. tren trend d. ATM serv servic ices es are are banks s is enc ouragi aging ng trend . ATM gaining popularity popularity very fast. Customers Customers’ ’ useof online online banking banking (theabilityof the customerstoexecutetransactionsinanyofthebank’sbranches,notinthebranch where where the accoun account t was opened opened) ) is also also expand expanding ing rapidl rapidly. y. Interne Internet t bankin banking g and tele-bankingservicesarealsogrowingfast. Accor Accordin ding g to the Financ Financial ial Secto Sector r Review Review by BB, betwee between n June June and Decemb December er 2007,the monthlyvolume monthlyvolume of credit credit card transactio transactions ns grew by 124%, debit cards cards increasedby112%andtransactionthroughATMsincreasedby114%.Duringthe sam same peri period od, , tran transa sact ctio ion n thro throug ugh h POS POS and and SWIF SWIFT T grew grew by 111% 111% and and 61% 61% respectiv respectively.WhileFCBs ely.WhileFCBs andPCBsareintroduci andPCBsareintroducingtechnolo ngtechnologydrivenproduct gydrivenproductsin sin Bangla Banglades desh, h, state state owned owned banks banks are laggin lagging g in adopti adoption on of new technol technology ogy and 2
associatedefficiencies . In certain segments competition is forcing the banks to cut lending rate and reduce fees for the services. Interest rate and FX spreads are still higher than those in neighboring countries Spreads are shrinking slowly while volumes are growing fast. Some banks are making extra ordinary profits while others are failing. We believe corporate governance and management effectiveness make the bulk of the difference.
Competition,EfficiencyandSpreadShrinkage Competition,EfficiencyandSpreadShrinkage Accor Accordin ding g to BB studie studies, s, the weighte weighted d averag average e intere interest st rate rate margi margin n has shrunk shrunk slight slightly ly over over the years years. . Howev However, er, the curren current t intere interest st rate rate spread spread is still still high high in comparisontoothercountries.InSeptember2007,theweightedaverageinterest rate rate spre spread ad was was 6.16 6.16% % in Bangl Banglad ades esh, h, 91bp 91bp high higher er than than the 5.25 5.25% % spre spread ad in 2
India . Typicalbankin Typicalbankingfees,likeLCfeesandguaran gfees,likeLCfeesandguaranteefees, teefees,areshrinkin areshrinkingfast.Spread gfast.Spreads s inforeignexchangetransactionsarealsonarrowing.However,thefeesandforeign exchangespreadsinBangladesharestillhigherthanthoseinothercountriesinthe region.
37
AT Capital Research RegulatoryEnvironment RegulatoryEnvironment BB as a regula regulator tor has been bee been n fairly fairly succes successfu sful. sful. l. l. The overal overall l health health of the bankin banking g sector,especiallycapitaladequacyandassetquality,hasimprovedsignificantlyin recent recent years. years. Howev However er regula regulator tory y vigila vigilance nce needs needs to be increa increased sed to avoid avoid the recurrenceofeventslikethefailureofOrientalBank. BB has been successfu successful l at improvin improving g corporate corporate governance governance in banks. banks. Financial Financial disclosurestandardshaveimproved.Bankdirectorsarenolongerallowedtoget involvedinoperationaldecisionsofthebanks.Lendingtodirectorsdirectlyaswell as the the com compani panies es they they own own has has been been stop stoppe ped. d. BB has has als also prom promot oted ed and and implementedAnti-MoneyLaunderingrules. Inadditiontoitsownratingsbasedoncapitaladequacy,assetquality,management efficie efficiency ncy and liqui liquidit dity, y, BBhas made made it manda mandator tory y for the banks banks to be rated rated by independentratingagencies.BBhasalsomadepublicationandpublicdisclosureof BB has defined the role of chairman, the board and CEO
bankfinancialstatementsmandatory. BB has issu issued ed a numbe number r of prud pruden enti tial al guid guidel elin ines es regar regardi ding ng capi capital tal adequ adequac acy, y, corpor corporate ate govern governanc ance e and legal legal issues issues recentl recently. y. These These inclu include de streng strengthe thenin ning g a bank bank’s ’s capi capita tal l base base and and makin aking g them them bett better er prep prepar ared ed for for adop adopti ting ng Base Basel l II standards.Inthenearfuture,thebankswillberequiredtomaintaincapitaltoriskweight weighted ed assets assets ratio ratio of 10% as a minim minimumwithcore umwithcore capita capital l notlessthan 5%. Curren Currently tly banks banks need need to maintai maintain n 9% capita capital l on risk risk weight weighted ed assets assets. . As tier tier II capitalisalmostnon-existent,bankcapitalismainlyintheformofequity.Thepaid up capita capital l and the statut statutory ory reserv reserve e ofall bankcompa bankcompanie nies s has been been raised raised toa minim minimum um floor floor of BDT BDT 2bn. 2bn.
Basel Basel II stand standard ards s will will be imple implemen mented ted from from early early
2009.Implementationoftheseregulationswillhelpstrengthenthefinancialsystem and will will help help bring bring greate greater r discip disciplin line e in the activi activitie ties s of the banks banks and financ financial ial 2
institutions. CorporateGovernance CorporateGovernance Therehasbeensignificantimprovementofcorporategovernancein banksinrecent Therehasbeensignificantimprovementofcorporategovernancein inbanksinrecent years. years. Professi Professionali onalisminmanagem sminmanagementismoreevident entismoreevidentin in bankingthananyother bankingthananyother years. sectorinthecountry. BB has taken taken some some corp corpor orat ate e gove govern rnan ance ce init initia iati tive ves s rece recent ntly ly. . The The numb number er of membersintheboardofdirectorshasbeenrestrictedtothirteen.Theroleofthe CEO CEO and and role role of chai chairm rman an of the the boar board d have have also also been been defi define ned. d. As per per BB direct directive ives,the s,the chairm chairman an of the board board of direct directors ors or chair chairman man of any commi committee ttee formedbytheboardoranydirectordoesnothavejurisdictionfortakingdecisionsin executivematters. BBhasalsomadetheCEOresponsibleforimplementingthepoliciestakenbythe board board and and look lookin ing g after after all all admin adminis istr trati ation on. . BB has has also also dire direct cted ed the the bank banks s to establishauditcommitteesformedbytheboardofdirectors.Severalotherreforms have have also also been been introd introduce uced d by BB to ensure ensure good good govern governanc ance e in all instit instituti utions ons 4
operatinginthefinancialsector.
38
AT Capital Research Better asset liability management and deeper interbank term money market can help avoid occasional liquidity crunch.
LiquidityandInterbankMarket LiquidityandInterbankMarket Banks Banks in Bangla Banglades desh h need need to maintai maintain n 5% of their their custo customer mer liabil liabiliti ities es as cash cash reserveswiththeirBDTclearingaccount(noninterestbearing)withBB.Inaddition, commercialbanksneedtoinvest13%oftheirliabilitie commercialbanksneedtoinvest13%oftheirliabilitiesingovernmenttreasurybill singovernmenttreasurybills. s. Traditional Traditionallythe lythe overnightinter overnightinterbankcallmoneymark bankcallmoneymarketwasthe etwasthe sourceof sourceof liquidity liquidity forbanksinBangladesh forbanksinBangladesh. . Therepofacility Therepofacilitywiththecentral withthecentralbankwasintrodu bankwasintroducedin cedin 2002. 2002. Subseq Subsequent uently ly the interb interbank ank repo repo marke market t has also also evolve evolved. d. Howeve However, r, the 4
tradingvolumeofgovernmenttreasurybills/bondsi tradingvolumeofgovernmen ttreasurybills/bondsisstilllow. sstilllow. Theinterbanktermlendingmarketisthin.Therefore,banksneedtodependonthe callmoneymarketandrepowindowforliquiditymanagement.Duetotheabsence ofaninterbankmoneymarketandasecondarymarketofgovernm ofaninterbankmoneymarketandasec ondarymarketofgovernmenttreasurybills, enttreasurybills, mark market et liqu liquid idit ity y and and over overni nigh ght t inte interb rban ank k rate rates s fluc fluctu tuat ate e abru abrupt ptly ly. . Overn vernig ight ht interbankborrowingratessometimesshootupto20%. Riskmanagement Riskmanagement Bankslackedprofessionalcreditriskmanagementcapabilitiesinthepast.Mostof thebanksdidnothavemarketriskmanagementpractices.Asaresult,someused totakelargespeculativeFXpositions7/8yearsagowhichtriggeredbiglossesand depl deplet eted ed thei their r capi capita tal. l. As a resu result lt, , BB has has intr introd oduc uced ed FX expo exposu sure re rela relate ted d guidelinestothebanks. Overallriskmanage Overallriskmanagementofthebanksin mentofthebanksin Bangladeshimp Bangladeshimprovedsigni rovedsignifica ficantlyinthe ntlyinthe ficantlyin ntlyinthe lastfewyears.Asmentionedearlier,classifiedloansas%ofthetotalloanportfolio lastfewyears. havefallenfrom41%in1999to14%in2007.Riskgradingandrisk-basedpricingis almostanalienconceptamonglocalbanks.Asapartoftheirglobalpractice,large FCBsperformriskgrading,butthecorrelationbetweenriskgradesandloanprices arepoor.Itismandatoryforallcommerc arepoor.Itismandator yforallcommercialbanks ialbanksto to useadue diligencetempl diligencetemplate ate 2
calledLendingRiskAnalysis(LRA). BBhasadoptedseveralinitiativestoimprovetheriskmanagementpracticesofthe commercialbanks.In2003,BBcirculated"GuidelinesonManagingCoreRisks"to commercialbanks. thebanksforcomplyingwithfivecoreriskmanagementinbanks.Thosewerea) Credit Credit Risk Risk Managem Management ent, , b) Interna Internal l Contro Control l & Compli Complianc ance, e, c) Asset Asset & Liabil Liabilit ity y Management,d)ForeignExchangeRiskManagement,ande)MoneyLaundering RiskManagement.Theguidelineswereminimuminstructionsforthebanksandthe bankswereaskedtobuilduptheirownriskmana bankswereaskedtobuilduptheirownriskmanagement gementmanualsonthebasisof manualsonthebasisof 4
thoseguidelines. Outlook Outlook The sector is expected to maintain high growth and the branch networks are expected to spread towards rural areas fast
As acc ccess ccess to financ financial ial servic services es is still still low in the countr country, y, we believe believ bel belie ieve ieve ve e there there are As As access a ntry y, we tremen tremendou dous s growt growth h and inves investme tment nt opport opportuni unitie ties s in financ financial ial servic services es. . As the economymodernizes,thebankingsectormaygrowevenfaster.Inaddition,banks are are expe expect cted ed to incr increa ease se thei their r dive divers rsif ific icat atio ion n towar towards ds capi capital tal mark market et rela relate ted d activities. Bankingservicesarealsoexpectedtospreadintoruralareas. Bankingservicesarealsoexpectedtospreadintoruralareas. alareas.Inthepast,dueto fewe fewer r busi busine ness ss oppo opport rtun unit itie ies, s, FCBs FCBs and and PCBs PCBs were were not not conv convin ince ced d on the the 39
AT Capital Research attract attraction ions s of openin opening g branc branches hes in rural rural areas. areas. Only Only NCBs, NCBs, as per govern governmen ment t regulationsandrequirements,usedtohavealargeruralnetwork.However,things are are chan changi ging ng rapi rapidl dly. y. Attr Attrac acte ted d by the the high high grow growth th of fore foreig ign n wage wage earn earner ers s remittancesandruralsavings,PCBsareexpandingtheirbranchnetworkintorural areas. areas. Therefore, Therefore, major major players players in the sector sector are expectedto expectedto have presenceall presenceall overthecountryinthefuture.Recentlyaconsortiumofbankshasdecidedtosetup 9
anetworkof500ATMs,60%ofwhichwillbedeployedinruralareas.
The competiti comp etition on market is expected expected to intensify.Internati intens ify.Internationaland onaland regional regional competitio compe tition n in the market intensify intensify ify player players s are expect expected ed to increa increase se or expand expand their their operat operation ions s when when the secto sector r is opened opened up. Howeve However, r, banks banks with with techno technolog logica ical l and manager managerial ial superi superiori ority ty are expectedtocontinuetoenjoyahighlevelofprofitabilityinthemediumterm. Consolidati Conso lidationisexpectedtohappeninthemediumterm. onisexpectedtohappeninthemediumterm. ediumterm.Playerswithautomated, Consolidationisexpectedtohappeninthem ediumterm. country-wideoperationsareexpectedtoenjoyacompetitiveadvantagewithforeign remittancesandinternalmoneytransferahighgrowthbusiness.Therefore,there should should beconsolidationwithi beconsolidationwithinthe nthe banking banking sector,especia sector,especiallyamongsmalle llyamongsmaller,new r,new generat generation ion PCBs. PCBs. Antic Anticipa ipati ting ng consol consolida idatio tion n in the indust industry; ry; BB has publis published hed guidelinesforbankmergersandacquisitions.Ithasbeenarguedthatuneconomic factors,likeasponsors’prestigeassociatedwithbeingabankdirector,maybean obstac obstacle le to conso consolid lidati ation on in the near-te near-term. rm. Howeve However, r, we believ believe e some some small smaller er play player ers s will will be forc forced ed to cons consol olid idat ate e if Base Basel l II capi capital tal regul regulati ation ons s are are appl applie ied d stringently. Islamic banking is growing faster than conventional banking.
The Th grow grrowth rowt ro owth wth th h rate rate rate of Isl Islami amic bank bankiing is exp ex p ect ec ed remain ain high higher er that that of T he e g expe pec ctted te d to rem convention conve ntionalbanking. albanking. Currently Currently 6 commerci commercial al banks areoperatingas full-fledg full-fledged ed conventionalbanking. Isla Islami mic c bank bank. . Ten Ten othe other r conv conven enti tion onal al bank banks s incl includ udin ing g two two fore foreig ign n bank banks s offe offer r Islamicbankingproducts. Priorities Priorities NCB and SB SB Refo Re Reform Refform orms rms s NCB and rms s
Whil While e the the rece recent nt corp corpor orat atiz izati ation on of NCBs NCBs is a posit positiv ive e
deve develo lopm pmen ent, t, time timely ly priv privat atiz izat atio ion n is nece necess ssar ary y to faci facillitat itate e the the comm ommerci ercial al orientationofNCBsandSBs.Thegovernment’sdecisiontomergeBSBandBSRS is a positi positive ve develo developm pment ent while while steps steps toward towards s eventu eventual al privat privatiz izati ation on should should be taken taken. . Cont Contin inue ued d effo effort rts s to priv privati atize ze Rupal Rupali i Bank Bank shou should ld be a prio priori rity ty for the the government. Market Mar ket Infras Inf rastru tructu cture: re: BB has underta undertaken ken a projec project t to imple implemen ment t an autom automate ated d Market Mark et Infrastruct Infrastruc Infra structure: tructure: ture: ure: clearingsystemcalledRealTimeGrossSettlement(RTGS).RTGSwilleliminate timeconsumingmanualclearingoperationsofthebanksandwillbringefficiencyin money money transf transfer er and interb interbank ank settle settlemen ment. t. Implem Implement entati ation on of RTGS RTGS needs needs to be expedited. Risk Risk Management Manage Ma nageme ment: nt:: As mentio mentioned ned earlie earlier, r, thanks thanks to some some initia initiativ tives es by BB, risk risk Risk Manag ement: managementpracticesinbankshaveimprovedgreatlyinrecentyears.However, banks needtomanagetheirriskemanati needtomanagetheirriskemanatingfromcapitalmarke ngfromcapitalmarketexposure texposure through through own-account own-account trading trading or margin margin lending. lending. BB should should implement implement clear clear guidelines guidelines in thisregard.
40
AT Capital Research Developmentofa aFixedIncomeSecuritiesMarket: FixedIncomeSecuritiesMarket:Fixedincomesecuritiesmarket Developmentof a FixedIncomeSecuritiesMarket: inBangladeshlagsbehindthoseofitsneighborsandotherdevelopingcountries. Thoug Though h in rece recent nt year years s BB has has take taken n some some init initia iati tive ves, s, like like intr introd oduc ucin ing g repo repo transactio transactions,issui ns,issuinglongertenorbondsand nglongertenorbondsand appointingprim appointingprimarydealers arydealers foracting asintermediaries asintermediaries fordealingingovernmen fordealingingovernment t securitie securities,the s,the countrylacksa countrylacksa vibrant vibrant secondarymarketfor secondarymarketfor governmen government t securities securities. . This is importantfor importantfor establishi establishing ng a treasuryyieldcurvewhichwillbethebasisforpricingotherfixedincomesecurities. A vibran vibrant t secon secondar dary y marke market t for govern governme ment nt securi securitie ties s can help help bank bank treasu treasuri ries es better better manag manage e their their liquid liquidity ity and avoid avoid occasi occasiona onal l spikes spikes of overni overnight ght interb interbank ank rate.
References: References: 1.
World World Bank Bank Office Office, , Dhaka Dhaka (2008) (2008). . “Bang “Banglad ladesh esh Strate Strategy gy for Sustai Sustained ned Growth”.BangladeshDevelopmentSeriesPaperNo.18.
2.
BangladeshBank,Dhaka.(2007),“FinancialSectorOverview”.VolumeIII, SeriesI.
3.
Bangla Banglades desh h Bank Bank (2006(2006-200 2007). 7). Bangla Banglades desh h Bank Bank Annual Annual Report Report 200620062007.
4.
OfficialwebsiteofBangladeshatwww.bangladesh-bank.org.
5.
DeutscheBank.(2007).“UnderstandingVietnam”.DBResearch.
6.
Akhtar,S.(2006).“AddressbytheGovernoroftheStateBankofPakistan” atthePakistanBankingAssociation,London,12November2006.
7.
Reuters(2008).“Bangladeshprivatebanksprofitup40pctin2007”. Availableat http://in.reuters.com/article/companyNews http://in.reuters.com/artic le/companyNews/idINDHA10801020080116 /idINDHA10801020080116
8.
TheNewNation.(2008).“RupaliBankdroppedfromprivatisationlist”.The NewNationArticleonMarch11,2008.Available http://nation.ittefaq.com/issues/2008/03/11/news0841.htm.Accessedon April6,2008.
9.
Rahman,S.(2008).“HugeexpansionofATMsplannednationwide:Cash LinkBangladesh,EuronetWorldwidetieup”.PublishedinTheDailyStar onMarch28,2008.
41
y g r e n E
AT Capital Research
Energy Energy nergy
An effecti effective ve energ energy y policy policy is one one of the most most import important ant suppor supportin ting g factor factors s if Bangladeshistoachievemorerapideconomicgrowth.Theenergyshortfallin
s r e n t r a P l a t i p a C r e g i T n a i s A
Bangladeshisprogressivelygettingworseandneedsurgentgovernmentaction forbothashort-termandlong-termsolution.
Sign Signif ific ican ant t inve invest stme ment nt is requ requir ired ed in ener energy gy prod produc ucti tion on and and expl explor orat atio ion. n. Concertedandco-ordinatedeffortsbythegovernment,regulatoryandspecialist infrastructureagenciesandtheprivatesectorareakeydeterminantofsuccess.
ToachieveGDPgrowthof7%,ithasbeenestimatedthatBangladeshwillneed toaddatleast2,000MWofelectricitytothenationalgrideveryyear.Increasing thisgenerationcapacityonlywillcostaroundUSD1.4bn.
Itisforecastthatdemandforelectr Itisforecastthatdemandforelectricitywil icitywillgrowatanannualrateofabout lgrowatanannualrateofabout8% 8% for for the the next next 10 year years. s. The The gove govern rnme ment nt estim estimat ates es that that USD USD 6.4b 6.4bn n of new new investmentwillberequiredby2015fornewgenerationandtransmission.
The The Gover Governm nmen ent t open opened ed the the powe power r secto sector r for for priva private te inve invest stme ment nt in 1996 1996. . Currently1,397MWofpowerisgeneratedbytheprivatesectorwhichisaround 25%oftotalinstalledcapacityofthecountry.
Gas Gas is the the key key sour source ce of ener energy gy in Bang Bangla lade desh sh. . Some Some esti estima mate te that that the the country'sprovenreserveof8.4TCFgaswillstartdepletingfrom2012,andafter 2015 2015, , the the coun countr try y will will requ requir ire e new new sour source ces s to meet meet the the grow growin ing g dema demand nd. . Bangladesh Bangladesh has a totalof eightproduction sharing sharing contracts contracts (PSCs) (PSCs) withten Internatio InternationalOilCompan nalOilCompanies(IOCs).Itwillrequireanadditio ies(IOCs).Itwillrequireanadditional24trillioncubic nal24trillioncubic feet(TCF)gasoutputforattainingtheprojected7%growthrateby2025,which willrequireinvestmentsofUSD8bn.
ThecoalproductionandreservesoftheBarapukuriaCoalMineandthePhulbari CoalProjectminescouldsupplycoalforpowergenerationcapacityinexcessof 2,75 2,750 0 MW. MW. Howe Howeve ver r only only coal coal fire fired d powe power r plan plants ts gene genera rati ting ng 250 250 MW are are currentlyinoperation.
Expertsforecastthat4,000MWofnewpowerplantcapacitycouldbedeveloped using domestic domestic coal.We believe, believe, significantopportun significantopportunitiesexist itiesexist in investing investing in coalfiredpowerplants.
IthasbeenestimatedthatalternativeenergysourcessuchasWindenergy,Bio Gas and Solar Solar energy energy could could genera generate te 2,200 2,200 MW of power. power. The govern governmen ment t plans plans to increasepower increasepower output output usingrenewableresourcesby usingrenewableresourcesby 10%. However, However, renewableenergyremainsrelativelyexpensivecomparedtoconventionalpower generation.Government/firstworldsubsidizationiskeytocommercialviability.
Mohammad Emran Hasan
[email protected]
42
AT Capital Research FDIincreasedby72%from 1998to2007intheenergy sector
Overview Bangladeshhasaninstalledcapacityof5,275MWwhichis71%higherthanthe 1998 capaci capacityof tyof 3,091MW.The 3,091MW.The privat private e sector sector isgenerati isgeneratingaroun ngaround d 25% ofthe coun countr try’ y’s s gene genera rati tion on whil while e in 1998 1998 all all powe power r gene genera rati tion on came came from from the the publ public ic 7
sector. FDIofUSD1,822mnwasinvestedfrom1998to2007intheenergysector 8
ofBangladeshwhichaccountsfor33%oftotalFDIintheperiod. In 2007,peak demand demand stoodat 4,500MW, and while while total theoretical theoretical generation generation capacitywas4385MW,averagemaximumpeakgenerationwasonly3,717MW. Thisresulted inservicedisruptionsand inservicedisruptionsand blackoutson blackoutson 364days in 2007.With the supply-demanddeficitforelectricitycontinuingtorise,webelievetherearemany opportuniti opportunitiesto esto invest invest in projectsof projectsof varying varying sizes sizes fromtraditionalareas, fromtraditionalareas, suchas 2
gasdrivenpowerplants,tomoreinnovativesectors gasdrivenpowerplants,tomo reinnovativesectorssuchasalternativeenerg suchasalternativeenergy. y. apita electricity consumption Perc apita
Consum Con sumpti ption on electr electrici icityis tyis compar com pared ed to other other developing develo dev elopin ping g nations nation nations s with per Consumptio Consu Consumpti mption n of electricit icity y is low low compared comp compa ared red devel oping s with
lowest among developing nations
capitaconsumptionof147KWhcomparedtoIndiawhichhaspercapitausageof 480KWh.OnlyNepalhaslowerconsumption(seefigurebelow).Thisunderlines the need need for power power sector sector reform reform. . If Bangla Banglades desh h growsmore growsmore rapidl rapidly, y, per capit capita a 1
electricityconsumptionandhencetheenergycrisi electricityconsumptionandhencetheenergycrisis,willgetprogressiv s,willgetprogressivelyworse. elyworse.
Fi gure 1:Percapitaconsumptionofelectricityin 1:Percapitaconsumptionofelectricityin2005 2005
2,000 1,800 1,600 1,400
r a 1,200 e y / 1,000 h W 800 K
600 400 200 0
B a n g l a d e s h
I n d i a
T h a i l a n d
P a k i s t a n
S r i L a n k a
N e p a l
Source:InternationalEnergyAgency
Natural gas used for 86% of power generation. Reserves are depleting
Natur Natural al gas gas is curr curren entl tly y the the only only signi si gnifi fica cant nt source ce of comm commer erci cial al ener en ergy gy sign gnif ific ican ant t sour energ ene rgy y in Bangladesh, Bangla Bangladesh,althoughproven desh,althoughproven althoughprovenreserves reservesare reservesareestimatedtostartdepleti are areestimatedtostartdepletingfrom2012. estimatedtostartdepleting estimatedtostartdepletingfrom2012. ngfrom2012. from2012. Natur Natural al gas, gas, the the only only widel widely y used used indi indige geno nous us nonnon-re rene newa wabl ble e energ energy y sour source ce, , 7
accountsforaround86%ofthepowergenerationofBangladesh. Bangladeshhad recoverable(proven+probable)gasreservesofaround14trillioncubicfeet(TCF) 3,4
asatAugust2007.Therecoverableprovenremainingreserveisaround8.4TCF. Currently17outof23fieldsareproducinggas.
Sincethelastdecade,gasconsumptionhasbeenincreasingatanaveragerateof 4
8% per per annu annum m. It is widel idely y repo reporrted ted that hat about bout 500 500 MW powe powerr can cannot not be gener generat ated ed dail daily y due due to a shor shorta tage ge of gas gas supp supply ly desp despit ite e there there bein being g enou enough gh generatingcapacit generatingcapacity.Banglades y.Bangladesh h hasa total ofeight production production sharingcontract sharingcontracts s (PSCs)withtenIOCswithcompanieslikeShell,Chevron,Cairn,andTullowwho havesizeableoperations.Bangladeshisnowofferingitsthirdoffshoregasbidding roundwhichwillendonMay7,2008.Underthebiddingmodel,thecountry'snaval 43
AT Capital Research area hasbeen divided divided into28 blocksfor blocksfor hydrocar hydrocarbon bon exploration exploration. . Of the blocks, blocks, 2
eightarelocatedinshallowwatersandtwentyblocks eightarelocatedinshallowwa tersandtwentyblocksareindeep-seaareas. areindeep-seaareas. Gas is government regulated
Gas distribution distr distribut ibution ibution remain rem remains remai ains ns s regula reg regulated regul ulated ated ted by Petrobangla, Petro Petrob Petrob bangla, angla, angla, a statuto statutory ry body, body, operat operatin ing g ulated ted by Petrob Pet angla, undertheadministrati undertheadministrationof onof theMinistryof theMinistryof Power,EnergyandMineralResou Power,EnergyandMineralResources rces. . Petr Petrob oban angl gla a is resp respon onsi sibl ble e for for the the expl explor orat atio ion n and and deve develo lopm pmen ent t of mine minera ral l resources,
overall
control
and
coordination
of
mineral
resources
and
implementationofproductionsharingplanswithInternationalOilCompanies(IOC). CurrentlythereareelevencompaniesoperatingunderPetrobangla,responsiblefor oilandgasexploration,production,transmission,distribution,anddevelopmentand marketingofcoalandhardrock. Significant probable coal reserves remain untapped
Coalis isasignificantsecondsourceofenergy. asignificantsecondsourceofenergy.Fivegoodquality,lowsulphurcoal Coal is asignificantsecondsourceofenergy. deposit deposits, s, with with probab probable le reserv reserves es of 3.3bn 3.3bn metri metric c tons, tons, have have been been disco discover vered ed in 2
Bangladesh. A 250 MW coalcoal-fir fired ed power power plantwas plantwas commi commissi ssione oned d inDecember inDecember 2005withcoalsuppliedfromBarapukuria. London-basedAsiaEnergyhadsubmittedaninvestmentproposalofUSD2.5bnin October2005todevelopthePhulbarimineinnorthernDinajpurdistrictthroughthe openpitsystemandsetupa1,000MWpowerplanttobefiredbyitscoal.Butin 2006,thelocalcommunityinPhulbariorganizedalargedemonstrationagainstthe proposedopenpitmineduetoconcernsoversocialandenvironmentalim proposedopenpitmineduetoconcernsover socialandenvironmentalimpact-this pact-this halted halted extrac extractio tion n in the Phulb Phulbari ari coal coal mine. mine. Furthe Further r extra extracti ction on of coal coal resour resource ces s rem remains ains dela delay yed due due to the the lack lack of agre agreem emen ent t over over mini mining ng metho ethods ds amon among g 2
experts.
The The disl disloc ocat atiion and and envi enviro ronm nmen enta tal l deba debate te on coal coal extr extrac acti tion on also also
underlinestheneedforthegovernmenttodevelopapoliticalconsensuswithfair andequitablecompensationforanylocalresidentsdisl andequitablecompensationfor anylocalresidentsdislocatedbynewmines. ocatedbynewmines.
Liquid fuel contributes to less than 10% of the power generation
Around8%oftotalpowergenerationinBangladeshusesliquidfuel.Bangladesh Around8%oftotalpowergenerationinBangladeshusesliquidfuel. impo import rts s about about 1.2m 1.2mn n tonn tonnes es of crud crude e oil oil alon along g with with 2.6m 2.6mn n tonne tonnes s of refi refine ned d petrole petroleum um produc products ts per annum annum. . Only Only the Easter Eastern n Refine Refinery ry in Chitta Chittagong gong, , with with a capacityfor capacityfor 1.5mn 1.5mn tonnes of crudeoil, meets meets the requiredstandards. requiredstandards. TheSaudi Hite Hitech ch Inte Intern rnat atio iona nal l Grou Group p is plann plannin ing g to set set up a 5.1m 5.1mn n tonn tonnes es oil oil refi refine nery ry in ChittagongthroughamanagementpartnershipdealwithCosmopolitanOilRefinery Mana Manage geme ment nt Ltd. Ltd. This This refi refine nery ry is expe expect cted ed to be thre three e time times s bigg bigger er than than the the Easternrefinerywit Easternrefinerywithinvestm hinvestmentofUSD3bnand entofUSD3bnand forecastannua forecastannualturnover lturnoverof of USD 8
7bn.
Significant opportunities in renewable energy
Renewableenergyprovidesasignificantpotentialsourceofenergy energyprovidesasignificantpotentialsourceofenergywithbenefitsof Renewable energyprovidesasignificantpotentialsourceofenergy reducednegativeenvironmentalimpacts,provisionofelectricityinremotelocations andreducedrelianceonfossil andreducedrelianceonfossilfuelswhichareeitherimpor fuelswhichareeitherimportedordepleting tedordepleting.Power .Power Cell Cell in a stud study y pape paper r has has esti estima mate ted d that that aroun around d 2,20 2,200 0 MW of powe power r coul could d be generat generated ed using using altern alternati ative ve energy energy sourc sources. es. The govern governmen ment t plans plans to increa increase se poweroutputusingrenewableresourcesby10%.Windenergy,biogasandsolar ener energy gy are are part partic icul ular arly ly suit suited ed to the Bang Bangla lade desh sh clim climat ate. e. To make make renew renewab able le energy economica economicallyviabl llyviablefirstworldfundsand efirstworldfundsand governme governmentsubsidyplays ntsubsidyplaysa a vital 3
role. Solarpower introducedin introd ucedin 2002. 2002 2002. 2002.. Curren Currently tly 4 MW ofpower isbeing produce produced d by introducedin introducedin ucedin 2002. homesolarsystems.Expertssuggestthatsolarenergyhasthepotentialtoprovide upto 300MWof power. power. Thereare Thereare more more than than 100,00 100,000 0 solarhomesyst solarhomesystem ems s that that 44
AT Capital Research havebeen installed installed byprovidersincludin byprovidersincluding g GrameenShakti, GrameenShakti, Rahimafroo Rahimafroozand zand the Infr Infras astr truc uctu ture re Dev Develop elopme ment nt Com Company pany Limi Limite ted d (IDC (IDCO OL). L). Worl World d Bank Bank, , Asia Asian n Develo Developm pment ent Bank Bank and Bangla Banglades desh h govern governme ment nt are subsid subsidizi izing ng solar solar energ energy y 3,10
mainlyinoffgridareastoencouragerenewableenergyexpansion. Ithasbeenestimatedthat600MWofpowe owercouldbegeneratedfrom rcouldbegeneratedfrom biomassand Ithasbeenestimatedthat600MWofpowe rcouldbegeneratedfrombiomassand arou around nd 300 300 MW from from cogen co gener erat atio ion. n. projec ect t in the the rura rural l area area of Gazi Gazipu pur r is coge gene nera rati tion ion on n A proj generatingpowerof225KWandserving500familiesusingsugarcaneandrice 5
huskasrawmaterials. WindenergyutilizationinBangladeshisintheearlystage of ofdevelopment development.Wind WindenergyutilizationinBangladesh isintheearlystages isintheearlystages sof development turb turbin ines es with with gene genera rati tion on capa capaci city ty of 1 MW are are oper operat atin ing g in Feni Feni and and rece recent ntly ly anotherplantwithanumberofturbineshasstarteditspilotoperationinKutubdia 10
Islandwiththesamecapacity. opow pote po ntia ial only on for mini mini/m /mic icro ro units unit un s.. Curr Curren entl tly y only only 230 230 MW of Hydr Hydrop ower er poten pottent tenti enti tial all only onlly y for icro ro uniits. ts. conventionalhydropowerisutilizedintheKarnafuliHydroStation,whichistheonly convention conventionalhydro-e alhydro-electr lectricpowerplantinthe icpowerplantinthe country.Thescopeforconvent country.Thescopeforconventiona ional l hydrop hydropowe ower r genera generatio tion n is very very limite limited d in Bangla Banglades desh h becaus because e of its flat flat terrai terrain n except except in some hilly hilly regions regions in the northeast northeast and southeastparts southeastparts of the country. country. However However the abundance abundance of canals, canals, tributari tributaries es of main rivers rivers (Karnafuli (Karnafuli, , Shangu, Shangu, Matamuhuri) Matamuhuri) aswellas smallwaterfalls smallwaterfalls suggeststhereis suggeststhereis significa significant nt potentialfor potentialfor 7
developingmini/microhydropowerpowergeneration.
Fiscalincentiv Fisca Fiscalincentivesto lincentivesto esto encourageprivate encourageprivate investment investment. Significantfeaturesinclude ntfeaturesinclude the tment. Significa exemptionfromcorporateincometaxforaperiodof15years,allowingrepatriation of equity equity freely, freely, taxexemption taxexemption on intereston intereston foreign foreign loans and theavoidance of 12
doubletaxationincaseofforeigninvestors. InvestmentOpportunities InvestmentOpportunities
Sign Signif ific ican ant t inve invest stme ment nt oppor opportu tuni niti ties es in off off shor shore e gas gas expl explor orat atio ion. n. Exper Experts ts are are optimisticthatBangladeshhasprospectsofdiscoveringmajorpetroleumresources in the deep waters waters of the Bay of Bengal Bengal. . Howeve However r no tangib tangible le stepshavebeen stepshavebeen takensofartoexploreBangladesh’sdeepwaterenergyresources.India,Myanmar, Thaila Thailand, nd, all achie achieved ved signif signific icant ant succes successes ses after after years years of persis persisten tent t effort efforts. s. By contrast,resourcesinBangladesh’sterritorialwat contrast,resourcesinB angladesh’sterritorialwatersremainlargelyunexpl ersremainlargelyunexplored. ored. According Accordingto to Petrobangla Petrobanglastatisti statistics,ifthecountry cs,ifthecountry'sprovenrese 'sprovenreserveof8.4TCFgas rveof8.4TCFgas startsdepletingfrom2012,after2015thecountrywillrequirenewreservestomeet grow growin ing g dema demand nd. . It has been been esti estima mate ted d that that 26 TCF TCF of addi additi tion onal al gas gas will will be requ requir ired ed by 2025 2025 to supp suppor ort t an esti estima mated ted 7% gros gross s dome domest stic ic prod produc uct t (GDP (GDP) ) growth. growth. Internation International al oilcompanies oilcompanies (IOCs)have (IOCs)have beeninvolved inexploration inexploration and 2
developmentofgas. Investorscansetuparefineryplants inChittagongorMongla.Webelieveinvestors Investorscansetuparefineryplants sinChittagongorMongla inChittagongorMongla should should focus on thissector as the Government Government-own -owned ed Eastern Eastern refinery,the refinery,the sole majo major r refi refine nery ry, , is meet meetin ing g only only 40% 40% of the the count ountry ry’s ’s requ requir irem emen ent, t, whil while e the the remainderisimported.TheSaudiHitechInternationalGroupisplanningtosetupa 5.1mntonneoilrefineryinChittagongthroughamanagementpartnershipdealwith Cosmopolit Cosmopolitan an Oil RefineryManageme RefineryManagement nt Ltd. With rising rising oilprices theoil refinery refinery 45
AT Capital Research industryc industrycontin ontinuesto uestolook lookattr attracti active. ve. IndependentPower IndependentPower Producers Producers (IPP) veryprofitab le investment inves tment (IPP) (IPP) canbe can be a veryprofitable veryprofitable investmen tment t forboth local local and foreig foreign n invest investors ors. ors. Curren Currently tly IPPs IPPs have have instal installed led capac capacity ity of 1397 1397 MW 6
whichisroughly25%ofthetotalinstalledcapacityoftheCountry. Atpresentmajor IPPs IPPs in the the mark market et incl includ ude e AES, AES, Summ Summit it Powe Power r Co. Co. Ltd. Ltd., , West Westmo mont nt and and Bon Bon Consortium.TheproportionofIPPspowergenerationisgrowingsignificantly.With thePowerPurchaseAgreement(PPA)providedbythegovernment,manyexternal risk risks s are are also also miti mitigat gated ed, , such such as curr curren ency cy deva devalu luat atio ion, n, gas gas pric price e esca escala lati tion on, , regulatoryriskandcollectionrisk.GaspricesofferedtoIPPsarealsoverycheapat 11
aroundUSD1/MSCF. Smal Small l powe power r plan plants (SPP) ) prov provid ide e sig signi signifi nifica fica icant cant nt nt opportu oppo oppor opportu rtunit tuni nity nity ty y with wit with h lower low lowe lower er r capita cap capi capita ital tal l antts ts (SPP ide e a signif invest investmen ment.IPPswithcapac t.IPPswithcapacity ity of10 to50 MW are consi consider dered ed as SPPs.Allthe SPPs.Allthe investment. IPPsarerunwithnaturalgas.Itremainschallengingtoensureareliablesourceof sufficientgassuppliesforlargepowerplantsuntilnewgasfieldsarediscovered.As SPPs SPPs requi require re less less gas, gas, it is more more feasi feasibl ble e and and prof profit itab able le give given n curr curren ent t supp supply ly constraint constraints. s. SPPs SPPs areoperatedon a Build, Build, Ownand Operate Operate (BOO) (BOO) basis.They basis.They requirelesstimetocompletethetenderprocessandrequireinvestmentofaround 5
USD7mnfora10MWplantwithestimatedIRRsbetween30to40%.Currently12 7
to15companieshaveinvestedinSPPs.
Whilepolitical consensusover consensusoverfurthercoalminingremainsa furthercoalminingremainsan unresolvedissue unresolvedissue, ,we Whilepolitical politicalconsensusover furthercoalminingremainsan nunresolvedissue ,we believ believe e opportuniti oppo op opp port ortuni rtun unit unitie itie ties ies s remain rem re rem main ai ain n for for usin using g coal coal as a sign signif ifiicant cant means eans of powe power r believe opport unities es rema in production.Toquickentheprocessforutilizationofcoalresourcesthegovernment isplanningtoadoptanationalcoalpolicy.Areviewcommitteewillbeconstitutedto finalizethedraftcoalpolicy finalizethedraftcoalpolicy,whichwasrecent ,whichwasrecentlyreview lyreviewedbyan edbyan expertpanel.The expertpanel.The coal coal polic policy y would would neithe neither r be compan company y specif specific ic nor minin mining g method method speci specific fic. . The gove govern rnme ment nt is form formul ulat atin ing g an attr attrac acti tive ve fina financ ncia ial l ince incenti ntive ve pack packag age e for for mine mine develo developer pers. s. The draft draft polic policy y aims aims at raisi raising ng coalcoal-fir fired ed power power produc productio tion n to 20%, 20%, 2
from from curr curren ent t 3% of the the tota total l powe power r gene genera rati tion on by 2015 2015.. As such uch ther there e are are significa significant nt investme investment nt opportunit opportunitiesin iesin coalextractionand coalextractionand coalfiredpowerplants. Aside Aside from from domest domesticsuppl icsupply,good y,good qualit quality y coal coal can be impor imported ted from from China China and Australia. Bangladeshisplanningtoinstallanuclearpowerplantby2015,, Bangladeshisplanningtoinstallanuclearpowerplantby2015, generation Bangladeshis Bangla Bangladeshis deshis planning planning to installa inst install insta alla ll a nuclear nuclear power powerplant plantby by 2015, , with generation capacitybetwee capacitybetween700 n700 MWto1,000MW tomeetthecountry'smounting tomeetthecountry'smountingelectric electricity ity 14
demand. Thetotalinvestmentrequiredinsettingupanuclearplantisanywhere between between USD1.0bn and USD 1.5bn,according 1.5bn,according to sources sources from the Banglades Bangladesh h AtomicEnergyCommission(BAEC).Thesupplychainforanuclearpowerplantis shorte shorter r than than gas, gas, coal coal or liquid liquid fuel fuel based based power power plants plants.. Nuclear Nuclear power plants plants requiremulti-billiondollarinvestmentsforconstructionandmaintenancethoughthe fuel requir required ed for such such plants plants isverycheap compar compared ed to costly costly fossil fossil fuel fuel orgas requir required ed by conven conventio tional nal power power plants plants. . Russi Russia a has offere offered d to provid provide e techni technical cal support ort in the proposed nuclear power plant in Rooppur. Also, Daewoo Engineering,aSouthKoreancompany,hasreportedlyofferedtobuildandoperate 8
alarge-scalenuclearpowergenerationplantinBangladesh. Inst Instal alli ling ng envi enviro ronm nmen ent t frie friend ndly ly Sola Solar r Hom Home Syst System ems s provid ide e a comp compel elli ling ng ems s prov investmentcase.PowerCellestimatedthatifalltheroofsofDhakacityinstallsolar panelsthiscouldgeneratearound300MWofpowerwhichcouldservethedemand 46
AT Capital Research for all fan and lights lights usedresid usedresident ential ially ly..
Solar Solar energyalso energyalso provid providesa esa signi signific ficant ant
opportunity opportunityfor for ruraldevelopm ruraldevelopment,with80%popula ent,with80%populationoftheruralareahavingno tionoftheruralareahavingno accesstoelectricity. Ithasbeenestimatedthatifwindturbineswereinstalledalongthecoastline, 1, Ithasbeenestimatedthatifwindturbineswereinstalledalongthecoastline, line,1 1,000 ,000 MW of powe power r coul could d be gene genera rated ted. Banglad ades esh h has has 724 724 km long long coas coasta tal l belt belt, , ted.. . Bangl around200kmhillycoastlineandabout50islandsintheBayofBengal.Thestrong south/south-westerlymonsoonwind,comingfromtheIndianOceanandhittingthe coastalareasofBangladeshfromMarchtoOctober,areapotentialsourceforwind energy. energy. Wind energy energy could also be used in shrimp shrimp farming, farming, salt / iceproduction, iceproduction, 3
vegetableirrigationanddomestic/householduse.
