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Why Invest In Bangladesh

With a US$ 110 billion economy, 160 million people -- 90 million of which are under the age of 25 -- and a FY2012 growth projected at 7%, Bangladesh possesses key attributes of an emerging market poised for an extended period of high-growth. With cheap labor costs and improving regional trade relations, Bangladesh has the potential to become the next regional manufacturing hub. The following underscores Bangladesh’s economic potential.

  • Strategic Location
    • Located between China and India, two of the largest and fastest engines of economic growth in the 21st century
    • Ease of access to maritime trade routes in the Indian Ocean
  • Growing Middle Class
    • Bangladesh has a rapidly growing middle class with a young demographic and high disposable income
    • Average consumption per capita will continue to rise
  • Large Youth Segment
    • A young population and rising income will also drive increasing labor force participation
    • 57% of the population is under 25 years old
    • High literacy rate (72%) among youths aged 15-24
  • Increasing Urbanization
    • Industrialization, infrastructure development, and demographic forces will double the urbanization rate over the next four decades
    • UN forecasts Dhaka will be the world’s 5th largest city with a population of 19 million by 2019
  • Increasing trade integration
    • Labor Cost Advantage
    • Labor costs less than half the average of other Asian states
    • Already the second largest garments exporter globally
    • Trend expected to continue in other industries such as ceramics, light engineering, IT outsourcing etc.
  • Energy Cost Advantage
    • Bangladesh boasts between 5 and 12 TCF of gas reserves, and enjoys some of the lowest gas prices with an average discount of 50% compared to its regional peers
    • The country has just under 3 billion tons of untapped coal reserves – equivalent to approximately 67 TCF of natural gas
  • Strong Inflow of Remittances/Large Diaspora
    • Entrepreneurial spirit of the citizens has led to a 15% CAGR in remittances over the last two decades
    • This growth has given Bangladesh one of the highest remittance to GDP ratios (11%) in the world
    • Diaspora of ~5.5 mln on par with China’s in terms of % of population (>3%)
    • People have developed skill sets abroad and helped increase overall domestic consumption
    • ‘Reverse brain drain’ flow will likely persist as in Vietnam, India and China, serving as growth catalyst
  • SME Loans
    • SME loans have grown rapidly at a 28% CAGR over the last 5 years, demonstrating citizens’ high risk appetite
    • Success in building sustainable enterprises amidst national disasters and poor infrastructure substantiates the resilience and business acumen of the people
    • Despite buoyant growth in SME lending, business segment remains under served by financial community

The Role of Private Equity

Growth within Bangladesh’s private sector has been restricted by severe financial scarcity. Unfortunately, while banks are the primary source of financing, they administer extremely high lending rates of up to 20%. In addition, banks largely ignore SMEs, preferring instead to lend to larger corporations. The recent stock market decline has also temporarily tightened the window for equity capital. Furthermore, a dearth of professionalization within Bangladesh’s private sector has stunted development.

However, private equity firms can address these problems by working as strategic partners and serving as a catalyst for greater capital inflow. PE firms can provide attractive funding alternatives - such as risk sharing equity positions - that are often preferred by entrepreneurs over exorbitantly high debt rates. In addition, optimal capital structures help create sustainable business models. Lastly, PE firms can facilitate knowledge transfers by providing additional incentives for entrepreneurs who seek external advice.

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