Biogas Biogas isa growi gro wing ng sou rce e of power power generat gene ration ion. Biogas plants plants are operat operated ed by growin g sourc source rce genera generatio tion. ion. n.. . Biogas GrameenShakti,IDCOL,LocalGovernmentEngineeringDepartment(LGED)and BangladeshRuralAdvancementCommittee(BRAC).Biogascanbeproducedfrom pulp pulp of sug sugar cane, ane, rice ice husk, usk, urba urban n was waste and and poul poultr try y waste aste. . The The adde added d advantageofbiogasistheslurrycanbeusedasgoodqualityorganicfertilizer.This 9
subsectorisstillinitsinfancywi subsectorisstillinitsinfancywithmanyopportunitiesforgrow thmanyopportunitiesforgrowth. th. Conclusion Conclusion
The The Gove Govern rnme ment nt has has take taken n many many init initia iati tive ves s to enco encour urag age e priv private ate and and fore foreig ign n investorstoinvestintheenergysectorinBangladesh,partic investorstoinvestintheenerg ysectorinBangladesh,particularlythroughIPPsand ularlythroughIPPsand SPPs.Anadequateandreliablesupplyofelectricityisanimportantpre-requisitefor increa increasin sing g FDI and achiev achievin ing g Bangla Banglades desh’s h’s aim of becom becoming ing a Middl Middle-I e-Inco ncome me Country.TheGovern Country.TheGovernment menthassetthe hassetthe goalofprovidingelec goalofprovidingelectrici tricitytoallcitizen tytoallcitizensby sby 2020. 2020. To achiev achieve e this this ambit ambitiou ious s target target, , broade broader r partic particip ipati ation on of both both local local and foreigninvestorsinthepowersectoriscritical,ensuringthatalltheenergysources aremaximizedbothlocallyanddomestically.Webelieveenergyremainsoneofthe mostattractivesectorsforglobalinvestorstoconsider.
References References References 1.
InternationalEnergyAgencydatabaseofstatisticsonv InternationalEnergyAgencyd atabaseofstatisticsonvariouscountries ariouscountries availableathttp://www.iea.org/Textbase/stats/index availableathttp://www.iea.org/ Textbase/stats/index.asp.AccessedonM .asp.AccessedonMarch arch 29,2008.
2.
WebsiteofEnergy&Powerathttp://www.ep-bd.com/..Ac WebsiteofEnergy&Powerat http://www.ep-bd.com/..Accessedallthe29 cessedallthe29 issuesfromJanuary1,2007toMarch15,2008.
3.
WebsiteofEnergyBanglaathttp://www.energybangla.com/
4.
PowerCell,AsianDevelopmentBank,&Nex PowerCell,AsianDev elopmentBank,&Nexant.(2006).“PowerSystem ant.(2006).“PowerSystem MasterPlanUpdate”.Availableathttp://energybangla.com/upload/Power.pdf
5.
Primarysources:interviewswithIDC Primarysources:interviewswithIDCOLOfficials. OLOfficials.
6.
WebsiteofPowerCell,adivisionofMinistryof WebsiteofPowerCell,adiv isionofMinistryofPower,Energy&Mineral Power,Energy&Mineral Resourcesathttp://www.powercell.gov.bd/
7.
PowerCell.(2006).“BangladeshPowerDataBook”.Availableat energybangla.com/upload/Bangladesh%20Power% energybangla.com/upload/Ban gladesh%20Power%20Data%20Book.pdf. 20Data%20Book.pdf. 47
AT Capital Research 8.
Robin,I.A.(2006).“ForeignDirectInvestment:ImpactonSectoralgrowthin Bangladesh”.BangladeshBankPolicyNotePN0704.
9.
WebsiteofLocalGovernmentEngineeringDepartment(LGED)at http://lged.org/sre.
10. WebsiteofRenewableEnergyInformationNetworkathttp://www.lgedrein.org/database.php?pageid=21. 11. Primarysources:interviewswithoffi Primarysources:interviewswithofficialsofRuralElectri cialsofRuralElectrificationBoard. ficationBoard. 12. MinistryofEnergyandM MinistryofEnergyandMineralResources.(2004).“P ineralResources.(2004).“PrivateSectorPower rivateSectorPower GenerationPolicyofBangladesh”.Availableat www.powercell.gov.bd/images/additional_i www.powercell.gov.bd/images/additional_images/PSEPGPB mages/PSEPGPB.pdf .pdf 13. WebsiteofEasternRefineryLimitedathttp://www.erl.com.bd/erlwebsite/home/corporateprofile.html 14. Rahman,M.A.(2007).“Nuclearpowerplanttobeinstalledby2015”.Article publishedinTheFinancialExpressonDecember25,2007).Availableat http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=20570
48
AT Capital Research
) y g r e n E n o N ( e r u t c u r t s a r f n I
Infrastructure(NonInfrastructure(Non-Energy) -Energy) Energy)
Bangladesh Bangladesh isa small small country country witha large population. population. It hasvery limited limited resourcesandassets,i.e.restrictedlandarea,capitalandexistingfacilities tobuilditsinfrastructureon.Investmentininfrastructuresystemiscriticalif thecountryistosustainandimproveitseconom thecountryistosustai nandimproveitseconomicoutlook. icoutlook.
Dhakacityisdenselypopulatedwithseveretrafficcongestion.Duetothe lowavailabil lowavailabilityoflandforroadexpansio ityoflandforroadexpansion,onegovernm n,onegovernmentproposa entproposalisthe listhe installati installation on of an underground underground/subw /subway ay metro metro rail. rail. The high density density of city dwelle dwellers rs makes makes such such an invest investmen ment t a potenti potentiall ally y attrac attracti tive ve commer commercia cial l opportunity.
s r e n t r a P l a t i p a C r e g i T n a i s A
Bangl Banglad ades esh h with with its its high high dens densit ity y of road roads, s, make makes s road road tran transp spor orta tati tion on anothe another r possib possible le invest investme ment nt opportu opportunit nity. y. For exampl example, e, with with a relati relativel vely y underi underinv nvest ested ed bus sector sector with with a large large client client base, base, a higher higher quality quality, , large large scalenationalintercitybusoperatorisacommerciallyattractiveproposition fortheprivatesector.
Monglaporthassubstantialexpansionpotential.Thekeytoitsrevitalization as the the count country ry’s ’s seco second nd port port is inve invest stme ment nt in its its oper operat atio ions ns and and in its its complementaryinfrastructure.ThereisaneedfordredgingthePushurriver and building building the Padma Padma bridge bridge which which will connect connect the portto commercia commercial l hubs,mainlyDhaka,Chittagong,andothermajorlandportsofthecountry.
InChittagongport,investmentinsettingupanadjacentprivateportanda deepseaportintheBayofBengal,couldmakeitacompetitiveandcredible regionalcommercialhub.
Bangladesh,ifconnectedwiththeAsianHighway,hasthepotentialtoact as thetransitroute fortrans-national fortrans-national freight freight transport. transport. Integratio Integration n with the AsianHighwayisaprerequisiteforinvestmentinseaportstobeviable.It willalsofacilitatethegrowthofotherrapidgrowinglargeandmediumscale industries,suchastransportation,supportandmaintenancefacilities,hotels and and rest restau aura rant nts, s, and and fuel fuel comp compan anie ies. s. Thes These e are are all all furt further her inve invest stme ment nt opportunitiesforprivatesectorplayers.
Thereare Thereare intere interesti sting ng lesson lessons s tobe learnt learnt fromaround fromaround the worldin worldin large large infr infras astr truc uctu ture re proj projec ects ts such such as rail rail and and toll toll roads roads wher where e Publ Public ic Priv Privat ate e Initiativeshavebeenextremelysuccess Initiativeshavebeenextrem elysuccessfulinachievingbothoperationaland fulinachievingbothoperationaland financialsuccess.
A M Ashfaque Bari Nahid
[email protected]
49
AT Capital Research Majoropportunitiesin infrastructure
A signi signifi fica cant nt enab enabli ling ng fact factor or in econ econom omic ic grow growth th, , and and Bang Bangla lade desh sh fulf fulfil illi ling ng its its potenti potential, al, is a robust robust and suppor supportiv tive e infras infrastru truct cture ure. . The non-po non-power wer sector sector, , from from roadstobridgestorailandports,hasmanyopportunitiesforinvestmentafteryears of underi underinve nvestm stment ent. . With With a focus focused, ed, long long term, term, commer commercia cially lly viable viable, , invest investme ment nt strategyone strategyone could facilitatesigni facilitatesignifica ficantimprovem ntimprovementsto entsto state state owned andoperated transp transport ort syste systems ms, , impro improve ve the operat operatio ional nal effici efficienc ency y of the two major major ports ports and positionBangladeshasahubintheAsianHighway.Cooperationbetweenthepublic andprivatesectoriskeytoitssuccessfulexecution. Subway Subway
Undergroundmetrorailin Dhaka
TheGovernment,intherecentyears,hastakenthestrategicdecisiontoincrease private private sector sector participat participationin ionin infrastruct infrastructure ure developme development. nt. After a longconsultation longconsultation periodofconsideringvariousoptions(i.e.subway,flyovers,elevatedexpressway)to alle allevi viate ate conge congest stio ion n in Dhak Dhaka, a, the the Mini Minist stry ry of Comm Commun unic icati ation ons s appr approv oved ed the the StrategicTransportPlan(STP)forinstallinganundergroundrailwaysysteminthe capi capita tal. l.
Cont Contec ech h Ltd, Ltd, a loca local l firm firm, , cond conduc ucte ted d a feas feasib ibil ilit ity y stud study y last last year year and and
proposeda52kmsubwaywithanestimatedcostofBDT.5200crore(U proposeda52kmsubwaywit hanestimatedcostofBDT.5200crore(USD750mn). SD750mn). The total total subwa subway y projec project t is foreca forecast st to take take 10-12 10-12 years years to comple complete. te. The initia initial l 1
implementationoftheSTPwilltake2yearstocomplete.
Metrorail:Lessonstobelearnt fromThailand
Bang Bangko kok k has has both both an elev elevat ated ed expr expres essw sway ay and and an unde underg rgro roun und d metro etro. . The The undergroundrail undergroundrail,MassRapid ,MassRapidTransit(MR Transit(MRT),wasbuiltonaconcess T),wasbuiltonaconcessionbasi ionbasis,bya s,bya priv privat ate e comp compan any, y, Bang Bangko kok k Metr Metro o Comp Compan any y Limi Limite ted d (BMC (BMCL) L). . Larg Largel ely, y, all all civi civil l infr infras astr truc uctu ture res s were were prov provid ided ed by gove govern rnme ment nt sect sector or, , the the Mass Mass Rapi Rapid d Tran Transi sit t AuthorityofThailand(MRTA)andhandedovertoBMCLunder25-yearconcession agreements.BMCLprovidesM&Eequipments,includingelectricaltrains,signaling syst system ems, s, SCAD SCADA, A, comm communi unica cati tion ons, s, and and PSD PSD for for the the subw subway ay proj projec ect t and and fully fully 2
operatesandmaintainsthesystem.
Similarkindsofarrangementswiththeprivatesectormayfacilitatefastercompletion timeswithreducedlevelsofbudgetaryexpenditure. Railways Railways
BangladeshRailway:reform plan
TheBangladeshRailwayhasatotalnetworkof2,835-routekilometer(BroadGauge 659km, Dual Dual Gauge Gauge -375 -375 km andMeter Gauge1801 Gauge1801 km). km). It has been incurr incurrin ing g significa significant nt lossesfor lossesfor thelast twodecades.In therecent years, years, itsyearlylosshas beenaroundBDT500crore(BDT5bn).InordertoturnBRintoacommerciallyand financiall financiallyviableorgani yviableorganizatio zation,run n,run ina moreefficient moreefficient manner,theGovernm manner,theGovernmenthas enthas givenitmoreautonomyandchangeditsorganizationalstructure.TheADBissetto providetheGovernmentwithUSD430mnforitsdevelopmentandreform.Thefunds arebeinggivenwiththeprovisionthatBangladeshRailwayisturnedintoapublic 3
limitedcompany(PLC)whenthereformshavebeencompleted.
RevolutioninIndianRailway
TheIndianRailway TheIndianRailwayhasseenamarkedturnar hasseenamarkedturnaroundfrom oundfroma a hugelossincurri hugelossincurringgiant nggiant to a profit profit makin making g company company. . In a marked marked depart departure ure from from its its legacy legacy, , the focuson focuson capacityutilization,reductioninunitcosts,andimprovementofqualityofservicehas yiel yielde ded d rema remark rkab able le resu result lts. s. Reco Recogn gniz izin ing g the the need need for subs substa tanti ntial al fina financ ncia ial l and and manag anager eria iall capi apital, al, the the Railw ailway ays s Minis nistry try have ave been been acti activ vely ely seek eeking ing and and encouragingincrease encouragingincreased d private private sector sector involvemen involvement. t. The first steps in thisdirection thisdirection 50
AT Capital Research havebeentheawardingofcontaineroperationlicensesto14privateplayers.Other areas areas earmar earmarke ked d for Public Public Privat Private e Partner Partnershi ship p (PPP) (PPP) inclu include de proje projects cts like like the dedicatedfreightcorridor,commercialutilizatio dedicatedfreightcorridor,com mercialutilizationofsurplusrailwayland,andcre nofsurplusrailwayland,andcreating ating 4
inlandcontainerdepotsandwarehouses.
BangladeshRailwaycouldemulatethisexamplebyincorporatingtheprivatesector into into its operati operations ons. . Outsou Outsourci rcing ng or sellin selling, g, both both core core and suppor supportin ting g functi functions ons, , to privatesectorparticipants,leasingoutitsnon-operatingassets,buildingnewrailline trackscouldbringsignificantcomm trackscouldbringsignificantcommercialandoperationaladvantages. ercialandoperationaladvantages. Roads Roads
Maintenanceofthevastroad network
Bangladesh Bangladesh,thoughasmallanddensel ,thoughasmallanddenselypopulat ypopulatedcountr edcountry,hasoneofthehighest y,hasoneofthehighest roaddensitiesintheworld. Thisindicatesnotonlyagreaterneedtomaintainthis vastnetworkof roads, roads, but also the potentialof potentialof commercia commerciallyviable llyviable private private sector sector invest investmen ments ts in mainten maintenanc ance/r e/repai epair r and new constr construct uction ion given given its high high densit density y usage.
Figure1:Roaddensitiesinselectedcountries 80 70 ) 60 2 m k y 0 50 t i s 0 n 1 e r D e p 40 d s a d o a R o 30 r m k ( 20
10 0 h s e d a l g n a B
S U
a e r o K
a k n a L i r S
a i d n I
a i s y a l a M
d n a l i a h T
a n i h C
l a p e N
Source:Bangladesh:PublicExpenditureReview, Source:Bangladesh:PublicExpenditureReview,Roads,HighwaysandRuralIn Roads,HighwaysandRuralInfrastructure,200 frastructure,2001 1
8
Recurrentfloodi Recurrentflooding,highintensity ng,highintensity rainfall,anda rainfall,anda highincidenceof highincidenceof tropicalcyclo tropicalcyclones nes providea providea challengeintheconstruc challengeintheconstructionandmainten tionandmaintenanceofa anceofa reliableroadsystem reliableroadsystem. . Everyyear,milesofroadsaredestroyedandtheGovernmentofBangladesh(GOB) strugglestorepair strugglestorepairthemaswellasconstr themaswellasconstructi uctingnewroadsatthesametime ngnewroadsatthesametime.There .There are are many many area areas s wher where e priv privat ate e sect sector or part partic icip ipati ation on coul could d impr improv ove e the the tran transp spor ort t network.Forexample,witharelativelyunderinvestedbussectorandgiventhelarge clientbase,ahigherquality,largescalenationalintercity clientbase,ahigherquality,la rgescalenationalintercitybusoperatoris,webelieve busoperatoris,webelieve, , acommerciallyattractivepropositionforpri acommerciallyattractivepropositionforprivatesectorinvestors vatesectorinvestors. .
Privatizedtollroad
The introd introduct uction ion of privat privatize ized d toll toll roads roads can can ease ease the stress stress on the curren current t road road system system and give the country country a bettermaintained bettermaintained and operated operated transport transport network. network. Valuabl Valuable e lesso lessons ns for effect effective ive privat private e parti particip cipati ation on in projec projects ts can be learnt learnt from from aroundtheworld.
TollroadsinArgentina
A case case stud study y of a succ succes essf sful ully ly priv privat atiz ized ed Buil Build, d, Oper Operat ate e and and Tran Transf sfer er (BOT (BOT) ) infrastructureprojectinArgentinaistheAutopistasdelSol(A infrastructureprojectinAr gentinaistheAutopistasdelSol(ADS)project.Autopistas DS)project.Autopistas del del Sol Sol was awar award ded in 1994, 994, a 2020-year year BOT BOT tol toll-r l-road oad con concess cessio ion n for for the cons constr truc ucti tion on and oper operat atio ion n of the the Buen Buenos os Aire Aires s city city nort norther hern n acce access ss high highwa way y 51
AT Capital Research system.
The
project
developers
were
Sideco
Americana,
Gragados
Y
Construcciones,ImpreglioandIglys. The The init initia ial l proj projec ect t cost cost of appr approx oxim imat atel ely y USD USD 400mn 400mn was was fina financ nced ed by a bank bank syndicatedprojectfinancingfacilityarrangedbyCitibankandanexportcreditfacility provid provided ed by the spons sponsors ors. . Additi Additiona onall lly, y, the sponso sponsors rs provide provided d to the lender lenders s full full guaranteescoveringcompletionriskandlimitedguaranteescoverin guaranteescoveringcompleti onriskandlimitedguaranteescoveringcertainpolitical gcertainpolitical risk risk after after comple completio tion. n. The securi security ty packag package e consis consisted ted of a securi security ty intere interest st over over accountsreceivablesaswellasoverindemnificationrightsofADSpayablebythe Arg Argen enti tine ne gove govern rnme ment nt in the the event event of expr exprop opri riati ation ons, s, nati nationa onali liza zati tion on and and earl early y terminationoftheconcession.Therewasnogovernmentalsupportprovidedforthe projectanditsfinancing. Theproject wasa success,bothoperati success,bothoperationall onallyand yand financial financially.Froman ly.Froman operational operational stan standp dpoi oint nt, , the the proj projec ect t faci facili liti ties es were were com complet pleted ed acco accord rdin ing g to sche schedu dule le and and specificati specifications ons providing providing Buenos Aires Aires with a state-of-t state-of-the-a he-art rt highway highway system system at a reasonablecostfortheconsumersandwithoutanysignificantcostfortheArgentine budget.Fromafinancialviewpoint,approximatelyoneyearafterprojectcompletion, Citiba Citibankand nkand ADS were were able able toarrange toarrange a two-tr two-tranc ancheUSD380mn heUSD380mn Yankee Yankee bond bond offering offering forthe purpose purpose of taking taking out thecommercial thecommercial bank facility.Such facility.Such a project project bond issue issue was was the first first Latin Latin Ameri American can Yankee Yankee bond bond toll toll road road financ financing ing ever. ever. It succe successf ssfull ully y overca overcame me hard hard sellin selling g challe challenge nges, s, such such as no US GAAP-r GAAP-requ equire ired d information(onlyArgentineGAAP),long-termmaturity(12years)comparedtothe 5
termoftheconcession(20years),BB-creditrati termoftheconcession(20y ears),BB-creditratingandsignificantrefinanci ngandsignificantrefinancingrisks. ngrisks. InlandWaterways andPorts InlandWaterwaysandPorts
Inlandwatertransport
Theprivatesectoristhemajorplayer Theprivatesectoristhemajorplayerin in inlandwatertranspo inlandwatertransportatio rtationsector. nsector.Mostof Mostof thevessels,bothpublicandfreight, thevessels,bothpublicandfreight,are are owned andoperatedby andoperatedby theprivatesector. theprivatesector. Inve Invest stm ment ent in this this sect sector or, , targ target etin ing g the the nich niche e marke arket t of uppe upper r clas class s luxu luxury ry commut commuters ers, , can be a highly highly profita profitable ble ventur venture, e, as could could invest investme ment nt in operat operator ors s providingtransporttothegeneralpopulation Bangladesh Bangladesh currently currently has two major major ports, ports, Chittagong Chittagong and Mongla. Mongla. Chittagong Chittagong is
Chittagongport:needsto expanditsfacilities
handlingmorethan80%ofthecountry’sexport-importtradewhileMonglaportisleft largelyunder-util largelyunder-utilized. ized. Theexport-import Theexport-import tradeofthe countryis countryis increasi increasingby ngby more more than20%everyyear,buttheca than20%everyyear,butthecapacit pacityofChittag yofChittagongporthasnotbeen ongporthasnotbeenexpande expandedin din line.Ratheritisoverloadedwiththeincreasingnumberofshipscomingtoloadand offload.InvestmentisrequiredtoconstructmorejettiesintheChittagongport,build privateports,andconstructmorecontainerdepots
Thedeepseaport
A deepsea portin the Bayof Bengal will likely likely openup severalother severalother investme investment nt opportu opportunit nitie ies. s. Integr Integrati ation on with with the Asian Asian Highwa Highway y could could place place Bangla Banglades desh h as a region regional al comme commerci rcial al hub. If a fuel fuel pipeli pipeline, ne, conne connecti cting ng the deep deep water water port port with with transnation transnational al oil supply supply line isbuilt, the portcan flourishas flourishas a refuelingstation refuelingstation for shippinglines. TheMalaysianExperience MalaysianExperience The MalaysianExperience ThePortofTanjungPelepasisadeepwaterportforcontainershipslocatedonthe easter eastern n mouth mouth of the Pulai Pulai River River in southsouth-we weste stern rn Johor, Johor, Malay Malaysia sia. . Recei Receivin ving g its its 52
AT Capital Research Successstory:PortofTanjung PelepasofMalaysia
maidenvesselon10October1999onathree-monthtrialoperation,itsetaworld recordasthefastestgrowingportwith1mnTEUs(Twenty-FootEquivalentUnits)of containershandledafter571daysofoperations. The port port contin continues ues to enjoyspect enjoyspectacu acular lar growt growth. h. Atthe end of 1999, 1999, the termi terminal nal handled20,696TEUs,whichroseto418,218TEUsin2000,2.05mnin2001,and 2.66mnin2002,3.87mnTEUsin2003outstrippingPortKlangandestablishingitself as Malay Malaysia sia's 's larges largest t port. port. In 2004, 2004, it regist registere ered d a 15.2% 15.2% increa increase se to 4,020, 4,020,421 421 TEUs,andcameinastheworld's16thbusiestcontainerport.In2005,PTPhandled 1
4.2mn 4.2mn TEUs, TEUs, and in 2006 2006 an estim estimate ated d 4.6mn 4.6mn TEUs. TEUs. In 2007, 2007, PTP PTP hand handle led d a further further 5.5mn 5.5mn TEUs, TEUs, a growt growth h of 14.5% 14.5% compar compared ed to 2006. 2006. It has achiev achieved ed this this growth growth by provid providing ing altern alternati ative ve to the shippi shipping ng lines, lines, which which were were depend dependent ent on 6,7
Singapore.
Bangladesh,inasimilarway,canprovideanalternativeoptionfortheshippinglines doingbusiness doingbusinessinthe inthe region.Thedeepseaportcouldactasatransitport; region.Thedeepseaportcouldactasatransitport;vessel vessels s can offload offload contai container ners s here here for others others shipsto shipsto upload upload. . Bangla Banglades desh h can can also, also, like like Singapore,HongKongandMalaysia,earnsignificantrevenuesfromadeepwater port.
Monglaportneedsinvestment
MonglaPort,hasthepotentialtobeanalternativetotheChittagongPort,buthas been left left largel largely y underunder-uti utiliz lized. ed. This This port port can be a greatsourc greatsource e of revenu revenue e if an effectiveroadandrailnetworkfromMonglatoDhakaandothercommercialcenters of the the coun countr try y is esta establ blis ishe hed d and the the rive rivers rs of Push Pushur ur and and Mongl Mongla a are are prop proper erly ly dredgedsothattheincomingshipshavethewaterdepththatisneededfortheirsafe movement. SelectedInvestmentOpportunities SelectedInvestmentOpportunities
Undergroundmetrosystem
Thereisalargeinvestment Thereisalargeinves tmentopportuni opportunityintheundergrou tyintheundergroundmetrorail ndmetrorailsysteminthe systeminthe cityofDhaka.TheGovernment cityofDhaka.TheGovern ment ofBangladeshhasrecentl ofBangladeshhasrecentlyapproved yapproved theStrategic theStrategic TransportationPlan(STP)tobuilda52kmsubwayinDhakawhichwillrequireBDT 5,200 5,200 cror crore e (USD (USD 750m 750mn) n). . This This proj projec ect t will will take take 10-1 10-12 2 year years s to comp comple lete te. . The The subwaysystemwillgivethecitydwellersanalternativemodeoftransport,whichwill be free free of traffi traffic c jams jams and take take less less time. time. The high high popul populati ation on densit density y and high high capacityofthesubway capacityofthesubwaysystem systemwillbringthefaredowntoan willbringthefaredowntoan affordable affordablelevel,whil level,while e alsomakingitanattractivecommercialopportunity.
MonglaPort
Monglaporthasexistingportfacilitiesandhugeassets(l Monglaporthasexistingportf acilitiesandhugeassets(land,buildingstructureetc.) and,buildingstructureetc.). . Thereareinvestment Thereareinvestmentopportuni opportunitiesinthisport.Proper tiesinthisport.ProperdredgingofthePushurriver dredgingofthePushurriver (inves (investm tment ent requir requireme ement nt of BDT BDT 50 crore, crore, about about USD 1mn), 1mn), constr construct uction ion of the the bridge bridge over over river river Padma Padma connec connectin ting g Mongla Mongla with with the major major comme commerci rcial al center centers, s, including including Dhaka, Dhaka, installin installing g new container container depots and modern modern technology technology support support wouldmakeMonglaportaprofitableinvestmentandrevitalizeBangladesh’ssecond port.
IntegrationwiththeAsian Highway
PacificConsultantsInternationalhascompletedthefirstphaseofafeasibilitystudy ofadeepseaportintheBayofBengal.Accordingtothereport,thedeepseaport willbeconstructedinthreephases,itwillrequireaninvestmentofBDT46,000crore (USD6bn)andtheentireprojectwillbecompletedby2055.Whilethegovernmentis stil still l consi onside deri ring ng this this proj projec ect, t, we beli believ eve e inve invest stm ment ent in this this proj projec ect t may may offe offerr 53
AT Capital Research significantpotentialreturnsfortheinvestors.IntegrationwiththeAsianHighwayand afuelpipelineconnectingthisportwithtransnationalfuelsupplywillopenupglobal tradeopportunitiesandgreaterrevenuesforthisport. Conclusion Conclusion Thestrategicimportanceofinfrastructure,largecapitalrequirementsandlongterm, predictable predictable revenue revenue streams streams make infrastruc infrastructure ture projects projects extremely extremely attractive attractive for invest investors ors both local locally ly and global globally. ly. After After years years of underi underinve nvestm stment ent coupl coupled ed with with stro strong ng GDP GDP grow growth th, , it is esse essent ntia ial l that that inve invest stme ment nt is made ade in this this sect sector or. . If Bangladesh Bangladesh isto exceed exceed itscurrent trajector trajectory y andaim to be an MIC inthe future. future. The backbo backbone ne in infras infrastru tructu cture, re, whethe whether r that that beroads, beroads, rail rail or water, water, needsto needsto be improved.Withvastglobalpoolsofinfrastructurefundslookingforprojectstoinvest in–morethaneverbefore–thechallengeforBangladeshistobeabletopackage andpresenttheopportunities.
References References
1.
www.bangladeshnews.com.bdfromthefollowinglinks: http://www.bangladeshnews.com.bd/2006/09/07/dhaka-subway-m http://www.bangladeshnews.c om.bd/2006/09/07/dhaka-subway-ministryinistryasked-to-go-ahead-with-proposal/ http://www.bangladeshnews.com.bd/2008/01/15/52b-transport-plan-fordhaka-okayed/
2.
Wikipediasearch“BangkokMetro”.Availableat http://en.wikipedia.org/wiki/Bangkok_Metro.Ac http://en.wikipedia.org/wiki/B angkok_Metro.AccessedonMarch28,2008. cessedonMarch28,2008.
3.
TheFinancialExpress,March17,2008,http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=28296
4.
KPMG.(2007).“InternationalRailwayConferenceNewD KPMG.(2007).“InternationalR ailwayConferenceNewDelhi:ABackground elhi:ABackground Note”. http://www.kpmg.de/docs/International_Railway http://www.kpmg.de/docs /International_Railway_Conference_Background_ _Conference_Background_ Note.pdf
5.
Buljevich,C.E.,&Park,Y.S.(1999),“ProjectFinancingandthe InternationalFinancialMarkets”, pp218-220.Springer.
6.
WikipediaSearch.Availableat http://en.wikipedia.org/wiki/Port_of_Tanjung_Pelepas
7.
OfficialWebsiteofPortofTanjungPelepasathttp://www.ptp.com.my. AccessedonMarch27,2008.
8.
WorldBank&Public-PrivateInfrastructureAdvi WorldBank&Public-Pri vateInfrastructureAdvisoryFacility. soryFacility.(2003).“Private (2003).“Private SolutionsforInfrastructureinBangladesh”.
54
e r u t l u c i r g A
AT Capital Research
Agriculture Agriculture
Agricultur Agriculture, e, comprisin comprising g crops, crops, forests,fisherie forests,fisheries s and livestoc livestock k accountsfor accountsfor more ore than than 20% 20% of GDP and and empl employ oys s over ver 63% 63% of the the work orkfor force of Bangladesh.
s r e n t r a P l a t i p a C r e g i T n a i s A
The The agric agricul ultur ture e sect sector or has has a larg large, e, unde unders rser erve ved d dome domest stic ic mark market et that that providesopportunitiesformanyinvestmentsalongthevaluechain.
Thereisahugegapbetweenthedomesticdemandanddomesticsupplyof seedsandfertilizersthatcanbefilledbylarge-scalei seedsandfertilizersthatca nbefilledbylarge-scaleinvestments. nvestments.
Only17%ofthedomesticdemandformilkismetbythedomesticsupply. Thereisascopeforsizablemilkproductionbyimportinghigh-yieldbreeds ofcattle.
OnlyafewcompaniesareexportingvegetablesandpotatoestotheMiddle East,andEuropeanmarkets.Anumberofcompaniesarelookingforjoint venturepartnerstoexpandtheiroperations.
Ther There e is a shor shorta tage ge of cold cold stor storag age e faci facili liti ties es and thos those e that that exis exist t are are extremely extremely profitable. profitable. This supply supply deficit, deficit, results results in various various vegetables vegetables, , in particular particular, , potatoes,being potatoes,being sold at more than a 25%discount. 25%discount. We believe believe 30-50morecoldstorageswithcapacityof4,500metrictonseach,canbe setupinnorthBangladesh.
Growing Growing global demand demand for Halal Halal food presentsexport presentsexport opportuniti opportunities. es. The onlyfirmthatexportsHalalmeatislookingforequitypartnerstoexpandits
operations.
Globalmarkettrendsforeco-friendlyproductsfavorinvestmentsinjuteand jute-relatedindustries.Privateequitybuyoutsofdistressedstate-ownedjute enterprisescouldprovideinvestmentopportunities.
Nicheareassuchasfrozenfreshwaterfishandtheproductionofaromatic ricealsohavesignificantpotential.
Innovat Innovation ion opport opportuni unitie ties s exist exist in the areas areas of shrim shrimp p produc productio tion n in paddy paddy fields,growingstrawberries,andhigh-yieldingcrops.
AbdullahIbneyyShahid AbdullahIbneyyShahid
[email protected]
Abdullah Abdullah-Al - AlAl- -Farooq Farooq Farooq Al
[email protected]
55
AT Capital Research The case for investment in agriculture is stronger than ever
ArapidlygrowingurbanmiddleclassinBangladesh,risingfoodpricesglobally,and favorableglobaltrendsforHalalfoods,organicfoodsandjuteproductsmakethe agricultur agriculture e sector sector one withsignificant withsignificant potentialfor potentialfor large-scal large-scale e investment investments. s. With more more than than 50% of the the land land being being arab arable le, , the the larg larges est t work workfo forc rce e of the coun countr try y engagedin engagedin agricultur agriculture,and e,and largedomestic largedomesticdemandandsupplygapalongvariou demandandsupplygapalongvarious s stagesinthefoodvaluechain,thecaseforagriculturalinvestmentsinBangladesh isstrongerthanever.
The largest employer in the country
About70% About70 % of ofthe thepopulationlivesinruralareas,with54 populationlivesinruralareas,with54% ofthememployedin About70 %of the populationlivesinruralareas,with54% %ofthememployedin ofthememployedin agricu agr agriculture icultu lture re and the remain remainde der r in the rural rural non-fa non-farm rm sector sector. . The rural rural econom economy y constitutesasignificantcomponentofthenationalGDP,withagriculture(including crops,livestock,fisheriesandforestry)accountingforabout21%andthenon-farm 1,3,11
sector,alsodrivenprimarilybyagriculture,foranother33%. Crops dominate with rice occupying the major share
Cropsaccountforthe forthemajorshareoftheagriculturesector. majorshareoftheagriculturesector. majorshareoftheagriculturesector.In2006-07,keycrops Cropsaccount forthe majorshareoftheagriculturesector. such such as rice rice, , whea wheat t and vege vegetab table les s held held the the majo major r shar share e of agri agricu cult ltur ure e GDP GDP (AGD (AGDP) P). . Other ther crop crops s incl includ ude e maiz maize, e, pul pulses, ses, oils oilsee eeds ds, , toba tobacc cco, o, spic spices es, , jute jute, , 11
sugarcane,potato,andbarley.
Fi gure1:ThecompositionofAGDP gure1:ThecompositionofAGDPofBanglade ofBangladeshin2006shin2006--07 Figure1:ThecompositionofAGDPofBangladeshin2006 -07 8% 14% Crops&vegetable Fishery Livestock Forestry
56%
22%
Source:BangladeshEconomicReview2007
Fisheries experienced rapid growth from 1980 to 2000
Amongnon cropagriculture cropagricu lture,fisheries ,fisherieshave have experiencedrapidgrowthfrom1980to experienced experiencedrapidgrowthfrom1980to rapidgrowthfrom1980to Amongnongnon--cropagriculture,fisherieshave cropagriculture,fisherieshave 2000,increasingitsshareofAGDPfrom10%to23%.Since2000,however,growth 2000, has has slow slowed ed. . Poul Poultr try y expe experi rien ence ced d abov above e 6% grow growth th over over the the seco second nd half half of the the 1
1990s,whilelivestockhasnotgrown. Rice production commands the highest value addition among the crops
Riceproductioncontributesabouttwothirdofthetotalcropvalue.Theyieldinricein Riceproductioncontributesabouttwo--thirdofthetotalcropvalue thirdofthetotalcropvalue Bangladeshislowe BangladeshislowerthanthatinEastAsianecon rthanthatinEastAsianeconomie omiesbutbetterthanthatinIndia sbutbetterthanthatinIndia and Pakistan. Pakistan.Whe Wheat at yields yields in Bangl Banglade adesh sh are lower lower than than those those in the East East and and Sout South h Asian sian econ conomi omies. es. Maiz aize prod produc ucti tio on has has grow grown n signi ignifi fica can ntly tly, due due to productivit productivityfromhighyieldvarie yfromhighyieldvariety(HYV)seeds ty(HYV)seedsand and thehighdemandformaiz thehighdemandformaizeas eas
Rice and wheat needs productivity boost
poultryfeed.Therewas7%growthinpotatoproductionfrom1990to2004,mainly duetotheconstructionoftheJamunaBridge,whichconnectedruralgrowingareas withcentraldistributionsystemsinDhaka.Thegrowthinjute,sugarcane,oilseeds, 1
andpulseshasfallenoveradecadeduetothelackofinvestmentintechnology.
Shrimp, the second foreign exchange earner has become stagnant
Shrimp Shrim p isthe second second largestforeignexchangeearnerafter largestforeignexchangeearneraftertheRMGindustry theRMGindustryand and Shrimpisthesecondlargestforeignexchangeearnerafter theRMGindustry employs employs 600,000 workers. worke rs. However, However, the growth growth in shrimp shrimp exports exports has stagnated stagnated workers. since since 1996 1996 due to the shrim shrimp p farme farmers’ rs’ inabil inability ity to meet meet variou various s sanita sanitary ry, , phytophyto1,11
sanitary,andotherqualityrequirementsofthebuyers.
56
AT Capital Research High import dependence in rice, wheat, and oilseeds
Agricultu Agriculturalimports culturalimport ralimportsare sare are mainlyrice,wheatand mainl yrice,wheatand oilseeds.Ferti oilseeds.Fertilize lizerconstitu rconstitutes2.1% tes2.1% mainlyrice,wheatandoilseeds. yrice,wheatandoilseeds. oilseeds. eeds. of impor imports ts of the countr country. y. Impor Imports ts of key agro-pr agro-produ oducts cts such such as rice, rice, wheat, wheat, and and oil oilseed seeds s grew grew 180% 80% from from 1995 1995 to 2005 2005 bec becaus ause of low level evels s of dom domesti estic c
Rapid urbanization occupies more cultivable land
productivity,rapidurbanizationusingupcultivablelandanddiversionofresourcesto 1,3,11
maizeproduction.
Low-productivity persists because of low technology
*Thisincludessomeagriculturalcapitalmachinery. Source:BangladeshEconomicReview2007 11
Primary activities continue to occupy the major share of AGDP
AGD AGDP P larg larg rgel ely ely cons consis ists ts of low low valu valuee--add item items. s. The The foll follow owin ing g fact factor ors s impe impede de lue e -add add items. diversifi diversificati cation on towards towards high value-adde value-added d crops: crops: shortage shortage of cold storage storage facilities facilities, , lack lack of stan standa dard rdiz izat atio ion, n, insu insuff ffic iciient ent proc proces essi sing ng capa capaci city ty and and tran transp spor orta tati tion on 1,9,11
bottlenecks.
OpportunitiesinBangladeshAgriculture OpportunitiesinBangladeshAgriculture The agriculture agriculture agriculture sector sect sector sector or offers offers offers ample ample busine bus iness ss opport opportuni unitie ties s both in domest domestic ic and agriculture busin iness ess internationalmarkets. markets. international markets. Increasing urban middle class in the domestic market opens up more business opportunities
Theurbanpopulationisapproximately29mnpeopleofwhich22%aremiddleclass, withan average average annual householdincomeof householdincomeof USD3,254. In urbanareas,45% of householdincomeisspentonfoodandbeverageitems.AWorldBankreportfound that Bangladeshwould Bangladeshwould needan additional additional 6.5mn metric metric tons(MT) of vegetables vegetables, , 0.7mnMTofspices,1.6mnMToffruits,1.9mnMToffish,1.4mnMTofmeatand eggs,and2.6mnMTofdairyproductsby2020tomeetdomesticdemand.Globally, risingfoodpricesandincreasingdemandforHalalfoodsandorganicfoodsprovide 2,9,12
newopportunitiesforagrobusinesses.
Thereisahugegapbetweendomesticdemandanddomesti Thereisahugegapbetweendomesticdeman danddomesticsupplyofseedsand csupplyofseedsand fertilizers. fertilizers. Large scale investment opportunities exist for domestic seeds and fertilizer production
95% of all agricu agricultu ltural ral seeds seeds are impor imported ted and only only 5% come come from from local local privat private e sour source ces s. Larg Large e scal scale e inv investm estmen ents ts could ould expa expand nd on the the suc success cess of the the smal smalll domesticprodu domesticproducers cers.Asforfertiliz .Asforfertilizers,there ers,thereisa isa distinctgapofatleast1mnMTper distinctgapofatleast1mnMTper year year. . The The gap gap is curr current ently ly fill filled ed by impo import rtin ing g or purc purcha hasi sing ng from from Karn Karnap aphul hully ly 57
AT Capital Research FertilizerCompanyatBDT31,000perMTvis-à-visthelocalpriceofBDT7,200per MT.Settingup fertilizer fertilizer plants plants witha productioncapacit productioncapacity y of 500,000 500,000 MTper year 12
wouldrequireaninvestmentofUSD450m-500m. Cold-storage facilities are an urgent necessity for greater diversification into high-value adding products
Lack Lack of of cold cold stor storag age functi tion oniing ng cold cold chai chain provid ides oppo op port rtun unit itie ies s for for a a orage age e or a func tioni oning n prov es oppor opp ortu tuni niti ties es countrywidechainofsuchfacilities. countrywidechainofsuchfacilities. This This will will help help export export-or -orien iented ted high high value value added added agricu agricultu lture re busine businesse sses s to grow. grow. Accor Accordin ding g to Xian Xian Zhu, Zhu, World World Bank Bank Countr Country y Direc Director tor in Bangla Banglades desh, h, “high“high-val value ue agri agricu cult ltur ural al prod produc ucts ts tend tend to be high highlly peri perish shab able le, , and and ther there e are are many many risk risks s associatedwithmarketingthesecommodities.Appropriatepoliciesandinvestments in key infras infrastru tructu cture re are needed needed to make make it viable viable for farmer farmers s to switch switch to these these commoditiesandincreaseproduction.”Forexample,everyyearpotatofarmersrisk largequantitiesof largequantitiesof potatoes potatoes going to waste waste dueto inadequatestoragefaciliti inadequatestoragefacilities.In es.In 2007, 2007, there there was was a bump bumper er harve harvest st of potat potatoe oes, s, most most of whic which h farm farmer ers s sold sold to 3,5,9
intermediariesata25%discountduetoinsufficientcoldst intermediariesata25%dis countduetoinsufficientcoldstoragefacilities. oragefacilities.
Domesticproductionofmilkcannotmeetdomesticdemand. Domesticproductionofmilkcannotmeetdomesticdemand. Thesupplychainformilkishighlyfragmented.MoreventureslikeBRACDairy,Pran Milk production does not meet domestic demand
Milkcanhelpinfillin Milkcanhelpinfillingupthegapbetweenthedema gupthegapbetweenthedemandandsupply ndandsupplyofmilk. ofmilk. Dairying isprofitableincertainpartsofthecountry,wherefeedismorereadilyobtainableand where where there there is a milkmilk-mar market keting ing infras infrastru tructu cture. re. Import Importing ing better better breeds breeds of cattle cattle 1
wouldimproveyield. Rapi Rapidl dly y incre incr increas easin asin asing g cons consum umpt ptio ion n and demand nd for fo pulses es cann cannot ot be met met by the the Rapidly Rapid ly and and dema forr puls currentdomesticsupply. currentdomesticsupply. Import substitution of pulses has high potential
Cana Canada da, , Austr ustral alia ia, , and and Fran France ce are are the the key key expo export rter ers s of the the dom domesti estic c pul pulse consumptioninBangladesh.Thelowproductivityinpulsesisduetolowinvestment in tech techno nolo logy gy and and dive divers rsio ion n of reso resour urce ces s to rice rice and and whea wheat. t. Busi Busine ness sses es can can impl implem ement ent larg large e scal scale e prod produc ucti tion on of puls pulses es and and use use high higher er end end tech techno nolo logy gy to 1
competewithCanadian,Australian,andFrenchexportersin competewithCanadian,Austr alian,andFrenchexportersinthedomesticmarket. thedomesticmarket. ExportingorganicfoodcouldbeaprofitableoptionfortheBangladeshagriculture sector. sector.
Global organic market niche is on the rise
TheglobalmarketfororganicfoodanddrinkreachedUSD23bnin2002.Increasing dema demand nd in Nort North h Amer Americ ica a help helped ed fuel fuel the the 10.1% 10.1% incr increa ease se, , as Nort North h Amer Americ ica a overtookEuropeasthelargestmarketfororganicfoodanddrink.Continuedgrowth ispredictedasorganicfoods ispredictedasorganicfoodscustomer customersarelessprice-s sarelessprice-sensit ensitiveandremainloya iveandremainloyalif lif offered offered qualit quality y produc products. ts. Organ Organic ic certif certifica icatio tion n and labeli labeling ng are needed needed to tap the 4
marketeffectively. GrowingdemandforHalalfoodgloballypresentsopportunitiesforexports . GrowingdemandforHalalfoodgloballypresentsopportunitiesforexports. s. The The glob global al mark market et for for Hala Halal lfoo food d is esti estima mate ted d at USD1 USD150 50bnbn-US USD D 500bn 500bn. . The The Demand for Halal food is experiencing sizable growth
estimatefortheindustrygrowthraterangesbetween10-20%.Givensuchdemand, thelargestretailersinEuropesuchasTescoaregraduallyincreasingtheirstocksof Halal foods. foods. Halal meatprocessingpresent meatprocessingpresents s a lucrativ lucrative e businessopportun businessopportunity.The ity.The fragmentedmeatprocessingactivitiesinthecountrycanbeorganizedandscaled 58
AT Capital Research up to brin bring g abou about t cons consid ider erab able le econ econom omie ies s of scal scale. e. Beng Bengal al Meat Meat Proc Proces essi sing ng Industriesisapioneerinmeatprocessingforexport.Ithasbeenreportedthatthe companyisseekingjointventurepartnersforfurtherexpansion. Global Global marke mar ket trends forecofriendly produc pro products ducts ts fav favorinvestments favorinvestme or invest investme mentsin ntsin nts jute andjuteand jutemarket kett trends foreco-friendly -friendly product prod ucts s favor favorinves orinvestm tment ents s in jute andjute relatedindustries. relatedindustries.
Revival of jute is timely due to favorable global market trends for jute-related products
Glob Global ally ly, , peop people le are are lean leanin ing g towa toward rds s the the use use of subst ubstit itut utes es for for wood wood as raw raw materialsforpaper.Pulpformakingpapercanbemadefromnaturalfibreslikejute. Also, Also, large large market markets s like like China China are lookin looking g for altern alternati atives ves to plasti plastics, cs, the use of which which will will be banned banned by mid mid 2008. 2008. Jute Jute bags bags are an altern alternati ative. ve. Accor Accordin ding g to a NielsenGlobalFoodPackagingSurvey,“nearlyoneintwoglobalconsumerswould giveupallformsofpackagingprovidedforconveniencepurposesifitwouldbenefit the environm environment, ent, which which includes includes packaging packaging designed designed for easy stacking/ stacking/stori storing ng at home(49%);packagingthatcanbeusedforcooking,ordoublingasare-sealable container(48%);andpackagingdesignedforeasytransport(47%). Bangladesh Bangladeshhasdeveloped hasdevelopeda a uniquevarietyofjuteseedthatisexpec uniquevarietyofjuteseedthatisexpectedtodouble tedtodouble thecurrentperacreyiel thecurrentperacreyieldofcropandactasmodel dofcropandactasmodelforotherjuteproduc forotherjuteproducingnatio ingnations. ns. The The seed seed name named d “O-9 “O-989 897” 7” will will give give a sign signif ific ican ant t boos boost t to sett settin ing g up of jute jute businesse businessessuccess ssuccessfull fully.The y.The followingspecif followingspecificareascan icareascan beexploredextensivel beexploredextensively: y: jute jute handlo handlooms oms, , non-wo non-woven ven and indust industria rial l applic applicati ations ons, , jute jute rigid rigid packag packagin ing, g, jute jute reinfo reinforc rced ed plasti plastic, c, compos composit ite e jute, jute, decora decorativ tive e jute jute produc products, ts, jute jute based based fabric fabrics, s, upholstery,blanketsandotherhometextiles,juteblendedyarns,fineblendedyarns 7,10
usingjute/cotton,andjutebasedhandicrafts.
Resear Research ch and innovatio tion n is another ano area that that privat private e invest investor or could coul ulddexplor exp explor explore lore e efor for and innova anotther her area co furtherinvestments. furtherinvestments.
Scopeforinvestmentin researchandinnovation
Shrimpproductioninpaddyfieldhasbeensuccessfulonasmallscale.Scalabilityof the the proj projec ect t shou should ld be inve invest stig igat ated. ed. Unus Unused ed exce excess ss land land of the the tea tea garde gardens ns of Bangladesh Bangladesh could be cultivat cultivated ed withlong beansand French French beans. beans. Cultivati Cultivation on of strawberri strawberries es hasbeen successfu successful l on small small scale. scale. Largescale emulationcould emulationcould be undertaken. Conclusion Conclusion Agricultu Agricultureprovides reprovides significa significantopportuni ntopportunitiesforinvestm tiesforinvestmentacross entacross theentirevalue chain,fromseedstoprocessedfoods.Theincreaseinglobalfoodpriceshasmade the need need for impro improved ved yield yields s and new produc product t innova innovatio tion, n, more more compel compellin ling g than than ever, ever, to allevi alleviate ate the domest domestic ic supply supply short shortage age and to provid provide e the potenti potential al for enteringnewexportmarkets.Opportunitiesinresearch,coldstorages,Halalfoods, eco-friendl eco-friendlyand yand organic organic products,milk,and products,milk,and better yieldingcropsmakeagricultu yieldingcropsmakeagriculture re anattractiveinvestmentdestination.
59
AT Capital Research References: References: 1.
WorldBankOffice,Dhaka(2008).“BangladeshStrategyforSustained Growth”.BangladeshDevelopmentSeriesPaperNo.18.
2.
Roy,S.(2008).“ShubirRoy:GlobalFoodShortageAnOpportunity”. BusinessStandardpublishedonMarch05,2008.
3.
WorldBank.“Bangladesh:PrioritiesforAgriculture WorldBank.“Bangladesh:Pri oritiesforAgricultureandRuralDevelopment”. andRuralDevelopment”.
4.
Bodalia,J.(2007).“OrganicFoodIndustryGuide”.Business&IPCenter, BritishLibrary.
5.
WorldBank.(2008).“NeedtoIncreaseSupportforHigh-valueAgriculture andAgribusinessinBangladesh”.
6.
Merrett,N.(2007).“MalaysiaplayshosttoGlobalH Merrett,N.(2007).“Malays iaplayshosttoGlobalHalalForum”.Published alalForum”.Published bywww.meatprocess.comonMay8,2007.
7.
Khan,S.(2008).“Canlostgloryofjuteberevived?”.PublishedinFinancial ExpressonMarch6,2008.
8.
Nath,D.K.(2008).“InvestmentinAgriculturetoAttainSustainability”. PublishedinTheIndependentonMarch26,2008.Availableat http://www.theindependent-bd.com/details.php?nid=77102-->
9.
Zhu,X&Sur,M.(2008).“High-valueagricultureandagri-businessin Bangladesh”.PublishedinTheDailyStaronMarch26,2008.Availableat http://www.thedailystar.net/story.php?nid=23791-->
10. WorldBank.“BangladeshJuteIndustry:timetorisetotheoccasion”. 11. GovernmentofBangladesh.(2 GovernmentofBangladesh.(2008).“BangladeshEconomi 008).“BangladeshEconomicReview2007”. cReview2007”. MinistryofAgricultureoftheGovernmentofBangladeshwebsiteat www.moa.gov.bd. 12. AgriFoodTradeServices,Canada.(2005).“AgriFood-Past,Present,& FutureReportBangladesh”.Availableathttp://atnriae.agr.ca/asia/4057_e.htm.
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AT Capital Research
s e l i t x e T
Textiles Textiles
Bangl Banglad ades esh’ h’s s USD USD 23bn 23bn Text Textil ile e and and Clot Clothi hing ng Indu Indust stry ry is the the coun countr try’ y’s s 1
s r e n t r a P l a t i p a C r e g i T n a i s A
larges largest t export export earner earner.. In 2007 2007, , Read Readyy-ma made de Garm Garmen ents ts (RMG (RMG) ) expo export rts s 2
stoodatUSD9.35bnmakingup75.4%oftotalexports. Theglobalmarket standsatUSD340bnfortextileandapparel.ThebulkofRMGisexported 3
totheEUandUS.
Investmen Investment t opportuniti opportunitieslie eslie in diversify diversifying,includin ing,including g
high-enditemsandexportingtolargelyuntappedmarketsaroundtheworld.
Despiterisingyarnprices,politicaluncertaintyandasluggisheconomy,the two arms arms of the export export-or -orien iented ted RMG RMG Industr Industry y - Woven Woven and Knit Knit - have have grownatacombinedrateof9.2%overthepastyear.TheknitIndustryhas leadgrowth(14.3%),helpedby90%ofyarnrequirementsfortheKnitsector
bein being g sour source ced d loca locall lly. y. Due Due to capi capital tal cons constr trai aint nts, s, only only 35% 35% of the the yarn yarn 4
requiremen requirements ts in the Woven sector sector are sourced sourced locally. locally. Invest Investme mentin ntin the WovenBackwardLinkageIndustrycouldprovidesignificantopportunityfor returnsinthelocalmarket.
High High intere interest st rates rates and a new VAT system system have have seen seen invest investme ment nt in the 5
PrimaryTextileSector(PTS)declinebyalmost43%in2007 .Privateequity investmen investment t could could allow this sector sector to grow substantia substantially. lly. The current current lowqualityPTSprovides qualityPTSprovides investm investmentopportun entopportunities ities forhigherqualitytextile forhigherqualitytextilesfor sfor RMGclothingaswellasforthelocalmarket.
Investment Investment inbranded andhigh-endRMGaccess andhigh-endRMGaccessories ories canmoveRMG up thevaluechain.Currently,PaxardoesthisinDhakaEPZ.Linkingupwith esta establ blis ishe hed d high high-e -end nd US and and Euro Europe pean an acce access ssor ory y comp compan anie ies s woul would d providetheplatformfordoingso.
Bangladesh Bangladeshigarmentworkers igarmentworkers areincreasingly areincreasingly being sought sought afterbyother coun countr trie ies, s, e.g. e.g. over over 100 skil skille led d garm garment ent work worker ers s have have alre alread ady y left left for 6
RomaniainFebruary2008andafurther1,000willgetjobsthere .There areinvestmentopportu areinvestmentopportuniti nitiesto esto setup textileinstitut textileinstitutesto esto trainmoretextile trainmoretextile workersformanpowerexports.
Junaid Khan
[email protected] Masum A Rahman
[email protected]
61
AT Capital Research Manyopportunitiestofurther expandtheTextileSector
TheUSD23bnTextilesandRMGsectorhasthepotentialtogrowintoaUSD50bn sector.Intermsofhighlight sector.Intermsofhighlights,theindustr s,theindustryischaracter yischaracterizedbyahighconcentr izedbyahighconcentration ation oflowvalue-addedproducts;aheavydependenceonimportedintermediateinputs 7
andhasahighregionalconcentrationofexports(mainlyUSAandEU). TheRMGindustryrelatestotheforwardlinkageofBangladesh’stextilesector(e.g. Woven wearand Knitwear)and Knitwear)and hasa largelyexport-ori largelyexport-orientedfocus.The entedfocus.The Primary Primary Textil Textile e Secto Sector r (PTS) (PTS) relate relates s to the backwa backward rd linka linkage ge of the textil textile e sector sector (e.g. (e.g. spinning,weaving,dyeingandfinishing). CurrenttrendsintheTextileand ClothingSectorandPossible Recommendations
The Knitwear Knitwear sector sector is particular particularly ly promising promising with14.3% annual growth growth and has surpassedtheWovensectorasthechiefRMGexport,withanaverageof15new 8
knitfactoriescomingintooperationeverymonthinBangladesh.
Figure1:Comparativeexportsofwovenandknitweargarments 5,000
Knitwe ar Ex Ex por t
W ov ove n Ex Expor t
4,500 4,000 3,500 n 3,000 m D 2,500 S U 2,000
1,500 1,000 500 0
1 9 9 4 9 5
1 9 9 5 9 6
1 9 9 6 9 7
1 9 9 7 9 8
1 9 9 8 9 9
1 9 9 9 0 0
2 0 0 0 0 1
2 0 0 1 0 2
2 0 0 2 0 3
2 0 0 3 0 4
2 0 0 4 0 5
2 0 0 5 0 6
2 0 0 6 0 7
2 0 0 7 0 8 *
FiscalYear
*Forthefirstfourmonths Source:TheDailyStar 4
Growth Growth spinni spi nningmills ngmills. Onaverage, therehas therehas been been double double-di -digit git growth growth inthe Growth Grow th of spinning spinn ing mills. mills.. Onaverage, numberofnewspinningmillsoverthepastfewyears.
Fi gure2:Numberof gure2:Numberofnewspinning newspinningmills mills gure2:Numberofnewspinnin newspinningmill gmills s 35 30 25
r e b 20 m u 15 N 10 5 0 20 0 5
2 00 6
2 0 07
Year
19
Source: BTMA
Thespinningmillsprodu Thespinningmillsproduceyarn,polye ceyarn,polyester sterand and blendedfibersfortheRMGSector blendedfibersfortheRMGSector andprovidebackwardlinkage andprovidebackwardlinkage support.The support.The locallyproduc locallyproducedyarn edyarn providedbythe providedbythe spinningmillstotheknitwearindustryreducesleadtime,ensuringthatthesector remainscompetitive.Asaresult,localspinningmillscatertoabout90%oftheyarn 9
requirementsfortheknitsector,butonly35%ofthatofthewovensector. 62
AT Capital Research DeclineininvestmentinPTS.InvestmentinPTSdeclinedby42.8%in2007mainly DeclineininvestmentinPTS. due to high high inte intere rest st rate rates. s. Entr Entrep epre reneu neurs rs were were not not inte intere rest sted ed in maki making ng new new invest investmen ments ts due to higher higher bank bank intere interest st rates rates of 15-16% 15-16%. . Also, Also, in the 2007-0 2007-08 8 Fiscal Fiscal Budget, Budget, 10%duty and15% VATon theimportof rawmaterials rawmaterials (polyester (polyester staple fibre, viscosestaplefibre,acrylic viscosestaplefibre,acrylic staple staple fibre fibre andpet-chips) andpet-chips) were imposed imposed which which was previo previousl usly y tax-fr tax-free. ee. Busine Business ss confid confidenc ence e had eroded eroded due to politi politica cal l 5
uncertaintyandthegovernment’saggressiveanti-corruptiondrive.
Fi gure3:InvestmentinPTS 18,000 16,000 14,000 12,000 n m 10,000 T D 8,000 B
6,000 4,000 2,000 0 2 005
20 06
20 07
Year 5
Source:TheDailyStar
RisingYarnPrices.Since2007,thepriceofyarnhasrisenconsiderably,mainly RisingYarnPrices. due to global global cotton cotton price price increa increases ses. . Yarn Yarn is the main main raw mater material ial for knitwe knitwear ar manufa manufactu cturin ring g that that makes makes up around around 60% of export export value, value, while while local local spinne spinners rs 10
constitute constitute 75-80% of thedemand. RMGmanufacturersareconcernedthatthey may lose lose intern internati ationa onal l compet competiti itiven veness ess due to the persis persisten tent t price price rises rises of yarn yarn domestica domestically.Howe lly.However,yarnprod ver,yarnproducers ucersof of thePTSsaytheyhavenochoice, thePTSsaytheyhavenochoice,citing citing theriseonthecostofrawmaterials.Cotton,themainrawmaterialforyarn,has regist registere ered d a 30-35% 30-35% hike hike in the intern internati ationa onal l marke market t over over the last last two to three three monthsandBangladeshisstrugglingtoimporttheyarnfromChinaandIndiadueto 11
thepricerise.
Despit Despite e yarn yarn being being 25 cents cents cheape cheaper r in India, India, manufa manufact cture urers rs hardly hardly impor import t yarn yarn throughBenapolelandportduetochallengingproblemsincustoms,bondlicenses 11
andtransportation .Relaxingbureaucraticprocedurestoallowefficientimportation fromIndiawouldfacilitateimport.Thismeasurewillalsoputpressureonlocalyarn manufacturerstoincreasetheirefficiency. Trai Tr aini ning ng Programs. Prog Pr ogra rams ms. . The The gove govern rnme ment nt has has set set up spec specia ial l trai traini ning ng sess sessio ions ns on Training Traini Train ing ng Progra Progr ams. ms. worker workers’ s’ rights rights for garme garment nt factor factory y manager managers s in an attemp attempt t to counte counter r the labor labor unrestthat unrestthat hasthreatenedthesuccess hasthreatenedthesuccess ofthe RMG.Threesessions RMG.Threesessionshavealready havealready been held held withgroup withgroupsof sof around30 around30 manage managersin rsin each.The each.The govern governme mentaims ntaims to invo involv lve e twotwo-to to-t -thr hree ee key key middl iddle e mana manage gers rs from from each each of the the coun countr try' y's s 4000 4000 12
factories. Mistreatmentoftheworkersandinappropriatehandlingofissuesbythe mid-levelmanagershasbeenoneofthemainreasonsbehi mid-levelmanagersh asbeenoneofthemainreasonsbehindrecentlaborunrest. ndrecentlaborunrest. SpecificOpportunitiesfor InvestmentinTextiles
TheTextileSectorprovidesampleopportunitiesforinvestmentinawidevarietyof fields.Thespecificinvestmentopportunitiesare:
63
AT Capital Research PrimaryTextilesSector
InvestmentinthePTS.Investmentshouldbemadeinspinningmillsforthewoven InvestmentinthePTS sect sector or to redu reduc ce depen epende den nce on import ported ed yarn arn and and reduc educe e the the 65% yar yarn requi require reme ment nt that that has to be impo import rted ed. . Ther There e woul would d be thre three e main main adva advant ntag ages es. . Firs Firstl tly, y, it woul would d redu reduce ce lead lead time time, , thus thus incr increa easi sing ng effi effici cien ency cy and comp compet etit itiv ive e advan advanta tage ge. . Seco Secondl ndly, y, fore foreig ign n curr curren ency cy woul would d be save saved d becau because se only only the raw raw materi material al (cotto (cotton) n) would would have have to be import imported. ed. Thirdl Thirdly, y, there there would would be more more local local value-additionthusenablingpreferentialaccesstoEuropeandAmericaaswellas creatingemployment.Chineseinvestorshaveshowninteresttoproducefabricsfor 13
thewovensectorsoBangladeshcouldbenefitfromChineseFDI.
The The 356 356 medi medium um-t -too-la larg rge e weav weavin ing g mill mills s prod produc uce e only only about about 50% 50% of the total total 9
requirementwiththeremainderimported . Thereis a lack of modern modern technolog technology, y, newmachineryandmodernproductionprocessesintheweavingmills.Asaresult, thequalityoffabricproducedbytheweavingmillsfallsfarshortoftherequirements oftheexport-oriente oftheexport-orientedRMGsector. dRMGsector.Thisfabricisusedtocatertothelocalmarke Thisfabricisusedtocatertothelocalmarket. t. There are significa significant nt opportunit opportunities ies for investment investment introduci introducing ng new technolog technology y to take the advantage advantage of the available available demand. demand. Local dyeing-pri dyeing-printingnting-fini finishin shing g mills mills meetaround25%fabricdemandoftheRMGunits.Duetolackofqualityfabrics fromtheweavingmills,mostofthedyeing-finishingunitshavetoimportthefabric. Anotherconstr Anotherconstraining ainingfactoristherisingpriceofchemica factoristherisingpriceofchemicalsthatareusedin lsthatareusedin dyeing dyeing and wash washin ing g plan plants ts. . For For exam exampl ple, e, ther there e was was a 30-5 30-50 0 % rise rise in the the last last year year. . Inve Invest stm ment ent shou should ld be made made to setset-up up dyei dyeing ng--Fini Finish shin ing g unit units s with with the the late latest st 14
technologytomeetthefabricdemandforexportaswellaslocal technologytomeetthefabricdem andforexportaswellaslocalmarkets. markets. GarmentAccessories
Inv In Inve v vest estm stment ent in the the Garm arment ent Acce cc e ssory ory Indu Indus stry tr y urrentl ently y 100 100 acce acces ssory ory cces ess try. y.. . Curr manu manufa fact ctur urin ing g firm firms s meet meet 80% 80% dema demand nd for for acce access ssor orie ies s used used in expo export rtab able le garmen garments ts and knit knit items items. . Howeve However, r, local local indust industrie ries s have have failed failed to manufa manufactu cture re costlyaccessorieslikeornamentalstones,bel costlyaccessorieslikeornamentalstones,beltandclipsforuseinbrand-exportable tandclipsforuseinbrand-exportable 15
garmentitems,whicharenowbeingimportedmainlyfromHongKong . Further Further researchshould researchshould be done to explore explore investment investment opportuniti opportunities es in high-end high-end garme garment nt acce access ssor ory y indu indust stry ry whic which h is virt virtual ually ly unto untouc uche hed d in Bang Bangla lade desh sh. . An interestin interestingfeatureofthe gfeatureofthe garmentacces garmentaccessory soryindustry industryis is thatsuchplantinvestm thatsuchplantinvestment ent costsare costsare low.Forexample,anentrepren low.Forexample,anentrepreneurcansetup eurcansetup afull-fledgedacces afull-fledgedaccessorie sories s industryinBangladeshatacostofBDT40crore,whereasmorethanBDT1bnis 15
requiredforsettingupasmalltextilemillorwovenfactory.
Exporting Bangladeshi BangladeshiBangladeshi-branded brand ed pparel. pparel. Bangladesh Bangladesh’s ’s RMG industry industry can benefit benefit Exporting -branded brande bra branded bran nded ded d apparel. apparel. Bangladeshi-brandedApparel
from from subs substa tanti ntial al inve invest stme ment nt to move move up the the valu valuee-ch chai ain n and and expo export rt bran branded ded clothing. clothing. Currently Currently, , the vastmajority vastmajority of exports exports are t-shirts t-shirts, , shirts, shirts, and sweaters. sweaters. Bangladeshimanufacturersfocustheirproductiononclothingforbigglobalbrands. Theindustryhasearnedthereputationofbeingknownsimplyasa“cutandpaste” manufactur manufacturer er for foreign foreign buyers buyers and theinternational theinternational textile textile community community havethis perceptionthatBangladeshigarmentmanufacturerslackambition.
Bangladeshhasthepotentialtoexportandmarketbrandedapparelsincethereare alreadyhome-gro alreadyhome-grownbrands.Cats wnbrands.Cats Eye, MonsoonRain,Westec MonsoonRain,Westecs,andEcstasy s,andEcstasy are some some popular popular local local brands brands, , appeali appealing ng to both upperupper-inc incom ome e and middl middle-i e-inco ncome me Bang Bangla lade desh shis is. . Cats Cats Eye Eye Grou Group p has has star started ted deve develo lopi ping ng subsub-br bran ands ds in order order to appealto differentsegments differentsegments of the local local market.For market.For example,its example,its Monsoon Monsoon Rain labelisaimedatexecutives,whileitsUNLIMITEDbrandistargetedatyoungand 64
AT Capital Research modern modern buyers buyers. . Both Both Yellow Yellow and Cats Cats Eye Eye are now consi consider dering ing export exporting ing their their designsandbrandsandsettingupstoresabroad.FitEleganceisalreadyexporting 16
itsownrangeofsuits,blazersandtrouserstotheUK. Investmentisneededto supp suppor ort t the the cost cost of deve develo lopi ping ng and mark market etin ing g Bang Bangla lade desh shi i clot clothi hing ng bran brands ds in EuropeanandUSMarkets. Stateownedassets.Atpresent,thereare21textilecompaniesundertheBTMCin Stateownedassets. Privatizationofstateownedmills
thenationalizedsector.Theyoperate24spinningmillswithaninstalledcapacityof 17
490,892spindles 490,892spindlesand and 1,036looms. 1,036looms. Thesemillsprovidealucrati Thesemillsprovidealucrativeprivat veprivateequity eequity investmentopportunitythroughprivatization. Needformachinery.Withalmost9,500textileandRMGunitsinBangladesh,there Needformachinery. InvestmentinLightEngineering ofTextiles
isalargeandgrowingpotentialforinvestingintotextilelightengineeringsupport, maintenance,repairsandsparesforallthedifferentmachine maintenance,repairsandspar esforallthedifferentmachinesandequipmentused. sandequipmentused. Inve Invest stm ment ent in text textil ile e and and fash fashio ion n desi design gn inst instit itut utes es. Curren entl tly, y, the the 46 publ publiic es. Curr vocati vocational onal textil textile e instit institute utes s and the 4 fashi fashion on design design instit institutes utes provid provide e traini training ng
Textileandfashiondesign institutes
cour course ses s such such as fash fashio ion n merch erchan andi disi sing ng and and prod produc ucti tion on tech techno nolo logy gy. . Thes These e instit institute utes s add value value to mercha merchandi ndise se export exports s from from the indus industry try throug through h traini training ng profes professio sional nals s at all levels levels, , but but they areinadequa areinadequate te to meet meet the demand demands s of the burgeoningtextilesector.Everyweekabout15newknitfactoriesaresetupalone. There are investme investment nt opportuniti opportunities es for establishi establishing ng new textile textile institutes institutes to train 20
engineersand engineersand fashiondesigner fashiondesignersto sto create create locallydesign locallydesignedfashionaccess edfashionaccessories ories . Initia Initiativ tives es shoul should d also also be undert undertake aken n to attract attract foreig foreign n young young desig designers ners to forge forge linkswiththeinstitutestowidenexperiences. Investmentinhandknittedtoymarket.Thereisagrowingdemandforhand-knitted Investmentinhand-knittedtoymarket. -knittedtoymarket. Hand-knittedtoymarket
children'sclothes,blanketsandbirthdaypartydecorationsintheEuropeanandUS markets. markets. For example, example, Hathay Hathay Bunano is a Bangladesh Bangladeshi i hand-knit hand-knit manufactur manufacturer er thatexportscertifi thatexportscertifiedFairTradeprodu edFairTradeproductswith ctswiththemajority themajorityofthe ofthe goodsshippedto goodsshippedto EuropeanretailerssuchasYellowlabelkids,LarkmadeandUK-basedUrchin.The produ product cts s are are expe expens nsiv ive e but but dema demand nd is quite quite high high beca becaus use e cust custom omer ers s outs outsid ide e Bangladesharepreparedtopayforwell-made,ethicallyproducedtoys-aboxof 18
fiveknitteddonutssellsatUSD34.99(BDT2,450)ontheYellowLabelwebsite . Thehand-knittingindustryisattractiveinmanyways.Thereisnoneedforheavy textil textile e machin machinery ery, , mns of rural rural women women know know how to knit knit and thus thus requir require e little little training,andmostimportantly,hand-knittingcanbedoneathome.Investmentin thissegmentwouldalsoopenthedoorsofemploymenttomnsofruralBangladeshi women women who donot have have the choice choice of workin working g ina garmentfacto garmentfactory ry becaus because e of familyandfarmingduties. Conclusion Conclusion Despit Despite e the textil textile e sector sector already already being being Bangla Banglades desh’s h’s key export export indust industry, ry, there there rem remains ains many any inves nvestm tmen ent t oppo opport rtun uniitie ties. Whil hile the the RMG indus ndustr try y is fai fairly rly devel develop oped ed, , an attr attrac acti tive ve stra strate tegy gy is in movi moving ng up the the valu value e chai chain n with with loca locall lly y branded branded products, products, high-end high-end accessor accessories ies and franchise franchises s withforeign brands. brands. The PTS remain remains s undevel undevelope oped d in many many ways ways but has strong strong domest domestic ic demand demand and privateequitycapitalcouldbecriticalindevelopingthissector.
65
AT Capital Research References References 1.
Interv Interview iew with with Mahmud Mahmudur ur Rahma Rahman, n, Execut Executiv ive e Chairm Chairman, an, Bangla Banglades desh h BoardofInvestment(circa2005)andMalhotra,T.C.(2006).“Bangladesh: Investment(circa2005)andMalhotra,T.C.(2006).“Bangladesh: AGrowingTextileEconomy”.
2.
OfficialwebsiteofBKMEAathttp://www.bkm OfficialwebsiteofBKM EAathttp://www.bkmea.com/facts_fig ea.com/facts_figures.php ures.php
3.
TheIndo-ItalianChamberofCommerceandIndustry.(2007).“Overviewof theTextileIndustryinIndia”.
4.
Mirdha,R.U. Mirdha,R.U. (2008).“Knitw (2008).“Knitwearemerge earemergesasNo sasNo 1exportitem”.Publis 1exportitem”.Published hed inTheDailyStaron6January2008.
5.
Mirdha, Mirdha, R. U. (2008). “Political “Political turmoil,import turmoil,import dutytakes tollon primary primary textiles”.PublishedinTheDailyStaron20January2008,
6.
The The Dail Daily y Star Star. . (200 (2008) 8). . “Rom “Roman ania ia to recr recrui uit t more more Bang Bangla lades deshi hi RMG RMG workers”.PublishedinTheDailyStaron18February2008.
7.
Sam Sampath path, , P, (200 (2007) 7). . “Int “Intel elle lect ctua ual l Prop Proper erty ty and and Inno Innova vati tion on in Leas Least t Develo Developed ped Countr Countrie ies: s: Pharm Pharmace aceuti utical cals, s, Agro-P Agro-Proc rocess essing ing, , and Textil Textiles es andRMGinBangladesh”.UNCTAD.
8.
Mirdha, Mirdha, R. U, (2008). (2008). “Strong “Strong knitwear knitwear exports exports to exceed exceed Govt targets”. targets”. PublishedinTheDailyStaron9March2008.
9.
Sarker,A.H, Sarker,A.H, (2007),“Backw (2007),“BackwardLinka ardLinkageinPromotin geinPromotingTextil gTextile& e& ClothingClothingChal Challe leng nges es from from a Prac Practi titi tion oner er’s ’s View View”, ”, BTMA BTMA Annu Annual al Repor Report t 2007 2007, , Dhaka,Bangladesh,page24.
10.
The Daily Daily Star.(2008) Star.(2008). . “22pcrisein “22pcrisein yarn yarn priceto priceto hit knitw knitwear ear export exports” s”. . PublishedinTheDailyStaron14February2008.
11.
TheDailyStar.(2008).“BTMA defendsyarnpricehike;Termsallegati defendsyarnpricehike;Termsallegation on ofpricemanipulationasbaseless”.TheDailyStaron20February2008.
12.
Khan,J.U.(2008).“GovtmovestotrainRMGmanagerstocounterlabour unrest”.PublishedinTheDailyStaron06February2008.
13.
TheDailyStar.(2008).“Chinakeentoinvestintextilesector”.Publishedin TheDailyStaron13March2008.
14.
Sarker,A.H.(2007),BackwardLinkageinPromotingTextile&Clothing- ChallengesfromaPractitioner’sView,BTMAAnnualReport2007,Dhaka, Bangladesh,page26.. .
15.
Mirdh Mirdha, a, R. U. (2007). (2007).
“Local “Local garme garment nt access accessory ory indust industry ry meets meets 80pc 80pc
demand”.PublishedinTheDailyStar,13December2007, 16.
Mirdha,R.U.(2007).“Localclothesarecool”.PublishedinTheDailyStar, on25March2008,
17.
Khan, Khan, K,(2008). K,(2008). “Busi “Busines ness s can bechild'splay” bechild'splay”. . Publi Publishe shed d in The Daily Daily Staron21March2008.. .
18.
BTMA.(2007).“BTMAAnnualReport2007”,BTMA:Dhaka,Bangladesh.
19 . Primarysources:interviewswi Primarysources:interviewswithBTMCofficials. thBTMCofficials.
66
AT Capital Research
g n i c r u o s t u O
Outsourcing Outsourcing Outsourcing
TheglobaloffshoringmarketisestimatedtobeUSD300bnofwhichUSD 110bn 110bn will will be offsho offshored red by 2010. 2010. There There are signif signific icant ant opport opportuni unitie ties s for Bangladeshtotakeincreaseitspresenceinthissector.
Bangla Banglades desh, h, with with a favour favourabl able e demogr demograph aphic ic in terms terms of a large, large, young, young, popula populatio tion n (Age: (Age: 15-64, 15-64, 95mn) 95mn) compare compared d to theageing theageing popula populatio tion n in the deve develloped oped worl world d can can play play a role role in the the glob global al outs outsou ourc rcin ing g indu indust stry ry. .
s r e n t r a P l a t i p a C r e g i T n a i s A
Bangladeshhasnearly1mnstudentsenrolledintertiary Bangladeshhasnearly1m nstudentsenrolledintertiaryleveleducation. leveleducation.
It has has been been forec forecas aste ted d that that the the wage wage adva advant ntag age e that that Indi India a is enjo enjoyi ying ng versusmanyWesternlabourmarketswi versusmanyWesternlabourmarketswilldiminishby202 lldiminishby2020. 0.
The The Gove Govern rnme ment nt has has put put incr increa easi sing ng emph emphas asis is on outs outsou ourc rcin ing g with with the the introductionoflicensingforcall-centers.BTRCisgivingprioritytocreatean enablingenvironmentinwhichcall-centerscangrow.
Conne onnec ction tions s and and netw networ ork ks are are cruci rucial al for for the the indu indus stry try to flou flouri ris sh. h. LeveragingtheNRBbasecouldalsohelptowinclientsforl LeveragingtheNRBbaseco uldalsohelptowinclientsforlocalcompanies. ocalcompanies.
Govern Governmen ment t initia initiativ tives es like like indust industria rial l parks parks will will help help the sector sector. . Ventur Venture e capitalinvestmentcanalsoplayacrucialrole.
Theopportunityforinvestmentintheeducationsectorwillbesignificantas thereisaclearneedforskilledworkers.Demandforsuchprofessionalswill bemuchhigherthancurrentsupply.
ITandoutsourcingisemerginginBangladesh.Lastyearthecountryearned USD28.6mnfromthesector.Thereareover100companiesinthissector inBangladesh.Weseesignificantgrowthopportunitiesahead.
Ashek Ishtiak Haq
[email protected]
67
AT Capital Research Growing attention on Bangladesh
Increasingglobalattention.RecentlyCrain’sNewYorkBusinessranafrontpage Increasingglobalattention. arti articl cle e titl titled ed “Out “Outso sour urci cing ng move moves s to Bangl Banglad ades esh” h”. . This This enthu enthusi sias asm m about about the the BangladeshiBPOindustryisnotisolated.IndustrialanalystsfromGoldmanSachs toCiscoSystemsarealsopredictingthatBangladeshhasthepotentialtofollowin the steps steps of India. India. As the latter latter loses loses its labour labour cost cost advant advantage age, , opport opportuni unity ty for Bangladesh Bangladesh is becoming becoming increasin increasingly gly clear. clear. With investmen investments ts in universiti universities es and vocational vocational trainingcollege trainingcollegesthereare sthereare manycommerc manycommercialprosp ialprospectsintheBPOand ectsintheBPOand 4
KPOspace. A potential USD 300 bn global industry
The2005NASSCOMThe2005NASSCOM-McKinseyReportsuggeststhatthetotal -McKinseyReportsuggeststhatthetotal McKinseyReportsuggeststhatthetotalpotential potentialmarketfor potentialmarketfor global offshoring offsh oring is approxi appr approx oxima oxim imat matel atel tely ely y USD US D 300bn, hi hich ch 11 n will wi willll be be offshoring offsho oring ring is USD USD D 300bn 300 bn, of of whic h ic h USD 110b 1 110 10bn 0bn bn offshoredby offshoredby 2010.Indiaisforecast togenerateexport togenerateexport revenuesofapproxim revenuesofapproximatel ately y offshoredby2010. USD60bnbygrowingat25%year-on-yeartill2010.China,VietnamandSriLanka 3
areemergingaspreferredoffshoringdestinations.
Fi gure1:Gl obalspendingonITandBPOouts obalspendingonITandBPOoutsourcing ourcing 260
BP O
IT
240 220 n b D S U
200 180 160 140 2 00 6
2 00 7
2008
Year
Source:Economist 1
Thephenomenonofglobalwealth henomenonofglobalwealthcreation. creation. Thep henomenonofglobalwealth creation. Global wealth creation
Dian Diana a Farr Farrel ell l of the the McKi McKins nsey ey Globa lobal l Inst Instit itut ute e term termed ed Outso utsour urci cing ng as the the “Phen “Phenom omen enon on of glob global al weal wealth th crea creati tion on”. ”. Bruc Bruce e Hera Herald ld of IBM IBM esti estima mate ted d that that globallycompaniesbetweenthemspendUSD19treachyearonsalesandgeneral andadministrati andadministrativeexpense veexpenses;onlyUSD1.4trof s;onlyUSD1.4trof thishasbeenoutsour thishasbeenoutsourcedtoother cedtoother firm firms. s. McKi McKins nsey ey in a surv survey ey found found that that soft softwa ware re engi engine neer erin ing, g, bank bankin ing g and IT servicesbetwe servicesbetweenthememplo enthememploymorethan20mnworker ymorethan20mnworkersworldw sworldwide.In2004,16% ide.In2004,16% of IT serv servic ice e work work, , 6% of soft softwa ware re work work and and only only 1% bank bankin ing g work work are are done done remotel remotely.McKi y.McKinse nsey y has also also foreca forecastthatas stthatas muchas muchas half half ofthe work work could could be movedabroad.Ajavaprogra movedabroad.Ajavaprogramme mmerinIndiaonlycosts rinIndiaonlycostsUSD5,000where USD5,000whereastheUS astheUS programmercostsUSD60,000.UStrainedandlicensedradiologistsinIndiacan 1,2
readX-rays,MRIsandCTscansforless readX-rays,MRIsand CTscansforlessthanhalftheirUScounterpartsco thanhalftheirUScounterpartscost. st. IndiaisslowlylosingitsIToutsourcingandBPOadvantage. IndiaisslowlylosingitsIToutsourcingandBPOadvantage India is losing its cost advantage
Wagesare Wagesare risingin risingin India.For India.For example,10,000 example,10,000 keystrok keystrokesofdata esofdata entry maytake aroundUSD10 aroundUSD10 inIndia inIndia wherea whereasthe sthe same same workcan workcan bedoneat half half the rate rate in 8
Bangladesh. Someresearchers Someresearchersbelievethat believethatthe the wagedifferenc wagedifferenceenjoyed eenjoyedby by India will will becompletel becompletely y gone gone by2020. ArmanRoust ArmanRousta a ofBlue-li ofBlue-linerMark nerMarketi eting, ng, a New York online-mar online-marketing keting consultant consultant comments, comments, “India “India is almost almost oversatura oversaturated, ted, but 9
Bangladesh Bangladesh is up-and-com up-and-coming”. ing”. Addi Additi tion onal ally ly the the Indi Indian an Budge Budget t 2008 2008-2 -200 009 9 has has removedsomeoftheincentivesthatthecountryusedtoprovidefortheexportunits undertheSoftwareTechnologyParks(STP)andalsoimpos undertheSoftwareTechnologyPark s(STP)andalsoimposedaminimumalternate edaminimumalternate 5
taxsinceApril1,2007. 68
AT Capital Research The global outsourcingfocus outsour cingfocus shifting towards towards Philippine Phil s, China, China, Vietnam, Vietna m, Sri outsourcing cing focus is shifting Philiippines, ppines, Vietnam, The market is getting bigger
Lanka,Israel,Pakistan andBangladesh Lanka,Israel,Pakistanand and Bangladesh. Bangladesh Nikh Nikhil il Rajp Rajpal al, , VP, VP, globa global l serv servic ices es prac practi tice ce, , Ever Everes est t Grou Group p said said ‘Ind ‘India ia cann cannot ot possiblyhandlealltheworkitgets.Andwithrisingcosts,smallerplayerscanlook 9
to Bangl Banglade adesh sh as an altern alternati ative ve centre centre’. ’. The The tota total l size size of the the ITES ITES secto ector r in Bangla Banglades desh h which which includ includes es both both export export and domest domestic ic BPO BPO is only only USD 150mn 150mn. . 9
Industr Industry y expert experts s foreca forecastit stit tobe doubleor doubleor triple triple inthe nextthreeto nextthreeto fiveyears fiveyears . GlobalplayerCiscoalsobelievesthatBangladeshcouldget10%oftheestimated USD142bnITandback-officeoutsourcingmarket.AccordingtoBASIS,software expo export rt has has seen seen sign signif ific ican ant t grow growth th in rece recent nt year years. s. BD firm firms’ s’ majo major r expo export rtin ing g dest destin inat atio ion n is the the Nort North h Amer Americ ican an mark market et but but rece recent nt new new vent ventur ures es are are with with EuropeanandEastAsian(mainlyJapan)markets.Atleast30companieshaveset up join joint t ventu venture re or ODCs ODCs (Off (Offsh shor ore e Deve Develo lopm pment ent Cent Centre re) ) with with 100% 100% fore foreig ign n 4
investment.
Figure2:ValueofBangladesh'sexportsofsoftwareandITES 30 25 20
n m D 15 S U
10 5 0 2002-03
2003-04
2004-05
2005-06
2006-07
FiscalYear
Source:BangladeshBank
Anewhope. According g to NASSCOM NASSCOM, , in 2007companies 2007companies worldwide worldwide spent USD Anewhope. . Accordin Outsourced call centres
280bn 280bn on outs outsou ourc rced ed call call-c -cen entr tre e serv servic ices es. . Ther There e has been been a rece recent nt push push for for Bangladeshtoenterthismarket;BTRChasstartedtoissuecallBangladeshtoenterthismarket;BTR Chasstartedtoissuecall-centerlicensesata centerlicensesata 5
verylowprice. Anenablingenvironment nvironment Anenablinge nvironment Therecentboominprivateuniversities(fromahandfulfewin1993toabout54at Ther ecentboominprivateuniver ecentboominprivateuniversiti inprivateuniversitie sities(from sities(fromahandfulfewin1993toabout54 es(froma s(fromahandfulfewin1993toabout54 a handfulfewin1993 handfulfewin1993 toabout54at at Increasing knowledge base
theendof2007)hasexpandedthepoolofrelevant exp andedthepoolof edthepoolof releva relevant nthumancapital humancapitalinBusiness theendof2007)has expand expandedthepoolofrelevant humancapital Administration,English,Pharmacy,Environment,LawandComputerEngineering, atbothundergraduateandgraduatelevels.Eachyeareducationaldemandinthese 4
fieldsisincreasingcreatinganeedformorequalityedu fieldsisincreasingcreatinganeedformorequalityeducationalinstitutions. cationalinstitutions. Figure3:ThegraduateworkforceofBangladesh Computer science and software engineers IT-relatedfield,IT-relatedengineers
Upcoming
Fresh Addition
15,000
2,500
40,000
5,500
4
Source:BASIS
69
AT Capital Research Figure4:PotentialworkforceinBangladeshforBPOandITES 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 The grow growth th of infor in forma mati tionontechnology ogy (IT) (IT) relate rel related ated ated d univer universi sitie ties, s, instit instituti utions ons, , and info form rmati ation tion on-technol -technol trai traini ning ng centers cent ce nter ers has led led to the the emer emerge genc nce e of abou about t 400 400 IT and and Info Inform rmat atio ion n training traini ng center s has Tech Techno nolo logy gy Enab Enable led d Serv Servic ices es (ITE (ITES) S). . Ther There e are are more more than than 100 100 com compani panies es export exporting ing to around around 30 countr countries ies. . Three Three major major catego categorie ries s are: are: custom custom softw software are develo developme pment nt and mainten maintenanc ance, e, multi multimed media ia softwa software re develo developm pment, ent, and websit website e developmen development. t. There is significan significant t opportunity opportunity here to develop develop joint ventures ventures with credibleglobalplayers.Thereiscostsavingincentivefortheglobalplayerandthe 4
benefitofknowledgetransferforthelocalfirm.
Leveraging NRBs
BangladeshalreadyhasalargenumberofNRBsworkinginITrelatedprofessions aroundtheworld. aroundtheworld. Theycan be encouraged encouraged to setup IT enterprise enterprises s in Bangladesh Bangladesh through through various various incentive incentives s e.g.tax benefits, benefits, access access to fundsetc. Their enthusias enthusiasm m to come come back has been been reflec reflected ted in the recent recent NRB NRB confer conferenc ence e in Dhaka. Dhaka. Indust Industry ry promot promotion ion officescanbesetupinkeycitiesaroundtheworld.TheinvolvementofNRBswith expe expert rtis ise e and and expe experi rien ence ce from from Sili Silico con n Vall Valley ey, , for for exam exampl ple, e, will will enha enhanc nce e the the credenceof credenceof Bangladesh Bangladesh’sabilityto ’sabilityto providequalityservi providequalityservices.It ces.It will takecredibility takecredibility, , capabi capabilit lity y and crosscross-cul cultur tural al underst understand anding ing to achiev achieve e operati operationa onal l effici efficienc encies ies. . Raje Rajend ndra ra Bhan Bhanda dari ri of IIM, IIM, Banga Bangalo lore re stud studie ied d five five Euro Europea pean n firm firms s who who have have
The government’s role
outsourcedtoSriLanka;theychosethatcountrybecauseawell-placedSriLankan 1
workedfortheEuropeanfirms. TheGovernmentcontinuestosetupEPZs tofacilitatedifferentindustries. tofacilitatedifferentindustries.Similar TheGovernmentcontinuestosetupEPZs stofacilitatedifferentindustries. tofacilitatedifferentindustries. industrial industrial parks forthe IT sectorswith sectorswith appropriate appropriate fiscal fiscal incentiv incentives es will create create an advantage advantage forentrepreneurs. forentrepreneurs.. Government, , as well as private private venture venture funds, funds, may . Government providefinancing.Suchastrategywillremovetheproblemoflowaccesstofinance forsuchunconventionalbusinessesfromthetraditionalbanks.Thegovernmentof India India did the same same toencourag toencourage e BPO inIndia. Growi Growing ng import importanc ance e toward towards s the sectorwillopenupinfrastructureinvestmentopportunityfortheinvestors. Changing perception
Capabl Capable e human human capita capital l should should be deve de develo dev velo eloped lope ped ped d by by sett se settin setttin ting ing g g up up trai tr traini tra aini ining ning ng ng cent ce center cen nter ters ers s for for shoul uld be cente nters ers rs ss for English,ITand English,ITandothernecessaryskills othernecessaryski otherneces saryskills. lls.A A partnershi partnershipbetweentheindust pbetweentheindustryandthe ryandthe othernecessaryskills academiashouldbeformedtoincreaseavailabilityofgraduateswiththerightkind ofskills.Educationalinstituteprovidingcustommadeprogramsconsistingofthreeyear year degr degree ee cour course ses s supp supple leme ment nted ed by oneone-ye year ar tech techni nica cal l cert certif ific icat ates es can can be formedtomeetindustrydemand. BPOhasawealth BPOhasawealth wealthofbusinessopportunities ofbusinessopportunities forlocalbusinesses forlocalbusinessessuchassellingof ofbusinessopportunitiesforlocalbusinesses variousproductsandservicesforvarious variousproductsandserv icesforvariouscompanies,provis companies,provisionoftechnicalsupport, ionoftechnicalsupport, help-d help-desk esk servi service ce online online and general general inform informati ation, on, follow follow-up -up sales sales suppor support t and service,directoryassistance,databasedevelopment,marketresearch,handlingof credit credit and billin billing g proble problems ms, , telema telemarke rketin ting, g, credit credit card card sales, sales, human human resour resource ces s functions,loanprocessing,accountmanagement,medicalclaimsprocessing,hotel and and airl airliines nes rese reserrvati ations ons, that that can be don done in a cost ost effe effect ctiive manne anner r in 70
AT Capital Research Bangladesh.Businessesneedtobeinformedoftheopportunitiestheymaybeable toleveragefromtheirexistingoperations. Globalopportunities Globalopportunities pportunities CaseStudy:GraphicPeople’sDanishAlliance10 Grap Graphi hicP cPeo eopl ple e star starte ted d its its oper operat atio ion n in Bang Bangla lade desh sh in 2004 2004 as a subs subsid idia iary ry of Dani Danish sh communicationhousePeopleGroup.ThefirmoffersafullrangeofDTPsolutions.Aftertwo yearsofoperation,itssuccessisreflectedinitspositivebottom-linegrowth.Between,20052006revenuehasdoubled,whilethenumberofemployeeshasrisenfrom20in2005to34 in 2007. 2007. Itsclient Itsclient list list inclu includes des intern internati ationa onal l brands brands such such as Dell Dell and Inters Interspor port. t. The firm firm enableditsclientstocutas enableditsclientstocutas muchas muchas 80%expenseswithou 80%expenseswithoutsacrific tsacrificingquali ingquality.It ty.It hasbeen establish establishedin edin collaborati collaboration on withDanida,which hassupported theprojectthroughits B2B program.
Settin Setting g up univer universit sities ies and traini training ng colleg colleges es cater to the signif signific icant ant demand demand. . leges es to cater Expertsforecastby2015,therewillbeaneedfor850,000moreITprofessionalsin 11
Europe. Mostof thesejobswillbeoutsourc thesejobswillbeoutsourced.Soaring ed.SoaringdemandforITgraduate demandforITgraduates s will will make make such such univ univer ersi siti ties es and trai traini ning ng coll colleg eges es high highly ly desi desire red. d. Inte Intern rnat atio iona nal l accreditedtrainingcenterswillalsobeinhighdemand.Bangladesh accordingtoan industryanalysisproduces200,000graduateseveryyearbut,only10-20%ofthese 9
areBPOready. Thecountryhasyettohavethecapabi Thecountryhasyettohavethecapability lity,credibi ,credibilityandcult lityandcultural ural understandingabouttheindustryasIndiabutitcanoffersignificantcostadvantage andalsodiverseexpertise.Withfocusedtrainingthek andalsodiverseexpertis e.Withfocusedtrainingtheknowledgegapcanbeclosed. nowledgegapcanbeclosed. Jointventures enturescanprovideknowledgetransfer canprovideknowledgetransfer. .Thesecanbedevelopedwithglobal Jointventures canprovideknowledgetransfer. playersin playersin outsourcin outsourcing.Proxim g.Proximityto ityto Indiashould beleveraged.Such beleveraged.Such relationshi relationships ps willdiversifyrisksintheJVpartnerscostbaseandprovidemuchneededcredibility forthelocalpartner. Callcentersopportunities TheBTRCisfacilitatingthedevelopmentofcallcentre mentofcallcentres s Callcentersopportunities TheBTRCisfacilitatingthedevelop withtheissueofnewlicenses.CentresdevelopedintandemwithEnglishspeaking clas classe ses, s, may may prov provid ide e an oppor opportun tunit ity y from from the the over oversp spil ill l from from India India’s ’s reso resour urce ce constrainedmarket.AlthoughthesectorhasyettoflourishNikhilRajpalforeseesin 9
thenext2-5years,nearly10,000to20,000callcentrejobswillbegenerated. Knowledgeprocessoutsourcing (KPO) (KPO)workcanbea workcanbea workcanbeadeveloped developed Recentgrowthin Knowledgeprocessoutsourcing utsourcing(KPO) developedRecentgrowthin priv privat ate e univ univer ersi siti ties es is prov provid idin ing g us with with grad gradua uate tes s who who coul could d be util utiliz ized ed for for intellectual
prope operty
or
patent
research,
conten tent
development ent,
R&D
in
phar pharma mace ceut utic ical als s and biot biotec echno hnolo logy gy, , mark market et rese resear arch ch, , equit equity y rese resear arch ch, , data data research,databasecreation,analyticalservices,financialmodeling,animationand simulatio simulation, n, medicalcontent medicalcontent and services services, , remote remote education, education, publishin publishing g and legal legal support.Withadditionalfocusedvocationaltrainingcoupledwithenduserspecific development,skillscouldbedevelopedinalltheseareas. Conclusion Conclusion With With a growi growing ng global global outsou outsourci rcing ng and offsho offshorin ring g market market, , and dimini diminishi shing ng cost cost advant advantage ages s of the tradit tradition ional al provid providers ers, , there there are subst substant antial ial opportu opportunit nitie ies s for Bang Bangla lade desh sh. . With With low low cost cost human human reso resour urce ces s and and the the deve develo lopm pmen ent t of qual qualit ity y educati education on and techno technolog logic ical al infras infrastru tructu cture, re, we believ believe e Bangla Banglades desh h can captur capture e significantmarketshareifthenecessaryfocus significantmarketshareifthenecessaryfocusedinvestmentstrategyi edinvestmentstrategyisinplace. sinplace. 71
AT Capital Research References References 1.
TheEconomist(2004).“SurveyonOutsourcing”.
2.
Corbitt,M.F.(2004).“TheOutsourcingRevolution:WhyitM Corbitt,M.F.(2004).“TheOutsour cingRevolution:WhyitMakesSense akesSense andHowtoDoitRight”.Chicago:DearbornTradeBooks.
3.
NASSCOM-McKinseyReport(2005).“E NASSCOM-McKinseyReport(2005).“ExtendingIndia’sLeadershipofthe xtendingIndia’sLeadershipofthe GlobalITandBPOIndustries”.
4.
BASIS,Content&PublicationDepartment.
5.
FinancialExpress(2008).“Callcentrelicence FinancialExpress(20 08).“Callcentrelicencesfromnextmonth”.Arti sfromnextmonth”.Article cle th
publishedintheFinancialExpresson20 March,2008. 6.
TheWorldBank.(2008).“DoingBusinessin2008”.Availableat http://www.doingbusiness.org/documents/FullR http://www.doingbusiness .org/documents/FullReport/2008/DB08_Full_R eport/2008/DB08_Full_Rep ep ort.pdf.
7.
Walling,E.R.(2007).“50ManagementIdeas”.London:Quercus.
8.
CiteHRHumanResourceManagementComm CiteHRHumanResour ceManagementCommunity(2008).Availableat unity(2008).Availableat http://www.citehr.com/knowledge-process-o http://www.citehr.com /knowledge-process-outsoucingkpo-vt4579.htm utsoucingkpo-vt4579.html. l. rd
Accessedon23 March,2008. 9.
Sachdeva,S.D.(2008)“Bangladeshtoissuecallcentreli Sachdeva,S.D.(2008)“Bangl adeshtoissuecallcentrelicense”.Article cense”.Article th
publishedinTheTimesofIndiaon20 February,2008.Availableat http://timesofindia.indiatimes.com/Busine http://timesofindia.indiatim es.com/Business/India_Business ss/India_Business/Bangladesh_to /Bangladesh_to rd
_issue_call_centre_licences/arti _issue_call_centre_licences/articleshow/2796515.cms cleshow/2796515.cms.Accessedon23 .Accessedon23 March,2008.
10. MinistryofForeignAffair MinistryofForeignAffairsDenmark,Em sDenmark,EmbassyofDenmark,D bassyofDenmark,Dhaka.,2008. haka.,2008. DanishSuccesswithOutsourcingInBanglad DanishSuccesswithOutsourcingInBangladesh.Availableat esh.Availableat http://www.ambdhaka.um.dk/en/menu/Developmen http://www.ambdhaka.um.d k/en/menu/DevelopmentIssues/Business tIssues/Businesstobusin tobusin ess(B2B)Programme/B2B+Case+Stories/C ess(B2B)Programme/B2B+Case+Stories/Case+Story+no+1+G ase+Story+no+1+GraphicPeopl raphicPeopl th
rd
e/.Articlepublishedon8 November,2007.Accessedon23 March. 11. Ray,S.,Sinha,A.K.,&Chaudhuri,S.(2007).“MakingBangladesha LeadingManpowerExporter:ChasingaDreamofUSUSD30bnAnnual MigrantRemittancesby2015”.India:IndianInstituteofManagement Calcutta.
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r e w o p n a M
AT Capital Research
Manpower Manpower Manpower
TheglobalmanpowerindustrywillamounttoUSD600bnby2015.Arecent reportbyDANIDAhasestimatedthatBangladeshc reportbyDANIDAhase stimatedthatBangladeshcouldcapture5%ofthis– ouldcapture5%ofthis–
s r e n t r a P l a t i p a C r e g i T n a i s A
USD30bn.Togain5%marketshareby2015,Bangladeshwouldhaveto send0.8mn-0.9mnpeopleabroadannually.
Theindustrializedworldisagingandfacingnegativegrowthinpopulation, Bangladeshwithayoungandenergeticpopulationhasahugeopportunity tobenefit.
EmergingEuropeaswellasCentralAsianeconom EmergingEuropeaswell asCentralAsianeconomiesaresendingtheirown iesaresendingtheirown manpowertomoreprosperouseconomieswhic manpowertomoreprosper ouseconomieswhichiscreatingavacuumi hiscreatingavacuumin n theirowncountries.Bangladeshcanfillthislabourshortage.
Thereissubstantialdemandforunskilled/semiskilledjobssuchasmasons, cleane cleaners, rs, fabric fabricato ators rs, , carpent carpenter er and garme garment nt operat operators ors. . For skille skilled d jobs jobs
theseincludedoctors,computerprogrammer,engineer,teacher,surveyors andmanagerialjobs.WithfocusedinvestmentintrainingBangladeshcould capitalizeontheseopportunities.
The The curr curren ent t manpo anpowe wer r recr recrui uitm tmen ent t agen agency cy sect sector or rem remains ains rela relati tive vely ly undevelopedandunregulated.Therearesubstantialopportunitiestocreate stand-alon stand-alone e recruitme recruitment nt agenciesand agenciesand ManpowerConsult ManpowerConsultancy ancy firms firms which which provideintegratedtraining&HRservices.
Vocati Vocationa onal l Traini Training ng Instit Institute utes s are critic critical al in develo developin ping g a more more profit profitabl able e manpow manpower er export exports s furthe further r up the value value chain. chain. Bangla Banglades desh h could could aim to emulatethePhilippi emulatethePhilippines’story nes’storyand and developmorenurses developmorenursestargeting targetingan an aging demandindevelopedeconomies.
Ashek Ishtiak Haq
[email protected]
73
AT Capital Research Bangladeshcangrowits manpowerindustryfromUSD 8bntoUSD30bn
TheBangladeshmanpowerexport industryisworthUSD8bn ayear.Inacountry TheBangladeshmanpowerexport industryisworthUSD8bn industryisworthUSD8bnayear ayear with with GDP GDP USD 70bn, 70bn, remitt remittanc ances es are a signif significa icant nt contri contributo butor. r. A recent recent report report sponso sponsored red by the Royal Royal Danish Danish Embas Embassy sy estim estimate ated d that the Global Global Manpow Manpower er industrywill industrywillbe be USD600bn,andBanglades USD600bn,andBangladeshhasanopportuni hhasanopportunitytocapture5%,or tytocapture5%,or USD30bn,ofthemarket(itnowhasa1.8%share).The USD30bn,ofthemarket(itnowhasa1.8%share). The manpower manpoweragenciesand agenciesand othersupportingservicesrevenueisestimatedtobebetweenUSD250mntoUSD 400m 400mn. n. By 2015 2015 it coul could d reac reach h USD USD 1bn 1bn if Bang Bangla lade desh sh can can capi capita tali lize ze on the oppo opport rtun unit ity y. Thro Throug ugh h focu focus sed and and targ target eted ed trai traini ning ng and and inve invest stm ment ent in HR 1
consultancieswebelieveitcouldachievethisgoal.
Globalmobilityisincreasing
A 2003 2003 UN repor re port sugges ests ts about ab out ofpeople are are on the the move move inthe worl world. d. repo port rtt sugg abou out t 3% ofpeople onthe Global Global remittance remittances s through through official official channels channels were estimatedto estimatedto be USD268bn in 2006.ThisisforecasttoexpandtoUSD400bnby2010andcrossUSD600bnby 2015. 2015. Develo Developin ping g countr countries ies’ ’ share share is foreca forecast st at 70% of the total. total. WTO’s WTO’s GATS GATS Mode Mode 4 agreem agreement ent will will grant grant much much greater greater freedo freedom m of movem movement ent of tempor temporary ary workers. workers. The cumulati cumulative, ve, temporary temporary or permanent permanent migratio migration n figure will cross cross 80100mn. With With the the incl inclus usio ion n of unre unreco cord rded ed flow flows s it has has been been esti estima mated ted that that remi remitt ttan ance ces s exceed exceed FDI flows flows to devel developi oping ng countr countries ies. . Among Among the global global top 20 remitt remittanc ance e rece receiivers ers, 8 are are from from dev develop elopiing count ountri ries es. . Coun ountrie tries s rec receivi eivin ng the the most ost remitt remittanc ances es are Mexic Mexico o (over (over USD 25bn), 25bn), India India (USD (USD 23.5bn) 23.5bn), , and China China (USD (USD 22.5bn).Themaincompetit 22.5bn).ThemaincompetitionforBanglad ionforBangladeshwillbefromIndia,Nepal, eshwillbefromIndia,Nepal,Pakistan Pakistan, , SriLanka,Indonesia SriLanka,Indonesiaandthe andthe Philippine Philippines.Inrecenttime s.InrecenttimesNepalandVietnam sNepalandVietnamhave have 1
emergedasnewsourcesoflaborsupply.
Figure1:Top15remittanceearners 2005
2 00 6
S p a i n
U K
25,000
20,000
n m D S U
15,000
10,000
5,000
0
M e x i c o
I n d i a
C h i n a
P h i l i p p i n e s
F r a n c e
B e l g i u m
G e r m
a n y
L e b a n o n
M o r o c c o
B a n g l a d e s h
S e r b i a
P a k i s t a n
R o m a n i a
Source:Ray,Sinha&Chaudhuri(2007)
Remittanceshavegrown threefoldfrom2001to2006
Bangladeshstartedtosendmanpowerabroadinthe1976 abroadinthe1976.Sincethenatotalof4mn Bangladeshstartedtosendmanpower abroadinthe1976 work worker ers s went went abro abroad ad with with 300,0 300,000 00 added added annua annuall lly. y. Remi Remitta ttanc nce e earn earnin ings gs have have grownthreefoldbetween2001and2006,fromUSD1.6bntoUSD4.8bnaccounting for6%oftheincreaseinGDP,30%ofexportearningsand20%ofimportearnings. ThetopdestinationsareSaudiArabiaandUAE.In2006BangladeshreceivedUSD 4.8bn in remittanc remittances, es, up 25% from the prior year. Including Including contributi contributions ons coming coming 1
throughinformalchannelsitcouldexceedUSD8.0bn.
74
AT Capital Research Fi gure2:TopdestinationcountriesforB gure2:Topdestinat ioncountriesforBangladeshi angladeshiworkersi workersin2006 n2006 gure2:Topdestinationcountriesfor Bangladeshiworkersi 4%
5%
UAE
9% 36%
6%
K.S.A Kuwait
10%
Malaysia Singapore 30%
Bahrain Others
Source:Ray,Sinha&Chaudhuri(2007)
Manpowercanprovidemore benefitsthanjustremittances
Manpowerexportscanprovidesignificantnationalbenefits Whileremittancesare Manpowerexportscanprovidesignificantnationalbenefits. esignificantnationalbenefits. .Whileremittancesare widely widely seen seen asthe key econom economicbenefi icbenefit,free t,free of local local econom economic ic downtu downturns rns, , one cann cannot ot under underes esti tima mate te the the valu value e deri derive ved d from from retu return rnin ing g migr migran ants ts brin bringi ging ng back back mana manage geri rial al skil skills ls and and tech techni nica cal l know know-h -how ow. . The The comm ommunit unity y abro abroad ad crea create tes s 1
significantinternationalnetworks.
Bangladesh’scomparative advantageasadestination formanpower
Bangladesh has s a strong strong presen presence ce in manpow manpower er exports exports in many man many many ny y countr cou coun countr ntries trie ies. s. Its Bangladesh has has ha export orts s in ies workershaveagoodreputationandareknowntobeloyal,disciplined,hardworking and and adap adapta tabl ble e and and have have a prop propen ens sity ity to sav save. One of the the key com competi petiti tive ve advantagesis advantagesis the lowaverageage of the workers.95m workers.95m citizens citizens are between between the 1,4
agesof15-64,whosufferfromdomesticunemploymentrateof39.9%.
Figure3:Manpowerexportsbyprofession
8%
Labour
6%
Cleaning
8% 43% 10%
Driver TechnicalPersonnel
15% 10%
Agriculture ConstructionLabour CateringServices
Source:Ray,Sinha&Chaudhuri(2007)
Challenges Challenges To captur capture e market mar kett share share of the growin growing g manpow man power er indust industry, ry, Banglades desh h has to marke market manpower ustry ry, , Bangla
Astructuralchangewhere destinationcountriesare lookingforhigherskills; targetedvocationaltrainingkey tomoveupthevaluechain
investinhumancapitalthrougheducationandtraining.MostBangladeshimigrants investinhumancapitalthro inves investinhumancapital tinhumancapitalthrougheducati througheducationandtraining ugheducationandtraining onandtraining.. are young, young, male, male, unskilled, unskilled, agedbetween15-30 years andpoorlyeducated. andpoorlyeducated. Only 10-20% 10-20% are are cert certif ifie ied d voca vocati tion onal ally ly trai traine ned d and and less less than than 10% 10% gener general al coll colleg ege e graduatesareexporta graduatesareexportable.Trai ble.Traininghasbecom ninghasbecomea ea necessity necessitywiththestructura withthestructuralshift lshift towardsactivitiesdemandinghigherskillandtheemergenceofautomation.Withthe current current deficiency deficiency in vocational vocational training, training, trainingInstituti trainingInstitutionsservingtargetedlabor onsservingtargetedlabor pool such such as mason mason, , cleane cleaner, r, fabric fabricato ator, r, carpen carpenter ter and garmen garment t operato operators rs can createmoreprofitablemanpowerwhichcanbeamorelucrativeexport.Bangladesh can learn learn from from the Philip Philippin pines’ es’ storyand storyand develo develop p more more nurses nurses target targeting ing weste western rn agingpopulationdemand.
75
AT Capital Research Casestudy: :ThePhilippines’Revolution. ThePhilippines’Revolution. Casestudy: ThePhilippines’Revolution. The Philip Philippin pines es have have domina dominated ted the manpow manpower er export export indus industry try since since the 1970s. 1970s. The governmenthasbeentreatingtemporarylabormigrationasaforeignpolicypriorityinboth bilateralandregionaltradenegotiationsforthepastthreedecades.Theyhaveestablished LINKAPILto LINKAPILto enablemigrantsto enablemigrantsto support support developmen development t projectsat projectsat home, ininfrastructure ininfrastructure, , education,andhealthcare.ThroughtheorganizationthemigrantshaveinvestedUSD1bn inthe economy.LINKAPIL economy.LINKAPIL floateddevelop floateddevelopmentbondstargetin mentbondstargeting g migrant migrant workers,special workers,special pensio pension n funds funds which which inclu include de resett resettle lemen ment t and medica medical l servic services es for return returning ing migran migrant t worker workers. s. Philip Philippin pines es remitt remittanc ance e earnin earnings gs for 2006 2006 were were USD 14.9bn 14.9bn more more than than triple triple Bangladesh’sofficialremittances.Thissuccessstoryhasbecomepossibleduetoseveral factors. factors. ThePhilippineshave ThePhilippineshave oneof themost enviable enviable educationsystemsin educationsystemsin Asia. Asia. They have have over over 800 higher higher educat educatio ion n insti institut tutes. es. The Philip Philippin pines es have have 190 univer universit sitie ies s and collegestraining9,000nurseseachyear.Theyproduce50,000teachersperyear.English istheprimarymediumofinstruction.ForyearsThePhilippines’teachershavesuccessfully metandclearedUSteacherlicensureexami metandclearedUSteacherlicen sureexaminati nation.Theyhaveexported on.Theyhaveexported 9,000househol 9,000household d worker workers s in 2006. 2006. 25% of the world’ world’s s seafar seafarers ers are from from Philip Philippin pines. es. The govern governmen ment’s t’s recentinitiativesregardingtheindustryareupgradingworkerskills,orientationcourseson countryspecifi countryspecific c cultureand cultureand language,ensuri language,ensuringhealthand nghealthand safety atthe job-site,obligi job-site,obliging ng theemployerstopayfortravel theemployerstopayfortravelfees,increa fees,increasing singtheminimumwagefrom theminimumwagefromUSD200to USD200to USD 1 400andinterviewingtheemployer.
The The ident dentif cation on, , scre cr e enin en ing g and and regu re gula lati tion recru u itmen tment t agen agenc cies ie s ntiifi ifica fiicati cree eeni ning ng regul eg ulat ati ion of recr crui uitm ies s in in
Reformingtherecruitment agencysector
Bangladeshand Bangladeshand at destinatio desti nation n locations locationsisa priori priority. ty. sector suffer suffers s from from a destinationlocations destin ationlocations locations ions isa isapriority ority ty The sector poorlocalandinternationalimagewithareputationofchargingexcessivefees, dishonestyandinappropriatecontractnegotiation.TheBangladeshAssociationof Inter Interna nati tion onal al Recr Recrui uiti ting ng Agen Agenci cies es (BAI (BAIRA RA), ), an asso associ ciati ation on of 700 700 memb member er agencies,shouldensurebettermonitoring.Acomputerdatabankcanplayavital rolehere, compelli compelling ng the agent to recruit recruit from listed listed workers.Tying workers.Tying theagent’s commissiontosalarynegotiatedwillali commissiontosalarynegotiatedwillaligntheirinterestwiththatoftheemploy gntheirinterestwiththatoftheemployees. ees.
Policylevelrelationship building
Anotheressentialobjective objectiveisbuildingtrustandthroughasuperiorbrandimage isbuildingtrustandthroughasuperiorbrandimage isbuildingtrustandthroughasuperiorbrandimage. Anotheressential objective Strategictiesand Strategictiesand relations relationshipswithcountri hipswithcountrieswheremigrant eswheremigrantsgo sgo toworkshould be deve develo lope ped. d. Trad Trade e atta attach ches es have have to proa proact ctiv ivel ely y prom promot ote e Bang Bangllades adesh. h. A combin combined ed market marketing ing effort effort both both from privat private e and public public secto sector r showca showcasin sing g the substantialmanpowerresourcesneedstobeformulatedandexecuted. The emerge eme rgence nce of newer newer competiti compet com petiti ition: on: countries ies such such as Turkey Turkey, , Poland Poland, , The emergence emerg ence comp etition on New countr
Theemergingcompetition
Romani Romania, a, Bulgar Bulgaria, ia, Sub-S Sub-Sah ahara aran n Afric Africa, a, Morocc Morocco, o, Somali Somalia, a, Tunisia Tunisia, , Mexic Mexico, o, Jamaica,Colombia,Vietnam,Fiji,andNepalwiththeoldercompetitorssuchas Indi India, a, China hina, , and and Phi Philipp lippiines are are making king the marke arkett more ore com competi petiti tiv ve. Bang Bangla lade desh sh needs needs to posi positi tion on itse itself lf effe effect ctiv ivel ely y incr increas easin ing g its its skil skills ls base base and and retainingitstraditionalcomparativeadvantagesoverothersuppliers. Increa Increasin g channeling channe cha nnelin ling g of remittances remitt rem ittanc ances es thr ough legal legal channels channe cha nnels ls can be facili facilitat tated ed Increasing sing chann channeling eling remit remittance tances tances s through through throug h legal chann els
Effectiveandeconomic financialchannelsrequired forlegitimateremittance transfer
throughreductionintransac throughreductionintransactioncosts tioncostsusingfinancial usingfinancialinstrum instruments.Peopl ents.Peoplerefrain erefrain from from the formal formal channe channels ls becaus because e of better better excha exchange nge rates, rates, time time saving savings, s, low transactio transaction n costs costs andease ofremittance.Restruct ofremittance.Restructuringtheexistingsyste uringtheexistingsystemand mand devel develop opin ing g new prod produc ucts ts can can attr attrac act t forex forex e.g. e.g. exch exchan ange ge rate rate ince incenti ntive ves s for for migra migrants nts, , effici efficient ent and custom customize ized d delive delivery ry syste system m of remitt remittanc ances es. . Change Changed d econ econom omic ic poli polici cies es and and ince incent ntiv ives es may may enco encour urag age e migra igrant nts s to send send more more remittance remittances s home. home. Also recent recent initiative initiatives s like Western Western Union Union joining joining the postal postal 1
servicetodelivermoneywillfacili servicetodelivermoneywillfacilitatemoneytransmittedthroughlegal tatemoneytransmittedthroughlegalchannels. channels. 76
AT Capital Research As As the the work worker ers s from from Emer Emergi ging ng Euro Europea pean n econ ec onom omie ies s are are leav leavin ing g for bett better er rope pean an econo onomi mies es ing g for
NewEUmembernation migrationprovidean opportunityforBangladeshto fillthegap
opportuniti opportunities es in Western Western Europe, Europe, Banglades Bangladesh h has the opportunit opportunity y to serve serve this mark market et. . Rece Recent ntlly Roma Romani nia a has has been been seek seekin ing g Bang Bangllades adeshi hi work worker ers s for for its its garmentsindustry.SimilaropportunitiescanbefoundinPoland,Estonia,Hungary andBosnia.ForexamplePolandhasseenanoutflowofcarpenters,plumbersand electricianstotheUKandissufferingfromshortagei electricianstotheUKandis sufferingfromshortageinitsownmarket. nitsownmarket.
Developednation demographicisand continuestoage;new marketsareopeningup
The curr urrent urr ent surge surge in labordemand lab ordemand been promp prompted ted by faster faster and cheape cheaper r The The currentsurgein c urrentsurgein entsurgein labor or demand demand has been tran transp spor orta tati tion, on, the expan expansi sion on of glob global al labor labor mark market ets, s, a shor shorta tage ge of highl highly y educatedworkers educatedworkersand and anagingworkforcein anagingworkforcein industrial industrializedcount izedcountries. ries. Untilnow, Bangladeshhasbeenabletoaccess20%oftheglobalmanpowermarket.The most most attr attrac acti tive ve coun countr trie ies s in term terms s of unemp unemplo loym yment ent rate rate, , low low birt birth h rate, rate, and and incomeequalityaretheEU,Japan,USAandSouthAsiancountries.Forexample, theUSwillneed21mnmoreworkersby2014.Sevenofthetenoccupationswith the fastes fastest t growth growth are in low-wa low-wage ge servic services es that that requir require e minim minimal al traini training ng (e.g. (e.g. sales rep,janitors, rep,janitors, waiter, waiter, nursing,orderlies nursing,orderlies). ). It hasbeen forecastthat forecastthat by 2015 ther there e will will be deman demand d for 850, 850,00 000 0 IT or E-sk E-skil ill l work worker ers s in Euro Europe pe. . OECD OECD will will requir require e 25mn 25mn worker workers s by2014and 50mn 50mn by2020. Focuse Focused d target targeting ing ofthese 1
marketsprovidessignificantinvestmentopportunities.
Targetedhighquality vocationaltraininginstitutes couldbeverylucrative
Aligningtrainin Alig Aligningtraini Aligningtrainingneed ningtrainingneed ngneed gneed withtheopportunitiescanpresentthelocalentrepren withtheopportuni tiescanpresentthelocalentrepreneurs canpresentthelocalentrepreneurs eurs withtheopportunities withtheopportunities ties with prospects prospects vocati voc ationa l training traini training ng institute. instit ins titute ute. . The most most sought sought after after unskil unskille led d prospect cts s in vocational vocat ional onal insti tute. workerjobsarefor workerjobsarefor mason,cleaner mason,cleaner,fabrica ,fabricator,carpe tor,carpenterandgarment nterandgarmentoperators operators. . For For skil skille led d work worker ers s this this incl include udes s doct doctor ors, s, comp compute uter r prog progra ramm mmer er, , engi enginee neer, r, teacher,surveyorsandmanagerialjobs.Entrepreneursprovidingthesevocational skillswillhavesignificantinves skillswillhavesignificantinvestmentopportunities. tmentopportunities.
Bankscouldposition themselvesforgrowing transactionfeeswithtailored products
Thefinancialindustrycantargetmanpower targetmanpoweremploy employeeswithinnovativeproducts, ees Thef inancialindustr inancialindustrycan ycan targetmanpower targetmanpoweremployees tmanpoweremployees depositschemesorbonds.Philippinegovernmenthasusedthegovernmentbody LINKAP LINKAPIL IL progra program m to float float develo developm pment ent bonds bonds target targeting ing migra migrant nt worker workers, s, and alsospecialpension fund.Both government government and private private sector sector cantake similar similar initiativesforthemigrantworkers.
Onestopshopformanpower exports
High High quali qua lity ty stop stop traini ning ng an and d HR con cons consul sultan ulta tancy tanc ncy cy y provi pro prov provid vider ider ders ers s s for for prospective prospe prospecti ctive ve qual qualit ity y oneone-stop -stop op trai ning ng and HR consul provid viders ers migran migrants ts will will certai certainly nly help help the industry ry. . A fully fully integr integrate ated d high high quality quality servi service ce the indust focusingonthe focusingonthe migrants’voc migrants’vocational ationaland and culturaltraining culturaltraining,recruitm ,recruitmentandcareer entandcareer consultancycouldprovideamorecomprehensi consultancycouldprov ideamorecomprehensiveservicetowork veservicetoworkersandusers. ersandusers. Jointventurealliance withareputedinternationalplacement withareputedinternationalplacementagenc withareputedinternationalplacement agencyfor yfor skilled skilled Jointventurealliances enturealliance s swithareputedinternationalplacement withareputedinternationalplacement agencyforskilled workerscanopenupaprofitablemarketforhighervaluehumanresources.For workers
Leveraginginternational networksandexperience
exam exampl ple e engin enginee eers rs, , soft softwa ware re prog progra ramm mmer ers, s, scie scient ntis ists ts, , mana manage gers rs, , teac teache hers rs, , accountant accountants s are in higher higher demand demand allover the world. world. Internation International al network network can 1
providemoreoptionsfortheirplacements.
Conclusion: :Asdemandincreasesformanpowerglobally,Bangladeshcouldtake Conclusion: 5% or USD 30bn 30bn of the the glob global al marke arket. t. With ith a large arge, , youn young g and and dynam ynamiic populationsufferingfromhighunemploymentdomestically,foreignemploymentis a signif significa icant nt opport opportuni unity. ty. Target Targeted ed skills skills traini training, ng, an effic efficien ient t and transp transpare arent nt employ employmen ment t agency agency indust industry ry and allian alliances ces with with intern internati ationa onal l agenci agencies, es, could could propelBangladeshfurtherupthevaluechain. 77
AT Capital Research References References 1.
Ray,S.,Sinha,A.K.,&Chaudhuri,S.(2007).“MakingBangladesha LeadingManpowerExporter:ChasingaDreamofUSUSD30bnAnnual MigrantRemittancesby2015”.India:IndianInstituteofManagement Calcutta.
2.
TheDailyStar.(2008).“RomaniatorecruitmoreBangladesh TheDailyStar.(2008).“Rom aniatorecruitmoreBangladeshiRMG iRMG th
workers”.ArticlepublishedintheDailyStaron28 February,2008. Availableathttp://www.thedailystar.net/story.php?nid=23894.A Availableathttp://www.thedail ystar.net/story.php?nid=23894.Accessed ccessed th
on25 March,2008. 3.
CIAFactbook.Availableathttps://www.cia.gov/l CIAFactbook.Availableathttps://www.cia.gov/library/publications ibrary/publications/the/theth
world-factbook/geos/bg.html.Accessedon25 March,2008. 4.
Mahmud,M.(2004).“YouthlosttoJoblessness”.Ar Mahmud,M.(2004).“Youthlo sttoJoblessness”.ArticlepublishedinThe ticlepublishedinThe th
DailyStaron13 October,2004.Availableat http://www.thedailystar.net/2004/10/13/d4101301011.htm.Accessedon h
25t March,2008.
78
s l a c i t u e c a m r a h P
AT Capital Research
Pharmaceuticals Pharmaceuticals
WithaUSD600mnindustryandanaverageannualgrowthrateof12%,the Bangladeshipharmaceuticalindustryisthebiggest(involume)amongstall theLDCs.
Primaril Primarilya ya genericsindust genericsindustryproduc ryproducingabout8,000differe ingabout8,000differentbrandswhich ntbrandswhich meet meet 97% of the domest domestic ic demand demand. . Local Local compan companies ies enjoy enjoy 86% market market share.Ofthe245registeredpharmaceuticals,thetoptenplayersaccount
s r e n t r a P l a t i p a C r e g i T n a i s A
for65%marketshare.
AccordingtotheWTOTRIPSagreement,LDC’sareexemptedfrom“Patent Prot Protec ecti tion” on” unti until l 2016 2016 allo allowi wing ng lega legal l reve revers rse e engi engine neer erin ing g and and sale sale of
patentedproducts.ThisprovidesauniqueopportunityforBangladeshover IndiaandChina,whoareunderthepatentregime.
Bangladesh Bangladesh hasmade significan significant t progressin progressin the export export market. market. Between Between 2003 and 2006 2006 pharm pharmace aceuti utical cal export exports s increa increased sed to about about 61 countr countries ies
from51andquadrupledinvaluefromUSD7.9mntoUSD36.5mn.
Sinc Since e many many comp compan anie ies s have have acqu acquir ired ed inter interna nati tiona onal l cert certif ific icat atio ions ns like like USFDA,UKMHRAandTGA,Bangladeshcanpenetrateintoregulatedand unregulatedmarkets.
Withthedemiseofreverse-engineeringinIndiaandChina,Bangladeshis in a position to emerge as one of the regional R&D centres for PharmaceuticalResearch.
Bangladeshprovides Bangladeshprovides a strong strong platformfor platformfor off-shorin off-shoring/out g/outsourc sourcinggeneric inggeneric bulk bulk and form formul ulat atio ion n drug drugs s due due to a chea cheap p labor labor forc force e and and esta establ blis ishe hed d infrastructure.
Through Through the establish establishmentof mentof modern modern technicalfaciliti technicalfacilities,the es,the industrycan industrycan emergeasaregionalhubforpre-clinicaltestingandclinical emergeasaregionalhubforpre-clini caltestingandclinicaltrials. trials.
Establ Establish ishme ment nt of adequa adequate te revers reverse e engine engineeri ering ng and API manufa manufactu cturin ring g facili facilitie ties s provid provide e a substa substanti ntial al market market for impor import t substi substitut tution ion as curren currently tly 80%oftheAPIsareimported.
becomeselfsufficientintheproductionofformulations.
Sanwar Ahmed
[email protected]
Local manufactu manufacture re of vaccines vaccines and injectabl injectables es will enableBangladesh to
ThePatentexemptionthroughTRIPSandthegovernmentendorsementas athrustsectorhavepresente athrustsectorhavepresenteda da perfectplatform perfectplatformforthe forthe industrytolaunch industrytolaunch
Dewan Ashrakat Hossain
itselfintotheglobalarena.
[email protected]
79
AT Capital Research Theglobalpharmaceuticalindustry isexpectedto isexpectedtogrowto growtoUSD1.3 Theglobalpharmaceuticalindustryisexpectedto isexpectedto growto USD1.3t USD1.3tnby2020. tnby2020.The nby2020.
TheBangladesh PharmaceuticalIndustry
Bangladeshi Bangladeshi market, market, though currentlysmall currentlysmall from a global perspecti perspective,is ve,is growing growing rapidl rapidly y at an averag average e rate rate of 12%. 12%. Bangl Banglade adesh sh has the larges largest t pharm pharmace aceuti utical cal industryamongtheLeastDeve industryamongtheLeastDevelopedCount lopedCountries(LDC ries(LDC).TheTRIPSagreem ).TheTRIPSagreementhas enthas givenitanadvantageasanLDCtolegallyreverse-engineerpatentedproductsand sellinthelocalmarket.Indiahasrecentlybeensubjectedtopatentprotectionin 2005.ThisplacesBangladeshatanadvantageinthegenericsmarketuntil2016. Give Given n thi this posi positi tion on, , inve invest stm ment ent in vari variou ous s area areas s such such as adeq adequa uate te reve revers rse e engineering engineering facilitie facilities s and API(Active Pharmaceuti PharmaceuticalIngredien calIngredients)plants ts)plants will help 1,3
theindustrycompeteonaglobally. Nepa Nepal, l, Paki Pakist stan an and and Sri Sri Lank Lanka a have have the the capa capabi bili lity ty to make make fini finish shed ed prod produc ucts ts (formulatio (formulations)from ns)from imported imported ingredients ingredients (bulk drugs). drugs). India has the capability capability to producebothbulkdrugsandformulationsintheSouthAsianregion.Currently,the India Indian n phar pharma mace ceut utic ical al indu indust stry ry is one one of the larg larges est t gene generi ric c phar pharma mace ceut utic ical al industries industries in the world. world. However,with However,with thenew patent patent regime regime MNC dominanceis dominanceis 13
anticipatedwiththeneedformoreR&D.
Importofbulkdrugsin neighboringcountries
Pakist Pakistan an meets meets 90% of its bulk bulk drug requir requireme ements nts throug through h impor imports ts from from China, China, Japan, Japan, the UK, UK, Germa Germany ny and India. India. Bangla Banglades desh h impor imports ts 80% of its bulk bulk drugs drugs mainlyfromIndia,ChinaandEurope.SriLankameets98%ofitsdrugrequirements through through importsmainlyfromIndia.AlthoughBanglad importsmainlyfromIndia.AlthoughBangladesh,Nepal, esh,Nepal, Pakistan Pakistan andSri Lank Lanka a can can prod produc uce e form formul ulat atio ions ns, , only only Bang Bangla lade desh sh and and Paki Pakist stan an have have self self-13
sufficiencyintheformulationsegment.
BriefcomparisonwithIndia
Figure1:ComparisonoftheIndianandBangladeshi Marketsize Growthrate APIindustry Exportshare (USDmn) (%) (USDmn) (%) Bangladesh India
600
11.6
28
0.35
6,000
10.0
210
4.10
Source:DDA&USITC9,10
TheBangladeshpharmaceuticalindustryisthelargestwhitecollarlaboremployer. TheBangladeshpharmaceuticalindustryisthelargestwhite --collarlaboremployer collarlaboremployer Itis primarily primarilya a genericsmarket genericsmarket,producingbothpatente ,producingbothpatentedand dand off-patentproduc off-patentproducts. ts. In2007themarketwaswort In2007themarketwasworthUSD600mn hUSD600mn and has grownat grownat anaverage anaverage rateof rateof 12%overthelastfiveyears.Theindustryisdominatedbylocalmanufacturerswho accountfor86%marketshare.Thetoptwodomesticmanufacturers,Squareand Beximco Beximco Pharmaceuti Pharmaceuticals cals havea combinedmarketshare combinedmarketshare of over27%, while while the top ten domestic domestic manufactu manufacturers rers constitut constitute e about64% of thetotal pharmaceut pharmaceutical ical 1,4
marketinBangladesh.
SteadyGrowthinMarketSize
Figure2:Bangladeshpharmaceutical Figure2:Bangl Figure2:Bangladeshpharmaceutica adeshpharmaceuticalsmarket(USDmn) adeshpharmaceuticalsmarket(USD lsmarket(USDmn) smarket(USDmn) mn) 2004
2005
2006
2007
94.1
95.8
123.7
142.2
110.6
120.4
136.8
156.6
107.5
128.2
157.9
154.2
4 quarter
104.4
145.6
91.6
137.6
Total
416.5
490
510
590.6
st
1 quarter nd
2 quarter rd
3 quarter th
Source:IMSReport,4thQuarter-2007 1
80
AT Capital Research Over Ove Overthe Overthe r thelastfew last last few yearsthe yearsthe Bangla Banglades deshi hipharma pharm pharma pharma a industry indus significant t industtry ry has seena significan increaseinexports. exports.AtpresentBangladeshexportstoover65countriesaroundthe increaseinexports. world,themajorityofwhichareLDCs.ExportdestinationsincludeJapan,Canada, 9
Italy,Korea,SaudiArabia,Malaysia,theUKandtheUSA . In term terms s of fini finish shed ed form formul ulat atio ions ns, , the the phar pharma mace ceuti utica cal l indu indust stry ry in Bang Bangla lade desh sh accountsfor97%oflocaldemandwiththebalanc accountsfor97%oflocaldemandwiththebalancerelating erelatingprimaril primarilyto yto theimport theimport ofvaccines.Bangladesh,however,hastoimportalargeportionofAPIrequiredfor finishedformulati finishedformulations.Althoug ons.Although h 21 local local pharmaceut pharmaceuticalcompan icalcompaniesare iesare producing producing 41 APIs APIs, , arou around nd 80% 80% of the the tota total l API API requ requir ired ed by the the indu indust stry ry comes omes from from 4,11
imports.
IncreasingPenetrationof Exports
Figure3:Exportstatistics(USDmn) Year
Finished products
Raw materials
No.of countries
2001 2002 2003 2004 2005 2006 2007
4.5 5.9 7.9 20.3 20.6 36.5 35.9
0.20 0.60 0.30 0.02 0.10 0.10 n/a
17 32 51 62 67 61 65
Source:PrimaryInterview,DDA
CompetitiveAdvantages
Patent exemption exempt exe exemption exemp mption tion ion In 2002, 2002, the ‘Doha ‘Doha Declar Declarati ation’ on’ of TRIPs TRIPs was was adopte adopted. d. LDCs LDCs Patent were were exempt exempted ed from from ‘Pharm ‘Pharmace aceuti utical cal Patent Patent Protec Protectio tion’ n’ until until Year Year 2016. 2016. This This means that Bangladesh Bangladesh can legally legally reverse-e reverse-engine ngineer er patented patented products products and sell theminthelocalmarketaswellasexporttootherLDCs.TheTRIPSagreement can can be used used to ensu ensure re acce access ss to inno innova vati tion on, , inve invent ntio ion n and and affo afford rdab abil ilit ity y of 4
pharmaceuticalproductsandprocessesbydevelopingnations. Regu Regula lato tory ry environment envi en virronment onm onment ent The loca local l drug drug ordi ordina nanc nce e esta establ blis ishe hed d in 1982 1982 was was Regulatory Regul atory envir environmen t The design designedin edin a manner manner toprotectthe toprotectthe localplay localplayers ers. . One claus clause e states states that if4 or morelocalcompaniesmanufactureacertaindrug,noMNCcanimportthatdrug. TheTRIPSagreementalongwiththenationaldrugpolicygivesthelo TheTRIPSagreementalongwiththenational drugpolicygivesthelocalcompanies calcompanies 9
inthegenericsmarketasignificantadvantage.
Strongmanufacturingbase AmongtheLDCsBangladeshistheonlycountrywhich StrongmanufacturingbaseAmongtheLDCsBangladeshistheonlycountrywhich is almost almost 100% depend dependent ent on drugs drugs produc produced ed locall locally. y. Bangla Banglades desh h also also has the larges largest t marke market t size size among among the LDCs LDCs giving giving Bangla Banglades desh h a strong strong manufa manufactu cturin ring g base.Only49LDCs,includingBangladesh,areabletoexporttheirpatenteddrugs. Othercountries Othercountries,includi ,includingIndiaandChinawill ngIndiaandChinawillnot not beabletoexporttheirpatent beabletoexporttheirpatented ed 4
drugs,asthefacilitywillbereservedforLDCsuntil2016. NolicensefeesDuetoitsLDCstatusandthefactthatBangladeshhasnopatent Nolicensefees prot protec ecti tion on for phar pharm maceuti eutic cal prod produ ucts cts, no licens ense fees ees are are paya payabl ble e for for manufacturingandforexporttootherLDCs.Licensefeeswouldbeapplicablefor exporttoanynon-LDCwher exporttoanynon-LDCwherethepatenthold ethepatentholderhasregist erhasregisteredhispate eredhispatent.Nosuch nt.Nosuch fee has has to be paid paid, , eithe either r beca becaus use e the the pate patent nt is not file filed d or beca becaus use e it is not not 4
enforced.
81
AT Capital Research Lowlogisticscosts Lowlogisticscosts AccordingtotheWorldBank’sDoingBusinessreport,inland transportati transportationand onand handlingcostsareverycompeti handlingcostsareverycompetitiveinBanglades tiveinBangladeshat hat USD150 perstandardcargocomparedtoUSD404inIndia,USD520inTanzaniaandUSD 12
600inEthiopia.
Lowcost energy ene Fuel and energy energy is highly highly subsi subsidiz dized ed in Bangla Banglades desh, h, makin making g Low-cost -cost enerrgy gy Fuel 4
pricesverycompetitive. Competitivelaborforce Bangladesh Bangladesh isinternationall isinternationally y very competiti competitivein vein terms terms of laborcost.Laborcostmayaccountforupto50%oftheoverallmanufacturingcost forAPIs.SinceBangladeshimanufacturersarenotfullybackwardintegrated,they 4
cancaptureonlypartofthiscompetitiveadvantage. Exportregulations&prospects Currently Currently,therearenorestrict ,therearenorestrictionsontheexport ionsontheexportof of pharma pharmaceu ceutic ticals als. . The countr country’s y’s existi existing ng “Expor “Export t and Impor Import t Polic Policy” y” is follow followed. ed. According According to the new three-yea three-year r Export Export Policy Policy for FY07 to FY09 pharmaceut pharmaceutical ical products products wereincluded wereincluded in thelist of thrust thrust sectors.Outboundpassenge sectors.Outboundpassengers rs will be abletocarryUSD200worthofproductswiththemabroad.Theallowablelimitfor pharm pharmac aceu euti tica cal l samp sample les s expo export rt is USD1 USD10, 0,00 000. 0. The gove govern rnme ment nt has has plan plans s to introd introduce uce a polic policy y to boost boost export export of pharm pharmace aceuti utical cals s in the near near future future. . Import Import licenseofrawmaterialsareissuedtoallmanufacturerswhichallowthemtoimport 6,7,8
frommostpartsoftheworld.
CaseStudy: :SuccessinOutsourcing SuccessinOutsourcing CaseStudy: SuccessinOutsourcing
Successinoutsourcing
FacinglaggingsalesofpatenteddrugsbyMNCslikeGSKandPfizerintheir homemarkets,decli homemarkets,decliningR&Drevenu ningR&Drevenues,andrisingcosts es,andrisingcosts,manyMNCshave ,manyMNCshave turn turned ed to cont contra ract ct manu manufa fact ctur urin ing g and and rese resear arch ch serv servic ices es (CRA (CRAMS MS), ), cocomarketingalliances,outsourcingofresearchandclini marketingalliances,ou tsourcingofresearchandclinicaltrialstoreducecos caltrialstoreducecosts, ts, increasedevelopmentcapacity,andtrimthe‘timetomarket’fornewdrugs. These strategie strategiespermitMNCs spermitMNCs tofocusontheircorecompeten tofocusontheircorecompetencies, cies,suchas suchas drug drug disc discov over ery y and and mark market etin ing, g, rath rather er than than on manu manufa fact ctur urin ing. g. Indi India a has has emergedastheprincipaldestinationforglobalpharmaceutical emergedastheprincipaldesti nationforglobalpharmaceuticalcompanies. companies. Overthelast5yearstheCRAMSindustryhasbeencontributingcloseto8% of the the tota total l Indi Indian an phar pharma mace ceut utic ical al busi busine ness ss. . Deve Develo lope ped d coun countr trie ies s are are expectedto expectedto further further propel propel theCRAMSindustryto growat nearly 32%from 2006 to 2013 as Indiaoffers global pharmaceu pharm aceutical tical companies companies bothquality - AlthoughasanLDC,Bangladeshis InvestmentinR&D&bulkdrug/APIfacility -AlthoughasanLDC,Bangladeshis andcostadvantage. allowedtomanufacturepatentedproduct allowedtomanufacturepatentedproducts,itisdifficulttosou s,itisdifficulttosourcerawmaterialsor rcerawmaterialsor InvestmentOpportunities InvestmentOpportunities APIs to produce produce patenteddrugs. patented patented drugs. drugs drugs.. . Ascountries like India, China China and Brazilare Brazilare all sourcesofrawmaterialsandsignatoriesofWTO,itisexpectedthattheywillnot
DevelopmentofdomesticAPI market
producerawmaterialsofpatentedproducts.Inordertotakefulladvantageofthe ‘Pos ‘Postt-20 2005 05 Oppo Opport rtun unit itie ies’ s’, , Bangl Banglad ades esh h need needs s to inve invest st in ‘DMF ‘DMF Stand Standar ard d API API Facilities’withallbasicinfrastructures,amenitiesandspecialfacilities.APIfacilities willnotonlyplayasignific willnotonlyplayasignificantroleinimpor antroleinimportsubstit tsubstitution, ution,itwillalsoopenthedoors itwillalsoopenthedoors 4
tomassscaleexports. Tobeabletodothis,properR&Disrequired.Bangladeshcurrentlyhastoimport 80%oftheAPIfromcountriesincludingIndiaandChinaasthelocalR&Drequired 82
AT Capital Research forthereverseengineeringisnotadequate.Ofthetop15APImolecules,only6are loca locall lly y manuf manufac actu ture red d whic which h does does not not incl includ ude e the the high highes est t reve revenu nue e gene genera rati ting ng molec olecul ule. e. The The res rest are are impor ported. ted. Indi India a and China hina have ave been een invo invollved in pharm pharmac aceu euti tica cal l R&D R&D for for seve severa ral l year years. s. In Bangl Banglad ades esh, h, ther there e is no such such R&D R&D facility.InordertotakefulladvantageofthePost-2005opportunities,Bangladesh needs needs to inve invest st in R&D R&D for reverse-en reverse-engineer gineering ing of patented patented drugs. drugs. Since 2005, India India has had to abide abide by patent patent protec protectio tion. n. Thus, Thus, thevast revers reverse e engine engineeri ering ng sect sector or in Indi India a whic which h is more more tech techni nica call lly y adep adept t than than Bang Bangla lade desh sh is at a loss loss. . Bang Bangla lade desh sh shoul hould d aim aim to capi capita tali lize ze on the the redu redund ndan anc cy of Indi India’ a’s s gene generi rics cs 1
industry’s’significantresource.
OutsourcedR&D-leveraging alowcostbase
InvestmentinR&Doutsourcingfacilities InvestmentinR&Doutsourcingfacilities. facilities. Duetolowskilledlaborcostsandother factorssuchassubsidi factorssuchassubsidizedpower zedpower,Banglades ,Bangladeshhasan hhasan advantageasa advantageasa locationfor locationfor possible possible outsource outsourced d R&D. R&D. Bangladesh Bangladesh might collaborat collaborate e with with global players players and performoutsourcedR&Dactivitiesforthem.
Developingatollmanufacturing sector
Investment Investment in contract contract manufacturi manuf acturing ng facilities faciliities ities. itities es. Consi Consider dering ing the large large number number of manufactur ing facil medium medium and small small sized sized pharm pharmace aceuti utical cal firms firms in Bangla Banglades desh h requir requiring ing funds funds to setupproductionunitsforspecifi setupproductionunitsforspecificdrugs,a cdrugs,a potentialinvest potentialinvestmentopportu mentopportunityliesin nityliesin establ establish ishing ing such such plants plants. . Bangla Banglades desh h could could becom become e a contra contract ct manufa manufactu cturin ring g venu venue e for glob global al play player ers. s. The The toll toll manu manufa fact ctur urin ing g indu indust stry ry in Indi India a was was wort worth h 3
USD350mnin2007.
R&Dfornewdrugskeyto developingcompetitive advantagepost2016
Investment Investment in R&Dfor developingnew developingnew drugs. Investmen Investment t in R&Dfacilities R&Dfacilities would would enabl enable e Bang Bangla lade desh sh to deve develo lop p its its own own mole molecu cule les s and and drugs drugs once once the the ‘pat ‘paten ent t exemptionperiod’willbeoverin2016.Inordertocompetewithglobalplayers,the industryhastocome industryhastocomeupwithitsownportfol upwithitsownportfolioofproduct ioofproductpatents. patents.Theconceptofa Theconceptofa privatizedcommonR&Dfacilitycanprovetobeverypromisingasamajorityofthe localcompaniesmightnotbeabletoestablishselflocalcompaniesmightnotbeabletoestablishself-ownedR&Dfacilities ownedR&Dfacilities. . Indiahasrecentlystartedinves Indiahasrecentlystartedinvestment tmentsin sin newdrugdevelopmentafterenteri newdrugdevelopmentafterenteringthe ngthe patent regime. regime. In 2005,Dr. Reddy’scommitt Reddy’scommitted ed 14 %of its annual sales toR&D, 10
whereas,Ranbaxyallocatedapproximately7%.
Plantcertificationforforeign markets
Investment Investmentin in plantsforcertific plants plantsfor forcertificationindeveloped for certifica certificationin ationindevelopedmarkets tionindevelopedmarkets markets. Bangladeshhasexport Investmentin plantsforcertificationin opportuniti opportunities es in the developedand developedand regulated regulated marketsin marketsin theform of contract/toll contract/toll manufa manufactu cturin ring g and underunder-lic licens ense e manufa manufactu cturi ring. ng. In order order to capita capitali lize ze on these these exportopportunities,manufacturersofBangladeshneedtoinvestinmanufacturing plants plants andapply for certif certifica icati tion on (e.g. (e.g. USFDA USFDA, , UKMHR UKMHRA A and TGA) TGA) in regula regulated ted market markets. s. Optim Optimum um capac capacity ity utiliz utilizati ation on and invest investmen ment t in plants plants is impor importan tant t for 3
penetratingtheexportmarket.
Injectables,Insulinandvaccine production
Investmentininjectables,insulinandvaccineplants . Totakefulladvantageofthe Post Post 2005 2005 oppor opportu tuni niti ties es, , the the count country ry shou should ld inve invest st in inje inject ctabl ables es, , insu insuli lin n and and vaccineplants,noneofwhicharecurrentlypresent.Thiswouldensuresubstantial importsubstitution.
83
AT Capital Research Conclusion Conclusion ThepharmaceuticalindustryinBangladeshiscurrentlythelargestamongtheLDCs which arenot required required tocomplywith patentrights.As a result, result, local local companies companies cantakeadvantageofreverseengineeringandproducepatentedproductsatlower cost.Furtherm cost.Furthermore,Indiahasrecen ore,Indiahasrecentlybeen(2005) tlybeen(2005)included includedinto into thepatentregime. thepatentregime. ThismakesthegenericsmarketofBangladeshmuchmoreattractivethanthatof Indi ndia and China. Vaccine and inject ectabl able produc duct lines nes remain ain relati atively underdeveloped.AsBangladeshimportsamajorshare(80%)ofitsAPI,thereisa scopeforthesettingupofAPImanufacturingplantswhichwillreducethecostof fini finish shed ed good goods s maki making ng the the Bang Bangla lades desh h Phar Pharma mace ceut utic ical al Indu Indust stry ry much much more more competitiveinthedomesticandexportmarketaswell. In the long long term term Bangla Banglades desh h should should prepar prepare e for the “Post “Post 2016” 2016” phase. phase. Heavy Heavy investment investmentin in R&Disessential. R&Disessential.It It islikelythata islikelythata majorityofthecompan majorityofthecompanieswill ieswillnot not beableto affordqualityR&Dfacil affordqualityR&Dfacilities ities.The .The ContractResea ContractResearchAndManufa rchAndManufacturi cturing ng Services(CRAM Services(CRAMS) S) structurein structurein Indiacan be seenas an exampleas exampleas Bangladesh Bangladesh presentssimilaradvantage presentssimilaradvantages s as an outsourci outsourcing ng destination destination for manufactur manufacturingand ingand resear research. ch. The global global pharm pharmac aceuti eutical cal market markets s will will more more than than double double in value value to USD1.3tnby2020andtheemergi USD1.3tnby2020andtheemergingmarkets ngmarketsareexpecte areexpectedtogrowat dtogrowat doubledigit doubledigit figuresinthenearfuture.WiththerightstrategyBangladeshhaseverychanceof capturingasubstantiallylargermarketshare. References References: s: :
1.
IMS.(2008).“IMSQuarterlyReview,4thQuarter2007”.
2.
Begum,R.(2006).“Pharmaceuticalindustries:PotentialandPossibilities”. NDCJournal.Availableathttp://www.ndc.gov.bd/pdf/2007/73-89.pdf.
3.
Hass Hassan an, , N. (200 (2005) 5). . “Pos “Post t WTO WTO oppo opport rtun unit itie ies s & Bang Bangllades adesh h Phar Pharma ma Sector”.BAPI,February2005.
4.
GTZ.(2007),“StudyontheViabilityofHighQualityDrugsManufacturingin Bangladesh”.FederalMinistryforEconomicCoo Bangladesh”.FederalMinistr yforEconomicCooperationandDevelopment. perationandDevelopment.
5.
IMS.(2006).“Intelligence.360-GlobalPharmaceutic IMS.(2006).“Intelligence.360GlobalPharmaceuticalPerspectives”. alPerspectives”.
6.
OfficialwebsiteofBoardofInvestmentBangladeshatwww.boi.gov.bd.
7.
Primarysources:interviewswithoffic Primarysources:interviewswithofficialsofGSKBanglades ialsofGSKBangladesh. h.
8.
OfficialwebsiteofExportPromotionBureauatwww.epb.gov.bd.
9.
Official
website of
Directorate of
Drugs
Admi dminis nistration (DDA)
at
www.ddabd.org. 10. Greene,W.(2007),“EmergenceofIndia’sPharmaceuticalIndustryandthe Impl Implic icat atiions ons for for the the U.S. .S. Gener eneric ic Drugs rugs Mark arket”. et”. USITC SITC: : Offi ffice of economicsworkingpaper. 11. Primary ary
sources:
interv erviews
with officials
of Direct ectorate of
Drug
Administration. 12. World
Bank.
(2007).
“Improving
the
Competitiveness
of
th e
PharmaceuticalsSectorinBangladesh”.WorldBa PharmaceuticalsSectorinBangladesh”.WorldBankDraftPolicyNot nkDraftPolicyNote. e. 13. OfficialwebsiteofCentreofTradeandDevelopmentatwww.centad.org.
84
e r a c h t l a e H
AT Capital Research
Healthcare Healthcare
The global global health healthcar care e indust industry ry was worth worth USD 4.5tn 4.5tn in 2006 2006 and is still still expanding.MedicaltourisminAsiaisexperiencingagrowthrateof20-30%. India, India, Thaila Thailand, nd, Malays Malaysia, ia, South South Korea Korea and Singa Singapor pore e are attrac attractin ting g the maximumnumberofmedicaltouristsbyprovidingqualitymedicalserviceat economicprices.
Bangladeshcantakeadvantageofitsweakcurrencyandstrategiclocation in the Asian Asian hub to attrac attract t medic medical al touris tourists. ts. Bangla Banglades desh h needs needs to invest invest
s r e n t r a P l a t i p a C r e g i T n a i s A
heavilyinhealthcareinfrastructure,travelandaccom heavilyinhealthcareinfra structure,travelandaccommodationfacilities. modationfacilities.
World World class class medic medical al servic service e provid providers ers like like KPJ Health Healthcar care e (Mala (Malaysi ysia), a), Bumrun Bumrungra grad d (Thai (Thailan land) d) and Apollo Apollo Hospit Hospitals als have have opene opened d operati operations ons in Bangladesh.
Bang Bangla lade desh sh has has made ade sign signif ific ican ant t prog progre ress ss in the the heal health thca care re sect sector or includingabsoluteeradicationofpolio,thelowestmaternalmortalityratein
SouthAsia,asizeablereductionoffertilityandchildm SouthAsia,asizeabler eductionoffertilityandchildmortalityrates. ortalityrates.
Subs Substa tant ntia ial l inve invest stm ment ent is requ requir ired ed in Bang Bangla lade desh sh if it is to reac reach h the the standa standards rds of neighb neighbori oring ng countr countries ies in terms terms of the medic medical al infras infrastruc tructur ture e andfacilities.
The growing purchasi asing power of a sizable middle class provide opportunitie opportunities s forinvestmentsin forinvestmentsin hospitals,diagnos hospitals,diagnosticcenters ticcenters, , laboratori laboratories, es, insurancecompaniesandfitnesscentersinBangladesh.
Asdevelopedcountriesareforecasttorunshortoftheirdomesticsupplyof medical medical staff, staff, there are significan significant t opportuniti opportunities es in training training and exporting exporting manpowerfromBangladesh.
Globa Global l pharma pharmaceu ceutic tical al giants giants can lower lower their their resear research ch and develo developme pment nt costs costs by shifti shifting ng the pre-cl pre-clini inical cal trials trials of drugs drugs to cheape cheaper r locati locations ons like like Bangladesh.
Firoz Ahmed Ph.D
[email protected] Tami Zakaria
[email protected]
Telemedicinecanbeameanstoprovidesuperiormedicalservicesto70% of the total populationresidin populationresiding g in the rural areas of Bangladesh Bangladesh. . This will requiresignificantsupportfrominformationandcommunicationtechnology infrastructure.
Ahmad Sajid
[email protected]
85
AT Capital Research With With its large population populat population ion of around15 aro arou around1 und15 nd150 0m mn needing improved improved healthcare, healthcare, its largepopulationof largepopulationof large popula tion around1 und1 50 mn people needing Bangladeshhassignificantinvestmentopportunities. Bangladeshhassignificantinvestmentopportunities.Thesearewiderangingand Bangladeshhassignificantinvestmentopportunities. Thesearewiderangingand spanacrossvarioussubsectors.Forexample,medicaltourismfortheNRBs,health Avastcustomerbaseforhealthcare
insurancefor insurancefor more than98% of the non-insure non-insured d population, population, telemedic telemedicine ine for the geographic geographically ally dispersed dispersed population population, , pre-clini pre-clinical cal trial centers centers for local and global drugmanufacturersandexportoftrainedmedicalstafftodevelopedcountries. Bangladeshhasmadeexcellentprogressinmanyofthekeyhealthindicators Bangladeshhas Bangladeshhas madeexcellent madeexcellent progressin progressin many of the keyhealth indicators indicators.It hasfully eradicatedpolio eradicatedpolio and97% of the population population has access access to safedrinking safedrinking water.Thishasbeenpossiblewiththeincreasedparticipationoftheprivatesector,
Poliohasbeenfullyeradicated
mainlyNGOsandMFIs.Thepopulationgrowthrateisnow1.54%downfrom2.5% in 1990. 1990. The infant infant mortal mortality ity rate rate is lower lower than than India, India, Nepal Nepal and Pakis Pakistan tan. . The The propor proportio tion n of underw underweig eight ht childr children en has gone gone down down from from 72% in 1986 1986 to 51% in 1
2000.
Tert Tertia iary ry heal he alth thca care re mostly ly Dhak Dhaka a city city based bas ed. . Outs Outsid ide e Dhak Dhaka a prim primar ary y and and healt hea lthc hcar are e is most base based. d. preven preventiv tive e health healthcar care e is provi provided ded by commun community ity health health clini clinics, cs, Upazi Upazilla lla Healt Health h comple complex, x, Gover Governm nment ent hospit hospitals als and health healthcar care e center centers s of NGOs NGOs. . Most Most of the specia specialis list t doctor doctors s are statio stationed ned in Dhaka Dhaka and work work with with privat private e hospit hospitals als. . The The mediumsized mediumsized hospitalsand hospitalsand clinicsbasedall clinicsbasedall around around thecountryrefer patientsto patientsto privat private e and govern governmen ment t hospit hospitals als in Dhaka, Dhaka, especi especiall ally y for heart heart surger surgery, y, organ organ 12
transplantsandothermajortreatments. Areasforimprovement: Areasforimprovement:
Lackof world-cla world-class ss medicalinfrastru medicalinfrastructur cture e support,especial support,especially ly in diagnosti diagnostic c facilities facilities. . Mostly Mostly patients patients go abroad for diagnosis diagnosis of disease disease and ultimate ultimate treatment.
Inadequate Inadequate number number of skilledmanpower. skilledmanpower. The doctor doctor to populationratio populationratio is 1:3,169 1:3,169 andnurse to populationratio populationratio is1:6,442. Thenumber of specialis specialist t doctorswithinternationalrecognitionisfew.
Heal Health th insu insura ranc nce e plan plans s are are rare rare. . WHO WHO stat statis isti tics cs show show that that 0.1% 0.1% of the the populat populatio ion n was was insur insured ed in2005.Thissector in2005.Thissector isunprofit isunprofitabl able e due to lack lack of
0.1%oftheBangladeshisare insured 2
cont contro rol l over over cost costs, s, resu result ltin ing g from from lack lack of stan standa dard rdiz izat atio ion n of treat treatme ment nt 2
chargesathospitals. Figure1:KeyhealthindicatorsofBangladesh,2005 Total population (mn)
140
Hospital beds per 10,000 population
3.43
Physicians per 10,000 population Population per nurses
3 6,442
Total expen diture on health (THE) as % of GDP
3.4
Public expenditure on health as % o f THE
31
Private expenditure on health as % of THE
69
Source:MinistryofHealthandFamilyWelfare,Gove Source:MinistryofHea lthandFamilyWelfare,GovernmentofBangladesh rnmentofBangladesh 13
Bangla Banglades desh h has attracted attract attracted ed number num numb umber ber of of repute reputed d intern internati ationa onal l health healthcar care e servic service e attracted numbe ber of Jointventurehospitalsreceived USD110mninvestmentsinpast5 years
prov provid ider ers s in the last last 5 year years. s. KPJ KPJ Heal Health thca care re of Mala Malays ysia ia oper operat ates es as a join joint t vent ventur ure e partn partner er with with Unit United ed Hosp Hospit ital als s Ltd. Ltd. Squa Square re Hosp Hospit ital al in Dhak Dhaka a has has an affiliation affiliation with Bumrungra Bumrungrad d Hospitalof Hospitalof Thailand.Asia’s Thailand.Asia’s biggest biggest healthcare healthcare service service 14
provider provider Apollo Apollo hasbeen operatingin operatingin Bangladesh Bangladesh since since 2005. These These hospitals hospitals 86
AT Capital Research attract attract patient patients s who are in need need of tertia tertiary ry medic medical al care. care. As the middl middle e incom income e groupsof groupsof thepopulationaregain thepopulationaregainingpurch ingpurchasing asingpower,theyarebein power,theyarebeingtargetedby gtargetedby topmedicalserviceproviders. Therearemixedresultsregardingperformanceofthesehospitals. Casestudy:ApolloHospital :ApolloHospital– Indiavs IndiavsBangladeshexperience Casestudy :ApolloHospital – –– –Indiavs Bangladeshexperience
,
,
Apollo Apollo Hospital Hospitals s Group Group of India India hasbecomethe largesthealthcar largesthealthcare e service service prov provid ider er with with 41 hos hospita pitals ls in and and arou around nd Indi India a with within in 25 year years s sinc since e inception.SomeofthekeyfactsaboutApolloinIndiaare: •
Emplo Employs ys over over 4,000 4,000 speci speciali alists sts and supersuper-spe specia cialis lists ts and 3,000 3,000 medicalofficersspanning53clinicaldepartm medicalofficersspanning53clinicaldepartmentsinpatientcare. entsinpatientcare.
•
Achieveda99.6%successrateincardiacby Achieveda99.6%suc cessrateincardiacbypasssurgery passsurgery
•
A70%successrateinBoneMarrowTransplant
The The succ succes ess s of Apol Apollo lo in Indi India a comes omes from from the the comb combin inat atio ion n of worl world d renown renowned ed doctor doctors, s, adopti adoption on of the latest latest techno technolog logy y and strong strong custom customer er focus focus. . Apol Apollo lo Hosp Hospit ital als’ s’ join joint t vent ventur ure e with with Germ German an com company pany Deut Deutsc sche he Krank Kranken enve vers rsic iche heru rung ng (DKV (DKV) ) is expe expect cted ed to tap tap into into the the nasc nascent ent heal health th insurancemarketinIndiafromFY’08.ApolloDKVInsuranceCompanyoffers comp compre rehe hens nsiv ive e cove cover r prod produc ucts ts, , out-p out-pat atie ient nt produ product cts s and and hosp hospit ital al cash cash policies. Apollo’sexperienceisquitedifferentinBangladeshsinceitsarrivalin2005, where where lower lower take take up and occup occupanc ancy y has somew somewhat hat limite limited d invest investme ment nt in associatedproductsandservices.WhileoccupancyratesinIndiaarearound 77% they they are are much much lowe lower r in Dhak Dhaka. a. Ther There e is less less prov provis isio ion n of rela relate ted d servi services ces in Dhaka Dhaka – for examp example le teleme telemedic dicine ine and medic medical al tour plans plans are availableinIndiawhiletheyarenotinDhaka.
The global global healthc thcare indust industry ry is curren currently tly undergo unde undergo rgoing ing signif significa icant nt change. change. Total healthcare und ergoing change nge. . Total Globalhealthcaretrendsare changing
health health careexpen careexpendit diture ure acros across s theworld theworld was was USD USD 4.5tn 4.5tn in2006.Of this,US this,US & OECD OECD countriesaccountfor countriesaccountfor USD4.2tn. Global Global pharmaceut pharmaceuticalsalesaccountfor icalsalesaccountfor USD 602bn, 602bn, with with an annual annual growth growth rate rate of 7%. The biotec biotechno hnolog logy y indust industry ry has has mushroomedsinceitsinceptionandatpresentisequivalenttoUSD50.7bn.China, 4
USA,India,Australia,andFrancearemarketleadersinbiotech. Althoughthetouri Alth Althoughthetourismsectorasawholeisgrowingby4 oughthetourismsec smsectorasawholeisgro torasawholeisgrowingby4wingby46%ayearinAsia,medical torasawholeisgrowingby4 wingby4--6%ayearinAsia,medical tourismisgrowingbetween2030%yearonyear. 30%yearonyear.Withincreasingmedicalcostsin tourismisgrowingbetween20-30%yearonyear. -30%yearonyear. developednationsandincreasedrateofnon-insuredpopulation,medicaltourismis a growth growth area. area. With With an estim estimated ated 1.5mn 1.5mn people people visiti visiting ng countr countries ies like like Thail Thailand and, , Singapore,India,SouthKoreaandMalaysiaformedicalpurposestoday,thesector 5
isexpectedtoswelltoUSD4bninAsiaby2012. Globally,the Globally,the clinicaltrial clin industr dustry dus try y isestimat isesti is estimatedto estim matedto atedto edto beworth be worth over overUSD10 USD10bn andis cliniicaltrial caltrial industry in dustryisestimatedtobeworthover USD 10bn bnandis andis growingat15%ayear.IttakesaroundUSD800mntobringanewdrugtomarket, growingat15%ayear. Clinicaltrialindustrygrowingat15% peryear
6
40%ofwhichgoesbehinddrugtesting. The pharmaceuti pharmaceuticalgiant calgiantsarestrivingto sarestrivingto findcheapersourcesoffacilitiesfordevelopingnewdrugs.InIndia,withlowcapital costs costs and less less time time requir required ed to recrui recruit t volunt volunteer eers s for clini clinical cal trial trial center centers, s, this this businesssec businesssectorisexpect torisexpectedtogrowata edtogrowata CAGRof CAGRof 36%from2006to2011and 36%from2006to2011and be 7
worthUSD1bn. 87
AT Capital Research OpportunitiesforInvestment OpportunitiesforInvestment The health healthcar care e sector sector in Bangla Banglades desh h has moved moved a long long way during during thelast few decades.Astheglobalhealthcareindustryisexperiencingshifts,itistherighttime to work work out a compre comprehen hensiv sive e plan plan by involv involving ing both both the public public and the privat private e sectortomaximizetheopportunitiesthatlieahead. Establishi Establ Establishing ishing ng a worldworld d--class class hospital hospital The prim primar ary y targ target et mark market et will will be the upper upper world -class hospital tal The Theneedforworldclasscredible hospitalsformedicaltourism
income income secti section on of Bangla Banglades deshis his who go abroad abroad for medic medical al treatm treatment ent and the 4,000,000NRBsworldw 4,000,000NRBsworldwide.Taking ide.Taking advantageofthe advantageofthe weak currencyandstrategi currencyandstrategic c locationintheAsianhub,Bangladeshcanalsoattractsignificantnumberofmedical 1
touristsfromdevelopedcountries.
Differentapproachesmaybetakenforestablishingthehospitalseitherasagreenfield project project or acquisitio acquisition n of existing existing non-perform non-performing ing hospitals hospitals in both the public public andprivatesectors.Jointventures andprivatesectors.Jointventures with with leadinghealthcar leadinghealthcareproviders eproviders like like Parkway Parkway Hospit Hospital als s in Singap Singapore ore would would provid provide e credib credibili ility ty and access access to leadin leading g servi service ce provision.Toattracttouristsacomprehensiverangeoftreatmentswouldneedtobe avai availlabl able - for for vari variou ous s dise disea ase class asses inclu ncludi ding ng cardi ardiol olog ogy, y, neph nephro rollogy ogy, ophthalmology,neurology,dental,orthopedic,ENTandcosm ophthalmology,neurology,dental,ort hopedic,ENTandcosmeticsurgeryfacilities eticsurgeryfacilities. . Staffingthe hospitalwithapoolofspecialistdoctors hospitalwithapoolofspecialistdoctors,suchasreputedNRBdoctors Staffingthe ehospitalwithapoolofspecialistdoctors AttractingforeignandNRBdoctors
basedintheUKortheUSA,willbeakeyfactorindeterminantofsuccess.Both publ public ic and and priv privat ate e ince incent ntiv ives es shoul hould d be deve develo lope ped d to make make Bang Bangla lade desh sh an attractivedestination. Thehospitalshould bebackedbyaworldclassdiagnosticcenter bebackedbyaworldclassdiagnosticcenter.Thediagnostic Thehospital should shouldbebackedbyaworldclassdiagnosticcenter bebackedbyaworldclassdiagnosticcenter
Stateofthearttechnologyin diagnosticcentersisrequired
centerwillbeequippedwithstateofthearttechnologyindiagnosingeverymajor diseaseclass.Thisisanotherpreconditionforthis diseaseclass.Thisisanotherpreconditionforthishospitaltobesucces hospitaltobesuccessful. sful. Healthinsuranceadministration administrationIn In Bangladesh, Bangladesh,thehealthinsura thehealthinsurancemark ncemarketisstill etisstill Healthinsurance administration illexplored.DeltaLifeInsurancehasahospitalizationinsurancescheme.Someof the the corp corpor orat ate e hous houses es offe offer r grou group p insu insura ranc nce e for for thei their r empl employ oyee ees. s. NGO NGOs like like
Thehealthinsurancemarket remainsundeveloped;an opportunityforJV’swithforeign insuranceproviders
GrameenBankprovidemicrohealthinsuranceschemesforruralBangladeshis.As health health care care servic services es are becomi becoming ng more more expens expensiv ive e there there is an opport opportuni unity ty for for expa expand ndin ing g heal health th insu insura ranc nce e mark market et. . Joint oint ventu enture res s with ith fore foreig ign n insu insura ranc nce e companies,thirdpartyadministratorsandspecializedhealthinsuranceplans(Plan for diabet diabetic ics s for insta instance nce), ), can can pave pave the way for the develo developme pment nt of the health health 18,20
insurancemarket.
EstablishingamidEstablishingamid-rangehospital -rangehospital Amidrangehospitalmaybeestablishedtotapa rangehospital Amidrangehospitalmaybeestablishedtotapa Provisionofmedicalcareforlarge andgrowingmiddleclass
largeandgrowingmiddleincomesectionandcouldbelocatedinallmajorcities.It has has bee been esti estim mated ated that that the middl ddle class lass acco accou unts nts for for 22% 22% of the the urba urban n 8
population.
Creatingtelemedicinecentersindifferent districtsWith80%ofthepopulationbeing Creatingtelemedicinecentersindiff erentdistricts erentdistricts Telemedicine,accessingtherural population
rural,accesstotreatmentinremotelocationsisrequired.Telemedicineinvolvesthe remotediagnosis,monitoringandtreatmentofpatientsviavideoconferencingover 19
theinternet.
88
AT Capital Research Establishingpre clinicaltrialcentres resApre-clinicaltrialcentrecouldbecreatedfor Establishing prepre-clinicaltrialcent -clinicaltrialcentres clinicaltrialcent Developmentofpreclinicaltrial centres
loca local l drug drug make makers rs and and also also for glob global al pharm pharmac aceu euti tica cal l comp compani anies es wish wishin ing g to offshoretheiroperations.MostofthepharmaceuticalcompaniesinBangladeshdo BE(Bio-equivalence)testingofdrugsinIndiaforexportpermission.Ifsuchfacilities aredevelopedinBangladesh,locallymanufactureddrugswillbemorecompetitive 12
intheglobalmarket. Medical Medical education education facility facility By the the year year 2010 2010, , the the glob global al shor shorta tage ge in nurs nurses es is forecastto forecastto cross cross 300,000 300,000 across across theglobe, with highestshortageexperien highestshortageexperiencedin cedin USA, USA, Canada, Canada, Austra Australia lia, , and the Saudi Saudi Arabia Arabia. . Bangla Banglades desh h has a large large young young Nursetrainingcentres:aglobal shortageinsupplyofnurses
popu popullati ation, on, both oth men and and wom women, en, who who can be trai traine ned d as nur nurses/m es/med edic ical al ass assistan stants ts. . Even ven the the major ajor expo exporrter coun countr trie ies s of trai traine ned d nur nurses, es, such uch as Philip Philippin pines, es, are facing facing nurse nurse shorta shortage ge for their their domest domestic ic marke markets. ts. Traini Training ng and educational educational institutes institutes need to be establish established ed to feed this opportunity opportunity. . As well as bein being g a prim primar ary y supp suppli lier er, , Bang Bangla lade desh sh can can also also beco become me a suppl supplie ier r to curr curren ent t 9,10,11
suppliernations.
Anintegratedonestopsolution,a “MedicalCity”.SuitablelocationscouldbeUttara, Anintegratedonestopsolution,a“MedicalCity”. “MedicalCity”. Tong Tongi, i, Gazi Gazipu pur r or Chit Chitta tago gong ng. . The The idea idea of this this medi medica cal l city city is to crea create te an MedicalCity:Onestopshop
establ establish ishmen ment t which which will will be a compre comprehen hensiv sive e soluti solution on for health healthcar care e servic service e in Bangladesh,integratingpreclinical,clinicalandpostsurgicalaftercare. Conclusion Conclusion Bangladesh,withitslargeandeconomicallydiversepopulation,requiresatargeted investmentapproach.Forexample,whileinternationalhealthcarecompanie investmentapproach.Forexam ple,whileinternationalhealthcarecompanieshave shave enteredintothemarket,affluentBangladeshisstilltraveltothefareastformedical care.JVswithforeigncompanieshavenotmetexpectationswithinitialoccupancy rate rates s rema remain inin ing g lowe lower r than than antic anticip ipat ated ed. . Evol Evolvi ving ng the the corr correc ect t busi busine ness ss mode model, l, impr improv ovin ing g serv servic ice e prov provis isio ion n and chan changi ging ng perc percept eptio ions ns are are crit critic ical al fact factor ors s of success.Despitethechallengesfaced,AureosCapitalhaverecentlytakenastake intheApollohospital–recognizingthesubstantialopportunityforprivateequity,ina sectorwithhighinitialcapitaloutlays,withlonger sectorwithhighinitialc apitaloutlays,withlongerpaybackperiods. paybackperiods. Healthcareprovidessubstantialavenuesforinvestmentinvarioussubsectorsfrom primarycaretoeducatio primarycaretoeducation.Investm n.Investmentinenablingavenu entinenablingavenuessuchaseducati essuchaseducationand onand insurancecoupledwith insurancecoupledwith theestablishment theestablishment of highqualityhospitals highqualityhospitals anddiagnostic anddiagnostic centersprovidesopportunitieslocallyaswellasformedicaltourism,capitalizingon theglobalshiftinhealthcare.
89
AT Capital Research References: References: 1.
OfficialwebsiteofWorldHealthOrganizationavailableat http://www.searo.who.int/en/Section313/Section1515_6922.htm.
2.
OfficialwebsiteofWorldHealthOrganizationavailableat http://www.who.int/nha/country/BGD.pdf.
3.
OfficialwebsiteofApolloDKVHealthInsuranceavailableat http://www.apollodkv.co.in/home/EasyHealthIndi.aspx.
4.
OfficialwebsiteofThemedicaavailableathttp://www.themedica.com/industryoverview.html.
5.
Officialwebsiteofhotelmarketing.comavailableat http://www.hotelmarketing.com/index.php/content/article/060410_medical_touris m_asias_growth_industry.
6.
Goozner,Merrill(2004),“TheeUSD800MnPill:TheTruthBehindTheCostof NewDrugs”.UniversityofCaliforniaPress.
7.
http://www.prlog.org/10036648-booming-clinical-trial http://www.prlog.org/1 0036648-booming-clinical-trials-market-in-india.html. s-market-in-india.html.
8.
AgriFoodTradeServices,Canada.(2005).“AgriFood-Past,Present,&Future ReportBangladesh”.
9.
NewZealandTradeandEnterprise(2007),“GlobalTrendsandIssuesinthe Corporate,IndustryandGovernmentTrainingMarkets”.
10. OfficialwebsiteofBMJathttp://www.bmj.com/cgi/content/full/320/7241/1030. 11. JournalofAdvancedNursingavailableat http://www.efnweb.org/version1/en/documents/PressReleaseEuropeannursingshortage.pdf. 12. Primarysources:interviewswithLecturersofInstituteofHealthEconomics, UniversityofDhaka;Director,MinistryofHealthandFamilyWelfare. 13. OfficialwebsiteofMinistryofHealthandFamilyWelfare,Governmentof Bangladeshatwww.mohfw.gov.bd. 14. Scoop.(2005).“PhilipshelpsprovideruralhealthcareinIndia”.. 15. OfficialwebsiteofApolloHospitalsGroupatwww.apollohospitals.com. 16. Primarysources:telephoneinterviewswithofficialsofApolloHelpDesk,Dhaka. 17. SeveralSourcesCompiledbyWikipedia. 18. OfficialwebsiteofGrameenBankathttp://www.grameeninfo.org/bank/index.html. 19. UnitedNations.(2006).“TheWorldUrbanizationProspects:The2005Revision”.
20. FordFoundation.(2000).“RoundtableonMicroinsuranceServicesintheInformal Economy:TheRoleofMicrofinanceInstitutions”.
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y g o l o n h c e t o i B
Biotechnology
While While the global global biotec biotechno hnolog logy y indust industry ry is boomi booming, ng, Bangl Banglades adesh h isat an earl early y stag stage e of deve develo lopm pment ent. . Howe Howeve ver, r, we belie believe ve ther there e is sign signif ific ican ant t
potentialinthissector,especiallyintheagric potentialinthissector,es peciallyintheagriculturalandhealthcaresectors ulturalandhealthcaresectors. .
The poten otenti tial al area areas s of dev develop elopm ment ent and and com commerci ercial aliizati ation of the the biotechnolog biotechnologysectorin ysectorin Bangladesh Bangladesh werestudied werestudied bya ThaiBiotechnolog ThaiBiotechnology y team.
s r e n t r a P l a t i p a C r e g i T n a i s A
The The team team iden identi tifi fied ed seve severa ral l area areas s in the the agri agricu cult ltur ural al sect sector or, , such such as Ornam rnamen enta tall Plan Plantts and and Cut Flow Flower ers s, Foo Food Proc rocess essing ing Ind Industr ustriies, es, Mushroom Mushroom Cultivatio Cultivation n Technology Technology, , Medicinal Medicinal Plants Plants and Herbal Herbal Products Products Technology,MicrobialSeedCultivationTechnology,FruitCropProduction, Pott Potted ed Plan Plants ts and and Cut Cut Foli Foliag age e Prod Produc ucti tion on, , Bamb Bamboo oo and and Potat Potato o Star Starch ch Industries.
Bangladesh Bangladesh should should pay special special attention attention to the TRIPS TRIPS agreement(Trade agreement(Trade Related Related Aspec Aspects ts of Intell Intellect ectual ual Proper Property ty Rights Rights) ) before before the year year 2016 2016 is over over, , and and upgr upgrad ade e its’ its’ gene generi ric c phar pharma mace ceut utic ical al sect sector or by inte integr grat atin ing g biotechnology-drivenpharmaproducts.
Know Knowle ledge dge deve develo lopm pmen ent t and and tran transf sfer er is crit critic ical al. . Leve Levera ragi ging ng the the NRB NRB platform,investmentineducationandresearchisimportant.
Bangla Banglades desh h should should proact proactive ively ly form form partner partnershi ships ps with with the intern internati ationa onal l Biotechindustriesespeciallyintheagriculturalandhealthcaresectors,e.g. Thaila Thailand’ nd’s s Nation National al Center Center for Geneti Genetic c Engin Engineer eering ing and Biotec Biotechno hnolog logy, y, Monsanto(USA),SerumInstituteofIndiaLtd,andBioconIndiaGroup,etc.
The sugg sugges estted area areas s of inve nvestm stment ent opp opportu ortuni niti ties es are are in the the agro agro-biotechnolog biotechnology y which which include include cotton production production and processi processing ng (backwar (backward d linkagetoRMG/SpinningMills),potato,rice,andinmedicinalbiotechnology invaccineandrecombinantinsulinmanufacturing.
Mir Firoz Ahmad, Ph.D.
[email protected]
91
AT Capital Research Biotechnolog Biotechnology y can can play play a sign signif ific ican ant t role role in Bangla Banglades desh’s desh h’s h’s push pu push pus sh h for ne new w expo ex expor exp port ort rtt Biotechnology can in Bangladesh for for new sectors. Unlike its neighb neighbor or India, India, Bangl Banglade adesh sh has yet to develo develop p a signif signific icant ant sectors. . Unlike 1
biotechnologyindustryandcapitalizeonafastgrowingUSD100bnglobalindustry. Agr Agric icul ultur ture e and and phar pharma mace ceuti utica cals ls are are key key sect sector ors s with with spec specif ific ic and and prox proxim imat ate e applicabili applicability ty in Bangladesh Bangladesh. . Agricultur Agricultural al biotechnol biotechnology,be ogy,be it plantbiotechnology plantbiotechnology, , Biotechnologycouldrevolutionize agricultureandpharmasectors
animalbiotechnology,fisheriesoraquaculturecouldpositivelyimpactthecountry’s larges largest t sector sector by enhanc enhancing ing produc product t yield yield, , innova innovatio tion n and resist resistanc ance e to natura natural l hazard hazards. s. Many Many of the next next genera generati tion on of medici medicines nes (e.g. (e.g. antibi antibioti otics, cs, antibo antibodie dies, s, hormonesandvaccines)willbebiotechnologyderived–ifthelocalpharmaceuticals indu indust stry ry is to rema remain in comp competi etiti tive ve in expo export rt mark markets ets, , after after the the TRIP TRIP’s ’s mark market et protec protectio tion n lapses lapses in 2016, 2016, invest investme ment nt in R&D and new produc product t develo developme pment nt is critical.HowcanBangladeshlearnfromandlevera critical.HowcanBangl adeshlearnfromandleveragefromitsproximi gefromitsproximitytoIndia. tytoIndia. The global biotechnolo biotechnology gyindustry industryhas indus industry industryhas tryhasexpandedrapidlyover expanded expanded rapidly rapidly the pastfive years, years, Theglobalbiotechnology hasexpandedrapidly with with annua annual l grow growth th rate rates s cons consis iste tent ntly ly above above 15%. 15%. Reve Revenu nues es of publ public icly ly list listed ed biotechcompaniesworldwidegrew18%in2005toUSD63.1bn,anall-timehighin the the sect sector or's 's 3030-year year hist histor ory. y. In Indi India a for for exam exampl ple, e, ther there e has has been been a biot biotec ech h
Globalbiotechnologyrevenuewas USD63.1bnin2005,anall-time highinthesector's30-yearhistory
revolution,whichcontinuestoexpandfast,withalready280biotechcompaniesand 180bio-productsupplierscontributingto2%shareoftheglobalmarket.TheIndian biot biotec ech h prod produc uct t marke arket t is for forecas ecast t to be USD 4.2b 4.2bn n in the the year ear 2010 2010 with ith 2,3
investmentopportunitiesofUSD2bnoverthenextfiveyears.
The applicatio application n of biotechnolo biotechnology gy With150mnpeople in Bangladesh Bangladesh, , thedemand Theapplicationofbiotechnology forbasicssuchasfood,drugs,clothingandhealthcare,issubstantial.Withusein yogh yoghur urt t to rice rice to leat leathe her r and and vacc vaccin ines es biot biotec echn hnol olog ogy y has has wide wide and and vari varied ed applications. Biotec Biotechno hnolog logy y and and agricul agri ag cult ltur ure in Bangladesh Bang Ba Bangl ngla nglad lade ades desh esh sh h Whil While e biot biotec echn hnol olog ogy y and and GM Biotechnology agricu agrricu icultu cultur lture ture re e in innova innovatio tion n have have revolu revolutio tioniz nized ed produc product t develo developme pment nt global globally ly with with high high yield yielding ing, , diseasefreecrops,resistanttoadverseenvironmentalconditions,Bangladeshhas not benef benefit itte ted d from from such such adva advanc nces es to the the exte extent nt it coul could, d, due due to limi limita tati tion ons s in inves investme tment nt in busine business ss and resear research ch infras infrastru tructu cture. re. The scient scientifi ific c commun community ity, , NGOsandthegovernmentcreatedtheNationalInstituteofBiotechnology(NIB)in 1999whichintroducedabio-safetyguideline. The successf successful ul introducti introduction on of GM products products require require research research and field testing testing to develop develop tailoredproducts tailoredproducts andto ensure ensure thereare limitednegative limitednegative impactsto impactsto the surroundingecosystem.Giventheimportanceofagricultureinitseconomyandthe currentshortfallinproductionfordomesticconsumption,Bangladeshcouldbenefit significantlyifagriculturaloutputcouldbeincreased. Rice Rice is the staple staple food foo d forabout abou about aboutt 150mn 150 150mn 150mn mnpeople peop people people le and is grown grown on about about 10.5m 10.5mn n food hect hectar ares es. . Bang Bangla lade desh sh prod produc uces es abou about t 25mn 25mn tons tons of rice rice annu annual ally ly. . With With the the populat populatio ion n foreca forecast st to grow grow by 2mn 2mn annual annually. ly. Bangla Banglades desh h is expect expected ed to need need Bangladesh’sriceproductionhasto increasetosupportthegrowing population
about30mntonsofriceannuallyintheyear2021whiletotalricegrowingareais forecasttoshrinkto10.3mnhectaresinthesameperiod.Riceyieldwouldneedto 4
increasefromthepresent2.44tomorethan3.75tons/ha. GMricestrainscapable of bein being g grow grown n all all year year round ound co coup uple led d wi with th im impr prov ovem emen ents ts in ir irri riga gati tion on ar area ea, , technologyandmechanizedcultivationcanprovidethesolution.
In 2003, 20 2003 03, 03, , a four four memb member er expe expert rt team tea team team m from from Thail Tha Thai Thaila ilan land and nd d(s (sp (spo pons onsore nsor ored ored ed d by by SEDF SED SEDF SEDF F and and and d (spons 92
AT Capital Research BIOTEC) und unde dert erto rtoo took ook ok k a study st stud udy y to to asse assess ses ss ss the the pros prospe pect pect ct ct for for comm commer erci cial aliz izat atio ion n of BIOTEC) under un derto Thaibiotechstudygroupassessed theprospectsforthe commercializationofbiotechnology inBangladesh
TRIPS(TradeRelatedAspectsof IntellectualPropertyRights) agreementendsin2016
biotechnologyinBangladeshandtoidentifyareasfordevelopmentandpromotion. biotechnologyinBangladesh 5
Theyhighlightedthefollowingareas:
OrnamentalPlantsandCutFlowers
FoodProcessingIndustries
MushroomCultivationTechnology
MedicinalPlantsandHerbalProductsTechnology
MicrobialSeedCultivationTechnology
Othe Other r smal smalll-sc scal ale e agroagro-bu busi sine ness sses es were were also also iden identi tifi fied ed as havi having ng sign signif ific ican ant t potentialforbusinesspromotion:
FruitCropProduction
PottedPlantsandCutFoliageProduction
Bamboo
Potato
Similarinitia Similarinitiative tivesneed sneed tobemadein theareaof foodproduction, foodproduction, especiall especially,rice, y,rice, cornandpulses. Thereisaneedformorescience graduates
Biotechnolo Biotec Biotechnol Biotechnology hnology ogy gy and Pharmaceuticals Pharmaceut Pharmaceuticals icals in Bangladesh. Manyof thenext genera generatio tion n in Bangladesh. Bangladesh . Manyof medici medicines nes will will be biotec biotechno hnolog logy y deriv derived, ed, especi especiall ally y in the areas areas of antibi antibioti otics cs, , antibodies,hormonesandvaccines.Therehavebeennosignificantinitiativesfrom anyofthepharmaceuticalcompaniestoincorporatebiotechnologyderivedproduct line lines s in thei their r port portfol folio io. . Comp Compan anie ies s are are larg largel ely y enga engage ged d in prod produc ucin ing g gener generic ic medi medici cine. ne. The The TRIP TRIPS S (Tra (Trade de Rela Relate ted d Aspe Aspect cts s of Intel Intelle lect ctua ual l Prop Proper erty ty Righ Rights ts) )
Fieldtestingandpreclinicaltrial investment
agreementexemptionlapsesin2016–assuchthegenericsmarketwillbelostand mostofthecompanieswilllosebusinesstothef mostofthecompaniesw illlosebusinesstotheforeigncompanies. oreigncompanies. Infrastructure nfrastructureconstraints constraintsinBangladesh inBangladesh. Thereisashortageofqualifiedscientist ists s Infrastructure constraints inBangladesh..Thereisashortageofqualifiedscient in the biotec biotechno hnolog logy y area. area. In the last last 50 years years Dhaka Dhaka Unive Universi rsity ty has produc produced ed approxi approxima matel tely y 5,000 5,000 Life Life Scien Science ce graduat graduates, es, many many of which which work work abroad abroad. . The The govern governmen ment t has recent recently ly taken taken initia initiativ tives es starti starting ng with with 12 scienc science e univer universit sities ies. . Thereare11researchorganizationswherebiotechnologyhasrelevance,although
LessonstobelearntfromIndia
thishasnotbeenappliedextensively. Biotechnolo Biotec hnologydoesnot gydoesnot come withoutitsrisks. withoutitsrisks. Itis imperati imperativethat vethat sufficient sufficient field field Biotechnologydoesnotcomewithoutitsrisks. studies, in the case of agriculture, and preclinical and clinical tri trials, in pharmaceut pharmaceutical icalsareconducte sareconducted. d. Impacton Impacton thepopulationandecosy thepopulationandecosystems stemshas has to beassessed.Releasingandutilizingbiotechnologyderivedproductswithouttesting andpilotstudies,beitplantoranimal,runpotentialriskssuchasbugresistance, foodchainpollutionandmedicalsideeffects. India’s Indi India’s a’s succes suc cess s in biotec biotechno hnolog logy y sector sector less le sson ons learnt. nt. India a has has been been succe success ss technol hnology ogy sector tor – –– – lesson les sons s to to be be lear arnt nt. . Indi 7
successfulingrowingitsindustryformanyreasons:
Askilledworkforce3mngraduates,700,000postgraduatesand1,500PhDs qual qualif ify y in scie scient ntif ific ic stre stream ams s each each year year in Indi India. a. 15,0 15,000 00 sci scienti entist sts s are are estimatedtobeengagedinIndia’sbiotechnologysector.
NRIs-Itisestimatedthat15%ofthescientificpopulationofpharmaceutical and biotec biotechno hnolog logy y compan companies ies in the US are of Indian Indian origin origin. . Knowle Knowledge dge transf transfer er has been been facili facilitat tated ed by NRIs NRIs going going back back to India India or by arrangi arranging ng entry/alliancesofforeigncompanies. 93
AT Capital Research Alliance Alliances s andjoint ventures ventures with leading leading global global names such as Monsanto Monsanto, ,
Roche,andAgilentTechnologiestonamebutafew. Activegovernmentsupport-theIndiangovernmentprovidedincentivesfor
biotechfirmsand biotechfirmsand fosteredrelati fosteredrelationshi onshipswithinternati pswithinternationalinsti onalinstitutes tutes such as theNationalInstituteinHealth(NHI)intheUS. World-classeducationandresearchinfrastructure-anexcellentnetworkof
researchlaboratories StakeholdercollaborationinR&D isnec isnecessary essary. Effectiveinternationalcollaboration StakeholdercollaborationinR&Disnec essary . .Effectiveinternationalcollaboration CollaborationinR&Dis fundamental
in resear research ch and develo developm pment ent would would form form the base base for techno technolog logic ical al knowle knowledge dge transfer.CurrentlymostR&Dinitiativesareattheindividuallevel,Thegovernment needs needs to be proa proact ctiv ive e to attr attrac act t fore foreig ign n tech techni nica cal l expe expert rtis ise. e. The The Gove Govern rnme ment nt, , privatesectorandNGOsneedtocollaborateinordertosucceed.
LeverageNRBplatform
LeverageNRBknowledge. TheBangladeshgovernmentandprivatesectorsshould LeverageNRBknowledge. .TheBangladeshgovernmentandprivatesectorsshould createviableopportunitiestoattractsuitablyqualifiedNRBsbacktoBangladeshin areasofbiotechnologysuchasgeneticengineering,cellculture,cellfusion,protein engineeringandenzymetechnology.
Investmentineducation
Inve Invest stme ment ment nt nt in educat atio ion n and an d rese resear arch. ch. Bangla lade desh sh need needs s to prod produc uce e more more in educ and arch ch. . Bang graduatesandpost-graduatesinthisrapidlyadvancingfieldandintroducesuitable trai traini ning ng that that woul would d allo allow w rese resear arch ch idea ideas s to evol evolv ve and and prod produc uce e marke arketa tabl ble e products.
KnowledgetransferthroughJVs; LeverageproximitytoIndia’s boomingbiotechindustry
Targetedinternationalinvestmentforknowledge inves tmentfor tfor knowledgetransfer knowledgetransfer transfer. Targetpartnerships/joint Targetedinternational investmen investmentforknowledge transfer. .Targetpartnerships/joint ventur ventures es with with global global firms firms who who have have alread already y formed formed JV’s JV’s with with firms firms inAsia. For example,inIndia,intheagriculturalsector,withMahycoMonsantoBiotech(India) Ltd(MMBL)toproduceandmarketcottontosupportBangladesh’sgarmentsector, or
with
Serum
Institute
of
India
to
produce
vaccines
for
the
health
care/pharm care/pharmaceut aceutical ical sector. sector. The prospectsof prospectsof access access to a large domesticmarket domesticmarket mayappealtoMNCs. DeepenexistingThaiinterests
Thai investment inves investme tment nt in Bangladesh Bangla Banglades desh: h: h Thai Thai busine businesse sses s have have condu conducte cted d resear research ch and Thai tment desh invest invested ed approx approxim imate ately ly USD 60mn 60mn in the past past 5 years years inBanglades inBangladesh h invarious invarious 2
sectors sectors including including, , agricultur agriculture e and poultry poultry products products . Further Further specific specific investment investments s Someproductstofocuson
andpartnershipswithBangladeshbytheThaientrepreneursintheagrosectorare potentialinvestmentareas. Specificproducts Thefollowingarethespecificareasofinvestmentopportunities: SpecificproductsThefollowingarethespecificareasofinvestmentopportunities: Agro Agro-biotechnology -biotechnology biotechnology •
Cottonproductionandprocessing(backwardlinkagetoRM Cottonproductionandprocess ing(backwardlinkagetoRMG/SpinningMills) G/SpinningMills)
•
Potato
•
Rice
Medicinalbiotechnology Medicinalbiotechnology •
Vaccinemanufacturing
•
Recombinantinsulin
94
AT Capital Research Conclusion Conclusion Biotechnologyappliestomanysectors–producingnewproducts,improvingyields and protec protectin ting g agains against t enviro environme nmenta ntal l risk risks. s. With With a large large domest domestic ic popula populati tion, on, Agr Agric icul ultu ture re and and Phar Pharma ma sect sector ors s coul could d benef benefit it signi signifi fica cantl ntly. y. Biote Biotech chno nolo logi gica cal l researchinBangladeshhasbeeninitiatedonlyrecently.But researchinBangladeshhasb eeninitiatedonlyrecently.Butwithactivegovernm withactivegovernment ent support, support, infrastru infrastructure cture developme development, nt, investme investment nt intechnical intechnical skillscouldtransform skillscouldtransform thissectorandotherconnectedsectors.Knowledgetransfer,leveragingtheNRB platformandalliance platformandalliancesand sand jointventuresinter jointventuresinternatio nationally nally shouldbe shouldbe developed.The developed.The potentialbenefitsfortheprivatesectorandwidersocietyis potentialbenefitsfortheprivatesec torandwidersocietyisconsiderable. considerable.
References References 1.
RNCOS.
(2005).
“Indian
Biotech
Industry
2005”.
Available
at
http://www.piribo.com/publications/biotechnol http://www.piribo.com /publications/biotechnology/indian_biotech_industr ogy/indian_biotech_industry_ y_ 2005.html 2.
PharmaceuticalandHospitalityOptimi PharmaceuticalandHos pitalityOptimization,OncolifeScien zation,OncolifeSciencesPvt.Ltd. cesPvt.Ltd.
3.
ConferenceReports,TheJointUKBiotechnologyCom ConferenceReports,TheJoint UKBiotechnologyCompanyShowcase/ panyShowcase/ GenesisVII,QueenElizabethII,ConferenceCentre,13thDecember2007, London,UK.http://www.pharmaprojects.com/conferenc London,UK.http://www.pharmaproje cts.com/conference_reports/Joint-UKe_reports/Joint-UKBiotechnology-Show-jan2008.htm
4.
Rice Rice in Bangla Banglades desh, h, July July 1, 2007, 2007, Bangla Banglades desh h Rice Rice Knowle Knowledge dge Bank, Bank, http://www.knowledgebank-brri.org/riceinban.htm
5.
NationalCenterforGenetic NationalCenterforGenetic Engineerin Engineeringand gand Biotechnol Biotechnology. ogy. (2003).“The (2003).“The Potential Potential Commerc Commerciali ializatio zation n of Biotechnol Biotechnology ogy in Banglades Bangladesh”. h”. Prepared Prepared for for Sout South h Asia Asia Ente Enterp rpri rise se Deve Develo lopm pmen ent t Faci Facili lity ty (SE (SEDF), DF), Bang Bangko kok, k, Thailand.
6.
Choud Choudhu hury ry, , N., N., & Isla Islam, m, M. S. “Bio “Biote tech chno nolo logy gy in Bang Bangla lade desh sh”, ”, Asia Asian n Biotechnology
and
Development
Review,
National
Institute
of
Biotechnolo Biotechnology,Banglades gy,Bangladesh h Atomic Atomic Energy Energy Commissi Commission,Ramna,Dhakaon,Ramna,Dhaka1000.Availablehttp://www.ris.org.in/abdr_nov4.pdf 7.
BIOTECHNOLOGY.(2005). “UnprecedentedGrowthOpportunity”. Availableat http://72.14.235.104/search?q=cache:thAAZDk98bEJ:ibef.org/download/bi otech19jan.
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AT Capital Research
g n i r e e n i g n E t h g i L
LightEngineering LightEngineering
TheannualrevenuegeneratedbythesectoramountstoaroundBDT9,500 crores(USD1,600mn).Thiscontributesto2.15%o crores(USD1,600mn).Thiscontributesto2.15%ofnationalGDP. fnationalGDP.
A growin growing g and increa increasin singly gly affluen affluent t middl middle e class class indica indicates tes demand demand for cons onsumer umer durab urable les s. As the the dem demand and and and usage sage of engi engine neer eriing and and electronicgoodsincreases,thedemandoflightengineeringgoodsisalso increasing
s r e n t r a P l a t i p a C r e g i T n a i s A
Export-ori Export-orientedproduc entedproductioninlight tioninlight industries industries hasgainedmomentumin hasgainedmomentumin the past past few years years. . The plasti plastic c indust industry ry has experi experienc enced ed signif significa icant nt export export growth117%overthelastyear.ProductsworthUSD209mnwereexported duringthelastfiscal,fromUSD96.5mninthepreviousyear.
At3.6kgpercapitaayear,plasticconsumptioninBangladeshisoneofthe lowestintheworld.Withrapideconomicdevelopmentthisfigureisboundto increasesignificantlyasdemandforplasti increasesignificantlyasdemandforplasticincreases. cincreases.
Curr Current ently ly, , 40% 40% of the the raw raw mater materia ials ls requi require red d for for plas plasti tic c prod produc ucti tion on are are imported.ThereisaprobableUSD260mnimport-substitutionindustrythat canbemetthroughrecyclingplants.
The Agro-tools Agro-tools subsector of the LESis worthUSD 217mn 217mn withpotential impor imports ts subs substi titu tuti tion on mark market et wort worth h USD USD 289m 289mn. n. Furt Furthe herm rmor ore, e, as Indi India a becomesmoreindustrialized,itpresents becomesmoreindustr ialized,itpresentsanaddedpotentialexportmarket. anaddedpotentialexportmarket.
Thereisalargelow-wagelaborforceemployedinthesector.However,due to insuffi insufficie cient nt infras infrastru tructu cture re they they lack lack adequa adequate te educat educatio ion n and train training ing. . Inve Invest stme ment nt is in Techn echnic ical al Trai Traini ning ng woul would d be lucr lucrat ativ ive e as the the sect sector or expands.
ChineseandIndianbicyclescontrolover100%ofthedomesticmarket.The thre three e bicy bicycl cle e manuf manufac actu ture rers rs in Bangl Banglad ades esh h manu manufa fact ctur ure e high high qual qualit ity y bicyclesfortheUSandEUmarket.In2007MeghnaBicycleswonaUSD 13mn export
order
to Germany.
The sector presents
significant
opportunitiesforfurtherexpansionintothelocalandexportmarkets.
Sanwar Ahmed
[email protected] Dewan Ashrakat Hossain
[email protected]
96
AT Capital Research TheLEIndustryinBangladesh
The The pri primary ary s ubectorrs of the the Ligh Light Engine eri ing Sector or (LES (L (LE ES) ) in in whic wh which hiich ch h sub su ub b-sec -secto t Engi neer erin ing g Sect ES) Bangladeshcurrentlyhasastrongpresence tlyhasastrongpresenceare tlyhasastrongpresence are arebicyclemanufacturing,agro bicyclemanufacturing,agro--tools, Bangladeshcurren tlyhasastrongpresence are bicyclemanufacturing,agro -tools, capitalmachinerypartsandplastics.LESoutputplaysacriticalroleinkeynational capitalmachinerypartsandplastics sectorssuchasagriculture,transportation,constr sectorssuchasagriculture,transportation,constructionandRMG.Ever uctionandRMG.Everyyear,USD yyear,USD 200mnworthofsparepartsareimported.Bangladeshisacountrypoisedtofurther developitslightengineeri developitslightengineeringindustry ngindustryto to meetbothlocalneedsandexplore export export 1,2
markets.
In Bangladesh Bangla Banglades desh, h, , the the LES LE LES S has has grown gro grow grown wn n with with inform informal al cottage cot tage status over over the years. desh LES S has cottag tage e status the years rs. Lightengineeringbusinesseshavebeenprincipallysetupthroughprivateinitiatives with little little assistanc assistance e from the government government. . The sector sector is character characterized ized by small, small, fam family base based d bus busines nesses, es, which hich oper operat ate e in small all scal scale e usin using g bac back-da -dated 6
technology.
The plastic sub-sector is growing significantly
Theplasticindustryhasgrownatover20%perannumoverthelastdecade.The Theplasticindustryhasgrownatover20%perannumoverthelastdecade domesticmarketwasvaluedatapproximatelyUSD116mnin2006.In2007,total exportswereworthUSD209mnofwhichUSD145mnwasth exportswereworthUSD209m nofwhichUSD145mnwasthroughtheRMGsector. roughtheRMGsector. Thereare currently currently around around 3,000small,medium and large plastic plastic manufactu manufacturing ring 4
unitsoperatingacrossthecountry.
Figure1:Averagepercapitaconsumptionofplastic Consumption–kg/year Bangladesh India China North America World
3. 6 5. 0 24.0 90.0 20.0
Source:Katalyst 11
Figure2:ComparisonoftheplacitmarketofIndiaandBangladesh Market size Growth rate Contribution to GDP
Bangladesh
India
USD 116mn 2 0% 0.16%
USD 6bn 1 2% 0.70%
Source:Katalyst 11
The agro-tools sub-sector is yet to explore export markets
Theagrotoolsindustryisoneofthelargestindus isoneofthelargestindustries triesinthe intheLES LES.Annualaverage LES Theagro-toolsindustry -toolsindustry produc productio tion n of agro agro machi machiner nery, y, tools, tools, equipm equipment ent and spare spare parts parts is around around USD USD 217m 217mn n with ith import ports s of USD 289m 289mn. n. Ther There e are are over over 2,40 2,400 0 ente enterrpris prise es in Bangla Banglades desh h involv involved ed direct directly ly with with the Agro-t Agro-tool ools s indust industry. ry. Of the total total culti cultivab vable le landin Bangladesh Bangladesh, , 5.2%uses tractors,32.9% tractors,32.9% power tillersand tillersand 23.8% spraying spraying andthreshing.Furthermore,neighboringcountrieslikeIndia,China,Pakistan,and 3
Myanmar,alsoagrarianeconomiescouldbepotentialexporttargets.
LE plays a critical role in Bangladesh’s largest export earner
LEisanimportantsupportsectorfortheRMG&Textileindustry.Therearealmost LEisanimportantsupportsectorfortheRMG&Textileindustry. 9,500unitsin 9,500unitsin theRMG& theRMG& Textilesindus TextilesindustryinBangla tryinBangladesh. desh.TheLE TheLE sectorsuppor sectorsupports ts thes these e unit units s and and also also 148, 148,34 342 2 (SME (SME) ) units units in the the dome domest stic ic hand handlo loom om indus industr try y through through regular regular maintenanc maintenance, e, repairs, repairs, replacem replacement ent spares, spares, as well replaceme replacement nt andexpansionofthedifferent andexpansionofthedifferentmachines machinesandequipment andequipmentused.Therapidgrowth used.Therapidgrowthof of theRMG&Textilesectors theRMG&Textilesectorsbringforthapromisi bringforthapromisingopportun ngopportunityfortheexpan ityfortheexpansionof sionof theLESector. 97
AT Capital Research The key dynamics of the LES
Accesstotechnol echnologyisoneofthemaindeterminants ogyis oneof themain determinants determinants of of competitiveness. Accesstotechnol ogyisoneofthemaindeterminants of competitiveness Use of datedtechnology datedtechnologyin in theLEShampersproductiv theLEShampersproductivityanddegrades ityanddegradesthe the qualityof qualityof the 7
outputmakingthemunabletocompetewithinternationalproducts. The The SMEs SMEs in the th e indu indust stry ry lac lack lack k adequat ade adequ quate quat ate e access acc acce ess fi financ fin nanc ance. nce. e. Bank Banks s and and other other the stry ry lack adeq uate acce ess to fina financialinstitutionsarereluctanttofinancethesesmallsetupsduetothelackof 6
collateral,properdocumentationandriskassoci collateral,properdocumentati onandriskassociatedwiththeseventures. atedwiththeseventures.
Accesstoresearch,developmentandqualitytestingis inadequa inadequate. te.Duetothelack Accesstoresearch,developmentandqualitytestingis inadequa te. ofadequatecapital,mostofthelightengineeringfirmsinvestinR&Dactivities.The currentstandardofthe currentstandardofthe qualitytestingfacil qualitytestingfacilitie itiesat sat BANSDOC BANSDOC,BUETand ,BUETand BSTIare 1
inadequateinmeetinginternationalstandards.
ThefirmsintheLE lack managementstructure. managementstructure.Themanagementstructureofthe Thefirmsinthe LES LES Slack lackmanagementstructure. LESfirmslacksophisticat LESfirmslacksophis ticationwithsmallfirms ionwithsmallfirms having having 1-3employees.Thesesmall 1-3employees.Thesesmall and medium medium firms firms are largely largely family family owned with 70% being being soleproprietorship soleproprietorships. s. Duetoalackofstructuredmanagement,theenterprisesareunabletoexpandtheir 6
businesses.
On joblearningistheprimaryformoftraining.InallareasoftheLESsector, joblearningistheprimaryformoftraining. On-the -thethe--joblearningistheprimaryformoftraining. joblearningistheprimaryformoftraining. alth althou ough gh owner owners s (59% (59%) ) and and plan plant t mana manage gers rs (73% (73%) ) have have some some work work rele releva vant nt technicalqualifi technicalqualificatio cations,the ns,the workersare workersare allvirtuallyunskill allvirtuallyunskilled ed whenthey enter the sector,learningtheirtradesisthroughinformal,on-the-jobtraining.Despitethis,the 3,9
workforceishighlyadeptandskillfulatemulatingproducts.
The The LE sector or reli relies es heav heavil ily y on recy recycl cled ed metals. s. large e majo majori rity ty of the the raw raw LE sect cled ed metal tals s A larg materi materials als are sourc sourced ed from from the ship ship breaki breaking ng indust industry. ry. The materi materials als, , some some 20 yearsoldormore,aresorted,recycledandsoldwithouttestingorcertification.Raw materials,parts,andcomponentsformachineryhavetobeimportedatveryhigh impor import t duty. duty. The Natio National nal Board Board of Revenu Revenue e needs needs to design design polici policies es that that will will 3
ensurecheaperimportsofrawmaterials.
Lackof market market intelligence intelli ntelligence. ntelligence. gence The firms firms in the LESreceivevery little little or no market market Lackofmarketi ntelligence informationabout informationabout the internation international al or domestic domestic market. market. Thereis no sophistic sophisticated ated system system which which provid provides es this this inform informati ation on result resultin ing g in an inabi inabilit lity y to promote promote their their 1,
productsoverseas.
LE is one of the Thrust Sectors
The The Expo Ex port rtt Poli Policy cy 2006200609 09 reco recogn gniz gniizes izes ze es s the the LES LES as one one of the the thru thrust st sect sector ors. s. Expor port 2006 06--09 ors s Accor Accordin ding g to the export export polic policy y the govern governme ment nt has devis devised ed severa several l polic policies ies to promotetheLEsector.Theseincludeprojectandexportloanswithreducedinterest ratesonaprioritybasis;Incom ratesonaprioritybasis;Incometax etax exemption exemptions; s; andsubsidiesforutili andsubsidiesforutilityservic tyservices es 13
suchaselectricity,waterandgas.
Strengths of the LES
TheLES presen presentssever tsseveral al strengt strengthsthroug hsthrough h whichit whichit canemerge canemer ge the tsseveralstren alstrength gths s throug through can emerg emerge e asone of ofthe leadin leading g indus ind ustri tries es country. y. The local local marke market t is unsatur unsaturate ated d and there there is indust ustrie ries s for the countr sufficientdemand sufficientdemand withinthe withinthe variousmanufac variousmanufacturing turing concernssuchas concernssuchas textilemills, textilemills, railways,jutemills,shoemanufacturers,sugarmills,RMGandwashingplants.The chea cheap p work workfo forrce, ce, low low star start t up cos cost and and simp simple le prod produc ucti tion on proc proces ess s prov proviide sign signif ific ican ant t inc incenti entive ve for for grow growth th. . Last Last but but not not leas least, t, as a Thru Thrust st Sect Sector or, , the the Government Governmentprovidessubs providessubstanti tantialincenti alincentivesforthesectortodevelopasan vesforthesectortodevelopasan export export 98
AT Capital Research basedindustry.
, ,
Casestudy:ASuccessStory :ASuccessStory- -Trans Casestudy :ASuccessStory -- Trans- Trans --worldBicyclesCo.&MeghnaBangladeshLtd - worldBicyclesCo.&MeghnaBangladeshLtd Trans-worl Trans-world d Bicycle Bicycle Co Ltd and Meghna Meghna Banglades Bangladesh h Ltd,both partof the same same group,havebeenexportingbicyclepartsandfullbicycles,toEuropeformorethan adecade.Thecompanies'rootslieintheprivatizationoftheformergovernment ownedBangladeshCycleLtd. InOctober2007,it InOctober2007,it was announc announcedthatthe edthatthe compani companieshad eshad won a USD 13mn expo export rt orde order r at the the 'IFM 'IFMA A Colo Cologn gne e Show Show' ' in Germ German any. y. Chin Chines ese e and and Indi Indian an manufacturessupplyalmostonehundred%ofBangladesh'sdomesticdemandfor bicycles,andtheChineseinparticularhavedominatedexportmarketsintheWest. This This has has mean meant t that that Tran Transs-Wo Worl rld d Bicy Bicycl cle e and and Megh Meghna na Bang Bangla lade desh sh Ltd Ltd have have neededtobeextremelycompetitive.Ithasnotjustbeenaquestionofthecheap availabilityoflaborinBangladesh,butoftheneedtoensureahighandconsistent qualitylevel.Exportshavealsobeenhelpedbyasystemofbondedwarehouses andbydutyfreeaccesstotheEuropeanmarket.
Investment Opportunities In the LE Sector
TrainingCenterscanbealucrativeinvestment.Duetothecurrentlackofproper TrainingCenterscanbealucrativeinvestment. trai traini ning ng faci facili liti ties es, , ther there e is a dema demand nd for for inst instit itut utio ions ns that that will will prov provid ide e tech techni nica cal l knowledge knowledge and job-specif job-specific ic training training to the semi-ski semi-skilled lled labor labor force force in this sector. sector. TechnicalTrainingInstitutes(TTIs)canactasthesourceofskilledlaborthatthe industrycurrentlylacks. Invest Inv estmen ment nt t metal me tal tes ting, g, R&D facil facili fac faci facili ilitie liti ties/ ties es/ s/ pri vate testin tes ting g institu nstitu nstitute. itute. te. te. The indus industr try y Inve Invest stme ment nt meta tal l testin test testin ing, ing, g, R&D ilit itie ies/ s// privat priv privat ate e testi test testin ting ing ng iinst nstitute. curren currently tly lacks lacks adequa adequate te metal metal testin testing g or R&D facili facilitie ties, s, makin making g it impos impossib sible le to judgethequalityoftherawmaterials.Metaltestingfacilitiescanensurethequality oflocalproductsmeetinternationalstandards. Recy Recycl clin ing g plants plan pl ants ts for for plasti plas pl asti tics cs. For the the plas plasti tic c manuf manufac actu ture rers rs, , the the pric price e of raw raw Recycl Rec yclin ycling ing pla nts pla stics cs.. . For materialsisbyfarthemajorcostcomponent.Manyplasticproductsaremadefrom recy recycl cled ed plas plasti tics cs raw raw mate materi rial als. s. This This keep keeps s the the pric price e of lowe lower r quali quality ty good goods s competi competitiv tive e and it reduce reduces s the amount amount of plasti plastic c waste waste in the enviro environm nment. ent. The presentdemandforplasticresinis540,000tons/year,thesupplyisonly438,000 tons tons of whic which h 40% 40% is met thro throug ugh h impo import rts. s. Recy Recycl clin ing g plan plants ts can can be a costostcompetitivesubstitutetoimportsinmeetingtheincreasingdemandofrawmaterials fortheplasticindustry. InvestmentinaLEIndustrialPark. tinaLEIndustrialPark.Anindustrialparkisalarge-scaleclusterofLE Investmen tinaLEIndustrialPark. firms firms working working in a common common area with access access to infrastru infrastructur ctural al and costleverage thattheycannotacquir thattheycannotacquireontheirown.Firms eontheirown.Firmscanbenefitfrom canbenefitfromresearch researchandtesting andtesting facili facilitie ties; s; techni technical cal traini training ng facili facilitie ties; s; acces access s to moder modern n technol technology ogy and all other other infras infrastru tructu ctural ral resour resources ces. . Also, Also, the small small firms firms will will be able able to outsour outsourceto ceto each each otherwhichwillincreaseproductivitythroughpossiblespecializationoflabor.Asa majorityoftheLEfirmsaresmallinsize,anindustrialhubwillensureincreasein produc productio tion n efficie efficienc ncy y and qualit quality y assura assurance nce, , cheape cheaper r access access to raw materi material als; s; greatersubcontractingandaccessforexportfacilities.
99
AT Capital Research Theindustrycanmoveintolarger scaleproduction. scaleproduction.TheBangladeshiLEScurrently Theindustrycanmoveintolarger rscaleproduction. operate operates s in a very very small small scale scale, , targeti targeting ng primar primaril ily y impor import-s t-subs ubstit tituti ution. on. There There is immensepotentialforthecountrytoexportmanyLEproductsincludingagro-tools, plasti plastic c goods, goods, bicyc bicycles les and automo automobil bile e spare spare parts. parts. Invest Investme ments nts will will enable enable the industrytoenjoyeconomiesofscaleandcompetewiththeforeignproducts. Foreign Foreig Foreign n Manufactur Manufacturerscan erscan setupOEMs.Since setup OEMs. OEMs. LESin Bangladesh Bangladesh is alreadyan alreadyan ForeignManufacturerscansetupOEMs. establ establish ished ed indust industry; ry; it has the potenti potentialto alto act asan outsou outsourci rcing ng destin destinati ation on for for variousOriginalEquipmentManufacturers(OEMs).MajorOEMsarenowfocusing moreon R&D of newmodelsof vehiclesand vehiclesand theengineering theengineering work (mainlylabor (mainlylabor andprocessorientedsteps)hasbeenoutsourcedtosuppliers,suchasIndiaand Pakistanwhohaveexcelled Pakistanwhohaveexcelled inthisarea.Withinvestme inthisarea.Withinvestmentin ntin theLES,Bangladesh theLES,Bangladesh canprovidethesamecapability.Consequently,thesizeoftheautomobilesectorin 8
IndiaisUSD15mnwithexportsworthUSD2.9bn. TheIndianindustryismoving toward towards s automo automobil bile e manuf manufact acturi uring ng presen presentin ting g an opport opportuni unity ty for outsou outsourci rcing ng of sparepartsmanufacturingtoBangladesh. Conclusion Conclusion TheLESisa sectorofsignific sectorofsignificantopportu antopportunity. nity.As As asupportingindustr asupportingindustryto yto manyof manyof theothersectors,ithasaconsiderableimpactontheoveralldevelopmentofthe countr country. y. The compet competiti itiven veness ess of the LES has been been proven proven on the intern internati ation onal al scenewiththerecentsuccessoftheplasticsector.Moreover,theExportPolicyfor FY07 FY07 to FY09 FY09 has has incl includ uded ed the the Ligh Light t Engi Engine neer erin ing g Sect Sector or as one one of the the thru thrust st sect sector ors. s. A lowlow-wa wage ge semi emi skil skille led d labo labor r forc force, e, low low infr infras astr truc uctu ture re cost costs s and and government government initiativ initiativesprovides esprovides asignificantplatform asignificantplatform forthe industryto industryto move into largescaleproductionandexportdiversification.Theindustryrequiresinvestment andinnovationsifitistofulfillitstruepotential.
100
AT Capital Research References References 1.
IslamicUniversityofTechnology.(2006).“H IslamicUniversityofTechnology.(2006).“HelpingandAdvisingSM elpingandAdvisingSME E SectorsforEmploymentGeneration”.Available SectorsforEmploymentGeneration”.Availableatwww.iutoicatwww.iutoicdhaka.edu/.../4.%20Helping%20and%20Advising% dhaka.edu/.../4.%20Helping% 20and%20Advising%20SME%20Sectors 20SME%20Sectors%20 %20 for%20Employment%20Generation.pdf.
2.
http://www.sedf.org/light_engineer.php. Katalyst.(2005).“SectorBrief–AgroToolsIndustry”.Availableat http://www.katalystbd.com/downloads.php?catid=6.
3.
Katalyst. (2005). “Sector Brief – Plastics”. http://www.katalystbd.com/downloads.php?catid=6.
Available
at
4.
Uddin. Uddin. S. S. (2007) (2007). . “Ridin “Riding g to export export succes success, s, local local bicycl bicycle e makers makers go global”.PublishedinTheDailyStaron13November2007.
5.
Ala Alam m, M. S., S., & Ulla Ullah, h, M. A. (200 (2006) 6). . “SM “SMEs in Bang Bangla lade desh sh and and Thei Their r Fina Financ ncin ing: g: An Anal Analys ysis is and and Some Some Reco Recomm mmen endat datio ions ns”. ”. The The Cost Cost and and Management,Vol34,No.3,May-June2006,pp.57-72.
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Adh Adhik ikar ary, y, D., D., & McVa McVay, y, M. (200 (2006) 6). . “Mar “Marke ket t Deve Develo lopm pmen ent t in Prac Practi tice ce Sector Developm Development ent & Business Business Services Services Strategy-E Strategy-Experi xperience ence of SEDF, SEDF, Bangladesh”.Dhaka:SouthAsianEnterpriseDevelopm Bangladesh”.Dhaka:SouthAs ianEnterpriseDevelopmentFacility(SEDF). entFacility(SEDF).
7.
ACMA.(2007).“IndianAutomotiveComponentIndustry-EngineofGrowth Drivin Driving g the Indian Indian Manuf Manufact acturi uring ng Sector Sector”. ”. A presen presentat tation ion by the Indian Indian AutomotiveComponentsManufacturersAssociation.
8.
IRIS IRIS, , Univ niversi ersity ty of Mary aryland land. . (20 (2005). 05). “Re “Report port on Iden Identi tifi fica cati tion on of EmploymentOrientedExportServices”.Pre EmploymentOrientedExportServices”.PreparedforUNDPBangladesh paredforUNDPBangladesh. .
9.
ActionForEnterprise.(2002).“ReviewofSubSectorWorkinBangladesh”. PreparedbyActionforEnterprise(AFE)forUSAIDBangladesh.
10. Katalyst.(2006).“PlasticWasteRecycli Katalyst.(2006).“PlasticWasteRecycling&ItsOpportunitiesIn ng&ItsOpportunitiesIn Bangladesh”.Availableat http://www.katalystbd.com/downloads.php?catid=5. 11. NerveNews NerveNews of India. India. (2007) (2007). . “Bangl “Banglade adeshi shi bikesgo bikesgo to Europ Europe,but e,but India India rules rules at home”. home”. Publi Publishe shed d inThe Nerve Nerve News News of India India on 13 Novemb November er 2007.Availableathttp://www.nerve.in/news:253500114546. 12. Offi Offici cial al webs websit ite e of Expo Export rt Prom Promot otio ion n Bure Bureau au Bangl Banglad ades esh. h. Avai Availa labl ble e at http://www.epb.gov.bd/export_policy2003-06.html. 13. Plas Plasti tind ndia ia. . (200 (2006) 6). . “Ind “India ian n Plas Plasti tic c Indu Indust stry ry – Revi Review ew and and Outl Outlook ook”. ”. A presentationbythePlastindiaFoundation.
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g n i d l i u B p i h S g n i r e e n i g n e y v a e H
HeavyEngineering HeavyEngineeringShipBuilding ShipBuilding HeavyEngineering- -ShipBuilding
TheGlobalshipbuildingindustryisenjoyingstronggrowth.Allmajorship buildingnatio buildingnationsarerunni nsarerunningatornearfullcapac ngatornearfullcapacitytomeet itytomeetthedemandfor thedemandfor ships.Thereisanincreasingshipdeliverybacklogasthedemandhasbeen outpacingsupply.Pricesforshipshaverisensharply.
Globalshipbuildingcapacityisrisingfast,andby2013isforecasttomake threetimesasmanyshipsasin2004.Chinahasbeenthemostaggressive inincreasingitscap inincreasingitscapacity acityas as itaimsto itaimsto betheworld’slargestshipmak betheworld’slargestshipmakerby erby thenextdecade.
Bangl Banglad ades esh h has has rece recent ntly ly beco become me a play player er in the the glob global al ship ship buil buildi ding ng market,withtwocompanieswinningUSD250mnworthoforders.
The The two two compa ompani nies es, , Anan Ananda da Ship Shipya yard rds s Lim Limited ited and and West Wester ern n Mari Marine ne ShipyardsLimitedhavereceivedordersforsmallshipsthatareexpectedto
runupto2010.
s r e n t r a P l a t i p a C r e g i T n a i s A
Ananda Ananda Shipya ShipyardLimit rdLimited ed isexpandin isexpanding g their their capaci capacity ty and aims aims to be the leadingshipbuilderinthecountry.
Bangladeshhasthemostcompetitivelabourratesamongsttheexistingand newshipbuildingnationsandtechnologyisbeingadoptedincreasinglyinto the indust industry ry and its use will will provid provide e signi signific ficant ant produc productiv tivit ity y gains gains for the future.
Inve Invest stme ment nt into into tech technol nolog ogy y and the the mode modern rniz izat atio ion n of the the ship ship buil buildi ding ng infrastructureiskeytoensuringcompetiti infrastructureiskeytoensuringcompetitiveadvantageinthissector. veadvantageinthissector.
Ahmad Sajid
[email protected]
102
AT Capital Research Bangla Banglades desh h isenjoying isenjoying a boom inship buildi building. ng. Driven n byrisingdeman byrisingdemand d anda inshipbuilding. inshipbuildi ng. Drive globalsupplyshor globalsupplyshortage,exi tage,existing stingplayersinthemarke playersinthemarkethavebeenabletocapitali thavebeenabletocapitalize ze onaglobalbackloginordersandsharprisesinprices.Whileinvestmentinexisting shipyards shipyards provides provides significa significant nt investme investment nt opportuniti opportunities, es, investme investment nt in new yards yards maylesscompellinggiventwotothreeyearleadtimes,aforecastfallindemand from from 2011 and global global domina dominance nce from from China. China. Howeve However, r, levera leveragin ging g its low cost cost base base, , adop adopti ting ng new new tech techno nolo logi gies es, , coupl coupled ed with with gove govern rnme ment nt ince incenti ntive ves s and a strategicfocusonareassuchassmallships,Bangladeshcouldcarveitselfouta profitableniche.
Shipbuildingindustryis experiencingrapidgrowth gloablly
Theglobalshipbuildingindustryhasbeenontherise ildingindustryhasbeenontherisesince2000 since2000.From2001-2005, Theglobalshipbu ildingindustryhasbeenontherise since2000 theindustrygrewatanannualcompoundedrateof8.3%,comparedto2.8%over 1
theyearsfrom1985to2005. Strongdemandforshipshasledtoanincreaseofthe 2
globalbacklogfrom71.1mntonsin2000to158.97mntonsin2005.
Shipbuildinghasbeenmoving tolowercostlocations
ShipbuildinghasbeenshiftingtoAsia ShipbuildinghasbeenshiftingtoAsiaTheshipbuildingindustryhasbeenbasedin ShipbuildinghasbeenshiftingtoAsia Theshipbuildingindustryhasbeenbasedin EuropeandtheUSAhistorically,buthasbeenmovingtoKorea,Japan,China,and variousdevelopingcountries,seekinglowcostbuildingandtheabundanceoflabor supply.Thegovernme supply.Thegovernmentof ntof Vietnamhasidentifi Vietnamhasidentifiedshipbuil edshipbuildingasoneof dingasoneof themain priori priority ty sector sectors s for the countr country y and has made made variou various s facil faciliti ities es availa available ble. . India India, , 3
Indonesia,MalaysiaandcountriesfromtheMiddleEa Indonesia,Malaysiaandco untriesfromtheMiddleEasthaveenteredthemarket. sthaveenteredthemarket.
Strongdemand,highprices expectedtotailoffinmedium term
Prospectivenewentrantstothemarketshouldbecautiousasthemarketbecomes saturatedNewshipyardsinKoreaandChinawillcommenceoperationsinthenext saturated 2-3yearsnearlytriplingcapac 2-3yearsnearlytriplingcapacity.In2004the ity.In2004the worldshipyar worldshipyardcapacity dcapacitywasaround wasaround 60mn 60mn dwt (dead (dead weight weight tonnes tonnes) ) per annum annum, , by 2013 it is foreca forecastto stto be around around 200mndwtper 200mndwtper year.By2010Chinaaimstohave15megabuilder year.By2010Chinaaimstohave15megabuilders,20mid-siz s,20mid-sized ed builde builders rs and a number number of small small ship ship makers makers as well. well. Althou Although gh the curren current t ship ship buildi building ng indust industryis ryis ripe ripe for invest investme mentin ntin the near near term,oncea term,oncea downw downward ard cycle cycle begins-expertssaythiscouldbeafter2011-supplyanddemandscenariowillnot besorosy.Inthepast,shipbuildersfromKoreaandChinahavebeenknowntosell 4
theirshipsatorevenbelowcapacitywhendowncy theirshipsatorevenbelowca pacitywhendowncycleshavearrived. cleshavearrived. Figure1:Globalshareofshipbuildingbyregion/country(figuresin%) Year
1995
2000
2004
2005
EU
18.9
12.4
8.3
6.9
4.2
2.4
3.5
2.8
Japan
41.7
38.2
36.1
35.0
SouthKorea
27.8
38.9
36.8
37.7
China
3.3
4.7
11.6
13.8
Othercountries
4.1
3.3
3.7
3.9
OtherEuropeancountries
Source:Ludwig&Tholen(2006)
TraditionalEastAsian manufacturersseelabourcosts rise
ExpertspointedoutthatshipbuildinginEastAsiancountrieshasbecomecostly duetohighwages.Theindustryisgradually duetohighwages.Theindustr yisgraduallyshifting shiftingtowardsdevel towardsdevelopingcount opingcountrie ries s duetohighwages. main mainly ly for avai availa labi bili lity ty of chea cheap p labo labour ur forc force. e. Count Countri ries es like like Viet Vietna nam m are are now now benefiting.Vietn benefiting.Vietnamisnowoneof amisnowoneof themaindestinations themaindestinationsof of foreignshipbuyers.All foreignshipbuyers.All shipbuildingplantsinVietnamhavebeenbookeduntil2010.
Lessonstobelearntfrom Vietnam
Theshipbuildingindustryisalsooneofthemainprioritysectorsofthegovernment ofVietnam.Mostrecently,thegovernmenthasmadeUSD750mnavailableforthe ofVietnam. 103
AT Capital Research sect sector or to fina financ nce e the the deve develo lopm pmen ent t of a moder modern n indu indust stry ry that that can can meet meet futur future e internationalqualitydemands.Thegovernmenthasdecidedtomakeshipbuildinga keyexport industrythroug industrythroughthe hthe Shipbuildi ShipbuildingIndustry ngIndustrydevelopm developmentProgram entProgram200220022010.ItaimstoexportUSD5bnworthofshipsby2010andextendtheshipbuilding capacitytocontai capacitytocontainerships nershipsof1500TEU,cargoship of1500TEU,cargoshipsof100,000tonne sof100,000tonnes,oiltanke s,oiltanker r of 100,000 100,000 tonnes andship repairingof repairingof 400,000 400,000 tonnes. tonnes. Vietnamaims Vietnamaims to be the 5
fourthlargestshipbuilderwithinthenextdecade.
Bangladeshjoinstheglobal shipbuildingindustry
Bangladeshhastwoplayers playersin wo worldshipbuilding rldshipbuilding-- AnandaShipyardsLimitedand Bangladeshhastwo playersin inwo rldshipbuilding -AnandaShipyardsLimitedand AnandaShipyardsLimitedand West Wester ern n M Mari Ma arin arrine rine ine ne e Lim Li Limi m mited ited itted ed. . Meghn eghnag agha hat t base based d Anan Ananda da Ship Shipya yard rds s has has sign signed ed ne agreementswortharoundUSD180mnandChittagongbasedWesternMarinehas totalordersworthmorethanUSD70mn. totalordersworthmorethanUSD70mn.Anandahavesigneddeals Anandahavesigneddealswortharound wortharound USD USD 100m 100mn n with with two two Germ German an ship shippi ping ng comp compani anies es to buil build d eigh eight t vess vessel els s with with capacityfor capacityfor 325 containersby containersby June2010, and haverecently signed signed deals worth worth USD 82mn.Anand 82mn.Anandaare aare planni planningto ngto invest invest around around BDT1.10bn BDT1.10bn tosetup two dry dry dock docks s in thei their r ship shipya yard rd with with a plann planned ed comp comple leti tion on by earl early y next next year year. . Once Once in operationAnandaclaimsittakeordersuptoUSD500mn.Anandahasalsosetupa modernslipwayontheriverKarnaphuli,hasalsosignedaletterofintentwithtwo 6
foreigncompaniestoconstruct14smallves foreigncompaniestoconstr uct14smallvesselsatacostofaroundUSD selsatacostofaroundUSD150mn. 150mn. Thes shipbuildingindustryin hipbuildingindustryin Bangladeshwould Bangla Bangladesh deshwould deshwould woul d benefit benefi benefit benefittfrom fromgovernment fromgovernme government governm ent ntsupport suppo support support rt The s hipbuildingindustryinBangladesh would governmentsupport governmentsupport support rt
Othercountriesbenefitfrom subsidies
ExpertsinBangladeshhaveadvocatedtheestablishmentofdeep-draftports,duty exempt exemptio ion n for impor import t of capita capital l machin machinery ery, , bonded bonded wareho warehouse use facili facilitie ties, s, specia special l financialsubsidyandprovidinggreenchannelforimportingrawmaterialstoensure healthygrowthofthesecto healthygrowthofthesector.Indiaisprovi r.Indiaisprovided30%finan ded30%financial cialsubsidytoaiditsship subsidytoaiditsship buil buildi ding ng indu indust stry ry, , whil while e Viet Vietna nam m is prov provid idin ing g 40% 40% fina financ ncia ial l subs subsid idy y to its its ship ship makers.Dutyfreeimportofsteelagainstabondsystemisespeciallyrelevant.The materi material al would would be used used only only for export export purpos purposes, es, and it would would create create scope scope for 6
exportordersfacilitatinguseofthecountry’scheaplabourforce.
Bangladeshlowerlabourcosts akeyadvantage
Sinceshipbuildingisa Sinceshipbuildingisa labourintensive labourintensiveindustry,Bangl industry,Bangladeshstand adeshstandsto sto gainfrom industry,Bangladeshstan dsto its its high highly ly comp co mpet etit itiv ive e wage wage rate rates. s. Regi Region onal al compa ompara rabl bles es show show that that, , hour hourlly com mpeti pe titi tive ve minimum minimumwageis38UScentsinChi wageis38UScentsinChina,45centsinVie na,45centsinVietnam tnam,39centsinIndia, ,39centsinIndia,35 35 centsinPakistanand27centsinSriLanka.Bangladeshhaslowerwageratesthat 7
is19centanhour. Theshipbuildingindustryisrapidlymodernizing,withincreased useoftechnologyandmachinerygreatlyimprovingproductivity.Bangladeshshould also also start tart impr improv ovin ing g its its tec technol hnolog ogy y by inco incorp rpor orat atin ing g com compute puter r aide aided d desi design gn elem element ents s in its its proc proces esse ses s as low low wage wage rate rates s alon alone e will will not keep keep the coun countr try y competitiveforever.
104
AT Capital Research Figure2:Wagespermonthin2002 1,800 1,600 1,400 1,200 D 1,000 S 800 U
600 400 200 0 Japan
South Korea
Si ngapor e
Chi na
India
Bangl adesh
Country
Source:Ludwig&Tholen(2006)
Conclusion Conclusion Withshippricesatanalltimehighandallmajorshipproducingcountriesrunningat fullcapacity,Bangladeshstandstogainfromjoiningtheshipbuildingindustry.The two two curr curren ent t Bang Bangla lade desh shi i play player ers s toda today y are are expe expect cted ed to keep keep brin bringi ging ng in more more businessfrom businessfrom aroundthe globe overthe nextfive years. years. To remain remain competiti competitive, ve, theyalsomustincorporatetechnologyandmachineryintotheirbusinessestohave anedge. References References: ferences 1.
Equitymaster.com.(2007).”Globalshipbuildi Equitymaster.com.(2007).”Globalshipbuilding:Anoverview”.Arti ng:Anoverview”.Article cle publishedonFebruary15,2007.Availableat http://www.equitymaster.com/detail.asp?date=2/15/2007&story=1.
2.
TheShipbuilders’AssociationofJapan.(2005).”GlobalShipbuilding Industry:StatusandChallenges”.PaperpresentedatTheIMFShipbuilding Industry:StatusandChallenges”.Paperpresentedat TheIMFShipbuilding ActionGroupmeeting,November14–16,2005.
3.
Wu,D.(2007).“OverviewofMaritimeIndustryi Wu,D.(2007).“Overview ofMaritimeIndustryinHubeiProvince,China.” nHubeiProvince,China.” Availableat www.maritimepartenariate.com/download/1266/x/H www.maritimepartenariate.com/download/1266/x/Hubei%20Marine% ubei%20Marine%20Indu 20Indu sry%20Overview%20210307.ppt.
4.
Primarysources:interviewswithaninternati Primarysources:interviewswithaninternationalshipbroker. onalshipbroker.
5.
MaritimeVietnam.(2007).“IndustryMarketOutl MaritimeVietnam.(2007) .“IndustryMarketOutlook–Shipbuilding,Portsand ook–Shipbuilding,Portsand Logistics”,February25,2007.Availableat http://www.maritimeshows.com/v http://www.maritimeshows.com/vietnam/Vietnam_Country_ ietnam/Vietnam_Country_InformationInformation270907.pdf.
6.
FinancialExpress.(2008).“Bangladeshsettoemergeasnew shipbuildinghub”.ArticlepublishedintheFinancialExpressonFebruary5, 2008.
7.
Jackson,R.(2008).“Wagerates–China’srisingcos Jackson,R.(2008).“Wagerat es–China’srisingcostsmakebuyersthi tsmakebuyersthink nk twice”.ArticlepublishedinEthicalCorporationMa twice”.ArticlepublishedinEthicalCorporationMagazineonMarch10,2008, gazineonMarch10,2008,
8.
Ludwig,T.,&Tholen,J.(2006).“ShipbuildinginChinaanditsimpactson Europeanshipbuildingindustry.”UniversityofBremen&IntituteofLaw andlabourGermany. 105
AT Capital Research
Tourism Tourism m s i r u o T
Tour Touris ism m in Bang Bangla lade desh sh prov provid ides es a numb number er of untap untappe ped d oppo opport rtuni uniti ties es relativetoothercomparablesintheregion.
Bangladeshishometo Bangladeshishometo Cox’sBazar,thelongestnatural Cox’sBazar,thelongestnatural unbrokenbeach unbrokenbeach stripintheworld.IntheSouthwestregionaretheSundarbans,theworld’s largestnaturalmangroveforest.
s r e n t r a P l a t i p a C r e g i T n a i s A
Howeve However, r, relati relativel vely y few people people global globally ly are aware aware of the existe existence nce of theselocationsduetopoormarketingandinadequateinfrastructure.
Thecountry’sproximitytootherkeytouristspotssuchasIndia,Nepal,and Thailandmayalsoprovideanopportunityasacombinationlocationwith thesecountries. thesecountries.Witha Witha marketing marketing push, Bangladesh Bangladesh couldplaceitselfas couldplaceitselfas
analternativedestinationastouristsseekexoticlocations.
Consistenteconomicgrowthanddevelopmentofexportbusinessessuch as read readyy-ma made de garm garmen ents ts have have enco encour urag aged ed an incr increa easi sing ng numb number er of busin busines esss-re rela late ted d trip trips s from from abroa abroad. d. In order order to cater cater to this this grow growin ing g
demand,newluxuryhotels,includingtwoforeignchainssince2006,have enteredthemarket.
Giventherelativeimmaturityofthemarket,therearesignificantareasfor inve invest stme ment nt in an indus industr try y whic which h coul could d show show subs substa tanti ntial al grow growth th in the the future.
S Adeeb Shams
[email protected]
106
AT Capital Research Figure 1: Regional Tourism Comparables Country 19 90
International Tourist Arrivals (Thousands) 20 00 200 4
International Tourist Receipts (USD Millions) 1990 2000 20 04
Thailand India
5,299 1,707
9,5 7 9 2 , 6 49
11,737 3, 4 5 7
4,326 1,513
7,483 3,460
1 0 , 0 34 6 , 12 1
Sri Lanka
298
40 0
566
132
24 8
51 3
Nepal
25 5
4 64
38 5
64
15 8
23 0
Bangladesh
1 15
199
2 71
11
50
67
1
Source:WorldTourismOrganization(WTO),2005
While tourism tour ism Bang Ba Bangla Ban ngla glades lade desh desh sh h has grown n in recent nt years, s, the the oppor op portu tuni niti ties es for for While tourism touris m in Bangladesh Bangl adesh has has grow in rece cent nt year oppo port rtuni uniti investmentinprojectsremain significant. investmentinprojectsremain remainsignificant. Propermarketingandpromotion neededintoptouristlocations
Cox’s thecountry’s s mostpopula mostpopular r tourist tourist attrac attractio tions ns, wor ld’s Cox’s Bazar, Bazar, , oneof thecountry’ tions, ns,, isthe world’s world’ ld’s s longes longest t sea beach stretc stretchin hing g 120km 120 km. . Althou Although gh there there has been some some growt growth h in sea beach 120km. 120k m. terms ofnew accommo accommodation dationover over thepastdecade,develo thepastdecade,developmenthasfocused pmenthasfocusedon on midmid-qu qual alit ity y hote hotel l deve develo lopm pmen ent. t.
The The beac beach h area area lack lacks s inte intern rnat atio iona nal l stan standa dard rd
restaurantsandfacilitiesforrecreationthatwouldattractforeigners.Theonlyluxury hotelintheregion,theSeagullhassomebasicamenities,suchasaswimmingpool and a fitnesscenter,but fitnesscenter,but would would not meet internatio internationalexpectati nalexpectationsof onsof a highend travel traveler er and lacks lacks provis provision ion for makin making g reserv reservati ations ons online online. . Some Some hotels hotels in the Cox’s Bazar Bazar area do have websites, websites, although although they lack professional professionalism ism and are rarelymaintained/updated.AreasofinterestapartfromthemainseabeachinCox’s Baza Bazar r are are Inan Inani, i, Mahe Mahesk skha hali li, , St. St. Mart Martin in’s ’s Isla Island nd and and Tekn Teknaf af. . Ther There e are are some some packagedtourscurrentl packagedtourscurrently y available available butare poorlypromotedon poorlypromotedon internatio internationaltravel naltravel sites. Sundarbans,theworld’slargestmangroveforest isspreadacrossBangladeshand Sundarbans,theworld’slargestmangroveforest, tmangroveforest, ,isspreadacrossBangladeshand West We stt Bengal Benga Be ngal. l.. It cove covers rs an area area of appr approx oxim imat atel ely y 6,00 6,000 0 squa square re kilo kilome mete ters rs in West Wes Ben gal. Bangladesh.Inductedasa UNESCOWorldHeritage sitein1987,theSundarbans sitein1987,theSundarbans ishometotheRoyalBengalTiger,spotteddeer,crocodiles,snakesandavarietyof differentspeciesofbirds.PlacesofinterestintheSundarbansincludeKatka,Hiron Point, Dublar Dublar Charand Tiger Point. Point. However,the However,the situationis situationis quiteanalogous to thatofCox’sBazarinthatthephysicalinfrastructure,intermsoftouristfacilities,is inad inadeq equa uate te and and info inform rmati ation on on thes these e area areas s is not read readil ily y avai availa labl ble e to tour touris ists ts internation internationally ally. . The Sundarbans Sundarbans present present many prospects prospects forEcotourism forEcotourism provided provided ther there e is some some init initia iati tive ve from from the the priv privat ate e sect sector or to intr introd oduc uce e packa package ge tour tours s to 2
visitors. Goodqualityhotelsarebeing introducedinDhaka
Twonewinternationalluxuryhotels,the theWestinandRadissonWaterGarden,have WestinandRadissonWaterGarden,have Twonewinternationalluxuryhotels, the open opened ened ed Dhaka since 2006 20 06. For many many year years s Dhak Dhaka a was was home home to only only two two opene d in in Dhak a sinc e 2006. 200 06. 6.. . For internationalluxurybrandhotels,PanPacificSonargaonandDhakaSheraton,both owned owned by the Gove Govern rnme ment nt. . In 2007 2007, , Radi Radiss sson on Wate Water r Gard Garden en Hotel Hotel gener generat ated ed revenueofUSD13.4mnandanoperatingprofitofUSD6.7mn,makingitthemost successfulhotelinBangladeshinitsfirstfullyearofoperations.StarwoodHotels andResortsannounceditsdecisiontodiscontinuemanagingDhakaSheratonfrom 2009,bydecidingagainstextendi 2009,bydecidingagainstextendingitscurrentcontr ngitscurrentcontractwithBangla actwithBangladeshServi deshServices ces Ltd(BSL).ThiswasdespitetheDhakaSheratonmakinganoperatingprofitofUSD 3,4,5
4.2mnin2007.StarwoodalsooperatestheWestinDhaka.
107
AT Capital Research Inte Inter rnatio nati nation ional onal nal all proj projec hav have ve been been been en dela del de laye ay e d.. The The con constru struct ctiion of a Hilto ilton n at Inter ternat iona nal ects ts have delay dellaye ayed yed. ed. d. Maghbazar, Maghbazar,alongwithan alongwithan Intercontine IntercontinentalHotel ntalHoteland and aHolidayInn aHolidayInn adjacenttoZia adjacenttoZia Inter Interna nati tiona onal l Airp Airpor ort, t, had had begu begun n in the the past past coupl couple e of year years. s. Howe Howeve ver, r, thes these e developmen developmentshavebeenstalle tshavebeenstalled.It d.It isbelievedthatBSLis isbelievedthatBSLis currently currentlyin in searchofa searchofa 5
newinternationaloperatorfrom2009.
Afewother luxuryhotels luxuryhotels inthecapital. inthecapital.Dhakahassomeotherluxur Dhakahassomeotherluxuryhotels,suc yhotels,such h Afew other otherluxuryhotels luxuryhotels inthecapital. astherecentlyopenedDhak astherecentlyopenedDhakaRegency aRegency,ownedbythreeNRB ,ownedbythreeNRBsfromtheUK,Hote sfromtheUK,Hotel l SarinainBanani,BestWesternLaVinciinKawranBazarandPurbaniinMotijheel. With With the except exception ion of La Vinci, Vinci, all of the other other hotels hotels are very very poorly poorly market marketed ed outsideBangladeshandhavelimitedprovisionsform outsideBangladeshandhavel imitedprovisionsformakingonlinereservati akingonlinereservations. ons. Chitta Chittagong gong is is is yet yet to have have an iinte in nter nttern erna rnat nati ati tion ional onal hote hotell. otel Agrab graba ad had been Chittagong . Hotel Chit Chitta tagon gong’ g’s s prem premie ier r hote hotel l for for many many year years. s. The The Peni Penins nsul ula a Chit Chitta tago gong ng, , whic which h opened opened in early early 2006, 2006, is widel widely y belie believed ved to be the best best hotel hotel in the port port city city at presen present, t, but is not of an intern internati ationa onal l standa standard. rd. The Thai Thai Ambas Ambassad sador or in Marc March h 2008 announ announced ced that Dusit Dusit Thani Thani has plans plans to set up a proper property ty in Chittag Chittagong ong. . Representati Representatives ves of the Thai luxury luxury hotel chain chain have already already started started discussi discussions ons with with the Bangla Banglades deshi hi Gover Governm nment ent in this this regard regard. . If succe successf ssfull ully y comple completed ted, , this this 6
wouldbethefirstforeign-managedhotelintheportcity. DevelopmentofaTouristIndustry opmentofaTouristIndustry Devel opmentofaTouristIndustry
Tourism Touris Tourism m Master Master Plan. Banglades desh h has suffer suffered ed from from poor poor planni planning, ng, inadequ inadequate ate Plan. . Bangla Whatmightbedonetopromote Tourism?
investment investment in infrastruc infrastructure ture and a focused focused promotion promotional al programm programme. e. Bangladesh Bangladesh can can lear learn n abou about t the the deve develo lopm pmen ent t of Tour Touris ism m acti activi viti ties es from from its its neig neighb hbor orin ing g countries.ForexampletheMaldives,asmallnationwithapopulationofunderhalf amillion,haspreparedthreedetailedtourismplansoverthepastfewdecades,the latest of which which waspublished in 2005 containinga containinga comprehens comprehensiveoutline iveoutline of the Tourismindustry.Ithasathoroughanalysisofbudgeting,existingfinances,private sect sector or contr contrib ibut utio ions ns, , deve develo lopm pment ent of exis existi ting ng faci facili liti ties es and serv servic ices es, , huma human n 7
resourcedevelopment,environmentalhazards,salesandpromotion.
Establ Establish ish the country country as a trans tr transi tra ansit nsit itt loca lo locati loc cati ation tion on fo forr Tour To Touris Tou uris rism ism. m. Encourag raging ing touris tourists ts to countr ntry as tran ansi sit tion on for ism m. . Encou spend spend a few days days in Bangl Banglade adesh sh during during a stopov stopover er trip trip toneighbori toneighboring ng countr countrie ies s suchasIndia,Nepaland suchasIndia,Nepaland Thailandmightgenera Thailandmightgeneratea tea positive positiveresponse. response.Keyto Keyto the successofsuchaninitiativewouldbeintheinvestmentandrefurbishmentofZia InternationalAirportwithcomplementaryinvestmentinsupportingaccommodation andleisurefacilitiesinadjacentlocations.Opportunitiesmayarisefromtherecent introd introduct uction ion of local local airlin airliners ers, , as a major majority ity of these these have have plans plans of introd introduci ucing ng internationalroutesbytheendof2008.TherecentAirServicesAgreementsigned between between the Bangla Banglades deshi hi and Indian Indian Govern Governme ments nts, , whereb whereby y there there might might be a maximumof61flightsperweek,toandfromcitiesineithercountry,mayprovide 8
furtheropportunities.
Rebranding Bangla Banglades desh h Parjatan Parja Parjat Parjatan tan an Corporation Corpo Corpor Corporati ration ation on (BPC) (BPC (BPC)) and and and greate gre grea greate ater ter r privat pri priv privat vate ate e sector sec sect sector tor or Rebranding Bangladesh Parj atan Corporation ration (BPC) participation. Government nt earlier earlier this month month announced announced plans of rebranding rebranding participation. The Governme BPC BPC as the the Natio ationa nal l Tour Touriism Autho uthorrity ity. Priv rivati atizing zing BPC has has bee been on the the Government’sagendaformanyyears,althoughafirmplanhasyettobedrawnup. Underprivatesectormanagement,Parjatancouldbemorecompetitivewithprivate 9,10
hotels.
108
AT Capital Research Thereneedstobeaconcertedeffortalsofromtheprivatesectoroverthelonger term.TherearenonotabletourismpromotionorganizationsotherthanBPC.There arenumerousagenciesinothercountriesintheregionsuchasMalaysia,Thailand and and Indi India. a. Thes These e orga organi niza zati tion ons s have have cont contri ribu bute ted d cons consid ider erab ably ly towa toward rds s the the developmentoftourisminthosecountries,astheyhavebeenextensivelymarketed andpromotedacrosstheglobe.Additionally,theintroductionofboothsatairportsin Dhaka, Dhaka, Chittagong, Chittagong, Sylhet, Sylhet, along with the Benapole Benapole intersect intersection ion bordering bordering India. India. Extensive Extensivemarketin marketingin gin theseareas will providetourists providetourists withaccesstoinformat withaccesstoinformation ion thatispresentlynotavailableinBangladesh. Invest Investme ment nt in infras infrastru tructu cture re and state owned owned hotels hotels. . Public Public-pr -priv ivate ate initia initiati tives ves, , and state inv investm estmen ent t in infr infras astr truc uctu ture re, , stre streng ngttheni hening ng the the exist xistiing high highw way netw networ ork k, part partic icul ular arly ly on the the Dhak Dhakaa-Ch Chit itta tago gong ng and and Dhak Dhakaa-Sy Sylh lhet et rout routes es is requ requir ired ed comple complemen mented ted with with settin setting g up facili facilitie ties s such such as food food outlets outlets and rest rest areas. areas. To remain ain
competitive,
investment
is
required
in
the
current
stat tate-owned
establishm establishmentsdedicat entsdedicated ed towardstourism, towardstourism, such asPan PacificSonargon PacificSonargon, , Dhaka Dhaka Sheraton,Parjatanpropertiesandothertouristattractions. Betterm arketingofllocal otels...Withtheexceptionofforeignbrands,localhotels Withtheexceptionofforeignbrands,localhotels Better marketingof marketingof localh ocal hotels hotels arehardlyfoundinthemostpopulartravelsitesontheInternetsuchasExpedia, Orbi Orbitz tz and Trav Travel eloc ocit ity. y. Even Even thou though gh they they might might be bett better er mark market eted ed with within in the the country,the country,the top local local brands evenin Dhaka, Dhaka, such as Sarina Sarina and Regency,have Regency,have minimalglobalrecognition. Needfor eedfor more re luxuryhotel luxuryhotelsoutsideDhaka. luxury luxury hotel hotelsoutsideDhaka. s outside outside Dhaka. Dhaka. Attracting Attracting andpartnering withworldNeedformo eedfor more classhotelbrandsintouristareassuchasCox’sBazarandtheSundarbansisa viableoption.ThefewluxuryhotelsthatexistinthecountryarerestrictedtoDhaka. These hotels hotels will target therapidly growingupper-mi growingupper-middleclasspopulati ddleclasspopulation on locally, locally, aswellasforeigntourists. Targeting theNon theNonResidentBangladeshi ResidentBangladeshi(NRB) (NRB) (NRB) baseintheUSandtheUK baseintheUSandtheUKisan TargetingtheNon theNon--ResidentBangladeshi (NRB)baseintheUSandtheUK excell excellent ent opport opportuni unity ty for additi additiona onal l revenu revenue e from from touris tourism. m. This This would would inevit inevitabl ably y provid provide e the NRBs NRBs a greater greater incent incentive ive of visiti visiting ng their their nativ native e land, land, in additi addition on to visiting visiting friends friends and family.Marketin family.Marketing g holidays holidays in areas in London and New York York withhighconcentrationsofNRBs,providingintegratedpackageswhereNRBscan visitrelativesandalsoenjoyholidaybreaksin,forexample,Cox’sBazarandthe Sunderbans,wouldbeanattractivepropositiontoNRBs. Attracting Attracting an intern internati ational ationa onal l hotel hotel to Cox’s Bazar Bazar Bazar ar will will provid provide e some some much much needed needed Attracting an internationa internation al to Cox’s Cox’s competitionfortheSeagull,theonlyluxuryhotelinthearea.Forexample,Berjaya Hotel &Resortsspecific &Resortsspecificallyspec allyspeciali ializein zein settingup settingup propertiesinbeachareasand propertiesinbeachareasand they presen presently tly have have a reason reasonabl able e presenc presence e in South South East East Asia. Asia. This This hotel hotel may may catertothegrowingmiddle-classpopulationinBangladesh.Settingupahigherend Shangr Shangri i La, specif specific icall ally y target targeting ing the higher higher-in -incom come e group group from from Dhaka, Dhaka, foreig foreign n touristsinclud touristsincludingNRBs, ingNRBs,provides providesa a greatopportunit greatopportunityin yin turningCox’sBazar turningCox’sBazarintoa intoa luxurydestination.
109
AT Capital Research Conclusion Conclusion Bangladeshneedstohaveatourism-specificidentity,suchas MalaysiaTrulyAsia or IncredibleIndia .NegativeconnotationstraditionallyassociatedwithBangladesh .NegativeconnotationstraditionallyassociatedwithBangladesh needtobedispelledandacoordinatednationalbrandingplanneedstobedevised. As a large large develo developin ping g Musli Muslim m nation nation, , Bangla Banglades desh h needs needs to find find the right right blend blend betweenmaintainingitsMuslimtraditionsandbeinganattra betweenmaintainingitsMu slimtraditionsandbeinganattractivetouristdestination. ctivetouristdestination. Tourismin Tourismin Banglades Bangladeshis his characteri characterizedbya zedbya lack ofproperinfrastruct ofproperinfrastructure.Despi ure.Despite te the recent recent advent advent of intern internati ational onal hotel hotels, s, partic particula ularly rly in Dhaka Dhaka, , there there remain remains s a severe severe shortage shortage of good quality quality accommo accommodationfacilit dationfacilities ies throughoutthe throughoutthe country. country. The road road networ network k connec connectin ting g larger larger metro metro areas areas needs needs to be impro improved ved and air air transport,despiterecentpositivedevelopments,requires transport,despiterecentpositi vedevelopments,requiressubstantialinvestm substantialinvestment. ent. Bangladeshhasallthepre-requisitestoturnlocationssuchasCox’sBazarandthe Sundar Sundarban bans s into into worldworld-cla class ss touris tourist t destin destinati ations ons. . Invest Investme ment nt in infras infrastru tructu cture, re, a coor coordi dina nate ted d mark market etin ing g effor effort t and attr attrac acti ting ng worl world d clas class s oper operat ator ors s prov provid ide e the the backdropfordevelopingavibrantsector. References References 1.
Khan,M.R.,&Haque,M.(2007).“BIMSTEC–JapanCooperationin TourismandEnvironment:BangladeshPerspecti TourismandEnvironm ent:BangladeshPerspective”.India:CSIRD ve”.India:CSIRD DiscussionPaper#27.
2.
Salam,M.A.,Ross,L.G.,&Beveridge,M.C.M Salam,M.A.,Ross,L.G.,&Beveridge,M.C.M.(2000).“Eco-tourismto .(2000).“Eco-tourismto protectthereservemangroveforesttheSundarbansanditsfloraandfauna”. UK:InstituteofAquaculture,UniversityofStirling.
3.
TheNewNation.(2008).“2ndanniversarycelebrated:RadissonHotelearns USD6.72moperatingprofit”.ArticlepublishedFebruary6,2008.
4.
Akter,S.(2008).“DhakaSheratonkeepsuppaceinbattleforguests”.Article publishedinTheDailyStaronFebruary29,2008. http://thedailystar.net/story.php?nid=25403.
5.
Reza,S.I.(2008).“SheratonHoteltogetnewnamenextyear”.Article publishedinTheFinancialExpressonFeb26,2008. http://www.thefinancialexpressbd.com/search_index.php?page=detail_news&news_id=26444.
6.
Khan,J.U.(2008).“Thaiinvestmentplansforhotels,highwaysandoil”. ArticlepublishedinTheDailyStaronMarch4,2008.Availableat http://www.thedailystar.net/story.php?nid=26049/
7.
MinistryofTourismandCivilAviati MinistryofTourismandCivilAviation.“MaldivesThirdTouri on.“MaldivesThirdTourismMasterPlan smMasterPlan 2007–2011”.Availableatwww.tourism.gov.mv/downloads/ttmp.pdf .
8.
Hasan,R.(2008).“Public,privateairlineslockh Hasan,R.(2008).“Public,pri vateairlineslockhornsoverdealwithIndia”. ornsoverdealwithIndia”. TheDailyStaronFebruary26,2008. http://www.thedailystar.net/story.php?nid=24986.
9.
TheDailyStar.(2008).“Privatizingcomm TheDailyStar.(2008).“Priv atizingcommercialactivitiesofB ercialactivitiesofBPCunder PCunder consideration”.ArticlepublishedinTheDailyStaronMarch14,2008. http://www.thedailystar.net/story.php?nid=27623.
10. UNB,Dhaka.(2008).“ParjatanCorporationtobeNationalTourism Authority”.ArticlepublishedinTheDailyStaronMarch25,2008.Available athttp://www.thedailystar.net/story.php?nid=29171.
110
n o i t a c Education Education uEducation d E
AT Capital Research
s r e n t r a P l a t i p a C r e g i T n a i s A
Theeducationsectoraccountsfor14.2%oftotalgovernmentexpenditurein Bangladesh.
TheeducationsysteminBangladeshischaracteri TheeducationsysteminB angladeshischaracterizedbytheco-existenc zedbytheco-existenceof eof three three separa separate te stream streams: s: a vernac vernacula ular-b r-base ased d secula secular r syste system, m, known known as BengaliMedium,anIslam-basedreligioussystemknownasMadrassaand anEnglish-basedsystemmodeledaftertheBritisheducationsystem,using thesamecurriculum.
PoorqualityEnglish-basededucationmakesthemarketripeforgrowthin thissector.
Thoug Though h many many smal small l priv privat ate e play player ers s are are mush mushro room omin ing g in the the prim primar ary, y, secondaryandtertiarylevels,thequalityofeducationisvariable.
Theacuteshortageofboththenumber Theacuteshortageofboththenumberandqualityofteach andqualityofteachersatalllevels ersatalllevels high highli light ghts s an inve invest stme ment nt oppor opportun tunit ity y for for upgr upgrad adin ing g exis existi ting ng publ public ic and and
privateteachers’traininginstitutesorestablishingnewones.
Thereisscopetodrivecountrywidegrowththrough
Scalin Scaling g up large large number number of Englis English h medium medium primar primary y and second secondary ary educationalinstitutese.g.Scholastica,Sunbeams,etc.
Invest Investing ing in Indian Indian Instit Institute ute of Manage Managemen ment t (IIM) (IIM) type type busine business ss and management management schoolsinBanglades schoolsinBangladeshthatcan hthatcan produceglobal produceglobal standard standard managers.
Settin Setting g up Vocat Vocation ional al Traini Training ng Instit Institute utes s (VTIs) (VTIs) linked linked to manpow manpower er export export companie companies s in the field field of nursing, nursing, technical,teacher’s technical,teacher’s training, training, andEnglishlanguagewhichwillintroduceskilledw andEnglishlanguagewhichw illintroduceskilledworkersfortheExport orkersfortheExport ProcessingZones(EPZs),localjobm ProcessingZones(EP Zs),localjobmarket,andinternationalmark arket,andinternationalmarket. et.
Syeda Tasnuva Akhter
[email protected] Masum A Rahman
[email protected]
111
AT Capital Research Expenditureoneducation
Educationis Educa Educationis tionis primarily primarily funded funded by bythe the Government Gover Govern Governme nment mentwithsuppo ntwithsupport withsupport rtfrom from development development primarily fro developm partners andtheprivatesector. andtheprivatesector.However,Governmentexpenditureoneducationin partnersandtheprivatesector. Bangla Banglades desh h iscurrentl iscurrently y the lowest lowest in South South Asia Asia (2.3% (2.3% of GNP, GNP, compar compared ed to a 1
3.5%regionalaverage). From From the the the outse out outs outset set, et, t, , some some have have argue argued d that that the the educ educat atio iona nal l syst system em needs needs bett better er planningsoasto improvethequalityandrelevanceoftheeducationandtraining improvethequalityandrelevanceoftheeducationandtraining planning offered.Therearespecificreasonsforthepoorqualityofeducationatalllevels: •
Therecruitmentandplacementprocessofteachersis Therecruitmentandplacem entprocessofteachersisnotuptothemark. notuptothemark.
•
Theabsenceofacademicsupervisionhamperstheacademicenvironmentin theschoolsresultinginpoorperformanceoftheteachers.
•
Large Large scale scale privat private e tuiti tuitions ons by the teache teachers rs at the prima primary ry and second secondary ary leve levels ls have have made made clas classr sroo oom m teac teachi hingng-le lear arni ning ng prac practi tica call lly y redu redund ndant ant for for passingtheexams.
•
The The main main prob proble lem m with with tech techni nica cal l educ educat atio ion n is the the lack lack of link linkag age e with with empl employ oyer ers s and and the the job job marke arket. t. Emplo ployers ers compl omplai ain n that hat the the trai traini ning ng institutionsdonotdevelopordelivertheskillsthatem institutionsdonotdevelopordel ivertheskillsthatemployersrequire. ployersrequire.
Thewayforwardfor theeducationsector
Thewayforward Thewayf orward orward A summ summar ary y of the the stru struct ctur ure e of educ educat atio iona nal l inst instit itut utio ions ns can can be foun found d in the the appendices.Butwewouldsuggestthefollowing: •
More More empha emphasi sis s shou should ld be give given n on tech techni nica cal l and and voca vocati tiona onal l educ educat atio ion n programme programmesat sat secondary secondary/high /higherseconda ersecondarylevels rylevelsand and also atthe universit university y leve level l to enlar enlarge ge the the tech techno nolo logi gica cal l skil skill l base base whic which h will will be an impo import rtan ant t foundationforeconomicdevelopment,
•
The quality quality of scien science ce and Englis English h langua language ge educat education ion at second secondary ary and highersecondarylevelsshouldbeimproved.
•
Theefficiencyandstandardofteachersshouldbeimprovedthroughintensive training.
•
The gap in educa educatio tional nal facili facilitie ties s betwee between n urban urban and ruralareasshoul ruralareasshould d be reduced.
•
Suitablejob-orientedsubjectsatthesecondarylevelshouldbeintroducedto enablestudentstobeself-employed.
•
Priv Privat ate e inve invest stme ment nts s in the the educ educat atio ion n sect sector or shou should ld cont contin inue ue to focu focus s on improving improving the quality quality and relevance relevance of education education through through capacitycapacity-build building, ing, improvingpoliciesandtheinstitutionalenvironment.
Investmentopportunities
The The ineffe ineffecti ctiven veness ess some areas areas of the curren current t public publ ic private e educati educ ation on ctive venes ness s of some public ic and and privat educat education ion system system in Bangla Banglades desh h offers offers signif significa icant nt invest investmen ment t opport opportuni unitie ties s in this this sector sector. . Theseinclude: Theseinclude: •
Trai Traini ning ng inst instit itut utio ions ns/c /col olle lege ges s can can be esta establ blis ishe hed d so that that the the Nati Nation onal al Universit University y students students can receive receive vocational vocational training training in various various global trades trades (accounti (accounting ng and financial financial services services, , hotel managemen management t and tourism, tourism, graphic graphic design,callcentre,animation,IT,etc.).Thiswillcreateopportunitiesforthe studentstoenterinthelocalandinternationaljobmarket.
•
Inve Invest stme ment nt may may be made ade in inst instit itut utes es and and univ univer ersi siti ties es spec specia iali lizi zing ng in advancedtechnology,management,engineeringandbusinessfordeveloping skilledworkersrequiredbyemergingindustries.Academiccollaborationwith 112
AT Capital Research leadingforeignuniversitieswillenhancetheacademicandtrainingstandards ofthestudents. •
English-m English-medium edium residentia residential l schools schools may be establish established ed in every district district to prov provid ide e qual uality educ educa ation tion to stud studen ents ts livi living ng in dist distri rict ct tow towns all all over over Bangladesh.Thisshouldprovetobeaprofitableinvestmentopportunitysince many many peopl people e outs outsid ide e Dhak Dhaka a are are inte intere rest sted ed in educ educat atin ing g their their chil childr dren en in English-mediumschoolsbutdonothaveeasyaccess.
•
Custom Customize ized d vocati vocational onal traini training ng progra programs ms can be design designed ed for speci specifi fic c job descriptionsoflocalandforeignemployers.Investmentinvocationaltraining centr entres es for for para param medi edics, cs,
nurse urses, s, plum plumbe berrs, ele electri ctrici cian ans s, dri driver vers, car
mechanic mechanics, s, gardeners, gardeners, industria industrial l workers workers including including textile textile & RMG workers, workers, cleaners,welders,etc.interestedinworkingoverseas(Malaysia,Korea,UAE, Saudi Arabia, Arabia, Singapore Singapore etc.) can change change the picture. picture. Apart from technical technical trai traini ning ng, , thes these e cent centre res s can can prov provid ide e rele releva vant nt fore foreig ign n langu anguag age e trai traini ning ng includingEnglishwhichwillfacili includingEnglishwhichwillfacilitatethecommunicationski tatethecommunicationskillsoftheworkers. llsoftheworkers. •
Investmentopportunitiesalsoexistinestablishingteachers’traininginstitutes forschool,collegeanduniversitylevels.
•
Withglobalstandards,andexaminationsunderinternationalboards,Englishmediu edium m scho school ols s have have prov proviided ded an alte altern rnat ativ ive e stre stream am of educ educat atio ion n in Bangladeshtothestate-runsystem.
EnglishMediumschools: RegionalExpansion Opportunities
ThehugegrowthinthenumberofEnglishMediumschoolsinthepastdecadeis certainlyoneofthemoreencouragingtrendsintheprivateeducationsector.This trendcanbeexpectedtocontinuegiven: •
Thepopulationgrowthwithahigher%ageofyoungchildren
•
The The rapi rapid d econ econom omic ic grow growth th lead leadin ing g to grea greate ter r disp dispos osab able le inco incom me and and purchasingpowertospendforchildren’seducation.
•
The growing growing popularity popularity of the English English Medium Medium education education systemcontinues systemcontinues, , especiallyamongtheurbanmiddleanduppermiddleclass,giventheirhigh internationalstandardsandincreasedprospectsforgainingentrytooverseas degrees.
Among Among the existingschools existingschools inDhaka, Scholastic Scholastica, a, Sunbeams,Sunnydal Sunbeams,Sunnydale, e, South Bree Breeze ze, , Mapl Maple e Leaf Leaf, , Gree Green n Hera Herald ld, , Mast Master ermi mind nd and and Aga Aga may may be cons consid ider ered ed amongthe amongthe toponesin terms terms of perfor performa mance nce of the studen students/ ts/pop popula ularit rity.The y.The fee struct structure ures s of these these school schools s are also also consid considera erably bly higher higher than than the other other Engli English sh medi medium um scho school ols s as thes these e schoo schools ls tend tend to targ target et the the prem premiu ium m segm segment ent of the the market. Itisworthnotingthat10,000Bangladeshichildrenarestudyingatabout200English mediu medium m school schools s in Darjil Darjiling ing, , Shilig Shiliguri uri andKurseong andKurseong inIndia. This This isbecause isbecause the adm admissi ission on fees fees, , tuit tuitio ion n and and othe other r expe expens nses es asso associ ciat ated ed with with Engl Englis ishh-m mediu edium m school schooling ing in Dhaka Dhaka have have gradua gradually lly risen risen beyond beyond the reach reach of many many middl middle-c e-clas lass s famili families. es. One ofthe better better schoo schoolsin lsin Dhaka Dhaka takesBDT20,00 takesBDT20,000to 0to BDT BDT 30,000 30,000 as admissionfees,BDT10,000toBDT15,000inannualfeesanduptoBDT7,500in month monthly ly fees fees total totalin ing g to an annua annual l fees fees of BDT BDT 1,20, 1,20,00 000. 0. Ther There e is no unif unifor orm m curriculumforEnglishmediumschoolsinBangladesh.Ontheotherhand,allEnglish 3
mediumschoolsinIndiafollowthesamecurr mediumschoolsinIndiafollowthesamecurriculumprescri iculumprescribedbyDelhiBoard. bedbyDelhiBoard.
113
AT Capital Research We believ believe e there there are invest investme ment nt opportu opportunit nities ies in settin setting g up new Engli English sh medium medium schools,in schools,in major major cities cities in the provinces provinces, , which would would make make inroads inroads intothe huge untapp untapped ed educa educatio tion n market market outsid outside e the capita capital. l. The strong strong sellin selling g point point of these these Engl Englis ish h medi medium um schoo schools ls will will be inte intern rnat atio iona nal l stan standa dard rd educ educat atio ion n whic which h will will be achievedby achievedby bringingin bringingin foreign foreign trainersfrom trainersfrom theUK and USto train train theteaching staff, staff, establ establish ishing ing an academ academic ic collab collabora oratio tion n and exchan exchange ge progra program m with with foreig foreign n schoolsand schoolsand providing providing boarding boarding school school facilities facilities for studentswho studentswho are toofar away fromhome. TheIndianprivateequityfirmsarefocusingmoreontheeducationfirmsthesedays targetingthe targetingthe domesticmarket domesticmarket. . Thetalent shortagein shortagein thejob market market iscompelling iscompelling thesefirmsininvestingmoreineducationsector.Therequirementoftalentis200mn 4
overthefollowingsixyears. Asaresult,therecenttrendininvestmentistowards trai traini ning ng in tutor tutorin ing g serv servic ices es, , coac coachi hing ng cent center ers s and and voca vocati tion onal al skil skills ls alth althou ough gh previouslythefocuswasonexport-orientededucation.
Privateequityinvestmentsin theIndianeducationsector
Education Education is emerging emerging as a key investme investment nt sector sector for venture venture capitalis capitalists ts in India. India. TherearealotoflocalandinternationalPEfirmswhichhavealreadyinvestedorare tryingtoinvestinIndia. 4,5,6,7
CaseStudy :PrivateEquityInvestmentsinIndianEducationSector PrivateEquityInvestmentsinIndianEducationSector CaseStudy: Study: •
•
•
•
•
•
India India-fo -focus cused ed privat private e equity equity firm firm GCP invest invested ed USD8. USD8.25 25 mn in educat educatio ion n and careercounselingentityCareerLauncher. In 2007, 2007, Bangal Bangalore ore-ba -based sed TutorVi TutorVista sta, , Educat Educatio ion n India India Pvt. Pvt. Ltd, Ltd, Mumbai Mumbai-ba -based sed Huri Hurix x Syst System ems s Pvt. Pvt. Ltd Ltd and and 24×7 24×7 Lear Learni ning ng Solu Soluti tion ons s Pvt. Pvt. Ltd, Ltd, have have toge togeth ther er receivedfundingofmorethanUSD12mn. HelixinvestmentsinvestedUSD12mnintoprep HelixinvestmentsinvestedUSD12mnintopreparatoryeducationcompanyMahe aratoryeducationcompanyMahesh sh TutorialsandSAIFpartners,USD10mninEnglishtrainingacademyVeta,plusan undisclosedsuminanothervocationaltraining undisclosedsuminanothervocationaltrainingcompany,ICAInfotech. company,ICAInfotech. BerggruenHoldi BerggruenHoldings,aNew-York ngs,aNew-Yorkbasedfund,planstoinvestUSD300m basedfund,planstoinvestUSD300mninIndia ninIndia overthenextthreeyears,intrainingschools. Sequoia Sequoia Capital Capital India has invested invested in two e-learning e-learning companiescompanies-TutorV TutorVista ista and Brainvisa. FootprintVentures,NovakBiddleVenturePartners,theICICIBank-supportedIFMR Trustandindustrial TrustandindustrialistGautam istGautamThaparareintereste Thaparareinterestedto dto investinschooleducati investinschooleducation on andassessmentwithEducationalInitiativesPvtLtd(EI),aneffortbyagroupofIIM alumni.
Conclusion Conclusion Despite Despite the proliferat proliferation ion of private private schoolsand schoolsand universit universitiesin iesin recent recent years, years, there stillremainsalargeinvestmentopportunityintheeducationsector.Muchhasbeen writtenrecentlyregardingthesuccessesBangladeshhasexperiencedinincreasing accesstoeducation.Whiletheseachievementsshouldnotbeunderestimated,itis imperativetorecognizethattherearestillmanychallengesthatmustbemetand widerangeofinvestmentneedstobemadetoenhanceequityandaccessinthe educationsector.
114
AT Capital Research References References eferences 1.
UNES UNESCO CO. . (200 (2007) 7). . “Sec “Secon onda dary ry Educ Educat atiion Regi Region onal al Info Inform rmat atio ion n Base Base: : CountryProfileBangladesh”.UNESCOAsiaandPacificRegionalBureaufor Education,2007,Bangkok.
2.
Ministryof Ministryof Education. Education. (2005). (2005). “EducationStatisti “EducationStatistics cs 2005”. 2005”. Availableat Availableat the offi offici cial al webs websit ite e of Mini Minist stry ry of Educ Educat atio ion, n, Gove Govern rnme ment nt of Bangl Banglade adesh sh at at http://www.moedu.gov.bd.
3.
Sarker,R.(2004).“ExodusforeducationtoIndia”.ArticlepublishedinThe DailyStaronDecember1,2004.
4.
TheEconomicTimes.(2007).“Talentcrunch:PEsbetbigoneducation sector”.ArticlepublishedintheEconomicTi sector”.ArticlepublishedintheEconomicTimesonNovember15,2007. mesonNovember15,2007.
5.
IndiaToday,December26,2007.
6.
IndiaPrivateEquity.(2008).“IIM-Aalumni’sEIgetsventurefunding”.Article publishedinIndiaPrivateEquityonMarch7,2008.
7.
EducationalInitiatives.(2008).“Learningassessm EducationalInitiatives.( 2008).“Learningassessmentcompanygetsv entcompanygetsventure enture capitalfunding”.Availableat http://www.ei-india.com/archives
115
AT Capital Research Appendices Appendices Appendix 1 1---Overview Overview Appendix1 Overview Figure1:EaseofdoingbusinessinBangladesh Indicators of doing business with ease
Rank in 2007
Rank in 2008
Change
107
102
-5
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
Figure2:LaunchingabusinessinBangladesh Bangladesh
Region
OECD
8 74
7.6 33.4
6 14.9
46.2
40.7
5 .1
Bangladesh
Region
OECD
14
16.3
14
Duration (days)
252
247.3
153.3
Cost (% of income per capita)
751
3,230.00
62.2
Bangladesh
Region
OECD
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
0
6.7
20.7
104
66
25.7
Doing business (average) Starting a business
Source:DoingBusiness2008,WorldBank
Procedures (number) Duration (days) Cost (% GNI per capita) Source:DoingBusiness2008,WorldBank
Figure3:Easeofdealingwithlicences Indicator Procedures (number)
Source:DoingBusiness2008,WorldBank
Figure4:Difficultiesfacedinhiringandfiringworkers Indicator
Non-wage labour cost (% of salary) Firing costs (weeks of wages) Source:DoingBusiness2008,WorldBank
116
AT Capital Research Figure5:Easewithwhichbusinesscansecurerightofproperty Indicator Bangladesh
Region
OECD
8
6.4
4 .9
Duration (days)
425
134.1
28
Cost (% of property value)
10.3
6
4 .6
Procedures (number)
Source:DoingBusiness2008,WorldBank
Figure6:Easeofcreditinformationsharingandlegalrightsofborrowerandlender Indicator
Bangladesh
Region
OECD
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
Bangladesh
Region
OECD
Disclosure Index
6
4.3
6.4
Director Liability Index
7
4. 3
5.1
Shareholder Suits Index
7
6.4
6 .5
6 .7
5
6
Figure8:Costandproceduraleasewithregardstotradingacrossborder Indicator Bangladesh Region Documents for export (number) 7 8. 6
OECD 4. 5
Source:DoingBusiness2008,WorldBank
Figure7:Dimensionofprotectinginvestors Indicator
Investor Protection Index Source:DoingBusiness2008,WorldBank
Time for export (days)
28
32.5
9. 8
844
1,179.90
905
9
9. 1
5
32
32.1
10.4
1,148.00
1,417.90
986.1
Figure9:Easeordifficultyofenforcingcommercialcontacts Indicator Bangladesh
Region
OECD
Procedures (number) Duration (days) Cost (% of claim)
43.5 1,047.1 27.2
31.3 443.3 17.7
Bangladesh
Region
OECD
Time (years)
4
5
1 .3
Cost (% of estate)
8
6 .5
7.5
23.2
20.1
74.1
Cost to export (US$ per container) Documents for import (number) Time for import (days) Cost to import (US$ per container) Source:DoingBusiness2008,WorldBank
41.0 1,442.0 63.3
Source:DoingBusiness2008,WorldBank
Figure10:Timeandcostrequiredresolvingbankruptcies Indicator
Recovery rate (cents on the dollar) Source:DoingBusiness2008,WorldBank
117
AT Capit l Research
Source: The 17th Survey of Investment-Rel a ted t edCos Cost tCo Comp mpar aris ison on, , JETRO,2007
Source: The 17th Survey of Investment-Rela tedCostComparison, JETRO,2007
Source: The 17th Survey of Investment-Rela tedCostComparison, JETRO,2007
Sour Source ce: :Th The e17 17th thS Sur urve vey yof ofI Inv nves estm tme e t-Related Cost Comparison, JETRO,200
Source:The17thSurveyofInvestment -RelatedCostComparison, JETRO,2007
Source:The17thSurveyofInvestm nt-Related Cost Comparison, JETRO,2007
118
AT Capital Research
Source:The17thSurveyofInvestmen Source:The17t hSurveyofInvestment-RelatedCostComparison t-RelatedCostComparison, , JETRO,2007
Source:The17thSurveyofInvestmen Source:The17thSurveyofInvestment-RelatedCostComparison t-RelatedCostComparison, , JETRO,2007
Source:The17thSurveyofInvestmen Source:The17t hSurveyofInvestment-RelatedCostComparison t-RelatedCostComparison, , JETRO,2007
Source:The17thSurveyofInvestmen Source:The17thSurveyofInvestment-RelatedCostComparison t-RelatedCostComparison, , JETRO,2007
Source:The17thSurveyofInvestmen Source:The17thSurveyofInvestment-RelatedCostComparison t-RelatedCostComparison, , JETRO,2007
Source:The17thSurveyofInvestmen Source:The17thSurveyofInvestment-RelatedCostComparison t-RelatedCostComparison, , JETRO,2007
119
AT Capital Research Appendix Appendix2 2 2-- -Energy Energy Energy
Source:BangladeshPowerDataBook2006byPowerCell
Source:BangladeshPowerDataBook2006byPowerCell
Figure3:CoalreservesofBangladesh Location
Year of discovery
Numberof drilledwells
Depth (meter)
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
1994-95
3
328-407
N/A
Dighipara, Dinajpur
Proven reserves (MT)*)
Source:PowerSystemMasterPlanUpdate,PowerCell&AsianDevelopmentBank
120
AT Capital Research Appendix3 Appendix3-Infrastructure(non Infrastructure(nonInfrastructure(non-energy) -energy) energy) 3-
Source:BangladeshEconomicReview,2007,
Figure2:RevenueearningsandexpenseofBangladeshRailway 900 e r u t i d n e p ) x E T & D s B g e r n o i r n r c a i n E ( e u n e v e R
800
Reve Revenu nue eE Earni arning ngss
Rev Revenue enue Expe Expens nse e
700 600 500 400 300 200
1 9 9 5 9 6
1 9 9 6 9 7
1 9 9 7 9 8
1 9 9 8 9 9
1 9 9 9 0 0
2 0 0 0 0 1
2 0 0 1 0 2
2 0 0 2 0 3
2 0 0 3 0 4
2 0 0 4 0 5
2 0 0 5 0 6
2 0 0 6 0 7
Source:BangladeshEconomicReview,2007,Minis Source:BangladeshEconomicReview,2007,MinistryofFinance tryofFinance
121
AT Capital Research Figure3:TolltargetandcollectionbyJamunaMu ltipu ltipurposeBridgeAuthority rposeBridgeAuthority Figure- 3:TolltargetandcollectionbyJamunaMultipurposeBridgeAuthority 180 160 n o i t ) c T e l l D o B C e r & o r t c e n g r i ( a T
140 120 100
Target
80
Collection
60 40 9 9 8 9 9 1
0 0 9 9 9 1
1 0 0 0 0 2
2 0 1 0 0 2
3 0 2 0 0 2
4 0 3 0 0 2
5 0 4 0 0 2
6 0 5 0 0 2
7 0 6 0 0 2
Source:BangladeshEconomicReview,2007
Case1:ReformofBangladeshRailway Case1:ReformofBangladeshRailway InBangladesh,projectsintherailwaysectorrequiremoretimeandfundstobearfruitthandoprojectsintheroad and and other other sect sector ors. s. For For this this and other other reas reason ons, s, the the gove govern rnme ment nt of Bang Bangla lade desh sh has scar scarce cely ly made made any any new new investmentsinrailwaydevelopmentsinceindependen investmentsinrailwaydevelopmentsinceindependenceinthe1970s.Consequently,virtual ceinthe1970s.Consequently,virtuallyallrailwayfaciliti lyallrailwayfacilitiesand esand equipmentnowinuseweredevelopedduringtheBritishcolonialperiod(upto1947).Indeed,theyhavebecomeso oldanddecrepitthattheyareunabletofullycapitalizeontherailway’sinherentstrengths–massive,rapid,punctual, safe,andenvironmentfriendly–resultinginreducedtransportationvolume,poorerserviceandasmallerroleforthe railwayintheoveralltransportsector. In paral paralle lel l with with the the robu robust st GDP GDP grow growth th (5–6 (5–6%) %) in rece recent nt year years, s, dema demand nd for for frei freigh ght t tran transp spor orta tati tion on has has stea steadi dily ly increa increased sed by 5–6% 5–6% annual annually ly in Bangla Banglades desh, h, showi showing ng partic particula ularly rly rapidgrowth rapidgrowth in the demand demand for transp transport ort in the Dhaka–Chit Dhaka–Chittagong tagong section, section, connectin connecting g Dhaka, Dhaka, the capital capital city and politicaland politicaland economic economic hub of the country, country, and Chittagong, Chittagong,thesecondlarges thesecondlargestcityandindustri tcityandindustrialhubwiththecountry’ alhubwiththecountry’slargest slargestseaport.Sinc seaport.Since2001,theamountof e2001,theamountof cargohandledattheportofChittagonghasbeenincreasingbymorethan10%annually,butiftheportfacilitiesare expand expanded ed and enough enough privat private e compani companies es are attrac attracted ted to the Export Export Proces Processin sing g Zone Zone (EP (EPZ), Z), the demand demand for transportinthe transportinthe Dhaka–Chi Dhaka–Chittag ttagongsectioncanbeexpectedtoincrease ongsectioncanbeexpectedtoincrease evenfurther.Whereasthegovernm evenfurther.Whereasthegovernmenthas enthas highexpectationsfortherailway–asanalternativemodeoftransportationtoroads–toplayaleadingroleinmeeting thisincreasingdemand,itseemsdifficult,bothintermsoftransportationvolumeandqualityofservice,forthecurrent railwayfacilitiestomeetsuchexpectations,thusposingabottleneckfortheeconomicgrowthintheyearsahead. Additionally,inordertoachievesustainabledevelopmentthattakestheenvironmentintoconsideration,amodalshift fromroadtransportationtoenvironmentfriendlyrailwaytransportationisindispensable.(Therailway’sCO2emission perton-kilometerislessthan1/8ofthatoftheautomobile.) ThegovernmentofBangladeshisscheduledtoformulatetheRailwayDevelopmentPlan,whichwillincludetheplan forimplementi forimplementingproject ngprojectsinthe sinthe railwaysector railwaysectoroverthenext20 overthenext20 years.Inaddition,thegovern years.Inaddition,thegovernmentplan mentplansto sto takeup sector sector reforms reforms through through organizatio organizational,administ nal,administrativ rative e and institutio institutional nal improvem improvements ents of Bangladesh Bangladesh Railway Railway (BR), (BR), andhasformulatedlong-termplanningandorganizationalrealignmentproposals(collectivelydesignatedastheBR ReformProgram)withaneyetochangingBRtoapubliccorporation.WorldBank,AsianDevelopmentBankand JapanbankforInternationalCooperationarejointlyfundingtheproject. Source:JapanBankforInternationalCooperation, http://www.jbic.go.jp/english/oec/before/2007/pdf/bangladesh02.pdf
122
AT Capital Research Appendix Appendix4 44- -Agriculture Agriculture Agriculture Agriculture Figure1:FoodgrainproductioninBangladesh(in100,000metrictonnes) 2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
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*
Tot al rice Totalrice
250.9 250.9
243 243
251.9 251.9
261.9 261.9
251.6 251.6
265.5 265.5
268.5 268.5
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*
269.1 269.1
260.6 260.6
268.7 268.7
276.8 276.8
265 265
278.1 278.1
284.4 284.4
Aus
Grand total Grandtotal
Source:BangladeshEconomicReview2007
Figure 2: Export of selected agricultural commodities from Bangladesh from Fiscal Year (FY) 1990-91 to FY 2004-05 Fiscal Year
Jute
Fruits
Vegetables
Thousand bales
BDT (mn)
MT*
BDT (mn)
MT
1990-91
1,360.0
3,670.0
613.0
36.3
2, 2 ,675.0
1991-92
1,394.0
3,250.0
457.0
27.2
0.0
1992-93
1,513.0
3,510.0
0.0
1, 1,475.3
0.0
1993-94
1,003.3
1,896.0
0.0
8.0
1994-95
1,682.0
3,180.0
0.0
1995-96
1,570.7
2,968.0
1996-97
2,351.0
1997-98
1,739.0
1998-99
Tea MT
BDT(mn)
BDT (mn)
295.9
26.5
1, 1 ,523.6
5, 5 ,525.8
427.9
23.6
1, 1,230.8
4, 4,935.9
431.2
33.1
1, 1,597.0
7, 7,013.5
0.0
438.3
3 6.9
1,781.1
4,123.4
0.0
0.0
0.0
2 7.2
1,313.0
4,493.0
0.0
0.0
0.0
0.0
2 5.9
1,254.0
4,222.0
4,442.2
0.0
0.0
0.0
0.0
2 8.5
1,380.0
5,822.2
3,188.5
60.5
3.6
7, 7,412.9
820.7
57.1
2, 2,760.0
6, 6,772.8
1,748.0
3,442.0
0.0
0.0
13,106.0
848.2
22.7
1, 1,850.0
6, 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, 9,509.3
689.2
17.8
1, 1,163.2
5, 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, 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, 1,456.3
12.3
932.1
7, 7,087.2
2004-05
2,268.6
5,916.4
0.0
0.0
29,100.0
2, 2,665.4
11.1
974.5
9, 9,556.3
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
Total
BDT (mn)
Total
Source:MinistryofAgriculture,Gov Source:MinistryofAgriculture,GovernmentofBanglad ernmentofBangladesh esh *MT=metrictonne
Figure3:Productionan Figure3:Pr Figure3:Productionandimportofch oductionandimportofch emicalfertilizersbyBangl izersbyBangladesh(in10 izersbyBangladesh(in1 adesh(in1000metricto 000metrictonnes) 00metrictonnes) nnes) oductionandimportofche dimportofchemicalfertil micalfertilizersbyBangl Production Year
Import
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:MinistryofAgriculture,GovernmentofBangladesh *OthersmeanGypsum,NPKS,andZinc Note:TSP=Triplesuperphosph Note:TSP=Triplesuperphosphate;SSP=Singles ate;SSP=Singlesuperphosphate; uperphosphate;NPKS=composition; NPKS=composition;ASP=Ammoniumsulphate ASP=Ammoniumsulphate;MP=Melamine ;MP=Melamine phosphate;DAP=Diamonimumphosph phosphate;DAP=Diamonimumphosphate;NPKS=acompo ate;NPKS=acompositionofnitrogen,p sitionofnitrogen,phosphate,pota hosphate,potassium,andsulphur;MP=Mel ssium,andsulphur;MP=Melaminephosphate; aminephosphate; DAP=diamonimumphosphate
123
AT Capital Research Figure4:Employment(persons15yearsandover)bybroadeconomicsectorsfrom1999to2000
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:BangladeshBureauofStatistics:La Source:BangladeshBureauofStatistics:LabourForceSurveyBa bourForceSurveyBangladesh1999-200 ngladesh1999-2000,August2002 0,August2002
Appendix5 Textiles Appendix55- -Textiles Textiles Figure1:ReadyMadeGar Figure1:Re Figure1:ReadyMadeGa adyMadeGarment(RMG) rment(RMG)exports(inUSD ment(RMG)exports(inUSD exports(inUSDmn)in2006 mn)in2006and2007 mn)in2006and2007 and2007 Woven
Knit
Annual growthrate 2007 (%)
2006
Total (Woven+Knit)
Annual growthgate 2007 ( %)
2006
Annual growthrate 2007 (%)
Month
2006
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
4,544.8
4,608.4
1.4
4,388.7
4,741.9
8.1
8,933.5
9,350.3
4.7
Total
Source:ExportPromotionBurea Source:ExportPromotionBureau,compiledbyBGME u,compiledbyBGMEA A
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:ExportPromotionBurea Source:ExportPromotionBureau,compiledbyBGME u,compiledbyBGMEA A
124
AT Capital Research Figure: 3 Structure of Bangladesh’s Primary Textile Sector (PTS) Sub-Sector
No of Mills
Installed Capacity
Production Capacity
311
6,250,000 Spindles
1,040mn Kg
11
NA
50mn Kg
1
2,888 Reeling
0.06mn Kg
322
NA
1,090.1m Kg
Spinning Mills: Cotton yarn mills Synthetic yarn mills Silk yarn mills Total Spinning Mills Weaving and Knitting Mills: Weaving mills (grey fabric)
400
Specialized textiles & power loom mills
1,066
Handloom mills Knitting, knit dyeing mills
25,000 Looms
1,400mn meters
23,000 Looms
300mn meters
148,342 498,000 handlooms
837mn meters
2,800 0 Knit/Dye Machines
4,100mn meters
Total Weaving and Knitting Mills
152,608
Total Dyeing and Finishing Mills
310
6,637mn meters NA
1,720mn meters
Source:AdaptedfromBTMAAnnua Source:AdaptedfromBTMAAnnualReport2007 lReport2007
Figure4:ComparativegrowthbetweenspindlecapacityandgrowthinRMG Fisc Fiscal alY Yea earr Grow Growth thi in nsp spin indl dle eca capa paci city ty( (%) %) Grow Growth thi in nto tota tal lRM RMG Gex expo port rts s(% (%) ) 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006 - 07
34.5 2 .8 44.1 0 .9 4 .9 25.6 11.4
11.7 -5.7 7.2 15.8 12.9 23.1 16.6
Source:BTMAAnnualReport2007,page27
125
AT Capital Research Appendix Appendix6 66- -Manpower Manpower Manpower Figure1:EstimatedsizeofremittancesmarketinBangladesh 2 2006 006
2015 2 015
4.8
30
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
48
300
288
1,050
Bangladesh Remittance Figure (USD bn) Average Transaction Size (USD)
FX Revenue (USD mn) Total System Revenue (USD mn)
Source:Ray,S.,Sinha,A.K.,&Chaudhuri,S.(2007).“MakingBangladeshaLeading Source:Ray,S.,Sinha,A.K.,&Chaudhuri,S.(2007).“Making BangladeshaLeadingManpowerExporter:Chas ManpowerExporter:ChasingaDreamofUS$30billion ingaDreamofUS$30billion AnnualMigrantRemittancesby2015”.
Figure2:DifferentcategoriesofBangladeshimigrantworkers Figure2:DifferentcategoriesofBangladeshimigrantworkers 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:BureauofManpower,Emplo Source:BureauofManpower,EmploymentandTraining ymentandTraining
Figure3:OverseasEmploymentbyProfession Worker'sCategory Year Professional Skilled Semi-skilled 1995 6,352 59,907 32,055 1996 3,188 64,301 34,689 1997 3,797 65,211 43,558 1998 9,574 74,718 51,590 1999 8,045 98,449 44,947 2000 10,669 99,606 26,461 2001 5,940 42,742 30,702 2002 14,450 56,265 36,025 2003 15,862 74,530 29,236 2004 12,202 110,177 28,327
Un-skilled 89,229 109,536 118,511 131,785 116,741 85,950 109,581 118,516 134,562 122,252
Source:BureauofManpower, Source:BureauofManpower,EmploymentandTrainin EmploymentandTraining g
Figure4:Thedemographicimplosionindevelopingworld(mn) Population Estimatedpopulationin in1999 2050 Japan
Absolutepopulationloss, 1999-2050
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 Figure5:SourcesofRemittancestoBangladesh(inUSDmn) 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
8 3 .6
92.7
108.0
Bahrain
32.9
42.8
49.2
57.6
6 4.0
62.6
70.2
Singapore
3 .8
10.5
8 .2
25.3
2 8.9
35.3
56.0
Italy
0.0
0.0
0 .0
4. 9
5 .9
Malaysia
71.6
45.6
31.9
49.1
3 3 .5
35.4
22.4
Germany
6 .3
3.9
4 .8
7 .9
8 .7
12.6
11.1
27.7
16.1
11.6
15.1
1 8 .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
Japan
25.2
Source:BureauofManpower,Emplo Source:BureauofManpower,EmploymentandTraining ymentandTraining
127
AT Capital Research Appendix Appendix7 77- -Pharmaceuticals Pharmaceuticals Pharmaceuticals Figure1 .Worldmarketbygeographicregion Figure 1. 1.. Worldmarketbygeographicregion- Worldmarketbygeographicregion -2007 - 2007 V a lu e (U SD b n )
An n u a l g ro w th (% )
US A
28 8
%oftotal 44
Eu r op e
18 5
28
6
F ra n ce
35
5
4
Ge rm a n y
33
5
3
UK
21
3
3
I ta l y
21
3
7
Ja pa n
62
10
-3
9
Asia Pa cific
46
7
14
La tin A m e ric a
32
5
21
Midd le E as t, A fr ica
22
3
13
Ca na d a
17
3
19
65 2
1 00
8
T ota l Source:GlaxoSmithKlineAnnualReport,2007
Figure2 :Top Top10 10manufacturersinBangladeshby manufacturersinBangladeshby Figure2: 2: Top 10 sales- sales -2007 - 2007 Sale Sales s(U (USD SDm mn) n)
Shar Share e(% (%))
Square
106
18
Beximco
54
9.2
Incepta
44
7.4
Acme
32
5.4
Eskayef
27
4.5
DrugINT.
23
3.9
Aristopharma
23
3.9
sanofi-aventis
22
3.8
A.C.I.
22
3.8
Renata
21
3.6
374
63.5
Total Source:IMSReport, 4thQuarter–2007
Figure3:Top10TherapeuticsegmentsinBangladeshbysales-2007 Sales ( USD mn) Share (%)
Growth (%)
AlimentaryT.&Metabolism
189
32
20.4
SystemicAnti-Infectives
147
24.9
5. 4
NervousSystem
53
8 .9
17.4
RespiratorySystem
47
7 .9
20.8
Musculo-SkeletalSystem
31
5 .2
14.9
Dermatologicals
15
2 .5
21.9
G.U.System&SexHormones
12
2 .1
19.4
HospitalSolutions
12
2 .1
7 .4
Blood+B.FormingOrgans
12
2
13.5
Parasitology
11
1 .9
13.6
591
100
15.8
Total th
Source:IMSReport, 4 Quarter–2007
128
AT Capital Research Figure4 :Top Top14 Figure 4: 4: Top14moleculesin 14 moleculesin Bangladeshbysales2007 Bangladeshbysales 2007
Omeprazole Ranitidine Ciprofloxacin Cefradine Amoxicillin Paracetamol Cefixime Ceftriaxone Diclofenac Azithromycin Amlodipine Salbutamol Cefuroxime Axetil Pantoprazole
earlysales (USDmn) 32 31 21 18 16 15 13 12 11 11 9 8 8 7
Source:IMSReport,4thQuarter–2007
Figure5:MajorAPImanufacturersinBangladeshandtheirproducts- 2007 Company Bexi Bexim mcoP coPha harrmace maceut utiicals calsL Ltd td. .
List of API Products Amlo Am lodi dipi pine ne, ,Am Amox oxyc yciilli llin,A n,Amp mpiicill cillin in, , Celecocib,Rofecoxib,Paracetamol, Diclofenac,Cloxazillin,Flucloxacillin, CetirizineFluconazole,Ciprofloxazin, Ranitidine,Cephalexin
Squa Square reP Pha harm rmac aceu euti tica cals lsL Ltd td. .
Amoxyc Amox ycil illi lin, n,P Par arac acet etam amol ol, ,Di Dicl clof ofen enac ac, , Cloxazillin,Flucloxacillin,Cephalexin
Drug International Ltd.
Amoxycillin, Diclofenac, Cloxacillin, Flucloxacillin,Cephalexin
GlobeP ePhar harmaceut eutical cals Ltd Ltd.
Amoxyc xycillin,Di Diclo clofen fenac,C c,Clloxa oxacil cillin, Flucloxacillin,Cephalexin
GonoshashtayaPharmaceuticals Ltd. Sunipun Pharmaceuticals Ltd. Opsonin Chemicals Ltd.
Amoxycillin,Paracetamol,Diclofenac, Cloxazillin,Flucloxacillin,Cephalexin Paracetamol Amoxycillin, Paracetamol, Diclofenac
Source:GTZ.(2007).'StudyontheViabilityofHighQualityDrugsManufacturinginBangladesh.' FederalMinistryofEconomicCooperationandDevelopment Source:GTZ.(2007).'Studyon Source:GTZ.(2007).'StudyontheViabilityofHighQu theViabilityofHighQualityDrugsManufac alityDrugsManufacturinginBanglades turinginBangladesh.' h.' FederalMinistryofEconomicCooperat FederalMinistryofEconomicCooperationandDevelopmen ionandDevelopment t
129
AT Capital Research Appendix 8Healthcare Appendix8 8- -Healthcare Healthcare
Fi gure1:Totalexpenditu gure1:Total expenditureonhea reonhealthas lthasa%ofGDPin a%ofGDPin 2004 gure1:Totalexpenditure gure1:Totalexpe nditureonhealtha onhealthasa%of lthasa%ofGDP sa%ofGDP a%ofGDP GDP in 2004 8% 7% 6% 5% 4% 3% 2% 1% 0%
Bang ladesh Mald ive s
Thai la nd
Sri Lan ka
Ind ia
N e pa l
Myanma r
Ind one sia North Kore a
Source:OfficialwebsiteofWorldHealthOrganization
Figure2:Percapitaexpenditureonhealthin Figure2:Percapitaexpenditureonhealthin2004 in2004 500
400
300 D S U
200
100
0
Source:OfficialwebsiteofWorldHealthOrganization
130
AT Capital Research Figure3:UseofdifferentmethodsoftreatmentinBangladesh in2005 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:BangladeshBureauofStatistics
131
AT Capital Research Appendix Appendix9 99- -Biotechnology Biotechnology Biotechnology Figure1:IndianBiotechsegments Types
%
Bio-IT
2.1
Bio Agro
7
Bio Industri
6.7
Bio Service
9
Bio Pharma
75.2
Total
100
Source: www.ibef.org
Case1:MajorMultinational MajorMultinational BiotechnologyplayersinIndia BiotechnologyplayersinIndia Case1: MajorMultinational BiotechnologyplayersinIndia
The The Indi Indian an Bios Biospa pace ce is dott dotted ed with with a grow growin ing g numb number er of Mult Multin inati ation onal als s like like Eli Eli Lill Lilly, y, Novo Novo Nord Nordis isk, k, AstaZeneca,Baxter,andRoche. •
Opportunitiesintheagro-biotechsectorhavealsobroughtinworld’smajorbiotechcompaniesintoIndia. For instan instance, ce, Mahara Maharashtr shtra a Hybrid Hybrid Seeds Seeds Corpor Corporati ation on (Mahyc (Mahyco) o) Ltd and Monsan Monsanto to India India have have formed formed a 50:50 50:50 join joint t vent ventur ure e calle called d Mahy Mahyco co Mons Monsant anto o Biot Biotec ech h (Ind (India ia) ) Ltd Ltd (MMB (MMBL) L) to mark market et Bollgard Bollgard cotton, cotton, developedbyMonsanto.SomeoftheotherleadingMNCspresentinIndia’sbio-agrisegmentareAdvanta, IndoAmericanHybridSeedsandSyngenta.
•
The clinical clinical research research is another another field, wherein wherein internatio international nal companies companies like Quintiles Quintiles Transnatio Transnational nal have activelyproceededtoleveragetheIndiaadvantage.
•
The other other intern internati ationa onal l CRO and bioserv bioservice ices s compan companies ies operat operating ing in India India includ include e Covanc Covance, e, Parexe Parexel, l, ClinTec,Clinworld,MWG,NeemanMedicalInternational,RCC,SimbecandPharmanet.
Appendix 10HeavyEngineering(Shipbuilding) HeavyEngineering(Shipbuilding) Appendix10 10- -HeavyEngineering(Shipbuilding) Fi gure1:Growthofworld gure1:Growthofworlds s hipbuildin hip buildingcapa gcapacities citiesff rom2004to rom2004to2010 2010 hipbuilding capacities 50 ) 45 n m 40 ( e g 35 a n n o 30 T s s 25 o r G 20 e v i t 15 a l u m 10 u C
2 00 4
20 10
5 0 Japa n
South Korea
China
Euro pe
Oth ers
World
Source:Ludwig,T.&Tholen,J.(2006).“ Source:Ludwig,T.&Tholen,J.(2006).“ShipbuildinginChinaandits ShipbuildinginChinaanditsimpactsonEuropeansh impactsonEuropeanshipbuildingindustry.” ipbuildingindustry.”UniversityofBremen& UniversityofBremen& InstituteofLawandlabourGermany.
132
AT Capital Research Appendix Appendix11 1111- -Education Education Education Figure1:Bangladesheducationalinstitutes Typeof 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
Public
317
7,434
221,887
Private
18,183
225,495
7,176,665
Total
18,500
232,929
7,398,552
Public
261
11,274
511,869
Private
2,899
79,439
858,109
Total
3,160
90,713
597,688
Public
3
82
2,738
Private
9,211
151,885
3,450,483
Total
9,215
151,967
3,453,221
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
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
Secondary
College
Madrasa
University
Professional
Source: Education Statistics 2005, Ministry of Education , Government of Bangladesh
Note: •
•
TeacherandStudentsofNationa TeacherandStudentsofNationalUniversityandOpen lUniversityandOpenUniversityareno UniversityarenotincludedinPublicUni tincludedinPublicUniversities. versities. 23newPolytechnicInstitutesexclud 23newPolytechnicInstitutesexcludedabovehave edabovehavealreadybeenestab alreadybeenestablishedbutareyetto lishedbutareyettoopen open .
133
AT Capital Research Figure2:Numberofpublicandprivatetechnical-vocationalinstitutes2005 Type of institution Management No. of Institutions PolytechnicInstitutes
No. of Teachers
No. of Students
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 T raining 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
Source: Education Statistics 2005, Ministry of Education , Government of Bangladesh
Figure3:Numberofpublicandprivateprofessionalcollege2005 Ty pe of ins titutio n M anagement N o. of I ns ttiitu tio n Typeofinstitution Management Management No.ofInstitution MedicalColleges Public 15 Private 27 DentalColleges Public 1 Private 8 Nursing College Public 1 HomeopathicColleges
N o.o ooff Teea eachers No.ofTeachers 1,218 1,037 56 198 18
No.ofStudent N o. o. of Stud en ent 11,731 6,954 358 782 252
Public
1
27
486
Unani/AyurvedicColleges
Private Public
29 2
442 32
14,684 312
NursingTrainingInstitutes
Private Public
14 39
124 232
1,288 3,324
Textile College
Private Public
5 1
29 31
515 628
Public
1
15
435
Law Colleges
Private
70
625
17,787
Art Colleges
Private
7
54
407
Music Colleges
Private
2
20
120
Leather T echnology College
Source: Education Statistics 2005, Ministry of Education , Government of Bangladesh
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AT Capital Research TheATCapitalTeam Ifty Islam Syeed Khan Zarif Munir Mir Firoz Ahmad, Ph.D. Junaid Khan Shahidul Islam, CFA Saif Noman Khan
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